UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-8122
GRUBB & ELLIS COMPANY
(Exact name of registrant as
specified in its charter)
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Delaware
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94-1424307
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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1551
North Tustin Avenue, Suite 300, Santa Ana, California
92705
(Address of principal executive offices) (Zip Code)
(714) 667-8252
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein and will not be contained, to the best
of registrants knowledge, in its definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of voting common stock held by
non-affiliates of the registrant as of June 30, 2009 was
approximately $37,936,989 based on the last sales price on
June 30, 2009 on the New York Stock Exchange of $0.80 per
share for the registrants common stock.
The number of shares outstanding of the registrants common
stock as of March 11, 2010 was 69,331,879 shares.
GRUBB &
ELLIS COMPANY
FORM 10-K
TABLE OF CONTENTS
i
GRUBB &
ELLIS COMPANY
General
Grubb & Ellis Company (the Company or
Grubb & Ellis), a Delaware corporation
founded over 50 years ago, is one of the countrys
largest and most respected commercial real estate services and
investment management firms. The Company offers property owners,
corporate occupants and program investors comprehensive
integrated real estate solutions, including transactions,
management, consulting and investment advisory services
supported by proprietary market research and extensive local
market expertise.
On December 7, 2007, the Company effected a stock merger
(the Merger) with NNN Realty Advisors, Inc.
(NNN), a real estate asset management company and
nationally recognized sponsor of public non-traded real estate
investment trusts (REITs), as well as a sponsor of
tenant-in-common
(TIC) investments and other investment programs.
Upon the closing of the Merger, a change of control occurred.
The former shareowners of NNN acquired approximately 60% of the
Companys issued and outstanding common stock.
In certain instances throughout this Report phrases such as
legacy Grubb & Ellis or similar
descriptions are used to reference, when appropriate,
Grubb & Ellis prior to the Merger. Similarly, in
certain instances throughout this Report the term NNN,
legacy NNN or similar phrases are used to reference,
when appropriate, NNN Realty Advisors, Inc. prior to the Merger.
Business
Segment Reporting
The Company currently reports its revenue by three operating
business segments in accordance with the provisions of Segment
Reporting Topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(Codification): Management Services, which includes
property management, corporate facilities management, project
management, client accounting, business services and engineering
services for unrelated third parties and the properties owned by
the investment programs it sponsors; Transaction Services, which
comprises its real estate brokerage operations; and Investment
Management, which includes providing acquisition, financing,
disposition and asset management services with respect to its
investment programs and dealer-manager services by its
securities broker-dealer, which facilitates capital raising
transactions for its REIT, TIC and other investment programs.
Additional information on these business segments can be found
in Note 25 of Notes to Consolidated Financial Statements in
Item 8 of this Report.
Management
Services
Grubb & Ellis delivers integrated property, facility,
asset, construction, business and engineering management
services to a host of corporate and institutional clients. The
Company offers customized programs that focus on cost-efficient
operations and tenant retention.
The Company manages a comprehensive range of properties
including headquarters, facilities and class A office space
for major corporations, including many Fortune
500 companies. Grubb & Ellis skills extend
to management of industrial, manufacturing and warehousing
facilities as well as data centers and retail outlets for real
estate users and investors.
Additionally, Grubb & Ellis provides consulting
services, including site selection, feasibility studies, exit
strategies, market forecasts, appraisals, strategic planning and
research services.
The Company is committed to expanding the scope of products and
services offered, while ensuring that it can support client
relationships with
best-in-class
service. During 2009, the Company continued to expand the number
of client service relationship managers, which provide a single
point of contact to corporate clients with multi-service needs.
In 2009 Grubb & Ellis secured significant new
management services contracts from Kraft, Wachovia Corporation
and Zurich Alternative Asset Management. The Company also
secured significant contract renewals with Citigroup, General
Motors, Microsoft and Wells Fargo. As of December 31, 2009,
Grubb & Ellis managed approximately 240.7 million
square feet, of which 24.3 million square feet related to
its sponsored investment programs.
Transaction
Services
Grubb & Ellis has a track record of over 50 years
in the commercial real estate industry and is one of the largest
real estate brokerage firms in the country, offering clients the
experience of thousands of successful transactions and the
expertise that comes from a nationwide platform. There are 126
owned and affiliate offices worldwide (53 owned and
approximately 73 affiliates) and more than 6,000 professionals,
including a brokerage sales force of more than 1,800 brokers. By
focusing on the overall business objectives of its clients,
Grubb & Ellis utilizes its research capabilities,
extensive properties database and negotiation skills to create,
buy, sell and lease opportunities for both users and owners of
commercial real estate. With a comprehensive approach to
transactions, Grubb & Ellis offers a full suite of
services to clients, from site selection and sale negotiations
to needs analysis, occupancy projections, prospect
qualification, pricing recommendations, long-term value
consultation, tenant representation and consulting services. As
one of the most active and largest commercial real estate
brokerages in the United States, Grubb & Ellis
traditional real estate services provide added value to the
Companys real estate investment programs by offering a
comprehensive market view and local area expertise.
The Company actively engages its brokerage force in the
execution of its marketing strategy. Regional and metro-area
managing directors, who are responsible for operations in each
major market, facilitate the development of brokers. Through the
Companys specialty practice groups, key personnel share
information regarding local, regional and national industry
trends and participate in national marketing activities,
including trade shows and seminars. This ongoing communication
among brokers serves to increase their level of expertise as
well as their network of relationships, and is supplemented by
other more formal education, including training programs
offering sales and motivational training and cross-functional
networking and business development opportunities.
In many local markets where the Company does not have owned
offices, it has affiliation agreements with independent real
estate services providers that conduct business under the
Grubb & Ellis brand. The Companys affiliation
agreements provide for exclusive mutual referrals in their
respective markets, generating referral fees. The Companys
affiliation agreements are generally multi-year contracts.
Through its affiliate offices, the Company has access to more
than 1,000 brokers with local market research capabilities.
The Companys Corporate Services Group provides
comprehensive coordination of all required real estate related
services to help realize the needs of clients real estate
portfolios and to maximize their business objectives. These
services include consulting services, lease administration,
strategic planning, project management, account management and
international services.
As of December 31, 2009, Grubb & Ellis had in
excess of 1,800 brokers at its owned and affiliate offices, of
which 824 brokers were at its owned offices, up from 805 at
December 31, 2008.
Investment
Management
The Company and its subsidiaries are leading sponsors of real
estate investment programs that provide individuals and
institutions the opportunity to invest in a broad range of real
estate investment vehicles, including public non-traded REITs,
TIC investments, mutual funds and other real estate investment
funds. The Company brands its investment programs as
Grubb & Ellis in order to capitalize on the strength
of the Grubb & Ellis brand name and to leverage the
Companys various platforms. During the year ended
December 31, 2009, more than $554.7 million in
investor equity was raised for these sponsored investment
programs. As of December 31, 2009, the Company has more
than $5.7 billion of assets under management related to the
various programs that it sponsors. The Company has completed
transaction acquisition and disposition volume totaling
approximately $12.3 billion on behalf of more than 55,000
program investors since 1998.
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Investment management products are distributed through the
Companys broker-dealer subsidiary, Grubb & Ellis
Securities Inc. (GBE Securities). GBE Securities is
registered with the Securities and Exchange Commission (the
SEC), the Financial Industry Regulatory Authority
(FINRA) and all 50 states. GBE Securities has
agreements with an extensive network of broker dealers with
selling relationships providing access to thousands of licensed
registered representatives. Part of the Companys strategy
is to expand its network of broker-dealers to increase the
amount of equity that it raises in its various investment
programs.
The Company and Grubb & Ellis Equity Advisors, LLC,
(GEEA) a subsidiary of the Company, sponsor and
advise public non-traded REITs that are registered with the SEC
but are not listed on a national securities exchange like a
traded REIT. According to the published Stanger Report, Winter
2010, by Robert A. Stanger and Co., an independent investment
banking firm, approximately $6.7 billion was raised in the
non-traded REIT sector in 2009. As of December 31, 2009,
the Company sponsors two demographically focused programs that
are actively raising capital, Grubb & Ellis Healthcare
REIT II, Inc. and Grubb & Ellis Apartment REIT, Inc.
In addition, the Company raised equity for and provided advisory
services to Grubb & Ellis Healthcare REIT, Inc. (now
Healthcare Trust of America, Inc.) until August 28, 2009
and September 20, 2009, respectively. Public non-traded
REITs sponsored or advised by the Company and its affiliates
raised $536.9 million in combined capital in 2009.
In 2008, the Company started a family of U.S. and global
open end mutual funds that focus on real estate securities and
manage private investment funds exclusively for qualified
investors through its 51% ownership in Grubb & Ellis
Alesco Global Advisors, LLC (Alesco). The Company,
through its subsidiary, Alesco, serves as general partner and
investment advisor to one limited partnership and as investment
advisor to three mutual funds as of December 31, 2009. One
of the limited partnerships, Grubb & Ellis AGA Real
Estate Investment Fund LP, is required to be consolidated
in accordance with the Consolidation Topic. As of
December 31, 2009, Alesco had $8.0 million of
investment funds under management.
In mid-2009, the Company formed Energy &
Infrastructure Advisors, LLC, a joint venture between
Grubb & Ellis and the Meridian Companies that intends
to sponsor retail and institutional products focused on
investment opportunities in the energy and infrastructure sector.
Grubb & Ellis Realty Investors, LLC (GERI)
(formerly Triple Net Properties, LLC), a subsidiary of the
Company, had 146 sponsored TIC programs under management and has
taken more than 60 programs full cycle (from acquisition through
disposition) as of December 31, 2009.
Through its multi-family platform, the Company provides
investment management services for REIT and TIC apartment
vehicles and currently manages in excess of 13,000 apartment
units through Grubb & Ellis Residential Management,
Inc., the Companys multi-family management services
subsidiary.
Company
Strategy
As one of the oldest and most recognized brands in the
commercial real estate industry, Grubb & Ellis is
known for its broad geographic reach, long-term client
relationships and full-range of product and service offerings.
The Companys strategy is to leverage these attributes to
become a larger, more robust real estate services and investment
firm. The Companys growth plan is focused on the
achievement of four primary goals: increasing the scale and
productivity of its leasing and investment sales brokerage
operations; expanding its owner and occupier property and
facilities management portfolio; growing its position in the
sponsorship of public non-traded REITs and private investment
programs to include institutional real estate investment
management by utilizing the Companys full-service
platform, proprietary real estate research, specialty practice
groups and local market knowledge; and entering related
businesses in which the Company does not currently have a
presence but which represent a natural extension of its strategy
to provide best in class service and comprehensive solutions to
clients.
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Appointment
of President, Chief Executive Officer and Director
Effective November 16, 2009, the Board of Directors
appointed Thomas P. DArcy as the Companys president,
chief executive officer and a member of the board of directors.
Mr. DArcy replaced Gary H. Hunt, who had been serving
as the Companys interim president and chief executive
officer.
Prior to joining the Company, Mr. DArcy served in
leadership positions at various public and private real estate
companies for more than 27 years. He is currently the
non-executive chairman of Inland Real Estate Corporation
(NYSE:IRC), a $1.5 billion REIT where he has served as an
independent director since 2005. Most recently, he was a
principal in Bayside Realty Partners, a private real estate
company focusing on acquiring, renovating and developing land
and income-producing real estate. From 2001 to 2004, he was
president and chief executive officer of Equity Investment
Group, a private REIT and from 1989 to 2000 he served as
chairman and chief executive officer of Bradley Real Estate,
Inc. a NYSE-listed real estate investment trust. During his
tenure at Bradley, Mr. DArcy significantly grew the
company through restructuring and mergers and acquisitions,
which led to its sale to Heritage Investment Trust in 2000,
creating substantial value for its shareowners.
Private
Placement of 12% Preferred Stock
In the fourth quarter of 2009, the Company consummated the
issuance and sale of an aggregate of 965,700 shares of 12%
Cumulative Participating Perpetual Preferred Stock, par value
$0.01 per share (the 12% Preferred Stock). The
Preferred Stock was sold to qualified institutional buyers and
accredited investors in a private placement exempt from the
registration requirements of the Securities Act of 1933, as
amended (the Securities Act) that apply to offers
and sales of securities that do not involve a public offering.
Accordingly, the 12% Preferred Stock was offered and sold only
to (i) qualified institutional buyers (as
defined in Rule 144A under the Securities Act),
(ii) to a limited number of institutional accredited
investors (as defined in Rule 501(a)(1), (2),
(3) or (7) of the Securities Act), and (iii) to a
limited number of individual accredited investors
(as defined in Rule 501(a)(4), (5) or (6) of the
Securities Act).
Each share of 12% Preferred Stock is convertible into
60.606 shares of common stock of the Company, which
represents a conversion price of approximately $1.65 per share
of common stock. The Company received net proceeds from the
private placement of approximately $90.1 million after
deducting the initial purchasers discounts and certain
offering expenses and after giving effect to the conversion of
$5.0 million of subordinated debt previously provided by an
affiliate of the Companys largest shareowner. The Company
used the net proceeds to pay transaction costs and repay in full
the Companys Credit Facility (as defined below) at the
agreed reduced principal amount equal to approximately 65% of
the principal amount outstanding under such facility (as more
fully discussed in the section immediately following
Amendment and Repayment of Senior Secured Credit
Facility). The balance of the net proceeds from the
offering will be used for general corporate purposes.
Amendment
and Repayment of Senior Secured Credit Facility
On December 7, 2007, the Company entered into a
$75.0 million credit agreement (which was subsequently
amended and restated) by and among the Company, the guarantors
named therein, and the financial institutions defined therein as
lender parties, with Deutsche Bank Trust Company Americas,
as lender and administrative agent (the Credit
Facility). The Company entered into a further amendment
and limited waiver to its Credit Facility, effective as of
September 30, 2009 (the Credit Facility
Amendment), that extended the time previously afforded the
Company in May 2009, to effect a recapitalization under its
Credit Facility from September 30, 2009 to
November 30, 2009. Pursuant to the Credit Facility
Amendment, the Company also received the right to prepay its
Credit Facility in full at any time on or prior to
November 30, 2009 at a discounted amount equal to 65% of
the aggregate principal amount outstanding. On November 6,
2009, concurrently with the initial closing of the private
placement of its 12% Preferred Stock, the Company repaid its
Credit Facility in full at the discounted amount and the Credit
Facility was terminated in accordance with its terms. (See
Note 19 of Notes to Consolidated Financial Statements in
Item 8 of this Report for additional information)
4
As a condition to entering into the Credit Facility Amendment,
the lenders to the Companys Credit Facility required that
Kojaian Management Corporation, an affiliate of the
Companys largest shareowner, effect a $5.0 million
subordinated financing of the Company. On October 2, 2009,
the Company completed the shareowner subordinated financing in
the form of a senior subordinated convertible note bearing an
interest rate of 12% per annum. Concurrently with the initial
closing of the private placement of 12% Preferred Stock, the
principal amount of the senior subordinated convertible note was
converted into 50,000 shares of 12% Preferred Stock.
Property
Acquisitions and Dispositions
During 2007, the Company acquired three commercial
properties the Danbury Corporate Center in Danbury,
Connecticut (the Danbury Property), Abrams Center in
Dallas, Texas (the Abrams Property) and 6400 Shafer
Court in Rosemont, Illinois (the Shafer
Property) for an aggregate contract price of
$122.2 million, along with acquisition costs of
approximately $1.3 million, and assumed obligations of
approximately $0.5 million. On June 3, 2009, the
Company sold the Danbury Property to an unaffiliated entity for
a sales price of $72.4 million.
On December 29, 2009, GERA Abrams Centre LLC
(Abrams) and GERA 6400 Shafer LLC
(Shafer and together with Abrams, collectively, the
Borrower), each a subsidiary of Company, modified
the terms (the Amendment) of its $42.5 million
loan initially due on July 9, 2009 (the Loan)
by and among the Borrower and Tremont Net Funding II, LLC (the
Lender).
The Amendment to the Loan provided, among other things, for an
extension of the term of the Loan until March 31, 2010 (the
Loan Extension Date). In addition, the principal
balance of the Loan was reduced from $42.5 million to
$11.0 million in connection with the transfer of the Shafer
Property from the Borrower to an affiliate of Lender for nominal
consideration pursuant to a special warranty deed (the
Special Warranty Deed) that was recorded on
December 29, 2009.
Pursuant to the Amendment, the Lender remains obligated under
the Loan, in its reasonable discretion, to fund any shortfalls
relating to tenant improvements and leasing commission expenses
and to fund any operational shortfalls and debt service,
provided that there is no event of default existing with respect
to the Loan. The Amendment also granted the Lender a call
option, and the Borrower a put option, with respect to the
Abrams Property through the Loan Extension Date. Each of the
Lenders call option and the Borrowers put option
requires 10 business days prior written notice and provides for
the transfer of the Abrams Property pursuant to a deed identical
in all material respects to the Special Warranty Deed that was
executed with respect to the Shafer Property. If neither the put
option nor the call option is exercised by March 30, 2010,
the Borrower has the right to file a deed conveying the Abrams
Property to the Lender or its designee on March 31, 2010.
The Amendment also released the Borrower and the guarantor under
the Loan, from and against any claims, obligations
and/or
liabilities that the Lender or any of party related to or
affiliated with the Lender, whether known or unknown, that such
party had, has or may have in the future, arising from or
related to the Loan.
Pursuant to the Consolidation Topic, Management determined that
control of the Abrams and Shafer properties did not rest with
the Company, but rather the Lender, and thus, the Company
deconsolidated these properties in the fourth quarter of 2009.
Industry
and Competition
The U.S. commercial real estate services industry is large
and highly fragmented, with thousands of companies providing
asset management, investment management and brokerage sales and
leasing transaction services. In recent years the industry has
experienced substantial consolidation, a trend that is expected
to continue.
The Company competes in a variety of service businesses within
the commercial real estate industry. Each of these business
areas is highly competitive on a national as well as local
level. The Company faces competition not only from other
regional and national service providers, but also from global
real estate
5
providers, boutique real estate advisory firms and appraisal
firms. Although many of the Companys competitors are local
or regional firms that are substantially smaller than the
Company, some competitors are substantially larger than the
Company on a local, regional, national
and/or
international basis. The Companys significant competitors
include CB Richard Ellis, Jones Lang LaSalle and
Cushman & Wakefield, all of which have global
platforms. The Company believes that it needs to expand its
platform in order to more effectively compete for the business
of large multi-national corporations that are increasingly
seeking a single real estate services provider.
The top 25 brokerage companies collectively completed nearly
$644.5 billion in investment sales and leasing transactions
globally in 2008, according to the latest available survey
published by National Real Estate Investor. The Company ranked
12th in this survey, including transactions in its
affiliate offices.
Within the management services business, according to a recent
survey published in 2009 by National Real Estate Investor, the
top 25 companies in the industry manage over
9.1 billion square feet of commercial property. The Company
ranks as the seventh largest property management company in this
survey with 246.9 million square feet under management at
year end 2008, including property under management in its
affiliate offices. The largest company in the survey had
2.2 billion square feet under management.
The Companys investment management business is subject to
competition on a number of different levels. The Company
competes with both large and small investment sponsors and faces
threats from new entrants or entrants that pivot to focus on
raising capital through the same channels as the Company. With
regard to fundraising in the retail securities arena, GBE
Securities faces competition to acquire limited shelf space in
selling group firms and faces fundraising challenges from an
industry-wide oversupply of product seeking limited investor
dollars. As it increases its involvement in fundraising for
institutional investments funds, the Company will face
competition from a different group of well-financed
institutional managers. Separate from fundraising competition,
the investment programs themselves face competition generally
from REITs, institutional pension plans and other public and
private real estate companies and private real estate investors
for the acquisition of properties and for the limited financing
available to real estate investors.
While there can be no assurances that the Company will be able
to continue to compete effectively, maintain current fee levels
or margins, or maintain or increase its market share, based on
its competitive strengths, the Company believes that it has the
infrastructure and personnel to continue to operate in this
highly competitive industry. The ability to do so, however,
depends upon the Companys ability to, among other things,
successfully manage through the disruption and dislocation of
the credit markets and the weak national and global economies.
Specifically, as our business involves the acquisition,
disposition, and financing of commercial properties, many of
such activities are dependent, either directly or indirectly,
and in whole or in part, on the availability and cost of credit.
The disruption in the global capital market which began in 2008
has adversely affected our businesses and will continue to do so
until such time as credit is once again available at reasonable
costs. In addition, the health of real estate investment and
leasing markets is dependent on the level of economic activity
on a regional and local basis. The significant slowdown in
overall economic activity in 2009 has adversely affected many
sectors of our business and will continue to do so until
economic conditions change.
Environmental
Regulation
Federal, state and local laws and regulations impose
environmental zoning restrictions, use controls, disclosure
obligations and other restrictions that impact the management,
development, use,
and/or sale
of real estate. Such laws and regulations tend to discourage
sales and leasing activities, as well as the willingness of
mortgage lenders to provide financing, with respect to some
properties. If transactions in which the Company is involved are
delayed or abandoned as a result of these restrictions, the
brokerage business could be adversely affected. In addition, a
failure by the Company to disclose known environmental concerns
in connection with a real estate transaction may subject the
Company to liability to a buyer or lessee of property.
The Company generally undertakes a third-party Phase I
investigation of potential environmental risks when evaluating
an acquisition for a sponsored program. A Phase I investigation
is an investigation for the presence or likely presence of
hazardous substances or petroleum products under conditions that
indicate an
6
existing release, a post release or a material threat of a
release. A Phase I investigation does not typically include any
sampling. The Companys programs may acquire a property
with environmental contamination, subject to a determination of
the level of risk and potential cost of remediation.
Various environmental laws and regulations also can impose
liability for the costs of investigating or remediation of
hazardous or toxic substances at sites currently or formerly
owned or operated by a party, or at off-site locations to which
such party sent wastes for disposal. In addition, an increasing
number of federal, state, local and foreign governments have
enacted various treaties, laws and regulations that apply to
environmental and climate change, in particular seeking to limit
or penalize the discharge of materials such as green house gas
into the environment or otherwise relating to the protection of
the environment. As a property manager, the Company could be
held liable as an operator for any such contamination or
discharges, even if the original activity was legal and the
Company had no knowledge of, or did not cause, the release or
contamination. Further, because liability under some of these
laws is joint and several, the Company could be held responsible
for more than its share, or even all, of the costs for such
contaminated site if the other responsible parties are unable to
pay. The Company could also incur liability for property damage
or personal injury claims alleged to result from environmental
contamination or discharges, or from asbestos-containing
materials or lead-based paint present at the properties that it
manages. Insurance for such matters may not always be available,
or sufficient to cover the Companys losses. Certain
requirements governing the removal or encapsulation of
asbestos-containing materials, as well as recently enacted local
ordinances obligating property managers to inspect for and
remove lead-based paint in certain buildings, could increase the
Companys costs of legal compliance and potentially subject
the Company to violations or claims. Although such costs have
not had a material impact on the Companys financial
results or competitive position in 2009, the enactment of
additional regulations, or more stringent enforcement of
existing regulations, could cause the Company to incur
significant costs in the future,
and/or
adversely impact the brokerage and management services
businesses.
Seasonality
A substantial portion of the Companys revenues are derived
from brokerage transaction services, which are seasonal in
nature. As a consequence, the Companys revenue stream and
the related commission expense are also subject to seasonal
fluctuations. However, the Companys non-variable operating
expenses, which are treated as expenses when incurred during the
year, are relatively constant in total dollars on a quarterly
basis. The Company has typically experienced its lowest
quarterly revenue from transaction services in the quarter
ending March 31 of each year with higher and more consistent
revenue in the quarters ending June 30 and September 30.
The quarter ending December 31 has historically provided the
highest quarterly level of revenue due to increased activity
caused by the desire of clients to complete transactions by
calendar year-end. Transaction services revenue represented
32.4% of total revenue for 2009.
Regulation
Transaction
and Property Management Services
The Company and its brokers, salespersons and, in some
instances, property managers are regulated by the states in
which it does business. These regulations may include licensing
procedures, prescribed professional responsibilities and
anti-fraud provisions. The Companys activities are also
subject to various local, state, national and international
jurisdictions fair advertising, trade, housing and real
estate settlement laws and regulations and are affected bylaws
and regulations relating to real estate and real estate finance
and development. Because of the size and scope of real estate
sales transactions there is difficulty of ensuring compliance
with the numerous state statutory requirements and licensing
regimes and there is possible liability resulting from
non-compliance.
Dealer-Manager
Services
The securities industry is subject to extensive regulation under
federal and state law. Broker-dealers are subject to regulations
covering all aspects of the securities business. In general,
broker-dealers are required to
7
register with the SEC and to be members of FINRA. As a member of
FINRA, GBE Securities is subject to the requirements of
the Securities Exchange Act of 1934 as amended (the
Exchange Act) and the rules promulgated thereunder
and to applicable FINRA rules. These regulations establish,
among other things, the minimum net capital requirements for GBE
Securities broker-dealer business. Such business is also
subject to regulation under various state laws in all
50 states and the District of Columbia, including
registration requirements.
Service
Marks
The Company has registered trade names and service marks for the
Grubb & Ellis name and logo and certain
other trade names. The Grubb & Ellis brand
name is considered an important asset of the Company, and the
Company actively defends and enforces such trade names and
service marks.
Real
Estate Markets
The Companys business is highly dependent on the
commercial real estate markets, which in turn are impacted by
numerous factors, including but not limited to the general
economy, availability and terms of credit and demand for real
estate in local markets. Changes in one or more of these factors
could either favorably or unfavorably impact the volume of
transactions, demand for real estate investments and prices or
lease terms for real estate. Consequently, the Companys
revenue from transaction services, investment management
operations and property management fees, operating results, cash
flow and financial condition are impacted by these factors,
among others.
The
Merger
Upon the closing of the Merger, which occurred on
December 7, 2007, the 43,779,740 shares of common
stock of NNN that were issued and outstanding immediately prior
to the Merger were automatically converted into
38,526,171 shares of common stock of the Company, and the
2,249,850 NNN restricted stock and stock options that were
issued and outstanding immediately prior to the Merger were
automatically converted into 1,979,868 shares of restricted
stock and stock options of the Company. The shares of the
Companys common stock issued in connection with the Merger
were registered under the Securities Act of 1933, as amended
(the Securities Act), and the Companys common
stock, including the shares of common stock issued pursuant to
the Merger, continue to trade on the NYSE under the symbol
GBE.
Unless otherwise indicated, all pre-merger NNN share data has
been adjusted to reflect the 0.88 conversion rate as a result of
the Merger (see Note 10 of Notes to Consolidated Financial
Statements in Item 8 of this Report for additional
information).
Subsequent to the closing of the Merger, in December 2007, the
Company relocated its headquarters from Chicago, Illinois to
Santa Ana, California, changed its fiscal year from June 30 to
December 31, and appointed Ernst & Young LLP
(EY) as its independent registered public accounting
firm to audit financial statements of the Company going forward.
Employees
As of December 31, 2009, the Company had over
5,000 employees including more than 800 transaction
professionals working in 53 owned offices as well as over 1,000
independent contractors working in 73 affiliate offices. Nearly
3,000 employees serve as property and facilities management
staff at the Companys client-owned properties and the
Companys clients reimburse the Company fully for their
salaries and benefits. The Company considers its relationship
with its employees to be good and has not experienced any
interruptions of its operations as a result of labor
disagreements.
Availability
of this Report
The Companys internet address is
www.grubb-ellis.com. On the Investor Relations page on
this web site, the Company posts its Annual Reports on
Form 10-K,
its Quarterly Reports on
Form 10-Q,
its Current Reports
8
on
Form 8-K
and its proxy statements as soon as reasonably practicable after
it files them electronically with the SEC. All such filings on
the Investor Relations web page are available to be viewed free
of charge. In addition, the SEC maintains a website that
contains these reports at www.sec.gov. Information
contained on our website and the SEC website is not part of this
Report on
Form 10-K
or our other filings with the SEC. We assume no obligation to
update or revise any forward-looking statements in the Annual
Report on
Form 10-K,
whether as a result of new information, future events or
otherwise, unless we are required to do so by law.
In addition, a copy of this Report on
Form 10-K
is available without charge by contacting Investor Relations,
Grubb & Ellis Company, 1551 North Tustin Avenue,
Suite 300, Santa Ana, California 92705.
Risks
Related to the Companys Business in General
The
ongoing downturn in the general economy and the real estate
market has negatively impacted and could continue to negatively
impact the Companys business and financial
results.
Periods of economic slowdown or recession, significantly reduced
access to credit, declining employment levels, decreasing demand
for real estate, declining real estate values or the perception
that any of these events may occur, can reduce transaction
volumes or demand for services for each of our business lines.
The current recession and the downturn in the real estate market
have resulted in and may continue to result in:
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a decline in acquisition, disposition and leasing activity;
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a decline in the supply of capital invested in commercial real
estate;
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a decline in fees collected from investment management programs,
which are dependent upon demand for investment in commercial
real estate; and
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a decline in the value of real estate and in rental rates, which
would cause the Company to realize lower revenue from:
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property management fees, which in certain cases are calculated
as a percentage of the revenue of the property under
management; and
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commissions or fees derived from property valuation, sales and
leasing, which are typically based on the value, sale price or
lease revenue commitment, respectively.
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The declining real estate market in the United States, the
availability and cost of credit, increased unemployment,
volatile oil prices, declining consumer confidence and the
instability of United States banking and financial institutions,
have contributed to increased volatility, an overall economic
slowdown and diminished expectations for the economy and markets
going forward. The fragile state of the credit markets, the fear
of a global recession for an extended period and the current
economic environment have impacted real estate services and
investment management firms like ours through reduced
transaction volumes, falling transaction values, lower real
estate valuations, liquidity restrictions, market volatility,
and the loss of confidence. As a consequence, similar to other
real estate services and investment management firms, our stock
price has declined significantly.
Due to the economic downturn, it may take us longer to dispose
of real estate assets and investments and the selling prices may
be lower than originally anticipated. If this occurs, fees from
transaction services will be reduced. In addition, the
performance of certain properties in the investment management
portfolio may be negatively impacted, which would likewise
affect our fees. As a result, the carrying value of certain of
our real estate investments may become impaired and we could
record losses as a result of such impairment or we could
experience reduced profitability related to declines in real
estate values. Pursuant to the requirements of the Property,
Plant, and Equipment Topic, the Company assesses the
value of its assets and real estate investments. This valuation
review resulted in the Company recognizing an impairment charge
of approximately $24.0 million against the carrying value
of the properties and real estate investments during the year
ended December 31, 2009.
9
We are not able to predict the severity or duration of the
current adverse economic environment or the disruption in the
financial markets. The real estate market tends to be cyclical
and related to the condition of the overall economy and to the
perceptions of investors, developers and other market
participants as to the economic outlook. The ongoing downturn in
the general economy and the real estate market has negatively
impacted and could continue to negatively impact the
Companys business and results of operations.
The
ongoing adverse conditions in the credit markets and the risk of
continued market deterioration have adversely affected the
Companys revenues, expenses and operating results and may
continue to do so.
Our segments are sensitive to credit cost and availability as
well as market place liquidity. In addition, the revenues in all
our businesses are dependent to some extent on overall volume of
activity and pricing in the commercial real estate market. In
2008 and 2009, the credit markets experienced an unprecedented
level of disruption and uncertainty. This disruption and
uncertainty has reduced the availability and significantly
increased the cost of most sources of funding. In certain cases,
sources of funding have been eliminated.
Disruptions in the credit markets have adversely affected, and
may continue to adversely affect, our business of providing
services to owners, purchasers, sellers, investors and occupants
of real estate in connection with acquisitions, dispositions and
leasing of real property. If our clients are unable to obtain
credit on favorable terms, there will be fewer completed
acquisitions, dispositions and leases of property. In addition,
if purchasers of real estate are not able to obtain favorable
financing resulting in a lack of disposition opportunities for
funds whom we act as advisor, our fee revenues will decline and
we may also experience losses on real estate held for investment.
The recent decline in real estate values and the inability to
obtain financing has either eliminated or severely reduced the
availability of the Companys historical funding sources
for its investment management programs, and to the extent credit
remains available for these programs, it is currently more
expensive. The Company may not be able to continue to access
sources of funding for its investment management programs or, if
available to the Company, the Company may not be able to do so
on favorable terms. Any decision by lenders to make additional
funds available to the Company in the future for its investment
management programs will depend upon a number of factors, such
as industry and market trends in our business, the lenders
own resources and policies concerning loans and investments, and
the relative attractiveness of alternative investment or lending
opportunities.
The depth and duration of the current credit market and
liquidity disruptions are impossible to predict. In fact, the
magnitude of the recent credit market disruption has exceeded
the expectations of most if not all market participants. This
uncertainty limits the Companys ability to develop future
business plans and the Company believes that it limits the
ability of other participants in the credit markets and the real
estate markets to do so as well. This uncertainty may lead
market participants to act more conservatively than in recent
history, which may continue to depress demand and pricing in our
markets.
We
experienced additional, unanticipated costs and may have
additional risk and further costs as a result of the restatement
of our financial statements.
