-----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, E8ZzIPZ7AiU1MPAo235iA6o+l+s2/SSsrpz5j013tFwP+hoVvchQXbnOjXpOSVS4 rHOnybR5R9QiMPYWQgQBzQ== 0000892626-99-000127.txt : 19990315 0000892626-99-000127.hdr.sgml : 19990315 ACCESSION NUMBER: 0000892626-99-000127 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990312 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-K405 SEC ACT: SEC FILE NUMBER: 000-15465 FILM NUMBER: 99563608 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-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Shares of Beneficial Interest (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ]. NO [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Shares of beneficial interest outstanding as of February 18, 1999: 13,390,688. The aggregate market value of the Registrant's shares of beneficial interest held by non-affiliates on such date was $57,940,128. The information required by Part III is incorporated by reference from the Trust's definitive proxy statement to be filed with the Securities and Exchange Commission. DOCUMENTS INCORPORATED BY REFERENCE Exhibit index located on page 70 of sequentially numbered pages. TABLE OF CONTENTS PART I ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . 1 ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . 5 ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS. . . . . . . . . . . . . 12 ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . 34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . 68 PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . 68 ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . 68 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . 68 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 68 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 68 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 69 PART I ITEM 1. BUSINESS Certain statements in this Annual Report that are not historical in fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations, estimates and projections. These statements are not a guaranty of future performance. Without limiting the foregoing, words such as "believes," "intends," "anticipates," "expects," and similar expressions are intended to identify forward-looking statements which are subject to a number of risks and uncertainties, including, among other things: . general real estate investment risks; . lack of operating history associated with recent acquisitions; . potential inability to raise capital by either equity or debt; . potential inability to repay or refinance indebtedness at maturity; . increases in interest rates; . competition for property acquisitions; . adverse consequences of failure to qualify as a REIT; and . possible environmental liabilities. Actual results could differ materially from those projected in these forward-looking statements. See "Managements's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" for a more complete discussion. GENERAL We are a self-administered infinite life real estate investment trust ("REIT"), organized as a Massachusetts business trust, that acquires, owns and operates primarily office and flex industrial properties. We operate principally through BSRT UPREIT Limited Partnership, referred to as the Operating Partnership, and its subsidiaries, and BSRT UPREIT Corp., the General Partner of the Operating Partnership. As of December 31, 1998, we were the sole owner of both BSRT UPREIT Limited Partnership and BSRT UPREIT Corp. As of December 31, 1998, we own individually, or, in some cases through joint venture, thirty-two properties comprised of: . fourteen office properties totalling 1.5 million rentable square feet; . thirteen flex/industrial properties totalling 1.8 million rentable square feet; . four residential properties totalling 864 apartment units; and . one retail property totalling 300,000 rentable square feet. (See the property section below for a detailed information regarding all properties in the portfolio.) We have historically centered our acquisition activities on certain major metropolitan areas such as Atlanta, Georgia and Chicago, Illinois as well as smaller markets such as Huntsville, Alabama; Louisville, Kentucky; Memphis, Tennessee; and Orlando, Florida. Because we consider ourselves an "opportunistic" investor, we may expand our target areas to include other cities or regions in the continental United States that exhibit characteristics similar to our existing market areas. We believe that each of the market areas where we currently own or would consider owning is characterized by stable or increasing population and employment. We believe economic growth in these markets will lead to an increase in the demand for office and industrial space. BUSINESS Our goal is to maximize the value of our shareholders' investment through growth in Funds from Operations and Funds Available for Distribution (as defined below). We seek to accomplish this goal through a combination of internal growth achieved by carefully and aggressively managing our assets, external growth achieved by making attractive acquisitions, selectively disposing of properties and strategically managing our debt structure. Internal Growth - --------------- We seek to carefully and aggressively manage our assets to maximize the cash flow generated by, and the long term value of, our properties. To achieve this we develop an annual operating plan for each property, which focuses on optimizing property revenue through: . increased occupancy and/or higher rents; . negotiating leases containing base rental increases; . emphasizing tenant satisfaction; . controlling operating expenses; and . expanding existing properties. External Growth - --------------- We generally seek to acquire well-located, underperforming properties, primarily office and flex industrial properties. We generally seek properties that are leased at below market rates or have low occupancy levels. In acquiring properties, we also assess: . the ability to increase the cash flow generated by a property, including the potential for increases in rental rates or occupancy levels; . the composition and credit quality of the tenant base, including the amount of space leased to any one tenant; . the flexibility of a property's configuration in accommodating small or large tenants or multiple users; . the physical condition of the property; and . the extent to which the property helps us achieve our portfolio objectives. We compete for acquisitions primarily with local or private non- institutional investors (generally less than $100 million in assets). We carefully review each acquisition opportunity through an extensive due diligence process. We carefully evaluate the demographic trends in the local market such as population and income growth as well as the demand for and supply of the property type. Both our acquisition and asset management staffs perform financial analysis and due diligence on each proposed acquisition. We believe that by involving our asset managers, we ensure a balanced evaluation that considers operating issues that may otherwise not be accorded proper weight in the acquisition analysis. This process results in a business plan for the acquired property that our operating staff has endorsed. Our senior management staff reviews each potential transaction, and all significant transactions are approved by our board. Disposition Strategy - -------------------- We regularly review whether we can produce higher returns by redeploying our capital. Generally, we will consider selling a property when one or more of the following conditions apply: . proceeds from the sale of the property could be more efficiently reinvested in properties generating a higher return; . market prices are at or near replacement costs; . occupancy and/or rents are high and there is limited potential to increase cash flow and property value within a reasonable period; or . ownership of the property is no longer consistent with our growth strategies. Although we did not dispose of any properties during the year ended December 31, 1998, during the year ended December 31, 1997, we sold our interests in the Hallmark Village Apartments and the Colonial Courts Apartments for a total gain of approximately $942,000. We sold these properties in order to redeploy our capital into properties that we believed would provide a higher long-term return. Financing Strategy - ------------------ Our goal is a balanced and flexible capital structure. As of December 31, 1998, we had borrowed a total of $151.6 million, $17.7 million of which bears interest at variable rates. Based on the closing price of our common shares on December 31, 1998, our borrowings represented approximately 67% of our total market capitalization. We recently increased our acquisition flexibility by forming BSRT UPREIT Limited Partnership. In addition to using our common shares to acquire properties, we may now also issue units in this partnership, known as the Operating Partnership. We believe this structure provides us with greater flexibility since a seller who receives units in connection with the sale of a property may generally defer recognizing the gain and associated tax liability triggered by the sale. Thus, we believe a seller may be more willing to complete a sale with us than if we were unable to offer this tax deferral option. Competition - ----------- We compete with numerous other entities in attracting tenants to lease our space. Some of the competing properties may be newer, better located or owned by parties better capitalized. In seeking to acquire additional property, we compete with many other entities, some of these competitors have greater financial and managerial resources. We believe that our properties are located in high-growth areas and will continue to attract tenants competitively. We further believe that our operating strategy with respect to our existing properties and our investing and financing strategies with respect to our prospective acquisitions allow us to remain competitive with other entities in our geographical markets. OTHER INFORMATION Our business and real estate property operations are not seasonal and they compete on the basis of rental rates and property operations with similar types of properties in the vicinities in which our properties are located. We have no real property investments located outside of the United States. We do not segregate revenue or assets by geographic region, since, in management's view, such a presentation would not be significant to an understanding of our business or financial results taken as a whole. We have twenty-one employees, four of whom serve as executive officers. The fifth executive officer is not our employee, but he provides services to us as an independent contractor. We review and monitor compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of material into the environment, or otherwise relating to the protection of the environment. For the year ended December 31, 1998, we did not incur any material capital expenditures for environmental control facilities nor do we anticipate making any such expenditures for the year ending December 31, 1999. ITEM 2. PROPERTIES As of December 31, 1998, we owned interests, directly or indirectly through our wholly owned subsidiaries, in the properties set forth in the table below:
BANYAN STRATEGIC REALTY TRUST PORTFOLIO SUMMARY December 31, 1998 Scheduled Lease Expirations Occu- ---------------------------------- Date Square pancy After Acquired Footage % 1999 2000 2001 2001 Description (a) -------- ------- ----- ----- ---- ---- ----- --------------------- FLEX/INDUSTRIAL - --------------- Milwaukee A 1% General and 84% Industrial Limited Partner Properties interest in a joint Milwaukee, WI 4/30/93 235,800 81% 14% 15% 9% 43% venture (b) (c) Elmhurst Metro A 1% General and 84% Court Limited Partner Elmhurst, IL 11/30/93 140,800 69% 40% 3% 25% 1% interest in a joint venture (b) (c) Willowbrook A 1% General and 84% Industrial Court Limited Partner Willowbrook, IL 6/16/95 84,300 100% 57% 11% 13% 19% interest in a joint venture (b) (c) Quantum Business Fee ownership of Centre land and improve- Louisville, KY 9/26/95 182,300 74% 16% 21% 19% 18% ments Lexington Fee ownership of Business Center land and improve- Lexington, KY 12/05/95 308,800 44% 20% 15% 9% 0% ments Scheduled Lease Expirations Occu- ---------------------------------- Date Square pancy After Acquired Footage % 1999 2000 2001 2001 Description (a) -------- ------- ----- ----- ---- ---- ----- --------------------- Newtown Business Fee ownership of Center land and improve- Lexington, KY 12/05/95 87,100 95% 33% 4% 37% 21% ments 6901 Riverport Leasehold interest Drive pursuant to bond Louisville, KY 11/19/96 322,100 100% 0% 45% 0% 55% financing and owner- ship of improvements Avalon Ridge Fee ownership of Business Park land and improve- Norcross, GA 4/24/98 57,400 100% 0% 0% 0% 100% ments A 1% General and Tower Lane 84% Limited Partner Business Park interest in a joint Bensenville, IL 4/27/98 95,900 90% 34% 26% 22% 8% venture (b) (f) Fee ownership of Metric Plaza land and improve- Winter Park, FL 4/30/98 32,000 100% 0% 0% 0% 100% ments Fee ownership of Park Center land and improve- Orlando, FL 4/30/98 47,400 75% 6% 7% 42% 20% ments University Fee ownership of Corporate Center land and improve- Winter Park, FL 4/30/98 127,800 100% 28% 46% 11% 15% ments Johns Creek Office and Industrial Park Fee ownership of Duluth and land and improve- Suwanne, GA 8/14/98 119,300 100% 0% 0% 50% 50% ments --------- ---- ---- ---- ---- ---- Sub-total 1,841,000 82% 18% 20% 15% 29% --------- ---- ---- ---- ---- ---- Scheduled Lease Expirations Occu- ---------------------------------- Date Square pancy After Acquired Footage % 1999 2000 2001 2001 Description (a) -------- ------- ----- ----- ---- ---- ----- --------------------- OFFICE - ------ Colonial Penn Fee ownership of Building land and improve- Tampa, FL 3/22/94 79,200 100% 0% 100% 0% 0% ments Florida Power Fee ownership of & Light Building land and improve- Sarasota, FL 3/22/94 81,100 100% 0% 0% 11% 89% ments A 1% General and 84% Woodcrest Office Limited Partner Park interest in a joint Tallahassee, FL 12/19/95 264,900 91% 14% 21% 12% 44% venture (b) (e) Midwest Office A 1% General and 84% Center Limited Partner Oakbrook interest in a joint Terrace, IL 4/18/96 77,000 94% 23% 33% 14% 24% venture (b) (c) Phoenix Business Fee ownership of Park land and improve- Atlanta, GA 1/15/97 110,600 94% 34% 26% 13% 21% ments A 1% General and Butterfield 84% Limited Partner Office Plaza interest in a joint Oak Brook, IL 4/30/97 200,800 93% 16% 27% 16% 34% venture (b) (f) Southlake Fee ownership of Corporate Center land and improve- Morrow, GA 7/30/97 56,200 93% 0% 13% 42% 38% ments University Square Fee ownership of Business Center land and improve- Huntsville, AL 8/26/97 184,700 94% 39% 12% 24% 19% ments Leasehold interest pursuant to a ground Technology Center lease and ownership of Huntsville, AL 8/26/97 48,500 100% 0% 100% 0% 0% improvements Scheduled Lease Expirations Occu- ---------------------------------- Date Square pancy After Acquired Footage % 1999 2000 2001 2001 Description (a) -------- ------- ----- ----- ---- ---- ----- --------------------- Airways Plaza Fee ownership of Office Center land and improve- Memphis, TN 12/10/97 87,800 97% 93% 0% 4% 0% ments Peachtree Pointe Fee ownership of Office Park land and improve- Norcross, GA 1/20/98 71,700 96% 33% 18% 13% 32% ments Avalon Center Fee ownership of Office Park land and improve- Norcross, GA 3/20/98 53,300 100% 0% 0% 0% 100% ments Sand Lake Fee ownership of Tech Center land and improve- Orlando, FL 4/30/98 84,100 97% 23% 0% 0% 74% ments Technology Fee ownership of Park land and improve- Norcross, GA 8/14/98 145,700 100% 21% 9% 26% 44% ments --------- ---- ---- ---- ---- ---- Sub-total 1,545,600 95% 23% 22% 14% 36% --------- ---- ---- ---- ---- ---- RETAIL - ------ Leasehold interest pursuant to a ground lease and ownership of Northlake improvements (through Tower Shopping a 1% General and 80.9% Center Limited Partner Atlanta, GA 7/28/95 321,600 99% 4% 18% 3% 74% interest) in a joint --------- ---- ---- ---- ---- ---- venture (b) (d) Total 3,708,200 89% 19% 21% 14% 35% ========= ==== ==== ==== ==== ====
Resi- Occu- Date dential pancy Acquired Units % Description (a) -------- -------- ------- ----------------- RESIDENTIAL - ----------- Country Creek Apartments Fee ownership of land Oklahoma City, OK 5/22/97 320 90% and improvements Willowpark Apartments Fee ownership of land Lawton, OK 5/22/97 160 94% and improvements Winchester Run Apartments Fee ownership of land Oklahoma City, OK 5/22/97 192 95% and improvements Woodrun Village Apartments Fee ownership of land Yukon, OK 5/22/97 192 98% and improvements --- --- Total 864 94% === === PORTFOLIO TOTAL (g) 90% === - -------------------- (a) Reference is made to Schedule III "Consolidated Real Estate and Accumulated Depreciation" filed with this annual report for additional description of these real property investments. (b) In all of our partnerships, we are the managing general partner and retain sole authority over all significant decisions. (c) The stated percentages represent the economics of the venture; however, through our general and limited partnership interest we hold a 90% voting interest in the venture. According to the partnership agreement, prior to distributing cash flow from operations, our 84% and 1% partnership interests receive an annual 12% preferred return on their respective net capital contributed to the partnership. Our joint venture partner then receives an 11% preferred return on the net capital which it has contributed. Then, 85% of the remaining cash will be distributed to us and 15% will be distributed to the joint venture partner. Cash flow from either a sale or refinancing of the partnership properties is distributed as follows: (i) our 84% and 1% partnership interests receive an annual 12% preferred return on our net capital contributed to the partnership; (ii) the joint venture partner receives an 11% preferred return on the net capital contributed to the partnership; (iii) we receive an amount equal to our net capital contributions; (iv) our joint venture partner receives an amount equal to its net capital contributions; (v) we receive an amount equal to 20.41% of our capital contribution; (vi) our joint venture partner receives an amount equal to 52.63% of its capital contribution; (vii) then, 65% of the remaining cash will be distributed to us and 35% will be distributed to our joint venture partner. (d) The stated percentages represent our voting rights, not necessarily the economics of the venture. According to the partnership agreement, prior to distributing cash flow from operations, our 80.9% and 1% partnership interests receive an annual 12% preferred return on their respective net capital contributed to the partnership. Then, our joint venture partner receives a 12% preferred return on the net capital which it has contributed. Then, cash flow from operations is distributed pro-rata based on each partner's respective ownership interest. Cash proceeds from either the sale or refinancing of the partnership property will be used: (i) to pay any of our unpaid preferred returns; (ii) to return net capital contributed by all partners; (iii) to pay any of the venture partner's unpaid preferred returns and (iv) to distribute the remaining cash based on ownership interests until we have received an overall return of 15% on our invested capital. Then, we will receive 71.9% of the excess cash and the balance will be paid to the joint venture partner. (e) The stated percentages represent our voting rights, not necessarily the economics of the venture. According to the partnership agreement, prior to distributing cash flow from operations, our 84% and 1% partnership interest receive an annual 12% preferred return on their average unreturned Initial Capital Contribution to the partnership. Then, our joint venture partner receives a 12% preferred return on its average unreturned Initial Capital Contribution. Then, cash flow from operations is distributed pro-rata based on each partner's respective ownership interest. Cash proceeds from either the sale or refinancing of the partnership properties will be used: (i) to pay any of our unpaid preferred returns; (ii) to return our net capital contributed; (iii) to pay any amounts necessary for us to receive a 15% cumulative return on our net total average unreturned capital contributed; (iv) to pay the joint venture partner's unpaid preferred returns; (v) to return the joint venture partner's net capital contributed; and (vi) the remaining cash will be distributed pro-rata based on each partner's ownership interest. (f) The stated percentages represent the economics of the venture; however, through our general and limited partnership interest we hold a 90% voting interest in the venture. According to the partnership agreement, cash flow from operations is distributed as follows: (i) our 84% and 1% partnership interests receive an annual 12% preferred return on their respective net capital contributed to the partnership; (ii) the joint venture partner receives an 11% preferred return on the net capital contributed to the partnership; (iii) then, 85% of the remaining cash will be distributed to us and 15% will be distributed to the joint venture partner. Cash flow from either a sale or refinancing of the partnership properties is distributed as follows: (i) our 84% and 1% partnership interests receive an annual 12% preferred return on our net capital contributed to the partnership; (ii) the joint venture partner receives an 11% preferred return on the net capital contributed to the partnership; (iii) we receive an amount equal to our net capital contributions; (iv) our joint venture partner receives an amount equal to its net capital contributions; (v) we receive an amount equal to 20.41% of our capital contribution; (vi) our joint venture partner receives an amount equal to 52.63% of its capital contribution; (vii) then, 65% of the remaining cash will be distributed to us and 35% will be distributed to our joint venture partner. (g) For purposes of calculating the weighted average occupancy for the portfolio, we convert the number of residential apartments to an equivalent square footage amount for each residential property.
BANYAN STRATEGIC REALTY TRUST COMPARISON OF AVERAGE RENTS Average Average Market "In Place" Net Rents Property Type Square Footage Net Rents (1) (2) - ------------- -------------- -------------- ---------- Flex/Industrial 1,841,000 $5.05 $5.30 Office 1,545,600 9.10 10.04 Retail 321,600 10.79 11.73 ---------- ----- ----- Total 3,708,200 $7.23 $7.83 ========== ===== ===== Average Monthly Monthly "In Place" Rents Market Rents --------------------- ------------------- Units Per Unit Sq. Ft. Per Unit Sq. Ft. ----- --------- ------- -------- ------- Residential 864 $403 $0.67 $453 $0.63 === ==== ===== ==== ===== - ------------- (1) Average "In Place" Net Rents represent Net Operating Income per square foot. (2) Average Market Net Rents represent our good faith estimate of current market rents, assuming standard tenant improvements. We also lease approximately 7,000 square feet under an operating lease which expires on June 30, 2001 for our corporate headquarters. ITEM 3. LEGAL PROCEEDINGS We are not aware of any material pending legal proceedings as of February 9, 1999, nor were any material proceedings terminated during the quarter ended December 31, 1998. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not submit any matter to a vote of our shareholders during the fourth quarter of 1998. PART II ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS Our shares are included for quotation on the NASDAQ National Market (symbol - BSRTS). The table below shows the quarterly high and low bid prices reported by NASDAQ and the amount of cash distributions we paid per share for the years ended December 31, 1998 and 1997. 1998 ---- Quarter Share Per Share Declaration Ended Price Distributions Date - ------- ----- ------------- ----------- 3/31 High $6.25 $0.12 3/16/98 Low $5.13 6/30 High $7.75 $0.12 7/6/98 Low $5.94 9/30 High $7.19 $0.12 10/6/98 Low $5.50 12/31 High $6.31 $0.12 1/6/99 Low $4.63 1997 ---- Quarter Share Per Share Declaration Ended Price Distributions Date - ------- ----- ------------- ----------- 3/31 High $5.00 $0.10 4/8/97 Low $3.75 6/30 High $4.62 $0.10 7/3/97 Low $3.62 9/30 High $5.50 $0.10 10/7/97 Low $4.00 12/31 High $6.87 $0.10 1/7/98 Low $5.06 On January 6, 1999, we declared a cash distribution for the quarter ended December 31, 1998 of $0.12 per share payable February 22, 1999 to shareholders of record on January 22, 1999. During 1998 and 1997, we paid distributions equal to $0.46 and $0.40 per share, respectively. A total of $0.01 (1998) and $0.38 (1997) represented a return of capital. Our ability to make future distributions to our shareholders is dependent upon, among other things: . sustaining the operating performance of our existing real estate investments through scheduled increases in base rents under existing leases and through general improvement in the real estate markets where our properties are located; . the operating performance of future acquisitions; and . our level of operating expenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" for a more complete discussion. As of February 9, 1999, there were 3,595 record holders of shares of beneficial interest. ITEM 6. SELECTED FINANCIAL DATA (1)
For the years ended December 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (amounts in thousands, except per share data) Operating Data: Revenues. . . . . . . . . . . . $ 39,416 $ 28,785 $ 21,404 $ 12,902 $ 8,834 Expenses: Interest. . . . . . . . . . . . 9,778 6,447 4,011 1,536 343 Depreciation and amortization . 5,484 4,213 2,965 1,569 925 Property operating. . . . . . . 13,449 10,689 9,294 5,620 3,488 General and administrative. . . 4,614 4,315 3,126 2,036 2,178 Recovery of losses on loans, notes and interest receivable -- (161) (17) (165) (192) -------- -------- -------- -------- -------- Total expenses. . . . . . 33,325 25,503 19,379 10,596 6,742 -------- -------- -------- -------- -------- Income before minority interest, income (loss) from operations of real estate venture, net gains and extraordinary item (2). . . 6,091 3,282 2,025 2,306 2,092 Minority interest . . . . . . . . (572) (590) (481) (178) (56) Income (loss) from operations of real estate venture . . . . . . -- 37 (3,301) 63 (2,994) Net gains and extraordinary item. (141) 817 -- 409 46 -------- -------- -------- -------- -------- Net income (loss) . . . . . . . . $ 5,378 $ 3,546 $ (1,757) $ 2,600 $ (912) ======== ======== ======== ======== ======== Earnings per share of beneficial interest - Basic: Income (loss) before net gains and extraordinary item . . . . $ 0.41 $ 0.24 $ (0.17) $ 0.21 $ (0.09) ======== ======== ======== ======== ======== Net income (loss) . . . . . . . $ 0.40 $ 0.32 $ (0.17) $ 0.25 $ (0.09) ======== ======== ======== ======== ======== Earnings per share of beneficial interest - Diluted: Income (loss) before net gains and extraordinary item . . . . $ 0.40 $ 0.24 $ (0.17) $ 0.21 $ (0.09) ======== ======== ======== ======== ======== Net income (loss) . . . . . . . $ 0.39 $ 0.32 $ (0.17) $ 0.25 $ (0.09) ======== ======== ======== ======== ======== For the years ended December 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (amounts in thousands, except per share data) Balance Sheet Data: Investment in real estate, net. . $209,489 149,386 102,490 87,863 40,161 Total assets. . . . . . . . . . . 222,590 159,634 116,534 110,765 74,084 Loans and bonds payable . . . . . 151,648 92,118 59,081 49,022 13,401 Shareholders' equity. . . . . . . 62,434 62,315 50,934 56,875 58,441 Other Data: Calculation of Funds from Operations (3): Net income (loss) . . . . . . . . 5,378 3,546 (1,757) 2,600 (912) Plus: Depreciation and amortization expense. . . . . . 5,176 3,500 2,484 1,385 945 Less: Minority interest share of depreciation and amortiza- tion expense. . . . . . . . . . (315) (275) (241) (115) (45) Less: Recovery of losses on loans, notes and interest receivable. . . . . . . . . . . -- (161) (17) (165) (57) Valuation allowance included in operations of real estate venture -- -- 3,180 -- 2,915 Net gains . . . . . . . . . . . . -- (881) -- (409) (46) Extraordinary item, net of minority interest . . . . . . . 141 64 -- -- -------- -------- -------- -------- -------- Funds from operations . . . . . . $ 10,380 $ 5,793 $ 3,649 $ 3,296 $ 2,800 ======== ======== ======== ======== ======== Calculations of Funds Available for Distributions (4): Funds from operations . . . . . . $ 10,380 $ 5,793 $ 3,649 $ 3,296 $ 2,800 Straight line rents . . . . . . . (544) (386) (289) (97) -- Lease commissions . . . . . . . . (739) (630) (382) (122) (52) Capital reserve . . . . . . . . . (493) (381) (350) (256) (229) -------- -------- -------- -------- -------- Funds available for distributions $ 8,604 $ 4,396 $ 2,628 $ 2,821 $ 2,519 ======== ======== ======== ======== ======== Cash flows from: Operating activities. . . . . . $ 11,220 $ 8,644 $ 5,730 $ 2,847 $ 3,374 Investing activities. . . . . . (61,790) (27,575) (6,598) (31,691) (6,548) Financing activities. . . . . . 49,872 19,555 (827) 19,574 4,438 For the years ended December 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (amounts in thousands, except property and per share data) Number of property interest owned 32 22 15 13 8 Weighted average number of shares. . . . . . . . 13,308 11,150 10,478 10,474 10,471 Cash distributions per share of beneficial interest (5) . . . . $ 0.46 $ 0.40 $ 0.40 $ 0.40 $ 0.40 ======== ======== ======== ======== ======== - ------------ (1) You should read the above selected financial data in conjunction with the consolidated financial statements and the related notes appearing elsewhere in this annual report. (2) Net gains include gain on disposition of investment in real estate, loss on disposition of investment in real estate venture and gain on disposition of partnership interest. (3) 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 performance of a REIT such as our company. As defined by NAREIT, FFO means Net Income computed in accordance with generally accepted accounting principles ("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. We have adopted the NAREIT definition for computing FFO because we believe that, subject to the following 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, our presentation of FFO may not be comparable to other similarly titled measures presented by other REIT's. FFO is not intended to be an alternative to Net Income as an indication of our performance nor an alternative to Cash Flows from Operating Activities (as calculated in accordance with GAAP) as a measure of our capacity to pay distributions. (4) Funds Available for Distributions, or "FAD" for short, is calculated by adjusting FFO for straight-line rent adjustments, lease commissions paid and a normalized reserve for capital improvements. The capital reserve is $0.075 per sq. ft. for flex/industrial properties, $0.10 per sq. ft. for office properties, $0.15 per sq. ft. for retail property and $200 per residential unit. (5) Based on 13,308 weighted average shares outstanding for 1998; 11,150 weighted average shares outstanding for 1997; 10,478 weighted average shares outstanding for 1996; 10,474 weighted average shares outstanding for 1995; and 10,471 weighted average shares outstanding for 1994.
