10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000. 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 (I.R.S. Employer incorporation or organization) Identification No.) 150 South Wacker Drive, Chicago, IL 60606 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (312) 553-9800 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ]. NO [ ]. Shares of beneficial interest outstanding as of November 10, 2000: 14,245,649 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BANYAN STRATEGIC REALTY TRUST Consolidated Balance Sheets (Unaudited) (Dollars in thousands) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ----------- ASSETS ------ Investment in Real Estate, at cost: Land . . . . . . . . . . . . . . . $ 36,445 $ 36,445 Building . . . . . . . . . . . . . 148,608 148,608 Building Improvements. . . . . . . 18,632 14,211 ---------- ---------- 203,685 199,264 Less: Accumulated Depreciation . . (19,898) (15,420) ---------- ---------- 183,787 183,844 ---------- ---------- Cash and Cash Equivalents. . . . . . 3,209 13,097 Restricted Cash - Capital Improvements . . . . . . . 1,101 1,497 Restricted Cash - Other. . . . . . . 1,757 1,171 Interest and Accounts Receivable . . 1,377 1,186 Deferred Financing Costs (Net of Accumulated Amortization of $1,554 and $1,512, respectively). . . . . . . . . . . 1,285 1,568 Other Assets . . . . . . . . . . . . 4,523 4,284 ---------- ---------- Total Assets . . . . . . . . . . . . $ 197,039 $ 206,647 ========== ========== BANYAN STRATEGIC REALTY TRUST Consolidated Balance Sheets - CONTINUED SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities Mortgage Loans Payable . . . . . . . $ 113,841 $ 120,781 Bonds Payable. . . . . . . . . . . . 4,500 4,500 Unsecured Loan Payable . . . . . . . -- 7,400 Accounts Payable and Accrued Expenses . . . . . . . . . 3,514 2,767 Accrued Real Estate Taxes Payable. . 1,726 908 Accrued Interest Payable . . . . . . 656 615 Unearned Revenue . . . . . . . . . . 923 922 Security Deposits. . . . . . . . . . 1,370 1,203 ---------- ---------- Total Liabilities. . . . . . . . . . 126,530 139,096 ---------- ---------- Minority Interest in Consolidated Partnerships. . . . . 2,371 2,256 Shareholders' Equity Series A Convertible Preferred Shares, No Par Value, 200,000 Shares Authorized, 61,572 Shares Issued and Outstanding. . . . . . . . . . . . 6,157 -- Shares of Beneficial Interest, No Par Value, Unlimited Authorization; 15,760,810 and 15,073,917 Shares Issued, respectively . . . . . . . . . . . 124,332 120,707 Accumulated Deficit. . . . . . . . . (51,826) (48,046) Employees' Notes . . . . . . . . . . (3,159) -- Treasury Shares at Cost, 1,522,649 Shares . . . . . . . . . (7,366) (7,366) ---------- ---------- Total Shareholders' Equity . . . . . 68,138 65,295 ---------- ---------- Total Liabilities and Shareholders' Equity . . . . . . . $ 197,039 $ 206,647 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. BANYAN STRATEGIC REALTY TRUST Consolidated Statements of Operations For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except per share data) 2000 1999 -------- -------- REVENUE Rental Income. . . . . . . . . . . . . . . . . . $ 24,438 $ 27,611 Operating Cost Reimbursement . . . . . . . . . . 2,849 2,831 Miscellaneous Tenant Income. . . . . . . . . . . 263 865 Income on Investments and Other Income . . . . . 545 113 -------- -------- Total Revenue. . . . . . . . . . . . . . . . . . . 28,095 31,420 -------- -------- EXPENSES Property Operating . . . . . . . . . . . . . . . 3,400 4,043 Repairs and Maintenance. . . . . . . . . . . . . 2,762 3,327 Real Estate Taxes. . . . . . . . . . . . . . . . 2,087 2,237 Interest . . . . . . . . . . . . . . . . . . . . 6,889 8,719 Ground Lease . . . . . . . . . . . . . . . . . . 694 704 Depreciation and Amortization. . . . . . . . . . 5,092 4,916 General and Administrative . . . . . . . . . . . 3,193 3,229 Amortization of Deferred Financing Costs . . . . 226 196 Severance and Termination Costs. . . . . . . . . 1,557 -- -------- -------- Total Expenses . . . . . . . . . . . . . . . . . . 25,900 27,371 Income Before Minority Interest and Extraordinary Item . . . . . . . . . . . . . . . 2,195 4,049 Minority Interest in Consolidated Partnerships . . . . . . . . . . . . . . . . . . (403) (381) -------- -------- Income Before Extraordinary Item . . . . . . . . . 1,792 3,668 Extraordinary Item . . . . . . . . . . . . . . . . (42) -- -------- ------- Net Income . . . . . . . . . . . . . . . . . . . . 1,750 3,668 Less Income Attributable to Preferred Shares . . . (431) -- -------- -------- Net Income Available to Common Shares. . . . . . . $ 1,319 $ 3,668 ======== ======== Basic and Diluted Earnings Available to Common Shares per weighted-average Common Share: Income Before Extraordinary Item . . . . . . . . $ 0.09 $ 0.27 ======== ======== Net Income . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.27 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. BANYAN STRATEGIC REALTY TRUST Consolidated Statements of Operations For the Three Months Ended September 30, 2000 and 1999 (Unaudited) (Dollars in thousands, except per share data) 2000 1999 -------- -------- REVENUE Rental Income. . . . . . . . . . . . . . . . . . $ 8,159 $ 9,277 Operating Cost Reimbursement . . . . . . . . . . 900 910 Miscellaneous Tenant Income. . . . . . . . . . . 99 295 Income on Investments and Other Income . . . . . 127 27 -------- -------- Total Revenue. . . . . . . . . . . . . . . . . . . 9,285 10,509 -------- -------- EXPENSES Property Operating . . . . . . . . . . . . . . . 1,211 1,400 Repairs and Maintenance. . . . . . . . . . . . . 928 1,055 Real Estate Taxes. . . . . . . . . . . . . . . . 664 764 Interest . . . . . . . . . . . . . . . . . . . . 2,274 2,940 Ground Lease . . . . . . . . . . . . . . . . . . 232 239 Depreciation and Amortization. . . . . . . . . . 1,760 1,682 General and Administrative . . . . . . . . . . . 1,049 1,035 Amortization of Deferred Financing Costs . . . . 67 65 Severance and Termination Costs. . . . . . . . . 1,557 -- -------- -------- Total Expenses . . . . . . . . . . . . . . . . . . 9,742 9,180 Income (Loss) Before Minority Interest . . . . . . (457) 1,329 Minority Interest in Consolidated Partnerships . . . . . . . . . . . . . . . . . . (130) (126) -------- -------- Net Income (Loss). . . . . . . . . . . . . . . . . (587) 1,203 Less Income Attributable to Preferred Shares . . . (155) -- -------- -------- Net Income (Loss) Available to Common Shares . . . $ (742) $ 1,203 ======== ======== Basic and Diluted Earnings Available to Common Shares per weighted-average Common Share: Net Income (Loss). . . . . . . . . . . . . . . . $ (0.05) $ 0.09 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. BANYAN STRATEGIC REALTY TRUST Consolidated Statement of Shareholders' Equity For the Nine Months Ended September 30, 2000 (Unaudited) (Dollars in thousands)