As a result of the restatement in 2009 of certain audited and
unaudited financial data, and the special investigation in
connection therewith, we incurred substantial, additional
unanticipated costs for accounting and legal fees. The
restatement and special investigation was also time-consuming
and affected managements attention and resources. Further,
there are no assurances that we will not become involved in
legal proceedings in the future in relation to these
restatements. In connection with any such potential proceedings,
any incurred expenses not covered by available insurance or any
adverse resolution could have a material adverse effect on the
Company. Any such future legal proceedings could also be
time-consuming and distract our management from the conduct of
our business.
10
The
Companys ability to access credit and capital markets may
be adversely affected by factors beyond its control, including
turmoil in the financial services industry, volatility in
financial markets and general economic downturns.
There can be no assurances that the Companys anticipated
cash flow from operations will be sufficient to meet all of the
Companys cash requirements. The Company intends to
continue to make investments to support the Companys
business growth and may require additional funds to respond to
business challenges. The Company has historically relied upon
access to the credit markets from time to time as a source of
liquidity for the portion of its working capital requirements
not provided by cash from operations. The Company used a
significant portion of the net proceeds from the sale of the 12%
Preferred Stock to pay off and terminate the Credit Facility and
has not secured a new credit facility or line or credit with
which to borrow funds. Market disruptions such as those
currently being experienced in the United States and other
countries may increase the Companys cost of borrowing or
adversely affect the Companys ability to access sources of
capital. These disruptions include turmoil in the financial
services and real estate industries, including substantial
uncertainty surrounding particular lending institutions, and
general economic downturns. If the Company is unable to access
credit at competitive rates or at all, or if its short-term or
long-term borrowing costs dramatically increase, the
Companys ability to finance its operations, meet its
short-term obligations and implement its operating strategy
could be adversely affected.
We
have received a notice from the NYSE that we did not meet its
continued listing requirements. If we are unable to rectify this
non-compliance in accordance with NYSE rules, our common stock
will be delisted from trading on the NYSE, which could have a
material adverse effect on the liquidity and value of our common
stock.
On August 11, 2009, we received notification from NYSE
Regulation, Inc. that we were not in compliance with the
NYSEs continued listing standard requiring that we
maintain an average market capitalization and shareowners
equity of not less than $50 million. In connection with the
NYSEs rules, we submitted a business plan to the NYSE on
November 3, 2009 evidencing how the Company intends to come
into compliance with the continued listing standards and on
November 9, 2009, we were advised that the NYSEs
Listing and Compliance Committee has accepted the Companys
business plan. Accordingly, we need to have an average market
capitalization over a consecutive 30 trading day period of
$50 million or total shareowners equity of
$50 million by April 11, 2011 although we may come
into compliance sooner, or based on two consecutive quarterly
monitoring periods, which is an ongoing process. The NYSE
conducts quarterly reviews during the
18-month
period from August 11, 2009 through February 11, 2011.
If we are unable to regain compliance with the NYSEs
continued listing standard within the required time frame, our
common stock will be delisted from the NYSE. As a result, we
likely would have our common stock quoted on the
Over-the-Counter
Bulletin Board (OTC BB) in order to have our
common stock continue to be traded on a public market.
Securities that trade on the OTC BB generally have less
liquidity and greater volatility than securities that trade on
the NYSE. Delisting from the NYSE also may preclude us from
using certain state securities law exemptions, which could make
it more difficult and expensive for us to raise capital in the
future and more difficult for us to provide compensation
packages sufficient to attract and retain top talent. In
addition, because issuers whose securities trade on the OTC BB
are not subject to the corporate governance and other standards
imposed by the NYSE, and such issuers receive less news and
analyst coverage, our reputation may suffer, which could result
in a decrease in the trading price of our shares. The delisting
of our common stock from the NYSE, therefore, could
significantly disrupt the ability of investors to trade our
common stock and could have a material adverse effect on the
value and liquidity of our common stock.
The
TIC business in general, from which the Company has historically
generated significant revenues, materially contracted in
2009.
The Company has historically generated significant revenues from
fees earned through the transaction structuring and property
management of its TIC Programs. In 2009, however, with the
nationwide decline in real estate values and the global credit
crisis, the TIC industry contracted significantly. According to
data from
11
OMNI Research & Consulting, approximately
$3.7 billion of TIC equity was raised in 2006. In 2009, the
amount of TIC equity raised declined by approximately 94% to
$228.7 million. As the Company has historically generated a
significant amount of revenue from its TIC operations, the rapid
and steep decline in this industry may have a material, adverse
effect on the Companys business and results of operations
if it is unable to generate revenues in its other business
segments, of which there can be no assurances, to make up for
the loss of TIC-related revenues. The Company does not
anticipate the TIC market to recover in the near term.
The
decline in value of many of the properties purchased by TIC and
real estate fund investors in the Companys sponsored
programs as a result of the downturn in the real estate market,
and the potential loss of investor equity in these programs, may
negatively affect the Companys reputation and ability to
sell future sponsored programs.
The declining real estate market has resulted in declining
values for many of the properties purchased by investors in the
Companys sponsored TIC and real estate fund programs. In
addition, the lack of available credit has negatively impacted
the ability to refinance these properties at loan maturity. As a
consequence, the TIC and fund program investors may be forced to
dispose of their properties at selling prices lower than the
original purchase price. In addition, some properties may be
valued at less than the outstanding loan amount and may be
subject to default and foreclosure by the lender. Sales of these
real estate assets at less than original purchase price, loan
defaults or foreclosures will result in the loss of investor
equity. Losses by investors may negatively affect the reputation
of the Companys investment management business and its
ability to sell current or future sponsored programs and earn
fees. Any decrease in the Companys fees could have a
material adverse effect on the Companys business, results
of operations and financial condition.
The
Company is in a highly competitive business with numerous
competitors, some of which may have greater financial and
operational resources than it does.
The Company competes in a variety of service disciplines within
the commercial real estate industry. Each of these business
areas is highly competitive on a national as well as on a
regional and local level. The Company faces competition not only
from other national real estate service providers, but also from
global real estate service providers, boutique real estate
advisory firms, consulting and appraisal firms. Depending on the
product or service, the Company also faces competition from
other real estate service providers, institutional lenders,
insurance companies, investment banking firms, investment
managers and accounting firms, some of which may have greater
financial resources than the Company does. The Company is also
subject to competition from other large national firms and from
multi-national firms that have similar service competencies to
it. Although many of the Companys competitors are local or
regional firms that are substantially smaller than it, some of
its competitors are substantially larger than it on a local,
regional, national or international basis. In general, there can
be no assurance that the Company will be able to continue to
compete effectively with respect to any of its business lines or
on an overall basis, or to maintain current fee levels or
margins, or maintain or increase its market share.
As a
service-oriented company, the Company depends upon the retention
of senior management and key personnel, and the loss of its
current personnel or its failure to hire and retain additional
personnel could harm its business.
The Companys success is dependent upon its ability to
retain its executive officers and other key employees and to
attract and retain highly skilled personnel. The Company
believes that its future success in developing its business and
maintaining a competitive position will depend in large part on
its ability to identify, recruit, hire, train, retain and
motivate highly skilled executive, managerial, sales, marketing
and customer service personnel. Competition for these personnel
is intense, and the Company may not be able to successfully
recruit, assimilate or retain sufficiently qualified personnel.
We use equity incentives to attract and retain our key
personnel. In 2009, our stock price declined significantly,
resulting in the decline in value of previously provided equity
awards, which may result in an increase risk of loss of key
personnel. The performance of our stock may also diminish our
ability to offer attractive incentive awards to new hires. The
12
Companys failure to recruit and retain necessary
executive, managerial, sales, marketing and customer service
personnel could harm its business and its ability to obtain new
customers.
The
Company may expand its business to include international
operations so that it may be more competitive, but in doing so
it could subject the Company to social, political and economic
risks of doing business in foreign countries.
Although the Company does not currently conduct significant
business outside the United States, the Company is considering
an expansion of its international operations so that it may be
more competitive. Currently, the Companys lack of
international capabilities sometimes places the Company at a
competitive disadvantage when prospective clients are seeing one
real estate services provider that can service their needs both
in the United States and overseas. There can be no assurances
that the Company will be able to successfully expand its
business in international markets. Current global economic
conditions may restrict, limit or delay the Companys
ability to expand its business into international markets or
make such expansion less economically feasible. If the Company
expands into international markets, circumstances and
developments related to international operations that could
negatively affect the Companys business or results of
operations include, but are not limited to, the following
factors:
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lack of substantial experience operating in international
markets;
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lack of recognition of the Grubb & Ellis brand name in
international markets;
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difficulties and costs of staffing and managing international
operations;
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currency restrictions, which may prevent the transfer of capital
and profits to the United States;
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diverse foreign currency fluctuations;
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changes in regulatory requirements;
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potentially adverse tax consequences;
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the responsibility of complying with multiple and potentially
conflicting laws;
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the impact of regional or country-specific business cycles and
economic instability;
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the geographic, time zone, language and cultural differences
among personnel in different areas of the world;
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political instability; and
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foreign ownership restrictions with respect to operations in
certain countries.
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Additionally, the Company may establish joint ventures with
foreign entities for the provision of brokerage services abroad,
which may involve the purchase or sale of the Companys
equity securities or the equity securities of the joint venture
participant(s). In these joint ventures, the Company may not
have the right or power to direct the management and policies of
the joint venture and other participants may take action
contrary to the Companys instructions or requests and
against the Companys policies and objectives. In addition,
the other participants may become bankrupt or have economic or
other business interests or goals that are inconsistent with the
Company. If a joint venture participant acts contrary to the
Companys interest, then it could have a material adverse
effect on the Companys business and results of operations.
Failure
to manage any future growth effectively may have a material
adverse effect on the Companys financial condition and
results of operations.
Management will need to successfully manage any future growth
effectively. The integration and additional growth may place a
significant strain upon management, administrative, operational
and financial infrastructure. The Companys ability to grow
also depends upon its ability to successfully hire, train,
supervise and manage additional executive officers and new
employees, obtain financing for its capital needs, expand its
systems effectively, allocate its human resources optimally,
maintain clear lines of communication
13
between its transactional and management functions and its
finance and accounting functions, and manage the pressures on
its management and administrative, operational and financial
infrastructure. Additionally, managing future growth may be
difficult due to the new geographic locations and business lines
of the Company. There can be no assurance that the Company will
be able to accurately anticipate and respond to the changing
demands it will face as it integrates and continues to expand
its operations, and it may not be able to manage growth
effectively or to achieve growth at all. Any failure to manage
the future growth effectively could have a material adverse
effect on the Companys business, financial condition and
results of operations.
Risks
Related to the Companys Transaction Services and
Management Services Business
The
Companys quarterly operating results are likely to
fluctuate due to the seasonal nature of its business and may
fail to meet expectations, which may cause the price of its
securities to decline.
Historically, the majority of Grubb & Ellis revenue
has been derived from the transaction services that it provides.
Such services are typically subject to seasonal fluctuations.
Grubb & Ellis typically experienced its lowest
quarterly revenue in the quarter ending March 31 of each year
with higher and more consistent revenue in the quarters ending
June 30 and September 30. The quarter ending December 31
has historically provided the highest quarterly level of revenue
due to increased activity caused by the desire of clients to
complete transactions by calendar year-end. However, the
Companys non-variable operating expenses, which are
treated as expenses when incurred during the year, are
relatively constant in total dollars on a quarterly basis. As a
result, since a high proportion of these operating expenses are
fixed, declines in revenue could disproportionately affect the
Companys operating results in a quarter. In addition, the
Companys quarterly operating results have fluctuated in
the past and will likely continue to fluctuate in the future. If
the Companys quarterly operating results fail to meet
expectations, the price of the Companys securities could
fluctuate or decline significantly.
If the
properties that the Company manages fail to perform, then its
business and results of operations could be
harmed.
The Companys success partially depends upon the
performance of the properties it manages. The Company could be
adversely affected by the nonperformance of, or the
deteriorating financial condition of, certain of its clients.
The revenue the Company generates from its property management
business is generally a percentage of aggregate rent collections
from the properties. The performance of these properties will
depend upon the following factors, among others, many of which
are partially or completely outside of the Companys
control:
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the Companys ability to attract and retain creditworthy
tenants;
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the magnitude of defaults by tenants under their respective
leases;
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the Companys ability to control operating expenses;
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governmental regulations, local rent control or stabilization
ordinances which are in, or may be put into, effect;
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various uninsurable risks;
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financial condition of certain clients;
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financial conditions prevailing generally and in the areas in
which these properties are located;
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the nature and extent of competitive properties; and
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the general real estate market.
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These or other factors may negatively impact the properties that
the Company manages, which could have a material adverse effect
on its business and results of operations.
14
If the
Company fails to comply with laws and regulations applicable to
real estate brokerage and mortgage transactions and other
business lines, then it may incur significant financial
penalties.
Due to the broad geographic scope of the Companys
operations and the real estate services performed, the Company
is subject to numerous federal, state and local laws and
regulations specific to the services performed. For example, the
brokerage of real estate sales and leasing transactions requires
the Company to maintain brokerage licenses in each state in
which it operates. If the Company fails to maintain its licenses
or conduct brokerage activities without a license or violate any
of the regulations applicable to our licenses, then it may be
required to pay fines (including treble damages in certain
states) or return commissions received or have our licenses
suspended or revoked. In addition, because the size and scope of
real estate sales transactions have increased significantly
during the past several years, both the difficulty of ensuring
compliance with the numerous state licensing regimes and the
possible loss resulting from non-compliance have increased.
Furthermore, the laws and regulations applicable to the
Companys business, both in the United States and in
foreign countries, also may change in ways that increase the
costs of compliance. The failure to comply with both foreign and
domestic regulations could result in significant financial
penalties which could have a material adverse effect on the
Companys business and results of operations.
The
Company may have liabilities in connection with real estate
brokerage and property and facilities management
activities.
As a licensed real estate broker, the Company and its licensed
employees and independent contractors that work for it are
subject to statutory due diligence, disclosure and
standard-of-care
obligations. Failure to fulfill these obligations could subject
the Company or its employees to litigation from parties who
purchased, sold or leased properties that the Company or they
brokered or managed. The Company could become subject to claims
by participants in real estate sales, as well as building owners
and companies for whom we provide management services, claiming
that the Company did not fulfill its statutory obligations as a
broker.
In addition, in the Companys property and facilities
management businesses, it hires and supervises third-party
contractors to provide construction and engineering services for
its managed properties. While the Companys role is limited
to that of a supervisor, the Company may be subject to claims
for construction defects or other similar actions. Adverse
outcomes of property and facilities management litigation could
have a material adverse effect on the Companys business,
financial condition and results of operations.
Environmental
regulations may adversely impact the Companys business
and/or cause the Company to incur costs for cleanup of hazardous
substances or wastes or other environmental
liabilities.
Federal, state and local laws and regulations impose various
environmental zoning restrictions, use controls, and disclosure
obligations which impact the management, development, use,
and/or sale
of real estate. Such laws and regulations tend to discourage
sales and leasing activities, as well as mortgage lending
availability, with respect to some properties. A decrease or
delay in such transactions may adversely affect the results of
operations and financial condition of the Companys real
estate brokerage business. In addition, a failure by the Company
to disclose environmental concerns in connection with a real
estate transaction may subject it to liability to a buyer or
lessee of property.
In addition, in its role as a property manager, the Company
could incur liability under environmental laws for the
investigation or remediation of hazardous or toxic substances or
wastes at properties it currently or formerly managed, or at
off-site locations where wastes from such properties were
disposed. Such liability can be imposed without regard for the
lawfulness of the original disposal activity, or the
Companys knowledge of, or fault for, the release or
contamination. Further, liability under some of these laws may
be joint and several, meaning that one liable party could be
held responsible for all costs related to a contaminated site.
The Company could also be held liable for property damage or
personal injury claims alleged to result from environmental
contamination, or from asbestos-containing materials or
lead-based paint present at the properties it manages. Insurance
for such matters may not be available or sufficient.
Certain requirements governing the removal or encapsulation of
asbestos-containing materials, as well as recently enacted local
ordinances obligating property managers to inspect for and
remove lead-based paint in
15
certain buildings, could increase the Companys costs of
legal compliance and potentially subject it to violations or
claims. Although such costs have not had a material impact on
its financial results or competitive position during fiscal year
2007, 2008 or 2009, the enactment of additional regulations, or
more stringent enforcement of existing regulations, could cause
it to incur significant costs in the future,
and/or
adversely impact its brokerage and management services
businesses.
Risks
Related to the Companys Investment Management and
Broker-Dealer Business
Declines
in asset value, reductions in distributions in investment
programs or loss of properties to foreclosure could adversely
affect the Company business, as it could cause harm to the
Companys reputation, cause the loss of management
contracts and third-party broker-dealer selling agreements,
limit the Companys ability to sign future third-party
broker-dealer selling agreements and potentially expose the
Company to legal liability.
The current market value of many of the properties owned through
the Companys investment programs have decreased as a
result of the overall decline in the economy and commercial real
estate markets. In addition, there have been reductions in
distributions in numerous investment programs in 2008 and 2009,
in many instances to a zero percent distribution rate.
Significant declines in value and reductions in distributions in
the investment programs sponsored by the Company could adversely
affect the Companys reputation and the Companys
ability to attract investors for future investment programs. In
addition, significant declines in value and reductions in
distributions could cause the Company to lose asset and property
management contracts for its investment management programs,
cause the Company to lose third-party broker-dealer selling
agreements for existing investment programs, including its
REITs, and limit the Companys ability to sign future
third-party broker-dealer agreements. The loss of value may be
significant enough to cause certain investment programs to go
into foreclosure or result in a complete loss of equity for
program investors. Significant losses in asset value and
investor equity and reductions in distributions increases the
risk of claims or legal actions by program investors. Any such
legal liability could result in further damage to the
Companys reputation, loss of third-party broker-dealer
selling agreements and incurrence of legal expenses which could
have a material adverse effect on the Companys business,
results of operations and financial condition.
The
Company currently provides its Investment Management services
primarily to its investment programs. Its revenue depends on the
number of its programs, on the price of the properties acquired
or disposed, and on the revenue generated by the properties
under its management.
The Company derives fees for Investment Management services
based on a percentage of the price of the properties acquired or
disposed of by its programs and for management services based on
a percentage of the rental amounts of the properties in its
programs. The Company is responsible for the management of all
of the properties owned by its programs, but as of
December 31, 2009 it had subcontracted the property
management of approximately 11.0% of its programs office,
medical office and healthcare related facilities and retail
properties (based on square footage) and 16.3% of its
programs multi-family apartment units to third parties.
For REITs, investment decisions are controlled by the Board of
Directors of REITs that are independent of the Company.
Investment decisions of these Boards affect the fees earned by
the Company. As a result, if any of the Companys programs
are unsuccessful, its Investment Management services fees will
be reduced, if any are paid at all. In addition, failures of the
Companys programs to provide competitive investment
returns could significantly impair its ability to market future
programs. The Companys inability to spread risk among a
large number of programs could cause it to be over-reliant on a
limited number of programs for its revenues. There can be no
assurance that the Company will maintain current levels of
transaction and management services for its programs
properties.
The
Company may be required to repay loans the Company guaranteed
that were used to finance properties acquired by the
Companys programs.
From time to time the Company or its investment management
subsidiaries provided guarantees of loans for properties under
management. As of December 31, 2009, there were 146
properties under management with loan guarantees of
approximately $3.6 billion in total principal outstanding
with terms ranging from 1 to
16
10 years, secured by properties with a total aggregate
purchase price of approximately $4.8 billion as of
December 31, 2009. The Companys guarantees consisted
of non-recourse/carve-out guarantees of debt of properties under
management, non-recourse/carve-out guarantees of the
Companys debt, recourse guarantees of debt of properties
under management and recourse guarantees of the Companys
debt.
A non-recourse/carve-out guarantee imposes personal
liability on the guarantor in the event the borrower engages in
certain acts prohibited by the loan documents. Each non-recourse
carve-out guarantee is an individual document entered into with
the mortgage lender in connection with the purchase or refinance
of an individual property. While there is not a standard
document evidencing these guarantees, liability under the
non-recourse carve-out guarantees generally may be triggered by,
among other things, any or all of the following:
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a voluntary bankruptcy or similar insolvency proceeding of any
borrower;
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a transfer of the property or any interest therein
in violation of the loan documents;
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a violation by any borrower of the special purpose entity
requirements set forth in the loan documents;
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any fraud or material misrepresentation by any borrower or any
guarantor in connection with the loan;
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the gross negligence or willful misconduct by any borrower in
connection with the property, the loan or any obligation under
the loan documents;
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the misapplication, misappropriation or conversion of
(i) any rents, security deposits, proceeds or other funds,
(ii) any insurance proceeds paid by reason of any loss,
damage or destruction to the property, and (iii) any awards
or other amounts received in connection with the condemnation of
all or a portion of the property;
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any waste of the property caused by acts or omissions of
borrower of the removal or disposal of any portion of the
property after an event of default under the loan
documents; and
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the breach of any obligations set forth in an environmental or
hazardous substances indemnification agreement from borrower.
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Certain violations (typically the first three listed above)
render the entire debt balance recourse to the guarantor
regardless of the actual damage incurred by lender, while the
liability for other violations is limited to the damages
incurred by the lender. Notice and cure provisions vary between
guarantees. Generally the guarantor irrevocably and
unconditionally guarantees to the lender the payment and
performance of the guaranteed obligations as and when the same
shall be due and payable, whether by lapse of time, by
acceleration or maturity or otherwise, and the guarantor
covenants and agrees that it is liable for the guaranteed
obligations as a primary obligor. As of December 31, 2009,
to the best of the Companys knowledge, there is no amount
of debt owed by the Company as a result of the borrowers
engaging in prohibited acts.
In addition, the consolidated variable interest entities
(VIEs) and unconsolidated VIEs are jointly and
severally liable on the non-recourse mortgage debt related to
the interests in the Companys TIC investments totaling
$277.0 million and $154.8 million as of
December 31, 2009, respectively.
As property values and performance decline, the risk of exposure
under these guarantees increases. Management initially evaluates
these guarantees to determine if the guarantee meets the
criteria required to record a liability in accordance with the
Guarantees Topic. As of December 31, 2009 and 2008, the
Company had recourse guarantees of $33.9 million and
$42.4 million, respectively, relating to debt of properties
under management. As of December 31, 2009, approximately
$9.8 million of these recourse guarantees relate to debt
that has matured or is not currently in compliance with certain
loan covenants. In evaluating the potential liability relating
to such guarantees, the Company considers factors such as the
value of the properties secured by the debt, the likelihood that
the lender will call the guarantee in light of the current debt
service and other factors. As of December 31, 2009 and
2008, the Company recorded a liability of $3.8 million and
$9.1 million, respectively, related to its estimate of
probable loss related to recourse guarantees of debt of
properties under management which matured in January and April
2009.
17
Our evaluation of the potential liability may prove to be
inaccurate and liabilities may exceed estimates. In the event
that actual losses materially exceed estimates, individual
investment management subsidiaries may not be able to pay such
obligations as they become due. Failure of any investment
management subsidiary to pay its debts as they become due would
likely have a materially negative impact on the ongoing business
of the Company, and the investment management operations in
particular.
The
Company may be unable to grow its investment programs, which
would cause it to fail to satisfy its business
strategy.
A significant element of the Company business strategy is the
growth in the size and number of its investment programs. The
success of each investment program will depend on raising
adequate capital for the investment, identifying appropriate
assets for acquisition and effectively and efficiently closing
the transactions. There can be no assurance that the Company
will be able to identify and invest in additional properties or
will be able to raise adequate capital to grow or launch new
programs in the future. If the Company is unable to grow its
existing vehicles or consummate new programs in the future,
growth of the revenue it receives from transaction and
management services may be negatively affected.
The
revenue streams from the Companys management services for
sponsored programs are subject to limitation or
cancellation.
The agreements under which the Company provides advisory and
management services to public non-traded REITs the Company has
sponsored may generally be terminated by each REITs
independent Board of Directors following a notice period, with
or without cause. The Company cannot assure you that these
agreements will not be terminated. Grubb & Ellis
Healthcare REIT, Inc. (now Healthcare Trust of America, Inc. as
of August 31, 2009) did not renew its Advisory
Agreement with a subsidiary of the Company upon the termination
of the Advisory Agreement on September 20, 2009 and, as a
result, the Companys asset and property management fees
have been reduced.
The management agreements under which the Company provides
property management services to its sponsored TIC programs may
generally be terminated by a single TIC investor with cause upon
30 days notice or without cause annually upon renewal.
Appointment of a new property manager requires unanimous
agreement of the TIC investors and, generally, the approval of
the lender. The Company has received termination notices on
approximately one-third of its managed TIC properties resulting
in the termination of one property management agreement during
2009. Although the Company is disputing these terminations, it
is not likely that the Company will be able to retain all of the
management contracts for these properties. Loss of a significant
number of contracts and fees could have a material adverse
effect on the Companys business, results of operations and
financial condition.
The
inability to access investors for the Companys programs
through broker-dealers or other intermediaries could have a
material adverse effect on its business.
The Companys ability to source capital for its programs
depends significantly on access to the client base of securities
broker-dealers and other financial investment intermediaries
that may offer competing investment products. The Company
believes that its future success in developing its business and
maintaining a competitive position will depend in large part on
its ability to continue to maintain these relationships as well
as finding additional securities broker-dealers to facilitate
offerings by its programs or to find investors for the
Companys REITs, TIC Programs and other investment
programs. The Company cannot be sure that it will continue to
gain access to these channels. In addition, competition for
capital is intense and the Company may not be able to obtain the
capital required to complete a program. The inability to have
this access could have a material adverse effect on its business
and results of operations.
18
The
termination of any of the Companys broker-dealer
relationships, especially given the limited number of key
broker-dealers, could have a material adverse effect on its
business.
The Companys securities programs are sold through
third-party broker-dealers who are members of its selling group.
While the Company has established relationships with its selling
group, it is required to enter into a new agreement with each
member of the selling group for each new program it offers. In
addition, the Companys programs may be removed from a
selling broker-dealers approved program list at any time
for any reason. The Company cannot assure you of the continued
participation of existing members of its selling group nor can
the Company make an assurance that its selling group will
expand. While the Company seeks to diversify and add new
investment channels for its programs, a significant portion of
the growth in recent years in the TIC and REIT programs it
sponsors has been as a result of capital raised by a relatively
limited number of broker-dealers. Loss of any of these key
broker-dealer relationships, or the failure to develop new
relationships to cover the Companys expanding business
through new investment channels, could have a material adverse
effect on its business and results of operations.
Misconduct
by third-party selling broker-dealers or the Companys
sales force, could have a material adverse effect on its
business.
The Company relies on selling broker-dealers and the
Companys sales force to properly offer its securities
programs to customers in compliance with its selling agreements
and with applicable regulatory requirements. While these persons
are responsible for their activities as registered
broker-dealers, their actions may nonetheless result in
complaints or legal or regulatory action against the Company.
A
significant amount of the Companys programs are structured
to provide favorable tax treatment to investors or REITs. If a
program fails to satisfy the requirements necessary to permit
this favorable tax treatment, the Company could be subject to
claims by investors and its reputation for structuring these
transactions would be negatively affected, which would have an
adverse effect on its financial condition and results of
operations.
The Company structures TIC Programs and public non-traded REITs
to provide favorable tax treatment to investors. For example,
its TIC investors are able to defer the recognition of gain on
sale of investment or business property if they enter into a
1031 exchange. Similarly, qualified REITs generally are not
subject to federal income tax at corporate rates, which permits
REITs to make larger distributions to investors (i.e.
without reduction for federal income tax imposed at the
corporate level). If the Company fails to properly structure a
TIC transaction or if a REIT fails to satisfy the complex
requirements for qualification and taxation as a REIT under the
Internal Revenue Code, the Company could be subject to claims by
investors as a result of additional tax they may be required to
pay or because they are unable to receive the distributions they
expected at the time they made their investment. In addition,
any failure to satisfy applicable tax regulations in structuring
its programs would negatively affect the Companys
reputation, which would in turn affect its ability to earn
additional fees from new programs. Claims by investors could
lead to losses and any reduction in the Companys fees
would have a material adverse effect on its revenues.
Any
future co-investment activities the Company undertakes could
subject it to real estate investment risks which could lead to
the need for substantial capital contributions, which may impact
its cash flows and financial condition and, if it is unable to
make them, could damage its reputation and result in adverse
consequences to its holdings.
The Company may from time to time invest its capital in certain
real estate investments with other real estate firms or with
institutional investors such as pension plans. Any co-investment
will generally require the Company to make initial capital
contributions, and some co-investment entities may request
additional capital from the Company and its subsidiaries holding
investments in those assets. These contributions could adversely
impact the Companys cash flows and financial condition.
Moreover, the failure to provide these contributions could have
adverse consequences to the Companys interests in these
investments. These adverse consequences could include damage to
the Companys reputation with its co-investment partners as
well as
19
dilution of ownership and the necessity of obtaining alternative
funding from other sources that may be on disadvantageous terms,
if available at all.
Geographic
concentration of program properties may expose the
Companys programs to regional economic downturns that
could adversely impact their operations and, as a result, the
fees the Company is able to generate from them, including fees
on disposition of the properties as the Company may be limited
in its ability to dispose of properties in a challenging real
estate market.
The Companys programs generally focus on acquiring assets
satisfying particular investment criteria, such as type or
quality of tenants. There is generally no or little focus on the
geographic location of a particular property. The Company cannot
guarantee, however, that its programs will have, or will be able
to maintain, a significant amount of geographic diversity.
Although the Companys property programs are located in
29 states, a majority of these properties (by square
footage) are located in Texas, Georgia, North Carolina, Florida
and California. Geographic concentration of properties exposes
the Companys programs to economic downturns in the areas
where the properties are located. A regional recession or other
major, localized economic disruption in a region, such as
earthquakes and hurricanes, in any of these areas could
adversely affect the Companys programs ability to
generate or increase their operating revenues, attract new
tenants or dispose of unproductive properties. Any reduction in
program revenues would effectively reduce the fees the Company
generates from them, which would adversely affect the
Companys results of operations and financial condition.
If
third-party managers providing property management services for
the Companys programs office, medical office and
healthcare related facilities, retail and multi-family
properties are negligent in their performance of, or default on,
their management obligations, the tenants may not renew their
leases or the Company may become subject to unforeseen
liabilities. If this occurs, it could have an adverse effect on
the Companys financial condition and operating
results.
The Company has entered into agreements with third-party
management companies to provide property management services for
a significant number of the Companys programs
properties, and the Company expects to enter into similar
third-party management agreements with respect to properties the
Companys programs acquire in the future. The Company does
not supervise these third-party managers and their personnel on
a day-to-day
basis and the Company cannot assure you that they will manage
the Companys programs properties in a manner that is
consistent with their obligations under the Companys
agreements, that they will not be negligent in their performance
or engage in other criminal or fraudulent activity, or that
these managers will not otherwise default on their management
obligations to the Company. If any of the foregoing occurs, the
relationships with the Companys programs tenants
could be damaged, which may cause the tenants not to renew their
leases, and the Company could incur liabilities resulting from
loss or injury to the properties or to persons at the
properties. If the Company is unable to lease the properties or
the Company becomes subject to significant liabilities as a
result of third-party management performance issues, the
Companys operating results and financial condition could
be substantially harmed.
The
Company or its new programs may be required to incur future
indebtedness to raise sufficient funds to purchase
properties.
One of the Companys business strategies is to develop new
investment programs. The development of a new program requires
the identification and subsequent acquisition of properties when
the opportunity arises. In some instances, in order to
effectively and efficiently complete a program, the Company may
provide deposits for the acquisition of property or actually
purchase the property and warehouse it temporarily for the
program. If the Company does not have cash on hand available to
pay these deposits or fund an acquisition, the Company or the
Companys programs may be required to incur additional
indebtedness, which indebtedness may not be available on
acceptable terms. If the Company incurs substantial debt, the
Company could lose its interests in any properties that have
been provided as collateral for any secured borrowing, or the
Company could lose its assets if the debt is recourse to it. In
addition, the Companys cash flow from operations may not
be sufficient to repay these obligations upon their maturity,
making it necessary for the
20
Company to raise additional capital or dispose of some of its
assets. The Company cannot assure you that it will be able to
borrow additional debt on satisfactory terms, or at all.
Future
pressures to lower, waive or credit back the Companys fees
could reduce the Companys revenue and
profitability.
The Company has on occasion waived or credited its fees for real
estate acquisitions, financings, dispositions and management
fees for the Companys TIC Programs to improve projected
investment returns and attract TIC investors. There has also
been a trend toward lower fees in some segments of the
third-party asset management business, and fees paid for the
management of properties in the Companys TIC Programs or
public non-traded REITs could follow these trends. In order for
the Company to maintain its fee structure in a competitive
environment, the Company must be able to provide clients with
investment returns and service that will encourage them to be
willing to pay such fees. The Company cannot assure you that it
will be able to maintain its current fee structures. Fee
reductions on existing or future new business could have a
material adverse impact on the Companys revenue and
profitability.
Regulatory
uncertainties related to the Companys broker-dealer
services could harm the Companys business.
The securities industry in the United States is subject to
extensive regulation under both federal and state laws.
Broker-dealers are subject to regulations covering all aspects
of the securities business. The SEC, FINRA, and other
self-regulatory organizations and state securities commissions
can censure, fine, issue
cease-and-desist
orders to, suspend or expel a broker-dealer or any of its
officers or employees. The ability to comply with applicable
laws and rules is largely dependent on an internal system to
ensure compliance, as well as the ability to attract and retain
qualified compliance personnel. The Company could be subject to
disciplinary or other actions in the future due to claimed
noncompliance with these securities regulations, which could
have a material adverse effect on the Companys operations
and profitability.
