Item 1B.
Unresolved Staff Comments.
Not applicable.
As of December 31, 2010, we owned two consolidated office properties, one located in California and one located in Texas, with an aggregate GLA of 488,000 square feet. We also owned a 30.0% interest in one unconsolidated office property located in Illinois with an aggregate GLA of 520,000 square feet. As of December 31, 2010, 26.6% of the aggregate GLA of our consolidated properties was leased to governmental related entities.
The following table presents certain additional information about our consolidated properties as of December 31, 2010:
The following information generally applies to our consolidated properties:
•
we have no plans for any material renovations, improvements or development of our properties, except in accordance with planned budgets; and
•
our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants.
Significant Tenants
As of December 31, 2010, none of the tenants at our consolidated properties accounted for 10.0% or more of our aggregate annual rental income.
Ownership Information
The following is a summary of our organizational structure and the properties we owned and held interests in as of December 31, 2010:
Ownership of Congress Center
The following is a summary of the ownership interests in our unconsolidated property, the Congress Center property, as of December 31, 2010:
Ownership of Western Place I & II
The following is a summary of the ownership interests in one of our consolidated properties, Western Place I & II, as of December 31, 2010:
Lease Expiration Table
The following table presents the sensitivity of our annual base rent due to lease expirations for the next 10 years at the consolidated properties as of December 31, 2010, by number, square feet, percentage of leased area and annual base rent:
Concentration of Tenants
The following table sets forth information as to the ten largest tenants at our consolidated properties as of December 31, 2010, based upon aggregate annual rental income:
The loss of the above-mentioned tenants or their inability to pay rent could have a material adverse effect on our business and results of operations.
Geographic Diversification; Concentration Table
The following table lists the states in which our consolidated properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2010:
We are also subject to a concentration of regional economic exposure as 84.2% of our current aggregate annual base rental income is generated by our consolidated property located in Texas. Regional or local economic downturns impacting Texas could adversely impact our operations.
Indebtedness
As of December 31, 2010, we have no outstanding mortgages on our consolidated properties. On April 6, 2009, we repaid in full a then existing mortgage on the Western Place I & II property with an aggregate principal and interest amount outstanding of $24,668,000. This was variable rate debt at a weighted-average interest rate of 6.21% per annum, and we had a fixed rate interest rate swap agreement in place that effectively fixed the interest rate at 6.21% per annum. The April 2009 repayment amount represented our pro rata share of the mortgage and interest of $19,364,000, as well as an advance of the other TIC investors combined pro rata share of $5,304,000. Under the existing Western Place I & II TIC agreement, we were allowed to advance funds to the other TIC investors to cover their capital call, and those advances would earn interest at the rate of 10.0% per annum. All amounts advanced, and accrued interest thereon, are due and payable upon the sale of the Western I & II property.
We have utilized certain derivative financial instruments at times to limit interest rate risk. The fixed interest rates and the interest rate swap, cap and collar agreements on the variable interest rates limit the risk of fluctuating interest rates. The derivatives we entered into, and the only derivative transactions approved by our Trustees, are those which are used only for hedging purposes rather than speculation. If an anticipated hedged transaction does not occur, any positive or negative value of the derivative will be recognized immediately in operating income.
See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
None.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is no public market for the units of beneficial interests in G REIT Liquidating Trust. The units are not and will not be listed on any exchange, quoted by a securities broker or dealer, nor admitted for trading in any market, including the over-the-counter market. The units are not transferable except by operation of law, will or intestate succession.
Beneficiaries
As of March 31, 2011, we had approximately 13,142 beneficiaries.
Distributions
For the year ended December 31, 2010, we paid distributions of approximately $6,306,000, or $0.15 per unit, to our beneficiaries. For the year ended December 31, 2009, we paid distributions of approximately $4,612,000, or $0.11 per unit, to our beneficiaries. From January 28, 2008 through December 31, 2008, we paid distributions of approximately $6,342,000, or $0.14 per unit, to our beneficiaries. Prior to the formation of our liquidating trust, G REIT paid distributions of $382,270,000 to the G REIT stockholders.
Equity Compensation Plan Information
In accordance with the plan of liquidation, all outstanding options under G REIT’s equity compensation plans were forfeited and the plans were terminated. We do not have an equity compensation plan currently in place.
Item 6.
Selected Financial Data.
The following should be read in conjunction with the Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto. Our historical results are not necessarily indicative of results for any future period.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The use of the words “we,” “us” or “our” refers to G REIT Liquidating Trust and its subsidiaries, except where the context otherwise requires.
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto that are a part of this Annual Report on Form 10-K. Such consolidated financial statements and information have been prepared to reflect our net assets in liquidation as of December 31, 2010 and 2009 (liquidation basis), together with the changes in net assets for the years ended December 31, 2010 and 2009 (liquidation basis).
Forward-Looking Statements
Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Actual results may differ materially from those included in the forward-looking statements. We intend those forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of us, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have an adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative/regulatory changes; availability of capital; changes in interest rates; competition in the real estate industry; supply and demand for operating properties in our current market areas; changes in accounting principles generally accepted in the United States of America, or GAAP, policies and guidelines applicable to us; predictions of the amount of liquidating distributions to be received by unit holders; statements regarding the timing of asset dispositions and the sales price we will receive for assets; the effect of the liquidation; our ongoing relationship with our Advisor (as defined below); litigation; and the implementation and completion of our plan of liquidation. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the United States Securities and Exchange Commission, or the SEC.
Overview and Background
We were organized on January 22, 2008, as a liquidating trust pursuant to a plan of liquidation of G REIT, Inc., or G REIT. On January 28, 2008, in accordance with the Agreement and Declaration of Trust, or the Liquidating Trust Agreement, by and between G REIT and each of its directors, Gary H. Hunt, W. Brand Inlow, Edward A. Johnson, D. Fleet Wallace and Gary T. Wescombe, or our Trustees, G REIT transferred its then remaining assets and liabilities to us. Gary T. Wescombe, the chairman of the board of directors of G REIT was appointed the chairman of the Trustees. Upon the transfer of the assets and liabilities to us, each stockholder of G REIT as of January 22, 2008, or the Record Date, automatically became the holder of one unit of beneficial interest, or a unit, in G REIT Liquidating Trust for each share of G REIT’s common stock then currently held of record by such stockholder. Our purpose is to wind up the affairs of G REIT by liquidating its remaining assets, distributing the proceeds from the liquidation of the remaining assets to the holders of units, each a beneficiary and, collectively, the beneficiaries, and paying all liabilities, costs and expenses of G REIT and G REIT Liquidating Trust.