Series A Convertible Shares of Preferred Shares Beneficial Interest Accumu- --------------------- --------------------- lated Employees' Treasury Shares Amount Shares Amount Deficit Notes Shares Total ---------- -------- ---------- --------- --------- ---------- -------- -------- Shareholders' Equity, January 1, 2000. . . . . . . . -- $ -- 15,073,917 $120,707 $(48,046) $ -- $(7,366) $65,295 Issuance of Shares, net of issuance costs . . . . . . . 61,572 6,157 686,893 3,625 -- -- -- 9,782 Employees' Notes, net of repay- ments . . . . . . . -- -- -- -- -- (3,159) -- (3,159) Net Income . . . . . -- -- -- -- 1,750 -- -- 1,750 Common Distri- butions Paid. . . . -- -- -- -- (5,099) -- -- (5,099) Preferred Distri- bution Paid . . . . -- -- -- -- (431) -- -- (431) ------ -------- ---------- -------- -------- -------- -------- -------- Shareholders' Equity, September 30, 2000. . . . . . . . 61,572 $ 6,157 15,760,810 $124,332 $(51,826) $(3,159) $ (7,366) $ 68,138 ====== ======== ========== ======== ======== ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) (Dollars in thousands) 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . $ 1,750 $ 3,668 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: Extraordinary Item . . . . . . . . . . . . . . . 42 -- Depreciation and Amortization. . . . . . . . . . 5,318 5,112 Minority Interest in Consolidated Partnerships. . . . . . . . . . . . . . . . . . 403 381 Net Change In: Restricted Cash - Other. . . . . . . . . . . . (586) (837) Interest and Accounts Receivable . . . . . . . (191) 389 Other Assets . . . . . . . . . . . . . . . . . (853) (1,209) Accounts Payable and Accrued Expenses. . . . . 747 (150) Accrued Interest Payable . . . . . . . . . . . 41 106 Accrued Real Estate Taxes Payable. . . . . . . 818 1,033 Unearned Revenue . . . . . . . . . . . . . . . 1 289 Security Deposits. . . . . . . . . . . . . . . 167 19 -------- -------- Net Cash Provided By Operating Activities. . . . . 7,657 8,801 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Investment in Real Estate . . . . (4,421) (3,580) Restricted Cash - Capital Improvements . . . . 396 (541) -------- -------- Net Cash Used In Investing Activities . . . . . . (4,025) (4,121) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Loans Payable. . . . . . . . . . . 8,500 -- Distributions to Minority Partners . . . . . . . (288) (350) Deferred Financing Costs . . . . . . . . . . . . (159) (7) Payment of Preferred Shares Issuance Costs . . . (30) -- Repayment of Employees' Notes. . . . . . . . . . 79 -- Principal Payments on Mortgage Loans, Bonds Payable and Unsecured Loan Payable . . . (16,683) (1,253) Distributions Paid to Shareholders . . . . . . . (5,099) (4,839) Payment of Preferred Distributions . . . . . . . (431) -- Prepayment Penalties on Early Extinguishment of Debt. . . . . . . . . . . . . . . . . . . . (6) -- Shares Issued, Net of Issuance Costs . . . . . . 597 625 -------- -------- Net Cash Used In Financing Activities. . . . . . . (13,520) (5,824) -------- -------- Net Decrease In Cash and Cash Equivalents. . . . . (9,888) (1,144) Cash and Cash Equivalents at Beginning of Period. . . . . . . . . . . . . . . 13,097 3,731 -------- -------- Cash and Cash Equivalents at End of Period . . . . $ 3,209 $ 2,587 ======== ======== Supplemental Information: Interest Paid During the Period. . . . . . . . . $ 6,848 $ 8,613 ======== ======== Non-Cash Financing Activities: Preferred Share Debt Conversion. . . . . . . . . $ 6,157 $ -- ======== ======== Employees' Notes . . . . . . . . . . . . . . . . $ 3,238 $ -- ======== ======== The accompanying notes are an integral part of the consolidated financial statements. BANYAN STRATEGIC REALTY TRUST Notes to Consolidated Financial Statements September 30, 2000 (Unaudited) (Dollars in thousands, except per share data) 1. FINANCIAL STATEMENT PRESENTATION Readers of this quarterly report should refer to Banyan Strategic Realty Trust's (the "Trust") audited consolidated financial statements for the year ended December 31, 1999 which are included in the Trust's 1999 Form 10-K, as certain footnote disclosures which would substantially duplicate those contained in such audited statements have been omitted from this report. In the opinion of management, all adjustments necessary for a fair presentation have been made to the accompanying consolidated financial statements as of September 30, 2000. All adjustments made to the financial statements, as presented, are of a normal recurring nature to the Trust. RECLASSIFICATIONS Certain reclassifications have been made to the previously reported 1999 consolidated financial statements in order to provide comparability with the 2000 consolidated financial statements. These reclassifications have not changed the 1999 results. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the nine months ended September 30, 2000 and 1999: Nine Months Ended ------------------------ 9/30/00 9/30/99 ---------- ---------- Numerator: Income Available to Common Shares Before Extraordinary Item . . . . . . . . . . . . . . . . . . $ 1,361 $ 3,668 Extraordinary Item . . . . . . . . . . . . (42) -- ---------- ---------- Net Income Available to Common Shares . . . . . . . . . . . $ 1,319 $ 3,668 ========== ========== Denominator: Denominator for basic earnings per weighted-average shares. . . . . . . . . 14,157,824 13,448,713 Effect of dilutive securities - Employee stock options . . . . . . . . . 7,370 6,769 ---------- ---------- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions . . . . 14,165,194 13,455,482 ========== ========== Basic and Diluted Earnings Available to Common Shares Per weighted- average Common Share: Income Before Extraordinary Item . . . . . $ 0.09 $ 0.27 Extraordinary Item . . . . . . . . . . . . -- -- ---------- ---------- Net Income . . . . . . . . . . . . . . $ 0.09 $ 0.27 ========== ========== The following table sets forth the computation of basic and diluted earnings per share for the three months ended September 30, 2000 and 1999: Three Months Ended ------------------------ 9/30/00 9/30/99 ---------- ---------- Numerator: Net Income (Loss) Available to Common Shares . . . . . . . . . . . $ (742) $ 1,203 ========== ========== Denominator: Denominator for basic earnings per weighted-average shares. . . . . . . . . 14,217,926 13,488,570 Effect of dilutive securities - Employee stock options . . . . . . . . . 6,026 8,370 ---------- ---------- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions . . . . 14,223,952 13,496,940 ========== ========== Basic and Diluted Earnings Available to Common Shares Per weighted- average Common Share: Net Income (Loss). . . . . . . . . . . $ (0.05) $ 0.09 ========== ========== 3. LONG-TERM DEBT FINANCING On May 1, 2000, the Trust entered into a loan agreement which provided for a loan in the amount of $12,100, which can be drawn in four installments. The amount of $8,500 was drawn on May 1, 2000. The loan, which is collateralized by the Trust's Johns Creek Office and Industrial Park and Technology Park properties, bears interest at a variable rate equal to LIBOR plus 2.2% and is payable monthly. The loan principal is pre-payable without penalty and matures in one year. The proceeds from the first draw were utilized primarily to repay the amounts outstanding on a line of credit which came due on May 1, 2000 and which was previously collateralized by Johns Creek Office and Industrial Park and Technology Park, and secondarily for transaction costs. On October 8, 1999, the Trust entered into a loan agreement in the amount of $7,800. The loan, which is collateralized by the Trust's Lexington Business Center property, bears interest at a variable rate equal to LIBOR plus 2% and is payable monthly. The loan principal is pre-payable without penalty and had an initial maturity date of May 31, 2000. The Trust had two options to extend the term of the loan for one year each at the same interest rate by paying a fee of $19.5 for each extension. The Trust exercised its first option to extend the term of the loan until May 31, 2001. CONVERSION OF UNSECURED LOAN During 1998, the Trust borrowed $7,400 pursuant to its $20,000 1997 Convertible Term Loan Agreement for an unsecured convertible term loan (the "Unsecured Loan"). The amounts outstanding on the Unsecured Loan were 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. On January 20, 2000, the Trust repaid $1,243 of the Unsecured Loan and the remaining balance of $6,157 was converted into 61,572 Series A convertible preferred shares. 4. BUSINESS SEGMENTS The Trust owns and operates real estate properties located principally in the Midwest and Southeast United States. The Trust has three operating segments corresponding to the three property types comprising its real estate assets: flex/industrial, office and retail. As of September 30, 2000, the flex/industrial segment was comprised of twelve complexes with long-term leases to approximately 170 tenants; the office segment was comprised of fourteen office sites with long-term leases to approximately 260 tenants; and the retail segment was comprised of one retail center with long-term leases to approximately 50 tenants. As of September 30, 1999, the flex/industrial segment was comprised of thirteen complexes, the office segment was comprised of fourteen office sites and the retail segment was comprised of one retail center. Prior to the sale of the Oklahoma Apartment Portfolio in December 1999, a fourth segment - the residential segment - was comprised of four apartment complexes with 864 units. The Trust's long-term tenants are in a variety of businesses and no individual tenant is significant to the Trust's business when considered as a whole. Information by business segments is set forth below: Three Months Ended Nine Months Ended September 30, September 30, -------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenue Flex/Industrial. . . . . . $ 2,769 $ 2,988 $ 8,461 $ 8,576 Office . . . . . . . . . . 5,224 5,241 15,683 15,937 Residential. . . . . . . . -- 1,116 -- 3,274 Retail . . . . . . . . . . 1,191 1,157 3,462 3,580 Corporate/Other. . . . . . 101 7 489 53 -------- -------- -------- -------- $ 9,285 $ 10,509 $ 28,095 $ 31,420 ======== ======== ======== ======== Income (Loss) Before Extraordinary Item Flex/Industrial. . . . . . $ 759 $ 714 $ 2,318 $ 1,882 Office . . . . . . . . . . 1,040 1,217 3,384 3,913 Residential. . . . . . . . -- 213 -- 634 Retail . . . . . . . . . . 149 116 419 503 Corporate/Other. . . . . . (2,535) (1,057) (4,329) (3,264) -------- -------- -------- -------- $ (587) $ 1,203 $ 1,792 $ 3,668 ======== ======== ======== ======== As of As of Septem- Decem- ber 30, ber 31, 2000 1999 -------- -------- Total Assets Flex/Industrial. . . . . . $ 68,803 $ 69,279 Office . . . . . . . . . . 107,844 105,756 Retail . . . . . . . . . . 17,536 18,125 Corporate/Other. . . . . . 2,856 13,487 -------- -------- $197,039 $206,647 ======== ======== Three Months Ended Nine Months Ended September 30, September 30, -------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Depreciation and Amortization Flex/Industrial. . . . . . $ 585 $ 576 $ 1,753 $ 1,669 Office . . . . . . . . . . 1,031 826 2,910 2,415 Residential. . . . . . . . -- 146 -- 430 Retail . . . . . . . . . . 144 134 429 402 -------- -------- -------- -------- $ 1,760 $ 1,682 $ 5,092 $ 4,916 ======== ======== ======== ======== Interest Expense Flex/Industrial. . . . . . $ 738 $ 931 $ 2,212 $ 2,705 Office . . . . . . . . . . 1,209 1,382 3,692 4,128 Residential. . . . . . . . -- 296 -- 890 Retail . . . . . . . . . . 327 331 985 996 -------- -------- -------- -------- $ 2,274 $ 2,940 $ 6,889 $ 8,719 ======== ======== ======== ======== Additions to Investment in Real Estate Flex/Industrial. . . . . . $ 500 $ 473 $ 1,154 $ 1,399 Office . . . . . . . . . . 1,342 462 3,210 1,922 Residential. . . . . . . . -- 53 -- 220 Retail . . . . . . . . . . 26 -- 57 39 -------- -------- -------- -------- $ 1,868 $ 988 $ 4,421 $ 3,580 ======== ======== ======== ======== 5. SEVERANCE AND TERMINATION COSTS In September 2000, in view of the Trust's strategic direction, the Trust adopted an employee severance and retention program. The Trust has since terminated certain employees and will continue to review its staffing needs in the future. The accompanying consolidated financial statements include a charge of approximately $1,600 related to the severance and retention program. The severance and termination costs described above include a charge of approximately $300 related to base compensation payable to Mr. Leonard Levine through December 31, 2001 under the terms of his employment agreement. 6. EMPLOYEE NOTES On May 14, 1997, the Board of Trustees 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. On December 31, 1999, the outstanding options issued under the Plan totaled 463,676. When the shareholders elected three new trustees on December 13, 1999, the members of the board of trustees as of October 1, 1997 no longer constituted a majority of the members of the board. By definition, this reconstitution of the board was a "Change of Control" within the meaning of the Employee Stock Option Agreements. As a result, all outstanding employee options became immediately exercisable in accordance with the terms of the option agreements. At that time, the Board of Trustees offered all of the Trust's current employees and advisors who held options, the opportunity to exercise all their vested but unexercised options with the proceeds of a loan from the Trust. Each loan is non-recourse and bears interest at an annual rate of 6.5%. Each person was required to pledge all shares purchased with the proceeds of the loan to secure the payment of principal and interest on the loan. The loan program was