The
Company depends upon its programs tenants to pay rent, and
their inability to pay rent may substantially reduce certain
fees the Company receives which are based on gross rental
amounts.
The Companys programs are subject to varying degrees of
risk that generally arise from the ownership of real estate. For
example, the income the Company is able to generate from
management fees is derived from the gross rental income on the
properties in its programs. The rental income depends upon the
ability of the tenants of the Companys programs
properties to generate enough income to make their lease
payments. Changes beyond the Companys control may
adversely affect the tenants ability to make lease
payments or could require them to terminate their leases. Either
an inability to make lease payments or a termination of one or
more leases could reduce the management fees the Company
receives. These changes include, among others, the following:
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downturns in national or regional economic conditions where the
Companys programs properties are located, which
generally will negatively impact the demand and rental rates;
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changes in local market conditions such as an oversupply of
properties, including space available by sublease or new
construction, or a reduction in demand for properties in the
Companys programs, making it more difficult for the
Companys programs to lease space at attractive rental
rates or at all;
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competition from other available properties, which could cause
the Companys programs to lose current or prospective
tenants or cause them to reduce rental rates; and
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changes in federal, state or local regulations and controls
affecting rents, prices of goods, interest rates, fuel and
energy consumption.
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Due to these changes, among others, tenants and lease
guarantors, if any, may be unable to make their lease payments.
21
Defaults by tenants or the failure of any lease guarantors to
fulfill their obligations, or other early termination of a lease
could, depending upon the size of the leased premises and the
Companys ability as property manager to successfully find
a substitute tenant, have a material adverse effect on the
Companys revenue.
Conflicts
of interest inherent in transactions between the Companys
programs and the Company, and among its programs, could create
liability for the Company that could have a material adverse
effect on its results of operations and financial
condition.
These conflicts include but are not limited to the following:
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the Company experiences conflicts of interests with certain of
its directors, officers and affiliates from time to time with
regard to any of its investments, transactions and agreements in
which it holds a direct or indirect pecuniary interest;
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since the Company receives both management fees and acquisition
and disposition fees for its programs properties, the
Company could be in conflict with its programs over whether
their properties should be sold or held by the program and the
Company may make decisions or take actions based on factors
other than in the best interest of investors of a particular
sponsored investor program;
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a component of the compensation of certain of the Companys
executives is based on the performance of particular programs,
which could cause the executives to favor those programs over
others;
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the Company may face conflicts of interests as to how it
allocates property acquisition opportunities or prospective
tenants among competing programs;
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the Company may face conflicts of interests if programs sell
properties to each other or invest in each other; and
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the Companys executive officers will devote only as much
of their time to a program as they determine is reasonably
required, which may be substantially less than full time; during
times of intense activity in other programs, these officers may
devote less time and fewer resources to a program than are
necessary or appropriate to manage the programs business.
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The Company cannot assure you that one or more of these
conflicts will not result in claims by investors in its
programs, which could have a material adverse effect on its
results of operations and financial condition.
The
offerings conducted to raise capital for the Companys TIC
Programs are done in reliance on exemptions from the
registration requirements of the Securities Act. A failure to
satisfy the requirements for the appropriate exemption could
void the offering or, if it is already completed, provide the
investors with rescission rights, either of which would have a
material adverse effect on the Companys reputation and as
a result its business and results of operations.
The securities of the Companys TIC Programs are offered
and sold in reliance upon a private placement offering exemption
from registration under the Securities Act and applicable state
securities laws. If the Company or its dealer-manager failed to
comply with the requirements of the relevant exemption and an
offering were in process, the Company may have to terminate the
offering. If an offering was completed, the investors may have
the right, if they so desired, to rescind their purchase of the
securities. A rescission offer could also be required under
applicable state securities laws and regulations in states where
any securities were offered without registration or
qualification pursuant to a private offering or other exemption.
If a number of holders sought rescission at one time, the
applicable program would be required to make significant
payments which could adversely affect its business and as a
result, the fees generated by the Company from such program. If
one of the Companys programs was forced to terminate an
offering before it was completed or to make a rescission offer,
the Companys reputation would also likely be significantly
harmed. Any reduction in fees as a result of a rescission offer
or a loss of reputation would have a material adverse effect on
the Companys business and results of operations.
22
The
inability to identify suitable refinance options may negatively
impact investment program performance and cause harm to the
Companys reputation, cause the loss of management
contracts and third-party broker-dealer selling agreements,
limit the Companys ability to sign future third-party
broker-dealer selling agreements and potentially expose the
Company to legal liability.
The availability of real estate financing has greatly diminished
over the past few years as a result of the global credit crisis
and overall decline in the real estate market. As a result, the
Company may not be able to refinance some or all of the loans
maturing in its investment management portfolio. Failure to
obtain suitable refinance options may have a negative impact on
investment returns and may potentially cause investments to go
into foreclosure or result in a complete loss of equity for
program investors. Any such negative impact on distributions,
foreclosure or loss of equity in an investment program could
adversely affect the Companys reputation and the
Companys ability to attract investors for future
investment programs. In addition, it could cause the Company to
lose asset and property management contracts, cause the Company
to lose third-party broker-dealer selling agreements for
existing investment programs, including its REITs, and limit the
Companys ability to sign future third-party broker-dealer
agreements. Significant losses in investor equity and reductions
in distributions increase the risk of claims or legal actions by
program investors. Any such legal liability could result in
damage to the Companys reputation, loss of third-party
broker-dealer selling agreements and incurrence of legal
expenses which could have a material adverse effect on the
Companys business, results of operations and financial
condition.
An
increase in interest rates may negatively affect the equity
value of the Companys programs or cause the Company to
lose potential investors to alternative investments, causing the
fees the Company receives for transaction and management
services to be reduced.
Although in the last two years, interest rates in the United
States have generally decreased, if interest rates were to rise,
the Companys financing costs would likely rise and the
Companys net yield to investors may decline. This downward
pressure on net yields to investors in the Companys
programs could compare poorly to rising yields on alternative
investments. Additionally, as interest rates rise, valuations of
commercial real estate properties typically decline. A decrease
in both the attractiveness of the Companys programs and
the value of assets held by these programs could cause a
decrease in both transaction and management services revenues,
which would have an adverse effect on the Companys results
of operations.
Increasing
competition for the acquisition of real estate may impede the
Companys ability to make future acquisitions which would
reduce the fees the Company generates from these programs and
could adversely affect the Companys operating results and
financial condition.
The commercial real estate industry is highly competitive on an
international, national and regional level. The Companys
programs face competition from REITs, institutional pension
plans, and other public and private real estate companies and
private real estate investors for the acquisition of properties
and for raising capital to create programs to make these
acquisitions. Competition may prevent the Companys
programs from acquiring desirable properties or increase the
price they must pay for real estate. In addition, the number of
entities and the amount of funds competing for suitable
investment properties may increase, resulting in increased
demand and increased prices paid for these properties. If the
Companys programs pay higher prices for properties,
investors may experience a lower return on investment and be
less inclined to invest in the Companys next program which
may decrease the Companys profitability. Increased
competition for properties may also preclude the Companys
programs from acquiring properties that would generate the most
attractive returns to investors or may reduce the number of
properties the Companys programs could acquire, which
could have an adverse effect on the Companys business.
Illiquidity
of real estate investments could significantly impede the
Companys ability to respond to adverse changes in the
performance of the Companys programs properties and
harm the Companys financial condition.
Because real estate investments are relatively illiquid, the
Companys ability to promptly facilitate a sale of one or
more properties or investments in the Companys programs in
response to changing economic,
23
financial and investment conditions may be limited. In
particular, these risks could arise from weakness in the market
for a property, changes in the financial condition or prospects
of prospective purchasers, changes in regional, national or
international economic conditions, and changes in laws,
regulations or fiscal policies of jurisdictions in which the
property is located. Fees from the disposition of properties
would be materially affected if the Company were unable to
facilitate a significant number of property dispositions for the
Companys programs.
Risks
Related to the Company in General
Delaware
law and provisions of the Companys amended and restated
certificate of incorporation and restated bylaws contain
provisions that could delay, deter or prevent a change of
control.
The anti-takeover provisions of Delaware law impose various
impediments on the ability or desire of a third party to acquire
control of the Company, even if a change of control would be
beneficial to its existing shareowners, and the Company will be
subject to these Delaware anti-takeover provisions.
Additionally, the Companys amended and restated
certificate of incorporation and its restated bylaws contain
provisions that might enable its management to resist a proposed
takeover of the Company. The provisions include:
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the authority of the Companys board to issue, without
shareowner approval, preferred stock with such terms as the
Companys board may determine;
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the authority of the Companys board to adopt, amend or
repeal the Companys bylaws; and
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a prohibition on holders of less than a majority of the
Companys outstanding shares of capital stock calling a
special meeting of the Companys shareowners.
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These provisions could discourage, delay or prevent a change of
control of the Company or an acquisition of the Company at a
price that its shareowners may find attractive. These provisions
also may discourage proxy contests and make it more difficult
for the Companys shareowners to elect directors and take
other corporate actions. The existence of these provisions could
limit the price that investors might be willing to pay in the
future for shares of the Companys common stock.
The
Company has the ability to issue blank check preferred stock,
which could adversely affect the voting power and other rights
of the holders of its common stock.
The Board of Directors has the right to issue blank
check preferred stock, which may affect the voting rights
of holders of common stock and could deter or delay an attempt
to obtain control of the Company. There are currently nineteen
million authorized and undesignated shares of preferred stock
that could be so issued. The Companys Board of Directors
is authorized, without any further shareowner approval, to issue
one or more additional series of preferred stock in addition to
the currently outstanding 12% Preferred Stock. The Company is
authorized to fix and state the voting rights, powers,
designations, preferences and relative participation or other
special rights of each such series of preferred stock and any
qualifications, limitations and restrictions thereon. Preferred
stock typically ranks prior to the common stock with respect to
dividend rights, liquidation preferences, or both, and may have
full, limited, or expanded voting rights. Accordingly, issuances
of preferred stock could adversely affect the voting power and
other rights of the holders of common stock and could negatively
affect the market price of the Companys common stock.
The
Company has registration rights outstanding, which could have a
negative impact on its share price if exercised.
In addition to the registration rights granted to one of the
institutional purchasers of the 12% Preferred Stock, which has
been exercised, pursuant to the Companys registration
rights agreement with Kojaian Ventures, L.L.C. and Kojaian
Holdings, LLC, the holders of such rights could, in the future,
cause the Company to file additional registration statements
with respect to certain of its shares of common stock, which
could have a negative impact on the market price of the
Companys common stock.
24
Future
sales of the Companys common stock could adversely affect
its stock price.
There are an aggregate of 469,746 Company shares as of
December 31, 2009 subject to issuance upon the exercise of
outstanding options. Accordingly, these shares will be available
for sale in the open market, subject to vesting restrictions,
and, in the case of affiliates, certain volume limitations. The
sale of shares either pursuant to the exercise of outstanding
options or as after the satisfaction of vesting restriction of
certain restricted stock could also cause the price of the
Companys common stock to decline.
The
Company is obligated to pay quarterly dividends with respect to
its Preferred Stock.
The Company is obligated to pay quarterly dividends with respect
to the 12% Preferred Stock and in the event such dividends are
in arrears for six or more quarters, whether or not consecutive,
subject to certain limitations, holders representing a majority
of shares of Preferred Stock (voting together as a class with
the holders of all other classes or series of preferred stock
upon which like voting rights have been conferred and are
exercisable) will be entitled to nominate and vote for the
election of two additional directors to serve on the
Companys Board of Directors (the Preferred Stock
Directors), until all unpaid dividends with respect to the
Preferred Stock and any other class or series of preferred stock
upon which like voting rights have been conferred and are
exercisable have been paid or declared and a sum sufficient for
payment is set aside for such payment; provided that the
election of any such Preferred Stock Directors will not cause
the Company to violate the corporate governance requirements of
the NYSE (or any other exchange or automated quotation system on
which the Companys securities may be listed or quoted)
that requires listed or quoted companies to have a majority of
independent directors; and provided further that the Board of
Directors will, at no time, include more than two Preferred
Stock Directors.
The
12% Preferred Stock will rank senior to the Companys
common stock but junior to all of the Companys liabilities
and the Companys subsidiaries liabilities, in the
event of a bankruptcy, liquidation or
winding-up.
In the event of bankruptcy, liquidation or
winding-up,
the Companys assets will be available to pay obligations
on the 12% Preferred Stock only after all of the Companys
liabilities have been paid, but prior to any payments are made
with respect to the Companys common stock. In addition,
the 12% Preferred Stock effectively ranks junior to all existing
and future liabilities of the Companys subsidiaries. The
rights of holders of the 12% Preferred Stock to participate in
the assets of the Companys subsidiaries upon any
liquidation or reorganization of any subsidiary will rank junior
to the prior claims of that subsidiarys creditors. In the
event of bankruptcy, liquidation or
winding-up,
there may not be sufficient assets remaining, after paying the
Companys liabilities, and the Companys
subsidiaries liabilities, to pay amounts due on any or all
of the 12% Preferred Stock then outstanding.
Additionally, unlike indebtedness, where principal and interest
customarily are payable on specified due dates, in the case of
the 12% Preferred Stock, (1) dividends are payable only if
and when declared by the Companys Board of Directors or a
duly authorized committee of the Board, and (2) as a
Delaware corporation, we are restricted to making dividend
payments and redemption payments only out of legally available
assets. Further, the 12% Preferred Stock places no restrictions
on the Companys business or operations or on the
Companys ability to incur indebtedness or engage in any
transactions except that a consent of holders representing at
least a majority of the 12% Preferred Stock is required to amend
the Companys certificate of incorporation as to the terms
of the 12% Preferred Stock or to issue additional 12% Preferred
Stock that ranks senior to or, to the extent that
225,000 shares of the 12% Preferred Stock remain
outstanding, on a parity with, the 12% Preferred Stock.
The
market price of the 12% Preferred Stock will be directly
affected by the market price of the Companys common
stock, which may be volatile.
To the extent that a secondary market for the 12% Preferred
Stock develops, the Company believes that the market price of
the 12% Preferred Stock will be significantly affected by the
market price of the Companys common stock. The Company
cannot predict how the shares of its common stock will trade in
the
25
future. This may result in greater volatility in the market
price of the 12% Preferred Stock than would be expected for
non-convertible stock. From the beginning of the year ended
December 31, 2006 to December 31, 2009, the reported
high and low sales prices for the Companys common stock
ranged from a low of $0.25 to a high of $14.50 per share.
The market price of the Companys common stock will likely
fluctuate in response to a number of factors, including, without
limitation, the following:
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the Companys liquidity risk management, including the
Companys ratings, if any, the Companys liquidity
plan and potential transactions designed to enhance liquidity;
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actual or anticipated quarterly fluctuations in the
Companys operating and financial results;
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developments related to investigations, proceedings, or
litigation that involves the Company;
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changes in financial estimates and recommendations by financial
analysts;
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dispositions, acquisitions, and financings;
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additional issuances by the Company of common stock;
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additional issuances by the Company of other series or classes
of preferred stock;
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actions of the Companys common shareowners, including
sales of common stock by shareowners and the Companys
directors and executive officers;
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changes in funding markets, including commercial paper, term
debt, bank deposits and the asset-backed securitization markets;
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changes in confidence in real estate markets and real estate
investments;
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fluctuations in the stock price and operating results of the
Companys competitors and real estate-related stocks in
general;
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government reactions to current economic and market
conditions; and
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regional, national and global political and economic conditions
and other factors.
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The market price of the Companys common stock may also be
affected by market conditions affecting the stock markets in
general
and/or real
estate stocks in particular, including price and trading
fluctuations on the NYSE. These conditions may result in
(i) volatility in the level of, and fluctuations in, the
market prices of stocks generally and, in turn, the
Companys common stock, and (ii) sales of substantial
amounts of the Companys common stock in the market, in
each case that could be unrelated or disproportionate to changes
in the Companys operating performance. These broad market
fluctuations may adversely affect the market prices of the
Companys common stock and, in turn, the 12% Preferred
Stock. In addition, the Company expects that the market price of
the 12% Preferred Stock will be influenced by yield and interest
rates in the capital markets, the Companys
creditworthiness, and the occurrence of events affecting the
Company that do not require an adjustment to the conversion rate.
There
may be future sales or other dilution of our equity, which may
adversely affect the market price of the Companys common
stock or the 12% Preferred Stock and may negatively impact the
holders investment.
The Company is not restricted from issuing additional common
stock, including any securities that are convertible into or
exchangeable for, or that represent the right to receive, common
stock or any substantially similar securities. In addition, with
the applicable consent of holders of the 12% Preferred Stock,
the Company may issue additional preferred stock that ranks
senior to, or on parity with, the 12% Preferred Stock. The
market price of the Companys common stock or 12% Preferred
Stock could decline as a result of sales of a large number of
shares of common stock or 12% Preferred Stock or similar
securities in the market or the perception that such sales could
occur. For example, if the Company issues preferred stock in the
future that has a preference over the Companys common
stock with respect to the payment of dividends or upon the
26
Companys liquidation, dissolution, or
winding-up,
or if the Company issues preferred stock with voting rights that
dilute the voting power of the Companys common stock, the
rights of holders of the Companys common stock or the
market price of the Companys common stock could be
adversely affected.
In addition, each share of 12% Preferred Stock is convertible at
the option of the holder thereof into shares of the
Companys common stock. The conversion of some or all of
the 12% Preferred Stock will dilute the ownership interest of
the Companys existing common shareowners. Any sales in the
public market of the Companys common stock issuable upon
such conversion could adversely affect prevailing market prices
of the outstanding shares of the Companys common stock and
the 12% Preferred Stock. In addition, the existence of the
Companys 12% Preferred Stock may encourage short selling
or arbitrage trading activity by market participants because the
conversion of the Companys 12% Preferred Stock could
depress the price of the Companys equity securities. As
noted above, a decline in the market price of the common stock
may negatively impact the market price for the 12% Preferred
Stock.
An
active trading market for the 12% Preferred Stock does not exist
and may not develop.
The 12% Preferred Stock has no established trading market and is
not listed on any securities exchange. Since the securities have
no stated maturity date, investors seeking liquidity will be
limited to selling their shares of 12% Preferred Stock in the
secondary market or converting their shares of 12% Preferred
Stock into shares of common stock and subsequently seeking to
sell those shares of common stock. The Company cannot assure
holders that an active trading market in the 12% Preferred Stock
will develop or, even if it develops, we cannot assure holders
that it will last. In either case the trading price of the 12%
Preferred Stock could be adversely affected and the
holders ability to transfer shares of 12% Preferred Stock
will be limited. The Company was advised by the initial
purchaser in the offering of the 12% Preferred Stock that it
intends to make a market in the shares of our 12% Preferred
Stock; however, it is not obligated to do so and may discontinue
market-making at any time without notice. The Company cannot
assure holders that another firm or person will make a market in
the 12% Preferred Stock.
The
12% Preferred Stock has not been rated.
The 12% Preferred Stock has not been rated by any nationally
recognized statistical rating organization. This factor may
affect the trading price of the 12% Preferred Stock.
Holders
of the 12% Preferred Stock do not have identical rights as
holders of common stock until they acquire the common stock, but
will be subject to all changes made with respect to the
Companys common stock.
Except for voting and dividend rights, holders of the 12%
Preferred Stock have no rights with respect to the common stock
until conversion of their 12% Preferred Stock, including rights
to respond to tender offers, but investment in the 12% Preferred
Stock may be negatively affected by such events. Even though the
holders of the 12% Preferred Stock vote on an as-converted basis
with holders of the common stock, upon conversion of the 12%
Preferred Stock, holders will be entitled to exercise the rights
of a holder of common stock only as to matters for which the
record date occurs on or after the applicable conversion date
and only to the extent permitted by law, although holders will
be subject to any changes in the powers, preferences, or special
rights of common stock that may occur as a result of any
shareowner action taken before the applicable conversion date.
Certain actions, including amendment of our certificate of
incorporation, require the additional approval of a majority of
holders of the common stock voting as a separate class
(excluding shares of common stock issuable upon conversion of
the 12% Preferred Stock).
The
12% Preferred Stock is perpetual in nature.
The shares of 12% Preferred Stock represent a perpetual interest
in the Company and, unlike indebtedness, will not give rise to a
claim for payment of a principal amount at a particular date.
Holders have no right to call for the redemption of the 12%
Preferred Stock. Therefore, holders should be aware that they
may be
27
required to bear the financial risks of an investment in the 12%
Preferred Stock for an indefinite period of time.
The
conversion rate of the 12% Preferred Stock may not be adjusted
for all dilutive events that may adversely affect the market
price of the 12% Preferred Stock or the common stock issuable
upon conversion of the 12% Preferred Stock.
The number of shares of the Companys common stock that
holders are entitled to receive upon conversion of a share of
12% Preferred Stock is subject to adjustment for certain events
arising from increases in dividends or distributions in common
stock, subdivisions, splits, and combinations of the common
stock, certain issuances of stock and stock purchase rights,
debt, or asset distributions, cash distributions, self-tender
offers and exchange offers, and certain other actions by the
Company that modify the Companys capital structure. The
Company will not adjust the conversion rate for other events,
including the Companys issuances of common stock in
connection with acquisitions or the exercise of options or
restricted stock awards granted pursuant to equity plans
approved by the Board, or, after the six-month anniversary of
November 6, 2009, for cash. There can be no assurance that
an event that adversely affects the value of the 12% Preferred
Stock, but does not result in an adjustment to the conversion
rate, will not occur. Further, if any of these other events
adversely affects the market price of the Companys common
stock, it may also adversely affect the market price of the 12%
Preferred Stock. In addition, the Company is not restricted from
offering common stock in the future or engaging in other
transactions that may dilute the Companys common stock and
the Company may issue additional shares of 12% Preferred Stock,
which may dilute the Companys common stock.
A
change in control with respect to the Company may not constitute
a merger, consolidation or sale of assets or a fundamental
change for the purpose of the 12% Preferred Stock.
The 12% Preferred Stock contains no covenants or other
provisions to afford protection to holders in the event of
certain mergers, consolidations or sales of assets with respect
to the Company constituting a change in control on
or after November 15, 2019 except upon the occurrence of
certain mergers, consolidations or sales of assets. Furthermore,
the limited covenants with respect to a fundamental
change or change in control may not include
every change in control event that could cause the market price
of the 12% Preferred Stock to decline. The adjustment to
conversion rate described under Description of 12%
Preferred Stock Adjustment to Conversion Rate upon
Certain Change in Control Events will not be applicable on
or after November 15, 2014 and the repurchase right of
preferred holders described under Repurchase
at Option of Holders Upon a Fundamental Change will not be
applicable on or after November 15, 2019, and these
limitations may have the effect of discouraging third parties
from pursuing a change in control of the Company, which may
otherwise be in the best interest of the Companys
shareowners. Any change in control with respect to the Company
either before or after November 15, 2019 may
negatively affect the liquidity, value or volatility of the
Companys common stock, and thus, negatively impact the
value of the 12% Preferred Stock.
The
Company may not have the funds necessary to repurchase the 12%
Preferred Stock following a fundamental change.
Holders of the notes have the right to require the Company to
repurchase the 12% Preferred Stock in cash upon the occurrence
of a fundamental change prior to November 15, 2019. The
Company may not have sufficient funds to repurchase the 12%
Preferred Stock at such time, and may not have the ability to
arrange necessary financing on acceptable terms. In addition,
the Companys ability to purchase the 12% Preferred Stock
may be limited by law or the terms of other agreements
outstanding at such time. Moreover, a failure to repurchase the
12% Preferred Stock may also constitute an event of default, and
result in the acceleration of the maturity of, any then existing
indebtedness, under any indenture, credit agreement or other
agreement outstanding at that time, which could further restrict
the Companys ability to make such payments.
28
The
adjustment to conversion rate in respect of conversions
following certain change in control events may not adequately
compensate the holder.
If certain change in control events occur prior to
November 15, 2014, and a holder converts in connection with
such change in control, the Company will, under certain
circumstances, pay an adjustment to conversion rate in respect
of any conversions of the 12% Preferred Stock that occur during
the period beginning on the date notice of such fundamental
change is delivered and ending on the change in control
conversion date. Although the adjustment to the conversion rate
is designed to compensate holders for the lost option value of
the holders 12% Preferred Stock, it is only an
approximation of such lost value and may not adequately
compensate the holders for their actual loss. The Companys
obligation to adjust the conversion rate in respect of
conversions following certain changes in control may be
considered a penalty, in which case the enforceability thereof
would be subject to general principles of reasonableness, as
applied to such payments.
If the
Companys common stock is delisted, the holders
ability to transfer or sell the 12% Preferred Stock, or common
stock upon conversion, may be limited and the market value of
the 12% Preferred Stock will be adversely
affected.
The 12% Preferred Stock does not contain protective provisions
in the event that the Companys common stock is delisted.
Since the 12% Preferred Stock has no stated maturity date,
holders may be forced to elect between converting their shares
of the 12% Preferred Stock into illiquid shares of the
Companys common stock or holding their shares of the 12%
Preferred Stock and receiving stated dividends on the stock
when, as and if authorized by the Companys Board of
Directors and declared by the Company with no assurance as to
ever receiving the liquidation preference of the 12% Preferred
Stock. Accordingly, if the Companys common stock is
delisted, the holders ability to transfer or sell their
shares of the 12% Preferred Stock, or common stock upon
conversion, may be limited, and the market value of the 12%
Preferred Stock will be adversely affected.
Holders
of the 12% Preferred Stock may be unable to use the
dividends-received deduction.
Distributions paid to corporate U.S. holders (as defined
herein) of the 12% Preferred Stock (or the Companys common
stock) may be eligible for the dividends-received deduction to
the extent the Company has current or accumulated earnings and
profits, as determined for U.S. federal income tax
purposes. As of December 31, 2009, the Company had an
accumulated deficit of $412.1 million and a net loss
attributable to Grubb & Ellis Company of
$78.8 million for the year ended December 31, 2009.
There can be no assurance that the Company will have sufficient
current or accumulated earnings and profits during future fiscal
years for the distributions on the 12% Preferred Stock (or the
Companys common stock) to qualify as dividends for
U.S. federal income tax purposes. If the distributions fail
to qualify as dividends, U.S. holders would be unable to
use the dividends-received deduction. Instead, distributions
would be treated first as a tax-free return of capital to the
extent of a U.S. holders adjusted tax basis in the
12% Preferred Stock and thereafter as capital gain. If a
corporate U.S. holders tax basis in the 12% Preferred
Stock (or the Companys common stock) were reduced in this
manner, then the amount of gain, if any, recognized by such
holder on a subsequent disposition of such stock would be
increased and such holder would not be eligible for a
dividends-received deduction to offset such gain.
Uninsured
and underinsured losses may adversely affect
operations.
Should a property sustain damage or an occupant sustain an
injury, the Company may incur losses due to insurance
deductibles, co-payments on insured losses or uninsured losses.
In the event of a substantial property loss or personal injury,
the insurance coverage may not be sufficient to pay the full
damages. In the event of an uninsured loss, the Company could
lose some or all of its capital investment, cash flow and
anticipated profits related to one or more properties.
Inflation, changes in building codes and ordinances,
environmental considerations, and other factors also might make
it not feasible to use insurance proceeds to replace a property
after it has been damaged or destroyed. Under these
circumstances, the insurance proceeds the Company receives, if
any, might not be adequate to restore the Companys
economic position with respect to the property. In the event of
a significant loss at one or more of the properties in the
Companys programs, the
29
remaining insurance under the applicable policy, if any, could
be insufficient to adequately insure the remaining properties.
In this event, securing additional insurance, if possible, could
be significantly more expensive than the current policy. A loss
at any of these properties or an increase in premium as a result
of a loss could decrease the income from or value of properties
under management in the Companys programs, which in turn
would reduce the fees the Company receives from these programs.
Any decrease or loss in fees could have a material adverse
effect on the Companys financial condition or results of
operations.
The Company carries commercial general liability, fire and
extended coverage insurance with respect to the Companys
programs properties. The Company obtains coverage that has
policy specifications and insured limits that the Company
believes are customarily carried for similar properties. The
Company cannot assure you, however, that particular risks that
are currently insurable will continue to be insurable on an
economic basis or that current levels of coverage will continue
to be available. In addition, the Company generally does not
obtain insurance against certain risks, such as floods.
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Item 1B.
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Unresolved
Staff Comments.
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None.
The Company leases all of its office space through
non-cancelable operating leases. The terms of the leases vary
depending on the size and location of the office. As of
December 31, 2009, the Company leased over
755,000 square feet of office space in 75 locations under
leases which expire at various dates through June 30, 2020.
For those leases that are not renewable, the Company believes
that there are adequate alternatives available at acceptable
rental rates to meet its needs, although there can be no
assurances in this regard. Many of our offices that contain
employees of the Transaction Services, Investment Management or
Management Services segments also contain employees of other
segments. The Companys Corporate Headquarters are in Santa
Ana, California. See Note 20 of Notes to Consolidated
Financial Statements in Item 8 of this Report for
additional information.
As of December 31, 2009, the Company owned two commercial
office properties comprising 754,000 square feet of gross
leasable area for an aggregate purchase price of
$140.5 million, in two states. As of December 31,
2009, the mortgage debt related to these two properties totaled
$107.0 million.
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Item 3.
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Legal
Proceedings.
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General
Grubb & Ellis and its subsidiaries are involved in
various claims and lawsuits arising out of the ordinary conduct
of its business, as well as in connection with its participation
in various joint ventures and partnerships, many of which may
not be covered by the Companys insurance policies. In the
opinion of management, the eventual outcome of such claims and
lawsuits is not expected to have a material adverse effect on
the Companys financial position or results of operations.
30
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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The Company held its Annual Meeting of Stockholders on
December 17, 2009 (the Annual Meeting). At the
Annual Meeting, the Companys shareowners voted upon each
of the following matters:
1. To adopt an amendment to the restated certificate of
incorporation of Grubb & Ellis Company (the
Certificate of Incorporation) to increase the
authorized number of common and preferred shares to 200,000,000
and 20,000,000, respectively;
2. (A) Adopt an amendment to the Certificate of
Incorporation (1) to declassify the Board of Directors and
(2) to fix the number of directors at no less than three
nor more than eight, as determined solely by the Board of
Directors from time to time, and (B) elect six directors to
such declassified Board of Directors, each to serve for a
one-year term;
3. Elect three Class B directors, each to serve for a
three-year term (only if matter number 2 is not approved);
4. Adopt an amendment to the Certificate of Incorporation
to increase the number of directors by two in the event that
dividends with respect to the Companys newly issued
preferred stock are in arrears for six or more quarters, whether
or not consecutive, subject to certain conditions (only if
matter number 2 is not approved); and
5. The ratification of the appointment, by the Board of
Directors, of Ernst & Young LLP as the Companys
independent registered public accounting firm for the fiscal
year ending December 31, 2009.
With respect to matter number 1: 62,007,373 votes were cast in
favor; 2,251,201 votes were cast against; there were 268,467
abstentions; and there were 18,661,495 broker non-votes.
With respect to matter number 2 (A): 79,744,971 votes were cast
in favor; 2,441,415 votes were cast against; there were
1,002,150 abstentions; and there were no broker non-votes.
With respect to matter number 2 (B), each of Thomas P.
DArcy, C. Michael Kojaian, Robert J. McLaughlin, Devin I.
Murphy, D. Fleet Wallace and Rodger D. Young were elected to
serve for a term of one-year. The results of the election are
below:
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Election of Directors
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For
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Withheld
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Abstentions
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Broker Non-Votes
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Thomas P. DArcy
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81,866,912
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1,321,624
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0
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0
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C. Michael Kojaian
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81,764,157
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1,424,379
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0
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0
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Robert J. McLaughlin
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80,229,679
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2,958,857
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0
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0
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Devin I. Murphy
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81,867,773
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1,320,763
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0
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0
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D. Fleet Wallace
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81,429,607
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1,758,929
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0
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0
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Rodger D. Young
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81,383,995
|
|
|
|
1,804,541
|
|
|
|
0
|
|
|
|
0
|
|
With respect to matter numbers 3 and 4, such matters will not be
adopted as matter number 2 has been approved.
With respect to matter number 5: 82,094,102 votes were cast in
favor; 554,940 votes were cast against; there were 539,494
abstentions; and there were no broker non-votes.
31
GRUBB &
ELLIS COMPANY
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity and Related Stockholder
Matters.
|
Market
and Price Information
The principal market for the Companys common stock is the
NYSE. The following table sets forth the high and low sales
prices of the Companys common stock on the respective
market for each quarter of the years ended December 31,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
1.29
|
|
|
$
|
0.25
|
|
|
$
|
7.50
|
|
|
$
|
3.80
|
|
Second Quarter
|
|
$
|
1.31
|
|
|
$
|
0.50
|
|
|
$
|
7.50
|
|
|
$
|
3.61
|
|
Third Quarter
|
|
$
|
1.96
|
|
|
$
|
0.55
|
|
|
$
|
5.00
|
|
|
$
|
2.70
|
|
Fourth Quarter
|
|
$
|
2.17
|
|
|
$
|
1.15
|
|
|
$
|
2.88
|
|
|
$
|
0.81
|
|
As of March 11, 2010, there were 1,040 registered holders
of the Companys common stock and 69,331,879 shares of
common stock outstanding. Sales of substantial amounts of common
stock, including shares issued upon the exercise of warrants or
options or upon the conversion of preferred stock, or the
perception that such sales might occur, could adversely affect
prevailing market prices for the common stock.