G REIT was incorporated on December 18, 2001, under the laws of the Commonwealth of Virginia and qualified and elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes. On September 27, 2004, G REIT was reincorporated in the State of Maryland in accordance with the approval of its stockholders at the 2004 Annual Meeting of Stockholders. G REIT was originally formed to acquire, manage and invest in office, industrial and service real estate properties which have governmental related tenants. G REIT was formed with the intent to be listed on a national stock exchange, quoted on a quotation system of a national securities association or merged with an entity whose shares are listed or quoted. In 2005, as a result of: (i) then current market conditions; (ii) the increasing costs of corporate compliance (including, without limitation, all applicable federal, state and local regulatory requirements, including the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act); and (iii) the possible need to reduce monthly distributions, the then G REIT board of directors determined that a liquidation would provide G REIT’s stockholders with a greater return on their investment over a reasonable period of time than through implementation of other alternatives considered.
As described below, on February 27, 2006, G REIT’s stockholders approved a plan of liquidation and the eventual dissolution of G REIT. Accordingly, we are engaged in an ongoing liquidation of our assets. As of December 31, 2010, we owned interests in three properties aggregating a total gross leaseable area, or GLA, of approximately 1.0 million square feet, comprised of interests in two consolidated office properties, or the consolidated properties, and one unconsolidated office property, or the unconsolidated property. We refer to these assets collectively as the “remaining assets” or the “properties.” As of December 31, 2010, approximately 88.2% of the total GLA of our consolidated properties was leased and governmental related entities leased approximately 26.6% of the total consolidated GLA. On January 28, 2008, G REIT transferred all of its interests to us pursuant to the Liquidating Trust Agreement. For more information relating to the consolidated and unconsolidated properties, see Item 2.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Market risks include risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. We believe that the primary market risk to which we would be exposed would be an interest rate risk. As of December 31, 2010, we had no outstanding consolidated debt, therefore we believe we have no interest rate or market risk. Additionally, our unconsolidated debt related to our unconsolidated property is at a fixed interest rate.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
See the index at Item 15. Exhibits and Financial Statement Schedules.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
We did not employ an independent registered public accounting firm to perform an audit on the financial statements contained in this Annual Report on Form 10-K.
Item 9A.
Item 9A.
Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Trustees, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of December 31, 2010, was conducted under the supervision and with the participation of our Trustees and our Advisor of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Trustees concluded that our disclosure controls and procedures, as of December 31, 2010, were effective.
(b) Management’s Report on Internal Control over Financial Reporting. Our Trustees are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision of our Trustees and with the participation of our Trustees and Advisor, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our evaluation under the Internal Control-Integrated Framework, our Trustees concluded that our internal control over financial reporting was effective as of December 31, 2010.
(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance.
As of March 31, 2011, we have no directors or executive officers. We are administered by our five Trustees, consisting of the following:
Gary T. Wescombe previously served as a director of G REIT, Inc., or G REIT, from December 2001 to January 2008. He has also served as a director of Healthcare Trust of America, Inc. since October 2006. Mr. Wescombe manages and develops real estate operating properties through American Oak Properties, LLC, where he is a Principal. He is also Director, Chief Financial Officer and Treasurer of the Arnold and Mabel Beckman Foundation, a nonprofit foundation established for the purpose of supporting scientific research. From October 1999 to December 2001, Mr. Wescombe was a Partner in Warmington Wescombe Realty Partners in Costa Mesa, California, where he focused on real estate investments and financing strategies. Prior to retiring in 1999, Mr. Wescombe was a Partner with Ernst & Young, LLP (previously Kenneth Leventhal & Company) from 1970 to 1999. He received a B.S. degree in Accounting and Finance from California State University, San Jose in 1965 and is a member of the American Institute of Certified Public Accountants and California Society of Certified Public Accountants.
Gary H. Hunt previously served as a director of G REIT from July 2005 to January 2008. Mr. Hunt also served as the interim Chief Executive Officer of Grubb & Ellis Company from July 2008 to November 2009, and as one of its directors since December 2007, having previously served as a director of NNN Realty Advisors from December 2006 to December 2007. Mr. Hunt has served as the managing partner of California Strategies, a privately held consulting firm in Irvine, California that works with large homebuilders, real estate companies and government entities since 2001. Prior to serving with California Strategies, Mr. Hunt was the Executive Vice President of The Irvine Company, a 110-year-old privately held company that plans, develops and invests in real estate primarily in Orange County, California for 25 years. At The Irvine Company, Mr. Hunt worked at local, regional, state and federal levels directing the company’s major entitlement, regional infrastructure, planning and strategic government, media and community relations activities. Additionally, Mr. Hunt served on the board of directors and the Executive Committee of The Irvine Company for 10 years. Some of Mr. Hunt’s other work experience includes staff positions with the California State Legislature, U.S. House of Representatives, California Governor Ronald Reagan and Executive Director of the Californian Republican Party. He also serves on the board of directors of Glenair Inc., The Beckman Foundation and the Irvine Health Foundation. Mr. Hunt received a Bachelor of Laws degree and a J.D. degree from the Irvine University School of Law and teaches courses on business and government at the Graduate School of Management, University of California, Irvine.
W. Brand Inlow previously served as a director of G REIT from April 2002 to January 2008. Since July 2007, Mr. Inlow has also served as a Trustee of T REIT Liquidating Trust since July 2007, having previously served as a director of T REIT, Inc. from May 2002 to July 2007. Mr. Inlow has also served as a director and audit committee member of Grubb & Ellis Apartment REIT, Inc. from December 2005 to September 2009. He is a Principal, Co-Founder, and serves as Director of Acquisitions for McCann Realty Partners, LLC, an apartment investment company focusing on garden apartment communities in the Southeast formed in October 2004. Since October 2003, Mr. Inlow has provided professional consulting services to the multifamily industry on matters related to acquisitions, dispositions, asset management and property management operations, and through an affiliation with LAS Realty in Richmond, Virginia conducts commercial real estate brokerage. Mr. Inlow is also President of Jessie’s Wish, Inc., a Virginia non-profit corporation dedicated to awareness, education and financial assistance for patients and families dealing with eating disorders. Mr. Inlow served as President of Summit Realty Group, Inc. in Richmond, Virginia, from September 2001 through October 2003. From November 1999 to September 2001, he was Vice President of Acquisitions for EEA Realty, LLC in Alexandria, Virginia where he was responsible for acquisition, disposition and financing of company assets, which were primarily garden apartment properties. From November 1991 to November 1999, Mr. Inlow worked for United Dominion Realty Trust, Inc., a publicly traded real estate investment trust, as Assistant Vice President and Senior Acquisition Analyst, where he was responsible for the acquisition of garden apartment communities.