available until January 12, 2000. On that date, employees borrowed approximately $3.2 million to purchase 575,337 shares. The loans were originally scheduled to mature on the earlier of January 11, 2005 or one month after the date that an individual's employment is terminated. At that time, the employee would be required to repay the loan and all accrued interest, or forfeit the shares held as security for the loan. Under the employee severance and retention program, the Trust extended the maturity date of the loans for terminated employees to the date the last of the notes becomes due. 7. SUBSEQUENT EVENTS DISTRIBUTIONS On October 16, 2000, the Trust declared a cash distribution for the quarter ended September 30, 2000 of $0.12 per share payable November 28, 2000 to shareholders of record on October 27, 2000. LITIGATION On August 14, 2000, the Trust exercised its rights under the employment agreement with Mr. Leonard Levine by suspending him and placing him on leave from his position as president. The Trust also initiated an arbitration proceeding in which it contends that certain actions taken by Mr. Levine constitute "just cause" for terminating his employment agreement. On or about October 5, 2000, Mr. Levine filed a lawsuit in the Circuit Court of Cook County, Illinois. Mr. Levine's lawsuit seeks a declaratory judgement which would halt the arbitration proceedings because he alleges it is an improper forum. On October 18, 2000 the Trust filed a lawsuit against Mr. Levine in the Circuit Court of Cook County, Illinois. The Trust's complaint alleges violations of Mr. Levine's fiduciary duty of loyalty owed to the Trust. Pending the final ruling by an arbitrator or a court, the Trust intends to comply with the employment agreement, including its compensation provisions. The maximum potential liability in connection with Mr. Levine's contract (inclusive of incentives but exclusive of base salary) is estimated to be $1,800. OTHER During the first quarter of 2000, the Trust's Board of Trustees formed a Financial Advisory Committee, comprised entirely of its independent trustees, to evaluate strategic alternatives. The committee retained CFC Advisory Services Limited Partnership, an affiliate of Chicago-based Cohen Financial ("Cohen") to value the Trust's real estate assets and assist the Committee in identifying and executing strategies that the Trust believes will maximize value while enhancing shareholder liquidity. On July 28, 2000, the Financial Advisory Committee announced that as part of its review of the strategic alternatives, it had authorized Cohen to initiate a marketing effort designed to solicit bids for the Trust or the Trust's properties in whole, bulk sales or individually. Cohen completed its strategic analysis of the portfolio and was subsequently authorized by the Committee to market the Trust or the Trust's real estate portfolio to persons or entities interested primarily in buying the Trust or the Trust's properties in whole or in part. The Trust received and evaluated a number of proposals from prospective purchasers. After further discussions with Cohen, and upon Cohen's recommendation, the Committee concluded that shareholder value and liquidity could be best maximized and enhanced by selling all of the Trust's real estate assets in a bulk transaction to a single buyer, rather than individually or in discreet groups over an extended period of time. In late October of 2000, the Trust's Board of Trustees authorized the negotiation of a contract for the purchase of all of the Trust's real estate assets. If the Trust is successful in negotiating and completing a sale of its real estate assets, the Trust expects to distribute the net proceeds to its shareholders and to ultimately terminate the Trust pursuant to a plan of liquidation. At that time, or sooner if appropriate, the Trust also anticipates adopting liquidation accounting. Although the Trust is in the process of negotiating a contract, there is no assurance that a contract or a transaction will be concluded. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Certain statements in this quarterly report that are not historical in fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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; . the status of negotiations to sell the real estate assets; . potential inability to repay or refinance indebtedness at maturity; . increases in interest rates; . adverse consequences of failure to qualify as a REIT; . possible environmental liabilities; and . the terms of a plan of liquidation, if adopted by the Board of Trustees. 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" in the annual report on Form 10-K for the year ended December 31, 1999 for a more complete discussion. We are a self-administered infinite life real estate investment trust ("REIT"), organized as a Massachusetts business trust, which 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. BSRT UPREIT Corp., a wholly- owned subsidiary, is the General Partner of the Operating Partnership. As of September 30, 2000, we were the sole limited partner of BSRT UPREIT Limited Partnership. During the first quarter of 2000, our Board of Trustees formed a Financial Advisory Committee, comprised entirely of our independent trustees, to evaluate strategic alternatives. The Committee retained CFC Advisory Services Limited Partnership, an affiliate of Chicago-based Cohen Financial ("Cohen") to value our real estate assets and assist the Committee in identifying and executing strategies that the Trust believes will maximize value while enhancing shareholder liquidity. Cohen completed its strategic analysis of the portfolio and on July 28, 2000, the Financial Advisory Committee announced that as part of its review of the strategic alternatives, it had authorized Cohen to initiate a marketing effort designed to solicit bids for the Trust's properties in whole, bulk sales or individually. We received and evaluated a number of proposals from prospective purchasers. After further discussions with Cohen, and upon Cohen's recommendation, the Committee concluded that shareholder value and liquidity could be best maximized and enhanced by selling all of our real estate assets in a bulk transaction to a single buyer, rather than individually or in discreet groups over an extended period of time. Our Board of Trustees then authorized the negotiation of a contract with a specific potential purchaser for the purchase and sale of all of our real estate assets. If we are successful in negotiating and completing a sale of our assets, which we hope to achieve by the end of the first calendar quarter of 2001, we expect to distribute the net proceeds to the shareholders and to ultimately terminate our business pursuant to a plan of liquidation. The Committee estimates that based on the price indicated in the proposal it