The Company declared first and second quarter cash dividends in
2008 for an aggregate of $0.2050 per common share for the year.
On July 11, 2008, the Companys Board of Directors
approved the suspension of future dividend payments, and
therefore does not anticipate paying cash dividends to common
shareowners in the foreseeable future.
The 12% Preferred Stock are entitled to cumulative annual
dividends of $12.00 per share payable quarterly on each of
March 31, June 30, September 30 and December 31,
commencing on December 31, 2009, when, as and if declared
by the Board of Directors. Such dividends will accumulate and be
paid in arrears on the basis of a
360-day year
consisting of twelve
30-day
months. Dividends on the 12% Preferred Stock will be paid in
cash and accumulate and be cumulative from the most recent date
to which dividends have been paid, or if no dividends have been
paid, from and including November 6, 2009. Accumulated
dividends on the 12% Preferred Stock will not bear interest. In
addition, in the event of any cash distribution to holders of
common stock, holders of 12% Preferred Stock will be entitled to
participate in such distribution as if such holders of 12%
Preferred Stock had converted their shares of 12% Preferred
Stock into common stock. On December 11, 2009, the
Companys Board of Directors declared a dividend of $1.8333
per share, payable on December 31, 2009, on the
Companys Preferred Stock to holders of record as of
December 21, 2009.
Sales of
Unregistered Securities
On March 10, 2010, each of Jeffrey Hanson and Jack Van
Berkel were awarded 1,000,000 shares of restricted stock,
500,000 of which will vest at a rate of
331/3%
on each of the three successive anniversary dates of the award
date and the other 500,000 of which are subject to vesting based
upon the market price of the Companys common stock during
the three year period beginning March 10, 2010.
Specifically, (i) in the event that for any 30 consecutive
trading days during the three-year period following
March 10, 2010 the volume weighted average closing price
per share of the Companys common stock is at least $3.50,
then 50% of such restricted shares shall vest, and (ii) in
the event that for any 30 consecutive trading days during the
three-year period following March 10, 2010 the volume
weighted average closing price per share of the Companys
common stock is at least $6.00, then remaining 50% of such
restricted shares shall vest.
32
Equity
Compensation Plan Information
The following table provides information on equity compensation
plans of the Company as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available
|
|
|
|
|
|
|
Weighted average
|
|
|
for
|
|
|
|
Number of securities to
|
|
|
exercise price of
|
|
|
future issuance under
|
|
|
|
be
|
|
|
outstanding
|
|
|
equity compensation
|
|
|
|
issued upon exercise of
|
|
|
options,
|
|
|
plans (excluding
|
|
|
|
outstanding options,
|
|
|
warrants and
|
|
|
securities reflected in
|
|
|
|
warrants and rights
|
|
|
rights
|
|
|
column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
469,746
|
|
|
$
|
10.46
|
|
|
|
2,539,910
|
|
Equity compensation plans not approved by security holders(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
469,746
|
|
|
$
|
10.46
|
|
|
|
2,539,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2009, an aggregate of 5.6 million
phantom share grants were outstanding. |
Grubb &
Ellis Stock Performance
This section entitled, Grubb & Ellis Stock
Performance is not to be deemed to be soliciting
material or to be filed with the SEC or
subject to Regulation 14A or 14C or to the liabilities of
Section 18 of the Exchange Act, except to the extent that
the Company specifically requests that such information be
treated as soliciting material or specifically incorporates it
by reference into any filing under the Securities Act or the
Exchange Act.
The graph below compares the cumulative
66-month
total return of holders of Grubb & Ellis
Companys common stock with the cumulative total returns of
the S&P 500 index, and a customized peer group of three
companies that includes: CB Richard Ellis Group Inc,
Grubb & Ellis Company and Jones Lang LaSalle Inc. The
graph tracks the performance of a $100 investment in our common
stock, in the peer group, and the index (with the reinvestment
of all dividends) from June 30, 2004 to December 31,
2009.
33
COMPARISON OF 66
MONTH CUMULATIVE TOTAL RETURN*
Among
Grubb & Ellis Company, The S&P 500 Index
And A Peer Group
*$100
invested on
6/30/04 in
stock or index, including reinvestment of dividends. Fiscal year
ending December 31.
Copyright©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/04
|
|
|
6/05
|
|
|
6/06
|
|
|
6/07
|
|
|
12/07
|
|
|
12/08
|
|
|
12/09
|
|
|
|
|
Grubb & Ellis Company
|
|
|
100.00
|
|
|
|
351.76
|
|
|
|
464.82
|
|
|
|
582.91
|
|
|
|
323.44
|
|
|
|
65.28
|
|
|
|
67.38
|
|
S&P 500
|
|
|
100.00
|
|
|
|
106.32
|
|
|
|
115.50
|
|
|
|
139.28
|
|
|
|
137.37
|
|
|
|
86.55
|
|
|
|
109.45
|
|
Peer Group
|
|
|
100.00
|
|
|
|
205.34
|
|
|
|
366.92
|
|
|
|
516.05
|
|
|
|
311.02
|
|
|
|
83.05
|
|
|
|
214.34
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
34
|
|
Item 6.
|
Selected
Financial Data.
|
The following tables set forth the selected historical
consolidated financial data for Grubb & Ellis Company
and its subsidiaries, as of and for the years ended,
December 31, 2009, 2008, 2007, 2006, and 2005. The selected
historical consolidated financial data set forth below as of and
for the years ended December 31, 2009 and 2008 and the
selected consolidated operating and cash flow data for the year
ended December 31, 2007 has been derived from the audited
financial statements included in Item 8 of this Report. The
selected consolidated operating and cash flow data set forth
below as of and for the year ended December 31, 2006, and
the selected consolidated balance sheet data as of
December 31, 2007, has been derived from audited
consolidated financial statements not included in this Report as
adjusted for reclassifications required by the Property, Plant
and Equipment Topic for discontinued operations. The selected
historical financial data set forth below as of and for the year
ended December 31, 2005 has been derived from unaudited
consolidated financial statements not included in this Report.
Historical results are not necessarily indicative of the results
that may be expected for any future period. The selected
historical consolidated financial data set forth below should be
read in conjunction with Item 7 and the consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands, except per share
data)
|
|
2009
|
|
2008
|
|
2007(1)
|
|
2006(2)
|
|
2005(3)
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services revenue
|
|
$
|
505,360
|
|
|
$
|
595,495
|
|
|
$
|
201,538
|
|
|
$
|
99,599
|
|
|
$
|
80,817
|
|
Total revenue
|
|
|
535,645
|
|
|
|
628,779
|
|
|
|
229,657
|
|
|
|
108,543
|
|
|
|
84,423
|
|
Total compensation costs
|
|
|
469,538
|
|
|
|
503,004
|
|
|
|
104,109
|
|
|
|
49,449
|
|
|
|
29,873
|
|
Total operating expense
|
|
|
641,551
|
|
|
|
929,407
|
|
|
|
195,723
|
|
|
|
97,633
|
|
|
|
71,035
|
|
Operating (loss) income
|
|
|
(105,906
|
)
|
|
|
(300,628
|
)
|
|
|
33,934
|
|
|
|
10,910
|
|
|
|
13,388
|
|
(Loss) income from continuing operations
|
|
|
(82,985
|
)
|
|
|
(318,668
|
)
|
|
|
23,741
|
|
|
|
21,012
|
|
|
|
13,679
|
|
Net (loss) income
|
|
|
(80,499
|
)
|
|
|
(342,589
|
)
|
|
|
23,033
|
|
|
|
20,049
|
|
|
|
10,288
|
|
Net (loss) income attributable to Grubb & Ellis Company
|
|
|
(78,838
|
)
|
|
|
(330,870
|
)
|
|
|
21,072
|
|
|
|
19,971
|
|
|
|
10,047
|
|
Basic (loss) earnings per share attributable to
Grubb & Ellis Company
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
$
|
1.01
|
|
|
$
|
0.58
|
|
(Loss) income from continuing operations per share attributable
to Grubb & Ellis Company
|
|
$
|
(1.31
|
)
|
|
$
|
(4.83
|
)
|
|
$
|
0.55
|
|
|
$
|
1.06
|
|
|
$
|
0.80
|
|
Diluted (loss) earnings per share attributable to
Grubb & Ellis Company
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
$
|
1.01
|
|
|
$
|
0.58
|
|
Basic weighted average shares outstanding
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,652
|
|
|
|
19,681
|
|
|
|
17,200
|
|
Diluted weighted average shares outstanding
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,653
|
|
|
|
19,694
|
|
|
|
17,200
|
|
Dividends declared per common share
|
|
$
|
|
|
|
$
|
0.205
|
|
|
$
|
0.36
|
|
|
$
|
0.10
|
|
|
$
|
|
|
Dividends declared per preferred share
|
|
$
|
1.8333
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Consolidated Statement of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(61,965
|
)
|
|
$
|
(33,629
|
)
|
|
$
|
33,543
|
|
|
$
|
17,356
|
|
|
$
|
23,536
|
|
Net cash provided by (used in) investing activities
|
|
|
97,214
|
|
|
|
(76,330
|
)
|
|
|
(486,909
|
)
|
|
|
(56,203
|
)
|
|
|
(35,183
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(29,133
|
)
|
|
|
93,616
|
|
|
|
400,468
|
|
|
|
140,525
|
|
|
|
10,251
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Consolidated Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
357,324
|
|
|
$
|
520,277
|
|
|
$
|
988,542
|
|
|
$
|
347,709
|
|
|
$
|
126,057
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
8,500
|
|
Notes payable and capital lease obligations
|
|
|
107,755
|
|
|
|
107,203
|
|
|
|
107,343
|
|
|
|
843
|
|
|
|
887
|
|
Senior notes
|
|
|
16,277
|
|
|
|
16,277
|
|
|
|
16,277
|
|
|
|
10,263
|
|
|
|
2,300
|
|
Redeemable preferred liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,077
|
|
Preferred stock (12% cumulative participating perpetual
convertible)
|
|
|
90,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & Ellis shareowners equity
|
|
|
1,327
|
|
|
|
70,171
|
|
|
|
404,056
|
|
|
|
217,125
|
|
|
|
20,081
|
|
|
|
|
(1) |
|
Based on Generally Accepted Accounting Principles (GAAP), the
operating results for the year ended December 31, 2007
includes the results of legacy NNN Realty Advisors, Inc. prior
to the Merger for the full periods presented and the results of
the legacy Grubb & Ellis Company for the period from
December 8, 2007 through December 31, 2007. |
|
(2) |
|
Includes a full year of operating results of GERI (formerly
Triple Net Properties, LLC), one and one-half months of Triple
Net Properties Realty, Inc. (Realty) (acquired on
November 16, 2006) and one-half month of GBE
Securities (formerly NNN Capital Corp.) (acquired on
December 14, 2006). GERI was treated as the acquirer in
connection with these transactions. |
|
(3) |
|
Based on GAAP, reflects operating results of GERI. |
Non-GAAP Financial
Measures
EBITDA and Adjusted EBITDA are non-GAAP measures of performance.
EBITDA provides an indicator of economic performance that is
unaffected by debt structure, changes in interest rates, changes
in effective tax rates or the accounting effects of capital
expenditures and acquisitions because EBITDA excludes net
interest expense, interest income, income taxes, depreciation,
amortization, discontinued operations and impairments related to
goodwill and intangible assets.
The Company uses Adjusted EBITDA as an internal management
measure for evaluating performance and as a significant
component when measuring performance under employee incentive
programs. Management considers Adjusted EBITDA an important
supplemental measure of the Companys performance and
believes that it is frequently used by securities analysts,
investors and other interested parties in the evaluation of
companies in our industry, some of which present Adjusted EBITDA
when reporting their results. Management also believes that
Adjusted EBITDA is a useful tool for measuring the
Companys ability to meet its future capital expenditures
and working capital requirements.
EBITDA and Adjusted EBITDA are not a substitute for GAAP net
income or cash flow and do not provide a measure of the
Companys ability to fund future cash requirements. Other
companies may calculate EBITDA and Adjusted EBITDA differently
than the Company has and, therefore, EBITDA and Adjusted EBITDA
have material limitations as a comparative performance measure.
The following table reconciles EBITDA and Adjusted EBITDA with
the net loss attributable to Grubb & Ellis Company for
the years ended December 31, 2009 and 2008. As a result of
the Merger on December 7, 2007, the year ended
December 31, 2007 is not comparable to the year ended
December 31, 2008. Therefore, a reconciliation of EBITDA
and
36
Adjusted EBITDA for the year ended December 31, 2008
compared to the year ended December 31, 2007 has not been
provided as it would not be meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
$
|
(78,838
|
)
|
|
$
|
(330,870
|
)
|
|
$
|
252,032
|
|
|
|
76.2
|
%
|
Discontinued operations
|
|
|
(2,486
|
)
|
|
|
23,921
|
|
|
|
(26,407
|
)
|
|
|
(110.4
|
)
|
Interest expense
|
|
|
15,446
|
|
|
|
14,207
|
|
|
|
1,239
|
|
|
|
8.7
|
|
Interest income
|
|
|
(555
|
)
|
|
|
(902
|
)
|
|
|
347
|
|
|
|
38.5
|
|
Depreciation and amortization
|
|
|
12,324
|
|
|
|
16,028
|
|
|
|
(3,704
|
)
|
|
|
(23.1
|
)
|
Goodwill and intangible assets impairment
|
|
|
738
|
|
|
|
181,285
|
|
|
|
(180,547
|
)
|
|
|
(99.6
|
)
|
Taxes
|
|
|
(1,175
|
)
|
|
|
(827
|
)
|
|
|
(348
|
)
|
|
|
(42.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
|
(54,546
|
)
|
|
|
(97,158
|
)
|
|
|
42,612
|
|
|
|
43.9
|
|
Gain related to the repayment of the credit facility, net
|
|
|
(21,935
|
)
|
|
|
|
|
|
|
(21,935
|
)
|
|
|
|
|
Charges related to sponsored programs
|
|
|
23,348
|
|
|
|
27,771
|
|
|
|
(4,423
|
)
|
|
|
(15.9
|
)
|
Real estate related impairment
|
|
|
17,372
|
|
|
|
59,114
|
|
|
|
(41,742
|
)
|
|
|
(70.6
|
)
|
Write off of investment in Grubb & Ellis Realty
Advisors, net
|
|
|
|
|
|
|
5,828
|
|
|
|
(5,828
|
)
|
|
|
(100.0
|
)
|
Share-based based compensation
|
|
|
10,876
|
|
|
|
11,907
|
|
|
|
(1,031
|
)
|
|
|
(8.7
|
)
|
Amortization of signing bonuses
|
|
|
7,535
|
|
|
|
7,603
|
|
|
|
(68
|
)
|
|
|
(0.9
|
)
|
Loss on marketable securities
|
|
|
|
|
|
|
1,783
|
|
|
|
(1,783
|
)
|
|
|
(100.0
|
)
|
Merger related costs
|
|
|
|
|
|
|
14,732
|
|
|
|
(14,732
|
)
|
|
|
(100.0
|
)
|
Amortization of contract rights
|
|
|
|
|
|
|
1,179
|
|
|
|
(1,179
|
)
|
|
|
(100.0
|
)
|
Real estate operations
|
|
|
(7,959
|
)
|
|
|
(9,993
|
)
|
|
|
2,034
|
|
|
|
20.4
|
|
Other
|
|
|
1,319
|
|
|
|
163
|
|
|
|
1,156
|
|
|
|
709.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
|
$
|
(23,990
|
)
|
|
$
|
22,929
|
|
|
$
|
(46,919
|
)
|
|
|
(204.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA represents earnings before net interest expense, interest
income, realized gains or losses on sales of marketable
securities, income taxes, depreciation, amortization,
discontinued operations and impairments related to goodwill and
intangible assets. Management believes EBITDA is useful in
evaluating our performance compared to that of other companies
in our industry because the calculation of EBITDA generally
eliminates the effects of financing and income taxes and the
accounting effects of capital spending and acquisition, which
items may vary for different companies for reasons unrelated to
overall operating performance. As a result, management uses
EBITDA as an operating measure to evaluate the operating
performance of the Company and for other discretionary purposes,
including as a significant component when measuring performance
under employee incentive programs. |
|
|
|
However, EBITDA is not a recognized measurement under
U.S. generally accepted accounting principles, or GAAP, and
when analyzing the Companys operating performance, readers
should use EBITDA in addition to, and not as an alternative for,
net income as determined in accordance with GAAP. Because not
all companies use identical calculations, our presentation of
EBITDA may not be comparable to similarly titled measures of
other companies. Furthermore, EBITDA is not intended to be a
measure of free cash flow for managements discretionary
use, as it does not consider certain cash requirements such as
tax and debt service payments. |
37
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Note Regarding Forward-Looking Statements
This Annual Report contains statements that are
forward-looking and as such are not historical facts. Rather,
these statements constitute projections, forecasts or
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. You should not place
undue reliance on these statements. Forward-looking statements
include information concerning the Companys liquidity and
possible or assumed future results of operations, including
descriptions of the Companys business strategies. These
statements often include words such as believe,
expect, anticipate, intend,
plan, estimate seek,
will, may or similar expressions. These
statements are based on certain assumptions that the Company has
made in light of its experience in the industry as well as its
perceptions of the historical trends, current conditions,
expected future developments and other factors the Company
believes are appropriate under these circumstances.
All such forward-looking statements speak only as of the date
of this Annual Report. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to
reflect any change in the Companys expectations with
regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
As you read this Annual Report, you should understand that
these statements are no guarantees of performance or results.
They involve risks, uncertainties and assumptions. You should
understand the risks and uncertainties discussed in
Item 1A Risk Factors and elsewhere
in this Annual Report, could affect the Companys actual
financial results and could cause actual results to differ
materially from those expressed in the forward-looking
statements. Some important factors include, but are not limited
to:
|
|
|
|
|
the continued weakened national economy in general and the
commercial real estate markets in particular;
|
|
|
|
the continued global and economic slowdown and capital markets
disruption;
|
|
|
|
changes in general economic and business conditions, including
interest rates, the cost and availability of financing of
capital for investment in real estate, clients willingness
to make real estate commitments and other factors impacting the
value of real estate assets;
|
|
|
|
our ability to retain major clients and renew related contracts;
|
|
|
|
our ability to return advisory and management contracts on
sponsored REIT and TIC programs, respectively;
|
|
|
|
the failure of properties sponsored or managed by us to perform
as anticipated;
|
|
|
|
our exposure to liabilities in connection with sponsored
investment programs;
|
|
|
|
our ability to compete in specific geographic markets or
business segments that are material to us;
|
|
|
|
the contraction of the TIC market;
|
|
|
|
declining values of real estate assets and distributions on our
programs;
|
|
|
|
significant variability in our results of operations among
quarters;
|
|
|
|
our ability to retain our senior management and attract and
retain qualified and experienced employees;
|
|
|
|
our ability to comply with the laws and regulations applicable
to real estate brokerage investment syndication and mortgage
transactions;
|
|
|
|
our potential liability under loan guarantees in connection with
investment programs;
|
|
|
|
our ability to sign and retain selling agreements;
|
|
|
|
our exposure to liabilities in connection with real estate
brokerage, real estate and property management activities;
|
38
|
|
|
|
|
changes in the key components of revenue growth for large
commercial real estate services companies;
|
|
|
|
reliance of companies on outsourcing for their commercial real
estate needs;
|
|
|
|
liquidity and availability of additional or continued sources of
financing for the Companys investment programs;
|
|
|
|
trends in use of large, full-service real estate providers;
|
|
|
|
diversification of our client base;
|
|
|
|
improvements in operating efficiency;
|
|
|
|
protection of our brand;
|
|
|
|
trends in pricing for commercial real estate services; and
|
|
|
|
the effect of implementation of new tax and accounting rules and
standards.
|
Overview
and Background
The Company is a commercial real estate services and investment
management firm. The Merger was accounted for using the purchase
method of accounting based on accounting principles generally
accepted in the United States (GAAP) and as such,
although structured as a reverse merger, NNN is considered the
acquirer of legacy Grubb & Ellis. As a consequence,
the operating results for the twelve months ended
December 31, 2009 and 2008 reflect the consolidated results
of the Company as a result of the Merger, while the twelve
months ended December 31, 2007 includes the full year
operating results of legacy NNN and the operating results of
legacy Grubb & Ellis for the period from
December 8, 2007 through December 31, 2007.
Unless otherwise indicated, all pre-Merger legacy NNN share data
have been adjusted to reflect the 0.88 conversion rate as a
result of the Merger (see Note 10 of Notes to Consolidated
Financial Statements in Item 8 of this Report for
additional information).
Critical
Accounting Policies
The Companys consolidated financial statements have been
prepared in accordance with GAAP. Certain accounting policies
are considered to be critical accounting policies, as they
require management to make assumptions about matters that are
highly uncertain at the time the estimate is made and changes in
the accounting estimate are reasonably likely to occur from
period to period. The Company believes that the following
critical accounting policies reflect the more significant
judgments and estimates used in the preparation of its
consolidated financial statements.
Revenue
Recognition
Management
Services
Management fees are recognized at the time the related services
have been performed by the Company, unless future contingencies
exist. In addition, in regard to management and facility service
contracts, the owner of the property will typically reimburse
the Company for certain expenses that are incurred on behalf of
the owner, which are comprised primarily of
on-site
employee salaries and related benefit costs. The amounts which
are to be reimbursed per the terms of the services contract are
recognized as revenue by the Company in the same period as the
related expenses are incurred. In certain instances, the Company
subcontracts its property management services to independent
property managers, in which case the Company passes a portion of
their property management fee on to the subcontractor, and the
Company retains the balance. Accordingly, the Company records
these fees net of the amounts paid to its subcontractors.
Transaction
Services
Real estate sales commissions are recognized when earned which
is typically the close of escrow. Receipt of payment occurs at
the point at which all Company services have been performed, and
title to real property
39
has passed from seller to buyer, if applicable. Real estate
leasing commissions are recognized upon execution of appropriate
lease and commission agreements and receipt of full or partial
payment, and, when payable upon certain events such as tenant
occupancy or rent commencement, upon occurrence of such events.
All other commissions and fees are recognized at the time the
related services have been performed and delivered by the
Company to the client, unless future contingencies exist.
Investment
Management
The Company earns fees associated with its transactions by
structuring, negotiating and closing acquisitions of real estate
properties to third-party investors. Such fees include
acquisition fees for locating and acquiring the property on
behalf of its various REITs, TIC investors and the
Companys various sponsored real estate funds. The Company
accounts for acquisition and loan fees in accordance with the
requirements of the Real Estate General Topic and
the Real Estate Retail Land Topic. In general, the
Company records the acquisition and loan fees upon the close of
sale to the buyer if the buyer is independent of the seller,
collection of the sales price, including the acquisition fees
and loan fees, is reasonably assured, and the Company is not
responsible for supporting operations of the property.
Organizational marketing expense allowance (OMEA)
fees are earned and recognized from gross proceeds of equity
raised in connection with TIC offerings and are used to pay
formation costs, as well as organizational and marketing costs.
When the Company does not meet the criteria for revenue
recognition under the Real Estate Retail Land Topic
and the Real Estate General Topic, revenue is
deferred until revenue can be reasonably estimated or until the
Company defers revenue up to its maximum exposure to loss. The
Company earns disposition fees for disposing of the property on
behalf of the REIT, investment fund or TIC. The Company
recognizes the disposition fee when the sale of the property
closes. In certain circumstances, the Company is entitled to
loan advisory fees for arranging financing related to properties
under management.
The Company earns asset and property management fees primarily
for managing the operations of real estate properties owned by
the real estate programs, REITs and limited liability companies
the Company sponsors. Such fees are based on pre-established
formulas and contractual arrangements and are earned as such
services are performed. The Company is entitled to receive
reimbursement for expenses associated with managing the
properties; these expenses include salaries for property
managers and other personnel providing services to the property.
Each property in the Companys TIC programs may also be
charged an accounting fee for costs associated with preparing
financial reports. The Company is also entitled to leasing
commissions when a new tenant is secured and upon tenant
renewals. Leasing commissions are recognized upon execution of
leases.
Through its dealer-manager, GBE Securities, the Company
facilitates capital raising transactions for its sponsored
programs. The Companys wholesale dealer-manager services
are comprised of raising capital for its programs through its
selling broker-dealer relationships. Most of the commissions,
fees and allowances earned for its dealer-manager services are
passed on to the selling broker-dealers as commissions and to
cover offering expenses, and the Company retains the balance.
Accordingly, the Company records these fees net of the amounts
paid to its selling broker-dealer relationships.
Basis
of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned and majority-owned controlled
subsidiaries variable interest entities (VIEs)
in which the Company is the primary beneficiary and
partnerships/LLCs in which the Company is the managing member or
general partner and the other partners/members lack substantive
rights (hereinafter collectively referred to as the
Company). All significant intercompany accounts and
transactions have been eliminated in consolidation. For
acquisitions of an interest in an entity or newly formed joint
venture or limited liability company, the Company evaluates the
entity to determine if the entity is deemed a VIE, and if the
Company is deemed to be the primary beneficiary, in accordance
with the requirements of the Consolidation Topic.
The Company consolidates entities that are VIEs when the Company
is deemed to be the primary beneficiary of the VIE. For entities
in which (i) the Company is not deemed to be the primary
beneficiary,
40
(ii) the Companys ownership is 50.0% or less and
(iii) the Company has the ability to exercise significant
influence, the Company uses the equity accounting method (i.e.
at cost, increased or decreased by the Companys share of
earnings or losses, plus contributions less distributions). The
Company also uses the equity method of accounting for
jointly-controlled
tenant-in-common
interests. As events occur, the Company will reconsider its
determination of whether an entity is a VIE and who the primary
beneficiary is to determine if there is a change in the original
determinations and will report such changes on a quarterly basis.
Purchase
Price Allocation
In accordance with the requirements of the Business Combinations
Topic, the purchase price of acquired properties is allocated to
tangible and identified intangible assets and liabilities based
on their respective fair values. The allocation to tangible
assets (building and land) is based upon determination of the
value of the property as if it were vacant using discounted cash
flow models similar to those used by independent appraisers.
Factors considered include an estimate of carrying costs during
the expected
lease-up
periods considering current market conditions and costs to
execute similar leases. Additionally, the purchase price of the
applicable property is allocated to the above or below market
value of in-place leases and the value of in-place leases and
related tenant relationships.
The value allocable to the above or below market component of
the acquired in-place leases is determined based upon the
present value (using a discount rate which reflects the risks
associated with the acquired leases) of the difference between
(i) the contractual amounts to be paid pursuant to the
lease over its remaining term, and (ii) the Companys
estimate of the amounts that would be paid using fair market
rates over the remaining term of the lease. The amounts
allocated to above market leases are included in identified
intangible assets, net in the accompanying consolidated balance
sheets and are amortized to rental income over the remaining
non-cancelable lease term of the acquired leases with each
property. The amounts allocated to below market lease values are
included in liabilities in the accompanying consolidated balance
sheets and are amortized to rental income over the remaining
non-cancelable lease term plus any below market renewal options
of the acquired leases with each property.
The total amount of identified intangible assets acquired is
further allocated to in-place lease costs and the value of
tenant relationships based on managements evaluation of
the specific characteristics of each tenants lease and the
Companys overall relationship with that respective tenant.
Characteristics considered in allocating these values include
the nature and extent of the credit quality and expectations of
lease renewals, among other factors. These allocations are
subject to change within one year of the date of purchase based
on information related to one or more events identified at the
date of purchase that confirm the value of an asset or liability
of an acquired property.
Impairment
of Long-Lived Assets
In accordance with the requirements of the Property, Plant, and
Equipment Topic, long-lived assets are periodically evaluated
for potential impairment whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. In the event that periodic assessments reflect that
the carrying amount of the asset exceeds the sum of the
undiscounted cash flows (excluding interest) that are expected
to result from the use and eventual disposition of the asset,
the Company would recognize an impairment loss to the extent the
carrying amount exceeded the fair value of the property. The
Company estimates the fair value using available market
information or other industry valuation techniques such as
present value calculations. This valuation review resulted in
the recognition of an impairment charge of approximately
$24.0 million and $90.4 million against the carrying
value of the properties and real estate investments during the
years ended December 31, 2009 and 2008, respectively. No
impairment losses were recognized for the year ended
December 31, 2007.
The Company recognizes goodwill and other
non-amortizing
intangible assets in accordance with the requirements of the
Intangibles Goodwill and Other Topic. Under this
Topic, goodwill is recorded at its carrying value and is tested
for impairment at least annually or more frequently if
impairment indicators exist at a level of reporting referred to
as a reporting unit. The Company recognizes goodwill in
accordance with
41
the Topic and tests the carrying value for impairment during the
fourth quarter of each year. The goodwill impairment analysis is
a two-step process. The first step used to identify potential
impairment involves comparing each reporting units
estimated fair value to its carrying value, including goodwill.
To estimate the fair value of its reporting units, the Company
used a discounted cash flow model and market comparable data.
Significant judgment is required by management in developing the
assumptions for the discounted cash flow model. These
assumptions include cash flow projections utilizing revenue
growth rates, profit margin percentages, discount rates,
market/economic conditions, etc. If the estimated fair value of
a reporting unit exceeds its carrying value, goodwill is
considered to not be impaired. If the carrying value exceeds
estimated fair value, there is an indication of potential
impairment and the second step is performed to measure the
amount of impairment. The second step of the process involves
the calculation of an implied fair value of goodwill for each
reporting unit for which step one indicated a potential
impairment. The implied fair value of goodwill is determined by
measuring the excess of the estimated fair value of the
reporting unit as calculated in step one, over the estimated
fair values of the individual assets, liabilities and identified
intangibles. During the fourth quarter of 2008, the Company
identified the uncertainty surrounding the global economy and
the volatility of the Companys market capitalization as
goodwill impairment indicators. The Companys goodwill
impairment analysis resulted in the recognition of an impairment
charge of approximately $172.7 million during the year
ended December 31, 2008. The Company also analyzed its
trade name for impairment pursuant to the requirements of the
Topic and determined that the trade name was not impaired as of
December 31, 2009 and 2008. Accordingly, no impairment
charge was recorded related to the trade name during the years
ended December 31, 2009 and 2008. In addition to testing
goodwill and its trade name for impairment, the Company tested
the intangible contract rights for impairment during the fourth
quarter of 2009 and 2008. The intangible contract rights
represent the legal right to future disposition fees of a
portfolio of real estate properties under contract. As a result
of the current economic environment, a portion of these
disposition fees may not be recoverable. Based on the
Companys analysis for the current and projected property
values, condition of the properties and status of mortgage loans
payable, the Company determined that there are certain
properties for which receipt of disposition fees was improbable.
As a result, the Company recorded an impairment charge of
approximately $0.7 million and $8.6 million related to
the impaired intangible contract rights as of December 31,
2009 and 2008, respectively.
Insurance
and Claim Reserves
The Company has maintained partially self-insured and deductible
programs for, general liability, workers compensation and
certain employee health care costs. In addition, the Company
assumed liabilities at the date of the Merger representing
reserves related to a self insured errors and omissions program
of the acquired company. Reserves for all such programs are
included in accrued claims and settlements and compensation and
employee benefits payable, as appropriate. Reserves are based on
the aggregate of the liability for reported claims and an
actuarially-based estimate of incurred but not reported claims.
As of the date of the Merger, the Company entered into a premium
based insurance policy for all error and omission coverage on
claims arising after the date of the Merger. Claims arising
prior to the date of the Merger continue to be applied against
the previously mentioned liability reserves assumed relative to
the acquired company.
The Company is also subject to various proceedings, lawsuits and
other claims related to commission disputes and environmental,
labor and other matters, and is required to assess the
likelihood of any adverse judgments or outcomes to these
matters. A determination of the amount of reserves, if any, for
these contingencies is made after careful analysis of each
individual issue. New developments in each matter, or changes in
approach such as a change in settlement strategy in dealing with
these matters, may warrant an increase or decrease in the amount
of these reserves.
Recently
Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements,
see Note 2, Summary of Significant Accounting
Policies Recently Issued Accounting Pronouncements,
to the Consolidated Financial Statements that are a part of this
Annual Report on
Form 10-K.
42
RESULTS
OF OPERATIONS
Overview
The Company reported revenue of $535.6 million for the year
ended December 31, 2009, compared with revenue of
$628.8 million for the same period of 2008. The decrease
was primarily the result of decreases in Transaction Services
and Investment Management revenue of $66.9 million and
$44.3 million, respectively, partially offset by increases
in Management Services revenue of $21.0 million. The
decrease in revenue as compared to the prior year period can be
attributed to fewer sales and leasing transactions, lower
acquisition fees as a result of less TIC equity raise and lower
disposition fees, only partially offset by an increase in
Management Services revenue as a result of an increase in square
feet under management. The decrease in net acquisitions from the
Investment Management business and the transition to
self-management in 2009 and the termination of advisory and
property management agreements with the Company by Healthcare
Trust of America, Inc., formerly Grubb & Ellis
Healthcare REIT, Inc., in September 2009 resulted in a reduction
of the Companys assets under management by approximately
15.0% from $6.8 billion as of December 31, 2008 to
$5.8 billion as of December 31, 2009.