Edward A. Johnson previously served as a director of G REIT from December 2001 to January 2008. Dr. Johnson has served as President of Everest College Phoenix since January 2011. Everest College Phoenix is owned by Corinthian College, Inc., a publicly traded company that owns over 120 institutions throughout the U.S. and Canada. Dr. Johnson has also served as President of University Realty Advisors, LLC, which advises cities, developers and universities on campus expansion, since January 2009. Dr. Johnson served as President of the Au Sable Institute of Environmental Studies, Grand Rapids, Michigan from September 2007 to December 2008. Dr. Johnson served as the President of the University of the New West, Phoenix, Arizona from November 2003 to September 2007. Dr. Johnson served as President of Sterling College, a small liberal arts college affiliated with the Presbyterian Church (USA), in Sterling, Kansas, from 1997 to November 2003 where his major accomplishments include development of strategic and business plans, initiation of the nation’s first undergraduate program in social entrepreneurship and selection as its first leadership college by Habitat for Humanity International. From 1992 to 1997, he served as executive director of the Arizona Commission for Postsecondary Education. Dr. Johnson received a B.S. degree in History and Political science from Morningside College, a J.D. degree from Creighton University School of Law, and a Ph.D. degree in Higher Education Administration - Law and Education specialization from Arizona State University.
D. Fleet Wallace previously served as a director of G REIT from April 2002 to January 2008. Mr. Wallace has also served as a director of Grubb & Ellis Company since December 2007, having previously served as a director of NNN Realty Advisors from December 2006 to December 2007. Mr. Wallace also previously served as a director of T REIT, Inc. from May 2002 to July 2007. Mr. Wallace is a Principal and Co-Founder of McCann Realty Partners, LLC, an apartment investment company focusing on garden apartment properties in the Southeast formed in October 2004. Mr. Wallace also serves as a Principal of Greystone Capital Management, LLC, formed in September 2001, and helps manage Greystone Fund, L.P. and Greystone Finance, LLC. Greystone Fund, L.P. is a professionally managed opportunity fund invested primarily in promising venture capital opportunities and distressed assets in the form of real estate, notes and accounts receivable, inventory and other assets. Greystone Finance, LLC provides debt financing to commercial borrowers in Virginia which have limited access to more traditional sources of funding. From April 1998 to August 2001, Mr. Wallace served as Corporate Counsel and Assistant Secretary of United Dominion Realty Trust, Inc., a publicly-traded real estate investment trust. At United Dominion, he managed general corporate matters for over 150 affiliated entities, negotiated and executed numerous real estate acquisitions and dispositions, and provided legal support on over $1 billion in financing transactions. From September 1994 to April 1998, Mr. Wallace was in the private practice of law with the firm of McGuire Woods in Richmond, Virginia. Mr. Wallace received a B.A. degree in History, and a J.D. degree from the University of Virginia.
Audit Committee
We do not have an audit committee or other committee that performs similar functions and, consequently, have not designated an audit committee financial expert. Due to our limited operations and level of activity, which primarily includes the sale of the remaining assets and the payment of outstanding obligations, our Trustees believe that the services of an audit committee financial expert are not warranted.
Fiduciary Relationship of our Advisor to Us
Our Advisor is deemed to be in a fiduciary relationship to us pursuant to the Advisory Agreement and under applicable law. Our Advisor’s fiduciary duties include responsibility for our control and management and exercising good faith and integrity in handling our affairs. Our Advisor has a fiduciary responsibility for the safekeeping and use of all of our funds and assets, whether or not they are in its immediate possession and control, and may not use or permit another to use such funds or assets in any manner except for our exclusive benefit.
Our funds will not be commingled with the funds of any other person or entity except for operating revenue from our properties.
Our Advisor may employ persons or firms to carry out all or any portion of our business. Some or all such persons or entities employed may be affiliates of our Advisor. It is not clear under current law the extent, if any, that such parties will have a fiduciary duty to us or our beneficiaries. Investors who have questions concerning the fiduciary duties of our Advisor should consult with their own legal counsel.
Compensation of Trustees
Our Trustees currently each receive $750 per meeting, and our Chairman of the Trustees receives an additional $375 per meeting, payable on the first day of each month.
The following table sets forth the compensation paid to our Trustees during the year ended December 31, 2010:
Our Trustees (and previously as the independent directors of G REIT) are entitled to receive a milestone payment of $50,000 when we have made aggregate liquidating distributions of at least $11.00 per unit to our beneficiaries. Assuming that our Trustees receive the maximum amount of milestone payments for serving as our Trustees and for previously serving as members of G REIT’s board of directors and G REIT’s special committee, they will each receive aggregate payments of up to $100,000. However, based on the estimated liquidating distributions of $9.96 per unit as of December 31, 2010, we do not anticipate that any additional milestone payments will be made to the Trustees as we do not anticipate making aggregate liquidating distributions of at least $11.00 per unit to our beneficiaries. As of March 31, 2011, based upon the satisfaction of performance milestones, each of Messrs. Hunt, Inlow, Johnson, Wallace and Wescombe have received milestone payments of $50,000 each from G REIT and/or G REIT Liquidating Trust.
Section 16(a) Beneficial Ownership Reporting Compliance
Not applicable.
Code of Ethics
We have not adopted a code of ethics nor do we currently intend to due to the fact that we have no employees and our Advisor manages our business and affairs, with the oversight of our Trustees. Nonetheless, our Trustees intend to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.
Compensation of Executive Officers
We have no employees or executive officers and have not paid any executive compensation during 2010. Our day-to-day management is performed by our Advisor and its affiliates. We pay these entities fees and reimburse expenses pursuant to the Advisory Agreement. We do not currently intend to hire or compensate any employees or executives. As a result, we do not have, and our Trustees have not considered, a compensation policy or program and as such, we have not included a Compensation Discussion and Analysis in this Annual Report on Form 10-K.
Option/SAR Grants in Last Fiscal Year
Not applicable.
Compensation Committee Interlocks and Insider Participation
Not applicable.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Principal Beneficiaries
There is no public market for our units of beneficial interests. On January 22, 2008, G REIT formally closed its stock transfer books. The units are not and will not be listed on any exchange, quoted by a securities broker or dealer, nor admitted for trading in any market, including the over-the-counter market. The units of beneficial interests are not transferable except by operation of law or upon the death of a beneficiary.
The following table sets forth the beneficial ownership of units as of March 31, 2011, as to (i) each beneficiary that is known by us to have beneficially owned more than five percent of the units as of March 31, 2011; and (ii) our Trustees. All such information was provided by the people listed. All percentages have been calculated as of and are based upon 43,920,000 units outstanding at the close of business on such date.