QUARTERLY RESULTS OF OPERATIONS The following is a summary of the quarterly results of operations for the years ended December 31, 1998 and 1997.
1998 For the three months ended: ----------------------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ------------ ------------ ------------ (Amounts in thousands, except per share data) Total Revenue $ 8,564 $ 9,657 $ 10,552 $ 10,643 Operating Expenses (7,091) (8,057) (9,044) (9,133) -------- -------- -------- -------- Operating Income 1,473 1,600 1,508 1,510 Minority Interest in Consolidated Partnerships (116) (182) (151) (123) -------- -------- -------- -------- Income before Extraordinary Item 1,357 1,418 1,357 1,387 Extraordinary Item, Net of Minority Interest -- (141) -- -- -------- -------- -------- -------- Net Income $ 1,357 $ 1,277 $ 1,357 $ 1,387 ======== ======== ======== ======== Earnings Per Share of Beneficial Interest - Basic: Income before Extraordinary Item $ 0.10 $ 0.11 $ 0.10 $ 0.10 ========= ========= ========= ========= Net Income $ 0.10 $ 0.10 $ 0.10 $ 0.10 ========= ========= ========= ========= Earnings Per Share of Beneficial Interest - Diluted: Income before Extraordinary Item $ 0.10 $ 0.10 $ 0.10 $ 0.10 ========= ========= ========= ========= Net Income $ 0.10 $ 0.09 $ 0.10 $ 0.10 ========= ========= ========= ========= 1997 For the three months ended: ----------------------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ------------ ------------ ------------ (Amounts in thousands, except per share data) Total Revenue $ 5,894 $ 6,747 $ 7,875 $ 8,269 Recovery of Losses on Loans, Notes and Interest Receivable -- -- -- 161 Operating Expenses (5,352) (6,183) (7,051) (7,078) -------- -------- -------- -------- Operating Income 542 564 824 1,352 Minority Interest in Consolidated Partnerships (167) (145) (152) (126) Income (Loss) of Real Estate Ventures 30 20 (13) -- -------- -------- -------- -------- Income before Net Gains and Extraordinary Item 405 439 659 1,226 Net Gain (Loss) on Disposition of Investments in Real Estate 4 -- 1,072 (195) Extraordinary Item, Net of Minority Interest -- -- -- (64) -------- -------- -------- -------- Net Income $ 409 $ 439 $ 1,731 $ 967 ======== ======== ======== ======== Earnings Per Share of Beneficial Interest - Basic and Diluted: Income before Net Gains and Extraordinary Item $ 0.04 $ 0.04 $ 0.06 $ 0.09 ======== ======== ======== ======== Net Income $ 0.04 $ 0.04 $ 0.16 $ 0.08 ======== ======== ======== ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We have acquired a large number of properties during each of the periods discussed below. Thus, period to period results are not entirely comparable. At December 31, 1998, we owned individually or, in some cases, through joint ventures: . thirteen flex industrial properties totalling 1,841,000 rentable square feet; . fourteen office properties totalling 1,545,600 rentable square feet; . four apartment complexes containing 864 units; . one retail center which contains 321,600 rentable square feet. During the year ended December 31, 1998, we acquired four office properties totalling 354,800 rentable square feet and six flex industrial properties totalling 479,800 rentable square feet. COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997 During the year ended December 31, 1998 and 1997 our net income totalled approximately $5.4 million ($0.40 per basic common share) and approximately $3.5 million ($0.32 per basic common share), respectively. The approximately $1.9 million increase resulted primarily from revenue growth of approximately $10.6 million reduced by expense growth of approximately $7.8 million. In particular, our total revenues increased by approximately $10.6 million or 36.8% to approximately $39.4 million from approximately $28.8 million, due primarily to an increase in the number of properties that we own. We attribute approximately $9.9 million or 93.4%, of this increase to properties acquired in 1998 and the net full-year effect of properties we either acquired or sold during 1997. On a "same- store" basis (comparing the results of operations of the properties owned during the entire year ended December 31, 1998 with the results of the same properties owned during the year ended December 31, 1997), total revenues increased by approximately $0.7 million or 3.5% to approximately $20.7 million from approximately $20.0 million, due to increased rental rates at these properties and recognition of lease termination fees at certain properties. Our portfolio occupancy as of December 31, 1998 was lower than it historically has been as a result of the termination of leases during the quarter. Therefore, our ability to maintain same store growth in revenue will in the future be dependent on the time it takes to re-lease this and future vacant space and the rental rates at which we sign new leases. In addition, property acquisitions during 1997 and 1998 have significantly contributed to our growth in those years. Our ability to make acquisitions in the future will depend upon our ability to raise additional equity through realizing gains on the sale of properties, selling additional shares of beneficial interest and/or issuing operating partnership units in the Operating Partnership. See Risk Factors for additional discussion. In 1998, our total operating expenses, which include property operating, repair and maintenance, real estate taxes, and ground lease, increased by approximately $2.7 million to approximately $13.4 million from approximately $10.7 million in 1997, primarily due to an increase in the number of properties that we own, which accounted for approximately $2.3 million or 85.2% of this increase. On a "same-store" basis, total operating expenses increased by approximately $0.4 million or 6.3% to approximately $6.7 million from approximately $6.3 million. Interest expense increased by approximately $3.4 million from approximately $6.4 million to approximately $9.8 million, primarily due to an increase in the amount we have borrowed in connection with the acquisitions we completed in 1998. Depreciation and amortization expense also increased approximately $1.7 million. We attribute most of the increase to the fact that we own more properties. Total general and administrative expenses increased by approximately $0.3 million due to costs incurred in connection with due diligence for transactions that were not completed in 1998 and due to an increase in administrative staff hired to oversee our properties and the legal fees associated with acquiring properties during 1998. COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996 During the year ended December 31, 1997, our net income totalled approximately $3.5 million ($0.32 per common share) compared to a net loss of approximately $1.8 million (($0.17) per common share) for the year ended December 31, 1996. We explain the $5.3 million increase by noting that revenues grew by $7.4 million in 1997 while expenses grew by $2.1 million. In particular, our total revenues increased 34.6% to approximately $28.8 million from approximately $21.4 million due primarily to an increase in the number of properties that we own. We attribute approximately $6.5 million or 87.8%, of this increase to properties we either acquired or sold in 1997 and the full-year effect of properties acquired during 1996. On a "same-store" basis (comparing the results of operations of the properties we owned during the entire year ended December 31, 1997 with the results of the same properties owned during the year ended December 31, 1996), our total revenues increased by approximately $1.2 million, or 7.2%, to approximately $17.9 million from approximately $16.7 million due in part to increased occupancy. In addition, our operating cost recoveries increased by approximately $0.2 million. The remainder of the increase in revenue generated by same store properties was due to increased rental rates. The increase in total revenues was partially offset by a decrease in interest income earned on mortgage loans of approximately $0.4 million, which were sold during 1996. Our total operating expenses increased by approximately $1.4 million in 1997 to approximately $10.7 million from approximately $9.3 million in 1996. This increase is almost exclusively due to an increase in the number of properties that we own. Our interest expense increased to approximately $6.4 million from approximately $4.0 million primarily due to the fact that the we increased the amount of money borrowed from approximately $59.1 million at December 31, 1996 to approximately $92.1 million at December 31, 1997. We used the additional loans to pay for our new acquisitions. Our depreciation and amortization expense also increased by approximately $1.2 million. We attribute most of the increase to the fact that we own more properties. Our total general and administrative expenses increased by approximately $1.2 million. We attribute this increase to a larger administrative staff hired to oversee our properties, the legal fees associated with acquiring our properties during 1997 and amounts we paid as incentive compensation. During the year ended December 31, 1997, we realized net income from our interest in the H Street Venture of $37,126 compared to a net loss of ($3,301,212) for the same period in 1996. The net loss in 1996 was due to our decision to reduce the carrying value of our interest in the H Street Venture. In March 1997, the venture sold a property which it owned and we received a distribution of approximately $1.0 million from the venture. On July 29, 1997, the venture sold its remaining assets. We received a distribution of approximately $4.5 million and recognized a loss of approximately $0.1 million. We have no further interest in the H Street Venture. LIQUIDITY AND CAPITAL RESOURCES We expect to fund our short-term liquidity needs, including recurring capital expenditures, from our working capital (including the restricted cash which is available for capital expenditures, real estate taxes and insurance), and from income derived primarily from our property operations. We anticipate using these monies to fund periodic tenant-related capital expenditures and other capital improvements. We believe that our Funds Available for Distribution (as defined below) will be sufficient for the twelve months after the date of this report to pay quarterly distributions of $0.12 per common share. We expect to fund our long-term liquidity needs, including monies required to acquire and develop property and funds necessary for other non- recurring capital improvements, from long-term secured and unsecured debt and through issuing debt or equity securities, including issuing units in the Operating Partnership in exchange for properties. We expect that we will fund a portion of the cost of buying and improving properties in the future by borrowing under our credit facilities or by mortgaging properties we acquire. At December 31, 1998, our assets totalled approximately $222.6 million, an increase of approximately $63.0 million from total assets at December 31, 1997 of approximately $159.6 million. Our liabilities totalled approximately $158.0 million at December 31, 1998 an increase of approximately $61.9 million from a total of approximately $96.1 million at December 31, 1997. Our shareholders equity increased by approximately $0.1 million to approximately $62.4 million at December 31, 1998 from approximately $62.3 million at December 31, 1997. Cash and cash equivalents consist of cash and short-term investments. Our cash and cash equivalents balance was approximately $3.7 million at December 31, 1998 and approximately $4.4 million at December 31, 1997. The decrease in total cash and cash equivalents from year-end 1997 to year-end 1998 results from using approximately $61.8 million on investing activities while receiving approximately $49.9 million in financing and approximately $11.2 million from operations. Cash Flows From Operating Activities: Net cash provided by operating activities increased in 1998 by approximately $2.6 million to approximately $11.2 million from approximately $8.6 million in 1997. This increase is primarily due to an increase in the net operating income generated by the properties acquired in 1998 and 1997. See Results of Operations above for further discussion of the operations of our real estate assets. 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 our company. As defined by NAREIT, FFO means net income computed in accordance with generally accepted accounting principles ("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. We have adopted the NAREIT definition for computing FFO because we believe that, subject to the following limitations, FFO provides a basis for comparing the performance and operations of a REIT such as our company. The calculation of FFO may vary from entity to entity in that 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, our presentation of FFO may not be comparable to other similarly titled measures presented by other REIT's. We do not intend for FFO to be an alternative to Net Income as an indication of our performance nor an alternative to Cash Flows from Operating Activities (as calculated in accordance with GAAP) as a measure of our capacity to pay distributions. For the years ended December 31, 1998, 1997 and 1996, our properties generated FFO of approximately $10.4 million, $5.8 million and $3.6 million, respectively. FFO increased on a year to year basis due primarily to an increase in the number of properties owned from period to period. FFO for the years ended December 31, 1998, 1997, and 1996 is calculated as follows: 1998 1997 1996 --------- -------- -------- (Dollars in thousands) Net Income (Loss) $ 5,378 $ 3,546 $ (1,757) Plus: Depreciation expense 4,770 3,277 2,355 Depreciation included in Operations of Real Estate Ventures -- 15 31 Lease Commission Amortization 406 208 98 Less: Minority Interest Share of Depreci- ation Expense (284) (254) (228) Minority Interest Share of Lease Commission Amortization (31) (21) (13) Recovery of Losses on Loans, Notes and Interest Receivable -- (161) (17) Valuation Allowance Included in Operations of Real Estate Venture -- -- 3,180 Net Gain on Disposition of Investments in Real Estate -- (881) -- Extraordinary Item, Net of Minority Interest 141 64 -- -------- -------- -------- Funds From Operations $ 10,380 $ 5,793 $ 3,649 ======== ======== ======== Cash Flows Provided By (Used For): Operating Activities $ 11,220 $ 8,644 $ 5,730 Investing Activities $(61,790) $(27,575) $ (6,598) Financing Activities $ 49,872 $19,555 $ (827) Our ability to pay any distribution is influenced by the amount of monies that we have available to distribute known as Funds Available for Distribution or "FAD" for short. FAD is calculated by increasing or decreasing FFO to give effect to items such as the impact of straight- lining rents, lease commissions paid and normalized reserves for capital improvements. The capital reserve is $0.075 per square foot for flex/industrial properties, $0.10 per square foot for office properties, $0.15 per square foot for retail property and $200 per residential unit. Our ability to make future distributions to our shareholders is dependent upon, among other things: . sustaining the operating performance of our existing real estate investments through scheduled increases in base rents under existing leases and through general improvement in the real estate markets where our properties are located; . the operating performance of future acquisitions; and . our level of operating expenses. See Risk Factors for additional discussion. FAD for the years ended December 31, 1998, 1997 and 1996 is calculated as follows: 1998 1997 1996 ------- ------- ------- (Dollars in thousands) Funds From Operations . . . . . . $10,380 $ 5,793 $ 3,649 Straight-line Rents . . . . . . . (544) (386) (289) Lease Commissions . . . . . . . . (739) (630) (382) Capital Reserve . . . . . . . . . (493) (381) (350) ------- ------- ------- Funds Available for Distribution. $ 8,604 $ 4,396 $ 2,628 ======= ======= ======= Cash Flows From Investing Activities: During the year ended December 31, 1998, we used approximately $61.8 million primarily to acquire properties compared to approximately $27.6 million in the same period in 1997. During the year ended December 31, 1998 we purchased four office and six flex/industrial properties for approximately $55.9 million. Cash flow was also used to make capital improvements at our various properties in the amount of approximately $5.3 million. In comparison, during the same period in 1997, we generated a total of approximately $12.5 million from sale of our interests in (i) the Hallmark Village property; (ii) the H Street Assemblage Parcel and the Victor building; and (iii) the Colonial Courts Apartments; acquired six office and four apartment properties for a total of approximately $37.5 million and made capital improvements in the amount of approximately $2.5 million. PROPERTY ACQUISITIONS AND OTHER INFORMATION ACQUISITION ACTIVITIES: During the year ended December 31, 1998, we acquired interests in several properties. The table below presents a summary of 1998 acquisitions. Purchase Name and Date of 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 53,300 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 Purchase Name and Date of Price Location Acquisi- (in of Property Sq. Ft. tion millions) Description - --------------- -------- --------- --------- ---------------- 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 47,400 04/30/98 3.7 Two one-story Orlando, Florida flex/industrial buildings; Sixteen tenants at the time of acquisition 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 Johns Creek 119,300 08/14/98 5.8 Two flex/indus- Office and trial buildings; Industrial Park Two tenants Duluth and Suwanne, at the time Georgia of acquisition Technology 145,700 08/14/98 12.4 Three office Park buildings; Norcross, Twelve tenants Georgia at the time -------- ----- of acquisition Total 834,600 $59.6 ======== ===== (1) In April 1998, we formed a new joint venture, Butterfield O'Hare L.P., in which we have 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 we formerly owned solely, and Tower Lane Business Park ("Tower Lane"), which the venture purchased on April 27, 1998. Upon forming the venture and acquiring Tower Lane, the venture assumed a permanent mortgage loan encumbering the Tower Lane property in the amount of approximately $3.7 million. The loan matures in November, 2001, bears an interest rate of 8.35% and is payable in monthly installments of interest and principal, with principal amortized over a 264-month period. The financing secured by the Butterfield property in the amount of approximately $9.9 million was also assumed by the venture. Cash Flows From Financing Activities: During the years ended December 31, 1998 and 1997, financing activities generated $49.9 million and $19.6 million, respectively. During the year ended December 31, 1998 these cash flows resulted primarily from approximately $55.9 million of net proceeds from bonds and mortgage loans reduced by distributions paid to shareholders of approximately $6.1 million. The cash flows provided by financing activities for the year ended December 31, 1997 resulted primarily from approximately $16.9 million of net proceeds from bonds and mortgage loans and approximately $10.0 million of net proceeds from issuance of shares reduced by distributions paid to shareholders of approximately $4.5 million. FINANCINGS: On April 30, 1998, we entered into a $25 million line of credit agreement (the "CCA Line") with Nomura Asset Capital Corporation ("Nomura"). Nomura subsequently assigned its interest to its subsidiary - The Capital Company of America LLC ("CCA"). The CCA Line has an initial term of twenty-four months. Draws on the line bear interest at a rate equal to LIBOR plus 2.00%. We have an option to extend the line for one additional year for a fee of $125,000. The agreement with CCA requires that we satisfy certain financial covenants, including maintaining a consolidated tangible net worth of at least $52.5 million and a leverage ratio of debt to consolidated net worth of 3:1 or less. As of December 31, 1998, we had borrowed about $12.9 million on the CCA Line leaving approximately $12.1 million available for future borrowing. We are presently in the process of evaluating the adequacy of the amount of this available credit and are exploring options to expand the debt capital available to us on an interim and long-term basis for purposes of providing financing for future acquisitions. At December 31, 1998, our debt to total market capitalization ratio was 66.8% based upon the closing share price on that date of $5.625. On June 22, 1998 and May 22, 1998, we entered into three permanent loan agreements with Nomura, which also were assigned to 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 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. We may prepay either of these loans during the 90 days preceding July 11, 2008. The interest rate is effectively 6.95% for the first ten years of each loan. With respect to either loan, if we have not repaid the loan by July 11, 2008, the interest rate will be increased by 2%. The Pool B Loan matures on June 11, 2029, and we may prepay the loan during the 90 days preceding June 11, 2009. The interest rate on the Pool B Loan is 7.07% for the first eleven years of the loan. If we have not repaid the loan by June 11, 2009, the interest rate will be reset and will be equal to the sum of 5% per year plus the greater of: (i) 8.38%; or (ii) a rate based on the rate of U.S. Treasury obligation with a maturity date closest to that of the loan, plus 1.35% per year. In addition to the prepayment options in 2008 and 2009 for these loans, we may prepay all or part of the Pool A or Pool C Loans, on the applicable release dates, by depositing with an escrow agent sufficient funds to purchase U.S. Treasury obligations to repay the principal and interest on the loans as if the loans had been held to maturity. The "Release Dates" occur in September 2000 for the Pool A and Pool C Loans, and in June 2002 for the Pool B Loan or, if earlier, two years after the date the lender includes the applicable facility in a mortgage-backed securitization program. In addition, if the ratio of net operating income to principal and interest on the Pool B loan is less than 1.65:1.00 on June 11, 1999 based on the net operating income of the property securing the Pool B Loan, CCA can require that we repay a portion of the Pool B Loan or add additional collateral to the pool. Restrictions in the loan documents effectively prevent us from selling any of the properties securing the loans until the release dates occur in 2000 and 2002. After the release date, we may make certain payments which will cause the lender to release the mortgage on a particular property. In addition, after the release date but before the optional prepayment dates of July 11, 2008 (the Pool A and Pool C Loans) or June 11, 2009 (the Pool B Loan), we may substitute different properties as collateral under each loan as long as the loan amount collateralized by all properties replaced does not exceed fifty percent of the total loan amount and certain other conditions are satisfied. The Pool A Loan is secured by cross-collateralized first mortgages on: The 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 Tech Center, Metric Plaza, Park Center, and University Corporate Center. The Pool B Loan is secured by a first mortgage on the Lexington Business Center. The Pool C Loan is secured by cross-collateralized first mortgages on the Milwaukee Industrial Portfolio and Elmhurst Metro Court. We used the proceeds from these loans to repay the amounts outstanding under the CCA Line ($23.25 million) and the line of credit provided by American National Bank ($20.65 million). We also repaid mortgage loans secured by the Milwaukee Industrial Portfolio ($3.5 million) and the Elmhurst Metro Court ($3.8 million). We used the balance of the CCA loan proceeds to pay transaction related costs and for general operating reserves. During the third quarter of 1998, we borrowed $7.4 million under a convertible term loan agreement entered into with a group of lenders in October 1997. We used the proceeds to acquire the Johns Creek Office and Industrial Park and Technology Park. The loan matures on September 30, 2002 and bears interest at 12% per year, payable quarterly. In addition, on October 14 of each year, we are required to pay an annual fee equal to 2% of the amount outstanding as of that date. The amounts outstanding on the loan are convertible, at the lenders' option, into Series A convertible preferred shares at a conversion price of $100 per share or into common shares at a conversion price of $5.15 per share. These lenders also had a right exercisable until November 13, 1998 to purchase up to $12.6 million in preferred or common shares. This right was not, however, exercised and has expired. IMPACT OF THE YEAR 2000 The Year 2000 issue, or Y2K for short, is the result of computer programs utilizing two digits rather than four digits to define the applicable year. Any of our computer programs or hardware that have date- sensitive software or embedded chips may therefore recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or in miscalculations causing disruptions of real estate operations, such as the functioning of property mechanical systems, and other activities, such as a temporary inability to process transactions, generate invoices or reports, manage our portfolio, comply with regulatory requirements or engage in similar normal business activities. We have formed a Y2K Compliance Committee consisting of at least one representative from each of our departments: legal, accounting, asset management, investor relations and acquisitions. Our Y2K Compliance Committee, in accordance with the Year 2000 Information and Readiness Disclosure Act, has formulated the following Year 2000 Readiness Disclosure: We believe that the members of our committee, drawing upon their various disciplines and resources available to them through professional organizations and contacts, will collectively be able to formulate the necessary initial questionnaires and inquiries described below and to develop a comprehensive plan for testing and evaluating responses to our inquiries. Our committee will, as circumstances dictate, retain third party consultants and professionals to assist it in evaluating technical issues or making strategic recommendations for remedial action, if necessary. We have established a plan for assessing and mitigating our exposure to Y2K matters. The plan consists of several elements including a complete upgrade of our computer hardware and software programs; assessing Y2K compliance programs at each property and each property's reliance on computer programs in operations; and inquiry and dialogue with our significant suppliers, vendors and tenants as to their Y2K compliance initiatives. We have upgraded our networking, financial analysis, general ledger and accounts payable software programs in order to minimize the potential impact of Y2K at our headquarters. In addition, we expect to complete testing procedures that will ensure that all upgraded systems will operate subsequent to December 31, 1999. These testing procedures will include simulating operating all systems at a date after December 31, 1999. As of December 31, 1998, we have expended $35,000 on Y2K compliance issues. The vast majority of these funds have been expended on the network and computer software upgrades. We anticipate a total expenditure of less than $50,000 on Y2K compliance at our corporate headquarters. Based solely upon preliminary discussions with our ten property managers, we do not presently anticipate significant expenses at the property level. However, if there are significant expenditures at the property level, we will revise our projection of Y2K related costs. We are also assessing the operations at each of our properties in an effort to diagnose the impact that Y2K may have on property operations, particularly mechanical systems. We anticipate completing this assessment in the second quarter of 1999. At this time, we are gathering information to evaluate what, if any, remedial action will be necessary and the potential costs associated with the action. We rely on various third parties to provide property level and other administrative functions. We have sent a questionnaire to each of our property managers inquiring about their ability to address the effect of the Y2K issue on their own operations. To date, we have received responses from nine of our ten property managers. Of the responding managers, five have systems that, in their view, are Y2K compliant, three expect to become compliant by the second quarter of 1999 and one expects to be compliant by the third quarter of 1999. We are currently in the process of determining whether or not the other property manager has addressed the Y2K issue and anticipate that the process will be completed in the first quarter of 1999. We intend to further verify and test each significant property manager's compliance by the second quarter of 1999. The computerized aspect of the relationship between us and our property managers is most prevalent in the accounting and reporting functions from the property level to our headquarters. We believe that the potential impact of a non- compliant property manager is minimized because we have the right to cancel our property management contracts generally on 30-day notice at no cost to us. Therefore, any property managers who may not be Y2K compliant can be replaced with a manager that has Y2K compliant systems. In spite of the above steps to verify Y2K compliance, if any property manager is unable to perform accounting functions after December 31, 1999, we expect to have the internal capability to process all accounting transactions and to produce financial statements needed to manage the properties and comply with our reporting requirements. We have also received Y2K reports from our payroll processing service provider, our transfer agent and our principal bank. Our payroll service provider has represented that it processes our payroll using Y2K compliant software. Our principal bank represented that as of December 31, 1998, its Y2K renovation and testing of its systems was substantially complete. The remaining Y2K related system changes as well as external testing and contingency planning is expected to be completed by June 30, 1999. Our transfer agent has represented that all of its "mission critical" systems and nearly all of its "non-mission critical" systems have been tested for Y2K readiness. Furthermore, it continues to develop Business Resumption Contingency Plans for each line of its business that will ensure operations will continue with minimum disruption. We are also in the process of contacting other service providers and vendors to ascertain their ability to continue to provide goods and services to us. We are developing a mechanism to continue the review and assessment of service providers and vendors on a regular basis until circumstances no longer warrant monitoring. Other than described in the preceding paragraph, the future success of our operations is not closely tied to any one third party vendor, supplier or service provider. As such, if any of these third parties fails to conduct business due to Y2K related problems, we expect to be able to contract with other third parties without experiencing any material disruption of our operations or financial condition. We cannot quantify the potential costs and uncertainties associated with potential Y2K program flaws at this time as they may relate to other organizations that we rely upon but we do not anticipate that the effect of this potential computer program flaw upon our operations will be significant. As of December 31, 1998, we had over 500 tenants. Our ten (10) largest tenants account for approximately twenty percent (20%) of our total projected revenues for 1999 based on properties owned as of December 31, 1998. Because of our broad tenant base, our future operations, particularly our ability to collect rent, is not closely tied to the ability of any one particular tenant to pay rent or other charges. We currently believe that there will not be a material adverse effect upon our operations or financial condition if any one tenant or small group of tenants ceases to conduct business (and pay rent) or is simply unable to pay rent on a timely-basis due to Y2K problems. However, if a large number of tenants, particularly several of the ten largest tenants, fail to pay rent for an extended period of time, our cash flow may be adversely effected. During the first quarter of 1999, we initiated contact with our 68 largest tenants to survey their plans to address Y2K related issues. This sampling includes all tenants whose annual rental payments are greater than $100,000. We are currently formulating a contingency plan to address potential failures: - at our home office; - at our properties; - regarding our property managers; - regarding our tenants; - regarding our suppliers and vendors. We expect to formulate our contingency plan by June 1999. We are focusing our efforts on determining a contingency plan for what we believe to be the most likely worst case scenario - an isolated failure in one or two of the categories described above. For example, there is the possibility that we may be unable to provide an adequate working environment for some of our tenants due to the failure of building mechanical, life safety or security systems. Furthermore, the worst case scenario would include Y2K problems inhibiting our ability to collect rent or preventing some of our tenants from paying rent caused by Y2K issues unrelated to property operations. We could be subject to litigation for failing to provide an adequate working environment for our tenants as a result of Y2K computer system disruptions. More immediately, the tenants may cease paying rent which could impact our liquidity. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. We have not focused our contingency planning for a "doomsday" scenario in which a near-universal malfunction of computers would have a sweeping effect upon all businesses. It is unlikely that any planning we could presently formulate would assist in the vast recovery process necessitated by this unlikely event. RISK FACTORS REAL ESTATE RISKS WE MAY NOT BE ABLE TO ACQUIRE ADDITIONAL PROPERTIES ON ACCEPTABLE TERMS. The success of our business strategy depends in part on our ability to acquire additional properties that satisfy our investment parameters. We may not be able to identify properties that meet these standards or acquire properties at a price that allows us to earn an attractive return since we compete for acquisitions with other real estate investors, some of whom have significantly greater resources at their disposal. WE HAVE A LIMITED HISTORY WITH OUR EXISTING PROPERTIES AND HAVE RECENTLY ACQUIRED MANY NEW PROPERTIES. We have acquired all of our properties within the last six years and have acquired twenty of these properties since January 1, 1997. Our most recently acquired properties, and properties that we acquire in the future, may have characteristics or deficiencies unknown to us that may impact their value or revenue potential. We are currently experiencing a period of rapid growth. Our ability to manage our growth effectively requires us to assimilate new acquisitions into our portfolio with minimal operating disruptions and unanticipated costs. We may not be able to successfully integrate these properties into our portfolio or these properties may not perform as expected. WE COMPETE FOR TENANTS. All of our office and flex industrial properties are located in highly-developed areas that include other office and flex industrial properties. Some of these properties are newer or better located than our properties. Further, our competitors may have greater resources than we do, which could allow them to reduce rents to a level that is not profitable for us. We may also have to spend money upgrading or renovating our properties to make them attractive to both existing and potential tenants thus increasing our expenses and reducing our cash resources. The number of properties or other companies that compete in our market areas could have a material effect on: . our ability to lease space at our properties; . the amount of rent that we can charge on new leases or renewals; . the dollar amount of tenant improvements or leasing commissions required to lease a property; and . the number of acquisition opportunities. WE OWN PROPERTIES IN A LIMITED NUMBER OF MARKETS. Our properties are located in the Midwestern and Southeastern United States, primarily suburban Chicago, where we own properties that account for 19% of our gross rental revenue, and suburban Atlanta, where we own properties that account for 24% of our gross rental revenue. Our ability to maintain or increase our revenues or to generate revenues that exceed our operating expenses is affected by economic conditions in the Midwestern and Southeastern United States. Like other real estate markets, these markets have experienced economic downturns in the past and will likely experience downturns in the future. Layoffs or downsizing, industry slowdowns, changing demographics, increases in the supply of property or reduced demand for office or flex industrial space may decrease our revenues or increase our operating expenses or both. LEASES ON APPROXIMATELY 19% OF OUR RENTABLE SQUARE FEET EXPIRE IN THE NEXT TWELVE MONTHS. As leases expire, we may not be able to renew or re- lease space at rates comparable to or better than the rates contained in the expiring leases. Leases on a total of approximately 19% of our rentable square feet will expire prior to December 31, 1999. If we fail to renew or re-lease space at rates that are at least comparable to the rates on expiring leases, the revenues generated by our properties will decline. Further, we may have to spend significant sums of money to renew or re- lease space covered by expiring leases, potentially reducing the amount of money that we have available to distribute to you or to use for other purposes. OUR TENANTS MAY NOT PAY THEIR RENT OR MAY DECLARE BANKRUPTCY. We derive substantially all of our revenue from leasing space at our properties. Consequently, our ability to make distributions to you may be negatively affected if tenants leasing a significant percentage of our rentable square feet fail to pay their rent or if we are unable to profitably lease space. We may experience substantial delays and incur significant expenses enforcing our rights against tenants who do not pay their rent. A tenant may also seek the protection of the bankruptcy laws and delay making rental payments to us or actually reject or terminate its lease under those laws. Even if a tenant did not seek the protection of the bankruptcy laws, the tenant may from time to time experience a downturn in its business which may weaken its financial condition and its ability to make rental payments to us when due. WE MAY NOT BE ABLE TO QUICKLY VARY OUR PORTFOLIO. Investments in real estate are relatively illiquid. In addition, in order to continue qualifying as a REIT, we are subject to rules and regulations which limit our ability to sell properties within a short period of time. Further, under the loan agreement with CCA, we may not sell any of the properties that are mortgaged to secure payment prior to 2000. We have mortgaged fifteen of our properties representing approximately 42% of our rentable square footage to secure payment on the CCA loans. Thus, we may be unable to sell a property even if market conditions or our financial condition warrant such a sale. WE ARE REQUIRED TO COMPLY WITH VARIOUS LAWS AND REGULATIONS. As an owner of property, we are required to comply with a variety of federal, state and local laws. Complying with these laws and regulations may increase our operating expenses and reduce our profits. For example, we are required to comply with laws and regulations that impose liability on a property owner for the costs of removing or remediating certain hazardous materials released on a property. We are subject to these laws even if we are not aware of, or responsible for, releasing these materials. These laws or regulations may also restrict the way that we can use a property or the type of business which may be operated on the property. Further, if we fail to comply with these laws or regulations by, for example, failing to properly remediate a release of hazardous material, we may not be able to sell the affected property or borrow money using the property as collateral for a loan. We may also be required to pay money to individuals who are injured due to the presence of hazardous materials on our property. Although we are not aware of any hazardous materials at our properties, these materials may exist and the cost of removing or remediating them may be material and could adversely affect the value of the property affected. We may also be required to pay the cost of removing or remediating hazardous materials from a disposal or treatment facility to which we may have shipped hazardous or toxic substances even if we never owned or operated the disposal or treatment facility. Our properties must also comply with the Americans with Disabilities Act. This act establishes certain standards related to access and use of properties by disabled persons. We may be required, for example, to remove any barriers to access. If we fail to comply, the U.S. government may fine us or we may be required to pay damages to a disabled person. Complying with these requirements may increase our expenses and changes in these requirements may result in unexpected expenses. OUR OBJECTIVES MAY CONFLICT WITH THOSE OF OUR JOINT VENTURE PARTNERS. We own eight of our properties, or approximately 30% of our rentable square footage through controlling interest in joint ventures with various third parties. We may purchase additional properties through joint ventures with third parties. Investments in joint ventures which own properties may involve risks that are not otherwise present when we wholly own the property directly or through one of our subsidiaries. For example, our co- venturer may file for bankruptcy protection or may have economic or business interests or goals which are inconsistent with our goals or interests. Further, although we own a controlling interest in each of these ventures, we may owe fiduciary duties to our partners. WE MAY NOT HAVE ENOUGH INSURANCE. We have customary comprehensive liability, fire, flood, earthquake, extended coverage and rental loss policies that insure us against losses at our properties with policy specifications and insurance limits that we believe are reasonable. There are certain types of losses, for example environmental, that we may decide not to insure against since the cost of insuring for the loss is not economically practical. We use our discretion in determining the amount of coverage, the limits on this coverage and the deductibles that apply to the coverage in an attempt to balance the amount of insurance that we purchase and the cost of that insurance. We may, however, suffer losses that exceed our insurance coverage. Further, inflation, changes in building codes and ordinances or other factors such as environmental laws may make it too expensive to repair or replace a property that has been damaged or destroyed, even if covered by insurance. PROPERTY TAXES MAY INCREASE. We are required to pay taxes based on the assessed value of our properties to various taxing authorities such as state or local governments. These taxing authorities may increase the tax rate imposed on a property or may reassess property value, either of which could increase our operating expenses. REAL ESTATE FINANCIAL RISKS WE OFTEN NEED TO BORROW MONEY TO FINANCE OUR BUSINESS. Our ability to internally fund our capital needs is limited since we must distribute at least 95% of our net taxable income (excluding net capital gains) to our shareholders to qualify as a REIT. Consequently, we often borrow money to fund our operating or capital needs, and may borrow monies to satisfy the 95% distribution requirement. The documents which govern how we may conduct our business do not limit the amount of money that we may borrow. Borrowing money to fund operating or capital needs exposes us to various risks. For example, our properties may not generate enough cash to pay the principal and interest obligations on our loans or we may violate a loan covenant that results in the lender accelerating the maturity date of a loan. As of December 31, 1998, we owed a total of approximately $151.6 million, including approximately $144.2 million secured by mortgages on certain of our properties. If we fail to make timely payments on our loans, including those cases where a lender has accelerated the maturity date due to a violation of a loan covenant, the lenders could foreclose on the properties securing their loans and we could lose our entire investment in those properties. Once a loan becomes due, we must either pay the remaining balance or borrow new money to pay off the maturing loan. We may not, however, be able to obtain a new loan, or the terms of the new loan, such as the interest rate or payment schedule, may not be as favorable as the terms of the maturing loan. Thus, we may be forced to sell a property at an unfavorable price to pay off the maturing loan or agree to less favorable loan terms. A total of $2.0 and $15.0 million of our indebtedness matures on or before December 31, 1999 and 2000 respectively. We occasionally enter into loans where the interest rate may be increased from time to time. As of December 31, 1998, we owed approximately $17.7 million that bore interest at variable rates. We may borrow additional amounts that bear interest at variable rates. If interest rates increase, the amount of interest that we are required to pay on these borrowings will also increase. Any such increase would increase our operating expenses and potentially impact in a negative manner our ability to pay distributions to our shareholders. WE MAY CHANGE OUR INVESTMENT POLICIES WITHOUT YOUR APPROVAL. Our investment policies, including the type of properties that we purchase, the manner in which these properties are managed and the amount of money that we borrow are all determined by our board and may be changed without your approval. WE DEPEND ON A SMALL NUMBER OF KEY PERSONNEL. Our success depends, in part, on the efforts of our principal executive officers, particularly Messrs. Levine, Hansen, Schmidt and Teglia. Although we have entered into employment contracts with each of these individuals, the loss of their services could have an adverse effect on our operations. THIRD PARTIES MAY BE DISCOURAGED FROM MAKING ACQUISITION OR OTHER PROPOSALS THAT MAY BE IN YOUR BEST INTERESTS. Under our Declaration, no single person or group of persons (an entity is considered a person) may own more than 9.9% of our outstanding common shares. The employment contracts we have with each of our senior executives also require us to make certain payments to these individuals if a "change of control" occurs. A "change of control" is defined in each of these agreements to mean that the members of the board of trustees as of the date the agreement is signed fail to constitute a majority of the board members provided that if the chief executive officer consents to a new board member, that person is treated for purposes of this test as if he or she was a member of the board at the time that the agreement was signed. These provisions may prevent or discourage a third party from making a tender offer or other business combination proposal such as a merger, even if such a proposal would be in the best interest of our shareholders. WE MIGHT FAIL TO QUALIFY AS A REIT. If we fail to qualify as a REIT, we would not be allowed to deduct amounts distributed to our shareholders in computing our taxable income and would incur substantially greater expenses for taxes and would have less money available to distribute to you. We would also be subject to federal income tax at regular corporate rates as well as potentially the alternative minimum tax. Unless we satisfied some exceptions, we could not elect to be taxed as a REIT for the four taxable years following the year during which we were disqualified. We may fail to qualify as a REIT if, among other things: . less than 75% of the value of our total assets consists of real estate assets, cash and government securities at the close of each fiscal quarter; . more than 5% of the value of our assets consists of securities of any one issuer or we hold more than 10% of the outstanding voting securities of any one issuer at the close of each fiscal quarter; . less than 75% of our gross income is generated from rents from real property, interest on obligations secured by mortgages, gain from the sale of property, and certain other property-related revenue sources; or . we fail to distribute at least 95% of our taxable income to our shareholders. If we fail to distribute enough money to satisfy the REIT requirements, we may also have to pay a non-deductible excise tax. This tax is equal to 4% of the amount in any year that our distributions are less than the sum of 85% of our ordinary income in the current year plus 95% of our net income from capital gains in the current year plus 100% of the taxable income that we did not distribute in prior years. We may also lose our REIT status if the Internal Revenue Service were to successfully challenge the tax status of the Operating Partnership as a partnership for federal income tax purposes. In this case the Operating Partnership would be taxable as a corporation and we would lose our status as a REIT if we did not own 100% of the Operating Partnership. If the Operating Partnership were to be required to pay taxes as a corporation, it would substantially reduce the amount of money that the Operating Partnership would have to distribute to us and ultimately to you. WE MAY SPEND ADDITIONAL MONEY ON OUR COMPUTER PROGRAMS DUE TO THE YEAR 2000 ISSUE. See IMPACT OF YEAR 2000 above. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We do not engage in any hedge transaction or in the ownership of any derivative financial instruments. To mitigate the impact of fluctuations in interest rates, we generally maintained over 70% of our debt as fixed rate in nature by borrowing on a long-term basis. As of December 31, 1998, we had approximately $151.6 million of outstanding long-term debt, of which $17.7 million bears interest at variable rates. As of December 31, 1998, the weighted-average interest rate on this variable rate debt was 6.84%. If interest rates on this variable rate debt increased by one percentage point (1%), interest expense would increase by $177,000 on an annual basis. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BANYAN STRATEGIC REALTY TRUST INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Report of Independent Auditors 35 Consolidated Balance Sheets, December 31, 1998 and 1997 36 Consolidated Statements of Operations For the Years Ended December 31, 1998, 1997 and 1996 38 Consolidated Statements of Shareholders' Equity For the Years Ended December 31, 1998, 1997 and 1996 40 Consolidated Statements of Cash Flows For the Years Ended December 31, 1998, 1997 and 1996 41 Notes to Consolidated Financial Statements 43 Schedule -------- Consolidated Real Estate and Accumulated Depreciation III SCHEDULES NOT FILED: All schedules other than those indicated in the above index are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto. REPORT OF INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF BANYAN STRATEGIC REALTY TRUST We have audited the accompanying consolidated balance sheets of Banyan Strategic Realty Trust as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the index at Item 8. These financial statements and schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Banyan Strategic Realty Trust at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Chicago, Illinois February 9, 1999 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, December 31, 1998 1997 ------------- ------------ ASSETS - ------ Investment in Real Estate, at cost: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,600 $ 26,143 Building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,554 125,459 Building Improvements . . . . . . . . . . . . . . . . . . . . . . . 9,762 4,418 -------- -------- 220,916 156,020 Less: Accumulated Depreciation. . . . . . . . . . . . . . . . . . . (11,427) (6,634) -------- -------- 209,489 149,386 -------- -------- Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . 3,731 4,429 Restricted Cash - Capital Improvements. . . . . . . . . . . . . . . . 1,407 763 Restricted Cash - Other . . . . . . . . . . . . . . . . . . . . . . . 1,250 831 Interest and Accounts Receivable. . . . . . . . . . . . . . . . . . . 1,544 862 Deferred Financing Costs (Net of Accumulated Amortization of $1,246 and $1,112, respectively) . . . . . . . . . . . . . . . . 1,893 1,269 Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,276 2,094 -------- -------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $222,590 $159,634 ======== ======== BANYAN STRATEGIC REALTY TRUST CONSOLIDATED BALANCE SHEETS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) December 31, December 31, 1998 1997 ------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Liabilities Mortgage Loans Payable. . . . . . . . . . . . . . . . . . . . . . . . $123,108 $ 70,503 Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,140 21,615 Unsecured Loan Payable. . . . . . . . . . . . . . . . . . . . . . . . 7,400 -- Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . 2,625 1,858 Accrued Real Estate Taxes Payable . . . . . . . . . . . . . . . . . . 967 796 Accrued Interest Payable. . . . . . . . . . . . . . . . . . . . . . . 636 296 Unearned Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 758 276 Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373 711 -------- -------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 158,007 96,055 -------- -------- Minority Interest in Consolidated Partnerships. . . . . . . . . . . . 2,149 1,264 Shareholders' Equity Shares of Beneficial Interest, No Par Value, Unlimited Authorization; 14,912,495 and 14,761,850 Shares Issued, respectively. . . . . . . . . . . . . . . . . . . . . . . 119,872 119,013 Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . (50,072) (49,332) Treasury Shares at Cost, 1,522,649 Shares . . . . . . . . . . . . . . (7,366) (7,366) -------- -------- Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . 62,434 62,315 -------- -------- Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . $222,590 $159,634 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31 --------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- REVENUE Rental Income . . . . . . . . . . . . . . . . . . . $ 34,470 $ 25,370 $ 18,607 Operating Cost Reimbursement. . . . . . . . . . . . 3,491 2,441 1,936 Miscellaneous Tenant Income . . . . . . . . . . . . 1,146 707 260 Interest and Amortized Discount on Mortgage Loans . -- -- 442 Income on Investments and Other Income. . . . . . . 309 267 159 -------- -------- -------- Total Revenue . . . . . . . . . . . . . . . . . . . . 39,416 28,785 21,404 -------- -------- -------- EXPENSES Property Operating. . . . . . . . . . . . . . . . . 5,762 5,206 4,296 Repairs and Maintenance . . . . . . . . . . . . . . 4,041 2,595 2,378 Real Estate Taxes . . . . . . . . . . . . . . . . . 2,720 1,995 1,748 Interest. . . . . . . . . . . . . . . . . . . . . . 9,778 6,447 4,011 Ground Lease. . . . . . . . . . . . . . . . . . . . 926 893 872 Depreciation and Amortization . . . . . . . . . . . 5,212 3,490 2,453 General and Administrative. . . . . . . . . . . . . 4,614 4,315 3,126 Amortization of Deferred Financing Costs. . . . . . 272 723 512 Recovery of Losses on Loans, Notes and Interest Receivable . . . . . . . . . . . . . . . -- (161) (17) -------- -------- -------- Total Expenses. . . . . . . . . . . . . . . . . . . . 33,325 25,503 19,379 -------- -------- -------- Income Before Minority Interest, Income (Loss) from Operations of Real Estate Ventures, Net Gains and Extraordinary Item. . . . . . . . . . 6,091 3,282 2,025 Minority Interest in Consolidated Partnerships. . . . (572) (590) (481) Income (Loss) from Operations of Real Estate Ventures -- 37 (3,301) -------- -------- -------- Income (Loss) before Net Gains and Extraordinary Item. . . . . . . . . . . . . . . . . 5,519 2,729 (1,757) Net Gain on Disposition of Investments in Real Estate -- 881 -- -------- -------- -------- Income (Loss) Before Extraordinary Item . . . . . . . 5,519 3,610 (1,757) Extraordinary Item, Net of Minority Interest. . . . . (141) (64) -- -------- -------- -------- Net Income (Loss) . . . . . . . . . . . . . . . . . . $ 5,378 $ 3,546 $ (1,757) ======== ======== ======== BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE YEARS ENDED DECEMBER 31 ----------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Earnings Per Share of Beneficial Interest - Basic: Income (Loss) before Net Gains and Extraordinary Item. . . . . . . . . . . . . . $ 0.41 $ 0.24 $ (0.17) ======== ======== ======== Net Income (Loss) . . . . . . . . . . . . . . . . . $ 0.40 $ 0.32 $ (0.17) ======== ======== ======== Earnings Per Share of Beneficial Interest - Diluted: Income (Loss) before Net Gains and Extraordinary Item. . . . . . . . . . . . . . $ 0.40 $ 0.24 $ (0.17) ======== ======== ======== Net Income (Loss) . . . . . . . . . . . . . . . . . $ 0.39 $ 0.32 $ (0.17) ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
Shares of Beneficial Interest ------------------------- Accumulated Treasury Shares Amount Deficit Shares Total --------- ------------ ------------ ------------ -------- Shareholders' Equity, January 1, 1996. . . . . . . 11,999,787 $106,687 $(42,446) $ (7,366) $ 56,875 Award Shares Issued . . . . . 1,833 8 -- -- 8 Net Loss. . . . . . . . . . . -- -- (1,757) -- (1,757) Distributions Paid. . . . . . -- -- (4,191) -- (4,191) ---------- -------- -------- -------- -------- Shareholders' Equity, December 31, 1996. . . . . . 12,001,620 106,695 (48,394) (7,366) 50,935 Issuance of Shares, net of issuance costs. . . . 2,264,595 9,999 -- -- 9,999 Award Shares Issued . . . . . 495,635 2,319 -- -- 2,319 Net Income. . . . . . . . . . -- -- 3,546 -- 3,546 Distributions Paid. . . . . . -- -- (4,484) -- (4,484) ---------- -------- -------- -------- -------- Shareholders' Equity, December 31, 1997. . . . . . 14,761,850 $119,013 $(49,332) $ (7,366) $ 62,315 Issuance of Shares, net of issuance costs. . . . 150,645 859 -- -- 859 Net Income. . . . . . . . . . -- -- 5,378 -- 5,378 Distributions Paid. . . . . . -- -- (6,118) -- (6,118) ---------- -------- -------- -------- -------- Shareholders' Equity, December 31, 1998. . . . . . 14,912,495 $119,872 $(50,072) $ (7,366) $ 62,434 =========== ======== ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- 1998 1997 1996 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) . . . . . . . . . . . . . . . . . . $ 5,378 $ 3,546 $ (1,757) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Recovery of Losses on Loans, Notes and Interest Receivable . . . . . . . . . . . . . . . -- (162) (17) Extraordinary Item, Net of Minority Interest. . . . 141 64 -- Net Gain on Disposition of Investments in Real Estate . . . . . . . . . . . . . . . . . . . -- (881) -- Depreciation and Amortization . . . . . . . . . . . 5,484 4,214 2,965 Amortization of Discount on Mortgage Loans Receivable. . . . . . . . . . . . . . . . . . . . -- -- (35) Net (Income) Loss From Operation of Real Estate Ventures. . . . . . . . . . . . . . . -- (37) 3,301 Minority Interest in Consolidated Partnerships . . . . . . . . . . . . 572 590 481 Incentive Compensation. . . . . . . . . . . . . . . -- 1,213 730 Net Change In: Restricted Cash - Other . . . . . . . . . . . . . (419) 188 (121) Interest and Accounts Receivable. . . . . . . . . (682) (15) (581) Other Assets. . . . . . . . . . . . . . . . . . . (1,676) (753) (299) Accounts Payable and Accrued Expenses . . . . . . 767 423 721 Accrued Interest Payable. . . . . . . . . . . . . 340 73 131 Accrued Real Estate Taxes Payable . . . . . . . . 171 4 54 Unearned Revenue. . . . . . . . . . . . . . . . . 482 44 158 Security Deposits . . . . . . . . . . . . . . . . 662 133 (1) -------- -------- -------- Net Cash Provided By Operating Activities . . . . . . 11,220 8,644 5,730 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Real Estate Assets . . . . . . . . . (55,874) (37,537) (9,313) Investment In Real Estate Ventures, Net . . . . . . -- 290 (119) BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (DOLLARS IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- 1998 1997 1996 -------- -------- -------- Proceeds from Sale of Mortgage Loans Receivable. . . . . . . . . . . . . . . . . . . . $ -- $ -- $ 5,440 Proceeds From Sale of Investments in Real Estate . . . . . . . . . . . . . . . . . . . -- 12,484 -- Additions to Investment in Real Estate. . . . . . . (5,347) (2,499) (1,969) Earnest Money Deposits. . . . . . . . . . . . . . . 75 225 (300) Restricted Cash - Capital Improvements. . . . . . . (644) (734) (29) Other . . . . . . . . . . . . . . . . . . . . . . . -- 196 (308) -------- -------- -------- Net Cash Used In Investing Activities . . . . . . . . (61,790) (27,575) (6,598) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Bonds and Loans Payable . . . . . . . 108,709 64,470 15,945 Investment From (Distributions To) Minority Partners . . . . . . . . . . . . . . . . 338 (1,681) (358) Deferred Financing Costs. . . . . . . . . . . . . . (926) (1,200) (637) Principal Payments on Mortgage Loans and Bonds Payable . . . . . . . . . . . . . . . . . . (52,854) (47,549) (11,586) Distributions Paid to Shareholders. . . . . . . . . (6,118) (4,484) (4,191) Prepayment Penalties on Early Extinguishment of Debt (136) -- -- Shares Issued, Net of Issuance Costs. . . . . . . . 859 9,999 -- -------- -------- -------- Net Cash Provided By (Used In) Financing Activities . 49,872 19,555 (827) -------- -------- -------- Net Increase (Decrease) In Cash and Cash Equivalents. (698) 624 (1,695) Cash and Cash Equivalents at Beginning of Year. . . . 4,429 3,805 5,500 -------- -------- -------- Cash and Cash Equivalents at End of Year. . . . . . . $ 3,731 $ 4,429 $ 3,805 ======== ======== ======== Supplemental Information: Interest Paid During the Year . . . . . . . . . . . $ 9,438 $ 6,374 $ 3,881 ======== ======== ======== Non-cash financing activities: Debt assumed upon acquisition of real estate. . . . . . . . . . . . . . . . . . $ 3,675 $ 21,616 $ 5,700 ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Banyan Strategic Realty Trust (the "Trust") was organized as a business trust in 1986 under the laws of the Commonwealth of Massachusetts. The business of the Trust is the ownership and operation of real estate properties. At December 31, 1998, the Trust owned thirty-two properties located principally in the Midwest and Southeast United States. See Note 8 for information with respect to the Trust's business segments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Trust, its wholly-owned subsidiaries and its controlled Partnerships. In all of its partnerships, the Trust is the managing general partner and retains sole authority over all significant decisions. All intercompany balances and transactions have been eliminated in consolidation. Investment in a Real Estate Venture disposed of in 1997 was accounted for on the equity method (see Note 6). INVESTMENT IN REAL ESTATE Costs incurred with respect to third parties for the acquisition, development, construction and improvement of properties are capitalized. Certain costs of yet-to-be acquired properties, including deposits and professional fees, are capitalized as other assets. These costs are subsequently capitalized as property acquisition costs or charged to expense when it becomes apparent that acquisition of a particular property is not probable. Maintenance and repairs are charged to expense when incurred. Depreciation of buildings is computed using the straight-line method over the estimated useful lives of the assets; generally 40 years. Depreciation of tenant improvements is computed using the straight-line method over the shorter of the lease term or useful life. For the years ended December 31, 1998, 1997 and 1996, depreciation expenses amounted to $4,793, $3,282 and $2,355, respectively. The Trust recognizes impairment losses for its properties when indicators of impairment are present and a property's expected undiscounted cash flows are not sufficient to recover the property's carrying amount. The Trust classifies its real estate properties as held for sale when its Board of Trustees has authorized the sale and an active program to find a buyer has been initiated. The Trust currently classifies none of its properties as held for sale. DEFERRED FINANCING COSTS Deferred financing costs are amortized over the term of the related loans. REVENUE RECOGNITION Minimum rentals are recognized on a straight-line basis over the term of the related leases. Additional rents in the form of operating expense reimbursements for common area maintenance expenses and real estate taxes are recognized in the period in which the related expenses are incurred. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FAIR VALUE OF FINANCIAL INSTRUMENTS The Trust believes the carrying amount of its financial instruments approximates fair value at December 31, 1998 and 1997, because (i) the fixed rates on mortgage loans payable are comparable to rates currently offered in the market, (ii) the rates on the line of credit and bonds payable are variable and the terms are comparable to those currently offered in the market and (iii) the maturities of the Trust's cash equivalents are relatively short. INCOME TAXES For the years ended December 31, 1998, 1997 and 1996, the Trust elected to be treated as a real estate investment trust ("REIT") under Internal Revenue Code Sections 856-860. In order to qualify, the Trust is required to distribute at least 95% of its "REIT" taxable income to shareholders, meet asset and income tests and comply with certain other requirements. As of December 31, 1998, Investment in Real Estate has a gross and net basis, respectively, of $220,916 and $209,489, respectively, for income tax purposes. Additionally, investment in a liquidating trust with a tax basis of $675 has not been accorded any value for financial reporting purposes. As of December 31, 1998, the Trust has a net operating loss carry- forward of $18,952 which will expire in 2005 ($444), 2006 ($10,266), 2008 ($789) and 2012 ($7,453). CASH EQUIVALENTS The Trust considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash represents amounts held by lenders to provide for future real estate tax expenditures and tenant improvements, utility deposits and security deposits. Certain of these amounts may be reduced upon the fulfillment of certain conditions. STOCK OPTIONS The Trust has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), in accounting for its stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Trust's employee stock options equals or exceeds the market price of the underlying stock at the date of grant. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED RECLASSIFICATIONS Certain reclassifications have been made to the previously reported 1997 and 1996 consolidated financial statements in order to provide comparability with the 1998 consolidated financial statements. These reclassifications have not changed the 1997 or 1996 results. 3. EARNINGS PER SHARE BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table sets forth the computation of basic and diluted earnings per share:
1998 1997 1996 ---------- ----------- ---------- Numerator: Income (Loss) before Net Gains and Extraordinary Item. . . . . . . . . . . . . . . . . . $ 5,519 $ 2,729 $ (1,757) Net Gains (a). . . . . . . . . . . . . . . . . . . . . -- 881 -- Extraordinary Item, Net of Minority Interest . . . . . (141) (64) -- ---------- ---------- ---------- Net Income (Loss) . . . . . . . . . . . . . . . . . $ 5,378 $ 3,546 $ (1,757) ========== ========== ========== Denominator: Denominator for basic earnings per weighted-average shares. . . . . . . . . . . . . . . 13,307,658 11,149,982 10,478,410 Effect of dilutive securities: Employee stock options . . . . . . . . . . . . . . . 28,603 4,942 -- Convertible debt . . . . . . . . . . . . . . . . . . 463,401 90,318 -- ---------- ----------- ----------- Dilutive potential common shares . . . . . . . . . . . 492,004 95,260 -- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions . 13,799,662 11,245,242 10,478,410 ========== =========== =========== Basic Earnings Per Share: Income (Loss) before Net Gains and Extraordinary Item . . . . . . . . . . . . . . . . . $ 0.41 $ 0.24 $ (0.17) Net Gains (a) . . . . . . . . . . . . . . . . . . . . -- 0.08 -- Extraordinary Item, Net of Minority Interest. . . . . (0.01) -- -- ---------- ----------- ----------- Net Income (Loss) . . . . . . . . . . . . . . . . $ 0.40 $ 0.32 $ (0.17) ========== =========== =========== Diluted Earnings Per Share: Income (Loss) before Net Gains and Extraordinary Item . . . . . . . . . . . . . . . . . $ 0.40 $ 0.24 $ (0.17) Net Gains (a) . . . . . . . . . . . . . . . . . . . . -- 0.08 -- Extraordinary Item, Net of Minority Interest. . . . . (0.01) -- -- ---------- ----------- ----------- Net Income (Loss) . . . . . . . . . . . . . . . . $ 0.39 $ 0.32 $ (0.17) ========== =========== =========== BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (a) Net gains include gain on disposition of investment in real estate, loss on disposition of investment in real estate venture and gain on disposition of partnership interest. For purposes of the computation of diluted earnings per share, options to purchase 133,000 common shares at $6.375 per share that were outstanding during 1998 and 1997 were not included in the 1997 computation and for certain periods of the 1998 computation because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. The effect of conversion of $7,400 of convertible debt was not included in the calculations since the effect was antidilutive. For additional information relating to convertible debt and employee stock options, see notes 4 and 12.
BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 4. LONG-TERM DEBT The Trust's long-term debt consists of the following at December 31, 1998 and 1997: 1998 1997 ----------------------- ------------------------- Weighted Weighted Average Average Interest Interest Balance Rate Balance Rate --------- -------- ------------ -------- Mortgage loans. . . . $123,108 7.44% $ 70,503 7.90% Bonds . . . . 21,140 6.77% 21,615 6.85% -------- -------- ---------- -------- Total collaterized debt . . . . $144,248 7.34% $ 92,118 7.65% ======== ======== ========== ======== Unsecured loans. . . . $ 7,400 12.00% -- -- ======== ======== ========== ======== The mortgage loans have fixed interest rates that ranged from 6.95% to 8.89% at December 31, 1998. Bonds payable at December 31, 1998 include $4,800 of variable rate tax exempt revenue bonds which bear interest equal to 5.0% per annum and $16,340 of fixed rate combined taxable and tax exempt revenue bonds which bear interest at a blended rate equal to 7.3%. Substantially all of the mortgage loans and bonds contain prepayment penalties. During 1998 and 1997, the Trust recognized extraordinary losses of $141 and $64, respectively, related to prepayments on refinanced debt and the writeoff of unamortized financing costs. Substantially all of the Trust's real estate is pledged as collateral for the mortgage loans and bonds. On April 30, 1998, the Trust entered into a $25 million line of credit agreement (the "Revolving Line"). Borrowings under the Revolving Line bear interest at an annual rate of LIBOR plus 2.00% payable monthly. The Revolving Line has an initial term of twenty-four months. The Trust has an option to extend the Revolving Line for one additional year for a fee of $125. As of December 31, 1998, the Trust had borrowed approximately $12.9 million on the Revolving Line (included in Mortgage Loans), leaving approximately $12.1 million available for future borrowing. During 1998, the Trust borrowed $7.4 million pursuant to its $20 million 1997 Convertible Term Loan Agreement for an unsecured convertible term loan (the "Unsecured Loan"). The Unsecured Loan bears interest at an annual interest rate of 12% payable quarterly and matures on September 30, 2002. In addition, on October 14, of each year, the Trust is required to pay an annual fee equal to 2% of the amount outstanding as of that date. The amounts outstanding on the Unsecured Loan are convertible into Series A convertible preferred shares at a conversion price of $100 per share or into common shares at a conversion price of $5.15 per share. In addition, the lenders had the option to purchase Series A convertible preferred shares to the extent that any part of the $20 million loan commitment was unused in an amount equal to the unfunded portion at a price equal to $100 per preferred share. These preferred shares would also be convertible into common shares at a conversion price of $5.15 per share. No preferred shares were issued prior to the termination of the purchase option on November 13, 1998. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The principal balance of the Trust's long-term debt at December 31, 1998, is scheduled to be repaid as follows: 1999 . . . . . . . . . . . . $ 2,007 2000 . . . . . . . . . . . . 15,023 2001 . . . . . . . . . . . . 5,705 2002 . . . . . . . . . . . . 12,026 2003 . . . . . . . . . . . . 13,956 Thereafter . . . . . . . . . 102,931 -------- $151,648 ======== 5. SHARE PURCHASE AGREEMENT Simultaneously with the execution of the Convertible Term Loan Agreement, the Trust entered into a Share Purchase Agreement (the "Agreement") with the same group of accredited investors to which the Trust issued the Unsecured Loan (see Note 4). Under the Agreement, the Trust sold, in October 1997, 2,192,501 shares of beneficial interest at $5.00 per share, for an aggregate gross proceeds of approximately $11 million. The Trust paid approximately $1.4 million of transaction costs in connection with the share issuance. 6. INVESTMENT IN REAL ESTATE ACQUISITION ACTIVITIES The following properties were acquired in 1998 and 1997; the results of their operations are included in the consolidated statements of operations from their respective dates of acquisition. 1998 - ---- Purchase Date of Price Property's Name Acquisi- (in and Location tion millions) Description - --------------- --------- --------- ---------------- Peachtree Pointe 01/20/98 $4.6 Five one-story Office Park office buildings Norcross, GA Avalon Center 03/20/98 4.4 Two one-story Office Park office buildings Norcross, GA Avalon Ridge 04/24/98 3.9 Two one-story Business Park flex/industrial Norcross, GA Tower Lane 04/27/98 5.2 Two one-story Business Park (1) flex/industrial Bensenville, IL buildings University 04/30/98 10.2 Seven one-story Corporate Center flex/industrial Winter Park, FL buildings BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Purchase Date of Price Property's Name Acquisi- (in and Location tion millions) Description - --------------- --------- --------- ---------------- Metric Plaza 04/30/98 $2.6 Two one-story Winter Park, FL flex/industrial buildings Park Center 04/30/98 3.7 Two one-story Orlando, FL flex/industrial buildings Sand Lake 04/30/98 6.8 Five one-story Tech Center office buildings Orlando, FL Johns Creek 08/14/98 5.8 Two flex/indus- Office and trial buildings Industrial Park Duluth and Suwanne, GA Technology Park 08/14/98 12.4 Three office Norcross, GA buildings ----- Total $59.6 ===== - ----------------- (1) Upon the acquisition of Tower Lane, the Trust assumed a permanent mortgage loan in the amount of approximately $3.7 million. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 1997 - ---- Purchase Acquisition Date of Price Financing Property's Name Acquisi- (in (in millions) and Location tion millions) (1) Description - --------------- -------- --------- ----------- ---------------- [S] [C] [C] [C] [C] Phoenix Business 01/15/97 $ 5.5 Three-building Park office/industrial Atlanta, GA complex Butterfield Office04/30/97 15.1 Three-story Plaza office building Oak Brook, IL Woodrun Village 05/22/97 4.6 $3.6 Apartment complex Apartments Yukon, OK Country Creek 05/22/97 7.5 5.9 Apartment complex Apartments Oklahoma City, OK Willowpark 05/22/97 4.5 3.5 Apartment complex Apartments Lawton, OK Winchester Run 05/22/97 4.5 3.6 Apartment complex Apartments Oklahoma City, OK Southlake 07/30/97 4.5 Three-story Corporate Center office building Morrow, GA University Square 08/26/97 7.3 5.0 Six one-story Business Center office building Huntsville, AL Technology Center 08/26/97 2.5 Three-story Huntsville, AL office building Airways Plaza 12/10/97 3.2 Five one-story Office Center office buildings Memphis, TN ----- ----- Total $59.2 $21.6 ===== ===== - ---------------- (1) Represents the amount of permanent mortgage financing assumed at the time of acquisition. All other additional acquisition costs were paid by either a draw upon the Trust's line of credit or from cash and cash equivalents. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DISPOSITION ACTIVITIES H STREET ASSEMBLAGE Prior to 1998, the Trust had a 53% interest in a venture that owned 17,000 square feet of undeveloped land in downtown Washington, D.C. plus an approximately 55,900 square foot office building (the "H Street Assemblage"). During 1996, based on sales agreements for the H Street Assemblage, the Trust recorded a valuation allowance of $3,180 which was included in loss from operations of real estate ventures in the 1996 consolidated statement of operations. The H Street Assemblage was sold in 1997 and the Trust recognized a loss of approximately $61. The Trust has no further interest in the H Street Assemblage. OTHER During 1997, the Trust sold its interests in Hallmark Village Apartments and the Colonial Courts Apartments. The Trust received proceeds of approximately $7.3 million and recognized a gain of approximately $942. 7. PRO FORMA INFORMATION (UNAUDITED) The following unaudited pro forma summary presents information as if the Trust's property acquisitions, property dispositions, and sales of shares of beneficial interests through December 31, 1998 had occurred at the beginning of each year. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the Company. Years Ended December 31, ----------------------------- 1998 1997 ----------- ----------- Total revenue. . . . . . . . $ 42,260 $ 39,368 Net income . . . . . . . . . 5,187 3,756 Basic earnings per share . . 0.39 0.29 Diluted earnings per share . 0.38 0.28 8. BUSINESS SEGMENTS The Trust acquires and operates real estate properties located principally in the Midwest and Southeast United States. The Trust has four operating segments corresponding to the four property types comprising its real estate assets: flex/industrial, office, residential and retail. As of December 31, 1998, the flex/industrial segment comprised of thirteen complexes with long-term leases to approximately 210 tenants; the office segment comprised of fourteen office sites with long-term leases to approximately 280 tenants; the residential segment comprised of four apartment complexes with 864 units leased principally for six months; and the retail segment was comprised of one retail center with long-term leases to approximately 50 tenants. The Trust's long-term tenants are in a variety of business and no single tenant is significant to the Trust's business. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Information by business segments is set forth below: 1998 1997 1996 -------- -------- -------- Revenue Flex/Industrial . $ 10,838 $ 7,830 $ 6,275 Office. . . . . . 19,577 11,946 6,812 Residential . . . 4,170 4,138 3,398 Retail. . . . . . 4,646 4,604 4,318 Corporate/Other . 185 267 601 -------- -------- -------- $ 39,416 $ 28,785 $ 21,404 ======== ======== ======== 1998 1997 1996 -------- -------- -------- Income (loss) before extraordinary item Flex/Industrial . $ 3,787 $ 3,349 $ 2,365 Office. . . . . . 5,124 3,298 2,226 Residential . . . 682 952 (830) Retail. . . . . . 550 976 877 Corporate/Other . (4,624) (4,965) (6,395) -------- -------- -------- $ 5,519 $ 3,610 $ (1,757) ======== ======== ======== 1998 1997 -------- -------- Total Assets Flex/Industrial . $ 74,513 $ 41,323 Office. . . . . . 105,049 74,434 Residential . . . 21,038 21,369 Retail. . . . . . 18,359 18,858 Corporate/Other . 3,631 3,650 -------- -------- $222,590 $159,634 ======== ======== 1998 1997 1996 -------- -------- -------- Depreciation and amortization Flex/Industrial . $ 1,714 $ 1,156 $ 884 Office. . . . . . 2,404 1,259 695 Residential . . . 534 559 421 Retail. . . . . . 523 503 453 Corporate/Other . 37 13 -- -------- -------- -------- $ 5,212 $ 3,490 $ 2,453 ======== ======== ======== Interest expense Flex/Industrial . $ 2,669 $ 1,373 $ 1,114 Office. . . . . . 4,524 2,850 1,130 Residential . . . 1,199 1,235 887 Retail. . . . . . 1,338 939 880 Corporate/Other . 48 50 -- -------- -------- -------- $ 9,778 $ 6,447 $ 4,011 ======== ======== ======== BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 1998 1997 1996 -------- -------- -------- Additions to Investment in Real Estate Flex/Industrial . $ 32,942 $ 376 $ 10,660 Office. . . . . . 31,533 39,089 5,505 Residential . . . 324 21,626 440 Retail. . . . . . 69 481 377 Corporate/Other . 28 80 -- -------- -------- -------- $ 64,896 $ 61,652 $ 16,982 ======== ======== ======== 9. TRANSACTIONS WITH AFFILIATES Effective January 1, 1997, the Trust began paying employees directly in contrast to the prior practice of reimbursing Banyan Management Corp. ("BMC") on an hourly basis for the services of BMC's personnel. In prior years, these payroll costs along with administrative costs were allocated to the Trust and other entities to which BMC provided 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. From January 1, 1997 through September 30, 1997, the Trust shared only certain administrative items such as office rent and office expenses with other companies for which BMC provided services. These costs were shared based upon the total hours worked by employees of the Trust relative to total hours worked by employees of BMC and the Trust combined. The Trust's allocable share of costs for the years ended December 31, 1997 and 1996 amounted to $403 and $1,275, respectively. Beginning October 1, 1997, the Trust paid all of its administrative costs directly and no longer shared these costs with other companies. As of December 15, 1997, all shareholders of BMC, other than the Trust, had terminated their administrative services relationship with and had surrendered their respective ownership interest in BMC, making the Trust the sole remaining shareholder of BMC. On that date, BMC merged into a wholly-owned subsidiary of the Trust, BSRT Management Corp. As a result of the merger, the Trust assumed current liabilities of $102, cash of $83 and other assets of $64. BSRT Management Corp. paid a dividend to the Trust in the amount of $150 representing a distribution of its accumulated earnings and profits. This amount has been included in "Other Income" of the Trust for the year ended December 31, 1997. During the year ended December 31, 1998 and 1997, the Trust paid no salary to, but purchased legal services from an executive officer of the Trust. Fees for legal services totalled $391 and $338, respectively. The executive pays no rent, as such, to the Trust for the use of office space or equipment but grants the Trust a discount equal to approximately 20% compared to rates charged to third parties for all time billed to the Trust by the executive and his employees. The executive also reimburses the Trust for the cost of two full time and certain part time employees. The amount paid to the executive for the year ended December 31, 1996 was paid as salary and is included in the costs allocated to the Trust from BMC. 10. DISTRIBUTIONS PAID AND PAYABLE To qualify as a REIT, the Trust must distribute at least 95% of its "REIT Taxable Income" to shareholders. A portion of the distributions paid during the subsequent year may be allocable to taxable income earned in the prior year. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Trust has determined the shareholders' treatment for federal income tax purposes to be as follows: 1998 1997 1996 ------- ------- ------- Ordinary income. . . . $ 5,978 $ 283 $ 2,842 Return of capital. . . 140 4,201 1,349 ------- ------- ------- $ 6,118 $ 4,484 $ 4,191 ======= ======= ======= On January 6, 1999, the Trust declared a cash distribution for the quarter ended December 31, 1998 of $0.12 per share payable February 22, 1999 to shareholders of record on January 22, 1999. 11. LEASES MINIMUM RENTALS UNDER OPERATING LEASES The Trust receives rental income from the rental of retail, office and flex/industrial space under operating leases. The following is the minimum future base rentals (excluding amounts representing executory costs such as taxes, maintenance and insurance) on operating leases for the Trust's industrial, office and retail projects held at December 31, 1998: 1999 . . . . . . $ 30,336 2000 . . . . . . 23,281 2001 . . . . . . 17,409 2002 . . . . . . 12,340 2003 . . . . . . 8,094 Thereafter . . . 13,773 -------- $105,233 ======== No single tenant at the Trust's operating properties produced ten percent or more of total income from property operating activities. The Trust is subject to the usual business risks regarding the collection of the above-mentioned rentals. GROUND LEASE The Trust owns a leasehold interest in a shopping center in Atlanta, Georgia. The lease expires in 2067. The ground lease requires annual lease payments of $600 through October 4, 2007 plus 7% of total annual gross rental income commencing when gross rental income exceeds $2,000 from the operations of the shopping center. The ground lease also requires that the Trust pay property operating expenses, including real estate taxes. The base rent is reset in 2007 based upon a market rent within a contractually defined range. 12. OMNIBUS STOCK AND INCENTIVE PLAN On May 14, 1997, the Board of Trustees (the "Board") adopted and on July 8, 1997, the shareholders of the Trust approved, the 1997 Omnibus Stock and Incentive Plan (the "Plan") which allows the Trust to make stock- based awards as part of its employee and Trustee compensation program. Under the Plan, the Trust is authorized to issue options to purchase up to one million shares of beneficial interest in the form of incentive stock options, non-statutory stock options, stock appreciation rights, performance shares and units. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FIXED STOCK OPTIONS The Board administers the Plan and has the authority to determine, among other things, the individuals to be granted options, the exercise price at which shares may be acquired, the number of shares subject to options and the vesting requirements and the exercise period of each option. The Board is granted discretion to determine the term of each option granted under the Plan to employees, executives and Trustees, but in no event will the term exceed ten years and one day from the date of the grant. A summary of the Trust's fixed stock option activity, and related information for the years ended December 31, 1997 and 1998 follows: Weighted Shares Average Subject Exercise Price to Options Per Share ---------- -------------- Outstanding at December 31, 1996. . . -- $ -- Options granted . . . . . . . . . . 380,000 5.637 Options canceled. . . . . . . . . . (5,000) 4.08 -------- -------- Outstanding at December 31, 1997. . . 375,000 $ 5.658 Options granted . . . . . . . . . . 116,000 5.375 Options exercised . . . . . . . . . (9,324) 4.08 Options canceled. . . . . . . . . . (2,000) 6.375 ------- ------- Outstanding at December 31, 1998. . . 479,676 5.617 ======= ======= Exercisable at 12/31/97 . . . . . . 100,000 $ 5.50 Exercisable at 12/31/98 . . . . . . 174,287 $ 5.68 At December 31, 1998, options to purchase 361,000 shares were available for future grant and options outstanding that are not exercisable vest in varying annual amounts through 2001. The weighted average grant date fair value of options granted in 1998 and 1997 was $.54. The remaining weighted-average contractual life of these options was 9.05 years. Exercise prices for options outstanding at December 31, 1998 ranged from $4.08 to $6.375 per share. TARGET STOCK PRICE PERFORMANCE OPTIONS The exercise price of each target stock price performance option granted is equal to the market price of the Trust's common shares on the date of grant and vests as the Trust's common share price achieves certain pre-established targets which were set on the date of grant. In conjunction with the March 11, 1998 signing of an employment agreement between the Trust and its President Leonard G. Levine, effective retroactively to October 1, 1997, the Board granted Mr. Levine stock options to purchase an aggregate of 150,000 shares of the Trust's common shares of beneficial interest at an exercise price equal to $5.50 per share. Options to purchase 50,000 shares will vest and become exercisable if during any consecutive thirty trading days during the term of the agreement the closing price of the common shares averages $8.50 per share. Options to purchase an additional 100,000 shares will vest and become exercisable on a proportionate basis if during any thirty consecutive trading days during the term of the agreement the closing price of the shares averages more than $8.50 per share with full vesting occurring with BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED respect to 75,000 shares if the closing price averages $9.00 per share, and $10.00 per share with respect to the other 25,000 shares. The number of shares underlying the options and the exercise price of each option are subject to adjustment from time to time under certain circumstances. All of the options must be exercised by October 1, 2007, except that if Mr. Levine dies or becomes permanently disabled during the term of the agreement, then all options which have vested must be exercised within one year of death or permanent disability. In addition, upon death or permanent disability, all options not otherwise vested, but which would or will vest within six months following the date of death or permanent disability either by passage of time or satisfaction of the various performance standards will be deemed vested and become exercisable within the same one-year time period. A summary of the Trust's target stock price performance option activity, and related information for the years ended December 31, 1997 and 1998 follows: Weighted Shares Average Subject Exercise Price to Options Per Share ---------- -------------- Outstanding at December 31, 1996. . . -- $ -- Options granted . . . . . . . . . . 150,000 5.500 ------- ------ Outstanding at December 31, 1997 and 1998. . . . . . . . . . . . . . 150,000 $5.500 ======= ====== At December 31, 1998, none of the target stock price options were exercisable. Exercise prices for options outstanding at December 31, 1998 were $5.50 per share. The remaining weighted-average contractual life of these options was 8.8 years. The weighted average grant date fair value of all options granted during 1997 is $0.96. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 "Accounting for Stock Based Compensation", and has been determined as if the Trust had accounted for all options granted under the plan using the fair value method of that statement. The fair value for the fixed stock options was estimated at the date of grant using the Black- Scholes option pricing model with the following weighted-average assumptions for 1998 and 1997: risk free interest rates of 5.31% and 5.58%; expected dividend yields of 7.47% and 7.19%; volatility factors of the expected market price of the Trust's common stock of .201 and .225; and a weighted-average expected lives of the options of 5 years and 10 years, respectively. In addition, the fair value for the target stock price performance options was estimated at the date of grant using a modified Black-Scholes option pricing model which, in addition to the required inputs above, takes into consideration the target stock price (or barrier) which must be attained. The following weighted-average assumptions were incorporated into the model for the target stock price performance options granted in 1997: risk-free interest rate of 5.92%; expected dividend yield of 7.27%; a volatility factor of the expected market price of the Trust's common stock of .225; and expected lives of the options of 10 years. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models, such as the Black-Scholes model, require the input of highly subjective assumptions including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, in management's view, the existing models do not necessarily provide a reliable single measure of the fair value of the options granted under the Plan. The effects on 1998 and 1997 pro forma net income and pro forma earnings per common share of amortizing to expense the estimated fair value of stock options are not necessarily representative of the effects on net income to be reported in future years due to such things as the vesting period of the stock options, and potential for issuance of additional stock options in future years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Trust's pro forma information is as follows: Years Ended December 31, ----------------------- 1998 1997 ------- ------- Pro forma net income. . . . . . . . . $ 5,279 $ 3,474 Pro forma basic earnings per share. . $ 0.40 $ 0.31 Pro forma diluted earnings per share. $ 0.38 $ 0.31 13. DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN On April 23, 1997, the Trust filed a Registration Statement on Form S- 3 under the Securities Act of 1933 in order to register the shares issuable under the Trust's Distribution Reinvestment and Share Purchase Plan (the "DRIP Plan"). The DRIP Plan allows shareholders of the Trust to: (i) automatically reinvest the cash distributions on all, or part, of shares registered in their name; and (ii) make cash investments of not more than $120 per calendar year. Shares purchased under the DRIP Plan will be issued directly by the Trust at either: (i) 97% of the average closing sales price of the shares as reported on the NASDAQ National Market on the last five business days preceding the relevant investment date in the case of reinvested cash distributions; or (ii) 100% of the aforementioned average closing price in the case of cash investments. For the years ended December 31, 1998 and 1997, the Trust issued 141,321 and 72,094 shares of beneficial interest under the DRIP Plan and received total proceeds of $818 and $379, respectively. 14. AWARD SHARES AND WEIGHTED AVERAGE SHARES OUTSTANDING Pursuant to the March 19, 1997 Amendment and the September 3, 1997 Second Amendment to the Second Amended and Restated Employment Agreement of Leonard G. Levine, the Trust's president, and pursuant to the shareholder approval which was obtained at the Trust's 1996 Annual Meeting held on July 8, 1997, all incentive compensation earned by Mr. Levine for the fiscal years ended December 31, 1996 and 1997 has been paid in shares of the Trust's stock ("Award Shares"). BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED On July 9, 1997, the Trust issued 95,635 Award Shares to Mr. Levine, representing Mr. Levine's incentive compensation earned on the performance of the Trust's assets acquired subsequent to January 1, 1993 ("Reinvestment Activities") for the fiscal year ending December 31, 1996 (the "1996 Award Shares"). On September 3, 1997, the Trust issued 400,000 Award Shares representing the final payment and settlement of Mr. Levine's compensation earned on Reinvestment Activities for the fiscal year ending December 31, 1997 and for cumulative incentive compensation for the period January 1, 1993 through August 31, 1997 (the "Final Award Shares"). Prior to the September 3, 1997 Amendment, Mr. Levine would have been entitled to receive shares in respect of additional compensation which would have been determined as of December 31, 1997 and issued and paid no later than March 1998. The issuance of the Final Award Shares fixed the amount of compensation that the Trust had been accruing through December 31, 1997. The 95,635 Award Shares were valued at $4.125 per share, or $394. The 400,000 Final Award Shares were valued at $4.812 per share, or $1,925 of which $650 was expensed in 1996, and the balance was ratably expensed during 1997. The 1996 Award Share price of $4.125 was based upon the average closing price of the Trust's shares for the five business days ending December 31, 1996. The Final Award Shares price of $4.812 was based on the average closing price of the Trust's shares for the five business days ending August 31, 1997. The 1996 Award Shares and Final Award Shares 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 of the Award Shares issued prior to January 1, 1997 and 20% of Award Shares issued for the fiscal year ended December 31, 1996 were held in escrow by the Trust, through the vesting date, September 29, 1997. Subsequent to that date, Mr. Levine became fully vested and the Award Shares were immediately transferred and are otherwise freely transferable subject to compliance with registration requirements of the federal and state securities laws or exemptions therefrom. 15. LITIGATION The Trust is involved in various litigation arising in the ordinary course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, it is management's opinion that the final resolution of these matters will not have an adverse effect on the Trust's financial position or results of operations. SCHEDULE III BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired Land ments Land ments Land ments Total tion - ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ---------- Milwaukee Industrial Properties Milwaukee, WI 1973-1980 4/30/93 $ 533 $ 5,242 $ -- $ 824 $ 533 $ 6,066 $ 6,599 $ 1,067 Elmhurst Metro Court Elmhurst, IL 1982 11/30/93 1,615 3,605 -- 457 1,615 4,062 5,677 588 Colonial Penn Building Tampa, FL 1984 3/22/94 1,190 7,366 -- -- 1,190 7,366 8,556 880 Florida Power & Light Building Sarasota, FL 1991 3/22/94 1,700 8,367 -- 146 1,700 8,513 10,213 1,063 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired/ Land ments Land ments Land ments Total tion - ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ---------- Willowbrook Industrial Court Willowbrook, IL 1979 6/16/95 $ 962 $ 2,961 $ -- $ 292 $ 962 $ 3,253 $ 4,215 $ 396 Northlake Tower Shopping Center Atlanta, GA 1983-1984 7/28/95 -- 17,144 -- 931 - 18,075 18,075 1,599 Quantum Busi- ness Centre Louisville, KY 1976-1980 9/26/95 900 4,165 -- 319 900 4,484 5,384 394 Lexington Business Center Lexington, KY 1985 12/05/95 1,330 5,753 -- 774 1,330 6,527 7,857 587 Newtown Business Center Lexington, KY 1981-1982 12/5/95 355 3,234 -- 140 355 3,374 3,729 269 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired Land ments Land ments Land ments Total tion - ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ---------- Woodcrest Office Park Tallahassee, FL 1967-1989 12/19/95 $ 3,080 $ 7,968 $ -- $ 1,766 $ 3,080 $ 9,734 $ 12,814 $ 911 Midwest Office Center Oakbrook Terrace, IL 1979 4/18/96 2,396 2,591 -- 314 2,396 2,905 5,301 255 6901 Riverport Drive Louisville, KY 1985 11/19/96 1,750 8,242 -- 20 1,750 8,262 10,012 439 Phoenix Business Park Atlanta, GA 1979 1/15/97 1,717 3,777 -- 41 1,717 3,818 5,535 192 Butterfield Office Plaza Oak Brook, IL 1974 4/30/97 4,813 10,255 -- 707 4,813 10,962 15,775 501 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired Land ments Land ments Land ments Total tion - ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ---------- Woodrun Village Apartments Yukon, OK 1985 5/22/97 $ 339 $ 4,244 $ -- $ 86 $ 339 $ 4,330 $ 4,669 $ 186 Country Creek Apartments Oklahoma City, OK 1985 5/22/97 506 6,982 -- 164 506 7,146 7,652 307 Winchester Run Apartments Oklahoma City, OK 1985 5/22/97 273 4,231 -- 99 273 4,330 4,603 187 Willowpark Apartments Lawton, OK 1985 5/22/97 137 4,331 -- 71 137 4,402 4,539 190 Southlake Corporate Center Morrow, GA 1989 7/30/97 750 3,746 -- 199 750 3,945 4,695 155 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired Land ments Land ments Land ments Total tion - ------------------ ------ ----------- ------ --------- ---------- ----------- ----------- ---------- Technology Center Huntsville, AL 1990 8/26/97 $ 130 $ 2,417 $ -- $ 29 $ 130 $ 2,446 $ 2,576 $ 85 University Square Business Center Huntsville, AL 1984-1987 8/26/97 1,387 5,950 -- 564 1,387 6,514 7,901 273 Airways Plaza Office Center Memphis, TN 1982 12/10/97 409 2,756 -- 53 409 2,809 3,218 77 Peachtree Pointe Office Park Norcross, GA 1982 1/20/98 712 3,858 -- 273 712 4,131 4,843 101 Avalon Center Office Park Norcross, GA 1997 3/20/98 585 3,803 -- 439 585 4,242 4,827 101 Avalon Ridge Business Park Norcross, GA 1997 4/24/98 539 3,327 -- 350 539 3,677 4,216 64 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired Land ments Land ments Land ments Total tion - ------------------ ------ ----------- ------ --------- ---------- ----------- ----------- ---------- Tower Lane Business Park Bensenville, IL 1979-1980 4/27/98 $ 1,255 $ 3,933 $ -- $ 68 $ 1,255 $ 4,001 $ 5,256 $ 79 Sand Lake Tech Center Orlando, FL 1984-1986 4/30/98 1,984 4,804 -- -- 1,984 4,804 6,788 85 Park Center Orlando, FL 1982 4/30/98 997 2,755 -- 97 997 2,852 3,849 53 Metric Plaza Winter Park, FL 1985 4/30/98 629 1,940 -- 56 629 1,996 2,625 38 University Corporate Center Winter Park, FL 1981-1987 4/30/98 3,207 7,022 -- 14 3,207 7,036 10,243 126 BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED Costs Capitalized Initial costs Subsequent Gross Amount at which Carried to the Trust to Acquisition at December 31, 1998 (a)(b)(c) ---------------------- --------------- --------------------------------- Building Building Building Accumu- Property & Location/ & & & lated Date of Construction/ Improve- Improve- Improve- Deprecia- Date Acquired Land ments Land ments Land ments Total tion - ------------------ ------ ----------- ------ --------- ---------- ----------- ----------- ---------- Johns Creek Office and Industrial Park Duluth and Suwanne, GA 1990-1992 8/14/98 $ 890 $ 4,874 $ -- $ -- $ 890 $ 4,874 $ 5,764 $ 46 Technology Park Norcross, GA 1977-1984 8/14/98 1,530 10,905 -- 367 1,530 11,272 12,802 105 Other (d) -- -- -- 108 -- 108 108 28 ------- -------- ------ -------- -------- -------- -------- -------- $38,600 $172,548 $ -- $ 9,768 $ 38,600 $182,316 $220,916 $ 11,427 ======= ======== ====== ======== ======== ======== ======== ======== - -------------------- (a) The aggregate cost of the above real estate at December 31, 1998 for Federal income tax purposes is $220,916. For further details regarding encumbrances on the Trust's properties see Note 4, Long-Term Debt. (b) Reconciliation of real estate owned:
BANYAN STRATEGIC REALTY TRUST CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
1998 1997 1996 -------- -------- -------- Balance at Beginning of Year. . . . . . . . $156,020 $107,182 $ 90,200 Acquisitions During Year (1). . . . . . . . 59,549 59,153 15,013 Sale of Property (2). . . . . . . . . . . . -- (12,814) -- Additions During Year . . . . . . . . . . . 5,347 2,499 1,969 -------- -------- -------- Balance at End of Year. . . . . . . . . . . $220,916 $156,020 $107,182 ======== ======== ======== (1) In addition to these capitalized costs, the Trust assumed $598 of net operating liabilities at acquisition in 1997. (2) In connection with the sale of Colonial Courts and Hallmark Apartments, the Trust transferred $107 of net operating liabilities in 1997. (c) Depreciation expense is computed using the straight line method. Rates used in the determination of depreciation are based upon the estimated useful life of the asset, primarily 40 years.
1998 1997 1996 -------- -------- -------- Reconciliation of Accumulated Depreciation: Beginning of Year . . . . . . . . . . . . . $ 6,634 $ 4,692 $ 2,337 Depreciation Expense. . . . . . . . . . . . 4,793 3,282 2,355 Sale of Property. . . . . . . . . . . . . . -- (1,340) -- -------- -------- -------- Balance at End of Year. . . . . . . . . . . $ 11,427 $ 6,634 $ 4,692 ======== ======== ======== (d) Other includes corporate furniture, fixtures and equipment.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in, or disagreements with, the accountants on any matter of accounting principles, practices or financial statement disclosure. PART III ITEM 10. OUR TRUSTEES AND EXECUTIVE OFFICERS The information required by this item is incorporated herein by reference to the materials appearing in the Trust's definitive proxy statement to be filed with the Securities and Exchange Commission (the "Proxy Statement") under the caption, "Election of Trustees" and "Management". ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the materials appearing in the Proxy Statement under the caption "Management". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the materials appearing in the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the materials appearing in the Proxy Statement under the caption "Certain Relationships and Related Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements of the Company are set forth in this report in Item 8. (2) Financial Statement Schedule is set forth in this report in Item 8. (b) Report on Form 8-KA dated October 1, 1998 was filed to provide the Financial Statements and related pro forma information required by Item 7 of Form 8-K in connection with the Trust's acquisition of the properties known as Technology Park and Johns Creek Office and Industrial Park. (c) Exhibits (see Exhibit Index included elsewhere herein). (d) None. SIGNATURES PURSUANT to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. BANYAN STRATEGIC REALTY TRUST By: /s/ Leonard G. Levine Date: March 11, 1999 Leonard G. Levine, President PURSUANT to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on our behalf and in the capacities and on the dates indicated. By: /s/ Leonard G. Levine Date: March 11, 1999 Leonard G. Levine, President and Trustee By: /s/ Joel L. Teglia Date: March 11, 1999 Joel L. Teglia, Vice President and Chief Financial Officer By: /s/ Norman M. Gold Date: March 11, 1999 Norman M. Gold, Trustee By: /s/ Walter E. Auch, Sr. Date: March 11, 1999 Walter E. Auch, Sr., Trustee By: /s/ Marvin A. Sotoloff Date: March 11, 1999 Marvin A. Sotoloff, Trustee EXHIBIT INDEX ------------- 3.1 Second Amended and Restated Declaration of Trust dated as of August 8, 1986, as amended on March 8, 1991, May 1, 1993 and August 12, 1998, including Certificate of designations, preferences and rights of Series A convertible preferred shares. (1) 3.2 By-Laws dated March 13, 1996. (2) 3.3 BSRT UPREIT Limited Partnership Limited Partnership Agreement * 4.1 Convertible Term Loan Agreement dated as of October 10, 1997 among Banyan Strategic Realty Trust, as Borrower, and the Entities listed therein, as Lenders. (3) 4.2 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. (4) 4.3 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. (5) 4.4 Revolving Credit Agreement dated April 30, 1998 among Banyan Strategic Realty Trust, as Borrower and the Capital Company of America, as Lender. (6) 4.5 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 the Capital Company of America, as Lender. (5) 4.6 First Amendment to Loan Agreement dated September 11, 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 the Capital Company of America LLC, as Lender. (1) 4.7 Loan Agreement dated May 22, 1998 between BSRT Lexington B Corp. and BSRT Lexington Trust, as Borrower and the Capital Company of America, as Lender. (5) 4.8 First Amendment to Loan Agreement dated September 11, 1998 between BSRT Lexington B Corp., and BSRT Lexington Trust, as Borrower and the Capital Company of America LLC, as Lender. (1) EXHIBIT INDEX ------------- 4.9 Loan Agreement dated June 22, 1998 between Banyan/Morgan Wisconsin L.L.C., and Banyan/Morgan Elmhurst L.L.C., as Borrower and the Capital Company of America, as Lender. (5) 4.10 First Amendment to Loan Agreement dated September 11, 1998 between Banyan/Morgan Wisconsin L.L.C., and Banyan/Morgan Elmhurst L.L.C., as Borrower and the Capital Company of America LLC, as Lender. (1) 10.1 Employment Agreement of Leonard G. Levine as of October 1, 1997. (7) 10.2 Employment Agreement of Joel L. Teglia dated December 31, 1998. * 10.3 Employment Agreement of Neil Hansen dated December 31, 1998. * 10.4 Employment Agreement of Jay Schmidt dated December 31, 1998. * 10.5 1997 Omnibus Stock and Incentive Plan dated July 9, 1997. (8) 10.6 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. (3) 10.7 Registration Rights Agreement dated as of October 10, 1997 between Banyan Strategic Realty Trust and the Purchasers listed on the Signature Pages attached thereto. (3) 10.8 Registration Rights Agreement dated as of October 1, 1997 between Banyan Strategic Realty Trust and Leonard G. Levine. * 21 Subsidiaries of Banyan Strategic Realty Trust * 23 Consent of Ernst & Young LLP * 27 Financial Data Schedule * 99.2 Press Release dated February 17, 1999 * - -------------------- * Filed herewith. (1) Incorporated by reference from the Trust's Form 8- K/A-1 dated August 14, 1998. (2) Incorporated by reference from the Trust's Registration Statement on Form S-11 (file number 33-4169). (3) Incorporated by reference from the Trust's Form 8-K dated October 14, 1997. (4) Incorporated by reference from the Trust's Form 10- K/A for the year ended December 31, 1997. (5) Incorporated by reference from the Trust's Form 8-K dated May 22, 1998. (6) Incorporated by reference from the Trust's Form 10- Q dated March 31, 1998. (7) Incorporated by reference from the Trust's Form 10- K dated December 31, 1997. (8) Incorporated by reference from the Trust's Form 10- Q for the quarter ended June 30, 1997. EX-3.3 2 EXHIBIT 3.3 - ----------- BSRT UPREIT LIMITED PARTNERSHIP LIMITED PARTNERSHIP AGREEMENT THIS LIMITED PARTNERSHIP AGREEMENT ("Agreement") dated as of July 14, 1997 among BSRT UPREIT Corp., an Illinois corporation, as General Partner and BANYAN STRATEGIC REALTY TRUST, a Massachusetts business trust, as Limited Partner (the "Limited Partner"). The Partners desire to form this limited partnership to acquire and own interests in limited liability companies, which companies will own various parcels of real estate. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I --------- Definitions ----------- As used herein the following terms shall have the following meanings: "Capital Contributions" for each Partner shall mean the amount shown as a Capital Contribution on Schedule A attached hereto, as amended from time to time; "Cash Flow" shall mean the excess of cash revenue from operation of the Property over cash disbursements, without deduction for depreciation, and a reasonable allowance for cash reserves for repairs, replacements, contingencies and anticipated obligations (including debt service, capital improvements and replacements) as determined by the General Partner. Cash Flow shall include net sale proceeds and net financing proceeds. "Certificate" shall mean the valid Certificate of Limited Partnership of the Partnership, duly filed and amended, as herein required, in accordance with the laws of the State of Illinois. "Financing Proceeds" shall mean the amount of money received by the Partnership from loan proceeds from time to time in excess of the obligations to be paid therefrom, the cost and expense of obtaining said loan, and reserves for future obligations required by the Lender or deemed desirable by the General Partner. "Fiscal Year" shall mean each calendar year during the term of the Partnership. "General Partner" shall mean BSRT UPREIT Corp., an Illinois corporation, or any other person or corporation who succeed it in such capacity. "Interest" shall mean a Partner's interest in the profit and loss allocations, cash distributions and other rights granted to such Partner under the Partnership. "Limited Partner" shall mean each person or entity purchasing Units or subsequently admitted to the Partnership as a Limited Partner. "Partners" shall refer, collectively, to the General Partner and Limited Partners. Reference to a "Partner" shall be to any of the Partner. "Partnership" shall mean the limited partnership subject to this Agreement and the Certificate. "Partnership Percentage" shall mean the percentage interest shown on Schedule A attached hereto, as amended from time to time. "Property" shall mean the property owned by any limited liability company, the membership interests in which are owned by the Partnership, a schedule of which is attached hereto as Exhibit B, as amended from time to time. ARTICLE II ---------- Name and Place of Business -------------------------- The Partnership is and shall be conducted under the name of "BSRT UPREIT LIMITED PARTNERSHIP" or such other name as the General Partner shall hereafter designate by written notice to the other Partners. The principal place of business for the Partnership shall be at 150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606, or as otherwise selected by the General Partner. The registered agent for the Partnership shall be Robert G. Higgins, or such other person or entity designated as registered agent for the Partnership. ARTICLE III ----------- Purposes -------- The Partners desire to form this limited partnership to acquire and own interests in limited liability companies, which companies will own various parcels of real estate. ARTICLE IV ---------- Commencement; Term ------------------ The Partnership shall commence as of the date of recordation of its Certificate of Limited Partnership with the Illinois Secretary of State. The term of the Partnership shall continue perpetually until December 31, 2050, unless sooner terminated in accordance with the provisions hereof or as otherwise provided by law. ARTICLE V --------- Capital Contributions --------------------- (a) General Partner - The General Partner has contributed Ten Dollars ($10.00) to the capital of the Partnership, receipt of which is hereby acknowledged. In consideration of making such contribution and becoming the General Partner of the Partnership and undertaking other obligations as herein set forth, the General Partner shall receive the Interest in the Partnership allocated to it herein. (b) Limited Partner - The Limited Partner shall contribute to the capital of the Partnership the amount reflected on Schedule A attached hereto, as amended from time to time. (c) Nature of Contributions - No Limited Partner shall be required to contribute any capital to the Partnership other than as provided in Article V(b) hereof or to lend any funds to the Partnership. Except as otherwise provided herein, no interest shall be paid on any capital contributed to the Partnership pursuant to this Article V and, except as otherwise provided herein, no Partner may withdraw his Capital Contribution. No offset shall be made against the Capital Contribution due pursuant to Article V(b) hereof for any reason. (d) Capital Accounts - The Partnership shall establish for each Partner a capital account which shall be credited with the amounts of his contribution to the Partnership when made, shall be credited or charged, as the case may be, with his distributive share of Partnership profit or loss, and shall be charged with the amounts of any distributions to him. (e) No Partner shall be entitled to withdraw his capital account balance except upon liquidation or as authorized by the General Partner pursuant to the terms of this Agreement. ARTICLE VI ---------- Profits and Losses ------------------ (a) Generally - The profits and losses of the Partnership shall be determined for each fiscal year in accordance with the accounting method followed by the Partnership for federal income tax purposes and otherwise in accordance with good accounting procedures applied in a consistent manner. (b) Transferor - Transferee Allocations - As between a Limited Partner and his transferee, profits and losses for any period shall be apportioned to the person who is the holder of the Unit transferred (determined in accordance with Article XI hereof) on the first day of such period, without regard to the results of the Partnership's operations during the period before and after such transfer. (c) Allocation of Profit and Loss - (i) Profit and losses shall be allocated pro rata among the Partners based upon their respective Partnership Percentages. (ii) Operating profits of the Partnership in the ordinary course of business (A) in any year in which there are no Cash Flow distributions shall be allocated 99% to the Limited Partner and 1% to the General Partner; and (B) in any year in which there are Cash Flow distributions, profits shall be allocated in the same ratio as such distributions. Losses shall be allocated 99% to the Limited Partner and 1% to the General Partner. For purposes of this computation, distributions made within 60 days of the end of any taxable year will be deemed to be attributable to the prior year unless the General Partner indicates otherwise. Provided further, that no loss shall be allocated to a Limited Partner if such allocation would cause such Limited Partner to have a deficit Capital Account at a time in which the General Partner has a positive balance in its capital account. (iii) Profits and losses of the Partnership from sale or other disposition of some or all of the Property (other than incidental sales of non-real property items) shall be allocated as follows: (A) Any such profits shall be allocated (with ordinary income being allocated first): (1) First, an amount equal to the aggregate deficit in the Partners' Capital Accounts, shall be allocated to each Partner who or which has a deficit balance in the same ratio as the deficit in such Partner's Capital Account bears to the aggregate of all such Partners' deficit until all deficits are eliminated; (2) Thereafter, 99% to the Limited Partner and 1% to the General Partner. (B) Any losses shall be allocated: (1) to the extent that the balance in the General Partner's Capital Account exceeds its Capital Contributions, and the balances in the Capital Account of the Limited Partner exceeds the amount of its Capital Contributions (the "Excess Balances"), to the Limited Partner in until such Excess Balances are reduced to zero; then (2) among the Partners in proportion to their respective Capital Account balances until the Capital Account balances of all Partners equal zero; then (3) 1% to the General Partner and 99% to the Limited Partner. (iv) Notwithstanding any of the provisions of this Agreement to the contrary, the allocations of tax attributes shall be made in accordance with, and in the following order of priority of, the following special allocation provisions currently contained in the Code and the Regulations (including any amendments thereto): (a) a "minimum gain chargeback" provision as such term is defined and applied under Regulation Section 1.704-2(f); (b) a "partner minimum gain chargeback" as such term is defined and required under Regulation Section 1.704-2(i); (c) a "qualified income offset" provision as such term is defined and applied under Regulation Section 1.704-1(b)(2)(ii)(d); (d) any item with partnership loss, deduction or expenditures described in Code Section 705(a)(ii)(b) that is attributable to a Partner non-recourse debt shall be allocated 99% to the Limited Partner and 1% to the General Partner, and (e) a provision under which any special allocations of tax attributes pursuant to this SECTION 6(c)(iv) shall be taken into account in computing subsequent allocations of tax attributes so that the net amount of any tax attributes so allocated shall, to the extent possible violating the constraints on deficit Capital Account balances, equal to the net amount that would have been allocated to each Partner pursuant to the other provisions of ARTICLE VI determined without regard to SECTION 6(c)(iv) hereof. (d) General Partner's Obligation Upon Liquidation - The General Partner has the obligation upon liquidation of the Partnership, to restore the lesser of: (a) any deficit balance in its Capital Account; or (b) the excess of 1.01% of the Limited Partner's equity in the Partnership over any capital contributed by the General Partner. (e) Section 704(c) Allocation - Solely for federal, state and local income tax purposes and not for book or Capital Account purposes, depreciation, amortization, gain, or loss with respect to property that is properly reflected on the Partnership's books at a value that differs from its adjusted basis for federal income tax purposes shall be allocated in accordance with the principles and requirements of Code Section 704(c) and the Treasury Regulations promulgated thereunder, and in accordance with the requirements of the relevant provisions of the regulations issued by the Treasury Department under Code Section 704(b). For Capital Account purposes, depreciation, amortization, gain, or loss with respect to property that is properly reflected on the Partnership's books at a value that differs from its adjusted basis for tax purposes shall be determined in accordance with the rules of Treasury Regulation Section 1.704- 1(b)(2)(iv)(g). ARTICLE VII ----------- Distributions ------------- (a) Distribution of Cash Flow, if any, for each Fiscal Year shall be distributed in the following priorities: (1) 99% to the Limited Partner and 1% to the General Partner. (b) Distribution of Financing Proceeds or Sale Proceeds - the net proceeds received by the Partnership from the refinancing of any indebtedness of the Partnership ("Financing Proceeds"), from hazard or casualty insurance net proceeds in excess of amounts expended in the restoration or repair of Partnership Property or net proceeds from the sale, condemnation, foreclosure, exchange, or other voluntary or involuntary disposition, including deferred proceeds and interest thereon (collectively "Sale Proceeds") of all or a substantial portion of the Property shall be paid and distributed in the following order of priority: (1) first, to the payment or reserve for payment of all expenses incurred in connection with such transaction; (2) next, to the establishment of any reserves which the General Partner deems reasonably necessary to provide funds for any actual or contingent obligations or liabilities of the Partnership including loans by the General Partner Affiliates to the Partnership; (3) next, to the payment of all debts and liabilities of the Partnership; (4) the balance, if any, 1% to the General Partner and 99% to the Limited Partner. All distributions under this Section to the Partners shall be in accordance with their respective Partners' Percentages. ARTICLE VIII ------------ Rights and Duties of the General Partner ---------------------------------------- (a) Management of Partnership Business - The General Partner shall be solely responsible for the management of the Partnership's business with all rights and powers generally conferred by law or necessary, advisable or consistent in connection therewith. (b) Specific Rights and Powers - In addition to any other rights and powers which they may possess under law, the General Partner shall have all specific rights and powers required for or appropriate to this management of the Partnership's business which, by way of illustration but not by way of limitation, shall include the following rights and powers: (1) to purchase property on behalf of the Partnership; (2) to lease property in the ordinary course of business; (3) to sell all or part of the Partnership Property with consent of the Limited Partner hereto; such sale may be of the Property in whole, or pursuant to a condominium conversion of the Property. (4) to borrow money for Partnership purposes and, if security is required therefor, to mortgage or subject to any other security device any Partnership assets; (5) to employ attorneys, brokers, consultants, managing agents and accountants on behalf of the Partnership, including Affiliates of the General Partner, provided that such services are necessary or advisable and the compensation therefor is reasonable; for purposes of this clause, compensation shall be deemed reasonable if the rates being charges for service performed are comparable to the rates generally being charged within the area in which the Property is located for similar services; (6) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Partnership; (7) to establish reasonable reserve funds from income derived from the Partnership's operations to provide for future requirements of the Partnership; (8) to perform or cause to be performed all of the Partnership's obligations under any agreement to which the Partnership is a party; (9) to loan funds to the Partnership, directly or through an Affiliate in its discretion, and charge interest therefor at an annual rate two percent (2%) in excess of the prime rate (as announced by First National Bank of Chicago or such other major bank designated by the General Partner) from time to time; (10) to act as the "Tax Matters Partner" of the Partnership as that term is defined in Section 6231(a)(7) of the Internal Revenue Code of 1954, as amended (the "Code") and in such regulations as may be promulgated pursuant thereto, and to take such action and exercise such rights, powers, and duties as "Tax Matters Partner" of the Partnership as contemplated by the Code, including, without limitation, participating on behalf of the Partnership in audits of the tax returns filed for the Partnership; keeping all Partners informed of and forwarding copies of notices with respect to all administrative and judicial proceedings for the adjustment at the Partnership level of Partnership items; consenting to extensions relating to the tax returns files for the Partnership; participating in administra- tive and judicial proceedings, including appeals, relating to the Partnership's tax returns or its tax liabilities; and entering into settlement agreements with respect to tax proceedings involving the Partnership's tax returns which will bind the Partners; and (11) to execute, acknowledge and deliver any and all instruments necessary to effectuate the foregoing. (c) Other Business Ventures - Any Partner, any Affiliate of a Partner, or officer, director, employee, shareholder or other person holding a legal or beneficial interest in any entity which is a Partner, may engage in or possess an interest in other business ventures of every nature and description, independently or with others, including, but not limited to, the acquisition, ownership, financing, leasing, operation, management, syndication, brokerage, sale, construction and development of partnerships, Limited Partnerships or real property, and neither the Partnership nor the Partners shall have any right by virtue of this Agreement in or to such independent ventures or to the income or profits derived therefrom. (d) Liability of General Partner to Limited Partner and Partnership - The General Partner and its Affiliates shall not be required to devote all of their time or business efforts to the affairs of the Partnership, but shall devote such time and attention to the Partnership as is reasonably necessary and advisable to manage the affairs of the Partnership to the best advantage of the Partnership, and, neither the General Partner nor its Affiliates shall be liable to the Limited Partner because any taxing authorities disallow or adjust any deductions or credits in the Partnership informational tax returns. Further, the General Partner and its Affiliates shall not have any personal liability for the repayment of Capital Contributions of the Limited Partner except as provided in this Agreement. In addition, the doing of any act or the omission to do any act by the General Partner or any Affiliate, the effect of which may cause or result in loss or damage to the Partnership, if done in good faith and within the scope of the authority of the General Partner or such Affiliate, shall not subject the General Partner or its Affiliates or their respective successors and assigns to any liability. The Partnership will indemnify and hold harmless the General Partners, its officers, directors and Affiliates and their respective successors and assigns, or its officers, from any claim, loss, expense, liability, action or damage resulting from any such act or omission, including, without limitation, reasonable costs and expenses of litigations and appeal (including reasonable fees and expenses of attorneys engaged by the General Partner or Affiliates in defense of such act or omission), but the General Partner shall not be entitled to be indemnified or held harmless due to, or arising from, its fraud, bad faith, gross negligence or malfeasance. ARTICLE IX ---------- General Partner's Fees and Expenses ----------------------------------- The General Partner shall be reimbursed by the Partnership for out of pocket costs and expenses hereafter incurred on behalf of the Partnership from time to time. The General Partner shall be entitled to reasonable compensation. ARTICLE X --------- Limited Partner --------------- (a) Limitation of Limited Partner' Liabilities - A Limited Partner shall not be bound by, or be personally liable for, the expenses, liabilities or obligations of the Partnership or the General Partner and the liability of each Limited Partner shall be limited solely to the amount of his contribution to the capital of the Partnership required under the provisions of Article V hereof. (b) No Control of Business or Right to Act for Partnership - A Limited Partner shall take no part in the management, conduct or control of the business of the Partnership and shall have no right or authority to act for or to bind the Partnership except as expressly authorized herein. Any "consent" or "approval" requested of a Limited Partner herein shall be deemed given if a letter seeking consent to a proposed action is mailed to the Limited Partner's address as reflected on the books and records of the Partnership and such Limited Partner fails to deliver to the Partnership within 30 days following receipt of the letter written notice objecting to the proposed action, or the Limited Partner affirmatively approves the proposed action in writing. A "majority in interest" of the Limited Partner will be those Limited Partner who in the aggregate are entitled to over 50% of the profits and losses allocable to the Limited Partner as a whole. (c) No Priority - Except as otherwise specifically set forth herein, no Limited