has elected to pursue, and after paying or reserving for all known liabilities and the projected costs of winding up our business, the net proceeds available to shareholders would be approximately $6.20 per share. Although we are in the process of negotiating a contract, there is no assurance that a contract or a transaction will be concluded or that we will realize the net proceeds per share estimated above. The Committee noted that a sale of our real estate assets in bulk will, in its view, reflect a discount that it believes is reasonable from that which may be achieved by selling the assets individually in a series of transactions after taking into account the risks and costs inherent in marketing the properties over an extended period of time. The net proceeds that would be available for distribution to shareholders after paying or providing for all of our liabilities, including the cost of terminating the Trust, the tax treatment of these distributions and our future financial statement presentation, will depend on a number of factors. These factors include the gross selling price of the assets, the timing of the adoption of a plan of liquidation, the time it takes to close a sale and the costs associated with a sale and winding up of the Trust. As a part of the process, we intend to evaluate and determine the amount and frequency of shareholder distributions during the coming months. RESULTS OF OPERATIONS As of September 30, 2000, we owned individually, or, in some cases through joint ventures, twenty-seven properties consisting of: . fourteen office properties totaling 1.5 million rentable square feet; . twelve flex/industrial properties totaling 1.7 million rentable square feet; . one retail property which contains 321,600 rentable square feet. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED SEPTEMBER 30, 1999 During the nine months ended September 30, 2000 and 1999 our income before minority interest and extraordinary item totaled approximately $2.2 million and approximately $4.0 million, respectively. Our total revenue decreased by approximately $3.3 million or 10.5% to approximately $28.1 million from approximately $31.4 million, due to a decrease in the number of properties that we own and a decrease in total occupancy. This decrease in total revenues was partially offset by a decrease in total operating expenses, which include property operating, repairs and maintenance, real estate taxes, and ground lease expenses. However, the decrease in total operating expenses in 2000 was partially negated by severance and termination costs in the amount of approximately $1.6 million related to an employee severance and retention policy (see Severance and Termination Costs below). On a "same-store" basis (comparing the results of operations of the properties owned during the entire nine months ended September 30, 2000 with the results of the same properties owned during the entire nine months ended September 30, 1999), total revenue increased by approximately $0.1 million due to an increase in rental rates. As of September 30, 2000, 16% of our leasable square footage is vacant and during the final three months of 2000, leases for approximately three percent (3%) of our leasable square footage will expire. Although vacancy may increase temporarily, at most of our properties we believe that this lease "roll-over" is routine and the underlying space will be released at market rental rates to either the existing or a new tenant. Our most significant lease expiration occurred at 6901 Riverport Drive where a tenant occupying approximately 145,000 square feet vacated on July 31, 2000. We are in the process of marketing this space but have not located a new tenant. Our total revenues may be adversely affected if the space remains vacant for an extended period of time. Out of approximately 560,000 square feet that were vacant at September 30, 2000, approximately 100,000 square feet are leased to tenants that will take occupancy in the fourth quarter of 2000 or the first quarter of 2001. Our total expenses decreased by approximately $1.5 million to approximately $25.9 million from approximately $27.4 million in 1999. This decrease is due to a decrease in a number of properties that we own, partially offset by approximately $1.6 million in severance and termination costs that we incurred in 2000. Our total operating expenses decreased by approximately $1.4 million to approximately $8.9 million from approximately $10.3 million in 1999. On the "same-store" basis, our total operating expenses increased by approximately $0.2 million. Interest expense decreased by approximately $1.8 million to approximately $6.9 million from approximately $8.7 million primarily due to a reduction in the amounts borrowed as a result of the 1999 property dispositions and the conversion of our unsecured loan to Series A convertible preferred shares in January 2000. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED SEPTEMBER 30, 1999 During the three months ended September 30, 2000 and 1999 our income (loss) before minority interest decreased by approximately $1.8 million to approximately $0.5 million loss from approximately $1.3 million income. This decrease is primarily due to approximately $1.6 million of severance and termination costs that we incurred in 2000. Our total revenue decreased by approximately $1.2 million, or 11.4% to approximately $9.3 million from approximately $10.5 million due to a decrease in the number of properties that we own. On a "same-store" basis (comparing the results of operations of the properties owned during the entire three months ended September 30, 2000 with the results of the same properties owned during the entire three months ended September 30, 1999), total revenue remained unchanged. Our total operating expenses, which include property operating, repairs and maintenance, real estate taxes, and ground lease decreased by approximately $0.5 million to approximately $3.0 million from approximately $3.5 million in 1999 due to a decrease in the number of properties that we own. Interest expense decreased by approximately $0.6 million to approximately $2.3 million from approximately $2.9 million primarily due to a reduction in the amounts borrowed as a result of the 1999 property dispositions and the conversion of our unsecured loan to Series A convertible preferred shares in January 2000. SEVERANCE AND TERMINATION COSTS In September 2000, in view of our strategic direction, we adopted an employee severance and retention program. We have since terminated certain employees and will continue to review our staffing needs in the future. The total expenses for the nine and three months ended September 30, 2000 include a charge of approximately $1.6 million related to the severance and retention program. The severance and termination costs described above include a charge of approximately $0.3 million related to base compensation payable to Mr. Leonard G. Levine through December 31, 2001 under the terms of his employment agreement. Subsequent to September 30, 2000, we have entered into employment agreements with Messrs. Schafran, Higgins and Teglia, and into separation agreements with Messrs. Hansen and Schmidt. Pursuant to these separation agreements and Mr. Teglia's new employment agreement, we paid the total of approximately $0.8 million in the fourth quarter of 2000. These costs are included in the $1.6 million severance and termination costs discussed above. 