Item 1. BUSINESS
General
T REIT, Inc. (the "Company") was formed as a Virginia corporation in December, 1998. On February 22, 2000, the Company commenced a public offering (the "Offering") on a best efforts basis of up to 10,000,000 shares of common stock (the "Shares") at $10.00 per Share, subject to discounts in certain cases, and up to 700,000 Shares at $9.05 per Share pursuant to the Company's Dividend Reinvestment Program ("DRIP"), pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as amended. As of June 28, 2000, the Company had received and accepted subscriptions for the minimum offering of 100,000 Shares or $1,000,000. As of December 31, 2001, the Company had sold 2,433,469 Shares to the public resulting in gross proceeds of approximately $24,267,000 and 37,018 additional Shares pursuant to the DRIP for approximately $335,000 of additional gross proceeds. Triple Net Properties, LLC (the "Advisor"), an affiliated entity, purchased 22,100 Shares for $200,005 preceding the commencement of the Offering.
The Offering was to be terminated on the earlier of February 22, 2002, or the date on which the maximum number of shares had been sold, but was extended until May 31, 2002 because the Company has not sold the maximum number of shares
The Registration Statement also includes the Soliciting Dealer Warrants that the Company will offer to sell to NNN Capital Corp., the dealer manager (the "Dealer Manager"), an affiliated entity, of the Offering, at the rate of one Soliciting Dealer Warrant (for a price of $.0008 per Warrant) for every 40 Shares sold during the Offering in states other than Arizona, Missouri, Ohio, or Tennessee. The Dealer Manager may reallow a portion of the Soliciting Dealer Warrants to broker-dealers participating in the Offering, up to a maximum of 250,000 Soliciting Dealer Warrants. Each Warrant entitles the holder to purchase one Share from the Company at a price of $12.00 per Share. As of December 31, 2001, the Company had issued 53,529 Soliciting Dealer Warrants; however, no warrants had been exercised as of December 31, 2001.
Description of Business
The Company was organized to acquire and manage a diversified portfolio of real estate composed of office, industrial, retail, and service properties located primarily in the following focus states: Alaska, Florida, Iowa, Michigan, Minnesota, Nevada, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, and Wyoming. The Advisor has been retained to manage, for a fee, the Company's day-to-day affairs, subject to the supervision of the Company's Board of Directors.
As of December 31, 2001, the Company owned 100% fee simple interests in three shopping centers, two located in Texas and one in Nevada, containing an aggregate of approximately 336,145 square feet of gross leasable area ("GLA"). In addition, the Company owned undivided tenant in common interests in three other buildings, 16.5% and 26%, respectively, in two additional shopping centers in Texas and 40% in an office/distribution building in Nevada. The total GLA of the buildings in which the Company owned undivided tenant in common interests as of December 31, 2001 was 221,751 square feet, and, on a proportionate basis, the Company owned approximately 56,269 square feet of the total GLA in these buildings. As of December 31, 2001, approximately 94% of the total GLA in the Company's six properties was leased.
The Company is the sole general partner and 100% owner (other than the incentive limited partnership interest owned by the Advisor) of T REIT, L.P., a Virginia limited partnership (the "Operating Partnership"), which was organized for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing for investment purposes, income producing commercial properties on behalf of the Company.
The Company's principal executive offices are located at 1551 N. Tustin Avenue, Suite 650, Santa Ana, California 92705 and its telephone number is (877) 888-7348.
Acquisition Strategies
The Company, through entities owned or controlled directly or indirectly by the Company, acquires and manages office, industrial, retail, and service properties, including neighborhood retail centers and single-user properties leased by generally creditworthy tenants under net leases. It may enter into sale and leaseback transactions, under which it will purchase the property from an entity and lease the property back to such entity under a net lease.
A majority of properties acquired will be at least 75% leased on the acquisition date. The Company may acquire properties free and clear of permanent mortgage indebtedness by paying the entire purchase price for such property in cash or in units of limited partnership interest in the Operating Partnership. However, when the Company thinks it is prudent, it will incur indebtedness to acquire properties. On properties purchased on an all-cash basis, it may later incur mortgage indebtedness by obtaining loans secured by selected properties, if favorable financing terms are available. The proceeds from such loans will be used to acquire additional properties and increase the Company's cash flow. On November 26, 2001 the Company's Board of Directors voted to amend the policy regarding the use of leverage to increase the limit on aggregate borrowings, both secured and unsecured, from 60% to 70% of the properties' combined fair market value, as determined at the end of each calendar year. As of December 31, 2001, total leverage for all of the Company's properties was approximately 68%. Fair market value will be determined each year by an internal or independent certified appraiser and in a similar manner as the fair market determination at the time of purchase.
Acquisition Standards
Based on the Advisor's prior real estate experience, the Company believes it has the ability to identify quality properties capable of meeting its investment objectives. In evaluating potential acquisitions, the primary factor considered is the property's current and projected cash flow. The Company also considers a number of other factors, including a property's:
. geographic location and type;
. construction quality and condition;
. potential for capital appreciation;
. lease terms and rent roll, including the potential for rent increases;
. potential for economic growth in the tax and regulatory environment of the community in which the property is located;
. potential for expanding the physical layout of the property;
. occupancy and demand by tenants for properties of a similar type in the same geographic vicinity;
. prospects for liquidity through sale, financing or refinancing of the property;
. competition from existing properties and the potential for the construction of new properties in the area;
. and treatment under applicable federal, state and local tax and other laws and regulations.
Property Acquisition
The Company acquires fee simple and tenant in common interests in real properties and real properties subject to long-term ground leases, although other methods of acquiring a property may be used when advantageous. The Company may acquire properties through a joint venture or the acquisition of substantially all of the interests of an entity which in turn owns the real property. It may also use wholly owned subsidiaries of the Operating Partnership to acquire properties. Such wholly owned subsidiaries will be formed solely for the purpose of acquiring and/or financing a property or properties.
The Company has purchased certain tenant-in-common interests in properties whereas the other tenants in common were participating in a tax-free exchange arranged by the Advisor. Such transactions earn the Advisor or its affiliates commissions on the tax-free exchanges, and may impact the extent to which the Company participates in such acquisitions.
In some cases, the Company may commit to purchase properties subject to completion of construction in accordance with terms and conditions specified by the Advisor. In such cases, the Company will be obligated to purchase the property at the completion of construction, provided that (1) the construction conforms to definitive plans, specifications and costs approved by the Company in advance and embodied in the construction contract and (2) agreed upon percentages of the property are leased. The Company will receive a certificate of an architect, engineer or other appropriate party, stating that the property complies with all plans and specifications. The Company does not intend to construct or develop properties, or render any services in connection with such development or construction.
If remodeling is required prior to the purchase of a property, the Company will pay a negotiated maximum amount either upon completion or in installments commencing prior to completion. Such amount will be based on the estimated cost of such remodeling. In such instances, the Company will also have the right to review the lessee's books during and following completion of the remodeling to verify actual costs. In the event of substantial disparity between estimated and actual costs, an adjustment in purchase price may be negotiated. If remodeling is required after the purchase of a property, the Advisor or an affiliate may serve as construction manager for a fee no greater than the fee a third party would charge for such services.
Operating Strategies
The Company's primary operating strategy is to acquire suitable properties and to enhance the performance and value of those properties through management strategies designed to address the needs of the modern real estate marketplace. Key elements of the Company's strategy to achieve those objectives include the items in the following list. The Company's Board of Directors may change the Company's business objectives at any time without shareholder approval.
Acquiring Properties:
. The Company will seek to selectively acquire well-located office, industrial, retail and service properties located primarily in focus states, including neighborhood retail centers and properties net leased by one or more creditworthy tenants.
. The Company may acquire some properties by issuing units of limited partnership interest in the Operating Partnership to the sellers, which may allow such sellers to defer taxation on any gain from their disposition of that property.
. The Company may acquire some properties on an all-cash basis, which may provide a competitive advantage over other potential purchasers who must secure financing. The Company may also acquire some properties with the proceeds of debt financing or subject to existing indebtedness.
Enhancing Property Values:
. The Company will actively manage costs and seek to minimize operating expenses by centralizing management, leasing, marketing, financing, accounting, renovation and data processing activities.
. The Company will seek to improve rental income and cash flow by aggressively marketing rentable space and raising rents when feasible.
. The Company will emphasize regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns.
. In its neighborhood retail centers, the Company will seek to maintain a diversified tenant base, consisting primarily of retail tenants providing consumer goods and services.
. The Company will seek to finance acquisitions and refinance properties when favorable financing terms are available to increase its cash flow.
The Company may incur indebtedness to fund the acquisition and/or operation of its properties. The Company intends to limit its aggregate indebtedness, both secured and unsecured, to no more than 70% of the aggregate of all of its properties' fair market values, as determined at the end of each calendar year. In addition, it does not intend to incur secured indebtedness on a specific property in excess of approximately 80% of such property's fair market value.
Investment Objectives & Policies
General
The Board of Directors has established written investment and borrowing policies. While it is the Board's responsibility to monitor the administrative procedures, investment operations and performance of the Company and the Advisor to assure such policies are carried out, generally the Board may change such policies at any time without a vote of shareholders. The independent directors review investment policies at least annually to determine that the Company's policies are in the best interests of shareholders and set forth their determinations in the minutes of the board meetings.
The Company's Articles of Incorporation prohibit the Company from making any loans to its Advisor, directors, officers or any affiliated entities, however, the Company has at present a loan outstanding to an affiliate. Management is not certain how such violation of the Articles of Incorporation will have an impact, if any, on the future operations of the Company.
Types of Investments
The Company intends to acquire office, industrial, retail and service properties, including neighborhood retail centers and single-user properties leased by generally creditworthy tenants under net leases. The Company may enter into sale and leaseback transactions, under which the Company will purchase a property from an entity and lease the property back to such entity under a net lease.
"Net" leases typically require that tenants pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance and building repairs related to the property, in addition to the lease payments. The Company expects that most of the leases will be long-term (typically 10 to 15 years, but generally not less than 5 years) and may provide for a base minimum annual rent with periodic increases. The Company considers a tenant to be creditworthy when it has:
. a corporate debt rating by Moody's or Standard & Poors of B or better;
. a minimum tangible net worth equal to ten times one year's rental payments required under the terms of the lease;
. or a guaranty for its payments under the lease by a guarantor with a minimum tangible net worth of $10 million.
A majority of properties acquired will be at least 75% leased on the acquisition date. The Company may acquire some properties free and clear of permanent mortgage indebtedness by paying the entire purchase price for such property in cash or in units of limited partnership interest in the Operating Partnership. However, when management deems it prudent, the Company will incur indebtedness to acquire properties. On properties purchased on an all-cash basis, the Company may later incur mortgage indebtedness by obtaining loans secured by selected properties, if favorable financing terms are available. The proceeds from such loans would be used to
acquire additional properties and increase its cash flow. The Company does not intend to incur indebtedness in excess of 70% of the aggregate fair market value of all its properties, as determined at the end of each calendar year. Fair market value will be determined each year by an internal or independent certified appraiser and in a similar manner as the fair market determination at the time of purchase.
The Advisor and its affiliates may purchase properties in their own name, assume loans in connection with the purchase of properties and temporarily hold title to such properties for the purpose of facilitating the acquisition of such property, borrowing money or obtaining financing, completing construction of the property or for any other purpose related to its business. The Company may also acquire properties from entities advised by the Advisor. Such acquisitions must be approved by a majority of the Company's directors, including a majority of its independent directors.