The people in the table below have indicated that they have sole voting and investment power over the units listed.
*
Represents less than 1.0% of our outstanding units of beneficial interest.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Our Advisor manages our day-to-day business affairs and assets and carries out the directives of our Trustees. Our Advisor is a Virginia limited liability company that was formed in April 1998 to advise syndicated limited partnerships, limited liability companies, and other entities regarding the acquisition, management and disposition of real estate assets. Prior to our formation, our Advisor held 23,138 shares of common stock of G REIT, which were converted into 23,138 units. Our Advisor intends to retain such units while serving as our Advisor.
Advisory Agreement
The Advisory Agreement between our Advisor and G REIT expired on July 22, 2005. Based on the adoption of the plan of liquidation, our Advisor has agreed to continue to provide its services to us on a month-to-month basis pursuant to the terms of the expired Advisory Agreement. Under the terms of the Advisory Agreement, our Advisor has responsibility for our day-to-day operations, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by our Trustees, manages our properties and renders other services deemed appropriate by our Trustees. Our Advisor is entitled to reimbursement from us for expenses incurred in rendering its services, subject to certain limitations. Fees and costs reimbursed to our Advisor cannot exceed the greater of 2.0% of average invested assets, as defined in the Advisory Agreement, or 25.0% of net income for the previous four quarters, as defined in the Advisory Agreement. For the years ended December 31, 2010 and 2009, we reimbursed our Advisor for expenses of $24,000 and $33,000, respectively, related to its operations and such reimbursement did not exceed the limitations described above.
Under the Advisory Agreement, our Advisor bears the expenses incurred in connection with supervising, monitoring and inspecting real property or other assets owned by us (excluding proposed acquisitions) or otherwise relating to its duties under the Advisory Agreement. Such expenses include employing its personnel, rent, telephone, equipment and other administrative expenses. We reimburse our Advisor for certain expenses incurred, including those related to proposed acquisitions and travel expenses. However, we will not reimburse our Advisor for any operating expenses that, in any four consecutive fiscal quarters, exceed the greater of 2.0% of average invested assets or 25.0% of net income for such year. If our Advisor receives an incentive distribution, net income (for purposes of calculating operating expenses) excludes any gain from the sale of assets. Any amount exceeding the greater of 2.0% of average invested assets or 25.0% of net income paid to our Advisor during a fiscal quarter will be repaid to us within 60 days after the end of the fiscal year. We bear our own expenses for functions not required to be performed by our Advisor under the Advisory Agreement, which generally include capital raising and financing activities, corporate governance matters, and other activities not directly related to real estate properties and other assets. To date, except as disclosed below, no reimbursements have been made to our Advisor pursuant to the provisions of the Advisory Agreement.
Pursuant to the Advisory Agreement, our Advisor or its affiliate is entitled to receive the payments and fees described below. These payments and fees were not negotiated at arm’s length and may be higher than payments and fees that would have resulted from an arm’s length transaction with an unrelated entity.
Real Estate Disposition Fee
We may pay our Advisor or its affiliate a real estate disposition fee of up to 1.5% of the sales price of the property. We did not pay any real estate disposition fees to our Advisor or its affiliate for the years ended December 31, 2010 or 2009.
Lease Commissions
We pay our Advisor or its affiliate a leasing commission for its services in leasing any of our properties of 6.0% of the value of any lease (based upon the contract rent during the term of the lease) entered into during the term of the Advisory Agreement and 3.0% with respect to any renewals. We paid our Advisor or its affiliate leasing commissions of $519,000 and $658,000 for the years ended December 31, 2010 and 2009, respectively.
Property Management Fees
We pay our Advisor or its affiliate a property management fee of 5.0% of the gross revenues from our properties. We paid our Advisor or its affiliate property management fees of $379,000 and $437,000 for the years ended December 31, 2010 and 2009, respectively.
Incentive Distributions
Our Advisor owned non-voting incentive performance units in the Operating Partnership and was entitled to incentive distributions of operating cash flow after G REIT stockholders received an 8.0% annual return on their invested capital. On January 28, 2008, immediately before the transfer of G REIT’s assets and liabilities to us, the Operating Partnership redeemed the special limited partnership interest held by its advisor, Grubb & Ellis Realty Investors, in exchange for the right to receive 15.0% of certain distributions made by G REIT and G REIT Liquidating Trust after G REIT’s stockholders, who are now our beneficiaries, have received certain returns on their invested capital. As a result of such redemption, G REIT owned 100.0% of the outstanding partnership interests in the Operating Partnership. In accordance with the plan of liquidation, the estimated incentive fee distribution that may be paid to our Advisor is between $0 and $9,070,000. Based on the valuation of our portfolio as of December 31, 2010, we have not reserved for any incentive fee distribution to our Advisor.
Milestone Payments to our Trustees
D. Fleet Wallace, W. Brand Inlow, Edward A. Johnson, Gary T. Wescombe and Gary H. Hunt, our Trustees (and previously independent directors of G REIT), were entitled to receive certain milestone payments of $25,000 on each of December 31, 2007 and 2006 for serving as members of G REIT’s board of directors and G REIT’s special committee. Our Trustees (and previously as the independent directors of G REIT) are also entitled to receive a milestone payment of $50,000 when we have made aggregate liquidating distributions of at least $11.00 per unit to our beneficiaries. Assuming that our Trustees receive the maximum amount of milestone payments for serving as our Trustees and for previously serving as members of G REIT’s board of directors and G REIT’s special committee, they will each receive aggregate payments of up to $100,000. However, based on the estimated liquidating distributions of $9.96 per unit as of December 31, 2010, we do not anticipate that any additional milestone payments will be made to the Trustees as we do not anticipate making aggregate liquidating distributions of at least $11.00 per unit to our beneficiaries. As of March 31, 2011, based upon the satisfaction of performance milestones, each of Messrs. Hunt, Inlow, Johnson, Wallace and Wescombe have received milestone payments of $50,000 each from G REIT and/or G REIT Liquidating Trust.
Related Party Receivables/Payables
Related party receivables consist of amounts due to us from our Advisor and affiliates, and at December 31, 2010 also include amounts due to us from the Western Place I & II tenant-in-common owners at its estimated fair value, as a result of amounts we advanced them when paying off the underlying property mortgage. Related party payables consist primarily of amounts due from us to our Advisor and affiliates.