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 expect to fund our long-term liquidity needs, including funds necessary for non-recurring capital improvements and severance and termination costs from long-term and short-term secured debt or the proceeds from the sale of assets. If we require additional liquidity to fund a portion of the cost of improving properties in the future, we expect to borrow under our credit facility which is secured by our Johns Creek Office and Industrial Park and Technology Park or to mortgage our Avalon Ridge Business Park which is our only unencumbered property. In pursuit of our strategic alternatives and in our attempt to enhance shareholder value and liquidity, we have begun negotiating the sale of our real estate assets to a single buyer in a bulk transaction, as discussed above. If these negotiations are successful and a sale of our assets becomes imminent, it will likely be appropriate for our Board to consider the adoption of a formal plan of liquidation. The adoption of a plan of liquidation affords the Trust and its shareholders certain tax benefits for a limited period of time. At that time, we also anticipate adopting liquidation accounting. We cannot predict if or when we will ultimately be successful in consummating the aforementioned transaction or an alternative transaction, should the current one terminate. Therefore, the timing of these decisions related to the adoption of a formal plan of liquidation and liquidation accounting cannot, in this instance, be certain. Until we begin disposing of our assets, we believe the Funds Available for Distributions will continue to support our quarterly distribution of $0.12 per share. We intend to make this quarterly distribution as long as our Funds Available for Distributions support it. If and when we begin to sell assets and have adopted a plan of liquidation, in appreciation of the fact that shareholders have come to rely upon our quarterly distributions, we will endeavor to make quarterly distributions of sale proceeds. There can be no assurance that these distributions can be made with regularity or that, if made, they will equal or exceed the $0.12 per share that we currently distribute. At September 30, 2000, our assets totaled approximately $197.0 million, a decrease of approximately $9.6 million from total assets at December 31, 1999 of approximately $206.6 million. Our liabilities totaled approximately $126.5 million at September 30, 2000, a decrease of approximately $12.6 million from a total of approximately $139.1 million at December 31, 1999. Our shareholders equity increased by approximately $2.8 million to approximately $68.1 million at September 30, 2000 from approximately $65.3 million at December 31, 1999. Cash and cash equivalents consist of cash and short-term investments. Our cash and cash equivalents balance was approximately $3.2 million at September 30, 2000 and approximately $13.1 million at December 31, 1999. The decrease in total cash and cash equivalents resulted from using approximately $4.0 million in investing activities and approximately $13.5 million in financing activities, while receiving approximately $7.6 million from operating activities. Cash Flows From Operating Activities: Net cash provided by operating activities decreased by approximately $1.2 million for the nine months ended September 30, 2000 to approximately $7.6 million from approximately $8.8 million in 1999. This decrease is primarily due to a reduction in the number of properties that we own. 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 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. 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 nine months ended September 30, 2000 and 1999, our properties generated FFO of approximately $6.2 million and $8.4 million, respectively and Funds Available for Distribution (see below) of approximately $4.9 million and $6.8 million, respectively. FFO and Funds Available for Distribution decreased on a year to year basis due primarily to the recognition of severance and termination costs in the amount of approximately $1.6 million in the quarter ended September 30, 2000 and to a decrease in the number of properties owned from period-to-period. FFO for the nine months ended September 30, 2000 and 1999 is calculated as follows: 2000 1999 ------- ------- (Dollars in thousands) Net Income Available to Common Shares. . . . $ 1,319 $ 3,668 Plus: Depreciation and Amortization Expense . . . 5,092 4,916 Less: Minority Interest Share of Depreciation and Amortization Expense . . . . . . . . . . . . . . . . . (265) (226) Extraordinary Item . . . . . . . . . . . . 42 -- -------- ------- Funds From Operations. . . . . . . . . . . . $ 6,188 $ 8,358 ======== ======= Cash Flows Provided By (Used For): Operating Activities . . . . . . . . . . . $ 7,657 $ 8,801 Investing Activities . . . . . . . . . . . $ (4,025) $(4,121) Financing Activities . . . . . . . . . . . $(13,520) $(5,824) As discussed above, our decision and ability to pay any distribution in the future, in part, will be influenced by the amount of money 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. We reserve approximately $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 historically $200 per residential unit. FAD for the nine months ended September 30, 2000 and 1999 is calculated as follows: 2000 1999 ------- ------- (Dollars in thousands) Funds From Operations. . . . . . . . . . . . $ 6,188 $ 8,358 Straight-line Rents. . . . . . . . . . . . . (74) (187) Lease Commissions. . . . . . . . . . . . . . (927) (944) Capital Reserve. . . . . . . . . . . . . . . (245) (386) ------- ------- Funds Available for Distribution . . . . . . $ 4,942 $ 6,841 ======= ======= Cash Flows From Investing Activities: During the nine months ended September 30, 2000, we used approximately $4.0 million in investing activities compared to approximately $4.1 in the same period in 1999. Cash flow was primarily used to make capital improvements at our various properties in the amount of approximately $4.4 million during the nine months ended September 30, 2000 and approximately $3.6 million during the nine months ended September 30, 1999. Cash Flows From Financing Activities: During the nine months