Developments During the 2001 Fiscal Year
During 2001, the Company invested in real estate worth approximately $20,000,000 consisting of approximately $5,830,000 in cash paid and $14,170,000 in notes payable for the acquisition of a shopping center and an undivided tenant in common interest in an industrial/distribution building containing a total GLA of approximately 106,000 square feet. See Item 2
Item 2. PROPERTIES
As of December 31, 2001, the Company, through the Operating Partnership, had acquired 100% fee simple interests in three shopping centers, two located in Texas and one in Nevada, containing an aggregate of approximately 336,145 square feet of gross leasable area ("GLA"). In addition, the Company owned undivided tenant in common interests in three other buildings, 16.5% and 26%, respectively, in two additional shopping centers in Texas and 40% in an office/distribution building in Nevada. The total GLA of the buildings in which the Company owned undivided tenant in common interests as of December 31, 2001 was 221,751 square feet, and, on a proportionate basis, the Company owned approximately 56,269 square feet of the total GLA in these buildings. The following table presents a summary of the Company's properties as of December 31, 2001:
- -------- (1) GLA unadjusted for the Company's percentage undivided tenant in common interest. (2) Mortgage payable unadjusted for the Company's percentage undivided tenant in common interest. (3) Tenant occupies largest space of property.
The following schedule lists the approximate physical occupancy levels for the Company's investment properties as of the end of each quarter during 2001. N/A indicates that the property was not owned at the end of the quarter.
The following schedule presents aggregate expiring leases for the Company's total portfolio of properties as of December 31, 2001 by number, percentage of total GLA and annual base rent.
Item 3.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine litigation incidental to the business, to which the Company is a party to, or of which any of its properties is the subject.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2001.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established public trading market for the Company's Shares of common stock.
The Company provides the following program to facilitate investment in the Shares:
Effective with the Offering, the Company adopted the Dividend Reinvestment Program (the "DRIP") which offers to holders of the Company's common stock, $0.01 par value per Share (the "Common Stock"), the opportunity to purchase through reinvestment of dividends, additional Shares of Common Stock subject to certain conditions. The Company has registered and reserved 700,000 Shares for distribution pursuant to the DRIP.
Dividends reinvested pursuant to the DRIP are applied to the purchase of Shares of Common Stock at a price per Share (the "DRIP Price") equal to the greater of (i) $9.05 or (ii) 95% of the Market Price (as defined in the DRIP) until 700,000 Shares have been purchased or the termination of the Offering, whichever occurs first. Thereafter, the Company may in its sole discretion effect additional registrations of Common Stock for use in the DRIP. In any case, the per Share purchase price under the DRIP for such additionally acquired Shares will equal the DRIP Price. As of December 31, 2001, the Company has sold approximately 37,000 Shares of Common Stock amounting to approximately $335,000 pursuant to the terms of the DRIP.
In addition, effective May 24, 2001 the Company adopted the Share Repurchase Plan (the "Repurchase Plan"), which provides eligible shareholders with limited liquidity by enabling them to sell their Common Stock back to the Company. To be eligible to participate in the Repurchase Plan, a shareholder must offer for resale at least 25% of the total number of his Shares of Common Stock and he must have owned such shares for at least one year.
The price paid by the Company per repurchased Share of Common Stock during the Offering is $9.05. Repurchases are effected by the Company on or about the last day of each calendar quarter. Funding for the Repurchase Plan comes from the proceeds received by the Company from the sale of Shares under the DRIP and limited amounts sold during the Offering.
Shareholders
As of March 15, 2001, there were 1,314 shareholders of record of the Company.
Distributions
The Company paid monthly distributions on its Common Stock from August 1, 2000 through April 1, 2001 at a rate of $0.80 per Share per annum. Effective April 1, 2001, the Company increased its monthly distributions to $0.825 per Share per annum.
The Company declared distributions to shareholders totaling approximately $0.82 per weighted average number of Shares outstanding during the year ended December 31, 2001. For federal income purposes, all such distributions represent a return of capital. Because the Company incurred a net loss, none of the distributions during the year ended December 31, 2001 are taxable to shareholders.
As of December 31, 2001, the Company's operating activities used net cash of $1,469,058. The Company's ability to pay dividends subsequent to the termination of the Offering on May 31, 2002 will be significantly impacted by the Company's ability to generate positive cash flow from future operations.
Use of Proceeds from Registered Securities
The Company originally registered pursuant to a registration statement under the Securities Act of 1933 (SEC File Number 333-77229) the Offering to the public on a "best efforts" basis of up to 10,000,000 Shares at $10.00 per share, subject to discounts in certain cases; up to 700,000 Shares at $9.05 per Share pursuant to the Company's DRIP; 250,000 Soliciting Dealer Warrants at $.0008 per Soliciting Dealer Warrant; and up to 800,000 Shares issuable pursuant to two stock option plans. The Offering began on February 22, 2000.
On November 30, 2001, the Company deregistered 5,000,000 of its Shares previously available for distribution on a "best efforts" basis in the Offering, which is the amount of Shares that the Company does not believe can be sold between November 30, 2001, the deregistration date, and May 31, 2002, the offering termination date. With the deregistration of these Shares, the Company is offering a maximum of 6,750,000 shares or $67,500,000 (the adjusted maximum offering amount) as follows: 5,000,000 Shares available for distribution to the public on a "best efforts" basis, 700,000 Shares for distribution under the DRIP, 250,000 Shares issuable in connection with warrants granted to broker-dealers, and 800,000 Shares issuable in connection with options granted under the Company's stock option plans.
As of December 31, 2001, including the 22,100 Shares sold to and $200,005 received from the Advisor preceding the commencement of the public Offering, the Company has sold the following number of Shares for the following aggregate offering prices:
From the February 22, 2000 effective date of the Offering through December 31, 2001 (the "Cumulative Period"), the following expenses have been incurred for the Company's account in connection with the issuance and distribution of the registered securities:
Sales commissions and fees, which include due diligence fee, underwriting discounts and underwriters' expenses were paid to the Dealer Manager, that re-allowed all or a portion of the commissions and expenses to Soliciting Dealers. The net offering proceeds to the Company for the Cumulative Period, after deducting the expenses described in the above table, are approximately $21,625,000.
For the Cumulative Period, the Company used the net offering proceeds as follows:
Other Uses
Approximately $150,000 and $835,000 was earned by the Advisor and affiliates of the Advisor in connection with the acquisition of properties during the years ended December 31, 2001 and 2000, respectively. Pending purchases of real estate, the Company temporarily invested net offering proceeds in short-term interest bearing money market accounts.
Item 6.
Item 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA T REIT, INC. (a Virginia corporation)
For the years ended December 31, 2001 and 2000 (not covered by the Independent Auditors' Report)
- -------- (1) The above selected financial data should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Form 10-K.
(2) The loss and distributions per share are based upon the weighted average number of common shares outstanding. See Footnote (3) below for information regarding the Company's calculation of FFO. Distributions by the Company of its current and accumulated earnings and profits for federal income tax purposes are taxable to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholder's basis in the shares to the extent thereof (a return of capital), and thereafter as taxable gain. These distributions in excess of earnings and profits will have the effect of deferring taxation of the distributions until the sale of the shareholder's shares.
For the year ended December 31, 2001, $1,145,621 represented a return of capital. In order to maintain its qualification as a REIT, the Company must make annual distributions to shareholder's of at least 90% of its REIT taxable income. REIT taxable income does not include net capital gains. Under certain circumstances, the Company may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements. Distributions are determined by the Company's Board of Directors and are dependent on a number of factors, including the amount of funds available for distribution, the Company's financial condition, any decision by the Board of Directors to reinvest funds rather than to distribute the funds, the Company's capital expenditures, the annual distribution required to maintain REIT status under the Code and other factors the Board of Directors may deem relevant.
(3) One of the Company's objectives is to provide cash distributions to its shareholder's from cash generated by the Company's operations. Cash generated from operations is not equivalent to the Company's net operating income or loss as determined under accounting principles generally accepted in the United States ("GAAP"). 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," which it believes more accurately reflects the operating performance of a REIT such as the Company. As defined by NAREIT, FFO means net income or loss computed in accordance with GAAP, less extraordinary, unusual and non-recurring items, excluding gains (or losses) from debt restructuring and sales of property plus depreciation on real property and amortization and after adjustments for unconsolidated partnerships and joint ventures in which the REIT holds an interest. The Company has adopted the NAREIT definition for computing FFO because management believes that, subject to the following limitations, FFO provides a basis for comparing the performance and operations of the Company to those of other REITs. The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items which are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, the presentation of FFO by the Company may not be comparable to other similarly titled measures presented by other REITs. FFO is not intended to be an alternative to "Net Income" as an indicator of the Company's performance nor to "Cash Flows from Operating Activities" as determined by GAAP as a measure of the Company's capacity to pay distributions.
FFO and funds available for distribution for the year ended December 31, 2001 and 2000 are calculated as follows:
- -------- (a) FFO does not represent cash generated from operating activities calculated in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income or loss as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity.
(b) Certain tenant leases contain provisions providing for stepped rent increases. GAAP requires the Company to record rental income for the period of occupancy using the effective monthly rent, which is the average monthly rent for the entire period of occupancy during the term of the lease.
(c) Dividends distributed through December 31, 2001 are effectively a return of capital to the investor as the Company has not generated any profits to support such dividends.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction with the Company's financial statements and notes and the "Selected Financial Data" appearing elsewhere in this Form 10-K. Such financial statements and information have been prepared to reflect the Company's financial position as of December 31, 2001 and 2000, together with results of operations and cash flows for the years then ended. Comparability of financial information between fiscal years 2001 and 2000, however, is limited in that the Company did not begin significant business operations until the fourth quarter of 2000. Prior to that time the Company was primarily raising capital and establishing a corporate infrastructure to support planned operations.
Historical results and trends should not be taken as indicative of future operations. Management's 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. Actual results may differ materially from those included in the forward-looking statements. The Company intends such 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 is 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 the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "prospects," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of REITs), availability of capital, interest rates, competition, supply and demand for operating properties in the Company's current and proposed market areas and generally accepted accounting principles, policies and guidelines applicable to REITs. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included herein and in the Company's other filings with the Securities and Exchange Commission.
The comparability of the financial information discussed below was further impacted by acquisitions during 2001 consisting of one shopping center with a GLA of 105,721 square feet and an undivided 40% tenant in common interest in an office building with a GLA of 75,257 square feet. In addition, the Company sold an office building with a GLA of 17,141 square feet.
The Company was organized in December, 1998 to acquire and manage a diversified portfolio of real estate composed of office, industrial, retail, and service properties located primarily in the following focus states: Alaska, Florida, Iowa, Michigan, Minnesota, Nevada, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin and Wyoming. The Company has been operating and intends to continue operating as a real estate investment trust ("REIT") for federal and state income tax purposes. The Company, through entities owned or controlled directly or indirectly by it, has initially focused on acquiring properties in Texas and Nevada. The Advisor has been retained to manage, for a fee, the Company's day-to-day affairs, subject to the supervision of the Company's Board of Directors.