The net loss attributable to Grubb & Ellis Company
common shareowners for the year ended December 31, 2009 was
$80.6 million, or $1.27 per diluted share, and included a
non-cash charge of $0.7 million for intangible assets
impairment, a non-cash charge of $24.0 million for real
estate related impairments (of which $7.6 million was
recorded in the fourth quarter) and a $24.8 million charge,
which includes an allowance for bad debt primarily on related
party receivables and advances. In addition, the
year-to-date
results include approximately $10.9 million of share-based
compensation and $0.3 million for amortization of other
identified intangible assets.
As a result of the Merger in December 2007, the newly combined
Companys operating segments were evaluated for reportable
segments. The legacy NNN reportable segments were realigned into
a single operating and reportable segment called Investment
Management. This realignment had no impact on the Companys
consolidated balance sheet, results of operations or cash flows.
The Company reports its revenue by three operating business
segments in accordance with the provisions of the Segment
Reporting Topic. Management Services, which includes property
management, corporate facilities management, project management,
client accounting, business services and engineering services
for unrelated third parties and the properties owned by the
programs it sponsors; Transaction Services, which comprises its
real estate brokerage operations; and Investment Management
which includes providing acquisition, financing and disposition
services with respect to its sponsored programs, asset
management services related to its programs, and dealer-manager
services by its securities broker-dealer, which facilitates
capital raising transactions for its real estate investment
programs. Additional information on these business segments can
be found in Note 25 of Notes to Consolidated Financial
Statements in Item 8 of this Report.
43
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
The following summarizes comparative results of operations for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services
|
|
$
|
274,684
|
|
|
$
|
253,664
|
|
|
$
|
21,020
|
|
|
|
8.3
|
%
|
Transaction services
|
|
|
173,394
|
|
|
|
240,250
|
|
|
|
(66,856
|
)
|
|
|
(27.8
|
)
|
Investment management
|
|
|
57,282
|
|
|
|
101,581
|
|
|
|
(44,299
|
)
|
|
|
(43.6
|
)
|
Rental related
|
|
|
30,285
|
|
|
|
33,284
|
|
|
|
(2,999
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
535,645
|
|
|
|
628,779
|
|
|
|
(93,134
|
)
|
|
|
(14.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
469,538
|
|
|
|
503,004
|
|
|
|
(33,466
|
)
|
|
|
(6.7
|
)
|
General and administrative
|
|
|
80,078
|
|
|
|
99,829
|
|
|
|
(19,751
|
)
|
|
|
(19.8
|
)
|
Provision for doubtful accounts
|
|
|
24,768
|
|
|
|
19,831
|
|
|
|
4,937
|
|
|
|
24.9
|
|
Depreciation and amortization
|
|
|
12,324
|
|
|
|
16,028
|
|
|
|
(3,704
|
)
|
|
|
(23.1
|
)
|
Rental related
|
|
|
21,287
|
|
|
|
21,377
|
|
|
|
(90
|
)
|
|
|
(0.4
|
)
|
Interest
|
|
|
15,446
|
|
|
|
14,207
|
|
|
|
1,239
|
|
|
|
8.7
|
|
Merger related costs
|
|
|
|
|
|
|
14,732
|
|
|
|
(14,732
|
)
|
|
|
(100.0
|
)
|
Real estate related impairments
|
|
|
17,372
|
|
|
|
59,114
|
|
|
|
(41,742
|
)
|
|
|
(70.6
|
)
|
Goodwill and intangible asset impairment
|
|
|
738
|
|
|
|
181,285
|
|
|
|
(180,547
|
)
|
|
|
(99.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
641,551
|
|
|
|
929,407
|
|
|
|
(287,856
|
)
|
|
|
(31.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(105,906
|
)
|
|
|
(300,628
|
)
|
|
|
194,722
|
|
|
|
64.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of unconsolidated entities
|
|
|
(1,148
|
)
|
|
|
(13,311
|
)
|
|
|
12,163
|
|
|
|
91.4
|
|
Interest income
|
|
|
555
|
|
|
|
902
|
|
|
|
(347
|
)
|
|
|
(38.5
|
)
|
Gain on extinguishment of debt
|
|
|
21,935
|
|
|
|
|
|
|
|
21,935
|
|
|
|
|
|
Other
|
|
|
404
|
|
|
|
(6,458
|
)
|
|
|
6 862
|
|
|
|
106.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
21,746
|
|
|
|
(18,867
|
)
|
|
|
40,613
|
|
|
|
215.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax provision
|
|
|
(84,160
|
)
|
|
|
(319,495
|
)
|
|
|
235,335
|
|
|
|
73.7
|
|
Income tax benefit
|
|
|
1,175
|
|
|
|
827
|
|
|
|
348
|
|
|
|
42.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(82,985
|
)
|
|
|
(318,668
|
)
|
|
|
235,683
|
|
|
|
74.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(4,956
|
)
|
|
|
(24,278
|
)
|
|
|
19,322
|
|
|
|
79.6
|
|
Gain on disposal of discontinued operations net of
taxes
|
|
|
7,442
|
|
|
|
357
|
|
|
|
7,085
|
|
|
|
1,984.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations
|
|
|
2,486
|
|
|
|
(23,921
|
)
|
|
|
26,407
|
|
|
|
110.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(80,499
|
)
|
|
|
(342,589
|
)
|
|
|
262,090
|
|
|
|
76.5
|
|
Net loss attributable to noncontrolling interests
|
|
|
(1,661
|
)
|
|
|
(11,719
|
)
|
|
|
10,058
|
|
|
|
85.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
|
(78,838
|
)
|
|
|
(330,870
|
)
|
|
|
252,032
|
|
|
|
76.2
|
|
Preferred stock dividends
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(80,608
|
)
|
|
$
|
(330,870
|
)
|
|
$
|
250,262
|
|
|
|
75.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Revenue
Management
Services Revenue
Management Services revenue increased $21.0 million, or
8.3% to $274.7 million for the year ended December 31,
2009, compared to approximately $253.7 million for the same
period in 2008 due to an increase in the square feet under
management. As of December 31, 2009, the Company managed
approximately 240.7 million square feet of commercial real
estate and multi-family property, including 24.3 million
square feet of the Companys Investment Management
portfolio compared to 231.0 million square feet of property
as of December 31, 2008.
Transaction
Services Revenue
Transaction Services revenue decreased $66.9 million or
27.8% to $173.4 million for the year ended
December 31, 2009, compared to approximately
$240.3 million for the same period in 2008 due to reduced
sales and leasing transaction volume and values as a result of
the declining real estate market. Leasing activity represented
approximately 80% of the total Transaction Services revenue in
2009, while investment sales accounted for 20% of total revenue.
In 2008, the revenue breakdown was 77% leasing and 23%
investment sales. As of December 31, 2009,
Grubb & Ellis had 824 brokers, up from 805 as of
December 31, 2008.
Investment
Management Revenue
Investment Management revenue decreased $44.3 million or
43.6% to $57.3 million for the year ended December 31,
2009, compared to approximately $101.6 million for the same
period in 2008. Investment Management revenue reflects revenue
generated through the fee structure of the various investment
products which includes acquisition and loan fees of
approximately $12.8 million and management fees from
sponsored programs of $31.2 million. Key drivers of this
business are the dollar value of equity raised, the amount of
transactions that are generated in the investment product
platforms and the amount of assets under management.
In total, $554.7 million in equity was raised for the
Companys investment programs for the year ended
December 31, 2009, compared with $984.3 million in the
same period in 2008. The decrease was driven by a decrease in
TIC equity raised and Private Client Management equity raised.
During the year ended December 31, 2009, the Companys
public non-traded REIT programs raised $536.9 million, a
decrease of 9.4% from the $592.7 million equity raised in
the same period in 2008. The Companys TIC programs raised
$15.5 million in equity during the year ended
December 31, 2009, compared with $176.9 million in the
same period in 2008. The decrease in TIC equity raised for the
year ended December 31, 2009 reflects the continued decline
in current market conditions. The decrease in equity raised by
the Companys public non-traded REITs is a result of the
termination of the dealer-manager agreement of the
Companys first sponsored healthcare REIT in August 2009
and the
start-up of
the Companys new Healthcare REIT II program which
commenced sales on September 21, 2009. No equity was raised
by Private Client Management in 2009 compared with
$193.3 million in equity raised in 2008.
Acquisition and loan fees decreased approximately
$20.3 million, or 61.3%, to $12.8 million for the year
ended December 31, 2009, compared to approximately
$33.1 million for the same period in 2008. The
year-over-year
decrease in acquisition and loan fees was primarily attributed
to a decrease of approximately $7.4 million in fees earned
from the Companys TIC Programs, a decrease of
approximately $8.6 million in fees earned from the
Companys non-traded REIT programs and a decrease of
approximately $4.2 million in fees earned from Private
Client Management.
Disposition fees decreased approximately $4.6 million, or
100.0%, to zero for the year ended December 31, 2009,
compared to approximately $4.6 million for the same period
in 2008. Offsetting the disposition fees during the year ended
December 31, 2008 was $1.2 million of amortization of
identified intangible contract rights associated with the
acquisition of Realty as they represent the right to future
disposition fees of a portfolio of real properties under
contract.
Management fees from sponsored programs decreased approximately
$6.8 million or 17.9% to $31.2 million for the year
ended December 31, 2009 which primarily reflects lower
average fees on TIC programs and the termination of management
services for the Companys first sponsored healthcare REIT
in September 2009.
45
Rental
Revenue
Rental revenue includes pass-through revenue for the master
lease accommodations related to the Companys TIC Programs.
Rental revenue also includes revenue from two properties held
for investment.
Operating
Expense Overview
Operating expenses decreased $287.9 million, or 31.0%, to
$641.6 million for the year ended December 31, 2009,
compared to $929.4 million for the same period in 2008.
This decrease reflects decreases in compensation costs from
lower commissions paid and synergies created as a result of the
Merger of $33.5 million and decreases of merger related
costs of $14.7 million and general and administrative
expense of $19.8 million offset by an increase in provision
for doubtful accounts of $4.9 million. The Company
recognized real estate impairments of $17.4 million during
the year ended December 31, 2009, a decrease of
$41.7 million over the same period last year. In addition,
the Company recognized goodwill and intangible asset impairment
of $0.7 million during the year ended
December 31, 2009, a decrease of $180.5 million over
the same period last year as the Company wrote off all of its
goodwill during the year ended December 31, 2008. Partially
offsetting the overall decrease was an increase in interest
expense of $1.2 million for the year ended
December 31, 2009 related to the Companys line of
credit.
Compensation
Costs
Compensation costs decreased approximately $33.5 million,
or 6.7%, to $469.5 million for the year ended
December 31, 2009, compared to approximately
$503.0 million for the same period in 2008 due to a
decrease in transaction commissions and related costs of
$39.2 million as a result of a decrease in sales and
leasing activity and a decrease in other compensation costs of
$12.9 million related to a reduction in headcount and
decreases in salaries partially offset by an increase in
reimbursable salaries, wages and benefits of $18.6 million
as a result of the growth in square feet under management. The
following table summarizes compensation costs by segment for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
MANAGEMENT SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
$
|
36,701
|
|
|
$
|
39,125
|
|
|
$
|
(2,424
|
)
|
Transaction commissions and related costs
|
|
|
12,623
|
|
|
|
8,581
|
|
|
|
4,042
|
|
Reimbursable salaries, wages and benefits
|
|
|
193,682
|
|
|
|
178,058
|
|
|
|
15,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
243,006
|
|
|
|
225,764
|
|
|
|
17,242
|
|
TRANSACTION SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
44,274
|
|
|
|
50,272
|
|
|
|
(5,998
|
)
|
Transaction commissions and related costs
|
|
|
112,398
|
|
|
|
155,668
|
|
|
|
(43,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
156,672
|
|
|
|
205,940
|
|
|
|
(49,268
|
)
|
INVESTMENT MANAGEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
26,275
|
|
|
|
30,254
|
|
|
|
(3,979
|
)
|
Transaction commissions and related costs
|
|
|
84
|
|
|
|
18
|
|
|
|
66
|
|
Reimbursable salaries, wages and benefits
|
|
|
9,430
|
|
|
|
6,458
|
|
|
|
2,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,789
|
|
|
|
36,730
|
|
|
|
(941
|
)
|
Compensation costs related to corporate overhead
|
|
|
34,071
|
|
|
|
34,570
|
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation costs
|
|
$
|
469,538
|
|
|
$
|
503,004
|
|
|
$
|
(33,466
|
)
|
General
and Administrative
General and administrative expense decreased approximately
$19.7 million, or 19.8%, to $80.1 million for the year
ended December 31, 2009, compared to $99.8 million for
the same period in 2008 due to a decrease of $9.1 million
related to an estimate of probable loss recorded during the year
ended December 31, 2008
46
related to recourse guarantees of debt of properties under
management and various decreases related to managements
cost saving efforts.
General and administrative expense was 14.9% of total revenue
for the year ended December 31, 2009, compared with 15.9%
for the same period in 2008.
Provision
for Doubtful Accounts
Provision for doubtful accounts increased approximately
$4.9 million, or 24.9%, to $24.8 million for the year
ended December 31, 2009, compared to $19.8 million for
the same period in 2008 primarily due to an increase in reserves
on related party receivables and advances to sponsored
investment programs.
Depreciation
and Amortization
Depreciation and amortization expense decreased approximately
$3.7 million, or 23.1%, to $12.3 million for the year
ended December 31, 2009, compared to approximately
$16.0 million for the same period in 2008. The decrease is
primarily due to two properties the Company held for investment
as of December 31, 2009. One of these properties was held
for sale through June 30, 2009 and the other was held for
sale through September 30, 2009. In accordance with the
provisions of Property, Plant, and Equipment Topic,
management determined that the carrying value of each
property, before each property was classified as held for
investment (adjusted for any depreciation and amortization
expense and impairment losses that would have been recognized
had the asset been continuously classified as held for
investment) was greater than the carrying value net of selling
costs, of the property at the date of the subsequent decision
not to sell. Therefore, the Company made no additional
adjustments to the carrying value of the assets as of
December 31, 2009 and no depreciation expense was recorded
during the period each property was held for sale. Included in
depreciation and amortization expense was $4.2 million for
amortization of other identified intangible assets.
Rental
Expense
Rental expense includes pass-through expenses for master lease
accommodations related to the Companys TIC Programs.
Rental expense also includes expense from two properties held
for investment.
Interest
Expense
Interest expense increased approximately $1.2 million, or
8.7%, to $15.4 million for the year ended December 31,
2009, compared to $14.2 million for the same period in
2008. The increase in interest expense includes increases
related to the Credit Facility due to additional borrowings in
2009, an increase in the interest rate to LIBOR plus
800 basis points from LIBOR plus 300 basis points as a
result of the 3
rd
amendment to the Credit Facility and the write off of loan fees
related to the Credit Facility.
Merger
Related Costs
Merger related costs include transaction costs related to the
Merger, facilities and systems consolidation costs and
employment-related costs. The Company incurred
$14.7 million of Merger related transaction costs during
the year ended December 31, 2008 as a result of completing
the Merger transaction on December 7, 2007.
Real
Estate Related Impairments
The Company recognized impairment charges of approximately
$17.4 million during the year ended December 31, 2009,
which includes $10.3 million related to certain
unconsolidated real estate investments and funding commitments
for obligations related to certain of the Companys
sponsored real estate programs and $7.1 million related to
two properties held for investment as of December 31, 2009.
The Company recognized an impairment charge of approximately
$59.2 million during the year ended December 31, 2008,
which includes $18.0 million related to certain
unconsolidated real estate investments and $41.2 million
related to two properties held for investment. In addition, the
Company recognized impairment charges of approximately
47
$6.6 million and $31.2 million during the year ended
December 31, 2009 and 2008, respectively, related to two
properties sold and two properties effectively abandoned under
the accounting standards during the year ended December 31,
2009, for which the net income (loss) of the properties are
classified as discontinued operations. See Discontinued
Operations discussion below.
Goodwill
and Intangible Assets Impairment
The Company recognized a goodwill and intangible assets
impairment charge of approximately $181.3 million during
the year ended December 31, 2008. The total impairment
charge of $181.3 million is comprised of
$172.7 million related to goodwill impairment and
$8.6 million related to the impairment of intangible
contract rights. During the fourth quarter of 2008, the Company
identified the uncertainty surrounding the global economy and
the volatility of the Companys market capitalization as
goodwill impairment indicators. The Companys goodwill
impairment analysis resulted in the recognition of an impairment
charge of approximately $172.7 million during the year
ended December 31, 2008. The Company also analyzed its
trade name for impairment pursuant to the requirements of the
Intangibles Goodwill and Other Topic and determined
that the trade name was not impaired as of December 31,
2009 and 2008. Accordingly, no impairment charge was recorded
related to the trade name during the years ended
December 31, 2009 and 2008. In addition to testing goodwill
and its trade name for impairment, the Company tested the
intangible contract rights for impairment during the fourth
quarter of 2008 and during the year ended December 31,
2009. The intangible contract rights represent the legal right
to future disposition fees of a portfolio of real estate
properties under contract. As a result of the current economic
environment, a portion of these disposition fees may not be
recoverable. Based on managements analysis for the current
and projected property values, condition of the properties and
status of mortgage loans payable associated with these contract
rights, the Company determined that there are certain properties
for which receipt of disposition fees was improbable. As a
result, the Company recorded an impairment charge of
approximately $0.7 million and $8.6 million related to
the impaired intangible contract rights during the years ended
December 31, 2009 and 2008, respectively.
Equity in
Earnings (Losses) of Unconsolidated Real Estate
Equity in losses includes $1.1 million and
$13.3 million for the years ended December 31, 2009
and 2008, respectively. Equity in losses of $1.1 million
and $7.5 million were recorded during the years ended
December 31, 2009 and 2008, respectively, related to the
Companys investment in five joint ventures and seven LLCs
that are consolidated pursuant to the requirements of the
Consolidation Topic. Equity in earnings (losses) are recorded
based on the pro rata ownership interest in the underlying
unconsolidated properties. In addition, equity in losses for the
year ended December 31, 2008 includes a $5.8 million
write off of the Companys investment in GERA in the first
quarter of 2008, which includes $4.5 million related to
stock and warrant purchases and $1.3 million related to
operating advances and third party costs.
Gain on
Extinguishment of Debt
Gain on extinguishment of debt includes a $21.9 million
gain on forgiveness of debt related to the repayment of the
Credit Facility in full at a discounted amount and termination
of the Credit Facility on November 6, 2009.
Other
Income (Expense)
Other income of $0.4 million for the year ended
December 31, 2009 includes investment income related to
Alesco. Other expense of $6.5 million for the year ended
December 31, 2008, includes $4.6 million of investment
losses related to Alesco and a $1.8 million loss on sale of
marketable equity securities.
Discontinued
Operations
In accordance with the requirements of the Property, Plant and
Equipment Topic, discontinued operations includes the net income
(loss) of two properties that were sold and two properties that
were effectively
48
abandoned under the accounting standards during the year ended
December 31, 2009. The net income of $2.5 million for
the year ended December 31, 2009 includes a
$7.4 million gain on sale, net of taxes, related to the
sale of the Danbury Property on June 3, 2009 and the
deconsolidation of the Abrams and Shafer properties during the
fourth quarter of 2009 and a $5.0 million loss from
discontinued operations, net of taxes, which includes
$6.6 million of real estate related impairments. The net
loss of $23.9 million for the year ended December 31,
2008 includes a $0.4 million gain on sale, net of taxes,
and a $24.3 million loss from discontinued operations, net
of taxes, which includes $31.2 million of real estate
related impairments.
Income
Tax
The Company recognized a tax benefit from continuing operations
of approximately $1.2 million for the year ended
December 31, 2009, compared to a tax benefit of
$0.8 million for the same period in 2008. In 2009 and 2008,
the reported effective income tax rates were 1.40% and 0.3%,
respectively. The 2009 effective income tax rate reflects the
adoption of the requirements of the amended Consolidation Topic.
The 2009 and 2008 effective tax rates include the effect of
valuation allowances recorded against deferred tax assets to
reflect our assessment that it is more likely than not that some
portion of the deferred tax assets will not be realized. The
Companys deferred tax assets are primarily attributable to
impairments of various real estate holdings, net operating
losses and share-based compensation. (See Note 24 of the
Notes to Consolidated Financial Statements in Item 8 of
this Report for additional information.)
Net Loss
Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests decreased by
$10.1 million, or 85.8%, to $1.7 million during the
year ended December 31, 2009, compared to net loss
attributable to noncontrolling interests of $11.7 million
for the same period in 2008. Net loss attributable to
noncontrolling interests includes $3.7 million and
$8.6 million in real estate related impairments recorded at
the underlying properties during the years ended
December 31, 2009 and 2008, respectively.
Net Loss
Attributable to Grubb & Ellis Company
As a result of the above items, the Company recognized a net
loss of $78.8 million for the year ended December 31,
2009, compared to a net loss of $330.9 million for the same
period in 2008.
Net Loss
Attributable to Grubb & Ellis Company Common
Shareowners
The Company paid $1.8 million in preferred stock dividends
during the year ended December 31, 2009 resulting in a net
loss attributable to the Companys common shareowners of
$80.6 million, or $1.27 per diluted share, for the year
ended December 31, 2009, compared to a net loss
attributable to the Companys common shareowners of
$330.9 million, or $5.21 per diluted share, for the same
period in 2008.
49
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
As a result of the Merger on December 7, 2007, the
operating results for the twelve months ended December 31,
2007 includes the full year operating results of legacy NNN and
the operating results of legacy Grubb & Ellis for the
period from December 8, 2007 through December 31,
2007. The following summarizes comparative results of operations
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
(In thousands)
|
|
2008
|
|
|
2007(1)
|
|
|
$
|
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services
|
|
$
|
253,664
|
|
|
$
|
16,365
|
|
|
$
|
237,299
|
|
|
|
1,450.0
|
%
|
Transaction services
|
|
|
240,250
|
|
|
|
35,522
|
|
|
|
204,728
|
|
|
|
576.3
|
|
Investment management
|
|
|
101,581
|
|
|
|
149,651
|
|
|
|
(48,070
|
)
|
|
|
(32.1
|
)
|
Rental related
|
|
|
33,284
|
|
|
|
28,119
|
|
|
|
5,165
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
628,779
|
|
|
|
229,657
|
|
|
|
399,122
|
|
|
|
173.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
503,004
|
|
|
|
104,109
|
|
|
|
398,895
|
|
|
|
383.2
|
|
General and administrative
|
|
|
99,829
|
|
|
|
42,860
|
|
|
|
56,969
|
|
|
|
132.9
|
|
Provision for doubtful accounts
|
|
|
19,831
|
|
|
|
1,391
|
|
|
|
18,440
|
|
|
|
1,325.7
|
|
Depreciation and amortization
|
|
|
16,028
|
|
|
|
9,321
|
|
|
|
6,707
|
|
|
|
72.0
|
|
Rental related
|
|
|
21,377
|
|
|
|
20,839
|
|
|
|
538
|
|
|
|
2.6
|
|
Interest
|
|
|
14,207
|
|
|
|
10,818
|
|
|
|
3,389
|
|
|
|
31.3
|
|
Merger related costs
|
|
|
14,732
|
|
|
|
6,385
|
|
|
|
8,347
|
|
|
|
130.7
|
|
Real estate related impairments
|
|
|
59,114
|
|
|
|
|
|
|
|
59,114
|
|
|
|
|
|
Goodwill and intangible asset impairment
|
|
|
181,285
|
|
|
|
|
|
|
|
181,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
929,407
|
|
|
|
195,723
|
|
|
|
733,684
|
|
|
|
374.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
(300,628
|
)
|
|
|
33,934
|
|
|
|
(334,562
|
)
|
|
|
(985.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (losses) earnings of unconsolidated entities
|
|
|
(13,311
|
)
|
|
|
2,029
|
|
|
|
(15,340
|
)
|
|
|
(756.0
|
)
|
Interest income
|
|
|
902
|
|
|
|
2,996
|
|
|
|
(2,094
|
)
|
|
|
(69.9
|
)
|
Other
|
|
|
(6,458
|
)
|
|
|
(465
|
)
|
|
|
(5,993
|
)
|
|
|
(1,288.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(18,867
|
)
|
|
|
4,560
|
|
|
|
(23,427
|
)
|
|
|
(513.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax
provision
|
|
|
(319,495
|
)
|
|
|
38,494
|
|
|
|
(357,989
|
)
|
|
|
(930.0
|
)
|
Income tax benefit (provision)
|
|
|
827
|
|
|
|
(14,753
|
)
|
|
|
15,580
|
|
|
|
105.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(318,668
|
)
|
|
|
23,741
|
|
|
|
(342,409
|
)
|
|
|
(1,442.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(24,278
|
)
|
|
|
(960
|
)
|
|
|
(23,318
|
)
|
|
|
(2,429.0
|
)
|
Gain on disposal of discontinued operations net of
taxes
|
|
|
357
|
|
|
|
252
|
|
|
|
105
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss from discontinued operations
|
|
|
(23,921
|
)
|
|
|
(708
|
)
|
|
|
(23,213
|
)
|
|
|
(3,278.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
|
(342,589
|
)
|
|
|
23,033
|
|
|
|
(365,622
|
)
|
|
|
(1,587.4
|
)
|
Net (loss) income attributable to noncontrolling interests
|
|
|
(11,719
|
)
|
|
|
1,961
|
|
|
|
(13,680
|
)
|
|
|
(697.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company
|
|
$
|
(330,870
|
)
|
|
$
|
21,072
|
|
|
$
|
(351,942
|
)
|
|
|
(1,670.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on GAAP, the operating results for twelve months ended
December 31, 2007 includes the results of NNN for the full
periods presented and the results of the legacy
Grubb & Ellis business for the period from
December 8, 2007 through December 31, 2007. |
50
Revenue
Management
Services Revenue
Management Services revenue was $253.7 million for the year
ended December 31, 2008 and $16.4 million from
December 8, 2007 through December 31, 2007. Following
the closing of the merger, Grubb & Ellis Management
Services assumed management of nearly 27.1 million square
feet of NNNs 46.9 million-square-foot Investment
Management portfolio. As of December 31, 2008, the Company
managed 231.0 million square feet of property.
Transaction
Services Revenue
Transaction Services revenue was $240.3 million for the
year ended December 31, 2008 and $35.5 million from
December 8, 2007 through December 31, 2007. As of
December 31, 2008, legacy Grubb & Ellis had 805
brokers, down from 927 as of December 31, 2007.
Investment
Management Revenue
Investment management revenue of $101.6 million for the
year ended December 31, 2008 was comprised primarily of
transaction fees of $43.4 million, asset and property
management fees of $38.0 million and dealer-manager fees of
$15.1 million.
Transaction related fees decreased $39.8 million, or 47.8%,
to $43.4 million for the year ended December 31, 2008,
compared to approximately $83.2 million for the same period
in 2007. The
year-over-year
decrease in transaction fees was primarily due to decreases of
$14.6 million in real estate acquisition fees,
$13.5 million in real estate disposition fees,
$5.0 million in OMEA fees, and $6.6 million in other
transaction related fees.
Acquisition fees decreased approximately $14.6 million, or
31.3%, to $32.1 million for the year ended
December 31, 2008, compared to approximately
$46.7 million for the same period in 2007. The
year-over-year
decrease in acquisition fees was primarily attributed to a
decrease of approximately $19.1 million in fees earned from
the Companys TIC Programs and a decrease of approximately
$2.8 million in fees earned from the Companys other
real estate funds and joint ventures, partially offset by an
increase of $3.1 million from the non-traded REIT programs
and $4.2 million from Private Client Management.
Disposition fees decreased approximately $13.5 million, or
74.5%, to approximately $4.6 million for the year ended
December 31, 2008, compared to approximately
$18.2 million for the same period in 2007. The decrease
reflects lower sales volume and lower sales values due to
current market conditions. Offsetting the disposition fees
during the year ended December 31, 2008 and 2007 was
$1.2 million and $3.2 million, respectively, of
amortization of identified intangible contract rights associated
with the acquisition of Realty as they represent the right to
future disposition fees of a portfolio of real properties under
contract.
OMEA fees decreased approximately $5.0 million, or 54.3%,
to $4.2 million for the year ended December 31, 2008,
compared to approximately $9.1 million for the same period
in 2007. The decrease in OMEA fees earned was primarily due to a
decline in TIC equity raised, declining to $176.9 million
in TIC equity raised in 2008, compared to $452.2 million in
TIC equity raised in 2007.
Management fees from sponsored programs decreased approximately
7.5%
year-over-year
and include the movement of approximately $6.8 million of
revenue to the Companys management services segment.
Exclusive of this transfer of revenue, management fees from
sponsored programs increased approximately 9.1%
year-over-year.
Rental
Revenue
Rental revenue includes pass-through revenue for the master
lease accommodations related to the Companys TIC Programs.
Rental revenue also includes revenue from two properties held
for investment.
51
Operating
Expense Overview
Operating expenses increased $733.7 million, or 374.9%, to
$929.4 million for the year ended December 31, 2008,
compared to $195.7 million for the same period in 2007. The
increase includes approximately $455.6 million due to the
legacy Grubb & Ellis business, $59.2 million in
real estate related impairments, $181.3 million in goodwill
and intangible asset impairments, a $28.0 million charge
which includes an allowance for bad debt on related party
receivables and advances and an expected loss on the sale of two
properties under management for which the Company has a recourse
obligation, $8.3 million due to additional merger related
costs and $4.2 million in additional non-cash stock based
compensation.
Compensation
costs
Compensation costs increased $398.9 million, or 383.2%, to
$503.0 million for the year ended December 31, 2008,
compared to $104.1 million for the same period in 2007 due
to approximately $406.3 million of compensation costs
attributed to legacy Grubb & Ellis operations.
Compensation costs related to the investment management business
decreased approximately 9.4% to $56.6 million, for the year
ended December 31, 2008, compared to $62.5 million for
the same period in 2007. Included in the compensation cost was
non-cash share-based compensation expense which increased by
$4.2 million to $11.7 million for the year ended
December 31, 2008 compared to $7.5 million for the
same period in 2007.
General
and Administrative
General and administrative expense increased approximately
$56.9 million, or 132.9%, to $99.8 million for the
year ended December 31, 2008, compared to
$42.9 million for the same period in 2007 due to
approximately $48.4 million of general and administration
expenses attributed to legacy Grubb & Ellis operations
and a $9.1 million charge related to an estimate of
probable loss recorded during the year ended December 31,
2008 related to recourse guarantees of debt of properties under
management.
General and administrative expense was 15.9% of total revenue
for the year ended December 31, 2008, compared with 18.7%
for the same period in 2007.
Provision
for Doubtful Accounts
Provision for doubtful accounts increased approximately
$18.4 million, or 1,325.7%, to $19.8 million for the
year ended December 31, 2008, compared to $1.4 million
for the same period in 2007 primarily due to an increase in
reserves on related party receivables and advances to sponsored
investment programs.
Depreciation
and Amortization
Depreciation and amortization increased approximately
$6.7 million, or 72.0%, to $16.0 million for the year
ended December 31, 2008, compared to $9.3 million for
the same period in 2007. The increase includes approximately
$6.3 million due to the legacy Grubb & Ellis
business. Included in depreciation and amortization expense for
the year ended December 31, 2008 was approximately
$3.5 million for amortization of other identified
intangible assets.
Rental
Expense
Rental expense includes pass-through expenses for master lease
accommodations related to the Companys TIC Programs.
Rental expense also includes expense from two properties held
for investment.
Interest
Expense
Interest expense increased approximately $3.4 million, or
31.3%, to $14.2 million for the year ended
December 31, 2008, compared to $10.8 million for the
same period in 2007. Interest expense is primarily comprised of
interest expense related to the Companys Line of Credit
and two properties held for investment.
52
Merger
Related Costs
Merger related costs include costs transaction costs related to
the Merger, facilities and systems consolidation costs and
employment-related costs. The Company incurred
$14.7 million and $6.4 million of Merger related
transaction costs during the years ended December 31, 2008
and 2007, respectively, as a result of completing the Merger
transaction on December 7, 2007.
Real
Estate Related Impairments
The Company recognized an impairment charge of approximately
$59.2 million during the year ended December 31, 2008,
which includes $18.0 million related to certain
unconsolidated real estate investments and $41.2 million
related to two properties held for investment. In addition, the
Company recognized impairment charges of approximately
$31.2 million related to four properties sold during the
year ended December 31, 2009, for which the net income
(loss) of the properties are classified as discontinued
operations for the year ended December 31, 2008. See
Discontinued Operations discussion below.