ended September 30, 2000 financing activities used approximately $13.5 million compared to approximately $5.8 million in the same period in 1999. During the nine months ended September 30, 2000, we used cash primarily to make net payments on mortgage loans, and on an unsecured loan payable of approximately $8.2 million and to pay distributions to shareholders of approximately $5.5 million. The cash flows used by financing activities for the nine months ended September 30, 1999 resulted primarily from distributions paid to shareholders of approximately $4.8 million and principal payments on mortgage loans and bonds payable of approximately $1.3 million. FINANCINGS: On May 1, 2000, we entered into a loan agreement with LaSalle Bank National Association which provided for a loan in the amount of $12.1 million, which we can draw in four installments. The amount of $8.5 million was drawn on May 1, 2000. The loan which is collateralized by the Trust's Johns Creek Office and Industrial Park and Technology Park properties, bears interest at a variable rate equal to LIBOR plus 2.2% and is payable monthly. The loan principal is pre-payable without penalty and matures in one year. We utilized the proceeds from the first draw primarily to repay the amounts outstanding on a line of credit which was due on May 1, 2000 and which was previously collateralized by Johns Creek Office and Industrial Park and Technology Park, and secondarily for transaction costs. On October 8, 1999, we entered into a loan agreement in the amount of $7.8 million. The loan, which is collateralized by our Lexington Business Center property, bears interest at a variable rate equal to LIBOR plus 2% and is payable monthly. The loan principal is pre-payable without penalty and had an initial maturity date of May 31, 2000. We had two options to extend the term of the loan for one year each at the same interest rate by paying a fee of $19,500 for each extension. We exercised our first option to extend the term of the loan until May 31, 2001. OTHER INFORMATION As of September 30, 2000, 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 September 30, 2000
Scheduled Lease Expirations Occu- ------------------------------- Date Square pancy After Acquired Footage % 2000 2001 2002 2002 -------- ------- -------- ---- ---- ---- ----- FLEX/INDUSTRIAL --------------- Milwaukee Industrial Properties Milwaukee, WI. . . . . . . . . 4/30/93 235,800 90% 5% 16% 36% 33% Elmhurst Metro Court Elmhurst, IL . . . . . . . . . 11/30/93 140,800 76% 0% 39% 12% 25% Willowbrook Industrial Court Willowbrook, IL. . . . . . . . 6/16/95 84,300 99% 10% 26% 31% 32% Lexington Business Center Lexington, KY. . . . . . . . . 12/05/95 308,800 69% 0% 9% 5% 55% Newtown Business Center Lexington, KY. . . . . . . . . 12/05/95 87,100 99% 2% 39% 16% 42% 6901 Riverport Drive Louisville, KY . . . . . . . . 11/19/96 322,100 55% 0% 0% 0% 55% Avalon Ridge Business Park Norcross, GA . . . . . . . . . 4/24/98 57,400 100% 0% 0% 0% 100% Tower Lane Business Park Bensenville, IL. . . . . . . . 4/27/98 95,900 84% 5% 21% 30% 28% Metric Plaza Winter Park, FL. . . . . . . . 4/30/98 32,000 100% 0% 0% 69% 31% Park Center Orlando, FL. . . . . . . . . . 4/30/98 47,400 90% 9% 25% 31% 25% Scheduled Lease Expirations Occu- ------------------------------- Date Square pancy After Acquired Footage % 2000 2001 2002 2002 -------- ------- -------- ---- ---- ---- ----- University Corporate Center Winter Park, FL. . . . . . . . 4/30/98 127,800 76% 7% 33% 22% 14% Johns Creek Office and Industrial Park Duluth and Suwanee, GA . . . . 8/14/98 119,300 100% 0% 0% 50% 50% ---------- ----- ----- ----- ----- ----- Sub-total. . . . . . . . . . 1,658,700 79% 2% 15% 19% 43% ---------- ----- ----- ----- ----- ----- OFFICE ------ Colonial Penn Building Tampa, FL. . . . . . . . . . . 3/22/94 79,200 72% 0% 0% 0% 72% Commerce Center Sarasota, FL . . . . . . . . . 3/22/94 81,100 100% 0% 11% 5% 84% Woodcrest Office Park Tallahassee, FL. . . . . . . . 12/19/95 264,900 91% 6% 20% 20% 45% Midwest Office Center Oakbrook Terrace, IL . . . . . 4/18/96 77,000 97% 14% 23% 32% 28% Phoenix Business Park Atlanta, GA. . . . . . . . . . 1/15/97 110,600 100% 0% 4% 18% 78% Butterfield Office Plaza Oak Brook, IL. . . . . . . . . 4/30/97 200,800 89% 2% 21% 39% 27% Southlake Corporate Center Morrow, GA . . . . . . . . . . 7/30/97 56,200 97% 0% 32% 38% 27% University Square Business Center Huntsville, AL . . . . . . . . 8/26/97 184,700 89% 7% 26% 24% 32% Technology Center Huntsville, AL . . . . . . . . 8/26/97 48,500 100% 0% 0% 0% 100% Airways Plaza Office Center Memphis, TN. . . . . . . . . . 12/10/97 87,800 17% 0% 4% 3% 10% Scheduled Lease Expirations Occu- ------------------------------- Date Square pancy After Acquired Footage % 2000 2001 2001 -------- ------- -------- ---- ---- ---- ----- Peachtree Pointe Office Park Norcross, GA . . . . . . . . . 1/20/98 71,700 77% 13% 13% 9% 42% Avalon Center Office Park Norcross, GA . . . . . . . . . 3/20/98 53,300 87% 0% 0% 0% 87% Sand Lake Tech Center Orlando, FL. . . . . . . . . . 4/30/98 84,100 100% 0% 0% 3% 97% Technology Park Norcross, GA . . . . . . . . . 8/14/98 145,700 100% 13% 28% 4% 55% ---------- ----- ----- ----- ----- ----- Sub-total. . . . . . . . . 1,545,600 88% 5% 16% 17% 50% ---------- ----- ----- ----- ----- ----- RETAIL ------ Northlake Tower Shopping Center Atlanta, GA. . . . . . . . . . 7/28/95 321,600 97% 1% 2% 7% 87% ---------- ----- ----- ----- ----- ----- Total. . . . . . . . . . . . . 3,525,900 84% 3% 14% 17% 50% ---------- ----- ----- ----- ----- -----
BANYAN STRATEGIC REALTY TRUST Comparison of Average Rents Average Average "In Place" Market Square Net Rents Net Rents Property Type Footage (1) (2) ------------- --------- ---------- --------- Flex/Industrial. . . . . . 1,658,700 $5.55 $5.59 Office . . . . . . . . . . 1,545,600 9.18 10.27 Retail . . . . . . . . . . 321,600 11.81 12.00 ---------- ------ ------ Total. . . . . . . . . 3,525,900 $ 7.71 $ 8.23 ========== ====== ====== -------------------- (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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We do not engage in any hedge transactions nor in the ownership of any derivative financial instruments. To mitigate the impact of fluctuations in interest rates, we generally have maintained over 70% of our debt as fixed rate in nature by borrowing on a long-term basis. As of September 30, 2000, we had approximately $118.3 million of outstanding long-term debt, of which $20.8 million bears interest at variable rates that are adjusted on a monthly basis. As of September 30, 2000, the weighted-average interest rate on this variable rate debt was 8.14%. If interest rates on this variable rate debt increased by one percentage point (1%), interest expense would increase by $208,000 on an annual basis. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS LITIGATION In the process of exploring and evaluating strategic alternatives designed to maximize shareholder value, our Financial Advisory Committee and Cohen held preliminary discussions with our president Leonard Levine in response to inquiries made by Mr. Levine regarding a potential acquisition of the Trust's assets by an entity controlled by Mr. Levine. The Financial Advisory Committee later concluded that, in its view, Mr. Levine engaged in conduct which constitutes a breach of his duty of loyalty to the Trust and its shareholders and a breach of his employment contract. On August 14, 2000, we exercised our rights under the employment agreement with Mr. Levine, by suspending him and placing him on leave from his position as president. On the same date, we also initiated an arbitration proceeding in accordance with the provisions of the employment agreement in which we contend that certain actions taken by Mr. Levine constitute "just cause" for terminating his employment agreement. In response to the arbitration, on or about October 5, 2000, Mr. Levine filed a lawsuit in the Circuit Court of Cook County (Case #00CH14510). Mr. Levine's lawsuit seeks a declaratory judgment which would halt the arbitration proceedings because he alleges it is an improper forum. We accepted service of this complaint on October 30, 2000 and have instructed our counsel to attempt to resolve this issue of the correct forum with Mr. Levine's counsel by stipulation, if possible, so that there will be no further delay in the proceedings. On October 18, 2000, we filed suit in the Circuit Court of Cook County, Illinois (Case #00CH15154) against Mr. Levine. Our complaint alleges violations of Mr. Levine's fiduciary duty of loyalty owed to us. The lawsuit we have filed seeks a declaratory judgment that we have and had "just cause" to terminate the employment agreement and/or Mr. Levine's employment. The complaint also seeks an accounting and disgorgement of all benefits received by Mr. Levine while in breach of his fiduciary obligations to us, including salary, insurance and other benefits. Pursuant to the terms of the employment agreement, we continue to pay Mr. Levine all salary, benefits and reasonable, ordinary and necessary business expenses during his suspension. We estimate our maximum potential liability in connection with Mr. Levine's contract to be approximately $1.8 million, exclusive of base salary. We intend to vigorously contest Mr. Levine's attempts to retain or collect all disputed amounts under this contract. We obtained service of our complaint on Mr. Levine on October 30, 2000. We have not received a response. Mr. Levine's response is currently due in late November. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (see Exhibit Index included elsewhere herein). (b) None SIGNATURES 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. BANYAN STRATEGIC REALTY TRUST By: /s/ L.G. Schafran Date: November 14, 2000 L.G. Schafran, Interim President By: /s/ Joel L. Teglia Date: November 14, 2000 Joel L. Teglia, Vice President and Chief Financial Officer EXHIBIT INDEX ------- 3.1 Third Amended and Restated Declaration of Trust dated as of August 8, 1986, as amended on March 8, 1991, May 1, 1993, August 12, 1998 and December 13, 1999, including Certificate of designations, preferences and rights of Series A convertible preferred shares. (1) 3.2 First Amendment of Third Amended and Restated Declaration of Trust effective December 13, 1999. (2) 3.3 By-Laws dated March 13, 1996. (3) 3.4 BSRT UPREIT Limited Partnership Limited Partnership Agreement (4) 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. (5) 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. (6) 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. (7) 4.4 Revolving Credit Agreement dated April 30, 1998 among Banyan Strategic Realty Trust, as Borrower and the Capital Company of America, as Lender. (8) 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. (7) 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 Newton 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. (9) 4.7 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. (7) 4.8 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. (9) 10.1 Employment Agreement of L.G. Schafran dated October 26, 2000. (*) 10.2 Employment Agreement of Leonard G. Levine as of December 14, 1999. (1) 10.3 Employment Agreement of Leonard G. Levine as of October 1, 1997. (10) EXHIBIT INDEX ------- 10.4 Employment Agreement of Joel L. Teglia dated November 1, 2000. (*) 10.5 Employment Agreement of Joel L. Teglia dated December 31, 1998. (4) 10.6 Employment Agreement of Robert G. Higgins dated September 1, 2000. (*) 10.7 Separation Agreement of Neil Hansen dated October 1, 2000. (*) 10.8 Employment Agreement of Neil Hansen dated December 31, 1998. (4) 10.9 Separation Agreement of Jay Schmidt dated October 1, 2000. (*) 10.10 Employment Agreement of Jay Schmidt dated December 31, 1998. (4) 10.11 1997 Omnibus Stock and Incentive Plan dated July 9, 1997. (11) 10.12 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. (5) 10.13 Registration Rights Agreement dated as of October 10, 1997 between Banyan Strategic Realty Trust and the Purchasers listed on the Signature Pages attached thereto. (5) 10.14 Registration Rights Agreement dated as of October 1, 1997 between Banyan Strategic Realty Trust and Leonard G. Levine. (4) 10.15 Consulting Agreement dated as of February 18, 2000 between CFC Advisory Services Limited Partnership and Banyan Strategic Realty Trust. (12) 10.16 Modification to Consulting Agreement dated as of May 31, 2000 between CFC Advisory Services Limited Partnership and Banyan Strategic Realty Trust. (12) 21 Subsidiaries of Banyan Strategic Realty Trust (1) 27 Financial Data Schedule (*) -------------------- (*) Filed herewith. (1) Incorporated by reference from the Trust's Form 10-K for the year ended December 31, 1999. (2) Incorporated by reference from the Trust's Form 10-Q dated March 31, 2000. (3) Incorporated by reference from the Trust's Registration Statement on Form S-11 (file number 33-4169). (4) Incorporated by reference from the Trust's Form 10-K for the year ended December 31, 1998. (5) Incorporated by reference from the Trust's Form 8-K dated October 14, 1997. (6) Incorporated by reference from the Trust's Form 10-K/A for the year ended December 31, 1997. (7) Incorporated by reference from the Trust's Form 8-K dated May 22, 1998. (8) Incorporated by reference from the Trust's Form 10-Q dated March 31, 1998. (9) Incorporated by reference from the Trust's Form 8-K/A-1 dated August 14, 1998. (10) Incorporated by reference from the Trust's Form 10-K dated December 31, 1997. (11) Incorporated by reference from the Trust's Form 10-Q for the quarter ended June 30, 1997. (12) Incorporated by reference from the Trust's Form 10-Q for the quarter ended June 30, 2000.