The recession experienced by the United States economy during 2001, further exacerbated by the economic impact of the terrorist attacks in New York and Washington on September 11, 2001, resulted in a slowdown in business activity in the local markets in which the Company's properties are located. The Company has not noticed any significant adverse impact on its operations as a result of these events. The Company believes that
the impact of a continuing economic slowdown will be mitigated by the large proportion of the Company's tenants that 1) serve non-discretionary shopping needs, 2) are discount retailers that compete well during economic slowdowns, and 3) are financially strong national tenants able to withstand economic adversity. The Company's operations, however, could be negatively affected by a more severe or prolonged economic downturn.
As of December 31, 2001, the Company owned 100% fee simple interests in three shopping centers, two located in Texas and one in Nevada, containing an aggregate of GLA of approximately 336,145 square feet. In addition, the Company owned undivided tenant in common interests in three other buildings, 16.5% and 26%, respectively, in two additional shopping centers in Texas and 40% in an office/distribution building in Nevada. The total GLA of the buildings in which the Company owned undivided tenant in common interests as of December 31, 2001 was 221,751 square feet, and, on a proportionate basis, the Company owned approximately 56,269 square feet of the total GLA in these buildings. As of December 31, 2001, approximately 94% of the total GLA in the Company's six properties was leased.
Results of Operations
General
The following discussion, subject to the limits on comparability between the years previously noted, is based primarily on the consolidated financial statements of the Company as of December 31, 2001 and 2000 and for the years ended December 31, 2001 and 2000. The Company has acquired three shopping centers and three undivided tenant in common interests and acquired and sold one office building through December 31, 2001. None of the property sellers in 2000 or 2001 were affiliates of the Company or the Advisor.
Acquisitions in 2000
On September 26, 2000, the Company acquired the Christie Street Office Building, a Class C office building in Lufkin, Texas containing a GLA of 17,141 square feet. The total purchase price of $1,250,000 consisted of $500,000 in cash and a $750,000 note payable to the seller.
On October 26, 2000, the Company purchased the Northstar Crossing Shopping Center, a shopping center in Garland, Texas containing a GLA of 67,560 square feet. The total purchase price of $3,930,000 consisted of $1,235,000 in cash and a $2,695,000 note payable to an affiliate of the seller.
On December 6, 2000, the Company acquired the Thousand Oaks Shopping Center, a shopping center in San Antonio, Texas containing a GLA of 162,864 square feet. The total purchase price of $13,000,000 consisted of $2,162,500 in cash and a $10,837,500 note payable to an affiliate of the seller.
The Company also acquired two undivided tenant in common interests in 2000, purchasing Plaza Del Rey Shopping Center, a shopping center in Seguin, Texas, on November 17, 2000 and Seguin Shopping Center, a shopping center also located in Seguin, Texas, on November 22, 2000. Plaza Del Rey's total purchase price of $5,050,000 consisted of $1,055,000 in cash and a $3,995,000 note payable to an affiliate of the seller for which the Company is jointly and severally liable. The Company's percentage of ownership of Plaza Del Rey is 26%. Lake Air Mall--PDR, LLC, whose sole member is NNN Lake Air Mall, L.P., an affiliate of the Advisor, purchased a 19% interest in Plaza Del Rey. Seguin's total purchase price of $2,450,000 consisted of $1,905,000 in cash and a $545,000 note payable to an affiliate of the seller for which the Company is jointly and severally liable. The Company's percentage ownership of Seguin is 16.5%. Lake Air Mall--Seguin, LLC, whose sole member is NNN Lake Air Mall, L.P., an affiliate of the Company's Advisor, purchased a 10% undivided tenant in common interest in Seguin.
Acquisitions and Dispositions in 2001
On May 11, 2001, the Company acquired Pahrump Valley Junction Shopping Center, a shopping center in Pahrump, Nevada containing a GLA of 105,721 square feet. The total purchase price of $17,150,000 consisted of $4,750,000 in cash and a $12,435,000 note payable to an unaffiliated third party. The Company borrowed a total of $1,500,000 of the cash portion of the purchase price. Of this amount, the Company borrowed $505,000 from its Advisor and $995,000 from NNN 2004 Notes Program, LLC, an affiliate of its Advisor. The Company paid the two related party notes in full during 2001.
On September 4, 2001, the Company acquired a 40% undivided tenant in common interest in the Trademark Building, an industrial building containing a GLA of 75,257 square feet situated on a 7.55-acre site in Reno, Nevada. The $2,851,622 purchase price of the tenant in common interest consisted of $1,772,000 in cash and a $1,080,000 note payable for which the Company is jointly and severally liable. The remaining 60% of the Trademark Building was purchased by NNN Reno Trademark, LLC, an affiliate of the Advisor.
On November 13, 2001, the Company sold the Christie Street Office Building to an unaffiliated buyer for $1,050,000, at a net loss of approximately $227,000 before the refund of a $50,000 real estate commission from an affiliate of the Advisor. The Company provided seller financing in the form of a $595,000 note secured by a first deed of trust on the Christie Street Office Building. The Company also guaranteed lease payments in the amount of $20,000 per month for a period of five years under a Master Lease agreement, obligating the Company to make lease payments to the lessor in the event the sub-lessee fails to make the lease payments. The Company would be obligated to pay a pro rata share of lease commissions and tenant improvements in the event the premises are re-leased prior to November 13, 2006. The Advisor agreed to indemnify the Company against any future losses under the Master Lease Agreement.
Refinancing of Properties
The Company refinanced two properties during 2001. The commercial real estate lending market experienced a slowdown during 2001 due to the recession, general credit quality concerns and the uncertainty caused by the terrorist attacks in New York and Washington on September 11. As a result, the Company experienced some difficulty in refinancing its short-term mortgage loans in a timely manner.
Northstar Crossing Shopping Center. A final payment of the principal amount of the mortgage loan on Northstar, together with all accrued but unpaid interest, and late charges, if any, was due on or before July 26, 2001; however, pursuant to an agreement with the lender, the Company continued to make payments on the loan according to the original terms. The lender provided the Company with a notice of default dated November 16, 2001 on the original $2,695,000 mortgage loan to preserve its rights, but indicated a willingness to forbear any further action. On December 31, 2001, the property was refinanced when the Company obtained a new $2,900,000 mortgage loan. The Company paid the original lender $47,162 in default interest.
Plaza Del Rey Shopping Center. A final payment of the principal amount of the mortgage loan on Plaza Del Rey, together with all accrued but unpaid interest, and late charges, if any, was due on or before November 16, 2001; however, pursuant to an agreement with the lender, the Company continued to make payments on the loan according to the original terms. The lender provided the Company with a notice of default dated November 16, 2001 on the original $3,995,000 mortgage loan to preserve its rights, but indicated a willingness to forbear any further action. On January 4, 2002, the Company received a commitment letter for a $4,900,000 mortgage loan. The Company anticipates completing the refinancing of the property and paying default interest to the original lender in early April, but there can be no assurance that the original lender will continue to exercise forbearance. See "Subsequent Events" for more information regarding the refinancing of this loan.
Thousand Oaks Shopping Center. A final payment of the principal amount of the mortgage loan on Thousand Oaks, together with all accrued but unpaid interest, and late charges, if any, was due on or before
July 26, 2001; however, pursuant to an agreement with the lender, the Company continued to make payments on the loan according to the original terms. The lender provided the Company with a notice of default dated November 16, 2001 on the original $10,837,500 mortgage loan to preserve its rights, but indicated a willingness to forbear any further action. On December 31, 2001, the property was refinanced when the Company obtained a new $8,750,000 mortgage loan. The Company paid the original lender $189,656 in default interest.
Financial and Operating Results
As previously noted, rental income, rental expenses, mortgage interest, depreciation and amortization and substantially all of the general and administrative expenses incurred during 2000 were a result of the operations from the three properties and two tenant in common interests acquired at the end of the third quarter and during the fourth quarter of 2000.
Rental Income. Rental income consists of basic monthly rent, percentage rental income, if applicable, due pursuant to tenant leases and property operating expenses recovered from tenants. Rental income increased to $3,934,690 for the year ended December 31, 2001, an increase of $3,684,579 compared to rental income of $250,111 for the year ended December 31, 2000. This increase is due primarily to the ownership of properties acquired late in 2000 that the Company continued to own for the entire 2001 fiscal year and secondarily to the additional properties owned and operated during the year ended December 31, 2001 as compared to the year ended December 31, 2000.
Interest Income. Interest income consists of interest earned from short-term money market investments and loans that are held by the Company. Interest income increased by $159,582 to $208,092 for the year ended December 31, 2001 from $48,510 for the year ended December 31, 2000. This increase is due primarily to the additional funds held in interest bearing instruments and short-term loans bearing higher rates during the year ended December 31, 2001. This increase was partially offset by decreases in the interest rates on the short-term instruments in which the Company invests. Also included is interest earned on a $950,000 12% short-term first mortgage note outstanding to an affiliate of the Company's Advisor throughout 2001, an additional $430,000 12% rate short-term first mortgage note outstanding to the same party for nine months of 2001, a $258,000 12% rate note receivable secured by the assets of another affiliate of the Company's Advisor outstanding beginning in November 2001 and the $595,000 8.50% first mortgage seller financing note to the non-affiliated buyer of the Christie Street Building also beginning November 2001.
Rental Expenses. Rental expenses consist of the costs of owning and maintaining the Company's properties including primarily property management fees, real estate taxes, insurance, maintenance to the exterior of the buildings and the parking lots. These expenses increased by $1,064,409 to $1,125,047 for the year ended December 31, 2001 from $60,638 for the year ended December 31, 2000. This increase is due primarily to the ownership of properties acquired late in 2000 that the Company continued to own for the entire 2001 fiscal year and secondarily to the additional properties owned and operated during the year ended December 31, 2001 as compared to the year ended December 31, 2000.
General and Administrative Expenses. General and administrative expenses consist primarily of third party professional legal and accounting fees and the cost of computerized information services and related office expenses required to maintain the Company's accounting and investor records. These expenses increased by $534,243 to $636,543 for the year ended December 31, 2001 from $102,300 for the year ended December 31, 2000. This increase resulted largely from fees paid to the Company's attorneys and accountants to facilitate the Company's regulatory filings and compliance and to conduct audits of the Company's property acquisitions and the Company. General and administrative expenses have also increased due to the additional work required as the Company moves from a formation stage to an operational stage.
Depreciation. Depreciation expense increased by $573,392 to $611,765 for the year ended December 31, 2001 from $38,373 for the year ended December 31, 2000. This increase is due primarily to the ownership of properties acquired late in 2000 that the Company continued to own for the entire 2001 fiscal year and secondarily to the additional properties owned and operated during the year ended December 31, 2001 as compared to the year ended December 31, 2000.
Interest Expense. Interest expense consists almost entirely of mortgage interest paid on the Company's properties. Interest expense increased by $1,948,865 to $2,117,069 for the year ended December 31, 2001 from $168,204 for the year ended December 31, 2000. This increase is due primarily to the ownership of properties acquired late in 2000 that the Company continued to own for the entire 2001 fiscal year and secondarily to the additional properties owned and operated during the year ended December 31, 2001 as compared to the year ended December 31, 2000.
Gain (Loss) on Sale of Real Estate. On November 13, 2001, the Company sold the Christie Street Office Building located in Lufkin, Texas to an unaffiliated buyer for $1,050,000, a net loss of approximately $227,000 before the refund of a $50,000 real estate commission from an affiliate of the Advisor.