Partner shall have the right to demand or receive property other than cash in return of his Capital Contribution or as to distribution of income. No Limited Partner shall have priority over any other Limited Partner within his Class either as to the return of his original contribution to the capital of the Partnership or as to distributions. ARTICLE XI ---------- Books, Records, Accounting and Reports -------------------------------------- (a) Availability - At all time during the existence of the Partnership, the General Partner shall keep or cause to be kept full and true books of the account in accordance with the accounting method followed by the Partnership for Federal Income Tax purposes and otherwise in accordance with good accounting principles and procedures applied in a consistent manner, which shall reflect all Partnership transactions and shall be appropriate and adequate for the Partnership's business. Such books of account, together with a copy of this Agreement and any amendments thereto and a list of names and addresses of all of the Limited Partner shall at all times be maintained at the principal place of business of the Partnership. Any Partner or his or its duly authorized representative shall have the right at any time to inspect and copy from such books and documents during normal business hours upon reasonable notice. (b) Quarterly Reports - The General Partner shall furnish quarterly management accounting reports to the Limited Partner within forty-five days after the conclusion of each quarterly period. (c) Financial Reports - As soon as practicable after the close of each Fiscal Year, but in no event later than March 31 of the next succeeding year, the General Partner shall deliver to each Limited Partner all necessary tax reporting information required by the Limited Partner for preparation of their respective income tax returns. The General Partner shall also cause to be distributed to the Limited Partner on or before each April 15th annual statements of financial condition and income for the preceding calendar year. (d) Accounting Decisions - All decisions as to accounting matters shall be made by the General Partner in accordance with the accrual method of accounting for tax purposes applied on a consistent basis. (e) Taxable Year and Accounting Method - The Partnership's taxable and Fiscal Year shall be the calendar year. The Partnership shall initially adopt the accrual method of accounting for tax purposes. (f) Certificate - The Partnership shall be under no obligation to deliver the Limited Partnership Certificate or any amendment thereto to any Limited Partner, unless specifically requested in writing by that Limited Partner. ARTICLE XII ----------- Bank Accounts ------------- All funds of the Partnership are to be deposited in the Partnership's name in such bank account or accounts as may be designated by the General Partner and shall be withdrawn on the signature of the General Partner or such other person or persons as the General Partner may authorize. ARTICLE XIII ------------ Amendment of Certificate of Limited Partnership ----------------------------------------------- The Certificate may be amended by the General Partner without the prior agreement of the Limited Partner whenever required by law or necessary to effect changes of a ministerial nature which do not adversely affect the rights or increase the obligations of the Limited Partner. ARTICLE XIV ----------- Amendments ---------- This Agreement may not be modified without the prior written consent of all Partners. ARTICLE XV ---------- Death, Incompetency, Bankruptcy or Dissolution of a Limited Partner ----------------------------------- Upon the death or legal incompetency of an individual Limited Partner, the liquidation, dissolution or other cessation to exist as a legal entity of a Limited Partner not an individual, or the insolvency or bankruptcy of any Limited Partner, the Partnership shall not dissolve or terminate and the personal representative of such Limited Partner shall have such rights of a Limited Partner as are necessary for the purpose of settling or managing his estate or its affairs and the same power as said Limited Partner had to constitute a transferee of such Limited Partner's Limited Partnership Interest as a substituted Limited Partner, but said representative shall not have become a substituted Limited Partner without complying with the requirements of Article XI above. ARTICLE XVI ----------- Resignation, Removal or Death of the General Partner ---------------------------------------------------- (a) Removal of the General Partner - The General Partner may be removed only in accordance with the laws of the State of Illinois. (b) Reconstitution of Partnership After Withdrawal or Removal of the General Partner. (i) Upon the withdrawal, death, incompetency or removal of the last General Partner or successor General Partner, the Partnership shall dissolve unless the Limited Partner elects to continue the business of the Partnership, in a reconstituted form if necessary, such right exercisable upon notice to all Partners (including the General Partner), within sixty days after the withdrawal or removal of the General Partner, and for this purpose, such Limited Partner may elect another person as successor General Partner, such election to be effective at the end of said sixty day period. Each Partner hereby agrees by his execution hereof to such continuation and reconstitution and further agrees that in such event the successor General Partner shall be entitled to such percentage interest in Partnership profits and losses, Cash Flow and Sale and Refinancing Proceeds distributions as are agreeable to the Limited Partner. The withdrawal or removal of the sole remaining General Partner shall not be effective until the new successor General Partner shall have taken all steps necessary to be substituted as a General Partner under the law of the State of Illinois. (ii) If the Partners shall continue the business of the Partnership pursuant to clause (i) above, the business of the Partnership shall be continued in a reconstituted form as a successor Limited Partnership subject to and upon the same terms and conditions as are set forth in this Agreement and subject to the election of a successor General Partner, and the assets and liabilities of the Partnership shall be assigned to and assumed by the successor Limited Partnership. The former General Partner or his successor shall then hold its Partnership Interest as a Special Class B Limited Partner. (c) Assignments - The General Partner may not, without the consent of the Limited Partner, assign any of its interest in the profits and losses of the Partnership. (d) New Certificate - The exercise of the right of removal granted in this Article XVII shall not in any constitute any Limited Partner a General Partner or impose any personal liability on any Limited Partner. Immediately upon withdrawal, death or removal of a General Partner, the Partners and/or successor General Partner shall prepare, execute and file for recordation a new Certificate and shall take or cause to be taken all steps required in connection therewith. (e) Accounting - If the withdrawal, death or removal of the remaining General Partner does not result in the dissolution and winding up of the Partnership's business because such business is being continued in a reconstituted form as provided above, the Partners and/or successor General Partner shall promptly have an accounting prepared covering the transactions of the partnership since the end of the immediately preceding fiscal year through the date of such withdrawal or removal. (f) Continuing Liability of General Partner - Notwithstanding the withdrawal, death or removal of a General Partner, and in addition to any other obligation herein contained, such General Partner shall remain liable for payment of all debts, obligations, liabilities and commitments of the Partnership incurred while he or it was the General Partner to the extent the Partnership does not have funds available for such payment and to the extent he would otherwise have been liable. ARTICLE XVII ------------ Dissolution of the Partnership ------------------------------ (a) Events Causing Dissolution - The Partnership shall be dissolved and its affairs wound up on the first to occur of the following: (i) the withdrawal or removal of the last remaining General Partner unless the business of the Partnership shall be continued in a reconstituted form and another person selected as a successor General Partner pursuant to Article XVIII (b) hereof; (ii) the General Partner, with the prior written consent of the Limited Partner, shall determine that the Partnership should be dissolved; (iii) the sale or other disposition by the Partnership of all or substantially all of the Partnership Property, unless the Partnership as part of the consideration for any such sale or other disposition acquired a note or be owned a balance of the purchase price, in which case the Partnership shall be dissolved following the sale by it or satisfaction of its entire interest in such note or balance due; (iv) the expiration of the Partnership term pursuant to Article IV hereof; or (v) when required by law. (b) Liquidation of Assets and Application of Proceeds - Upon the dissolution of the Partnership, the person required by law to wind up the Partnership's affairs (or in the event this is uncertain, the General Partner) shall liquidate and reduce to cash the assets of the Partnership as promptly as is consistent with obtaining the fair market value thereof. The proceeds available subsequent to liquidation of the Partnership's business shall be applied and distributed in the following order of priority: (i) To the payment of debts and liabilities of the Partnership and the expenses of liquidation. (ii) To the setting up of any reserves which the General Partner (or the liquidation committee) may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership. Such reserves shall be paid over to the General Partner (or the liquidation committee), as escrowee, to be held by them for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies; and, at the expiration of such period as the General Partner (or the liquidation committee) shall deem advisable, to distribute the balance thereafter remaining in the manner hereinafter provided. (iii) To the distribution to Partners of any operating Cash Flow allocated to them pursuant to Article VII(a) but not distributed by the Partnership prior to liquidation and dissolution of the Partnership. (iv) Any remaining proceeds available from the liquidation of the Partnership's business shall be distributed to the General and Limited Partner in accordance with their Capital Account balances. A reasonable time shall be allowed for the orderly liquidation of the assets of the Partnership and the discharge of liabilities to creditors so as to enable the General Partner (or the liquidation committee) to minimize the normal losses attendant upon a liquidation. The General Partner (or the liquidation committee) may continue to operate and maintain the business and assets of the Partnership subsequent to the date and the Partnership is to be terminated, during a liquidation date, to appropriately, economically and efficiently wind-up the affairs and business activities of the Partnership. In the event that the distributions of the liquidation proceeds cannot be made within such 90 day period, the General Partner is authorized to establish a trust to hold any remaining Partnership assets and make distributions therefrom in the same proportion as such assets would have been distributed to the Partners pursuant to this Agreement. The General Partner (or liquidation committee) shall have full rights and unlimited discretion to determine the time, manner and terms of any sale or sales of Partnership fixed assets pursuant to such liquidation having due regard to the activity and condition of the relevant market and general financial and economic conditions. ARTICLE XIII ------------ Miscellaneous ------------- (a) Notices - All notices, demands, requests, consents or other communications required or permitted to be given or made under this Agreement shall be in writing and signed by the party giving the same and shall be deemed given or made when mailed postage prepaid to the intended recipient at the address set forth in this Agreement or any other address of which prior written notice has been given. (b) Severability - Each provision hereof is intended to be severable and the invalidity or illegality of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. (c) Captions - Article captions contained in this Agreement are included only as a matter of convenience and for reference and in no way define, limit, or extend or describe the scope of this Agreement or the intent of any provision hereof. (d) Counterparts - This Agreement may be executed in two or more counterparts, all of which, when taken together will be deemed to constitute one binding original agreement among the parties executing counterparts. (e) Person and Gender - The masculine general shall include the feminine and neuter genders, the singular shall include the plural and the word "person" shall include a corporation, firm, partnership or other form of association. IN WITNESS WHEREOF, the aforesaid Partnership Agreement is executed as of the date first set forth above. GENERAL PARTNER: BSRT UPREIT CORP., an Illinois corporation By: /S/ LEONARD G. LEVINE ------------------------------ Leonard G. Levine, President LIMITED PARTNER: BANYAN STRATEGIC REALTY TRUST, a Massachusetts business trust By: /S/ LEONARD G. LEVINE ------------------------------ Leonard G. Levine, President SCHEDULE A BSRT UPREIT Limited Partnership List of Partners Name/Address Partnership Percentage - ------------ ---------------------- General Partner: BSRT UPREIT Corp. 1% 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 (312) 553-9800 Attention: Leonard G. Levine Limited Partner: Banyan Strategic Realty Trust 99% 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 (312) 553-9800 Attention: Leonard G. Levine EX-10.2 3 EXHIBIT 10.2 - ------------ EMPLOYMENT AGREEMENT This Agreement (the "Agreement") is made and entered into as of December 31, 1998 by and between Joel L. Teglia (the "Executive") and Banyan Strategic Realty Trust ( the "Trust"). RECITALS: A. The Trust desires to enter into an employment agreement with the Executive on the terms and conditions set forth herein. B. The Executive desires to enter into an employment agreement with the Trust on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Trust and the Executive do hereby agree as follows: 1. EMPLOYMENT DUTIES. The Trust agrees to employ the Executive as the Vice President, Treasurer and Chief Financial Officer of the Trust to perform such duties as the Trust's Board of Trustees (the "Board") or the Trust's President and Chief Executive Officer may reasonably assign or delegate to the Executive from time to time consistent with this position. 2. PERFORMANCE. The Executive accepts the appointment described in SECTION 1 and agrees to faithfully and diligently perform the services described in SECTION 1. 3. TERM. The term of employment under this Agreement shall begin as of January 1, 1999 and shall remain in effect for a period of one (1) year, ending on December 31, 1999, unless sooner terminated as provided in SECTION 6 (the "Employment Period"). The Employment Period shall be automatically renewed for successive one (1) year periods unless: (a) the Trust gives the Executive written notice of non-renewal at least ninety (90) days in advance of the end of the Employment Period; or (b) the Executive terminates in accordance with SECTION 6(c) hereof. 4. SALARY. For the services to be rendered by the Executive hereunder, the Trust shall pay the Executive an annual base salary equal to $138,240 (the "Salary"). All Salary due the Executive shall be paid in the manner and frequency in which the Trust customarily pays its employees. Except as may be expressly provided for in SECTION 7, the Trust may, but shall be under no obligation to, pay the Executive compensation by way of bonus or otherwise in any year in excess of the Salary. 5. OTHER BENEFITS. The Executive shall be eligible for all non- wage benefits the Trust provides generally to its other salaried employees. In addition, the Trust shall reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by the Executive in connection with performing his duties under this Agreement; PROVIDED, HOWEVER, that the Executive shall provide the Trust with an accounting conforming to Internal Revenue Service or other requirements substantiating the nature of all reimbursable expenses. All reimbursable expenses shall be payable to the Executive within a reasonable time after receipt of the appropriate documentation. 6. TERMINATION. This Agreement may only be terminated prior to expiration on the following grounds: (a) "JUST CAUSE". The Trust may terminate this Agreement and the Executive for "Just Cause." For purposes of this SECTION 6(a), "Just Cause" shall mean the occurrence of any one or more of the following events: (i) the Executive is convicted of, or a civil judgment is entered against the Executive for, theft or embezzlement of Trust property; (ii) a civil judgment is rendered against the Executive for breach of a duty of loyalty owed to the Trust; (iii)the Executive is convicted of a felony resulting in injury to the business, property or reputation of the Trust or any affiliate of the Trust; (iv) the Executive breaches the obligations set forth in SECTION 8(b) or (c) of this Agreement; (v) the Executive refused, or willfully failed, to perform his material duties under this Agreement; (vi) the Executive committed intentional acts that caused material damage to the business or property of the Trust; or (vii)the Executive performed his material duties under this Agreement in a manner that constituted gross negligence which caused or is causing material damage to the business or property of the Trust. (b) "CHANGE OF CONTROL". The Trust may terminate this Agreement and the Executive at any time within twelve calendar months following a "Change of Control." For purposes of this Agreement, "Change of Control" shall mean: (i) the members of the Board as of the date of this Agreement fail to constitute a majority of the members of the Board, provided that any individual becoming a member of the Board with the consent of the Trust's President and Chief Executive Officer at the time the individual becomes a board member shall be treated as if he or she were a member of the Board as of the date of this Agreement; or (ii) the shareholders of the Trust adopt a plan of liquidation or take other action having the effect of a plan of liquidation without the recommendation or approval of the Board. (c) TERMINATION BY EXECUTIVE. The Executive may terminate this Agreement and his employment at any time by giving notice in writing to the Trust at least ninety (90) days in advance of the termination date set forth in the notice ("Executive Termination"). 7. EFFECT OF TERMINATION OR NON-RENEWAL. (a) TERMINATION. If the Trust terminates this Agreement and the Executive for "Just Cause" under SECTION 6(a) or the Executive terminates this Agreement and his employment under SECTION 6(c), the Trust shall have no further obligations hereunder, except for the obligations, if any, set forth in SECTIONS 5 and 9 hereof. If the Trust terminates this Agreement or the Executive for any reason other than as set forth in SECTIONS 3 and 6(a) hereof, the Trust shall immediately pay the Executive an amount equal to the Salary that Executive would have earned during the remaining term of the Agreement but for the termination plus Salary for twelve (12) additional months and provide Executive with coverage, at Trust's expense, under the Trust's group health and life insurance policies for the same period; provided further that if the Executive is terminated under SECTION 6(b) for a "Change of Control," the Trust shall also immediately pay Executive an amount equal to Executive's incentive bonus for the most recently completed fiscal year. By way of example, if the Executive is terminated under SECTION 6(b) for a "Change of Control" on June 30 and the Agreement would otherwise expire by its terms in six (6) calendar months, the Trust would be required to pay the Executive eighteen (18) months of Salary at the rate set forth in SECTION 4; six (6) months remaining term plus twelve (12) additional months, provide Executive with health and life insurance for eighteen (18) months and pay Executive an amount equal to the incentive bonus Executive received for the most recently completed fiscal year. Nothing contained herein shall excuse the Trust from its obligation to pay any compensation already due the Executive under this Agreement, but not paid, at the time of termination, or from the obligation to provide the Executive with any benefits already due under this Agreement at the time of termination. (b) NON-RENEWAL. If the Trust does not renew this Agreement in accordance with SECTION 3, the Trust shall pay Executive within fifteen (15) business days of expiration of this Agreement, severance in an amount equal to one-half of the Salary set forth in SECTION 4. The severance provided hereunder shall be Executive's sole remedy if the Trust does not renew this Agreement; provided, however, that for purposes of this SECTION 7(b), if a "Change of Control" has occurred within twelve (12) months of the expiration of the Agreement, then the decision not to renew this Agreement will be treated as a termination under SECTION 6(b) above, and the Trust shall be obligated to pay the Executive an amount equal to the Salary calculated in accordance with SECTION 7(a) above. 8. OTHER ACTIVITIES OF THE EXECUTIVE. The Executive shall: (a) be required to devote such working time and attention to the Trust's business as is necessary to carry out his responsibilities hereunder; (b) not engage in any activity which may be adverse to the Trust's business, appropriate or usurp business opportunities or engage or invest in businesses or assets which compete directly or indirectly with the Trust; provided that the Executive may invest in publicly-traded entities which are engaged in lines of businesses similar to the Trust; and (c) not become an officer, director or ten percent (10%) shareholder of any such entity. The obligations and limitations set forth in (b) and (c) above shall be in addition to those provided by law. 9. INDEMNIFICATION. The Trust shall indemnify and hold harmless the Executive from liabilities which the Executive may incur resulting from or arising out of any act undertaken in connection with the Executive's duties under this Agreement in the same manner and to the same extent as the Trust is permitted to indemnify any trustee or other officer of the Trust under the Trust's Second Amended and Restated Declaration of Trust, as it may be amended. 10. GENERAL PROVISION. (a) NOTICE. Any notice required or permitted hereunder shall be made in writing either by: (i) actual delivery of the notice into the hands of the party entitled; or (ii) depositing the notice in the United States mail certified or registered, return receipt requested, all postage prepaid and addressed to the party to whom notice is to be given at the party's respective address set forth below, or such other address as the party may from time to time designate by written notice to the other party. If to the Trust: Banyan Strategic Realty Trust Suite 2900 150 South Wacker Drive Chicago, Illinois 60606 Attn: Leonard G. Levine with a copy to: Shefsky & Froelich Ltd. 444 North Michigan Avenue Suite 2500 Chicago, Illinois 60611 Attn: Michael J. Choate, Esq. If to the Executive: Joel L. Teglia 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 with a copy to: The notice shall be deemed to be received in the case of (i) on the date of its actual receipt by the party entitled thereto and in the case of (ii) on the third business day following the date of mailing. (b) AMENDMENT, MODIFICATION AND WAIVER. No amendment or modification to this Agreement shall be valid or binding on the Trust unless made in writing and signed by an officer of the Trust duly authorized by the Board or upon the Executive unless made in writing and signed by the Executive. The waiver by the Trust or the Executive of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the Executive's duties and annual base cash compensation; and there are no representations, warranties, agreements or commitments between the parties hereto with respect to these duties or compensation except as set forth herein. (d) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Illinois. (e) PROVISIONS SEVERABLE. If any provision of this Agreement shall, for any reason, be held unenforceable, the provision shall be severed from this Agreement unless, as a result of severance, the Agreement fails to reflect the basic intent of the parties. If the Agreement continues to reflect the basic intent of the parties, then the invalidity of any specific provision shall not affect the enforceability of any other provision herein, and the remaining provisions shall remain in full force and effect. (f) ASSIGNMENT. Except as provided herein, the Executive may not, under any circumstances, delegate any of his rights and obligations hereunder without the prior written consent of the Trust. This Agreement and all of the Trust's rights and obligations hereunder may be assigned or transferred by it, in whole or in part, to be binding upon and inure to the benefit of any subsidiary or successor of the Trust. (g) COST OF ENFORCEMENT. In any suit or proceeding seeking to enforce the terms, covenants or conditions of this Agreement, the prevailing parties shall, in addition to all of the remedies and relief that may be available under this Agreement or applicable law, recover his or its reasonable attorneys' fees and costs as shall be determined and awarded by the court or the arbitrator. IN WITNESS WHEREOF, this Agreement is entered into on the day and year first written above. BANYAN STRATEGIC REALTY TRUST By:_________________________ Name: Leonard G. Levine Title: President EXECUTIVE ______________________________ Joel L. Teglia EX-10.3 4 EXHIBIT 10.3 - ------------ EMPLOYMENT AGREEMENT This Agreement (the "Agreement") is made and entered into as of December 31, 1998 by and between Neil D. Hansen (the "Executive") and Banyan Strategic Realty Trust ( the "Trust"). RECITALS: A. The Trust desires to enter into an employment agreement with the Executive on the terms and conditions set forth herein. B. The Executive desires to enter into an employment agreement with the Trust on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Trust and the Executive do hereby agree as follows: 1. EMPLOYMENT DUTIES. The Trust agrees to employ the Executive as the First Vice President - Asset Management of the Trust to perform such duties as the Trust's Board of Trustees (the "Board") or the Trust's President and Chief Executive Officer may reasonably assign or delegate to the Executive from time to time consistent with this position. 2. PERFORMANCE. The Executive accepts the appointment described in SECTION 1 and agrees to faithfully and diligently perform the services described in SECTION 1. 3. TERM. The term of employment under this Agreement shall begin as of January 1, 1999 and shall remain in effect for a period of one (1) year, ending on December 31, 1999, unless sooner terminated as provided in SECTION 6 (the "Employment Period"). The Employment Period shall be automatically renewed for successive one (1) year periods unless: (a) the Trust gives the Executive written notice of non-renewal at least ninety (90) days in advance of the end of the Employment Period; or (b) the Executive terminates in accordance with SECTION 6(c) hereof. 4. SALARY. For the services to be rendered by the Executive hereunder, the Trust shall pay the Executive an annual base salary equal to $213,040 (the "Salary"). All Salary due the Executive shall be paid in the manner and frequency in which the Trust customarily pays its employees. Except as may be expressly provided for in SECTION 7, the Trust may, but shall be under no obligation to, pay the Executive compensation by way of bonus or otherwise in any year in excess of the Salary. 5. OTHER BENEFITS. The Executive shall be eligible for all non- wage benefits the Trust provides generally to its other salaried employees. In addition, the Trust shall reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by the Executive in connection with performing his duties under this Agreement; PROVIDED, HOWEVER, that the Executive shall provide the Trust with an accounting conforming to Internal Revenue Service or other requirements substantiating the nature of all reimbursable expenses. All reimbursable expenses shall be payable to the Executive within a reasonable time after receipt of the appropriate documentation. 6. TERMINATION. This Agreement may only be terminated prior to expiration on the following grounds: (a) "JUST CAUSE". The Trust may terminate this Agreement and the Executive for "Just Cause." For purposes of this SECTION 6(a), "Just Cause" shall mean the occurrence of any one or more of the following events: (i) the Executive is convicted of, or a civil judgment is entered against the Executive for, theft or embezzlement of Trust property; (ii) a civil judgment is rendered against the Executive for breach of a duty of loyalty owed to the Trust; (iii)the Executive is convicted of a felony resulting in injury to the business, property or reputation of the Trust or any affiliate of the Trust; (iv) the Executive breaches the obligations set forth in SECTION 8(b) or (c) of this Agreement; (v) the Executive refused, or willfully failed, to perform his material duties under this Agreement; (vi) the Executive committed intentional acts that caused material damage to the business or property of the Trust; or (vii)the Executive performed his material duties under this Agreement in a manner that constituted gross negligence which caused or is causing material damage to the business or property of the Trust. (b) "CHANGE OF CONTROL". The Trust may terminate this Agreement and the Executive at any time within twelve calendar months following a "Change of Control." For purposes of this Agreement, "Change of Control" shall mean: (i) the members of the Board as of the date of this Agreement fail to constitute a majority of the members of the Board, provided that any individual becoming a member of the Board with the consent of the Trust's President and Chief Executive Officer at the time the individual becomes a board member shall be treated as if he or she were a member of the Board as of the date of this Agreement; or (ii) the shareholders of the Trust adopt a plan of liquidation or take other action having the effect of a plan of liquidation without the recommendation or approval of the Board. (c) TERMINATION BY EXECUTIVE. The Executive may terminate this Agreement and his employment at any time by giving notice in writing to the Trust at least ninety (90) days in advance of the termination date set forth in the notice ("Executive Termination"). 