Review, Approval or Ratification of Transactions with Related Persons
All transactions between us and any related person, including our Advisor and its affiliates, are reviewed and approved by our Trustees. Additionally, the plan of liquidation provides that we may sell our remaining assets to one of our affiliates or an affiliate of our Advisor. If we enter such a transaction, we expect that our Trustees will require that and independent third party opine to us as to the fairness of the consideration to be received by us in such transaction, from a financial point of view, or conduct an appraisal of the applicable property as a condition to their approval. In no event will our Trustees approve a transaction if: (i) and independent third party concludes after a review of the information then available, including any pending offers, letters of intent, contracts for sale, appraisals or other data, that the consideration to be received by us is not fair to us from a financial point of view; (ii) an independent third party concludes that the consideration to be received is less than the appraised value of the applicable property; or (iii) we have received a higher offer for the applicable property from a credible party with whom we reasonably believe is ready, able and willing to close the transaction on the contract terms.
Director and Trustee Independence
Each of our Trustees qualified as “independent directors” as defined in G REIT’s charter in compliance with the requirements of the North American Securities Administration Association’s Statement of Policy Regarding Real Estate Investment Trusts. All of our current Trustees meet these same requirements for independence.
Item 14.
Item 14.
Principal Accounting Fees and Services.
None.
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules.
(a)(1) Financial Statements:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(a)(2) Financial Statement Schedules:
The following financial statement schedule for the year ended December 31, 2010 is submitted herewith:
Real Estate and Accumulated Depreciation (Schedule III)
All schedules other than the one listed above have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
(a)(3) Exhibits:
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Annual Report.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Statement Schedules:
Real Estate and Accumulated Depreciation (Schedule III)
G REIT LIQUIDATING TRUST
CONSOLIDATED STATEMENT OF NET ASSETS
(Liquidation Basis)
As of December 31, 2010 and 2009 (Unaudited)
The accompanying notes are an integral part of these consolidated financial statements.
G REIT LIQUIDATING TRUST
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(Liquidation Basis)
For the Years Ended December 31, 2010 and 2009 (Unaudited)
The accompanying notes are an integral part of these consolidated financial statements.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010 and 2009 (Unaudited)
The use of the words “we,” “us” or “our” refers to G REIT Liquidating Trust and its subsidiaries, except where the context otherwise requires.
1. Organization and Description of Business
We were organized on January 22, 2008, as a liquidating trust pursuant to a plan of liquidation of G REIT, Inc., or G REIT. On January 28, 2008, in accordance with the Agreement and Declaration of Trust, or the Liquidating Trust Agreement, by and between G REIT and each of its directors, Gary H. Hunt, W. Brand Inlow, Edward A. Johnson, D. Fleet Wallace and Gary T. Wescombe, or our Trustees, G REIT transferred its then remaining assets and liabilities to us. Upon the transfer of the assets and liabilities to us, each stockholder of G REIT as of January 22, 2008, or the Record Date, automatically became the holder of one unit of beneficial interest, or a unit, in G REIT Liquidating Trust for each share of G REIT common stock then currently held of record by such stockholder. Our purpose is to wind up the affairs of G REIT by liquidating its remaining assets, distributing the proceeds from the liquidation of the remaining assets to the holders of units, each a beneficiary and, collectively, the beneficiaries, and paying all liabilities, costs and expenses of G REIT and G REIT Liquidating Trust.
G REIT was incorporated on December 18, 2001, under the laws of the Commonwealth of Virginia and qualified and elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes. On September 27, 2004, G REIT was reincorporated in the State of Maryland in accordance with the approval of its stockholders at the 2004 Annual Meeting of Stockholders. G REIT was originally formed to acquire, manage and invest in office, industrial and service real estate properties which have a government-tenant orientation. G REIT was formed with the intent to be listed on a national stock exchange, quoted on a quotation system of a national securities association or merged with an entity whose shares are listed or quoted. In 2005, as a result of: (i) then current market conditions; (ii) the increasing costs of corporate compliance (including, without limitation, all applicable federal, state and local regulatory requirements, including the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act); and (iii) the possible need to reduce monthly distributions, the then G REIT board of directors determined that a liquidation would provide G REIT’s stockholders with a greater return on their investment over a reasonable period of time than through implementation of other alternatives considered.
As described below, on February 27, 2006, G REIT’s stockholders approved a plan of liquidation and the eventual dissolution of G REIT. Accordingly, we are engaged in an ongoing liquidation of our assets. As of December 31, 2010, we owned interests in three properties aggregating a total gross leaseable area, or GLA, of approximately 1.0 million square feet, comprised of interests in two consolidated office properties, or the consolidated properties, and one unconsolidated office property, or the unconsolidated property. We refer to these assets collectively as the “remaining assets” or the “properties.” As of December 31, 2010, approximately 88.2% of the total GLA of our consolidated properties was leased and governmental related entities leased approximately 26.6% of the total consolidated GLA.
Based on the adoption of the plan of liquidation, our Advisor has agreed to continue to provide its services to us on a month-to-month basis pursuant to the terms of an expired advisory agreement, or the Advisory Agreement, between G REIT and our Advisor. Under the terms of the Advisory Agreement, our Advisor has responsibility for our day-to-day operations, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by our Trustees, manages our properties and renders other services deemed appropriate by our Trustees. Our Advisor is a Virginia limited liability company that was formed in April 1998 to advise syndicated limited partnerships, limited liability companies and other entities regarding the acquisition, management and disposition of real estate assets. Our Advisor advises us, as well as certain other entities which have an ownership interest in our remaining assets, with respect to the management and potential disposition of our remaining assets.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
2. Plan of Liquidation
On December 19, 2005, the board of directors of G REIT approved a plan of liquidation which was thereafter approved by stockholders of G REIT at the Special Meeting of Stockholders held on February 27, 2006. The G REIT plan of liquidation, or the plan of liquidation, contemplates the orderly sale of all of G REIT’s assets, the payment of its liabilities, the winding up of operations and the dissolution of G REIT. G REIT engaged an independent third party to perform financial advisory services in connection with the plan of liquidation, including rendering opinions as to whether the net real estate liquidation value range estimate and G REIT’s estimated per share distribution range were reasonable. In December 2005, an independent third party opined that G REIT’s net real estate liquidation value range estimate and G REIT’s estimated per share distribution range were reasonable from a financial point of view. Actual values realized for assets and settlement of liabilities may differ materially from the amounts estimated by G REIT.
The plan of liquidation gave G REIT’s board of directors the power to sell any and all of its assets without further approval by its stockholders and provided that liquidating distributions be made to its stockholders as determined by G REIT’s board of directors. The plan of liquidation also provided for the transfer of G REIT’s remaining assets and liabilities to a liquidating trust if G REIT was unable to sell its assets and pay its liabilities within 24 months of its stockholders’ approval of the plan of liquidation (which was February 27, 2008). On October 29, 2007, G REIT’s board of directors approved the transfer of G REIT’s assets and liabilities to G REIT Liquidating Trust.