Liquidity and Capital Resources
Capital Resources
At December 31, 2001, the Company had $3,647,159 of cash compared to $248,077 of cash at December 31, 2000 to meet its immediate short-term liquidity requirements. Future short-term liquidity requirements are anticipated to be met through the net cash flow from operations and existing working capital. Operating cash flows are expected to increase as additional properties are added to the Company's portfolio.
The Company anticipates that adequate cash will be available to fund its operating and administrative expenses, continuing debt service obligations and the payment of dividends in accordance with REIT requirements in the foreseeable future.
In order to qualify as a REIT for federal income tax purposes, the Company is required to make distributions to its shareholders of at least 90% of REIT taxable income, effective January, 2001. The Company expects to use its cash flow from operating activities for distributions to shareholders and for payment of other expenditures. The Company intends to invest amounts accumulated for distribution in short-term investments.
Distributions declared for the year ended December 31, 2001 were $1,145,621 compared to $149,207 for the year ended December 31, 2000. In both years, the full amount of distributions represented a return of capital for federal income tax purposes. Distributions are determined by the Company's Board of Directors and are dependent on a number of factors, including the amount of funds available for distribution, the Company's financial condition, any decision by the Board of Directors to reinvest funds rather than to distribute the funds, the Company's capital expenditures, the annual distribution required to maintain REIT status under the Code and other factors the Board of Directors may deem relevant.
Cash Flows From Operating Activities
Net cash used in operating activities was $1,469,059 for the year ended December 31, 2001 compared to net cash provided by operating activities of $278,602 for the year ended December 31, 2000. The primary reason for the decrease in cash provided by operating activities was an increase in accounts receivable, a decrease in accounts payable and accrued expenses, the increase in other assets due to loan fees that were incurred in connection with the refinance of Thousand Oaks and Northstar in December 2001 and the Company's larger net loss from operations attributable to a full year of business operations in 2001.
The Company expects future cash flows from operating activities to increase substantially due primarily to the City Center West A Building, and NNN Pacific Corporate Park I, LLC acquisitions. See "Subsequent Events."
Cash Flows From Investing Activities
Net cash used in investing activities amounted to $7,491,774 for the year ended December 31, 2001 compared to $5,224,483 for the year ended December 31, 2000. The increased use of cash for investing activities resulted primarily from $4,984,856 in real estate investments in 2001 compared to $3,951,243 in 2000 as the Company continued to build its portfolio of properties. In addition the Company issued $688,000 of short-term mortgage loans and notes receivable to related parties and a $595,000 mortgage loan to a non-related party in 2001 compared to the issuance of a $950,000 short-term mortgage loan to a related party in 2000. Partially offsetting the net use of cash in investing activities during 2001 was the $1,050,000 net cash flow received from the sale of the Christie Street Building.
At December 31, 2001, the Company does not have any material planned capital expenditures resulting from any known demand based on existing trends. However, management may conclude that expenditures to improve properties purchased after December 31, 2001 are necessary and/or desirable.
Cash Flows From Financing Activities
Cash provided by financing activities amounted to $12,359,914 for the year ended December 31, 2001 compared to $5,193,858 for the year ended December 31, 2000. The primary reason for the increase was $16,281,500 raised through the Company's equity offering (net of offering costs) in 2001 compared to $5,343,065 raised in 2000. For the years ended December 31, 2001 and 2000, the Company paid offering costs of $1,709,492 and $1,267,454, respectively. The Company will not continue to incur signigicant offering costs beyond the termination of the Offering on May 31, 2002.
The Advisor has guaranteed payment of all public offering expenses (excluding selling commissions, the marketing contribution and the due diligence expense allowance) in excess of 1.5% of the gross offering proceeds or all organizational and offering expenses (including such selling expenses) which together exceed 15% of the gross offering proceeds. As of December 31, 2001, organizational and offering costs did not exceed these limitations and the Company anticipates that these costs will not exceed these limitations upon completion of the Offering. Any excess amounts at the completion of the Offering will be reimbursed by the Advisor.
The weighted average annual interest rates on mortgages payable outstanding at December 31, 2001 and 2000 was approximately 6.8% and 10.2%, respectively. See Note 9 of the Notes to Consolidated Financial Statements (Item 8
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................... 26
Consolidated Balance Sheets................................................ 27
Consolidated Statements of Operations...................................... 28
Consolidated Statements of Shareholders' Equity............................ 29
Consolidated Statements of Cash Flows...................................... 30
Notes to Consolidated Financial Statements................................. 31
Schedule III (Real Estate and Accumulated Depreciation).................... 47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders T REIT, Inc.
We have audited the accompanying consolidated balance sheet of T REIT, Inc., a Virginia corporation, and subsidiary (the "Company"), as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of T REIT, Inc. as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule III entitled "Real Estate and Accumulated Depreciation", when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Squar, Milner, Reehl & Williamson, LLP
Newport Beach, California March 15, 2002
T REIT, INC.
CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000
The accompanying notes are an integral part of these consolidated financial statements.
T REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2001 and 2000
The accompanying notes are an integral part of these consolidated financial statements.
T REIT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 2001 and 2000
The accompanying notes are an integral part of these consolidated financial statements.
T REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001 and 2000
The accompanying notes are an integral part of these consolidated financial statements.
T REIT, INC.
NOTES TO CONSOLIDATED STATEMENTS For the Years Ended December 31, 2001 and 2000
1. ORGANIZATION
T REIT, Inc. (the "Company") was formed in December 1998 in the Commonwealth of Virginia and operates as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The Company is in the business of acquiring existing office, industrial, retail and service properties located in several states. As of December 31, 2001, the Company has three properties, three tenancy in common interests and has entered into several agreements to purchase additional properties (See Note 11). The Company acquires properties through its operating partnership, T REIT, L.P., which is wholly-owned by the Company.
The Company is externally advised by Triple Net Properties, LLC (the "Advisor"), which is primarily responsible for managing the day-to-day operations and assets of the Company. The Advisory Agreement dated February 22, 2000, between the Company and the Advisor is for a one-year term, subject to successive renewals (See Note 10).
Pursuant to a registration statement on Form S-11 (the "Registration Statement") under the Securities Act of 1933, as amended, the Company is offering for sale up to 10,000,000 shares of its common stock (the "Shares", and collectively the "Offering") at an Offering price of $10 per Share. The Registration Statement was declared effective on February 22, 2000. The Offering was to be terminated on the earlier of February 22, 2002, or the date on which the maximum number of shares have been sold. Considering that as of December 31, 2001, the Company had sold 2,470,487 shares of its common stock, the Company extended the offering until May 31, 2002. Additionally, the Company deregistered 5,000,000 shares that management did not believe could be sold between February 22, 2002 and May 31, 2002.
The accompanying consolidated financial statements of the Company have been prepared assuming that the Company continues in its present form. Effective September 26, 2000, the Company completed its first property acquisition and thus commenced its planned principal operations. As of December 31, 2001, the Company has completed its first full year of operations. However, the Company has not generated sufficient cash flow to support its operations, has an accumulated deficit of approximately $564,414, does not have a cash reserve dedicated to fund capital expenditures, and historically has been supported by Offering proceeds. As such, all dividends distributed through December 31, 2001 are effectively a return of capital to the investors as the Company has not generated any profits to support such dividends. For the year ended December 31, 2001, the Company has made cash distributions of $1,145,621 and its operating activities used net cash of $1,469,058. The Company's ability to pay dividends subsequent to the termination of the Offering on May 31, 2002 will be significantly impacted by the Company's ability to generate positive cash flow from future operations. Effective April 1, 2001, the Company increased its annual dividend rate from 8% to 8.25%, and has committed to paying monthly dividends at an annual rate of 8.25% to the extent of lawfully available funds.
Although the Company has defaulted on three of its notes payable maturing in 2001, management was successful in refinancing two of these notes in December 2001 and has entered into a loan commitment to refinance the third note in January 2002 (See Note 9). Management believes that, inclusive of proposed future acquisitions (See Note 11), the Company will generate sufficient cash flow in the year ending December 31, 2002 to fund operations and any declared dividends.
Management also believes that, to the extent, if any, that the Company is not successful in generating operations sufficient to meet its cash flow requirements, the Company can secure a line of credit to finance any cash flow deficits. Additionally, the Company's current cash position of $3,647,159 at December 31, 2001 could be used to compensate for cash flow deficits. Accordingly, the Company's continuation in its present form is dependent upon its ability to achieve positive cash flow from operations and secure permanent financing of its
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
real estate properties as needed. Subsequent to December 31, 2001 and through March 15, 2002, the Company has recorded an additional $5,845,000 in gross Offering proceeds.
In the event Management's plans are not attained, the Company's financial condition could be adversely impacted to a material extent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies presented below is designed to assist in understanding the Company's consolidated financial statements. Such financial statements and accompanying notes are the representations of Company management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States ("GAAP") in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and T REIT, L.P. All significant intercompany accounts and transactions have been eliminated in consolidation.
Real Estate Operating Properties
Real estate operating properties are held for investment and carried at cost less accumulated depreciation. Cost includes the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties are capitalized; the cost of maintenance and repairs is charged to expense as incurred.
Depreciation is generally provided on a straight-line basis over the estimated useful lives of the buildings and improvements, ranging primarily from 15 to 40 years. When depreciable property is retired or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the asset's carrying amount is greater than the sum of the future undiscounted cash flows (excluding interest) estimated to be generated by those assets. As of December 31, 2001 and 2000, no indicators of impairment existed and, thus, no impairment losses have been recorded.
The Company follows the provisions of Financial Accounting Standards Board's Emerging Issues Task Force 97-11, "Accounting for Internal Costs Related to Real Estate Property Acquisitions." Accordingly, the Company does not capitalize its internal acquisition costs incurred in conjunction with the identification and acquisition of properties to be held for investment.
Cash and Cash Equivalents
Certificates of deposit and short-term investments with remaining maturities of three months or less when acquired are considered cash equivalents.
Allowance for Uncollectible Receivables
Management believes that all accounts receivable will be collected by the Company; accordingly, the accompanying consolidated financial statements do not include an allowance for uncollectible accounts.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company 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. The Company has cash in financial institutions which is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per institution. At December 31, 2001 and 2000, the Company had cash accounts in excess of FDIC insured limits. Concentration of credit risk with respect to accounts receivable from tenants is limited. The Company performs credit evaluations of prospective tenants, and security deposits are obtained.
Other Concentrations
As of December 31, 2001, the Company has two properties and two tenants in common interests in properties located in the State of Texas. Accordingly, there is a geographic concentration of risk subject to fluctuations in the State's economy. Additionally, Albertson's and H.E. Butt Grocery Co. account for approximately 22% and 11%, respectively, of the Company's annualized base rental income. No other single tenant accounted for a significant portion of the Company's rental income.
Fair Value of Financial Instruments
The Company believes that the December 31, 2001 and 2000 interest rates associated with mortgages payable approximate the market interest rates for these types of debt instruments and as such, the carrying amount of the mortgages payable approximate their fair value.
The carrying amount of notes receivable, cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities, approximate fair value because of the relatively short maturity of these instruments.
Rental Income
Rental income is recognized on a straight-line basis over the related lease term. As a result, deferred rent is created when rental income is recognized during "free rent" periods of a lease. Deferred rent is not significant at December 31, 2001 and 2000.