Goodwill
and Intangible Assets Impairment
The Company recognized a goodwill and intangible assets
impairment charge of approximately $181.3 million during
the year ended December 31, 2008. The total impairment
charge of $181.3 million is comprised of
$172.7 million related to goodwill impairment and
$8.6 million related to the impairment of intangible
contract rights. During the fourth quarter of 2008, the Company
identified the uncertainty surrounding the global economy and
the volatility of the Companys market capitalization as
goodwill impairment indicators. The Companys goodwill
impairment analysis resulted in the recognition of an impairment
charge of approximately $172.7 million during the year
ended December 31, 2008. The Company also analyzed its
trade name for impairment pursuant to the requirements of the
Intangibles Goodwill and Other Topic and determined
that the trade name was not impaired as of December 31,
2008. Accordingly, no impairment charge was recorded related to
the trade name during the year ended December 31, 2008. In
addition to testing goodwill and its trade name for impairment,
the Company tested the intangible contract rights for impairment
during the fourth quarter of 2008. The intangible contract
rights represent the legal right to future disposition fees of a
portfolio of real estate properties under contract. As a result
of the current economic environment, a portion of these
disposition fees may not be recoverable. Based on
managements analysis for the current and projected
property values, condition of the properties and status of
mortgage loans payable associated with these contract rights,
the Company determined that there are certain properties for
which receipt of disposition fees was improbable. As a result,
the Company recorded an impairment charge of approximately
$8.6 million related to the impaired intangible contract
rights as of December 31, 2008.
Equity in
Earnings (Losses) of Unconsolidated Real Estate
In the first quarter of 2008, the Company wrote off its
investment in GERA, which resulted in a net impact of
approximately $5.8 million, including $4.5 million
related to stock and warrant purchases and $1.3 million
related to operating advances and third party costs. In
addition, equity in losses for the year ended December 31,
2008 includes a $7.5 million loss related to the
Companys investment in five joint ventures and seven LLCs
that are consolidated pursuant to the requirements of the
Consolidation Topic. Equity in earnings (losses) are recorded
based on the pro rata ownership interest in the underlying
unconsolidated properties.
Other
Income (Expense)
Other expense of $6.5 million for the year ended
December 31, 2008, includes $4.6 million of investment
losses related to Alesco and a $1.8 million loss on sale of
marketable equity securities.
Discontinued
Operations
In accordance with the requirements of the Property, Plant, and
Equipment Topic, for the year ended December 31, 2008,
discontinued operations primarily includes the net income (loss)
of two properties that
53
were sold and two properties that were effectively abandoned
under the accounting standards during the year ended
December 31, 2009. The net loss of $23.9 million for
the year ended December 31, 2008 includes a
$0.4 million gain on sale, net of taxes, and a
$24.3 million loss from discontinued operations, net of
taxes, which includes $31.2 million of real estate related
impairments. The net loss of $0.7 million for the year
ended December 31, 2007 includes a $0.3 million gain
on sale, net of taxes, and a $1.0 million loss from
discontinued operations, net of taxes.
Income
Tax
The Company recognized a tax benefit from continuing operations
of approximately $0.8 million for the year ended
December 31, 2008, compared to a tax expense of
$14.8 million for the same period in 2007. In 2008 and
2007, the reported effective income tax rates were 0.3% and
38.3%, respectively. The 2008 effective tax rate was negatively
impacted by impairments of Goodwill and the recording of a
valuation allowance against deferred tax assets to the extent
the realization of the associated tax benefit is not
more-likely-than-not. Based on managements evaluation of
the Companys tax position, it is believed the amounts
related to the valuation allowances are appropriately accrued.
The Companys deferred tax assets are primarily
attributable to impairments of various real estate holdings.
(See Note 24 of the Notes to Consolidated Financial
Statements in Item 8 of this Report for additional
information.)
Net
(Loss) Income Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests increased by
$13.7 million, or 697.6%, to $11.7 million during the
year ended December 31, 2008, compared to net income
attributable to noncontrolling interests of $2.0 million
for the same period in 2007. Net loss attributable to
noncontrolling interests includes $8.6 million in real
estate related impairments recorded at the underlying properties
during the year ended December 31, 2008.
Net
(Loss) Income Attributable to Grubb & Ellis
Company
As a result of the above items, the Company recognized a net
loss of approximately $330.9 million, or $5.21 per diluted
share for the year ended December 31, 2008, compared to net
income of $21.1 million, or $0.53 per diluted share, for
the same period in 2007.
Liquidity
and Capital Resources
Current
Sources of Capital and Liquidity
The Company believes that it will have sufficient capital
resources to satisfy its liquidity needs over the next
twelve-month period. The Company expects to meet its short-term
liquidity needs, which may include principal repayments of
mortgage debt in connection with recourse guarantee obligations,
investments in various real estate investor programs and
institutional funds and capital expenditures, through current
and retained cash flow earnings, and proceeds from the potential
issuance of equity securities and the potential sale of other
assets.
During 2008 and 2009, the Company entered into four amendments
to its Credit Facility on August 5, 2008, November 4,
2008, May 20, 2009 and September 30, 2009. The final
amendment, among other things, extended the time to effect a
recapitalization under its Credit Facility from
September 30, 2009 to November 30, 2009. Pursuant to
the final amendment, the Company also received the right to
prepay its Credit Facility in full at any time on or prior to
November 30, 2009 at a discounted amount equal to 65% of
the aggregate principal amount outstanding. On November 6,
2009, concurrently with the closing of the private placement of
12% Preferred Stock, the Company repaid its Credit Facility in
full at the discounted amount and the Credit Facility was
terminated in accordance with its terms.
54
Long-Term
Liquidity Needs
The Company expects to meet its long-term liquidity needs, which
may include principal repayments of debt obligations,
investments in various real estate investor programs and
institutional funds and capital expenditures, through current
and retained cash flow earnings, the sale of real estate
properties and proceeds from the potential issuance of debt or
equity securities and the potential sale of other assets. The
Company may seek to obtain new secured or unsecured lines of
credit in the future, although the Company can provide no
assurance that it will find financing on favorable terms or at
all.
Factors
That May Influence Future Sources of Capital and
Liquidity
On November 16, 2007, the Company completed the acquisition
of a 51% membership interest in Grubb & Ellis Alesco
Global Advisors, LLC (Alesco). Pursuant to the
Intercompany Agreement between the Company and Alesco, dated as
of November 16, 2007, the Company committed to invest
$20.0 million in seed capital into the open and closed end
real estate funds that Alesco expects to launch. Additionally,
upon achievement of certain earn-out targets, the Company would
be required to purchase up to an additional 27% interest in
Alesco for $15.0 million. The Company is allowed to use
$15.0 million of seed capital to fund the earn-out
payments. As of December 31, 2009, the Company has invested
$0.5 million in seed capital into the open and closed end
real estate funds that Alesco launched during 2008. In 2010, the
Company projects to have cash outflows of approximately
$2.8 million related to investments and working capital
contributions. In addition, the Company may launch, subject to
the agreement and control of the operating partners, two
additional closed end funds which could require seed capital up
to $5.0 million. The Company anticipates that such amounts will
only be funded to the extent the Company has available cash to
contribute into the Alesco funds.
Cash
Flow
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Net cash used in operating activities increased
$28.4 million to $62.0 million for the year ended
December 31, 2009, compared to net cash used in operating
activities of $33.6 million for the same period in 2008.
Net cash used in operating activities included a decrease in net
loss of $262.1 million adjusted for decreases in non-cash
reconciling items, the most significant of which included
$180.5 million in goodwill impairment, $66.4 million
in real estate related impairments, $11.0 million in
depreciation and amortization, $0.9 million as a result of
amortizing the identified intangible contract rights associated
with the acquisition of Realty, partially offset by a
$4.9 million increase in deferred taxes. Also contributing
to this increase in net cash used in operating activities were
net changes in other operating assets and liabilities of
$36.3 million.
Net cash provided by (used in) investing activities was
$97.2 million and ($76.3) million for the years ended
December 31, 2009 and 2008, respectively. For the year
ended December 31, 2009, net cash provided by investing
activities related primarily to proceeds from the sale of
properties of $93.5 million. For the year ended
December 31, 2008, net cash used in investing activities
related primarily to the acquisition of properties of
$122.2 million and investments in unconsolidated entities
of $29.2 million offset by proceeds from repayment of
advances to related parties net of advances to related parties
of $6.9 million and proceeds from collection of real estate
deposits and pre-acquisition costs net of payment of real estate
deposits and pre-acquisition costs of $59.1 million.
Net cash (used in) provided by financing activities was
($29.1) million and $93.6 million for the years ended
December 31, 2009 and 2008, respectively. For the year
ended December 31, 2009, net cash used in financing
activities related primarily to repayment of advances on the
line of credit of $56.3 million and repayment of notes
payable and capital lease obligations of $79.4 million
offset by advances on the line of credit of $15.2 million,
proceeds from the issuance of senior notes of $5.0 million
and proceeds from the issuance of preferred stock of
$85.1 million. For the year ended December 31, 2008,
net cash provided by financing activities related primarily to
advances on the line of credit of $55.0 million and
borrowings on notes payable and capital lease obligations of
$103.3 million offset by repayments of notes payable and
capital lease obligations of $56.4 million.
55
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Net cash used in operating activities increased
$67.2 million to $33.6 million for the year ended
December 31, 2008, compared to net cash provided by
operating activities of $33.5 million for the same period
in 2007. Net cash used in operating activities included a
decrease in net income of $365.6 million adjusted for an
increase in non-cash reconciling items, the most significant of
which was $181.3 million in goodwill impairment,
$90.4 million in real estate related impairments,
$11.7 million in share-based compensation,
$29.0 million in depreciation and amortization primarily
related to five properties held for sale, $1.2 million as a
result of amortizing the identified intangible contract rights
associated with the acquisition of Realty, partially offset by a
$3.3 million increase in deferred taxes. Also contributing
to this increase was cash used in net changes in other operating
assets and liabilities of $36.3 million.
Net cash used in investing activities decreased
$410.6 million to $76.3 million for the year ended
December 31, 2008, compared to $486.9 million for the
same period in 2007. This decrease in cash used in investing
activities was primarily related to a decrease of
$483.0 million of cash used in the acquisition and related
improvements of office properties and asset purchases for
sponsored TIC Programs, partially offset by $92.9 million
in proceeds from the sales of certain real estate assets in 2007.
Net cash provided by financing activities decreased
$306.9 million to $93.6 million for the year ended
December 31, 2008, compared to $400.5 million for the
same period in 2007. The decrease was primarily due to a
decrease of $443.7 million in borrowings on notes payable
related to properties purchased for sponsored TIC Programs in
2008, a decrease of $27.0 million in contributions from
noncontrolling interests in 2008 offset by a decrease of
$87.5 million in repayments of notes payable and capital
lease obligations and an increase in advances on the line of
credit of $55.0 million in 2008.
Commitments,
Contingencies and Other Contractual Obligations
Contractual
Obligations
The Company leases office space throughout the country through
non-cancelable operating leases, which expire at various dates
through June 30, 2020.
The following table summarizes contractual obligations as of
December 31, 2009 and the effect that such obligations are
expected to have on the Companys liquidity and cash flow
in future periods. This table does not reflect any available
extension options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
(2011-2012)
|
|
|
(2013-2014)
|
|
|
(After 2014)
|
|
|
Total
|
|
|
Principal properties held for investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,000
|
|
|
$
|
70,000
|
|
|
$
|
107,000
|
|
Interest properties held for investment
|
|
|
6,061
|
|
|
|
12,804
|
|
|
|
12,698
|
|
|
|
10,048
|
|
|
|
41,611
|
|
Principal senior notes
|
|
|
|
|
|
|
16,277
|
|
|
|
|
|
|
|
|
|
|
|
16,277
|
|
Interest senior notes
|
|
|
1,424
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
2,267
|
|
Operating lease obligations others
|
|
|
15,240
|
|
|
|
30,832
|
|
|
|
30,763
|
|
|
|
8,965
|
|
|
|
85,800
|
|
Operating lease obligations general
|
|
|
22,703
|
|
|
|
37,991
|
|
|
|
19,909
|
|
|
|
12,458
|
|
|
|
93,061
|
|
Capital lease obligations
|
|
|
939
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
1,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,367
|
|
|
$
|
99,502
|
|
|
$
|
100,370
|
|
|
$
|
101,471
|
|
|
$
|
347,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TIC Program Exchange Provisions. Prior to the
Merger, NNN entered into agreements in which NNN agreed to
provide certain investors with a right to exchange their
investment in certain TIC Programs for an investment in a
different TIC program. NNN also entered into an agreement with
another investor that provided the investor with certain
repurchase rights under certain circumstances with respect to
their investment. The agreements containing such rights of
exchange and repurchase rights pertain to initial
56
investments in TIC programs totaling $31.6 million. In July
2009 the Company received notice from an investor of their
intent to exercise such rights of exchange and repurchase with
respect to an initial investment totaling $4.5 million. The
Company is currently evaluating such notice to determine the
nature and extent of the right of such exchange and repurchase,
if any.
The Company deferred revenues relating to these agreements of
$0.3 million, $1.0 million and $0.4 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Additional losses of $4.7 million and
$14.3 million related to these agreements were recorded
during the years ended December 31, 2009 and 2008,
respectively, to reflect the impairment in value of properties
underlying the agreements with investors. As of
December 31, 2009 the Company had recorded liabilities
totaling $22.8 million related to such agreements,
consisting of $3.8 million of cumulative deferred revenues
and $19.0 million of additional losses related to these
agreements.
Off-Balance Sheet Arrangements. From time to
time the Company provides guarantees of loans for properties
under management. As of December 31, 2009, there were 146
properties under management with loan guarantees of
approximately $3.6 billion in total principal outstanding
with terms ranging from one to 10 years, secured by
properties with a total aggregate purchase price of
approximately $4.8 billion. As of December 31, 2008,
there were 151 properties under management with loan guarantees
of approximately $3.5 billion in total principal
outstanding with terms ranging from one to 10 years,
secured by properties with a total aggregate purchase price of
approximately $4.8 billion. In addition, the consolidated
VIEs and unconsolidated VIEs are jointly and severally liable on
the non-recourse mortgage debt related to the interests in the
Companys TIC investments totaling $277.0 million and
$154.8 million as of December 31, 2009, respectively.
The Companys guarantees consisted of the following as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Non-recourse/carve-out guarantees of debt of properties under
management(1)
|
|
$
|
3,416,849
|
|
|
$
|
3,372,007
|
|
Non-recourse/carve-out guarantees of the Companys debt(1)
|
|
$
|
97,000
|
|
|
$
|
97,000
|
|
Recourse guarantees of debt of properties under management
|
|
$
|
33,898
|
|
|
$
|
42,426
|
|
Recourse guarantees of the Companys debt(2)
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
|
|
(1) |
|
A non-recourse/carve-out guarantee imposes personal
liability on the guarantor in the event the borrower engages in
certain acts prohibited by the loan documents. Each non-recourse
carve-out guarantee is an individual document entered into with
the mortgage lender in connection with the purchase or refinance
of an individual property. While there is not a standard
document evidencing these guarantees, liability under the
non-recourse carve-out guarantees generally may be triggered by,
among other things, any or all of the following: |
|
|
|
|
|
a voluntary bankruptcy or similar insolvency proceeding of any
borrower;
|
|
|
|
a transfer of the property or any interest therein
in violation of the loan documents;
|
|
|
|
a violation by any borrower of the special purpose entity
requirements set forth in the loan documents;
|
|
|
|
any fraud or material misrepresentation by any borrower or any
guarantor in connection with the loan;
|
|
|
|
the gross negligence or willful misconduct by any borrower in
connection with the property, the loan or any obligation under
the loan documents;
|
|
|
|
the misapplication, misappropriation or conversion of
(i) any rents, security deposits, proceeds or other funds,
(ii) any insurance proceeds paid by reason of any loss,
damage or destruction to the property, and (iii) any awards
or other amounts received in connection with the condemnation of
all or a portion of the property;
|
|
|
|
any waste of the property caused by acts or omissions of
borrower of the removal or disposal of any portion of the
property after an event of default under the loan documents; and
|
57
|
|
|
|
|
the breach of any obligations set forth in an environmental or
hazardous substances indemnification agreement from borrower.
|
Certain violations (typically the first three listed above)
render the entire debt balance recourse to the guarantor
regardless of the actual damage incurred by lender, while the
liability for other violations is limited to the damages
incurred by the lender. Notice and cure provisions vary between
guarantees. Generally the guarantor irrevocably and
unconditionally guarantees to the lender the payment and
performance of the guaranteed obligations as and when the same
shall be due and payable, whether by lapse of time, by
acceleration or maturity or otherwise, and the guarantor
covenants and agrees that it is liable for the guaranteed
obligations as a primary obligor. As of December 31, 2009,
to the best of the Companys knowledge, there is no amount
of debt owed by the Company as a result of the borrowers
engaging in prohibited acts.
|
|
|
(2) |
|
In addition to the $10.0 million principal guarantee, the
Company has guaranteed any shortfall in the payment of interest
on the unpaid principal amount of the mortgage debt on one owned
property. |
Management initially evaluates these guarantees to determine if
the guarantee meets the criteria required to record a liability
in accordance with the requirements of the Guarantees Topic. Any
such liabilities were insignificant as of December 31, 2009
and 2008. In addition, on an ongoing basis, the Company
evaluates the need to record additional liability in accordance
with the requirements of the Contingencies Topic. As of
December 31, 2009 and 2008, the Company had recourse
guarantees of $33.9 million and $42.4 million,
respectively, relating to debt of properties under management.
As of December 31, 2009, approximately $9.8 million of
these recourse guarantees relate to debt that has matured or is
not currently in compliance with certain loan covenants. In
evaluating the potential liability relating to such guarantees,
the Company considers factors such as the value of the
properties secured by the debt, the likelihood that the lender
will call the guarantee in light of the current debt service and
other factors. As of December 31, 2009 and 2008, the
Company recorded a liability of $3.8 million and
$9.1 million, respectively, related to its estimate of
probable loss related to recourse guarantees of debt of
properties under management which matured in January and April
2009.
Subsequent
Events
For a discussion of subsequent events, see Note 27,
Subsequent Events, to the Consolidated Financial Statements that
are a part of this Annual Report on
Form 10-K.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Market risks include risks that arise from changes in interest
rates, foreign currency exchange rates, commodity prices, equity
prices and other market changes that affect market sensitive
instruments. Management believes that the primary market risk to
which the Company would be exposed would be interest rate risk.
As of December 31, 2009, the Company had no outstanding
variable rate debt; therefore Management believes the Company
has no interest rate risk. The interest rate risk management
objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower the overall borrowing
costs. To achieve this objective, in the past the Company has
entered into derivative financial instruments such as interest
rate swap and cap agreements when appropriate and may do so in
the future. The Company had no such agreements outstanding as of
December 31, 2009.
In addition to interest rate risk, the value of the
Companys real estate investments is subject to
fluctuations based on changes in local and regional economic
conditions and changes in the creditworthiness of tenants, which
may affect the Companys ability to refinance its
outstanding mortgage debt, if necessary.
Except for the acquisition of Grubb & Ellis Alesco
Global Advisors, LLC, as previously described, the Company does
not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial
instruments.
58
The table below presents, as of December 31, 2009, the
principal amounts and weighted average interest rates by year of
expected maturity to evaluate the expected cash flows and
sensitivity to interest rate changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
Fixed rate debt principal payments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,000
|
|
|
$
|
70,000
|
|
|
$
|
107,000
|
|
|
$
|
94,453
|
|
Weighted average interest rate on maturing debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.32
|
%
|
|
|
6.29
|
%
|
|
|
6.30
|
%
|
|
|
|
|
Notes payable were $107.0 million as of December 31,
2009. As of December 31, 2009, the Company had fixed rate
mortgage loans with effective interest rates ranging from 6.29%
to 6.32% and a weighted average effective interest rate of 6.30%
per annum.
In addition, as of December 31, 2009, the Company had
$16.3 million in senior notes outstanding at a fixed
interest rate of 8.75% per annum and a fair value of
$15.8 million.
As of December 31, 2008, the outstanding principal balance
on the Credit Facility and mortgage loan debt obligations
totaled $63.0 million and $216.0 million,
respectively. As of December 31, 2008 the outstanding
principal balance on these variable rate debt obligations was
$108.7 million, with a weighted average interest rate of
3.78% per annum. During the year ended December 31, 2009,
the Credit Facility was repaid in full at the discounted amount
and the properties with variable rate mortgage debt were
deconsolidated.
59
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Grubb & Ellis Company
|
|
|
|
|
|
|
|
61
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
68
|
|
60
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Grubb &
Ellis Company
We have audited the accompanying consolidated balance sheets of
Grubb & Ellis Company as of December 31, 2009 and
2008, and the related consolidated statements of operations,
shareowners equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedules listed in the
Index at Item 15(a). These financial statements and
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits. We did
not audit the financial statements of Grubb & Ellis
Securities, Inc. (f.k.a. NNN Capital Corp.), a wholly owned
subsidiary as of December 31, 2008 and for the years ended
December 31, 2008 and 2007, which statements reflect total
assets of $6,264,000 as of December 31, 2008, and total
revenues of $15,224,000 and $18,315,000 for the years ended
December 31, 2008 and 2007, respectively. Those statements
were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts
included for Grubb & Ellis Securities, Inc. (f.k.a.
NNN Capital Corp.), is based solely on the report of the other
auditors.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management and evaluating the overall financial statement
presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Grubb & Ellis Company at December 31,
2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Irvine, California
March 16, 2010
61
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Grubb & Ellis Securities, Inc. (f.k.a. NNN Capital
Corp.)
Santa Ana, California
We have audited the statements of financial condition of
Grubb & Ellis Securities, Inc. (f.k.a. NNN Capital
Corp.) (the Company) (not separately included
herein) as of December 31, 2008, and the related statements
of operations, changes in stockholders equity, and cash
flows for the years ended December 31, 2008 and 2007. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We have conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (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. We were not
engaged to perform an audit of the Companys internal
controls over financial reporting. Our audits included
consideration of internal controls over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstance, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Grubb & Ellis Securities, Inc. (f.k.a. NNN Capital
Corp.) as of December 31, 2008 and the results of its
operations and its cash flows for the years ended
December 31, 2008 and 2007, in conformity with accounting
principles generally accepted in the United States of America.
|
|
|
|
|
|
San Diego, California
November 19, 2009
|
|
/s/ PKF
PKF
Certified Public Accountants
A Professional Corporation
|
62
GRUBB &
ELLIS COMPANY
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,101
|
|
|
$
|
32,985
|
|
Restricted cash
|
|
|
13,875
|
|
|
|
36,047
|
|
Investment in marketable equity securities
|
|
|
690
|
|
|
|
1,510
|
|
Accounts receivable from related parties net
|
|
|
9,169
|
|
|
|
22,630
|
|
Notes and advances to related parties net
|
|
|
1,019
|
|
|
|
12,082
|
|
Service fees receivable net
|
|
|
30,293
|
|
|
|
26,987
|
|
Current portion of professional service contracts net
|
|
|
3,626
|
|
|
|
4,326
|
|
Real estate deposits and pre-acquisition costs
|
|
|
1,321
|
|
|
|
5,961
|
|
Properties held for sale
|
|
|
|
|
|
|
78,708
|
|
Identified intangible assets and other assets held for
sale net
|
|
|
|
|
|
|
25,747
|
|
Prepaid expenses and other assets
|
|
|
16,497
|
|
|
|
23,620
|
|
Refundable income taxes
|
|
|
4,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
120,583
|
|
|
|
270,603
|
|
Accounts receivable from related parties net
|
|
|
15,609
|
|
|
|
11,072
|
|
Advances to related parties net
|
|
|
14,607
|
|
|
|
11,499
|
|
Professional service contracts net
|
|
|
7,271
|
|
|
|
10,320
|
|
Investments in unconsolidated entities
|
|
|
3,783
|
|
|
|
8,733
|
|
Properties held for investment net
|
|
|
82,189
|
|
|
|
88,699
|
|
Property, equipment and leasehold improvements net
|
|
|
13,190
|
|
|
|
14,020
|
|
Identified intangible assets net
|
|
|
94,952
|
|
|
|
100,631
|
|
Other assets net
|
|
|
5,140
|
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
357,324
|
|
|
$
|
520,277
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREOWNERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
62,867
|
|
|
$
|
70,222
|
|
Due to related parties
|
|
|
2,267
|
|
|
|
2,447
|
|
Line of credit
|
|
|
|
|
|
|
63,000
|
|
Current portion of capital lease obligations
|
|
|
939
|
|
|
|
333
|
|
Notes payable of properties held for sale
|
|
|
|
|
|
|
108,959
|
|
Liabilities of properties held for sale net
|
|
|
|
|
|
|
9,257
|
|
Other liabilities
|
|
|
38,864
|
|
|
|
37,550
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
2,080
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
104,937
|
|
|
|
293,848
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Senior notes
|
|
|
16,277
|
|
|
|
16,277
|
|
Notes payable and capital lease obligations
|
|
|
107,755
|
|
|
|
107,203
|
|
Other long-term liabilities
|
|
|
11,622
|
|
|
|
11,875
|
|
Deferred tax liabilities
|
|
|
25,477
|
|
|
|
17,298
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
266,068
|
|
|
|
446,501
|
|
Commitment and contingencies (Note 20)
|
|
|
|
|
|
|
|
|
Preferred stock: 12% cumulative participating perpetual
convertible; $0.01 par value; 1,000,000 and 0 shares
authorized as of December 31, 2009 and 2008, respectively;
965,700 and 0 shares issued and outstanding as of
December 31, 2009 and 2008, respectively
|
|
|
90,080
|
|
|
|
|
|
Shareowners equity:
|
|
|
|
|
|
|
|
|
Preferred stock: $0.01 par value; 19,000,000 and
10,000,000, shares authorized as of December 31, 2009 and
2008, respectively; no shares issued and outstanding as of
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value; 200,000,000 and
100,000,000 shares authorized as of December 31, 2009
and 2008, respectively; 67,352,440 and 65,382,601 shares
issued and outstanding as of December 31, 2009 and 2008,
respectively
|
|
|
674
|
|
|
|
654
|
|
Additional paid-in capital
|
|
|
412,754
|
|
|
|
402,780
|
|
Accumulated deficit
|
|
|
(412,101
|
)
|
|
|
(333,263
|
)
|
|
|
|
|
|
|
|
|
|
Total Grubb & Ellis Company shareowners equity
|
|
|
1,327
|
|
|
|
70,171
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
(151
|
)
|
|
|
3,605
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,176
|
|
|
|
73,776
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareowners equity
|
|
$
|
357,324
|
|
|
$
|
520,277
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
63
GRUBB &
ELLIS COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services
|
|
$
|
274,684
|
|
|
$
|
253,664
|
|
|
$
|
16,365
|
|
Transaction services
|
|
|
173,394
|
|
|
|
240,250
|
|
|
|
35,522
|
|
Investment management
|
|
|
57,282
|
|
|
|
101,581
|
|
|
|
149,651
|
|
Rental related
|
|
|
30,285
|
|
|
|
33,284
|
|
|
|
28,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
535,645
|
|
|
|
628,779
|
|
|
|
229,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
469,538
|
|
|
|
503,004
|
|
|
|
104,109
|
|
General and administrative
|
|
|
80,078
|
|
|
|
99,829
|
|
|
|
42,860
|
|
Provision for doubtful accounts
|
|
|
24,768
|
|
|
|
19,831
|
|
|
|
1,391
|
|
Depreciation and amortization
|
|
|
12,324
|
|
|
|
16,028
|
|
|
|
9,321
|
|
Rental related
|
|
|
21,287
|
|
|
|
21,377
|
|
|
|
20,839
|
|
Interest
|
|
|
15,446
|
|
|
|
14,207
|
|
|
|
10,818
|
|
Merger related costs
|
|
|
|
|
|
|
14,732
|
|
|
|
6,385
|
|
Real estate related impairments
|
|
|
17,372
|
|
|
|
59,114
|
|
|
|
|
|
Goodwill and intangible asset impairment
|
|
|
738
|
|
|
|
181,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
641,551
|
|
|
|
929,407
|
|
|
|
195,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
|
(105,906
|
)
|
|
|
(300,628
|
)
|
|
|
33,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (losses) earnings of unconsolidated entities
|
|
|
(1,148
|
)
|
|
|
(13,311
|
)
|
|
|
2,029
|
|
Interest income
|
|
|
555
|
|
|
|
902
|
|
|
|
2,996
|
|
Gain on extinguishment of debt
|
|
|
21,935
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
404
|
|
|
|
(6,458
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
21,746
|
|
|
|
(18,867
|
)
|
|
|
4,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax
(provision) benefit
|
|
|
(84,160
|
)
|
|
|
(319,495
|
)
|
|
|
38,494
|
|
Income tax benefit (provision)
|
|
|
1,175
|
|
|
|
827
|
|
|
|
(14,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(82,985
|
)
|
|
|
(318,668
|
)
|
|
|
23,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(4,956
|
)
|
|
|
(24,278
|
)
|
|
|
(960
|
)
|
Gain on disposal of discontinued operations net of
taxes
|
|
|
7,442
|
|
|
|
357
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations
|
|
|
2,486
|
|
|
|
(23,921
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
|
(80,499
|
)
|
|
|
(342,589
|
)
|
|
|
23,033
|
|
Net (loss) income attributable to non-controlling interests
|
|
|
(1,661
|
)
|
|
|
(11,719
|
)
|
|
|
1,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME ATTRIBUTABLE TO GRUBB & ELLIS
COMPANY
|
|
|
(78,838
|
)
|
|
|
(330,870
|
)
|
|
|
21,072
|
|
Preferred stock dividends
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(80,608
|
)
|
|
$
|
(330,870
|
)
|
|
$
|
21,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.31
|
)
|
|
$
|
(4.83
|
)
|
|
$
|
0.55
|
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
|
0.04
|
|
|
|
(0.38
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share attributable to Grubb &
Ellis Company common shareowners
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.31
|
)
|
|
$
|
(4.83
|
)
|
|
$
|
0.55
|
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
|
0.04
|
|
|
|
(0.38
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share attributable to Grubb &
Ellis Company common shareowners
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
64
GRUBB &
ELLIS COMPANY
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
(Accumulated
|
|
|
Total Grubb &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Deficit)
|
|
|
Ellis Company
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Shareowners
|
|
|
Controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Earnings
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance as of December 31, 2006
|
|
|
37,282
|
|
|
$
|
373
|
|
|
$
|
212,685
|
|
|
$
|
(26
|
)
|
|
$
|
4,093
|
|
|
$
|
217,125
|
|
|
$
|
7,551
|
|
|
$
|
224,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,373
|
)
|
|
|
(14,373
|
)
|
|
|
|
|
|
|
(14,373
|
)
|
Vesting of share-based compensation
|
|
|
|
|
|
|
|
|
|
|
9,027
|
|
|
|
|
|
|
|
|
|
|
|
9,027
|
|
|
|
|
|
|
|
9,027
|
|
Common stock for merger transaction
|
|
|
26,196
|
|
|
|
262
|
|
|
|
171,953
|
|
|
|
|
|
|
|
|
|
|
|
172,215
|
|
|
|
|
|
|
|
172,215
|
|
Issuance of restricted shares to directors, officers and
employees
|
|
|
1,450
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Cancellation of non-vested restricted shares
|
|
|
(103
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,061
|
|
|
|
42,061
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,866
|
)
|
|
|
(2,866
|
)
|
Deconsolidation of sponsored programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,419
|
)
|
|
|
(19,419
|
)
|
Compensation expense on profit sharing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,999
|
|
|
|
1,999
|
|
Distribution to a noncontrolling interest in consolidated entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,391
|
)
|
|
|
(1,391
|
)
|
Change in unrealized loss on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,023
|
)
|
|
|
|
|
|
|
(1,023
|
)
|
|
|
|
|
|
|
(1,023
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,072
|
|
|
|
21,072
|
|
|
|
1,961
|
|
|
|
23,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,049
|
|
|
|
1,961
|
|
|
|
22,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
64,825
|
|
|
$
|
648
|
|
|
$
|
393,665
|
|
|
$
|
(1,049
|
)
|
|
$
|
10,792
|
|
|
$
|
404,056
|
|
|
$
|
29,896
|
|
|
$
|
433,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,395
|
)
|
|
|
(13,395
|
)
|
|
|
|
|
|
|
(13,395
|
)
|
Vesting of share-based compensation
|
|
|
|
|
|
|
|
|
|
|
11,248
|
|
|
|
|
|
|
|
210
|
|
|
|
11,458
|
|
|
|
|
|
|
|
11,458
|
|
Repurchase of common stock
|
|
|
(532
|
)
|
|
|
(5
|
)
|
|
|
(1,835
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,840
|
)
|
|
|
|
|
|
|
(1,840
|
)
|
Issuance of restricted shares to directors, officers and
employees
|
|
|
1,552
|
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock to directors, officers and employees related
to equity compensation awards
|
|
|
77
|
|
|
|
1
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
379
|
|
|
|
|
|
|
|
379
|
|
Cancellation of non-vested restricted shares
|
|
|
(539
|
)
|
|
|
(5
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,084
|
|
|
|
15,084
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,093
|
)
|
|
|
(4,093
|
)
|
Deconsolidation of sponsored programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,441
|
)
|
|
|
(27,441
|
)
|
Compensation expense on profit sharing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,878
|
|
|
|
1,878
|
|
Change in unrealized loss on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(586
|
)
|
|
|
1,049
|
|
|
|
|
|
|
|
463
|
|
|
|
|
|
|
|
463
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,870
|
)
|
|
|
(330,870
|
)
|
|
|
(11,719
|
)
|
|
|
(342,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,407
|
)
|
|
|
(11,719
|
)
|
|
|
(342,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
65,383
|
|
|
|
654
|
|
|
|
402,780
|
|
|
|
|
|
|
|
(333,263
|
)
|
|
|
70,171
|
|
|
|
3,605
|
|
|
|
73,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of share-based compensation
|
|
|
|
|
|
|
|
|
|
|
10,878
|
|
|
|
|
|
|
|
|
|
|
|
10,878
|
|
|
|
|
|
|
|
10,878
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
|
|
|
|
|
|
534
|
|
Preferred dividend declared
|
|
|
|
|
|
|
|
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
(1,770
|
)
|
Issuance of restricted shares to directors, officers and
employees
|
|
|
2,712
|
|
|
|
27
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of non-vested restricted shares
|
|
|
(743
|
)
|
|
|
(7
|
)
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
(198
|
)
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,559
|
|
|
|
5,559
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,689
|
)
|
|
|
(1,689
|
)
|
Deconsolidation of sponsored programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,517
|
)
|
|
|
(5,517
|
)
|
Compensation expense on profit sharing arrangements
|
|
|
|
|
|
|
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
550
|
|
|
|
(448
|
)
|
|
|
102
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,838
|
)
|
|
|
(78,838
|
)
|
|
|
(1,661
|
)
|
|
|
(80,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,838
|
)
|
|
|
(1,661
|
)
|
|
|
(80,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
67,352
|
|
|
$
|
674
|
|
|
$
|
412,754
|
|
|
$
|
|
|
|
$
|
(412,101
|
)
|
|
$
|
1,327
|
|
|
$
|
(151
|
)
|
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
65
GRUBB &
ELLIS COMPANY
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(80,499
|
)
|
|
$
|
(342,589
|
)
|
|
$
|
23,033
|
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate
|
|
|
(12,245
|
)
|
|
|
|
|
|
|
|
|
Equity in (earnings) losses of unconsolidated entities
|
|
|
1,148
|
|
|
|
13,311
|
|
|
|
(2,029
|
)
|
Depreciation and amortization (including amortization of signing
bonuses)
|
|
|
17,999
|
|
|
|
28,961
|
|
|
|
8,652
|
|
Loss on disposal of property, equipment and leasehold
improvements
|
|
|
80
|
|
|
|
494
|
|
|
|
861
|
|
Goodwill and intangible asset impairment
|
|
|
738
|
|
|
|
181,285
|
|
|
|
|
|
Impairment of real estate
|
|
|
23,984
|
|
|
|
90,351
|
|
|
|
|
|
Share-based compensation
|
|
|
10,878
|
|
|
|
11,705
|
|
|
|
9,041
|
|
Compensation expense on profit sharing arrangements
|
|
|
102
|
|
|
|
1,878
|
|
|
|
1,999
|
|
Amortization/write-off of intangible contractual rights
|
|
|
251
|
|
|
|
1,179
|
|
|
|
3,133
|
|
Amortization of deferred financing costs
|
|
|
2,213
|
|
|
|
1,006
|
|
|
|
1,713
|
|
Gain on extinguishment of debt
|
|
|
(32,111
|
)
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of marketable equity securities
|
|
|
(460
|
)
|
|
|
7,215
|
|
|
|
(184
|
)
|
Deferred income taxes
|
|
|
1,107
|
|
|
|
(3,784
|
)
|
|
|
(7,109
|
)
|
Allowance for uncollectible accounts
|
|
|
10,714
|
|
|
|
13,319
|
|
|
|
806
|
|
Loss on write-off of real estate deposits, pre-acquisition costs
and advances to related parties
|
|
|
446
|
|
|
|
2,415
|
|
|
|
|
|
Other operating noncash gains (losses)
|
|
|
|
|
|
|
2,267
|
|
|
|
8
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from related parties
|
|
|
7,596
|
|
|
|
6,481
|
|
|
|
6,018
|
|
Prepaid expenses and other assets
|
|
|
(1,603
|
)
|
|
|
(28,945
|
)
|
|
|
(36,295
|
)
|
Accounts payable and accrued expenses
|
|
|
(5,479
|
)
|
|
|
(19,915
|
)
|
|
|
15,884
|
|
Other liabilities
|
|
|
(6,824
|
)
|
|
|
(263
|
)
|
|
|
8,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(61,965
|
)
|
|
|
(33,629
|
)
|
|
|
33,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,881
|
)
|
|
|
(4,407
|
)
|
|
|
(3,331
|
)
|
Tenant improvements and capital expenditures
|
|
|
(2,531
|
)
|
|
|
|
|
|
|
|
|
Purchases of marketable equity securities
|
|
|
(3,860
|
)
|
|
|
(997
|
)
|
|
|
(30,732
|
)
|
Proceeds from sale of marketable equity securities
|
|
|
|
|
|
|
2,653
|
|
|
|
22,870
|
|
Advances to related parties
|
|
|
(4,171
|
)
|
|
|
(13,173
|
)
|
|
|
(39,112
|
)
|
Proceeds from repayment of advances to related parties
|
|
|
2,323
|
|
|
|
20,043
|
|
|
|
117,496
|
|
Payments to related parties
|
|
|
(180
|
)
|
|
|
(882
|
)
|
|
|
(2,704
|
)
|
Origination of notes receivable from related parties
|
|
|
|
|
|
|
(15,100
|
)
|
|
|
(39,300
|
)
|
Proceeds from repayment of notes receivable from related parties
|
|
|
|
|
|
|
13,600
|
|
|
|
41,700
|
|
Investments in unconsolidated entities
|
|
|
(566
|
)
|
|
|
(29,163
|
)
|
|
|
(9,076
|
)
|
Sale of
tenant-in-common
interests in unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
20,466
|
|
Distributions of capital from unconsolidated entities
|
|
|
752
|
|
|
|
914
|
|
|
|
1,256
|
|
Acquisition of businesses net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
339
|
|
Acquisition of properties
|
|
|
|
|
|
|
(122,163
|
)
|
|
|
(605,126
|
)
|
Proceeds from sale of properties
|
|
|
93,471
|
|
|
|
|
|
|
|
92,945
|
|
Real estate deposits and pre-acquisition costs
|
|
|
(199
|
)
|
|
|
(59,780
|
)
|
|
|
(50,202
|
)
|
Proceeds from collection of real estate deposits and
pre-acquisition costs
|
|
|
4,717
|
|
|
|
118,835
|
|
|
|
49,427
|
|
Change in restricted cash
|
|
|
10,339
|
|
|
|
13,290
|
|
|
|
(53,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
97,214
|
|
|
|
(76,330
|
)
|
|
|
(486,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
GRUBB &
ELLIS COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on line of credit
|
|
|
15,206
|
|
|
|
55,000
|
|
|
|
|
|
Repayment of advances on line of credit
|
|
|
(56,271
|
)
|
|
|
|
|
|
|
(30,000
|
)
|
Borrowings on notes payable and capital lease obligations
|
|
|
936
|
|
|
|
103,339
|
|
|
|
547,015
|
|
Repayments of notes payable and capital lease obligations
|
|
|
(79,394
|
)
|
|
|
(56,386
|
)
|
|
|
(143,848
|
)
|
Financing costs
|
|
|
(1,801
|
)
|
|
|
(2,412
|
)
|
|
|
(1,460
|
)
|
Proceeds from issuance of senior notes
|
|
|
5,000
|
|
|
|
|
|
|
|
6,015
|
|
Net proceeds from issuance of preferred stock
|
|
|
85,080
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
|
|
|
|
52
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(1,840
|
)
|
|
|
|
|
Dividends paid to common shareowners
|
|
|
|
|
|
|
(15,128
|
)
|
|
|
(16,449
|
)
|
Dividends paid to preferred shareowners
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
5,959
|
|
|
|
15,084
|
|
|
|
42,061
|
|
Distributions to noncontrolling interests
|
|
|
(2,078
|
)
|
|
|
(4,093
|
)
|
|
|
(2,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(29,133
|
)
|
|
|
93,616
|
|
|
|
400,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
6,116
|
|
|
|
(16,343
|
)
|
|
|
(52,898
|
)
|
Cash and cash equivalents beginning of year
|
|
|
32,985
|
|
|
|
49,328
|
|
|
|
102,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year
|
|
$
|
39,101
|
|
|
$
|
32,985
|
|
|
$
|
49,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
15,431
|
|
|
$
|
21,089
|
|
|
$
|
10,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,298
|
|
|
$
|
2,151
|
|
|
$
|
22,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
$
|
534
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for tenant improvements, lease commissions and capital
expenditures
|
|
$
|
236
|
|
|
$
|
739
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired with capital lease obligations
|
|
$
|
2,270
|
|
|
$
|
52
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of assets related to properties or properties
held by variable interest entities
|
|
$
|
9,699
|
|
|
$
|
301,656
|
|
|
$
|
372,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of liabilities related to properties or
properties held by variable interest entities
|
|
$
|
23,017
|
|
|
$
|
222,448
|
|
|
$
|
269,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of sponsored mutual fund
|
|
$
|
5,141
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired in acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
462,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed in acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
259,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
GRUBB &
ELLIS COMPANY
FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
Grubb & Ellis Company and its consolidated
subsidiaries are referred to herein as the Company,
Grubb & Ellis, we,
us, and our. Grubb & Ellis, a
Delaware corporation founded over 50 years ago, is a
commercial real estate services and investment company. Our
6,000 professionals in 126 company-owned and affiliate
offices draw from a unique platform of real estate services,
practice groups and investment products to deliver
comprehensive, integrated solutions to real estate owners,
tenants and investors. The firms transaction, management,
consulting and investment services are supported by proprietary
market research and extensive local expertise.