7. EFFECT OF TERMINATION OR NON-RENEWAL. (a) TERMINATION. If the Trust terminates this Agreement and the Executive for "Just Cause" under SECTION 6(a) or the Executive terminates this Agreement and his employment under SECTION 6(c), the Trust shall have no further obligations hereunder, except for the obligations, if any, set forth in SECTIONS 5 and 9 hereof. If the Trust terminates this Agreement or the Executive for any reason other than as set forth in SECTIONS 3 and 6(a) hereof, the Trust shall immediately pay the Executive an amount equal to the Salary that Executive would have earned during the remaining term of the Agreement but for the termination plus Salary for twelve (12) additional months and provide Executive with coverage, at Trust's expense, under the Trust's group health and life insurance policies for the same period; provided further that if the Executive is terminated under SECTION 6(b) for a "Change of Control," the Trust shall also immediately pay Executive an amount equal to Executive's incentive bonus for the most recently completed fiscal year. By way of example, if the Executive is terminated under SECTION 6(b) for a "Change of Control" on June 30 and the Agreement would otherwise expire by its terms in six (6) calendar months, the Trust would be required to pay the Executive eighteen (18) months of Salary at the rate set forth in SECTION 4; six (6) months remaining term plus twelve (12) additional months, provide Executive with health and life insurance for eighteen (18) months and pay Executive an amount equal to the incentive bonus Executive received for the most recently completed fiscal year. Nothing contained herein shall excuse the Trust from its obligation to pay any compensation already due the Executive under this Agreement, but not paid, at the time of termination, or from the obligation to provide the Executive with any benefits already due under this Agreement at the time of termination. (b) NON-RENEWAL. If the Trust does not renew this Agreement in accordance with SECTION 3, the Trust shall pay Executive within fifteen (15) business days of expiration of this Agreement, severance in an amount equal to one-half of the Salary set forth in SECTION 4. The severance provided hereunder shall be Executive's sole remedy if the Trust does not renew this Agreement; provided, however, that for purposes of this SECTION 7(b), if a "Change of Control" has occurred within twelve (12) months of the expiration of the Agreement, then the decision not to renew this Agreement will be treated as a termination under SECTION 6(b) above, and the Trust shall be obligated to pay the Executive an amount equal to the Salary calculated in accordance with SECTION 7(a) above. 8. OTHER ACTIVITIES OF THE EXECUTIVE. The Executive shall: (a) be required to devote such working time and attention to the Trust's business as is necessary to carry out his responsibilities hereunder; (b) not engage in any activity which may be adverse to the Trust's business, appropriate or usurp business opportunities or engage or invest in businesses or assets which compete directly or indirectly with the Trust; provided that the Executive may invest in publicly-traded entities which are engaged in lines of businesses similar to the Trust; and (c) not become an officer, director or ten percent (10%) shareholder of any such entity. The obligations and limitations set forth in (b) and (c) above shall be in addition to those provided by law. 9. INDEMNIFICATION. The Trust shall indemnify and hold harmless the Executive from liabilities which the Executive may incur resulting from or arising out of any act undertaken in connection with the Executive's duties under this Agreement in the same manner and to the same extent as the Trust is permitted to indemnify any trustee or other officer of the Trust under the Trust's Second Amended and Restated Declaration of Trust, as it may be amended. 10. GENERAL PROVISION. (a) NOTICE. Any notice required or permitted hereunder shall be made in writing either by: (i) actual delivery of the notice into the hands of the party entitled; or (ii) depositing the notice in the United States mail certified or registered, return receipt requested, all postage prepaid and addressed to the party to whom notice is to be given at the party's respective address set forth below, or such other address as the party may from time to time designate by written notice to the other party. If to the Trust: Banyan Strategic Realty Trust Suite 2900 150 South Wacker Drive Chicago, Illinois 60606 Attn: Leonard G. Levine with a copy to: Shefsky & Froelich Ltd. 444 North Michigan Avenue Suite 2500 Chicago, Illinois 60611 Attn: Michael J. Choate, Esq. If to the Executive: Neil D. Hansen 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 with a copy to: The notice shall be deemed to be received in the case of (i) on the date of its actual receipt by the party entitled thereto and in the case of (ii) on the third business day following the date of mailing. (b) AMENDMENT, MODIFICATION AND WAIVER. No amendment or modification to this Agreement shall be valid or binding on the Trust unless made in writing and signed by an officer of the Trust duly authorized by the Board or upon the Executive unless made in writing and signed by the Executive. The waiver by the Trust or the Executive of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the Executive's duties and annual base cash compensation; and there are no representations, warranties, agreements or commitments between the parties hereto with respect to these duties or compensation except as set forth herein. (d) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Illinois. (e) PROVISIONS SEVERABLE. If any provision of this Agreement shall, for any reason, be held unenforceable, the provision shall be severed from this Agreement unless, as a result of severance, the Agreement fails to reflect the basic intent of the parties. If the Agreement continues to reflect the basic intent of the parties, then the invalidity of any specific provision shall not affect the enforceability of any other provision herein, and the remaining provisions shall remain in full force and effect. (f) ASSIGNMENT. Except as provided herein, the Executive may not, under any circumstances, delegate any of his rights and obligations hereunder without the prior written consent of the Trust. This Agreement and all of the Trust's rights and obligations hereunder may be assigned or transferred by it, in whole or in part, to be binding upon and inure to the benefit of any subsidiary or successor of the Trust. (g) COST OF ENFORCEMENT. In any suit or proceeding seeking to enforce the terms, covenants or conditions of this Agreement, the prevailing parties shall, in addition to all of the remedies and relief that may be available under this Agreement or applicable law, recover his or its reasonable attorneys' fees and costs as shall be determined and awarded by the court or the arbitrator. IN WITNESS WHEREOF, this Agreement is entered into on the day and year first written above. BANYAN STRATEGIC REALTY TRUST By:_________________________ Name: Leonard G. Levine Title: President EXECUTIVE ______________________________ Neil D. Hansen EX-10.4 5 EXHIBIT 10.4 - ------------ EMPLOYMENT AGREEMENT This Agreement (the "Agreement") is made and entered into as of December 31, 1998 by and between Jay E. Schmidt (the "Executive") and Banyan Strategic Realty Trust (the "Trust"). RECITALS: A. The Trust desires to enter into an employment agreement with the Executive on the terms and conditions set forth herein. B. The Executive desires to enter into an employment agreement with the Trust on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Trust and the Executive do hereby agree as follows: 1. EMPLOYMENT DUTIES. The Trust agrees to employ the Executive as the Vice President - Acquisitions of the Trust to perform such duties as the Trust's Board of Trustees (the "Board") or the Trust's President and Chief Executive Officer may reasonably assign or delegate to the Executive from time to time consistent with this position. 2. PERFORMANCE. The Executive accepts the appointment described in SECTION 1 and agrees to faithfully and diligently perform the services described in SECTION 1. 3. TERM. The term of employment under this Agreement shall begin as of January 1, 1999 and shall remain in effect for a period of one (1) year, ending on December 31, 1999, unless sooner terminated as provided in SECTION 6 (the "Employment Period"). The Employment Period shall be automatically renewed for successive one (1) year periods unless: (a) the Trust gives the Executive written notice of non-renewal at least ninety (90) days in advance of the end of the Employment Period; or (b) the Executive terminates in accordance with SECTION 6(c) hereof. 4. SALARY. For the services to be rendered by the Executive hereunder, the Trust shall pay the Executive an annual base salary equal to $176,680 (the "Salary"). All Salary due the Executive shall be paid in the manner and frequency in which the Trust customarily pays its employees. Except as may be expressly provided for in SECTION 7, the Trust may, but shall be under no obligation to, pay the Executive compensation by way of bonus or otherwise in any year in excess of the Salary. 5. OTHER BENEFITS. The Executive shall be eligible for all non- wage benefits the Trust provides generally to its other salaried employees. In addition, the Trust shall reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by the Executive in connection with performing his duties under this Agreement; PROVIDED, HOWEVER, that the Executive shall provide the Trust with an accounting conforming to Internal Revenue Service or other requirements substantiating the nature of all reimbursable expenses. All reimbursable expenses shall be payable to the Executive within a reasonable time after receipt of the appropriate documentation. 6. TERMINATION. This Agreement may only be terminated prior to expiration on the following grounds: (a) "JUST CAUSE". The Trust may terminate this Agreement and the Executive for "Just Cause." For purposes of this SECTION 6(a), "Just Cause" shall mean the occurrence of any one or more of the following events: (i) the Executive is convicted of, or a civil judgment is entered against the Executive for, theft or embezzlement of Trust property; (ii) a civil judgment is rendered against the Executive for breach of a duty of loyalty owed to the Trust; (iii)the Executive is convicted of a felony resulting in injury to the business, property or reputation of the Trust or any affiliate of the Trust; (iv) the Executive breaches the obligations set forth in SECTION 8(b) or (c) of this Agreement; (v) the Executive refused, or willfully failed, to perform his material duties under this Agreement; (vi) the Executive committed intentional acts that caused material damage to the business or property of the Trust; or (vii)the Executive performed his material duties under this Agreement in a manner that constituted gross negligence which caused or is causing material damage to the business or property of the Trust. (b) "CHANGE OF CONTROL". The Trust may terminate this Agreement and the Executive at any time within twelve calendar months following a "Change of Control." For purposes of this Agreement, "Change of Control" shall mean: (i) the members of the Board as of the date of this Agreement fail to constitute a majority of the members of the Board, provided that any individual becoming a member of the Board with the consent of the Trust's President and Chief Executive Officer at the time the individual becomes a board member shall be treated as if he or she were a member of the Board as of the date of this Agreement; or (ii) the shareholders of the Trust adopt a plan of liquidation or take other action having the effect of a plan of liquidation without the recommendation or approval of the Board. (c) TERMINATION BY EXECUTIVE. The Executive may terminate this Agreement and his employment at any time by giving notice in writing to the Trust at least ninety (90) days in advance of the termination date set forth in the notice ("Executive Termination"). 7. EFFECT OF TERMINATION OR NON-RENEWAL. (a) TERMINATION. If the Trust terminates this Agreement and the Executive for "Just Cause" under SECTION 6(a) or the Executive terminates this Agreement and his employment under SECTION 6(c), the Trust shall have no further obligations hereunder, except for the obligations, if any, set forth in SECTIONS 5 and 9 hereof. If the Trust terminates this Agreement or the Executive for any reason other than as set forth in SECTIONS 3 and 6(a) hereof, the Trust shall immediately pay the Executive an amount equal to the Salary that Executive would have earned during the remaining term of the Agreement but for the termination plus Salary for twelve (12) additional months and provide Executive with coverage, at Trust's expense, under the Trust's group health and life insurance policies for the same period; provided further that if the Executive is terminated under SECTION 6(b) for a "Change of Control," the Trust shall also immediately pay Executive an amount equal to Executive's incentive bonus for the most recently completed fiscal year. By way of example, if the Executive is terminated under SECTION 6(b) for a "Change of Control" on June 30 and the Agreement would otherwise expire by its terms in six (6) calendar months, the Trust would be required to pay the Executive eighteen (18) months of Salary at the rate set forth in SECTION 4; six (6) months remaining term plus twelve (12) additional months, provide Executive with health and life insurance for eighteen (18) months and pay Executive an amount equal to the incentive bonus Executive received for the most recently completed fiscal year. Nothing contained herein shall excuse the Trust from its obligation to pay any compensation already due the Executive under this Agreement, but not paid, at the time of termination, or from the obligation to provide the Executive with any benefits already due under this Agreement at the time of termination. (b) NON-RENEWAL. If the Trust does not renew this Agreement in accordance with SECTION 3, the Trust shall pay Executive within fifteen (15) business days of expiration of this Agreement, severance in an amount equal to one-half of the Salary set forth in SECTION 4. The severance provided hereunder shall be Executive's sole remedy if the Trust does not renew this Agreement; provided, however, that for purposes of this SECTION 7(b), if a "Change of Control" has occurred within twelve (12) months of the expiration of the Agreement, then the decision not to renew this Agreement will be treated as a termination under SECTION 6(b) above, and the Trust shall be obligated to pay the Executive an amount equal to the Salary calculated in accordance with SECTION 7(a) above. 8. OTHER ACTIVITIES OF THE EXECUTIVE. The Executive shall: (a) be required to devote such working time and attention to the Trust's business as is necessary to carry out his responsibilities hereunder; (b) not engage in any activity which may be adverse to the Trust's business, appropriate or usurp business opportunities or engage or invest in businesses or assets which compete directly or indirectly with the Trust; provided that the Executive may invest in publicly-traded entities which are engaged in lines of businesses similar to the Trust; and (c) not become an officer, director or ten percent (10%) shareholder of any such entity. The obligations and limitations set forth in (b) and (c) above shall be in addition to those provided by law. 9. INDEMNIFICATION. The Trust shall indemnify and hold harmless the Executive from liabilities which the Executive may incur resulting from or arising out of any act undertaken in connection with the Executive's duties under this Agreement in the same manner and to the same extent as the Trust is permitted to indemnify any trustee or other officer of the Trust under the Trust's Second Amended and Restated Declaration of Trust, as it may be amended. 10. GENERAL PROVISION. (a) NOTICE. Any notice required or permitted hereunder shall be made in writing either by: (i) actual delivery of the notice into the hands of the party entitled; or (ii) depositing the notice in the United States mail certified or registered, return receipt requested, all postage prepaid and addressed to the party to whom notice is to be given at the party's respective address set forth below, or such other address as the party may from time to time designate by written notice to the other party. If to the Trust: Banyan Strategic Realty Trust Suite 2900 150 South Wacker Drive Chicago, Illinois 60606 Attn: Leonard G. Levine with a copy to: Shefsky & Froelich Ltd. 444 North Michigan Avenue Suite 2500 Chicago, Illinois 60611 Attn: Michael J. Choate, Esq. If to the Executive: Jay E. Schmidt 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 with a copy to: The notice shall be deemed to be received in the case of (i) on the date of its actual receipt by the party entitled thereto and in the case of (ii) on the third business day following the date of mailing. (b) AMENDMENT, MODIFICATION AND WAIVER. No amendment or modification to this Agreement shall be valid or binding on the Trust unless made in writing and signed by an officer of the Trust duly authorized by the Board or upon the Executive unless made in writing and signed by the Executive. The waiver by the Trust or the Executive of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the Executive's duties and annual base cash compensation; and there are no representations, warranties, agreements or commitments between the parties hereto with respect to these duties or compensation except as set forth herein. (d) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Illinois. (e) PROVISIONS SEVERABLE. If any provision of this Agreement shall, for any reason, be held unenforceable, the provision shall be severed from this Agreement unless, as a result of severance, the Agreement fails to reflect the basic intent of the parties. If the Agreement continues to reflect the basic intent of the parties, then the invalidity of any specific provision shall not affect the enforceability of any other provision herein, and the remaining provisions shall remain in full force and effect. (f) ASSIGNMENT. Except as provided herein, the Executive may not, under any circumstances, delegate any of his rights and obligations hereunder without the prior written consent of the Trust. This Agreement and all of the Trust's rights and obligations hereunder may be assigned or transferred by it, in whole or in part, to be binding upon and inure to the benefit of any subsidiary or successor of the Trust. (g) COST OF ENFORCEMENT. In any suit or proceeding seeking to enforce the terms, covenants or conditions of this Agreement, the prevailing parties shall, in addition to all of the remedies and relief that may be available under this Agreement or applicable law, recover his or its reasonable attorneys' fees and costs as shall be determined and awarded by the court or the arbitrator. IN WITNESS WHEREOF, this Agreement is entered into on the day and year first written above. BANYAN STRATEGIC REALTY TRUST By:_________________________ Name: Leonard G. Levine Title: President EXECUTIVE ______________________________ Jay E. Schmidt EX-10.8 6 EXHIBIT 10.8 - ------------ REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of October 1, 1997, between Banyan Strategic Realty Trust, a Massachusetts business trust (together with all of its successors, by merger or otherwise (the "Company"), and Leonard G. Levine ("Levine"). RECITALS WHEREAS, the Company entered into an Employment Agreement, dated as of October 1, 1997 (the "Employment Agreement") with Mr. Levine granting Mr. Levine options to purchase an aggregate of 350,000 shares of the Company's beneficial interest (the "Option Shares"); WHEREAS, the Company has previously issued shares of beneficial interest to Mr. Levine in consideration of amounts earned by Mr. Levine under an employment agreement between Mr. Levine and the Company (the "Shares"); WHEREAS, neither the Shares nor the Option Shares have been registered under the Securities Act and are subject to restrictions on resale or other disposition; and WHEREAS, the Company desires to grant on behalf of itself and all successors, and Mr. Levine desires to accept, the registration rights set forth in this Agreement in respect of the Registrable Shares. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises contained herein and intending to be legally bound the parties agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Holder" means Mr. Levine and any transferee or assignee as permitted under Section 7 hereof. "Registrable Shares" means the Shares and the Option Shares issued to Mr. Levine, including any securities issued in respect thereof pursuant to a stock dividend, stock split, recapitalization or similar event. As to any particular Registrable Shares, once issued such securities shall cease to be Registrable Shares when (A) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, or (B) such securities shall have been sold in accordance with Rule 144 (or any successor provision) under the Securities Act. The terms "register," "registered" and "registration" refer to the preparation and filing with the SEC of a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement or document. "Registration Expenses" means all expenses, except Selling Expenses, incurred by the Company and the Holder while complying with Section 2 of this Agreement. Registration Expenses shall include, without limitation, all registration and filing fees and other qualification fees, blue sky fees, printing expenses and fees and disbursement of the Company's and the Holder's accountants and legal counsel incurred in any registration pursuant to Section 2. "SEC" means the United States Securities and Exchange Commission or any successor agency. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Selling Expenses" means all underwriting discounts, selling commissions and stock transfer taxes relating to the Holder's registered securities. "Senior Securities" means all shares of the Company's beneficial interest issued or issuable under a Share Purchase Agreement to which the Company is a party dated October 10, 1997 and covered by a registration rights agreement to which the Company is a party dated October 10, 1997. SECTION 2. REGISTRATION. (a) PIGGYBANK REGISTRATION STATEMENT. If the Company proposes to register any equity securities (or securities convertible into or exchangeable for equity securities), whether or not for sale for its own account (other than a registration relating to the sale of securities to participants in a dividend reinvestment plan, a registration on Form S-4 relating to a business combination or similar transaction permitted to be registered on such Form S-4, a registration on Form S-8 relating to the sale of securities to participants in a stock or employee benefit plan, a registration pursuant to demand rights granted to the holders of Senior Securities and a registration pursuant to Section 2(b) of this Agreement) the Company will give written notice to the Holder of the Company's intention to effect such a registration and include in such registration all Registrable Shares with respect to which the Company has received written notice from the Holder of inclusion therein within 30 days after the date of the Company's notice, PROVIDED, HOWEVER, that: (i) if, at any time after giving written notice of its intention to register any securities and, prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to the Holder, and, thereupon, the Company shall be relieved of its obligation to register any Registrable Shares in connection with the withdrawn or unfiled registration (but not of its obligation to pay the Registration Expenses in connection therewith pursuant to Section 3 hereto); and (ii) if such registration shall be in connection with an underwritten public offering, and the underwriter or managing underwriter, as the case may be, shall advise the Company that in its opinion the number of shares requested to be included in the registration or offering exceeds the number of such securities which can be sold in such offering, the amount to be registered shall be allocated pro rata among the Company, the Holder and the other holders of the Company's securities desiring to participate in the registration based on the number of shares initially proposed to be included by the Company and the holders; provided, HOWEVER, that if the underwritten public offering is (x) the first to occur after October 10,1997 and (y) completed prior to March 31,1999, then the amount to be registered shall be allocated first to the Company, second pro rata among the holders of Senior Securities desiring to participate in the registration based on the number of shares initially proposed to be included in the registration by the holders of Senior Securities, third to the Holder, and then pro rata among the other holders of the Company's securities requested to be included in the registration based on the number of shares initially proposed to be included by such holders; and (iii) if any registration pursuant to this Section 2(a) is an underwritten public offering, the Holder agrees to enter into customary agreements (including, if requested, an underwriting agreement), and take such other customary actions in connection therewith as the Company or the underwriter(s) shall reasonably request in order to consummate such registration, including, but not limited to, entering into any "Lock-up Agreements" requested by the underwriter(s). (b) DEMAND REGISTRATION STATEMENT. The Holder may at any time, by delivery of written notice to the Company, request that the Company register the offer and sale of all or a portion of the Registrable Shares held by the Holder under the Securities Act and register or qualify under applicable securities laws, and, subject to the provisions of this Agreement, the Company shall effect such demand registration promptly; PROVIDED, HOWEVER, that the Company shall have no obligation under this Section 2(b) if the sale of the Registrable Shares by the Holder is then covered under any other registration statement (including, pursuant to Section 2(a) hereof) that includes such shares on a continuing basis. Each notice to the Company delivered pursuant to the preceding paragraph shall set forth the number of shares to be sold and the proposed manner of sale. The maximum number of such demands under this Section 2(b) shall be three (3). A demand registration will not count as a demand registration hereunder unless it is declared effective by the SEC and remains effective for at least ninety (90) days or such shorter period which shall terminate when all of the Registrable Shares covered by such demand registration have been sold pursuant to such demand registration; PROVIDED, HOWEVER, that in the event a registration statement is withdrawn at the request of the Holder, the Holder will be deemed to have used one of the demand rights granted pursuant to this Section 2(b). These rights are in addition to, and shall not limit, the registration rights of the Holder granted pursuant to Section 2(a) hereunder. No other holder, except for the holders of Senior Securities shall be entitled to participate in a registration under this Section 2(b). If the managing underwriter of an underwritten offering under this Section 2(b) advises the Company in writing that in its opinion the number of shares requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration only the number of shares which, in the opinion of such underwriter, can be sold allocated pro rata among the Holder and the holders of Senior Securities requested to be included in the registration, based on the number of shares initially proposed to be included by the Holder and the holders of Senior Securities; provided, HOWEVER, that if the underwritten public offering is (x) the first to occur after October 10, 1997 and (y) completed prior to March 31,1999, then the amount to be registered shall be allocated first to the holders of Senior Securities and second to the Holder.; If any of the Registrable Shares covered by a demand registration are to be sold in an underwritten offering, the Holder shall have the right to select the managing underwriter(s) to administer the offering. (c) NOTICE OF EFFECTIVENESS. Upon declaration of effectiveness by the SEC of a registration statement filed pursuant to this Agreement, the Company shall give written notice thereof to the Holder. (d) BLACKOUT PERIODS. Following the effective date of any registration statement filed pursuant to this Section 2, the Company shall be entitled, from time to time, to notify the Holder to discontinue offers or sales of securities pursuant to such registration statement for Registrable Shares for the period of time stated in such notice, up to a maximum of one hundred eighty (180) consecutive days (such notice being a "Blackout Notice"), if the Company determines, in its reasonable business judgment, that