Income Taxes
The Company operates as a real estate investment trust for federal income tax purposes. As a REIT, the Company is generally not subject to income taxes. To maintain its REIT status, the Company is required to distribute annually as dividends at least 95% of its REIT taxable income for the year ended December 31, 2000, and effective January 1, 2001, at least 90% of its REIT taxable income, as defined by the Internal Revenue Code ("IRC"), to its shareholders, among other requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to Federal income tax on its taxable income at regular corporate tax rates. Although the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and Federal income and excise taxes on its undistributed income. For the year ended December 31, 2001, the Company incurred franchise taxes in the State of Texas of approximately $70,000. Such taxes incurred for the year ended December 31, 2000 are considered insignificant to the accompanying consolidated financial statements.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Per Share Data
The company reports earnings per share pursuant to Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic loss per share attributable for all periods presented is computed by dividing the loss to common stockholders by the weighted average number of common shares and potential common stock outstanding during the period. Diluted loss per share is antidilutive since the Company incurred losses for the years ended December 31, 2001 and 2000.
Use of Estimates
The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of December 31, 2001 and 2000, and the revenues and expenses for the years then ended. Actual results could differ from those estimates.
Stock Options and Similar Equity Instruments
The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). For employee compensatory stock options that will eventually vest, compensation expense is recognized during the periods in which the related employee services are rendered. Such expense is generally measured by determining the excess, if any, of the grant date estimated fair market value of the underlying stock over the amount to be paid by the employee in conformity with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Compensatory stock options and similar equity instruments issued to non-employees in exchange for goods or services are accounted for based on the estimated fair market value of (1) the goods or services received or (2) the equity instrument issued, whichever is more reliably measurable. This accounting policy is in conformity with SFAS 123.
Recently Issued Accounting Pronouncements
In fiscal 2001, the Company adopted Statement of Financial Standards No. 133, "Accounting for Derivatives, Instruments and Hedging Activities" ("SFAS 133"), as amended. Management does not believe that it engages in the activities described under such pronouncement, and therefore the adoption of SFAS 133 had no effect on the Company's consolidated financial statements.
In July 2001, the Financial Accounting Standards Board issued Statements No. 141, "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 supersedes Accounting Principles Board Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". SFAS 141 is effective for fiscal years beginning after June 30, 2001 and requires that all business combinations be accounted for by the purchase method. SFAS 142 supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 is effective for fiscal years beginning after December 15, 2001 and provides that all existing and newly acquired goodwill and intangible assets will no longer be amortized but will be tested for impairment at least annually and written down only when impaired. Management does not believe that the requirements of such pronouncements will have a significant impact on the Company's future financial statements.
Additionally, the Financial Accounting Standards Board has recently issued Statements No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") and No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 143 addresses financial accounting and reporting for
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs, and is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS 144 supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", addresses financial accounting and reporting for the impairment or disposal of long-lived assets, including accounting for a segment of a business accounted for as a discontinued operation. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management has not determined how the requirements of such pronouncements will affect the Company's future financial statements.
3. REAL ESTATE OPERATING PROPERTIES
The Company generally allocates the purchase price between land and buildings at a rate of 90% and 10% for office buildings and 75% and 25% for shopping centers. On September 26, 2000, the Company acquired the Christie Street Office Building (the "Christie Building") from an unrelated party, a 17,141 square foot Class C office building in Lufkin, Texas. The purchase price of $1,250,000 consisted of cash and a note payable to the seller in the amounts of $500,000 and $750,000, respectively. The building was sold on November 13, 2001 as described below. On October 26, 2000, the Company purchased the Northstar Crossing Shopping Center, located in Garland, Texas containing 67,500 rentable square feet. The purchase price of $3,930,000 consisted of cash and a note payable to an affiliate of the seller in the amounts of $1,235,000 and $2,695,000, respectively. The seller is not affiliated with the Company or the Advisor and the building was 89% occupied at December 31, 2001. On December 6, 2000, the Company also acquired the Thousand Oaks Shopping Center, located in San Antonio, Texas containing 162,864 rentable square feet. The purchase price of $13,000,000 consisted of cash and a note payable to an affiliate of the seller in the amounts of $2,162,500 and $10,837,500, respectively. The seller is not affiliated with the Company or the Advisor and the building was 91% occupied at December 31, 2001. Through purchases and simultaneous sales, the Company acquired a tenant in common interest in both Plaza Del Rey Shopping Center, a shopping center in Seguin, Texas containing 126,322 rentable square feet, and Seguin Shopping Center, a shopping center in Seguin, Texas containing 21,000 rentable square feet, on November 17, 2000 and November 22, 2000, respectively. Plaza Del Rey's total purchase price of $5,050,000 consisted of cash and a note payable to an affiliate of the seller in the amounts of $1,055,000 and $3,995,000, respectively. Seguin's total purchase price of $2,450,000 consisted of cash and a note payable to an affiliate of the seller in the amounts of $1,905,000 and $545,000, respectively. The Company's percentage of ownership in Plaza Del Rey and Seguin is 16.5% and 26.0%, respectively, and the Company's portion of the purchase price and debt is $833,250 and $659,175 for Plaza Del Rey and $637,000 and $141,700 for Seguin Shopping Center, respectively. Plaza Del Rey and Seguin were 82% and 100% occupied at December 31, 2001, respectively.
On May 11, 2001, the Company acquired the Pahrump Valley Junction Shopping Center located in Pahrump, Nevada and containing 105,721 rentable square feet. The total purchase price of $17,150,000 consists of cash and a note payable in the amounts of approximately $4,750,000 and $12,400,000, respectively. The Seller is not affiliated with the Company or the Advisor and the building was 99% occupied at December 31, 2001. On November 13, 2001, the Company's operating partnership sold the Christie Building for $1,050,000. In connection with the sale, the Company provided seller financing in the form of a promissory note in the amount of $595,000 (See Note 6). The Company further agreed, as part of the sale transaction, to guarantee the lease payment for a period of five years (See Note 15).
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The sale of the Christie Building resulted in an initial loss of approximately $225,000 before a refund of $50,000 in real estate commissions by Triple Net Properties Realty, Inc., an affiliated entity, and a refund from the Advisor of asset management fees of approximately $9,600.
The Christie Building was disposed of in accordance with the Company's plan to concentrate on larger, institutional quality assets.
The Company's properties are leased to tenants under operating leases with terms ranging from 3 to 25 years 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 to be received from noncancelable operating leases, excluding tenant reimbursements of certain costs, for each of the next five years ending December 31 and thereafter, are summarized as follows:
A certain amount of the Company's 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, 2001 and 2000, the amount of contingent rent earned by the Company was not significant.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE
Investments in unconsolidated real estate is related to the acquisition on September 4, 2001 of a 40% undivided tenancy in common interest in the Trademark Building by T REIT - Reno Trademark, L.L.C. ("Reno Trademark"), a wholly owned subsidiary of T REIT, L.P. The property is located in Reno, Nevada and contains 75,257 rentable square feet. The Company uses the equity method of accounting to account for the acquisition and the operations of the Trademark Building. The total purchase price allocated to Reno Trademark was approximately $2,852,000, which consists of cash and a note payable in the amounts of approximately $1,772,000 and $1,080,000, respectively. The remaining 60% of the Trademark Building was purchased by NNN Reno Trademark, L.L.C., an affiliate of the Advisor. The Seller is not affiliated with the Company or the Advisor and Memec, Inc., a subsidiary of Schroder Ventures, a European investment group, is the only tenant with an annual rental income of approximately $748,000.
Unaudited, condensed, combined historical financial information for the Trademark Building as of and for the one hundred and eight day period ended December 31, 2001 is as follows:
The Company is jointly and severally liable for the entire note in connection with this acquisition in the amount of $2,700,000 (See Note 15).
5. COMMON STOCK SUBSCRIPTION DEPOSITS
At December 31, 2000, the Company had subscription deposits of $211,000 in an interest-bearing escrow account, which represents funds from the sale of the Company's common stock under the Registration Statement to residents of Pennsylvania. Pennsylvania law prohibits the disbursement of such funds until at least one million shares are issued by the Company. As of April 30, 2001, the Company reached this threshold and, accordingly, the cash is no longer restricted.
6. NOTE RECEIVABLE
In November 2001, the Company advanced $595,000 to the buyer of the Christie Building (See Note 3). The note is secured by a deed of trust, with interest at 8.5% and maturity in December 2006. Interest income earned in connection with this note for the year ended December 31, 2001 was not significant.
7. NOTES RECEIVABLE FROM RELATED PARTIES
In December 2000, the Company advanced $900,000 to W REIT, L.P., an affiliated entity, based on a note receivable with interest at 12%, maturity in June 2001 and is secured by a first mortgage. W REIT, L.P. used the proceeds to retire debt on the real estate property serving as collateral for the note.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company advanced $430,000 to W REIT, L.P. in March 2001 subject to the same terms and conditions as the previous note. W REIT, L.P. is planning to refinance such property in 2002 and management believes such refinancing will result in the Company being paid in full.
During 2000, the Company also advanced W REIT, L.P. $50,000 at 12% and maturity in June 2001. The original notes and the $50,000 advance matured in June 2001 and have been extended through June 30, 2002. As of December 31, 2001, no interest has been paid on the W REIT advance or notes receivable. Accordingly, accrued interest in the amount of approximately $150,000 is included in the accompanying consolidated balance sheets under the caption Notes receivable from related party (see Note 15).
Anthony W. Thompson, the CEO of the Company, is a director of Western REIT, Inc., the parent of W REIT, L.P., and the president and beneficial owner of approximately 34% of Triple Net Properties, L.L.C., the advisor to both Western REIT, Inc. and the Company. The Company's directors and officers own less than 1% of Western REIT, Inc. In addition, Triple Net Properties, LLC is the general partner of W REIT, L.P.
As of December 31, 2001, the Company also has a note receivable from NNN County Center Drive, LLC ("County Center, LLC"), an affiliated entity, (See Note 17) in the amount of $258,000. The note was entered into in November 2001, secured by the assets of County Center, LLC with interest at 12% and maturity in January 2002. The entire balance of the note and accrued interest was repaid to the Company in January 2002.
8. STOCK OFFERING COSTS
As of December 31, 2001 and 2000, the Company sold 2,470,487 and 664,271 shares of common stock, respectively, including 22,100 shares issued to the Advisor at $9.05 per share in 2000 and 32,374 and 4,644 shares sold under the DRIP (see Note 12) for the years ended December 31, 2001 and 2000, respectively. Aggregate gross proceeds before Offering costs and selling commissions approximate $24,602,000 and $6,611,000 as of December 31, 2001 and 2000, respectively.
Pursuant to the Registration Statement discussed in Note 1, the Company is offering the Shares to the residents of 43 states. In connection with the Offering, the Company incurred approximately $1,267,000 and $1,710,000 of costs related to the issuance and distribution of the Shares for the years ended December 31, 2001 and 2000. Such amount includes a total of approximately $1,567,000 and $615,000 paid to the dealer manager (a related party--See Note 14), principally comprised of sales commissions, underwriting discounts, and certain fees. As described in Note 10, an additional $153,000 and $87,000 was paid to the Advisor as of December 31, 2001 and 2000, respectively.
The Shares can be offered to affiliates (officers, directors and brokers) at a discounted price of $9.05 per share.