The Company offers property owners, corporate occupants and
program investors comprehensive integrated real estate
solutions, including management, transactions, consulting and
investment advisory services supported by market research and
local market expertise. Through its investment subsidiaries, the
Company sponsors real estate investment programs that provide
individuals and institutions the opportunity to invest in a
broad range of real estate investment vehicles, including public
non-traded real estate investment trusts (REITs),
tenant-in-common
(TIC) investments suitable for tax-deferred 1031
exchanges, mutual funds and other real estate investment funds.
In certain instances throughout these Financial Statements
phrases such as legacy Grubb & Ellis or
similar descriptions are used to reference, when appropriate,
Grubb & Ellis prior to the Merger of Grubb &
Ellis with NNN (see Note 10). Similarly, in certain
instances throughout these Financial Statements the term NNN,
legacy NNN or similar phrases are used to reference,
when appropriate, NNN Realty Advisors, Inc. prior to the Merger.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation and Principles of
Consolidation The consolidated financial
statements include the accounts of the Company and its wholly
owned and majority-owned controlled subsidiaries, variable
interest entities (VIEs) in which the Company is the
primary beneficiary, and partnerships/limited liability
companies (LLCs) in which the Company is the
managing member or general partner and the other
partners/members lack substantive rights (hereinafter
collectively referred to as the Company). All
significant intercompany accounts and transactions have been
eliminated in consolidation. For acquisitions of an interest in
an entity or newly formed joint venture or limited liability
company, the Company evaluates the entity to determine if the
entity is deemed a VIE, and if the Company is deemed to be the
primary beneficiary, in accordance with the requirements of the
Consolidation Topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(Codification).
The Company consolidates entities that are VIEs when the Company
is deemed to be the primary beneficiary of the VIE. For entities
in which (i) the Company is not deemed to be the primary
beneficiary, (ii) the Companys ownership is 50.0% or
less and (iii) the Company has the ability to exercise
significant influence, the Company uses the equity accounting
method (i.e. at cost, increased or decreased by the
Companys share of earnings or losses, plus contributions
less distributions). The Company also uses the equity method of
accounting for jointly controlled TIC interests. As
reconsideration events occur, the Company will reconsider its
determination of whether an entity is a VIE and who the primary
beneficiary is to determine if there is a change in the original
determinations and will report such changes on a quarterly basis.
Use of Estimates The financial statements
have been prepared in conformity with accounting principles
generally accepted in the United States (GAAP),
which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities (including
disclosure of contingent assets and liabilities) as of the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
68
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassifications Certain reclassifications
have been made to prior year and prior interim period amounts in
order to conform to the current period presentation. These
reclassifications have no effect on reported net income.
Cash and cash equivalents Cash and cash
equivalents consist of all highly liquid investments with a
maturity of three months or less when purchased. Short-term
investments with remaining maturities of three months or less
when acquired are considered cash equivalents.
Restricted Cash Restricted cash is comprised
primarily of cash and loan impound reserve accounts for property
taxes, insurance, capital improvements, and tenant improvements
related to consolidated properties as well as cash reserve
accounts held for the benefit of various insurance providers. As
of December 31, 2009 and 2008, the restricted cash was
$13.9 million and $36.0 million, respectively.
Marketable Securities The Company accounts
for investments in marketable debt and equity securities in
accordance with the requirements of the Investments
Debt and Equity Securities Topic of the Codification
Topic. The Company determines the appropriate
classification of debt and equity securities at the time of
purchase and re-evaluates such designation as of each balance
sheet date. Marketable securities acquired are classified with
the intent to generate a profit from short-term movements in
market prices as trading securities. Debt securities are
classified as held to maturity when there is a positive intent
and ability to hold the securities to maturity. Marketable
equity and debt securities not classified as trading or held to
maturity are classified as available for sale.
In accordance with the requirements of the Topic, trading
securities are carried at their fair value with realized and
unrealized gains and losses included in the statement of
operations. The available for sale securities are carried at
their fair market value and any difference between cost and
market value is recorded as unrealized gain or loss, net of
income taxes, and is reported as accumulated other comprehensive
income in the consolidated statement of shareowners
equity. Premiums and discounts are recognized in interest income
using the effective interest method. Realized gains and losses
and declines in value expected to be
other-than-temporary
on available for sale securities are included in other income.
The cost of securities sold is based on the specific
identification method. Interest and dividends on securities
classified as available for sale are included in interest income.
Accounts Receivable from Related Parties
Accounts receivable from related parties consists of fees earned
from syndicated entities and properties under management related
to the Companys sponsored programs, including property and
asset management fees. Property and asset management fees are
collected from the operations of the underlying real estate
properties.
Allowance for Uncollectible Receivables
Receivables are carried net of managements estimate of
uncollectible receivables. Managements determination of
the adequacy of these allowances is based upon evaluations of
historical loss experience, operating performance of the
underlying properties, current economic conditions, and other
relevant factors.
Real Estate Deposits and Pre-acquisition
Costs Real estate deposits and pre-acquisition
costs are incurred when the Company evaluates properties for
purchase and syndication. Pre-acquisition costs are capitalized
as incurred. Real estate deposits may become nonrefundable under
certain circumstances. The majority of the real estate deposits
outstanding as of December 31, 2009 and 2008, were either
refunded to the Company during the subsequent year or used to
purchase property and subsequently reimbursed from the
syndicated equity. Costs of abandoned projects represent
pre-acquisition costs associated with properties no longer
sought for acquisition by the Company and are included in
general and administrative expense in the Companys
consolidated statement of operations.
69
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Payments to obtain an option to acquire real property are
capitalized as incurred. All other costs related to a property
that are incurred before the property is acquired, or before an
option to acquire it is obtained, are capitalized if all of the
following conditions are met and otherwise are charged to
expense as incurred:
|
|
|
|
|
the costs are directly identifiable with the specific property;
|
|
|
|
the costs would be capitalized if the property were already
acquired; and
|
|
|
|
acquisition of the property or an option to acquire the property
is probable. This condition requires that the Company is
actively seeking to acquire the property and have the ability to
finance or obtain financing for the acquisition and that there
is no indication that the property is not available for sale.
|
Purchase Price Allocation In accordance with
the requirements of the Business Combinations Topic, the
purchase price of acquired businesses or properties is allocated
to tangible and identified intangible assets and liabilities
based on their respective fair values. In the case of real
estate acquisitions, the allocation to tangible assets (building
and land) is based upon determination of the value of the
property as if it were vacant using discounted cash flow models
similar to those used by independent appraisers. Factors
considered include an estimate of carrying costs during the
expected
lease-up
periods considering current market conditions and costs to
execute similar leases. Additionally, the purchase price of the
applicable property is allocated to the above or below market
value of in-place leases and the value of in-place leases and
related tenant relationships.
The value allocable to the above or below market component of
the acquired in-place leases is determined based upon the
present value (using a discount rate which reflects the risks
associated with the acquired leases) of the difference between
(i) the contractual amounts to be paid pursuant to the
lease over its remaining term, and (ii) our estimate of the
amounts that would be paid using fair market rates over the
remaining term of the lease. The amounts allocated to above
market leases are included in identified intangible assets, net
in the accompanying consolidated balance sheets and are
amortized to rental income over the remaining non-cancelable
lease term of the acquired leases with each property. The
amounts allocated to below market lease values are included in
liabilities in the accompanying consolidated balance sheets and
are amortized to rental income over the remaining non-cancelable
lease term plus any below market renewal options of the acquired
leases with each property.
Identified Intangible Assets The
Companys acquisitions require the application of purchase
accounting in accordance with the requirements of the Business
Combinations Topic. Identified intangible assets include a trade
name, which is not being amortized and has an indefinite
estimated useful life. Other identified intangible assets
acquired includes in-place lease costs and the value of tenant
relationships based on managements evaluation of the
specific characteristics of each tenants lease and our
overall relationship with that respective tenant.
Characteristics considered in allocating these values include
the nature and extent of the credit quality and expectations of
lease renewals, among other factors. These allocations are
subject to change within one year of the date of purchase based
on information related to one or more events identified at the
date of purchase that confirm the value of an asset or liability
of an acquired property. The remaining other intangible assets
primarily include contract rights, affiliate agreements and
internally developed software, which are all being amortized
over estimated useful lives ranging from 1 to 20 years.
Properties Held for Investment Properties
held for investment are carried at historical cost less
accumulated depreciation, net of any impairments. The cost of
these properties includes the cost of land, 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. The cost of buildings
and improvements is depreciated on a straight-line basis over
the estimated useful lives of the buildings and improvements,
ranging primarily from 15 to 39 years, and the shorter of
the lease term or useful life, ranging from one to ten years for
tenant improvements.
70
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Properties Held for Sale In accordance with
the requirements of the Property, Plant, and Equipment Topic, at
the time a property is held for sale, such property is carried
at the lower of (i) its carrying amount or (ii) fair
value less costs to sell. In addition, no depreciation or
amortization of tenant origination cost is recorded for a
property classified as held for sale. The Company classifies
operating properties as properties held for sale in the period
in which all of the required criteria are met.
The Topic requires, in many instances, that the balance sheet
and income statements for both current and prior periods report
the assets, liabilities and results of operations of any
component of an entity which has either been disposed of, or is
classified as held for sale, as discontinued operations. In
instances when a company expects to have significant continuing
involvement in the component beyond the date of sale, the
operations of the component instead continue to be fully
recorded within the continuing operations of the Company through
the date of sale. In accordance with this requirement, the
Company records any results of operations related to its real
estate held for sale as discontinued operations only when the
Company expects not to have significant continuing involvement
in the real estate after the date of sale.
Property, Equipment and Leasehold
Improvements Property and equipment are stated
at cost, less accumulated depreciation and amortization.
Depreciation and amortization expense is recorded on a
straight-line basis over the estimated useful lives of the
related assets, which range from three to seven years. Leasehold
improvements are amortized on a straight-line basis over the
life of the related lease or the estimated service life of the
improvements, whichever is shorter. Maintenance and repairs are
expensed as incurred, while betterments are capitalized. Upon
the sale or retirement of depreciable assets, the related
accounts are relieved, with any resulting gain or loss included
in operations.
Impairment of Long-Lived Assets In accordance
with the requirements of the Property, Plant, and Equipment
Topic, long-lived assets are periodically evaluated for
potential impairment whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. In
the event that periodic assessments reflect that the carrying
amount of the asset exceeds the sum of the undiscounted cash
flows (excluding interest) that are expected to result from the
use and eventual disposition of the asset, the Company would
recognize an impairment loss to the extent the carrying amount
exceeded the fair value of the property. If an impairment
indicator exists, the Company generally uses a discounted cash
flow model to estimate the fair value of the property and
measure the impairment. Management uses its best estimate in
determining the key assumptions, including the expected holding
period, future occupancy levels, capitalization rates, discount
rates, rental rates,
lease-up
periods and capital expenditure requirements. As of
December 31, 2009, capitalization rates used in these
measurements generally fell within a range of 8.4% to 9.4%. The
Company recorded real estate impairments related to property
held for investment of $7.1 million and $41.2 million
during the years ended December 31, 2009 and 2008,
respectively. There were no real estate related impairments
related to properties held for investment recognized during the
year ended December 31, 2007. The Company recorded real
estate related impairments related to investments in
unconsolidated entities and funding commitments for obligations
related to certain of the Companys sponsored real estate
programs of $10.3 million and $18.0 million during the
years ended December 31, 2009 and 2008, respectively. There
were no real estate related impairments related to investments
in unconsolidated entities recognized during the year ended
December 31, 2007. The Company recorded real estate
impairments related to two properties sold and two properties
effectively abandoned under the accounting standards during the
year ended December 31, 2009 of approximately
$6.6 million and $31.2 million during the years ended
December 31, 2009 and 2008, respectively, which are
included in discontinued operations. There were no real estate
related impairments related to properties held for sale
recognized during the year ended December 31, 2007.
The Company recognizes goodwill and other
non-amortizing
intangible assets in accordance with the requirements of the
Intangibles Goodwill and Other Topic. Under the
Topic, goodwill is recorded at its carrying value and is tested
for impairment at least annually or more frequently if
impairment indicators exist, at a level of reporting referred to
as a reporting unit. The Company recognizes goodwill in
accordance with
71
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the requirements of the Topic and tests the carrying value for
impairment during the fourth quarter of each year. The goodwill
impairment analysis is a two-step process. The first step used
to identify potential impairment involves comparing each
reporting units estimated fair value to its carrying
value, including goodwill. To estimate the fair value of its
reporting units, the Company used a discounted cash flow model
and market comparable data. Significant judgment is required by
management in developing the assumptions for the discounted cash
flow model. These assumptions include cash flow projections
utilizing revenue growth rates, profit margin percentages,
discount rates, market/economic conditions, etc. If the
estimated fair value of a reporting unit exceeds its carrying
value, goodwill is considered to not be impaired. If the
carrying value exceeds estimated fair value, there is an
indication of potential impairment and the second step is
performed to measure the amount of impairment. The second step
of the process involves the calculation of an implied fair value
of goodwill for each reporting unit for which step one indicated
a potential impairment. The implied fair value of goodwill is
determined by measuring the excess of the estimated fair value
of the reporting unit as calculated in step one, over the
estimated fair values of the individual assets, liabilities and
identified intangibles. The Company also tests its trade name
for impairment during the fourth quarter of each year. The
Company estimates the fair value of its trade name by using a
discounted cash flow model. Assumptions used in the discounted
cash flow model include revenue projections, royalty rates and
discount rates. If the estimated fair value of the trade name
exceeds the carrying value, the trade name is considered to not
be impaired. If the carrying value exceeds the estimated fair
value, an impairment charge is recorded for the excess of the
carrying value over the estimated fair value of the trade name.
In addition to testing goodwill and its trade name for
impairment, the Company tests the intangible contract rights for
impairment during the fourth quarter of each year, or more
frequently if events or circumstances indicate the asset might
be impaired. The intangible contract rights represent the legal
right to future disposition fees of a portfolio of real estate
properties under contract. The Company analyzes the current and
projected property values, condition of the properties and
status of mortgage loans payable, to determine if there are
certain properties for which receipt of disposition fees are
improbable. If the Company determines that certain disposition
fees are improbable, the Company records an impairment charge
for such contract rights.
Revenue
Recognition
Management
Services
Management fees are recognized at the time the related services
have been performed by the Company, unless future contingencies
exist. In addition, in regard to management and facility service
contracts, the owner of the property will typically reimburse
the Company for certain expenses that are incurred on behalf of
the owner, which are comprised primarily of
on-site
employee salaries and related benefit costs. The amounts which
are to be reimbursed per the terms of the services contract are
recognized as revenue by the Company in the same period as the
related expenses are incurred. In certain instances, the Company
subcontracts its property management services to independent
property managers, in which case the Company passes a portion of
their property management fee on to the subcontractor, and the
Company retains the balance. Accordingly, the Company records
these fees net of the amounts paid to its subcontractors.
Transaction
Services
Real estate commissions are recognized when earned, which is
typically the close of escrow. Receipt of payment occurs at the
point at which all Company services have been performed, and
title to real property has passed from seller to buyer, if
applicable. Real estate leasing commissions are recognized upon
execution of appropriate lease and commission agreements and
receipt of full or partial payment, and, when payable upon
certain events such as tenant occupancy or rent commencement,
upon occurrence of such events. All other commissions and fees
are recognized at the time the related services have been
performed and delivered by the Company to the client, unless
future contingencies exist.
72
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investment
Management
The Company earns fees associated with its transactions by
structuring, negotiating and closing acquisitions of real estate
properties to third-party investors. Such fees include
acquisition fees for locating and acquiring the property and
selling it to various TIC investors, REITs and the
Companys various sponsored real estate funds. The Company
accounts for acquisition and loan fees in accordance with the
requirements of the Real Estate General Topic, and
the Real Estate Sales Topic. In general, the Company
records the acquisition and loan fees upon the close of sale to
the buyer if the buyer is independent of the seller, collection
of the sales price, including the acquisition fees and loan
fees, is reasonably assured, and the Company is not responsible
for supporting operations of the property. Organizational
marketing expense allowance (OMEA) fees are earned
and recognized from gross proceeds of equity raised in
connection with TIC offerings and are used to pay formation
costs, as well as organizational and marketing costs. When the
Company does not meet the criteria for revenue recognition under
Real Estate Sales Topic and the Real
Estate General Topic, revenue is deferred until
revenue can be reasonably estimated or until the Company defers
revenue up to its maximum exposure to loss. The Company earns
disposition fees for disposing of the property on behalf of the
REIT, investment fund or TIC. The Company recognizes the
disposition fee when the sale of the property closes. The
Company is entitled to loan advisory fees for arranging
financing related to properties under management.
The Company earns asset and property management fees primarily
for managing the operations of real estate properties owned by
the real estate programs, REITs and LLCs the Company sponsors.
Such fees are based on pre-established formulas and contractual
arrangements and are earned as such services are performed. The
Company is entitled to receive reimbursement for expenses
associated with managing the properties; these expenses include
salaries for property managers and other personnel providing
services to the property. The Company is also entitled to
leasing commissions when a new tenant is secured and upon tenant
renewals. Leasing commissions are recognized upon execution of
leases.
Through its dealer-manager, the Company facilitates capital
raising transactions for its programs. The Companys
wholesale dealer-manager services are comprised of raising
capital for its programs through its selling broker-dealer
relationships. Most of the commissions, fees and allowances
earned for its dealer-manager services are passed on to the
selling broker-dealers as commissions and to cover offering
expenses, and the Company retains the balance. Accordingly, the
Company records these fees net of the amounts paid to its
selling broker-dealer relationships.
Professional Service Contracts The Company
holds multi-year service contracts with certain key transaction
professionals for which cash payments were made to the
professionals upon signing, the costs of which are being
amortized over the lives of the respective contracts, which are
generally two to five years. Amortization expense relating to
these contracts of approximately $7.9 million,
$9.2 million and $0.4 million was recorded for the
years ended December 31, 2009, 2008 and 2007, respectively,
and is included in compensation costs in the Companys
consolidated statement of operations.
Fair Value of Financial Instruments The
Financial Instruments Topic, requires disclosure of fair value
of financial instruments, whether or not recognized on the face
of the balance sheet, for which it is practical to estimate that
value. The Topic defines fair value as the quoted market prices
for those instruments that are actively traded in financial
markets. In cases where quoted market prices are not available,
fair values are estimated using present value or other valuation
techniques. The fair value estimates are made at the end of each
reporting period based on available market information and
judgments about the financial instrument, such as estimates of
timing and amount of expected future cash flows. Such estimates
do not reflect any premium or discount that could result from
offering for sale at one time the Companys entire holdings
of a particular financial instrument, nor do they consider the
tax impact of the realization of unrealized gains or losses. In
many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value
be realized in immediate settlement of the instrument.
73
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, the fair values of the
Companys notes payable and senior notes were approximately
$94.5 million, $15.8 million, respectively, compared
to the carrying values of $107.0 million and
$16.3 million, respectively. As of December 31, 2008,
the fair values of the Companys notes payable, senior
notes and lines of credit were approximately
$202.5 million, $15.5 million and $60.0 million,
respectively, compared to the carrying values of
$216.0 million, $16.3 million and $63.0 million,
respectively. The amounts recorded for accounts receivable,
notes receivable, advances and accounts payable and accrued
liabilities approximate fair value due to their short-term
nature.
Fair Value Measurements Effective
January 1, 2008, the Company adopted the requirements of
the Fair Value Measurements and Disclosures Topic. The Topic
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.
The Topic applies to reported balances that are required or
permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any
new fair value measurements of reported balances.
The Fair Value Measurements and Disclosures Topic emphasizes
that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement
should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a
basis for considering market participant assumptions in fair
value measurements, the Topic establishes a fair value hierarchy
that distinguishes between market participant assumptions based
on market data obtained from sources independent of the
reporting entity (observable inputs that are classified within
Levels 1 and 2 of the hierarchy) and the reporting
entitys own assumptions about market participant
assumptions (unobservable inputs classified within Level 3
of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities that we have the
ability to access. Level 2 inputs are inputs other than
quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets
and liabilities in active markets, as well as inputs that are
observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and
yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or
liability, which is typically based on an entitys own
assumptions, as there is little, if any, related market
activity. In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair
value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value
measurement in its entirety. The Companys assessment of
the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
The following table presents changes in financial and
nonfinancial assets measured at fair value on either a recurring
or nonrecurring basis for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
Total
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Impairment
|
(In thousands)
|
|
2009
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Losses
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable equity securities
|
|
$
|
690
|
|
|
$
|
690
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Properties held for investment
|
|
$
|
82,189
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
82,189
|
|
|
$
|
(7,050
|
)
|
Investments in unconsolidated entities
|
|
$
|
3,783
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,783
|
|
|
$
|
(3,201
|
)
|
Life insurance contracts
|
|
$
|
1,044
|
|
|
$
|
|
|
|
$
|
1,044
|
|
|
$
|
|
|
|
$
|
|
|
74
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents changes in financial and
nonfinancial assets measured at fair value on either a recurring
or nonrecurring basis for the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
Total
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Impairment
|
(In thousands)
|
|
2008
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Losses
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable equity securities
|
|
$
|
1,510
|
|
|
$
|
1,510
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Properties held for investment
|
|
$
|
88,699
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88,699
|
|
|
$
|
(41,160
|
)
|
Investments in unconsolidated entities
|
|
$
|
8,733
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,733
|
|
|
$
|
(982
|
)
|
Life insurance contracts
|
|
$
|
1,085
|
|
|
$
|
|
|
|
$
|
1,085
|
|
|
$
|
|
|
|
$
|
|
|
Share-based Compensation Effective
January 1, 2006, the Company adopted the requirements of
the Compensation Stock Compensation Topic under the
modified prospective transition method. The Topic requires the
measurement of compensation cost at the grant date, based upon
the estimated fair value of the award, and requires amortization
of the related expense over the employees requisite
service period.
(Loss) earnings per share The Company applies
the two-class method when computing its earnings per share as
required by the Earnings Per Share Topic, which requires the net
income per share for each class of stock (common stock and
convertible preferred stock) to be calculated assuming 100% of
the Companys net income is distributed as dividends to
each class of stock based on their contractual rights. To the
extent the Company has undistributed earnings in any calendar
quarter, the Company will follow the two-class method of
computing earnings per share. Basic (loss) earnings per share is
computed by dividing net (loss) income attributable to common
shareowners by the weighted average number of common shares
outstanding during each period. The computation of diluted
(loss) earnings per share further assumes the dilutive effect of
stock options, stock warrants and contingently issuable shares.
Contingently issuable shares represent non-vested stock awards
and unvested stock fund units in the deferred compensation plan.
In accordance with the requirements of the Earnings Per Share
Topic, these shares are included in the dilutive earnings per
share calculation under the treasury stock method, unless the
effect of inclusion would be anti-dilutive. Unless otherwise
indicated, all pre-merger NNN share data have been adjusted to
reflect the conversion as a result of the Merger (see
Note 10 for additional information).
Concentration of Credit Risk Financial
instruments that potentially subject the Company to a
concentration of credit risk are primarily cash investments and
accounts receivable. The Company currently maintains
substantially all of its cash with several major financial
institutions. The Company has cash in financial institutions
which are insured by the Federal Deposit Insurance Corporation,
or FDIC, up to $250,000 per depositor per insured bank. As of
December 31, 2009, the Company had cash accounts in excess
of FDIC insured limits. The Company believes this risk is not
significant.
Accrued Claims and Settlements The Company
has maintained partially self-insured and deductible programs
for errors and omissions, general liability, workers
compensation and certain employee health care costs. Reserves
for all such programs are included in accrued claims and
settlements and compensation and employee benefits payable, as
appropriate. Reserves are based on the aggregate of the
liability for reported claims and an actuarially-based estimate
of incurred but not reported claims.