On January 22, 2008, G REIT and our Trustees, Gary H. Hunt, W. Brand Inlow, Edward A. Johnson, D. Fleet Wallace and Gary T. Wescombe, the independent directors of G REIT, entered into the Liquidating Trust Agreement in connection with our formation. Gary T. Wescombe, the chairman of the G REIT board of directors was appointed the chairman of the Trustees. On January 28, 2008, G REIT transferred its remaining assets to, and its remaining liabilities were assumed by, us in accordance with the plan of liquidation and the Liquidating Trust Agreement. In connection with the transfer of assets to, and assumption of liabilities by, us the stock transfer books of G REIT were closed as of the close of business on the Record Date and each share of G REIT’s common stock outstanding on the Record Date was converted automatically into a unit. Following the conversion of shares to units, all outstanding shares of G REIT’s common stock were deemed cancelled. The rights of beneficiaries in their beneficial interests are not represented by any form of certificate or other instrument. Stockholders of G REIT on the Record Date were not required to take any action to receive their units. On the date of the conversion, the economic value of each unit of beneficial interest was equivalent to the economic value of a share of G REIT’s common stock. On January 28, 2008, G REIT filed a Form 15 with the United States Securities and Exchange Commission, or the SEC, to terminate the registration of G REIT’s common stock under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and G REIT announced that it would cease filing reports under the Exchange Act. Our Trustees issue to beneficiaries and file with the SEC Annual Reports on Form 10-K and Current Reports on Form 8-K upon the occurrence of a material event relating to us.
Immediately before the transfer of G REIT’s assets and liabilities to us, G REIT, L.P., the operating partnership of G REIT, or the Operating Partnership, redeemed the special limited partnership interest held by our Advisor, in exchange for the right to receive 15.0% of certain distributions made by G REIT and G REIT Liquidating Trust after G REIT’s stockholders, who are now our beneficiaries, have received certain returns, as provided by the Operating Partnership Agreement. As a result of such redemption, G REIT owned 100.0% of the outstanding partnership interests in the Operating Partnership. The Operating Partnership was dissolved in connection with the dissolution of G REIT, and all of its assets and liabilities were distributed to G REIT immediately before the transfer to us.
Our existence will terminate upon the earliest of (i) the distribution of all of our assets in accordance with the terms of Liquidating Trust Agreement, or (ii) January 28, 2014. Our existence may, however, be extended beyond the three-year term if our Trustees then determine that an extension is reasonably necessary to fulfill our purpose and, prior to such extension, our Trustees have requested and received certain no-action assurances from the Staff of the SEC. Although we can provide no assurances, we currently expect to sell our remaining assets by December 31, 2012 and anticipate completing the plan of liquidation by March 31, 2013.
In accordance with the plan of liquidation, we continue to actively manage our remaining assets to seek to achieve higher occupancy rates, control operating expenses and maximize income from ancillary operations and services. We continually evaluate our properties and adjust our net real estate liquidation value accordingly. It is our policy that when we execute a purchase and sale agreement or become aware of market conditions or other circumstances that indicate that the present value of our properties materially differs from our expected net sales price, we will adjust our liquidation value accordingly. Under the adoption of the plan of liquidation, we will not acquire any new properties, and are focused on liquidating our remaining assets.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
3. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such financial statements and accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. The following accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.
Use of Estimates
The preparation of our financial statements in conformity with GAAP and the liquidation basis of accounting requires management to make estimates and assumptions that affect the reported amounts of the assets, including net assets in liquidation, and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ, perhaps in adverse ways, and those estimates could be different under different assumptions or conditions from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and any variable interest entities, as defined in Financial Accounting Standards Board, Accounting Standards Codification, or FASB Codification, Topic 810, Consolidation, that we have concluded should be consolidated. All material intercompany transactions and account balances have been eliminated in consolidation.
Liquidation Basis of Accounting
Under the liquidation basis of accounting, all assets are adjusted to their estimated fair value (on an undiscounted basis) and liabilities, including estimated costs associated with implementing the plan of liquidation, are adjusted to their estimated settlement amounts. Noncontrolling interests in properties held by tenants-in-common, or TICs, were offset against the respective properties. The valuation of real estate held for sale and investments in unconsolidated real estate is based on current contracts, estimates and other indications of sales value net of estimated selling costs. Actual values realized for assets and settlement of liabilities may differ materially from the amounts estimated. Estimated future cash flows from property operations were made based on the anticipated sales dates of our remaining assets. Due to the uncertainty in the timing of the anticipated sales dates and the cash flows there from, operations may differ materially from amounts estimated. These amounts are presented in the accompanying consolidated statement of net assets. The net assets represent the estimated liquidation value of our remaining assets available to our beneficiaries upon liquidation. The actual settlement amounts realized for assets and settlement of liabilities may differ materially, perhaps in adverse ways, from the amounts estimated.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Certificates of deposit and short-term investments with remaining maturities of three months or less when acquired are considered cash equivalents.
Noncontrolling Interests
Noncontrolling interests relate to the TIC interests in the consolidated properties that are not wholly owned by us, which, as of December 31, 2010 and 2009, consisted of a 21.5% interest in Western Place I & II.
Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments and accounts receivable from tenants. Cash is generally invested in investment-grade short-term instruments and the amount of credit exposure to any one commercial issuer is limited. We have cash in financial institutions which is insured by the Federal Deposit Insurance Corporation, or FDIC, up to $250,000 per depositor per insured bank. As of December 31, 2010, we had cash accounts in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants and security deposits are obtained upon lease execution.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
As of December 31, 2010, we had interests in one property located in California which accounted for 15.8% of our total revenue, and one property located in Texas which accounted for 84.2% of our total revenue based on contractual base rent from leases in effect as of December 31, 2010. As of December 31, 2010, we had no tenants that accounted for 10.0% or more of our aggregate annual rental income.
Revenue Recognition
Rental revenue is recorded on the contractual basis under the liquidation basis of accounting.
Income Taxes
We are treated as a grantor trust for income tax purposes and accordingly, are not subject to federal or state income tax on any income earned or gain recognized by us. We will recognize taxable gain or loss when an asset is disposed of for an amount greater or less than the fair market value of such asset at the time it was transferred from G REIT to us. Our beneficiaries will be treated as the owner of a pro rata portion of each asset, including cash, received by and held by us and will be required to report on his or her federal and state income tax return his or her pro rata share of taxable income, including gains and losses recognized by us. Accordingly, there is no provision for federal or state income taxes in the accompanying consolidated financial statements.