Effective May 24, 2001 the Company adopted the Share Repurchase Plan (the "Repurchase Plan"), which provides eligible shareholders with limited liquidity by enabling them to sell their Common Stock back to the Company. To be eligible to participate in the Repurchase Plan, a shareholder must offer for resale at least 25% of the total number of his Shares of Common Stock and he must have owned such Shares for at least one year.
The price paid by the Company per repurchased Share of Common Stock during the Offering is $9.05. Repurchases are effected by the Company on or about the last day of each calendar quarter. Funding for the Repurchase Plan comes from the proceeds received by the Company from the sale of Shares under the DRIP and limited amounts sold during the Offering. As of December 31, 2001, the Company had repurchased 1,000 shares under this plan.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. NOTES PAYABLE
Notes payable consists of the following at December 31:
- -------- (a) During the year ended December 31, 2001, the buyer of the Christie Building assumed the balance of this note (See Note 3).
(b) On November 16, 2001, the Company received a notice of default regarding the three notes in connection with the Northstar, Thousand Oaks and Plaza Del Rey properties, respectively, all maturing during 2001. The Company had to pay default interest to the lender in the amount of approximately $47,000 and 190,000 for the Northstar and Thousand Oaks notes, respectively.
(c) The Company owns a 16.5% tenant in common interest in the Plaza Del Rey Property, however, the Company is jointly and severally liable for the entire note payable balance of $3,995,000 (See Note 15). In January 2002, the Company entered into a loan commitment with a financial institution to refinance the note with a $4,900,000 five-year note at a fixed interest rate of 8% and maturity in five years for which the Company will be jointly and severally liable.
(d) The Company only owns a 26% tenancy in common interest in the Seguin Corners Property, however, the Company is jointly and severally liable for the entire note payable balance of $545,000 (See Note 15).
(e) This note is to refinance the original note in connection with the Northstar acquisition. The Company has incurred loan fees of approximately 2.5% on this note.
(f) This note is to refinance the original note in connection with the Thousand Oaks acquisition. The Company has incurred loan fees of approximately 2.5% on this note.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The principal payments due on notes payable for each of the next five years ending December 31 and thereafter are summarized as follows:
10. ADVISORY FEES
The Advisor is primarily responsible for managing the Company's day-to-day business affairs and assets and carrying out the board of directors' directives. Several of the Company's officers and directors serve in that same capacity for the Advisor, and own approximately 29% of the equity interest in the Advisor. The Advisor is a Virginia limited liability company that was formed in April of 1998 to advise syndicated limited partnerships, limited liability companies, and other entities regarding the acquisition, management and disposition of real estate assets. The Advisor currently advises thirty-one entities that have invested in properties located in California, Colorado, South Dakota, Nevada, Kansas and Texas.
Before the commencement of the Offering, the Advisor purchased 22,100 shares of Company common stock at a price of $9.05 per share for approximately $200,000 in cash. The Advisor intends to retain such shares while serving as the advisor to the Company.
The Advisor bears the expenses incurred in connection with supervising, monitoring and inspecting real property or other assets owned by the Company (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. The Company reimburses the Advisor for certain expenses incurred, including those related to proposed acquisitions and travel expenses. However, the Company will not reimburse the Advisor for any operating expenses that, in any four consecutive fiscal quarters, exceed the greater of 2% of Average Invested Assets (as defined) or 25% of net income for such year. If the 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% of Average Invested Assets or 25% of net income paid to the Advisor during a fiscal quarter will be repaid to the Company within 60 days after the end of the fiscal year. The Company bears its own expenses for functions not required to be performed by the 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.
The Advisor is compensated by the Company for its services through a series of fees pursuant to the Advisory Agreement with the Company. In addition to fee compensation, the Advisor is reimbursed organizational and offering costs and expenses it incurs on behalf of the Company. As of December 31, 2001 and 2000, the fees and cost reimbursements of approximately $153,000 and $87,000, respectively, have been paid by the Company to the Advisor from offering proceeds and no amounts are currently due the Advisor. However, the Advisor agreed in accordance to the Registration Statement to reimburse the Company for legal, accounting and certain other costs in excess of 2.5% of gross offering proceeds. As of December 31, 2001, accounts receivable from related parties include approximately $577,000 relating to such reimbursements.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Advisor may receive an annual Asset Management Fee of up to 1.5% of the Average Invested Assets. This fee will be paid or accrue quarterly, but will not be paid until the Shareholders have received distributions equal to a cumulative non-compounded rate of 8.25% per annum on their investment in the Company. If the fee is not paid in any quarter, it will accrue and be paid once the Shareholders have received a cumulative 8.25% return. The Advisor is also entitled to receive property management fees for management and leasing services. Such fees may not exceed 5% of the gross revenue earned by the Company on properties managed. Approximately $157,000 and $106,000 of asset management fees and property management fees were paid to the Advisor by the Company for the year ended December 31, 2001. Such fees were not significant in 2000. However, subsequent to December 31, 2001 the Company was reimbursed by the Advisor for the entire amount of asset management fees.
Approximately $150,000 and $835,000 was earned by the Advisor and affiliates of the Advisor in connection with the Company's acquisition of properties during the years ended December 31, 2001 and 2000, respectively.
11. PROPOSED ACQUISITIONS
As of December 31, 2001, the Company had escrow and financing deposits in the amount of $81,500 for the proposed acquisition of an undivided tenant in common interest in the City Center West A Building, which was acquired in March 2002 (See Note 17). The Company also had escrow and financing deposits in the amount of $295,000 for the proposed acquisition of an undivided tenant in common interest in the Titan building and the adjoining Titan Plaza (the "Titan Property"). The purchase agreement was entered into in November 2001 between the seller, an unaffiliated entity, and the Advisor. The Titan Property consists of a six-story, 103,763 rentable square foot suburban office building and a single story, 27,765 square foot office building in the city of San Antonio, Texas and is anchored by St. Paul Fire, Marine Insurance and Titan Indemnity Company. The estimated purchase price is $9,242,000. The Property is currently 89% occupied.
The proposed acquisitions are tenant in common interests in properties whereas the other tenants in common are participating in a tax-free exchange arranged by the Advisor. Such transactions earn the Advisor or its affiliates commissions on the tax-free exchanges, and may impact the extent to which the Company participates in such acquisitions.
12. DIVIDEND REINVESTMENT PROGRAM
Effective with the offering, the Company adopted the Dividend Reinvestment Program (the "DRIP"), which allows Company stockholders to purchase $0.01 par value per share Common Stock ("Common Stock"), through reinvestment of dividends, subject to certain conditions. The Company has registered and reserved 700,000 shares for distribution pursuant to the DRIP.
Dividends reinvested pursuant to the DRIP are applied to the purchase of shares of Common Stock at a price per share (the "DRIP Price") equal to the greater of (i) $9.05 or (ii) 95% of the Market Price (as defined in the Dividend Reinvestment Program) until 700,000 shares have been purchased or until the termination of the offering, whichever occurs first. Thereafter, the Company may in its sole discretion effect additional registrations of common stock for use in the DRIP. The per share purchase price for any such additionally acquired shares will equal the DRIP Price. The company has sold 32,374 and 4,644 shares of common stock under the DRIP for a total of approximately $293,000 and $42,000 for the years ended December 31, 2001 and 2000, respectively.
13. STOCK OPTION PLANS
Effective with the offering, the Company authorized and reserved a total of 100,000 shares of common stock for issuance under the Independent Director Stock Option Plan.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Independent Director Stock Option Plan provides for the grant of initial and subsequent options. Initial options granted to each director are non-qualified stock options to purchase 5,000 shares of common stock at the applicable option exercise price described below granted to each independent director. Subsequent options are options to purchase 5,000 shares of common stock at the applicable option exercise price described below on the date of each annual shareholders' meeting to each independent director so long as the individual is still in office. During the years ended December 31, 2001 and 2000, the Company granted options to purchase 15,000 and 15,000 shares, respectively, to independent directors at an exercise price of $9.05 (the Offering price less the dealer manager's selling commission, marketing support, and due diligence reimbursement fee). Such options vest on the grant date. In May 2001, Debra Kirby declined to stand for reelection as an independent board member and effectively forfeited her 10,000 options. As of December 31, 2001 and 2000, none of the options under the Independent Director Option Plan have been exercised. In addition, in March 2002 James Nance and Warren James resigned from the Company's Board of Directors and effectively forfeited their 20,000 options.
Also effective with the Offering, the Company authorized and reserved a total of 700,000 shares of common stock for issuance under the Officer and Employee Stock Option Plan (the "Officer/Employee Plan"). Acting on the recommendation of the compensation committee, the Board of Directors has the discretion to grant options to officers and employees effective as of each annual shareholders meeting. Options granted under the Officer/Employee Plan must be exercised within 90 days of terminating employment with the Company. In 2000, the Company granted its CEO and President Anthony W. Thompson and its Vice President, Sterling McGregor, options to purchase 45,000 shares, respectively. In 2001, Sterling McGregor terminated his employment with the Company and effectively forfeited the 45,000 options that he received and the Company granted Anthony Thompson an additional 45,000 options. Under the Officer/Employee Plan, options have an exercise price per share of $9.05 and vest two years after the grant date. As of December 31, 2001, none of the options under the Officer/Employee Plan have been exercised. Options granted under both plans described above have a ten-year life.
A summary of the aggregate stock option activity under both of the above plans during the year ended December 31, 2001 and 2000 is presented below:
The weighted average exercise price for options issued and outstanding as of December 31, 2001 and 2000 was $9.05, respectively. The grant-date estimated fair value of options granted in 2001 and 2000 was $1.29 and $1.56 per option, respectively.
Stock options granted to employees and independent directors are accounted for using the intrinsic value method of APB 25. Under APB 25, there was no compensation expense related to such options for the year ended December 31, 2001.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If the fair value method of accounting had been applied to such options, the Company's reported net loss and loss per share (excluding forfeited stock options described above) would have been as follows for the years ended December 31:
The above pro forma effect of applying SFAS 123 is not necessarily representative of the impact on reported net income or loss for future years.
The fair value was estimated using the Black-Scholes stock option pricing model based on the exercise price per share, the market price of the Company's common stock, and the weighted-average assumptions set forth below for issuances in the following years:
Volatility has been estimated based on reviewing the stock-price history of comparable publicly held REITs.
14. EQUITY SECURITIES
The Company has agreed to sell to the dealer manager, NNN Capital Corp. (a related party, wholly owned by Chief Executive Officer, Anthony Thompson), one warrant to purchase one share of common stock for every 40 shares of common stock sold by the dealer manager in any state other than Arizona, Missouri, Ohio, or Tennessee, up to a maximum of 250,000 warrants to purchase an equivalent number of shares. The dealer manager has agreed to pay the Company $0.0008 for each warrant. The warrants are issued on a quarterly basis commencing 60 days after the date the shares are first sold under the Offering. Except where prohibited by securities laws, the dealer manager may retain or distribute such warrants to broker-dealers participating in the offering.
The holder of a warrant is entitled to purchase one share of common stock from the Company at a price of $12.00 per share, at any time from February 22, 2001 to February 2005. A warrant may not be exercised unless the shares to be issued upon the exercise of the warrant have been registered or are exempt from registration in the state of residence of the warrant owner, or if a prospectus required under the laws of such state cannot be delivered to the buyer by the Company. Warrants are not exercisable until one year from the date of issuance. In addition, holders of warrants may not exercise the warrants to the extent such exercise would jeopardize the Company's status as REIT under the federal tax laws.