the disclosure required in connection with such offers and sales would materially damage the prospects for successfully completing an acquisition, corporate reorganization, securities offering or other voluntary transaction undertaken by the Company (which the Company would not be required to disclose at such time other than in connection with the Holder's registration statement) that is material to the Company and its subsidiaries taken as a whole. Such notice shall be signed by an authorized officer of the Company and shall certify such determination. The Holder agrees that upon receipt of a Blackout Notice the Holder shall discontinue offers or sales of Registrable Shares pursuant to any such registration statement for the period of time stated in the Blackout Notice (up to a maximum of one hundred eighty (180) consecutive days) and the time period set forth in Subsection 2(e) shall be tolled during such period. The Company shall not cause more than one hundred eighty (180) days within any period of three hundred sixty (360) consecutive days to be subjected to Blackout Notices and shall use its best commercially reasonable efforts to minimize the period of time subjected to Blackout Notices. (e) EFFECTIVENESS OF REGISTRATION STATEMENTS. The Company shall cause any registration statement filed pursuant to this Section 2 to remain effective for at least ninety (90) days after it is declared or ordered effective (increased by the period of any "Blackout Notice" described in (d) above) or until the Holder has completed the distribution described therein, whichever first occurs. SECTION 3. EXPENSES OF REGISTRATION. The Company shall bear the Registration Expenses arising out of all registrations hereunder; PROVIDED, HOWEVER, that all Selling Expenses relating to the securities of the Holder shall be borne by the Holder and the Company shall have no liability therefor. SECTION 4. REGISTRATION PROCEDURES. For each registration, qualification or compliance carried out by the Company pursuant to this Agreement, the Company shall give the Holder written notice of the initiation of such registration, qualification or compliance and the Company will: (a) provide to the Holder, if participating in such registration, a reasonable number of copies, without charge, of the registration statement, preliminary prospectus, final prospectus and any other documents as may reasonably be necessary to facilitate a public offering; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during the effectiveness of such registration statement; (c) use its best efforts to register or qualify all securities covered by such registration statement under such securities or blue sky laws of such jurisdiction as the Holder shall reasonably request, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction or to consent generally to service of process in any such jurisdiction; and (d) immediately notify the Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of the Holder prepare and furnish to the Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. SECTION 5. INFORMATION BY HOLDER. The Holder, when participating in any registration, shall provide the Company, when requested, with written information regarding itself, its ownership of securities of the Company, the distribution proposed by the Holder and such other information as may be legally required in connection with such registration. Such writing shall expressly state that it is being furnished to the Company for use in the preparation of a registration statement, preliminary prospectus, supplementary prospectus, final prospectus or amendment or supplement thereto, as the case may be. The Holder agrees, by its acceptance of the benefits provided to it hereunder, to furnish promptly to the Company all information required to be disclosed in order to make any previously furnished information not misleading. SECTION 6. INDEMNIFICATION. (a) The Company will indemnify the Holder, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including without limitation any of the foregoing incurred in the defense and settlement of any litigation, (i) arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, preliminary prospectus, prospectus or documents incorporated by reference therein, or based upon any omission (or alleged omission) of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) incurred or arising out of any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act; PROVIDED, HOWEVER, that the Company will not be under an obligation to indemnify the Holder if any of the foregoing are made in reliance upon information furnished to the Company by the Holder in writing expressly for inclusion in such registration statements. (b) The Holder will indemnify the Company, its directors and officers, and each person who controls the Company within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities incurred (or actions in respect thereof) arising out of any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or based upon any omission (or alleged omission) of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent made in reliance upon information furnished to the Company by the Holder in writing expressly for inclusion in such registration statement. (c) Each party entitled to indemnification under this Section 6 ("Indemnified Party") shall give prompt notice to the party required to provide indemnification ("Indemnifying Party") as soon as the Indemnified Party has actual knowledge of any claim for which indemnity may be sought, and shall permit the Indemnifying Party to assume and control the defense of any such claim or any litigation resulting therefrom, provided that the Indemnified Party will have the right to select counsel, subject to the approval of the Indemnifying Party (whose approval shall not be unreasonably withheld), to defend such claim or litigation, and provided further that the Indemnified Party may participate in such defense at the Indemnified Party's expense. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, consent to the entry of any judgment or enter into any settlement which (i) provides for any remedy other than the prompt payment of damages (and expenses) by the Indemnifying Party, without the admission of wrongdoing on the part of the Indemnified Party and (ii) does not include an unconditional provision releasing Indemnified Party from all liability in respect of such claim or litigation. The failure of any Indemnified Party to give notice of a claim subject to indemnification shall not relieve the Indemnifying Party of its obligations under this Agreement except to the extent the failure to give such notice is materially prejudicial to the Indemnifying Party's ability to defend such claim. Notwithstanding anything to the contrary in this paragraph, the Indemnifying Party shall not have the right to assume the defense for matters as to which there is a conflict of interest with, or separate and different defenses available to, the Indemnified Party. In defending such a claim the Indemnified Party shall conduct the defense and settlement thereof, but the expenses, fees and disbursements therefore shall be promptly paid by the Indemnifying Party. (d) If the indemnification provided for in this Section 6 is unavailable to or unenforceable by the Company or the Holder in respect of any expenses, claims, losses, damages, and liabilities referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such expenses, claims, losses, damages and liabilities in such proportions as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Parties in connection with the actions or inactions which resulted in such expenses, claims, losses, damages, and liabilities, as well as any other relevant equitable considerations (including the relative fault and indemnification or contribution obligations of other relevant parties). The relative fault of the Indemnifying Party on the one hand and of the Indemnified Parties on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party, and by such party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company and Holder under this Section 6 shall survive the completion of any offering of Registrable Shares in a registration statement under this Agreement, and otherwise. SECTION 7. TRANSFER OF REGISTRATION RIGHTS. The Holder's rights under this Agreement may be assigned or transferred (in whole or in part) to any party who is or becomes a holder of Registrable Shares. SECTION 8. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Holder. Any amendment or waiver effected in accordance with this Section 8 shall be binding upon the Holder, each transferee or assignee of Holder pursuant to Section 7 of this Agreement. SECTION 9. TERMINATION OF REGISTRATION RIGHTS. The Holder shall not be entitled to exercise any right provided for in Section 2 of this Agreement after the tenth anniversary of the date hereof. SECTION 10. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made (i) when delivered personally or by telecopier, (ii) if to a party in the same country as the mailing party, when mailed first class registered or certified mail, postage prepaid, or (iii) if to a party in a different country from the sending party, on the second day following deposit with a reputable commercial air courier, charges prepaid, to each respective party as shown below: (a) If to the Holder: Mr. Leonard G. Levine Banyan Strategic Realty Trust 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 Telecopier: 312-553-0450 with a copy to: Alan Patzik, Esq. Patzik, Frank & Samotny Ltd. 150 South Wacker Drive, Suite 900 Chicago, Illinois 60606 Telecopier: 312-551-1101 (b) If to the Company to: Banyan Strategic Realty Trust 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 Attention: General Counsel Telecopier: 312-553-0450 with a copy to: Shefsky & Froelich Ltd. 444 North Michigan Avenue Suite 2500 Chicago, Illinois 60611 Attention: Michael J. Choate, Esq. Telecopier: 312-527-5921 SECTION 11. PARTIES IN INTEREST. This Agreement shall be binding upon and inure to the benefit of each party, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to any party to this Agreement. SECTION 12. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 13. HEADINGS. The headings in this Agreement are for convenience only and shall not limit or otherwise affect the meaning hereof. SECTION 14. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to principles of conflict of law. Each party hereby irrevocably submits to and accepts for itself and its properties, generally and unconditionally, the exclusive jurisdiction of and service of process pursuant to the laws of the State of Illinois and the rules of its courts, waives any defense of forum non conveniens and agrees to be bound by any judgment rendered thereby arising under or out of in respect of or in connection with this Agreement or any related document or obligation. Each party further irrevocably designates and appoints the individual identified in or pursuant to Section 10 hereof to receive notices (not copies) on its behalf, as its agent to receive on its behalf service of all process in any such action before any body, such service being hereby acknowledged to be effective and binding service in every respect. A copy of any such process so served shall be mailed by registered mail to each party at its address provided in Section 10; provided that, unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of the service of such process. If any agent so appointed refuses to accept service, the designating party hereby agrees that service of process sufficient for personal jurisdiction in any action against it in the applicable jurisdiction may be made by registered or certified mail, return receipt requested, to its address provided in Section 10. Each party hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law. SECTION 15. SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. SECTION 16. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties with respect to the subject matter of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. COMPANY: BANYAN STRATEGIC REALTY TRUST, a Massachusetts business trust By: /S/ ROBERT G. HIGGINS ------------------------------ Printed Name: Robert G. Higgins Title: Vice President /S/ LEONARD G. LEVINE ------------------------------------ Leonard G. Levine EX-21 7 EXHIBIT 21 - ---------- SUBSIDIARIES OF BANYAN STRATEGIC REALTY TRUST NAME OF SUBSIDIARY STATE OF ORGANIZATION ------------------- ---------------------- Banyan/Morgan Milwaukee Limited Partnership Illinois Banyan/Morgan Willowbrook L.P. Illinois BSLT Milwaukee Corp. Illinois BSRT Lexington Trust Massachusetts BSRT Lexington B Corp. Illinois BSRT/M&J Northlake Limited Partnership Illinois BSRT Merger Corp. Illinois BSRT Newtown Trust Massachusetts BSRT Northlake Festival Corp. Illinois BSRT Kentucky Management Corp. Illinois BSRT Riverport Trust Massachusetts BSRT/STM Business Center Trust Massachusetts BSRT Willburr Corp. Illinois BSRT Woodcrest Office Corp. Illinois BSRT Woodcrest Office Park Limited Partnership Illinois Banyan/Morgan MOC Limited Partnership Illinois BSRT Brook Corp. Illinois BSRT UPREIT Corp. Illinois BSRT UPREIT Limited Partnership Illinois BSRT Butterfield Office Plaza L.L.C. Illinois BSRT Southlake L.L.C. Illinois BSRT University Square L.L.C. Illinois BSRT Technology Center L.L.C. Illinois BSRT Airways Plaza L.L.C. Illinois BSRT Management Corp. Illinois BSRT Peachtree Pointe L.L.C. Illinois BSRT 316 Business Center L.L.C. BSRT Avalon Center L.L.C. Illinois BSRT Sand Lake Tech Center L.L.C. Illinois BSRT Park Center L.L.C. Illinois BSRT Metric Plaza L.L.C. Illinois BSRT Avalon Ridge L.L.C. BSRT University Corporate Center L.L.C. Illinois BSRT Fountain Square L.L.C. Illinois BSRT Phoenix Business Park L.L.C. Illinois BSRT Portfolio Corp. Illinois Tower Lane Limited Partnership Illinois Butterfield O'Hare L.P. Illinois BSRT Milwaukee Elmhurst L.L.C. Illinois BSRT Johns Creek L.L.C. Illinois BSRT Portfolio C Corp. Illinois Banyan/Morgan Wisconsin L.L.C. Illinois Banyan/Morgan Elmhurst L.L.C. Illinois BSRT Technology Park (GA.) L.L.C. Illinois BSRT Portfolio B Corp. Illinois BSRT Oklahoma Woodrun L.L.C. Illinois BSRT Oklahoma Winchester Run L.L.C. Illinois BSRT Oklahoma Country Creek L.L.C. Illinois BSRT Oklahoma Willowpark L.L.C. Illinois BSRT Commerce Center L.L.C. Illinois EX-23 8 EXHIBIT 23 - ---------- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements Form S-8 No. 333-49437 and Form S-3 No. 333-00047 of Banyan Strategic Realty Trust of our report dated February 9, 1999, with respect to the consolidated financial statements and schedule of Banyan Strategic Realty Trust included in the Annual Report (Form 10-K) for the year ended December 31, 1998. Ernst & Young LLP Chicago, Illinois March 11, 1999 EX-27 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BANYAN STRATEGIC REALTY TRUST'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. 12-MOS DEC-31-1998 DEC-31-1998 3,731 0 1,544 0 0 5,275 220,916 (11,427) 222,590 4,986 151,648 62,434 0 0 0 222,590 0 39,416 0 0 23,547 0 9,778 5,519 0 5,519 0 (141) 0 5,378 .40 .39
EX-99.2 10 EXHIBIT 99.2 - ------------ AT THE TRUST: AT THE FINANCIAL RELATIONS BOARD: Karen Dickelman Tony Ebersole Laura Kuhlmann Georganne Palffy Director - General Info. Media Inquiries Analyst Inquiries Investor 312 640-6728 312 640-6727 312 640-6768 Relations 312 683-3671 FOR IMMEDIATE RELEASE WEDNESDAY, FEBRUARY 17, 1999 BANYAN STRATEGIC REALTY TRUST REPORTS $0.205 FFO PER SHARE FOR FOURTH QUARTER: 1998 FFO PER SHARE UP 44% TO $0.75 BANYAN STRATEGIC REALTY TRUST HIGHLIGHTS* . Fourth Quarter FFO of $0.205 per share, up 40 percent from a year ago; full year FFO per share of $0.75, up 44 percent . 1998 Revenues of $39.4 million, an increase of 37 percent from a year ago . Full year EBITDA of $21.4 million, up 53 percent from previous year . 1998 portfolio growth of 29 percent to 3.7 million square feet . Average occupancy of portfolio of 90 percent at December 31, 1998 . Quarterly cash distribution of $0.12 per share declared. Total distributions up 20 percent for the full year. * Per share data presented on diluted basis. CHICAGO, FEBRUARY 17, 1999 -- BANYAN STRATEGIC REALTY TRUST (NASDAQ: BSRTS) a real estate investment trust, today announced fourth quarter 1998 funds from operations (FFO) of $2.8 million, or $0.205 per share, a more than 40 percent increase in total FFO from last year's fourth quarter. For the full year 1998, total FFO increased 44 percent from the previous year to $10.4 million, or $0.75 per share. The company's improved fourth quarter and year-end results were driven by its portfolio growth during 1998, along with continued internal growth and the strong demand throughout the markets its serves by its office and flex/industrial properties. During 1998, Banyan acquired a total of 10 office and/or flex/industrial properties, bringing the total amount invested in new acquisitions in 1998 to approximately $60 million, or 834,600 net rentable square feet, a 29 percent increase in square footage from year-end 1997. Weighted average occupancy rates at the Trust's 32 properties as of December 31, 1998 was approximately 90 percent. MORE... BANYAN STRATEGIC REALTY TRUST ADD 1 CONSOLIDATED FINANCIAL RESULTS - ------------------------------ Banyan reported fourth quarter 1998 revenues of $10.6 million, an increase of 28.7 percent from the $8.3 million in revenues during the same period the previous year. FFO increased 34 percent to $2.8 million, or $0.205 per share, from $2.0 million, or $0.15 per share in the fourth quarter last year. Net income in the recent quarter was $1.4 million, or $0.10 per share, compared with net income of $1.0 million, or $0.08 per share during the same period the previous year. For the twelve months ending December 31, 1998, Banyan reported a 36 percent increase in revenues to $39.4 million, compared with revenues of $28.8 million during the same period the previous year. Total FFO increased 44 percent in 1998 to $10.4 million, or $0.75 per share, from FFO of $5.8 million, or $0.52 per share during 1997. Net income was $5.4 million, or $0.39 per share in 1998, compared with net income of $3.5 million or $0.32 per share the previous year. TEN NEW ACQUISITIONS IN 1998 INCREASED PORTFOLIO BY 26 PERCENT - -------------------------------------------------------------- During 1998, Banyan acquired 10 properties for a total consideration of $59.6 million, increasing its total portfolio by 834,600 square feet, a 29 percent increase from the previous year. New acquisitions during 1998 included office and flex/industrial buildings totaling 328,100 square feet in Norcross, Georgia, in northeast suburban Atlanta; flex/industrial buildings totaling 119,300 square feet in Duluth and Suwanee, Georgia, also northeast suburbs of Atlanta, multi-tenant office properties in Orlando and Winter Park, Florida, comprising 291,300 square feet; and Tower Lane Business Park in Bensenville, Illinois, outside Chicago, comprising 95,900 square feet of flex/industrial space. "All our acquisitions last year were made at what we think are very favorable capitalization rates, averaging 11 percent, allowing for immediate impact on earnings and FFO. Importantly, the additions made to our suburban Atlanta and Chicago property base, as well as our new entry into the Orlando market, are consistent with our strategy of serving the smaller tenants in markets with sound real estate fundamentals," Mr. Levine said. "As opportunities present themselves, we will continue to seek these same kind of value-added, accretive acquisitions in our niche markets in the office and flex/industrial sectors of economically strong mid-size cities and metropolitan suburban areas." PORTFOLIO PERFORMANCE - RENTAL INCOME UP SIGNIFICANTLY FOR FOURTH QUARTER AND FULL YEAR - ------------------------------------------------------ Rental income from the Trust's portfolio increased 27 percent to $9.4 million during the fourth quarter, compared with $7.4 million during the same period a year ago, reflecting the addition of ten properties acquired since the end of last year's fourth quarter. For the full year 1998, rental income increased 35.8 percent to $34.5 million compared with $25.4 million the previous year. Total property operating expenses as a percent MORE... BANYAN STRATEGIC REALTY TRUST ADD 2 of total revenue decreased to 32.9 percent in the fourth quarter of 1998 from 34.0 percent for the same period the previous year. Total net operating income increased 30.7 percent to $7.1 million in the fourth quarter ended December 31, 1998, compared with the same period last year. For the full year 1998, net operating income increased 43.6 percent to $26.0 million, compared with $18.1 million in 1997. BALANCE SHEET - ------------- At December 31, 1998, total assets at net book value were approximately $222.6 million. The debt total market capitalization ratio was 68 percent, based on a total market capitalization of $227.0 million on a December 31, 1998 share price of $5.625. EBITDA (earnings before interest, tax, depreciation and amortization) was $5.9 million, up 37.9 percent from the previous year's fourth quarter. For the full year, EBITDA was $21.4 million, an increase of 53.2 percent for the previous year. EBITDA coverage ratio through December 31, 1998 was 2.18. The Trust had $151.6 million of total debt outstanding as of December 31, 198. QUARTERLY CASH DISTRIBUTION AND FUNDS AVAILABLE FOR DISTRIBUTION (FAD) - ---------------------------------------------------------------------- On January 6, Banyan declared a quarterly cash distribution of $0.12 per share for the fourth quarter ended December 31, 1998. The distribution is payable February 22, 1999 to shareholders of record as of January 22, 1999. During 1998, the annualized distribution was $0.48 per share, in increase of 20 percent from the previous year, based on the Trust's increased levels of FFO. Funds Available for Distribution (FAD) totaled $2.3 million for the three months ended December 31, 1998, or $0.17 per share. FAD for the year ended December 31, 1998 totalled $8.6 million, or $0.62 per share. FAD is calculated by adjusting FFO for straight-line rents, lease commissions paid and normalized reserves for capital improvements. The capital reserve is $0.075 per square foot for flex/industrial properties, $0.10 per square foot for office properties, $0.15 per square foot for retail property and $200 per residential unit. OUTLOOK - ------- Mr. Levine added, "Even with our existing portfolio, we have targeted 1999 FFO of between $0.82 and $0.83 per share. In addition, we will maintain our focus on internal growth through favorable leasing transactions and rental increase, since the markets in which we operate exhibit strong real estate fundamentals. At the same time, we continue to seek value-added acquisitions. Our conversion to an UPREIT format during the fourth quarter gives us added flexibility in structuring capital alternatives in the future." MORE... BANYAN STRATEGIC REALTY TRUST ADD 3 Banyan Strategic Realty Trust is an equity Real Estate Investment Trust (REIT) that owns and acquires primarily office and flex/industrial properties. The properties are located in certain major metropolitan areas of Atlanta, Georgia and Chicago, Illinois and smaller markets such as Huntsville, Alabama; Louisville, Kentucky; Memphis, Tennessee; and Orlando, Florida located in the Midwestern and Southeastern United States. The Trust's current portfolio consists of 32 properties totaling 3.7 million rentable square feet and 864 apartment units. As of this date, the Trust has 13,390,688 shares of beneficial interest outstanding. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, CERTAIN MATTERS DISCUSSED IN THIS RELEASE ARE FORWARD-LOOKING STATEMENTS, THE ACHIEVEMENT OF WHICH INVOLVE RISKS AND UNCERTAINTIES THAT ARE DETAILED FROM TIME TO TIME IN OUR REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998. THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - RISKS FACTORS" SECTION WAS INCLUDED IN OUR FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998 THIS SECTION WILL NEXT BE UPDATED AND FILED WITH THE COMMISSION BY MARCH 30, 1999 AS PART OF OUR REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998. WITHOUT LIMITATION, THE FOREGOING WORDS SUCH AS "ANTICIPATES", "EXPECTS", "INTENDS", "PLANS", AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SEE BANYAN'S WEBSITE AT http://www.banyanreit.com. FOR FURTHER INFORMATION REGARDING BANYAN FREE OF CHARGE VIA FAX, DIAL 1-800-PRO-INFO AND ENTER "BSRTS." FINANCIAL TABLES TO FOLLOW BANYAN STRATEGIC REALTY TRUST ADD 4 BANYAN STRATEGIC REALTY TRUST SELECTED FINANCIAL DATA (Dollars in Thousands, except per share data)
Three Months Ended Year Ended 12/31/98 12/31/97 12/31/98 12/31/97 ---------- ---------- ---------- ---------- Total revenue . . . . . . . . . . . . $ 10,643 $ 8,269 $ 39,416 $ 28,785 Recovery of losses on loans, notes and interest receivable. . . . -- 161 -- 161 Operating expenses. . . . . . . . . . (9,133) (7,078) (33,325) (25,664) -------- --------- --------- -------- Operating income. . . . . . . . . . . 1,510 1,352 6,091 3,282 Minority interest in consolidated partnerships. . . . . . . . . . . . (123) (126) (572) (590) Income of real estate ventures. . . . -- -- -- 37 Net gain on disposition of investments in real estate. . . . . -- (195) -- 881 Extraordinary item, net of minority interest . . . . . . . . . -- (64) (141) (64) -------- --------- --------- -------- Net income. . . . . . . . . . . . . . $ 1,387 $ 967 $ 5,378 $ 3,546 ======== ======== ======== ======== Earnings per share of Beneficial Interest - Basic: Income before Net Gains and Extraordinary Item. . . . . . . . $ 0.10 $ 0.09 $ 0.41 $ 0.24 Net Income. . . . . . . . . . . . . $ 0.10 $ 0.08 $ 0.40 $ 0.32 ======== ======== ======== ======== Earnings per share of Beneficial Interest - diluted: Income before Net Gains and Extraordinary Item. . . . . . . . $ 0.10 $ 0.09 $ 0.40 $ 0.24 Net Income. . . . . . . . . . . . . $ 0.10 $ 0.08 $ 0.39 $ 0.32 ======== ======== ======== ======== BANYAN STRATEGIC REALTY TRUST SELECTED FINANCIAL DATA - CONTINUED (Dollars in Thousands, except per share data) Three Months Ended Year Ended 12/31/98 12/31/97 12/31/98 12/31/97 ---------- ---------- ---------- ---------- FUNDS FROM OPERATIONS Net income. . . . . . . . . . . . . . $ 1,387 $ 967 $ 5,378 $ 3,546 PLUS: - ---- Depreciation expense. . . . . . . . . 1,371 916 4,770 3,277 Depreciation included in operations of real estate ventures . . . . . . -- -- -- 15 Lease commission amortization . . . . 122 68 406 208 LESS: - ---- Minority interest share of depreciation expense. . . . . . . . (80) (57) (284) (254) Minority interest share of lease commission amortization . . . (10) (5) (31) (21) Recovery of losses on loans, notes and interest receivable . . . . . . -- (161) -- (161) Net gain on disposition of investments in real estate. . . . . -- 195 -- (881) Extraordinary item, net of minority interest . . . . . . . . . -- 64 141 64 -------- -------- -------- -------- Funds from operations . . . . . . . . $ 2,790 $ 1,987 $ 10,380 $ 5,793 ======== ======== ======== ========
BANYAN STRATEGIC REALTY TRUST ADD 5 BANYAN STRATEGIC REALTY TRUST PORTFOLIO SUMMARY
Scheduled Lease Expirations --------------------------- Square Occu- After Location Footage pancy % 1999 2000 2001 2001 -------- ------- ------- ---- ---- ---- ----- FLEX/INDUSTRIAL Milwaukee Industrial Portfolio Milwaukee, Wisconsin 235,800 81% 14% 15% 9% 43% Elmhurst Metro Court Elmhurst, Illinois 140,800 69% 40% 3% 25% 1% Willowbrook Court Willowbrook, Illinois 84,300 100% 57% 11% 13% 19% Quantum Business Centre Louisville, Kentucky 182,300 74% 16% 21% 19% 18% 6901 Riverport Drive Louisville, Kentucky 322,100 100% 0% 45% 0% 55% Lexington Business Center Lexington, Kentucky 308,800 44% 20% 15% 9% 0% Newtown Business Center Lexington, Kentucky 87,100 95% 33% 4% 37% 21% Avalon Ridge Business Park Norcross, Georgia 57,400 100% 0% 0% 0% 100% Metric Plaza Winter Park, Florida 32,000 100% 0% 0% 0% 100% Park Center Orlando, Florida 47,400 75% 6% 7% 42% 20% University Corporate Center Winter Park, Florida 127,800 100% 28% 46% 11% 15% Tower Lane Business Park Bensenville, Illinois 95,900 90% 34% 26% 22% 8% Johns Creek Office and Industrial Park Duluth and Suwanee, Georgia 119,300 100% 0% 0% 50% 50% --------- ---- ---- ---- ---- ---- Sub-Total 1,841,000 82% 18% 20% 15% 29% --------- ---- ---- ---- ---- ---- OFFICE Colonial Penn Insurance Tampa, Florida 79,200 100% 0% 100% 0% 0% Florida Power & Light Sarasota, Florida 81,100 100% 0% 0% 11% 89% Woodcrest Office Park Tallahassee, Florida 264,900 91% 14% 21% 12% 44% Midwest Office Center Oakbrook Terrace, Illinois 77,000 94% 23% 33% 14% 24% Phoenix Business Park Atlanta, Georgia 110,600 94% 34% 26% 13% 21% Butterfield Office Plaza Oak Brook, Illinois 200,800 93% 16% 27% 16% 34% Southlake Corporate Center Morrow, Georgia 56,200 93% 0% 13% 42% 38% University Square Business Center Huntsville, Alabama 184,700 94% 39% 12% 24% 19% Technology Center Huntsville, Alabama 48,500 100% 0% 100% 0% 0% Airways Plaza Office Center Memphis, Tennessee 87,800 97% 93% 0% 4% 0% Peachtree Pointe Office Park Norcross, Georgia 71,700 96% 33% 18% 13% 32% Avalon Center Office Park Norcross, Georgia 53,300 100% 0% 0% 0% 100% Sand Lake Tech Center Orlando, Florida 84,100 97% 23% 0% 0% 74% Technology Park Norcross, Georgia 145,700 100% 21% 9% 26% 44% --------- ---- ---- ---- ---- ---- Sub-Total 1,545,600 95% 23% 22% 14% 36% --------- ---- ---- ---- ---- ---- BANYAN STRATEGIC REALTY TRUST PORTFOLIO SUMMARY Scheduled Lease Expirations --------------------------- Square Occu- After Location Footage pancy % 1999 2000 2001 2001 -------- ------- ------- ---- ---- ---- ----- RETAIL Northlake Tower Festival Shopping Center Atlanta, Georgia 321,600 99% 4% 18% 3% 74% --------- ---- ---- ---- ---- ---- Total 3,708,200 89% 19% 21% 14% 35% ========= ==== ==== ==== ==== ==== RESIDENTIAL Residential Occu- Units pancy % ----------- ------- Country Creek Oklahoma City, Oklahoma 320 90% Willowpark Lawton, Oklahoma 160 94% Winchester Run Oklahoma City, Oklahoma 192 95% Woodrun Village Oklahoma City, Oklahoma 192 98% ----- ---- Total 864 94% ===== ==== PORTFOLIO TOTAL 90% ====
-----END PRIVACY-ENHANCED MESSAGE-----