Segments
FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable segment, with activities related to investing in an unconsolidated office building. As such, our operations have been aggregated into one reportable segment for all periods presented.
4. Asset for Estimated Receipts in Excess of Estimated Costs during Liquidation
Under the liquidation basis of accounting, we are required to estimate the cash flows from operations and accrue the costs associated with implementing and completing the plan of liquidation. We currently estimate that we will have estimated operating cash receipts in excess of estimated costs of liquidation. These amounts can vary significantly due to, among other things, the timing and estimates for executing and renewing leases, along with the estimates of tenant improvements incurred and paid, the timing of the property sales, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with winding up our operations. These costs are estimated and are expected to be paid over the liquidation period.
The change in the asset for estimated receipts in excess of estimated costs during liquidation for the year ended December 31, 2010 was as follows:
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
The change in the asset (liability) for estimated receipts (costs) in excess of estimated costs (receipts) during liquidation for the year ended December 31, 2009 was as follows:
5. Net Assets in Liquidation
Net assets in liquidation decreased $2,750,000, or $0.06 per unit, during the year ended December 31, 2010. The primary reasons for the decrease in net assets were a decrease in real estate assets of $2,273,000, or $0.05 per unit, and a decrease in cash and cash equivalents of $1,710,000, or $0.04 per unit, offset by a decrease in accounts payable and accrued liabilities of $2,211,000, or $0.05 per unit.
The overall decrease in real estate assets during the year ended December 31, 2010 was primarily due to: (i) a decrease of $5,112,000, or $0.12 per unit, due to the sale of the Pacific Place property in May 2010; offset by (ii) an increase of $2,229,000, or $0.05 per unit, in the in the expected liquidation value of consolidated properties; and (iii) an increase of $609,000, or $0.01 per unit, in the expected liquidation value of our unconsolidated property. The decrease in cash and cash equivalents during the year ended December 31, 2010 was primarily due to the payment of distributions to beneficiaries of approximately $6,306,000, or $0.15 per unit, during the year ended December 31, 2010, net of the cash proceeds from the one property sale.
Net assets in liquidation decreased $20,400,000, or $0.46 per unit, during the year ended December 31, 2009. The primary reasons for the decrease in net assets were a decrease in real estate assets of $17,871,000, or $0.41 per unit, and a decrease in cash and cash equivalents of $29,935,000, or $0.68 per unit, offset by an increase in related party receivables of $4,921,000, or $0.11 per unit, and a decrease in the mortgage loan liability of $19,324,000 or $0.44 per unit.
The overall decrease in real estate assets during the year ended December 31, 2009 was primarily due to: (i) a decrease of $10,946,000, or $0.25 per unit, in the in the expected liquidation value of consolidated properties; and (ii) a decrease of $6,925,000, or $0.16 per unit, in the expected liquidation value of our unconsolidated property. The decrease in cash and cash equivalents during the year ended December 31, 2009 was primarily due to the April 2009 repayment of the mortgage loan and accrued interest on one of our consolidated properties of $24,668,000 (of which our proportionate share was $19,364,000) including our advance to the other TICs of $5,304,000, and payment of distributions to beneficiaries of approximately $4,612,000, or $0.11 per unit, during the year ended December 31, 2009. The increase in the related party receivables during the year ended December 31, 2009 of $4,921,000, or $0.11 per unit, is primarily due to the principal and accrued interest owed to us by the TICs described above at its estimated fair value.
The net assets in liquidation as of December 31, 2010 of $37,759,000 plus cumulative liquidating distributions paid through December 31, 2010 of $399,529,000 (which includes $382,270,000 paid to G REIT stockholders prior to the transfer of G REIT’s assets and liabilities to us), would result in liquidating distributions to our beneficiaries per unit of approximately $9.96 per unit (of which $9.10 per unit has been paid, which includes $8.70 per share paid to G REIT stockholders prior to the transfer of G REIT’s assets and liabilities to us). These estimates for liquidating distributions per unit include projections of costs and expenses expected to be incurred during the period required to complete the plan of liquidation. These projections could change materially based on the timing of sales, the performance of the underlying assets and any changes in the underlying assumptions of the projected cash flows.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
6. Real Estate Investments
Our real estate investments are comprised of two consolidated properties and one 30% investment in unconsolidated real estate. As of December 31, 2010, all of our consolidated properties and our investment in unconsolidated real estate are considered held for sale in accordance with the plan of liquidation. Under the liquidation basis of accounting, our properties are recorded at fair value less costs to sell, and we will not be acquiring any new properties.
On May 3, 2010, we sold the Pacific Place property, located in Dallas, Texas to an unaffiliated third party, for a sales price of $5,300,000. Our net cash proceeds from the sale were $5,088,000 after payment of closing costs and other transaction expenses. A sales commission of $98,000, or 1.8% of the sales price, was paid to Grubb & Ellis Company, the parent company of our Advisor.
We had no property dispositions during the year ended December 31, 2009.
7. Noncontrolling Interests
Noncontrolling interests relate to the TIC interests in the consolidated properties that are not wholly owned by us, which, as of December 31, 2010 and 2009, consisted of a 21.5% interest in Western Place I & II.
We have the right to purchase all or any portion of the outstanding undivided TIC interests in Western Place I & II at fair market value. However, we do not intend to acquire any portion of the outstanding undivided TIC interests as we are currently focused on liquidating our remaining assets and liabilities.
8. Future Minimum Rent
Rental Income
We have operating leases with tenants at our consolidated properties that expire at various dates through 2020 and are either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future minimum rent contractually due under operating leases at our consolidated properties, excluding tenant reimbursements of certain costs, as of December 31, 2010, are summarized as follows:
A certain amount of our rental income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the years ended December 31, 2010 and 2009, the amount of contingent rent earned by us was not significant.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
9. Related Party Transactions
Advisory Agreement
Advisory Fees
The Advisory Agreement between our Advisor and G REIT expired on July 22, 2005. Based on the adoption of the plan of liquidation, our Advisor has agreed to continue to provide its services to us on a month-to-month basis pursuant to the terms of the expired Advisory Agreement. Under the terms of the Advisory Agreement, our Advisor has responsibility for our day-to-day operations, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by our Trustees, manages our properties and renders other services deemed appropriate by our Trustees. Our Advisor is entitled to reimbursement from us for expenses incurred in rendering its services, subject to certain limitations. Fees and costs reimbursed to our Advisor cannot exceed the greater of 2.0% of average invested assets, as defined, or 25.0% of net income for the previous four quarters, as defined. For the years ended December 31, 2010 and 2009, we reimbursed our Advisor for expenses of $24,000 and $33,000, respectively, related to its operations and such reimbursement did not exceed the limitations described above.