The terms of the warrants (including the exercise price, the number and type of securities issuable upon their exercise, and the number of such warrants) may be adjusted pro-rata in the event of stock dividends, subdivisions, combinations and reclassification of shares or the issuance to stockholders of securities entitling
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
them to purchase shares or securities convertible into shares. The terms of the warrants also may be adjusted if the Company engages in a merger or consolidation transaction or if all or substantially all of the assets are sold. Warrants are not transferable or assignable except by the dealer manager, the broker-dealers participating in the offering, or to individuals who are both officers and directors or licensed representatives of such entities. Exercise of the warrants is governed by the terms and conditions set forth in the dealer manager agreement and in the warrant.
As of December 31, 2001, the Company had issued 53,529 warrants to soliciting dealers, however, no warrants had been exercised as of that date. The Company applied the fair value method of accounting for the warrants in accordance with SFAS 123 and determined that the impact on the financial statements as of December 31, 2001 was not significant.
Warrant holders who are not shareholders may not vote on Company matters and are not entitled to receive distributions.
15. COMMITMENTS AND CONTINGENCIES
In connection with the sale of the Christie Building (See Note 3), the Company agreed as part of the sale transaction, to guarantee the lease payment in the amount $20,000 per month for a period of five years under a master lease agreement. Under this agreement, the Company is obligated to make lease payments to the lessor only in the event the sub-lessee fails to make the lease payments. In addition, the Company is also obligated to pay a pro rata share of lease commissions and tenant improvements in the event the premises are re-leased prior to November 13, 2006. The Christie Building is a single tenant office building with the current tenant's lease expiring on August 31, 2002. It is not certain that the current tenant will choose to renew the lease. The Advisor has agreed to indemnify the Company against any future losses under the master lease agreement with the indemnification evidenced by an indemnity agreement dated November 13, 2001.
The Company is jointly and severally liable for the entire balance of the note in connection with the acquisition of the Trademark Building (See Note 4). The note is secured by a deed of trust, interest at 30 day LIBOR plus a spread of 2.45% during the first six months and 2.7% thereafter. Principal and interest are due in September 2002. The Company is also jointly and severally liable for the entire note payable balance of $545,000 and $3,995,000 in connection with acquisition of the Seguin Corners property and Plaza Del Rey property, respectively (See Note 9).
Section 6.4 of Article 6 of the Company's Articles of Incorporation prohibits the Company from making any loans or advances to its Advisor, directors, officers or any affiliated entities, however, the Company has made numerous loans or advances to affiliates. Management is not certain how such violations of the Articles of Incorporation will impact future operations of the Company.
16. OTHER RELATED PARTY TRANSACTIONS
On September 27, 2001, the Company entered into an agreement to participate as a co-borrower on a $500,000 loan and pledged its wholly owned shopping center in Pahrump, Nevada as collateral, evidenced by an unrecorded second deed of trust. The other co-borrowers include the Advisor, NNN LV 1900 Aerojet Way LLC, and Anthony W. Thompson (collectively the "affiliates"). The Company and the affiliates (collectively the "borrowers") were jointly and severally liable on the loan. The terms of the loan require the borrowers to pay a $15,000 commitment fee (deducted from the loan proceeds) and $97,500 per month through the maturity date of April 1, 2002, for a total repayment of $600,000. The proceeds of the loan were used to finance a property acquisition by a subsidiary of the Advisor that resulted in acquisition fees of $150,000 paid to the Advisor. All
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
costs of the loan and the principal repayments were made by the Advisor (See Note 15). The loan was paid in full on February 7, 2002.
The Company has purchased certain tenant in common interests in properties whereas the other tenants in common were participating in a tax-free exchange arranged by the Advisor. Such transactions earn the Advisor or its affiliates commissions on the tax-free exchanges, and may impact the extent to which the Company participates in such acquisitions.
17. SUBSEQUENT EVENTS
Note Receivable
On January 4, 2002, the Company advanced $2,100,000 to Rancho Murieta Lodge Partners II, L.L.C. ("Rancho Murieta"), an unaffiliated entity, based on a 6.50% note receivable secured by a first deed of trust with interest at 6.50% maturing February 2002. The advance was to facilitate the financing needed by Rancho Murieta to acquire two of the seven buildings comprising the Bowling Green Financial Park in Sacramento, California. Bowling Green Financial Park was owned by, NNN Value Fund 2000, an affiliated entity of the Advisor (See Note 15). NNN Value Fund 2000 paid the Company an additional 5.50% interest on the note for a total interest rate of 12%. Rancho Murieta paid the Company $175,000 at close of escrow on January 4, 2002 and the balance was paid in full with $25,948 in interest on February 14, 2002.
Subsequent Acquisitions
County Center Drive Building
On January 11, 2002, the Company acquired a 16% tenancy in common interest in the County Center Drive Building from NNN County Center, LLC, an affiliate of the Advisor. The building is a single tenant office/service building located in Temecula, California containing 77,582 rentable square feet and is 100% leased to FFF Enterprises with annual rental income of approximately $521,000. In September 2001, the Company had an escrow deposit in the amount of $258,000 to acquire a tenancy in common interest in the building, however, the deposit was converted to a note payable to the Company and was used by NNN County Center, LLC to acquire 100% of the building for a purchase price of approximately $5,395,000 (See Note 15). The 16% tenancy in common interest in the building was acquired from the affiliate for a purchase price of approximately $1,029,000 and consists of cash and note payable in the amount of approximately $515,000 and $514,000 respectively.
The Company is jointly and severally liable for the entire note in connection with the acquisition in the amount of $3,210,000. The note is secured by a first deed of trust, interest at six month LIBOR plus 4.125% and maturity is in September 2011.
City Center West A Building
On March 15, 2002, the Company also acquired 89.125% tenant in common interest in the City Center West A building. The building is a suburban Class A office building in the city of Las Vegas, Nevada containing 105,964 rentable square feet and is anchored by Sprint Communications Company LP, Citadel Broadcasting Company and Dowling Myers and Helm, LLP. The Property is currently 100% occupied. The Company's portion of the total purchase price of approximately $21,670,000 is approximately $19,313,000 and consists of cash and note payable in the amount of $7,727,137 and $11,586,250, respectively.
The Company is jointly and severely liable for the entire note in connection with this acquisition in the amount of $13,000,000.
T REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Independent Directors
Subsequent to their initial election as independent directors of the Company, James Nance and Warren James purchased ownership interests in affiliates of the Advisor. Owning an interest in an affiliate of the Advisor disqualifies them as being independent under the Company's Articles of Incorporation. The seats on our board of directors held by these former directors have been filled by two new directors who qualify as independent under the Articles of Incorporation.
SCHEDULE III
T REIT, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION
- -------- * All properties are shopping centers with the exception of Christie Street which was an office building that was sold on November 13, 2001.
(a) The changes in total real estate for the year ended December 31, 2001 are as follows:
(b) The changes in accumulated depreciation for the year ended December 31, 2001 are as follows:
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 11, 2000, Haskell & White, LLP resigned as the Company's independent accountant. Haskell & White provided an independent auditors report on the balance sheet of the Company dated as of December 31, 1999, and such independent auditor's report is included in the Company's registration statement on Form S-11 declared effective by the Securities and Exchange Commission on February 22, 2000. Haskell & White's report on the balance sheet did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. The Company does not have, and has not had, any disagreements with Haskell & White on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. In addition, Haskell & White informed the Company in writing that Haskell & White did not have any disagreements with the Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
Haskell & White provided the Company a letter addressed to the Securities and Exchange Commission stating that it reviewed the disclosure in the Current Report on Form 8-K, dated July 11, 2000 and filed with the Securities and Exchange Commission on August 2, 2000, and had no disagreement with the relevant portions of such disclosure. A copy of this letter, dated as of July 31, 2000, was filed as Exhibit 16.1 to the Current Report on Form 8-K.
On September 18, 2000, The Company engaged Squar, Milner, Reehl & Williamson, LLP ("Squar Milner") as their independent accountant and Squar Milner accepted such appointment. The decision to engage Squar Milner was approved by the Board of Directors on the recommendation of the Audit Committee.
The Company had no relationship with Squar Milner required to be reported under Regulation S-K, Item 304(a)(2) during the two years ended December 31, 1999 and 1998, or the subsequent interim periods prior to and including September 18, 2000.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
On February 7, 2001, Sterling McGregor resigned as an officer and director of the Company to accept other employment. Also, Debra M. Kirby declined to stand for reelection to the Company's Board of Directors and accordingly her term expired at the May 8, 2001 annual meeting of the Company's shareholders. On March 5, 2002, Warren H. James and James R. Nance resigned from the Company's Board of Directors and D. Fleet Wallace and W. Brand Inlow were appointed to fill their vacancies. Also, in December 2001 William C. Daniel replaced Jack R. Maurer as the Company's Chief Financial Officer. Mr. Maurer remains with the Company as its Secretary and Treasurer. The Company's current officers and directors and their positions and offices with the Company are as follows:
There are no family relationships between any Directors, Executive Officers or between any Director and Executive Officer.
Certain information regarding its directors and executive officers is set forth below.
Anthony W. ("Tony") Thompson is a co-founder of the Advisor, Triple Net Properties, L.L.C., and has been its President since its inception in April 1998. Prior to that time he was co-founder, co-owner, director and officer of a number of real estate investment entities, trading under the name The TMP Companies including the TMP Group, Inc., a full-service real estate investment group founded in 1978. Mr. Thompson has been the President and co-owner of the Dealer Manager, NNN Capital Corp. (formerly Cunningham Capital Corp. and TMP Capital Corp.), since 1986 and is a registered securities principal with the NASD. He is a 1969 graduate of Sterling College with a Bachelor of Science degree in Economics. Mr. Thompson holds the professional designation of Chartered Life Underwriter and Chartered Financial Consultant from the American College. He is a member of the Sterling College Board of Trustees and UCLA's Athletic Fund Major Gifts Committee.
D. Fleet Wallace is a principal and co-founder of Greystone Fund, L.P. and Greystone Capital Management, LLC, Greystone Fund's general partner. The Greystone Fund is a professionally managed opportunity fund formed in September 2001 that invests primarily in promising venture capital opportunities and distressed assets in the form of real estate, notes and accounts receivable, inventory and other assets. Prior to founding Greystone Fund and Greystone Capital Management, 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.
W. Brand Inlow is the President of Summit Realty Group, Inc. in Richmond, Virginia, a position he has held since September 2001. Summit Realty operates ten apartment communities in Virginia and North Carolina, and provides acquisition, brokerage, new third-party management, business and consulting services. Mr. Inlow also has established SRG Realty Advisors, LLC to acquire and develop apartment communities. Prior to joining
Summit Realty, from November 1999 to September 2001 he was Vice President of Acquisitions for EEA Realty, LLC in Alexandria, Virginia. He was responsible for acquisition, disposition, and financing of company assets, which were primarily garden apartment properties. Prior to joining EEA Realty, 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.
Jack R. Maurer served as Chief Financial Officer of the Advisor, Triple Net Properties, L.L.C. from April, 1998 through December, 2001. Mr. Maurer continues to serve as the Company's Secretary and Treasurer. Mr. Maurer has over 24 years of real estate financial management experience, including Chief Financial Officer and Controller positions in residential and commercial development and the banking industry. From 1986 to April 1998, he was a General Partner and Chief Financial Officer of Wescon Properties, where he was involved in finance, accounting and forecasting. He also participated in the development and construction management process, including due diligence, design development, municipal processing, construction, marketing, property management and investor services. Mr. Maurer's previous experience also includes experience with the national accounting firm of Kenneth Leventhal & Company, a leading provider of professional services to owners, developers, builders, operators and financers of real estate. Mr. Maurer received a BS from California University at Northridge in 1973 and is a Registered Operations and Financial Principal with the NASD.
William C. Daniel succeeded Mr. Maurer as Chief Financial Officer of the Company in December, 2001 and is also the Chief Financial Officer of the Company's Advisor, Triple Net Properties, LLC. Mr. Daniel has over 18 years of executive experience with banks, savings and loan associations, investment management, high tech and Internet companies. Beginning in 1984, he served as Financial Analyst in the Financial Planning & Analysis unit of First Interstate Bank of California. In 1986, Mr. Daniel began service as a Senior Financial Analyst with Great Western Bank in the Corporate Planning Department, where he rose to Vice President. In 1993, Mr. Daniel joined First Interstate Bancorp as Vice President, Mergers and Acquisitions, where he led four bank and savings institution acquisitions. In 1996, Mr. Daniel joined PIMCO Advisors LP, an investment management company as Manager, Financial Planning & Analysis. At PIMCO, Mr. Daniel managed financial analysis, financial applications and MIS areas. In 1998, Mr. Daniel founded Stone Circle Advisors LLC, an investment management and consulting company, and has consulted with a number of emerging Internet and technology companies. Mr. Daniel received a BA and a BBA, cum laude, from the University of Mississippi in 1980 and has an MBA from the Johnson Graduate School of Management at Cornell University in 1983.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The Company pays each independent director $1,000 for attending (in person or by telephone) each meeting of the Board of Directors or a committee thereof. Officers of the Company who served as directors in 2001 (Messrs. Thompson and McGregor) were not paid fees for serving as directors.
Under the Company's Independent Director Stock Option Plan, the Company has authorized and reserved a total of 100,000 Shares for issuance to independent directors. The Plan provides for the grant of initial and subsequent options to purchase shares. Initial options are non-qualified stock options to purchase 5,000 Shares at the applicable option exercise price granted to each independent director as of the date such individual becomes an independent director. Subsequent options are options to purchase 5,000 Shares at the applicable option exercise price on the date of each annual shareholders' meeting to each independent director so long as the individual is still in office. In 2001, the Company granted options to purchase 5,000 Shares to each Independent Director under the Independent Directors Stock Option Plan. As of December 31, 2001, such options had not been exercised. As of December 31, 2001, the Company has not granted any additional options under this plan.
The Company's executive officers are all employees of the Advisor and/or its affiliates. The Company does not pay any of these individuals cash compensation for serving in their respective positions.
Compensation Committee Interlocks and Insider Participation
During 2001, the following directors served on the Company's Compensation Committee: Anthony W. Thompson, Debra M. Kirby and Warren H. James. Mr. Thompson also served as Chief Executive Officer and President.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee has a policy of recommending awards of stock options under the Company's Officer and Employee Stock Option Plan to reward meritorious performance by officers and employees.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 15, 2002 regarding the number and the percentage of Shares beneficially owned by: (i) each director; (ii) the CEO and each of the Company's four most highly compensated executive officers other than the CEO if such officers salary and bonus for 2001 exceeded $100,000; (iii) all directors and executive officers as a group; and (iv) as of March 15, 2002, any person known to the Company to be the beneficial owner of more than 5% of the Shares.
- -------- (1) Beneficial ownership includes outstanding Shares and Shares that any person has the right to acquire within 60 days after the date of this table. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Shares beneficially owned by them.
(2) Includes 103 Shares owned by AWT LP, a Limited partnership controlled by Mr. Thompson and 22,100 shares owned by Triple Net Properties, L.L.C. a limited liability company controlled by Mr. Thompson. Does not include options to purchase an additional 90,000 shares of which 30,000 are currently exercisable and of which 15,000 will be exercisable in 2002.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Advisor is primarily responsible for managing the Company's day-to-day business affairs and assets and carrying out the Board of Director's directives. Several of the Company's officers and directors serve in that same capacity for the Advisor, and own approximately 29% of the equity interest in the Advisor. The Advisor is a Virginia limited liability company that was formed in April of 1998 to advise syndicated limited partnerships, limited liability companies, and other entities regarding the acquisition, management and disposition of real estate assets. The Advisor currently advises thirty-one entities that have invested in properties located in California, Colorado, South Dakota, Nevada and Kansas.
Before the commencement of the Offering, the Advisor purchased 22,100 shares of Company common stock at a price of $9.05 per share for approximately $200,000 in cash. The Advisor intends to retain such shares while serving as the advisor to the Company.
The Advisor bears the expenses incurred in connection with supervising, monitoring and inspecting real property or other assets owned by the Company (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. The Company reimburses the Advisor for certain expenses incurred, including those related to proposed acquisitions and travel expenses. However, the Company will not reimburse the Advisor for any operating expenses that, in any four consecutive fiscal quarters, exceed the greater of 2% of Average Invested Assets (as defined) or 25% of net income for such year. If the 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% of Average Invested Assets or 25% of net income paid to the Advisor during a fiscal quarter will be repaid to the Company within 60 days after the end of the fiscal year. The Company bears its own expenses for functions not required to be performed by the 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.
The Advisor is compensated by the Company for its services through a series of fees pursuant to the Advisory Agreement with the Company. In addition to fee compensation, the Advisor is reimbursed organizational and offering costs and expenses it incurs on behalf of the Company. As of December 31, 2001 and 2000, the fees and cost reimbursements of approximately $153,000 and $87,000, respectively, have been paid by the Company to the Advisor from offering proceeds and no amounts are currently due the Advisor. However, the Advisor agreed in accordance to the Registration Statement to reimburse the Company for legal, accounting and certain other costs in excess of 2.5% of gross offering proceeds. As of December 31, 2001, accounts receivable from related parties include approximately $577,000 relating to such reimbursements.
The Advisor may receive an annual Asset Management Fee of up to 1.5% of the Average Invested Assets. This fee will be paid or accrue quarterly, but will not be paid until the shareholders have received distributions equal to a cumulative non-compounded rate of 8.25% per annum on their investment in the Company. If the fee is not paid in any quarter, it will accrue and be paid once the shareholders have received a cumulative 8.25% return. The Advisor is also entitled to receive property management fees for management and leasing services. Such fees may not exceed 5% of the gross revenue earned by the Company on properties managed. Approximately $157,000 and $106,000 of asset management fees and property management fees were paid to the Advisor by the Company for the year ended December 31, 2001. Such fees were not significant in 2000. However, subsequent to December 31, 2001 the Company was reimbursed by the Advisor for the entire amount of asset management fees.
Approximately $150,000 and $835,000 was earned by the Advisor and affiliates of the Advisor in connection with the Company's acquisition of properties during the years ended December 31, 2001 and 2000, respectively.
The Company has incurred approximately $1,567,000 and $615,000 of selling commissions due diligence and certain fees paid to NNN Capital Corp., an affiliated entity, owned by Anthony W. Thompson, the CEO of the Company for the years ended December 31, 2001 and 2000, respectively.
In December 2000, the Company advanced $900,000 to W REIT, L.P., an affiliated entity, based on a note receivable with interest at 12%, maturity in June 2001 and is secured by a first mortgage. W REIT, L.P. used the proceeds to retire debt on the real estate property serving as collateral for the note.
In addition, the Company advanced $430,000 to W REIT, L.P. in March 2001 subject to the same terms and conditions as the previous note. W REIT, L.P. is planning to refinance such property in 2002 and management believes such refinancing will result in the Company being paid in full.
During 2000, the Company also advanced W REIT, L.P. $50,000 at 12% and maturity in June 2001. The original notes and the $50,000 advance matured in June 2001 and have been extended through June 30, 2002. As of December 31, 2001, no interest has been paid on the W REIT advance or notes receivable. Accordingly, accrued interest in the amount of approximately $150,000 is included in the accompanying consolidated balance sheets under the caption Notes receivable from related party.
Anthony W. Thompson, the CEO of the Company, is a director of Western REIT, Inc., the parent of W REIT, L.P., and the president and beneficial owner of approximately 34% of Triple Net Properties, L.L.C., the advisor to both Western REIT, Inc. and the Company. The Company's directors and officers own less than 1% of Western REIT, Inc. In addition, Triple Net Properties, L.L.C. is the general partner of W REIT, L.P.
As of December 31, 2001, the Company also has a note receivable from NNN County Center Drive, LLC ("County Center, LLC"), an affiliated entity, (See Note 17) in the amount of $258,000. The note was entered into in November 2001, secured by the assets of County Center, LLC with interest at 12% and maturity in January 2002. The entire balance of the note and accrued interest was repaid to the Company in January 2002.
On September 27, 2001, the Company entered into an agreement to participate as a co-borrower on a $500,000 loan and pledged its wholly owned shopping center in Pahrump, Nevada as collateral, evidenced by an unrecorded second deed of trust. The other co-borrowers include the Advisor, NNN LV 1900 Aerojet Way LLC, and Anthony W. Thompson (collectively the "Affiliates"). The Company and the Affiliates (collectively the "Borrowers") were jointly and severally liable on the loan. The terms of the loan require the Borrowers to pay a $15,000 commitment fee (deducted from the loan proceeds) and $97,500 per month through the maturity date of April 1, 2002, for a total repayment of $600,000. The proceeds of the loan were used to finance a property acquisition by a subsidiary of the Advisor that resulted in acquisition fees of $150,000 paid to the Advisor. All costs of the loan and the principal repayments were made by the Advisor. The loan was paid in full on February 7, 2002.
The Company has purchased certain tenant in common interests in properties whereas the other tenants in common were participating in a tax-free exchange arranged by the Advisor. Such transactions earn the Advisor or its affiliates commissions on the tax-free exchanges, and may impact the extent to which the Company participates in such acquisitions.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed:
(1) The consolidated financial statements of the Company included in this report are set forth in Item 8.
(2) Financial Statement Schedules:
The following financial statement schedule for the year ended December 31, 2001 is submitted herewith:
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.
(3) Exhibits. The following exhibits are filed as part of this document:
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of the period covered by this annual report.
Current Report on Form 8-K/A, dated November 13, 2001, reporting under Items 2 and 7, the requisite financial information concerning the acquisition of the Trademark Building in Reno, Nevada.
(c) See exhibit index included above.
(d) None
SIGNATURES
Pursuant to the requirements of the 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 on March 30, 2002 by the undersigned, thereunto duly authorized.
T-REIT, INC.
By: /s/ ANTHONY W. THOMPSON ----------------------------- Anthony W. Thompson Chief Executive Officer, President and Chairman of the Board
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.
Name Title Date ---- ----- ----
/s/ ANTHONY W. THOMPSON Chief Executive Officer, March 30, 2002 - ----------------------------- President and Director Anthony W. Thompson
/s/ WILLIAM C. DANIEL Chief Financial and March 30, 2002 - ----------------------------- Accounting Officer William C. Daniel
/s/ D. FLEET WALLACE Director March 30, 2002 - ----------------------------- D. Fleet Wallace
/s/ W. BRENT INLOW Director March 30, 2002 - ----------------------------- W. Brent Inlow