Pursuant to the Advisory Agreement, our Advisor or its affiliate is entitled to receive the following payments and fees described below. These payments and fees were not negotiated at arm’s length and may be higher than payments and fees that would have resulted from an arm’s length transaction with an unrelated entity.
Real Estate Disposition Fee
We may pay our Advisor or its affiliate a real estate disposition fee of up to 1.5% of the sales price of the property. We did not pay any real estate disposition fees to our Advisor or its affiliate for the years ended December 31, 2010 or 2009.
Lease Commissions
We pay our Advisor or its affiliate a leasing commission for its services in leasing any of our properties of 6.0% of the value of any lease (based upon the contract rent during the term of the lease) entered into during the term of the Advisory Agreement and 3.0% with respect to any renewals. We paid our Advisor or its affiliate leasing commissions of $519,000 and $658,000 for the years ended December 31, 2010 and 2009, respectively.
Property Management Fees
We pay our Advisor or its affiliate a property management fee of 5.0% of the gross revenues from our properties. We paid our Advisor or its affiliate property management fees of $379,000 and $437,000 for the years ended December 31, 2010 and 2009, respectively.
Incentive Distributions
Our Advisor owned non-voting incentive performance units in the Operating Partnership and was entitled to incentive distributions of operating cash flow after G REIT stockholders received an 8.0% annual return on their invested capital. On January 28, 2008, immediately before the transfer of G REIT’s assets and liabilities to us, the Operating Partnership redeemed the special limited partnership interest held by its advisor, Grubb & Ellis Realty Investors in exchange for the right to receive 15.0% of certain distributions made by G REIT and G REIT Liquidating Trust after G REIT’s stockholders, who are now our beneficiaries, have received certain returns on their invested capital. As a result of such redemption, G REIT owned 100.0% of the outstanding partnership interests in the Operating Partnership. In accordance with the plan of liquidation, the estimated incentive fee distribution that may be paid to our Advisor is between $0 and $9,070,000. Based on the valuation of our portfolio as of December 31, 2010, we have not reserved for any incentive fee distribution to our Advisor.
Milestone Payments to our Trustees
D. Fleet Wallace, W. Brand Inlow, Edward A. Johnson, Gary T. Wescombe and Gary H. Hunt, our Trustees (and previously independent directors of G REIT), were entitled to receive certain milestone payments of $25,000 on each of December 31, 2007 and 2006 for serving as members of G REIT’s board of directors and G REIT’s special committee. Our Trustees (and previously as the independent directors of G REIT) are also entitled to receive a milestone payment of $50,000 when we have made aggregate liquidating distributions of at least $11.00 per unit to our beneficiaries. Assuming that our Trustees receive the maximum amount of milestone payments for serving as our Trustees and for previously serving as members of G REIT’s board of directors and G REIT’s special committee, they will each receive aggregate payments of up to $100,000. However, based on the estimated liquidating distributions of $9.96 per unit as of December 31, 2010, we do not anticipate that any additional milestone payments will be made to the Trustees as we do not anticipate making aggregate liquidating distributions of at least $11.00 per unit to our beneficiaries. As of March 31, 2011, based upon the satisfaction of performance milestones, each of Messrs. Hunt, Inlow, Johnson, Wallace and Wescombe have received milestone payments of $50,000 each from G REIT and/or G REIT Liquidating Trust.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Related Party Receivables/Payables
Related party receivables consist of amounts due to us from our Advisor and affiliates, and also include amounts due to us from the Western Place I & II TICs, at its estimated fair value, as a result of amounts we advanced them when paying off the underlying property mortgage in 2009. Related party payables consist primarily of amounts due from us to our Advisor and affiliates.
Review, Approval or Ratification of Transactions with Related Persons
All transactions between us and any related person, including our Advisor and its affiliates, are reviewed and approved by our Trustees. Additionally, the plan of liquidation provides that we may sell our remaining assets to one of our affiliates or an affiliate of our Advisor. If we enter such a transaction, we expect that our Trustees will require that an independent third party opine to us as to the fairness of the consideration to be received by us in such transaction, from a financial point of view, or conduct an appraisal of the applicable property as a condition to their approval. In no event will our Trustees approve a transaction if: (i) an independent third party concludes after a review of the information then available, including any pending offers, letters of intent, contracts for sale, appraisals or other data, that the consideration to be received by us is not fair to us from a financial point of view; (ii) an independent third party concludes that the consideration to be received is less than the appraised value of the applicable property; or (iii) we have received a higher offer for the applicable property from a credible buyer with whom we reasonably believe is ready, able and willing to close the transaction on the contract terms.
10. Commitments and Contingencies
Operating Leases
One of our consolidated properties, Sutter Square Galleria, located in Sacramento, California, or the Sutter Square Galleria property, is subject to a ground lease expiring in June 2038. Future minimum rents to be paid under this non-cancelable operating lease are computed at 12.5% of gross rents, as defined in the ground lease agreement. The aggregate ground lease rent for the years ended December 31, 2010 and 2009 was $115,000 and $108,000, respectively.
Litigation
Neither we nor any of our properties are presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us or any of our properties which if determined unfavorably to us would have a material adverse effect on our cash flows, financial condition or results of operations.
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our financial condition, results of operations and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
G REIT LIQUIDATING TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Unconsolidated Debt
Total mortgage debt of our unconsolidated property, Congress Center, located in Chicago, Illinois, or the Congress Center property, was $92,054,000 as of December 31, 2010. Our pro rata share of the unconsolidated debt, based on our ownership percentage, was $27,616,000 as of December 31, 2010.
The Congress Center property is required by the terms of the applicable loan documents to meet certain minimum loan to value, performance covenants and other requirements. As of December 31, 2010, the Congress Center property was in compliance with all such covenants.
Other
Our commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial position and results of operations.
G REIT LIQUIDATING TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
The changes in total real estate for the year ended December 31, 2010 are as follows:
The changes in total real estate for the year ended December 31, 2009 are as follows:
(1)
Depreciation expense has not been recorded subsequent to December 31, 2005 as a result of the adoption of the plan of liquidation, because all assets are considered held for sale.
(2)
Under the liquidation basis of accounting, our real estate investments are carried at their estimated fair values. The net liquidation adjustment is the cumulative net liquidation adjustment that we and G REIT have made to the carrying value of our remaining real estate investments since we adopted the liquidation basis of accounting as of December 31, 2005.
(3)
Represents the net liquidation adjustment we made to the carrying value of our remaining real estate investments during the period.
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit index immediately precedes the exhibits.
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2010 (and are numbered in accordance with Item 601 of Regulation S-K).