Guarantees The Company accounts for its
guarantees in accordance with the requirements of the Guarantees
Topic. The Topic elaborates on the disclosures to be made by the
guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It
also requires
75
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in
issuing the guarantee. Management evaluates these guarantees to
determine if the guarantee meets the criteria required to record
a liability.
Income Taxes Income taxes are accounted for
under the asset and liability method in accordance with the
requirements of the Income Taxes Topic. Deferred tax assets and
liabilities are determined based on temporary differences
between the financial reporting and the tax basis of assets and
liabilities and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured by applying
enacted tax rates and laws and are released in the years in
which the temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are provided
against deferred tax assets when it is more likely than not that
some portion or all of the deferred tax asset will not be
realized. During the years ended December 31, 2009 and
2008, the Company recorded a valuation allowance of
$30.5 million and $49.7 million, respectively. The
Topic further requires a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return.
Accounting for tax positions requires judgments, including
estimating reserves for potential uncertainties. The Company
also assesses its ability to utilize tax attributes, including
those in the form of carryforwards, for which the benefits have
already been reflected in the financial statements. The Company
does not record valuation allowances for deferred tax assets
that it believes will be realized in future periods. While the
Company believe the resulting tax balances as of
December 31, 2009 and 2008 are appropriately accounted for
in accordance with the Income Taxes Topic, as applicable, the
ultimate outcome of such matters could result in favorable or
unfavorable adjustments to the Companys consolidated
financial statements and such adjustments could be material. See
Note 24 for further information regarding income taxes.
Comprehensive Income (Loss) Pursuant to the
requirements of the Comprehensive Income Topic, the Company has
included a calculation of comprehensive (loss) income in its
accompanying consolidated statements of shareowners equity
for the years ended December 31, 2009, 2008 and 2007.
Comprehensive (loss) income includes net (loss) income adjusted
for certain revenues, expenses, gains and losses that are
excluded from net (loss) income.
Segment Disclosure In accordance with the
requirements of the Segment Reporting Topic, the Company divides
its services into three primary business segments: management
services, transaction services and investment management.
Derivative Instruments and Hedging Activities
The Company applies the requirements of the Derivatives and
Hedging Topic. The Topic requires companies to record
derivatives on the balance sheet as assets or liabilities,
measured at fair value, while changes in that fair value may
increase or decrease reported net (loss) income or
shareowners equity, depending on interest rate levels and
computed effectiveness of the derivatives, as that
term is defined by the requirements of the Topic, but will have
no effect on cash flows. The Company does not have any
derivative instruments as of December 31, 2009. As of
December 31, 2008, the Companys derivatives consisted
solely of four interest rate cap agreements with third parties,
which were executed in relation to its credit agreement or notes
payable obligations. These cap agreements were accounted for as
ineffective cash flow hedges as of December 31, 2008.
Recently
Issued Accounting Pronouncements
On January 1, 2009, the Company adopted an amendment to the
requirements of the Consolidation Topic which require
noncontrolling interests to be reported within the equity
section of the consolidated balance sheets, and amounts
attributable to controlling and noncontrolling interests to be
reported separately in the
76
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated income statements and consolidated statement of
shareowners equity. The adoption of these provisions did
not impact earnings (loss) per share attributable to the
Companys common shareowners.
On January 1, 2009, the Company adopted an amendment to the
Earnings Per Share Topic which requires that the two-class
method of computing basic earnings per share be applied when
there are unvested share-based payment awards that contain
rights to nonforfeitable dividends outstanding during a
reporting period. These participating securities share in
undistributed earnings with common shareholders for purposes of
calculating basic earnings per share. Upon adoption, the
presentation of all prior period EPS data was adjusted
retrospectively with no material impact.
In June 2009, the FASB issued an amendment to the requirements
of the Consolidation Topic, which amends the consolidation
guidance applicable to VIEs. The amendments to the overall
consolidation guidance affect all entities currently defined as
VIEs, as well as qualifying special-purpose entities that are
currently excluded from the definition of VIEs by the
Consolidation Topic. Specifically, an enterprise will need to
reconsider its conclusion regarding whether an entity is a VIE,
whether the enterprise is the VIEs primary beneficiary and
what type of financial statement disclosures are required. The
requirements of the amended Topic are effective as of the
beginning of the first fiscal year that begins after
November 15, 2009. Early adoption is prohibited. The
Company is reviewing any impact this may have on the
consolidated financial statements.
The Company has adopted the requirements of the Subsequent
Events Topic effective beginning with the year ended
December 31, 2009 and has evaluated for disclosure
subsequent events that have occurred up through the date of
issuance of these financial statements.
The Company applies the provisions of the Fair Value
Measurements and Disclosures Topic to its financial assets
recorded at fair value, which consists of
available-for-sale
marketable securities. Level 1 inputs, the highest
priority, are quoted prices in active markets for identical
assets are used by the Company to estimate the fair value of its
available-for-sale
marketable securities.
The historical cost and estimated fair value of the
available-for-sale
marketable securities held by the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
(In thousands)
|
|
Historical Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Market Value
|
|
|
Marketable equity securities
|
|
$
|
543
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of equity securities, or other than
temporary impairments recorded, for the year ended
December 31, 2009. Sales of marketable equity securities
resulted in realized losses of approximately $1.8 million
during 2008, of which the Company recognized $1.6 million
of these losses during the second quarter, prior to the sale of
all the securities, as the Company believed that the decline in
the value of these securities was other than temporary. Sales of
equity securities resulted in realized gains of
$1.2 million and realized losses of $1.0 million for
the year ended December 31, 2007.
Investments
in Limited Partnerships
The Company serves as general partner and investment advisor to
one limited partnership and as investment advisor to three
mutual funds as of December 31, 2009. The limited
partnership, Grubb & Ellis AGA Real Estate Investment
Fund LP, is required to be consolidated in accordance with
the Consolidation Topic. As of December 31, 2008, Alesco
served as general partner and investment advisor to five limited
partnerships and as investment advisor to one mutual fund.
During the year ended December 31, 2009, Alesco
77
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
added two mutual funds to its portfolio and now serves as
investment advisor to three mutual funds, and four of the five
limited partnerships were liquidated.
During the years ended December 31, 2009, 2008 and 2007
Alesco recorded investment income (loss) of approximately
$0.6 million, ($4.6) million and $(0.7) million,
respectively, related to the limited partnerships which is
reflected in other income (expense) and offset in
non-controlling interest in income (loss) of consolidated
entities on the statement of operations. As of December 31,
2009 and 2008, these limited partnerships had assets of
approximately $0.1 million and $1.5 million,
respectively, primarily consisting of exchange traded marketable
securities, including equity securities and foreign currencies.
The following table reflects trading securities. The original
cost, estimated market value and gross unrealized gains and
losses of equity securities are presented in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Historical
|
|
|
Unrealized
|
|
|
Market
|
|
|
Historical
|
|
|
Gross Unrealized
|
|
|
Market
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Equity securities
|
|
$
|
170
|
|
|
$
|
|
|
|
$
|
(23
|
)
|
|
$
|
147
|
|
|
$
|
1,933
|
|
|
$
|
12
|
|
|
$
|
(435
|
)
|
|
$
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
|
For The Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Gains
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Gains
|
|
|
|
|
(In thousands)
|
|
Income
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
Total
|
|
|
Income
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
Total
|
|
|
Equity securities
|
|
$
|
206
|
|
|
$
|
(191
|
)
|
|
$
|
651
|
|
|
$
|
666
|
|
|
$
|
307
|
|
|
$
|
(5,454
|
)
|
|
$
|
841
|
|
|
$
|
(4,306
|
)
|
Less investment expenses
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180
|
|
|
$
|
(191
|
)
|
|
$
|
651
|
|
|
$
|
640
|
|
|
$
|
24
|
|
|
$
|
(5,454
|
)
|
|
$
|
841
|
|
|
$
|
(4,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Gains
|
|
|
|
|
(In thousands)
|
|
Income
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
Total
|
|
|
Equity securities
|
|
$
|
163
|
|
|
$
|
(185
|
)
|
|
$
|
(618
|
)
|
|
$
|
(640
|
)
|
Less investment expenses
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123
|
|
|
$
|
(185
|
)
|
|
$
|
(618
|
)
|
|
$
|
(680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Related party transactions as of December 31, 2009 and 2008
are summarized below:
Accounts
Receivable
Accounts receivable from related parties consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
Accrued property and asset management fees
|
|
$
|
21,564
|
|
|
$
|
25,023
|
|
Accrued lease commissions
|
|
|
7,449
|
|
|
|
7,720
|
|
Other accrued fees
|
|
|
2,200
|
|
|
|
3,372
|
|
Accounts receivable from sponsored REITs
|
|
|
3,696
|
|
|
|
4,768
|
|
Accrued real estate acquisition fees
|
|
|
697
|
|
|
|
1,834
|
|
Other receivables
|
|
|
162
|
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,768
|
|
|
|
43,364
|
|
Allowance for uncollectible receivables
|
|
|
(10,990
|
)
|
|
|
(9,662
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable from related parties net
|
|
|
24,778
|
|
|
|
33,702
|
|
Less portion classified as current
|
|
|
(9,169
|
)
|
|
|
(22,630
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
15,609
|
|
|
$
|
11,072
|
|
|
|
|
|
|
|
|
|
|
Advances
to Related Parties
The Company makes advances to affiliated real estate entities
under management in the normal course of business. Such advances
are uncollateralized, generally have payment terms of one year
or less and bear interest at 6.0% to 12.0% per annum. The
advances consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
Advances to properties of related parties
|
|
$
|
16,022
|
|
|
$
|
14,714
|
|
Advances to related parties
|
|
|
12,280
|
|
|
|
12,037
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28,302
|
|
|
|
26,751
|
|
Allowance for uncollectible advances
|
|
|
(12,676
|
)
|
|
|
(3,170
|
)
|
|
|
|
|
|
|
|
|
|
Advances to related parties net
|
|
|
15,626
|
|
|
|
23,581
|
|
Less portion classified as current
|
|
|
(1,019
|
)
|
|
|
(12,082
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
14,607
|
|
|
$
|
11,499
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, accounts receivable
totaling $310,000 is due from a program 30.0% owned and managed
by Anthony W. Thompson, the Companys former Chairman who
subsequently resigned in February 2008. The receivable of
$310,000 has been reserved for and is included in the allowance
for uncollectible advances as of December 31, 2009. On
November 4, 2008, the Company made a formal written demand
to Mr. Thompson for these monies.
As of December 31, 2009, advances to a program 40.0% owned
and, as of April 1, 2008, managed by Mr. Thompson,
totaled $983,000, which includes $61,000 in accrued interest,
were past due. The total amount of $983,000 has been reserved
for and is included in the allowance for uncollectible advances.
As of
79
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2008, the total outstanding balance was
$963,000, inclusive of $61,000 in accrued interest. On
November 4, 2008 and April 3, 2009, the Company made a
formal written demand to Mr. Thompson for these monies.
In December 2007, the Company advanced $10.0 million to
Grubb & Ellis Apartment REIT, Inc. (Apartment
REIT) on an unsecured basis. The unsecured note required
monthly interest-only payments which began on January 1,
2008. The balance owed to the Company as of December 31,
2007 which consisted of $7.6 million in principal was
repaid in full in the first quarter of 2008.
In June 2008, the Company advanced $6.0 million to
Grubb & Ellis Healthcare REIT, Inc. (Healthcare
REIT) on an unsecured basis. The unsecured note had a
maturity date of December 30, 2008 and bore interest at a
fixed rate of 4.96% per annum, however, Healthcare REIT repaid
in full the $6.0 million note in the third quarter of 2008.
The note required monthly interest-only payments beginning on
August 1, 2008 and provided for a default interest rate in
an event of default equal to 2.00% per annum in excess of the
stated interest rate.
In June 2008, the Company advanced $3.7 million to
Apartment REIT on an unsecured basis. The unsecured note
originally had an original maturity date of December 27,
2008 and bore interest at a fixed rate of 4.95% per annum. On
November 10, 2008, the Company extended the maturity date
to May 10, 2009 and adjusted the interest rate to a fixed
rate of 5.26% per annum. The note required monthly interest-only
payments beginning on August 1, 2008 and provided for a
default interest rate in an event of default equal to 2.00% per
annum in excess of the stated interest rate. Effective
May 10, 2009 the Company entered into a second extension
agreement with Apartment REIT, extending the maturity date to
November 10, 2009. The new terms of the extension continued
to require monthly interest-only payments beginning May 1,
2009, bore interest at a fixed rate of 8.43% and provided for a
default interest rate in an event of default equal to 2.00% per
annum in excess of the stated interest rate.
In September 2008, the Company advanced an additional
$5.4 million to Apartment REIT on an unsecured basis. The
unsecured note originally had a maturity date of March 15,
2009 and bore interest at a fixed rate of 4.99% per annum.
Effective March 9, 2009, the Company extended the maturity
date to September 15, 2009 and adjusted the interest rate
to a fixed rate of 5.00% per annum. The note required monthly
interest-only payments beginning on October 1, 2008 and
provided for a default interest rate in an event of default
equal to 2.00% per annum in excess of the stated interest rate.
On November 10, 2009, the Company consolidated the
aforementioned $3.7 million and $5.4 million unsecured
notes with Apartment REIT into a consolidated note (the
Consolidated Promissory Note) whereby the two unsecured
promissory notes receivable were cancelled and consolidated the
promissory notes into the Consolidated Promissory Note. The
Consolidated Promissory Note has an outstanding principal amount
of $9.1 million, an interest rate of 4.5% per annum, a
default interest rate of 2.0% in excess of the interest rate
then in effect, and a maturity date of January 1, 2011. The
interest rate payable under the Consolidated Promissory Note is
subject to a one-time adjustment to a maximum rate of 6.0% per
annum, which will be evaluated and may be adjusted by the
Company, in its sole discretion, on July 1, 2010.
There were no advances to or repayments made by Apartment REIT
during the year ended December 31, 2009. As of
December 31, 2009, the balance owed by Apartment REIT to
the Company on the Consolidated Promissory Note was
$9.1 million in principal with no interest outstanding.
80
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
SERVICE
FEES RECEIVABLE, NET
|
Service fees receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
Management services fees receivable
|
|
$
|
14,729
|
|
|
$
|
12,794
|
|
Transaction services fees receivable
|
|
|
11,436
|
|
|
|
15,239
|
|
Investment management fees receivable
|
|
|
5,275
|
|
|
|
|
|
Allowance for uncollectible accounts
|
|
|
(751
|
)
|
|
|
(871
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,689
|
|
|
|
27,162
|
|
Less portion classified as current
|
|
|
(30,293
|
)
|
|
|
(26,987
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion (included in other assets)
|
|
$
|
396
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
PROFESSIONAL
SERVICE CONTRACTS
|
As part of the transaction services business, the Company has
entered into service contracts with various employee real estate
brokers. These service contracts generally have terms ranging
from 12 to 60 months. The Company recorded assets, net of
amortization, of approximately $10.9 million and
$14.6 million related to these contracts as of
December 31, 2009 and 2008, respectively. In addition, the
Company has approximately $2.9 million of additional
commitments and expects to incur amortization expense of
approximately $6.6 million, $4.6 million,
$1.7 million, $0.8 million and $0.1 million
related to these contracts in the years ended 2010, 2011, 2012,
2013 and 2014, respectively.
|
|
7.
|
VARIABLE
INTEREST ENTITIES
|
The determination of the appropriate accounting method with
respect to the Companys variable interest entities
(VIEs), including joint ventures, is based on the
requirements of the Consolidation Topic. The Company
consolidates any VIE for which it is the primary beneficiary.
The Company determines if an entity is a VIE under the Topic
based on several factors, including whether the entitys
total equity investment at risk upon inception is sufficient to
finance the entitys activities without additional
subordinated financial support. The Company makes judgments
regarding the sufficiency of the equity at risk based first on a
qualitative analysis, then a quantitative analysis, if
necessary. In a quantitative analysis, the Company incorporates
various estimates, including estimated future cash flows, asset
hold periods and discount rates, as well as estimates of the
probabilities of various scenarios occurring. If the entity is a
VIE, the Company then determines whether to consolidate the
entity as the primary beneficiary. The Company is deemed to be
the primary beneficiary of the VIE and consolidates the entity
if the Company will absorb a majority of the entitys
expected losses, receive a majority of the entitys
expected residual returns or both. As reconsideration events
occur, the Company will reconsider its determination of whether
an entity is a VIE and who the primary beneficiary is to
determine if there is a change in the original determinations
and will report such changes on a quarterly basis.
The Companys Investment Management segment is a sponsor of
TIC Programs and related formation LLCs. As of December 31,
2009 and 2008, the Company had investments in seven LLCs that
are VIEs in which the Company is the primary beneficiary. These
seven LLCs hold interests in the Companys TIC investments.
The carrying value of the assets and liabilities for these
consolidated VIEs as of December 31, 2009 was
$2.3 million and $25,000, respectively. The carrying value
of the assets and liabilities for these consolidated VIEs as of
December 31, 2008 was $3.7 million and
$0.3 million, respectively. In addition, these consolidated
VIEs are joint and severally liable on the non-recourse mortgage
debt related to the interests in
81
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Companys TIC investments totaling $277.0 million
and $277.8 million as of December 31, 2009 and 2008,
respectively. This mortgage debt is not consolidated as the LLCs
account for the interests in the Companys TIC investments
under the equity method and the non-recourse mortgage debt does
not meet the criteria under the requirements of the Transfers
and Servicing Topic for recognizing the share of the debt
assumed by the other TIC interest holders for consolidation. The
Company considers the third party TIC holders ability and
intent to repay their share of the joint and several liability
in evaluating the recovery of its investments. Six LLCs were
deconsolidated during the year ended December 31, 2008 as a
result of the Company selling interests in certain real estate
properties that it held through these consolidated LLCs which
resulted in the Company no longer being the primary beneficiary
of these LLCs.
If the interest in the entity is determined to not be a VIE
under the requirements of the Consolidation Topic, then the
entity is evaluated for consolidation under the requirements of
the Real Estate General Topic, as amended by the
requirements of the Consolidation Topic.
As of December 31, 2009 and 2008, the Company had a number
of entities that were determined to be VIEs that did not meet
the consolidation requirements of the Consolidation Topic. The
unconsolidated VIEs are accounted for under the equity method.
The aggregate investment carrying value of the unconsolidated
VIEs was $0.9 million and $1.3 million as of
December 31, 2009 and 2008, respectively, and was
classified under Investments in Unconsolidated Entities in the
consolidated balance sheet. The Companys maximum exposure
to loss as a result of its interests in unconsolidated VIEs is
typically limited to the aggregate of the carrying value of the
investment or the outstanding deposits and advances to the
unconsolidated VIE and future funding commitments. There were no
future funding commitments as of December 31, 2009 and 2008
related to these unconsolidated VIEs. In addition, as of
December 31, 2009 and 2008, these unconsolidated VIEs are
joint and severally liable on non-recourse mortgage debt
totaling $154.8 million and $190.5 million,
respectively. This mortgage debt is not consolidated as the LLCs
account for the interests in the Companys TIC investments
under the equity method and the non-recourse mortgage debt does
not meet the criteria under the Transfers and Servicing Topic
for recognizing the share of the debt assumed by the other TIC
interest holders for consolidation. The Company considers the
third party TIC holders ability and intent to repay their
share of the joint and several liability in evaluating the
recovery of its investment or outstanding deposits and advances.
In evaluating the recovery of the TIC investment, the Company
evaluated the likelihood that the lender would foreclose on the
VIEs interest in the TIC to satisfy the obligation.
|
|
8.
|
INVESTMENTS
IN UNCONSOLIDATED ENTITIES
|
As of December 31, 2009 and 2008, the Company held
investments in five joint ventures totaling $0.4 million
and $3.8 million, respectively, which represent a range of
5.0% to 10.0% ownership interest in each property. In addition,
pursuant to the requirements of the Consolidation Topic, the
Company has consolidated seven LLCs with investments in
unconsolidated entities totaling $2.2 million and
$3.7 million as of December 31, 2009 and 2008,
respectively. The remaining amounts within investments in
unconsolidated entities are related to various LLCs, which
represent ownership interests of less than 1.0%.
As of December 31, 2007, the Company had a
$4.1 million investment in GERA. On April 14, 2008,
the shareowners of GERA approved the dissolution and plan of
liquidation of GERA. As a consequence, the Company wrote off its
investment in GERA and other advances to that entity in the
first quarter of 2008 and recognized a loss of approximately
$5.8 million which is recorded in equity in losses on the
consolidated statement of operations and is comprised of
$4.5 million related to stock and warrant purchases and
$1.3 million related to operating advances and third party
costs, which included an unrealized loss previously reflected in
accumulated other comprehensive loss.
82
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
3-5 years
|
|
$
|
30,161
|
|
|
$
|
31,115
|
|
Capital leases
|
|
1-5 years
|
|
|
3,836
|
|
|
|
1,566
|
|
Furniture and fixtures
|
|
7 years
|
|
|
26,060
|
|
|
|
25,094
|
|
Leasehold improvements
|
|
1-5 years
|
|
|
8,921
|
|
|
|
7,834
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
68,978
|
|
|
|
65,609
|
|
Accumulated depreciation and amortization
|
|
|
|
|
(55,788
|
)
|
|
|
(51,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment net
|
|
|
|
$
|
13,190
|
|
|
$
|
14,020
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $5.9 million, $6.8 million and
$1.8 million of depreciation expense for the years ended
December 31, 2009, 2008 and 2007, respectively.
|
|
10.
|
BUSINESS
COMBINATIONS AND GOODWILL
|
Merger
of Grubb & Ellis Company with NNN
On December 7, 2007, the Company effected the Merger with
NNN, a real estate asset management company and sponsor of TIC
Programs as well as a sponsor of non-traded REITs and other
investment programs.
On December 7, 2007, pursuant to the Merger Agreement
(i) each issued and outstanding share of common stock of
NNN was automatically converted into 0.88 of a share of common
stock of the Company, and (ii) each issued and outstanding
stock option of NNN, exercisable for common stock of NNN, was
automatically converted into the right to receive stock options
exercisable for common stock of the Company based on the same
0.88 share conversion ratio. Therefore,
43,779,740 shares of common stock of NNN that were issued
and outstanding immediately prior to the Merger were
automatically converted into 38,526,171 shares of common
stock of the Company, and the 739,850 NNN stock options that
were issued and outstanding immediately prior to the Merger were
automatically converted into 651,068 stock options of the
Company.
Under the purchase method of accounting, NNN was the accounting
acquirer. The Merger consideration of $172.2 million was
determined based on the closing price of the Companys
common stock of $6.43 per share on the date the merger closed,
applied to the 26,195,655 shares of the Companys
common stock outstanding plus the fair value of vested options
outstanding of approximately $3.8 million. The fair value
of these vested options was calculated using the Black-Scholes
option-pricing model which incorporated the following
assumptions: weighted average exercise price of $7.02 per
option, volatility of 105.11%, a
5-year
expected life of the awards, risk-free interest rate of 3.51%
and no expected dividend yield.
The results of operations of legacy Grubb & Ellis have
been included in the consolidated results of operations since
December 8, 2007 and the results of operations of NNN have
been included in the consolidated results of operations for the
full year ended December 31, 2007.
83
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The purchase price was allocated to the assets acquired and
liabilities assumed based on the estimated fair value of net
assets as of the acquisition date as follows (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
189,214
|
|
Other assets
|
|
|
29,797
|
|
Identified intangible assets acquired
|
|
|
86,600
|
|
Goodwill
|
|
|
107,507
|
|
|
|
|
|
|
Total assets
|
|
|
413,118
|
|
|
|
|
|
|
Current liabilities
|
|
|
233,894
|
|
Other liabilities
|
|
|
7,022
|
|
|
|
|
|
|
Total liabilities
|
|
|
240,916
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
172,202
|
|
|
|
|
|
|
As a result of the merger, the Company incurred
$14.7 million and $6.4 million in merger related
expenses during 2008 and 2007, respectively, as reflected on the
Companys consolidated statement of operations.
Additionally, as a result of the Merger, the Company recorded
$1.6 million and $3.6 million as a purchase accounting
liability for severance for certain executives in 2008 and 2007,
respectively, as part of a change in control provision in the
related employment agreements.
As part of its Merger transition, the Company completed its
personnel reorganization plan, and recorded additional severance
liabilities totaling approximately $2.3 million during the
year ended December 31, 2008, which increased the goodwill
recorded from the acquisition. These liabilities related
primarily to severance and other benefits paid to involuntarily
terminated employees of the acquired company. Such liabilities,
totaling approximately $7.4 million, have been recorded
related to the personnel reorganization plan, of which
approximately $6.7 million has been paid to terminated
employees as of December 31, 2008. As a result of the
Merger, approximately $110.9 million has been recorded to
goodwill as of December 31, 2008, which was subsequently
written off as an impairment charge during the year ended
December 31, 2008.
Acquisition
of NNN/ROC Apartment Holdings, LLC
On July 1, 2007, the Company completed the acquisition of
the remaining 50.0% membership interest in NNN/ROC Apartment
Holdings, LLC (ROC). ROC holds contract rights
associated with a fee sharing agreement between ROC Realty
Advisors and NNN with respect to certain fee streams (including
an interest in net cash flows associated with subtenant leases
(as Landlord) in excess of expenses from the Master Lease
Agreement (as tenant) and related multi family property
acquisitions where ROC Realty Advisors, LLC sourced the deals
for placement into the TIC investment programs. The aggregate
purchase price for the acquisition of 50.0% membership interest
of ROC was approximately $1.7 million in cash.
Acquisition
of Alesco Global Advisors, LLC
On November 16, 2007, the Company completed the acquisition
of the 51.0% membership interest in Alesco. Alesco is a
registered investment advisor focused on real estate securities
and manages private investment funds exclusively for qualified
investors. Alesco holds several investment advisory contract
rights and is the general partner of several domestic mutual
fund investment limited partnerships. The Companys purpose
of acquiring Alesco was to create a global leader in real estate
securities management within open and closed end mutual funds.
The aggregate purchase price was approximately $3.0 million
in cash. Additionally, upon achievement of certain earn-out
targets, the Company would be required to purchase up to an
additional 27% interest in Alesco for $15.0 million.
84
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Supplemental
information (unaudited)
Unaudited pro forma results, assuming the above mentioned 2007
acquisitions had occurred as of January 1, 2007, are
presented below. The unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had all
acquisitions occurred on January 1, 2007, and may not be
indicative of future operating results.
|
|
|
|
|
|
|
Unaudited
|
|
|
|
Pro Forma
|
|
|
|
Results
|
|
|
|
For The Year
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
(In thousands, except per share
data)
|
|
|
|
|
Revenue
|
|
$
|
733,095
|
|
Loss from continuing operations
|
|
$
|
(790
|
)
|
Net income
|
|
$
|
18,930
|
|
Basic earnings per share
|
|
$
|
0.29
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
63,393
|
|
Diluted earnings per share
|
|
$
|
0.29
|
|
Weighted average shares outstanding for diluted earnings per
share
|
|
|
64,785
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
|
Management
|
|
|
Investment
|
|
|
Goodwill
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Management
|
|
|
Unassigned
|
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60,183
|
|
|
$
|
|
|
|
$
|
60,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
1,627
|
|
Goodwill acquired unassigned(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,507
|
|
|
|
107,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
61,810
|
|
|
|
107,507
|
|
|
|
169,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill assigned
|
|
|
41,098
|
|
|
|
6,902
|
|
|
|
59,507
|
|
|
|
(107,507
|
)
|
|
|
|
|
Goodwill acquired
|
|
|
1,533
|
|
|
|
98
|
|
|
|
1,724
|
|
|
|
|
|
|
|
3,355
|
|
Impairment charge off
|
|
|
(42,631
|
)
|
|
|
(7,000
|
)
|
|
|
(123,041
|
)
|
|
|
|
|
|
|
(172,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fair values of the assets and liabilities recorded on the
date of acquisition related to the Merger were preliminary and
subject to refinement as additional valuation information was
received. The goodwill recorded in connection with the
acquisition was assigned to the individual reporting units
pursuant to the requirements of the Intangibles
Goodwill and Other Topic during the year ended December 31,
2008. As of December 31, 2009, approximately
$6.9 million of goodwill is expected to be deductible for
tax purposes. |
During the fourth quarter of 2008, the Company identified the
uncertainty surrounding the global economy and the volatility of
the Companys market capitalization as goodwill impairment
indicators. The Companys goodwill impairment analysis
resulted in the recognition of an impairment charge of
approximately $172.7 million during the year ended
December 31, 2008.
85
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
PROPERTY
ACQUISITIONS
|
Acquisition
of Properties for TIC Sponsored Programs
During the year ended December 31, 2008, the Company
completed the acquisition of two office properties and two
multifamily residential properties on behalf of TIC sponsored
programs, all of which were sold to the respective programs
during the same period. The aggregate purchase price including
the closing costs of these four properties was
$111.7 million, of which $69.0 million was financed
with mortgage debt. During the year ended December 31,
2009, the Company did not complete any acquisitions on behalf of
TIC sponsored programs.
|
|
12.
|
IDENTIFIED
INTANGIBLE ASSETS
|
Identified intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(In thousands)
|
|
Useful Life
|
|
2009
|
|
|
2008
|
|
|
Non-amortizing
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
Indefinite
|
|
$
|
64,100
|
|
|
$
|
64,100
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Contract rights
|
|
|
|
|
|
|
|
|
|
|
Contract rights, established for the legal right to future
disposition fees of a portfolio of real estate properties under
contract
|
|
Amortize per disposition
transactions
|
|
|
11,186
|
|
|
|
11,924
|
|
Accumulated amortization contract rights
|
|
|
|
|
(4,701
|
)
|
|
|
(4,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights, net
|
|
|
|
|
6,485
|
|
|
|
7,224
|
|
Other identified intangible assets
|
|
|
|
|
|
|
|
|
|
|
Affiliate agreements
|
|
20 years
|
|
|
10,600
|
|
|
|
10,600
|
|
Customer relationships
|
|
5 to 7 years
|
|
|
5,400
|
|
|
|
5,436
|
|
Internally developed software
|
|
4 years
|
|
|
6,200
|
|
|
|
6,200
|
|
Customer backlog
|
|
1 year
|
|
|
|
|
|
|
300
|
|
Other contract rights
|
|
5 to 7 years
|
|
|
1,164
|
|
|
|
1,418
|
|
Non-compete and employment agreements
|
|
3 to 4 years
|
|
|
97
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,461
|
|
|
|
24,051
|
|
Accumulated amortization
|
|
|
|
|
(6,686
|
)
|
|
|
(3,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other identified intangible assets, net
|
|
|
|
|
16,775
|
|
|
|
20,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Identified intangible assets of properties held for
investment:
|
|
|
|
|
|
|
|
|
|
|
In place leases and tenant relationships
|
|
1 to 104 months
|
|
|
11,510
|
|
|
|
11,807
|
|
Above market leases
|
|
1 to 92 months
|
|
|
2,364
|
|
|
|
2,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,874
|
|
|
|
14,171
|
|
Accumulated amortization
|
|
|
|
|
(6,282
|
)
|
|
|
(5,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Identified intangible assets of properties held for investment,
net
|
|
|
|
|
7,592
|
|
|
|
9,104
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets, net
|
|
|
|
$
|
94,952
|
|
|
$
|
100,631
|
|
|
|
|
|
|
|
|
|
|
|
|
86
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense recorded for the contract rights was
$0.3 million, $1.2 million and $3.1 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Amortization expense was charged as a reduction to
investment management revenue in each respective period. The
amortization of the contract rights for intangible assets will
be applied based on the net relative value of disposition fees
realized when the properties are sold. The Company tested the
intangible contract rights for impairment during 2009 and 2008.
The intangible contract rights represent the legal right to
future disposition fees of a portfolio of real estate properties
under contract. As a result of the current economic environment,
a portion of these disposition fees may not be recoverable.
Based on our analysis for the current and projected property
values, condition of the properties and status of mortgage loans
payable associated with these contract rights, the Company
determined that there are certain properties for which receipt
of disposition fees was improbable. As a result, the Company
recorded an impairment charge of approximately $0.7 million
and $8.6 million related to the impaired intangible
contract rights during 2009 and 2008, respectively. The Company
also analyzed its trade name for impairment pursuant to the
requirements of the Intangibles Goodwill and Other
Topic and determined that the trade name was not impaired as of
December 31, 2009 and 2008. Accordingly, no impairment
charge was recorded related to the trade name during the years
ended December 31, 2009 and 2008.
Amortization expense recorded for the other identified
intangible assets was $4.2 million, $3.5 million and
$0.3 million for the years ended December 31, 2009,
2008 and 2007, respectively. Amortization expense was included
as part of operating expense in the accompanying consolidated
statements of operations.
Amortization expense for the other identified intangible assets,
which excludes
non-amortizing
trade name asset and non date-certain amortizing contract
rights, for each of the next five years ended December 31 is as
follows:
|
|
|
|
|
|
|
(In
|
|
|
|
thousands)
|
|
|
2010
|
|
$
|
4,982
|
|
2011
|
|
|
4,458
|
|
2012
|
|
|
2,520
|
|
2013
|
|
|
2,014
|
|
2014
|
|
|
1,611
|
|
Thereafter
|
|
|
8,782
|
|
|
|
|
|
|
|
|
$
|
24,367
|
|
|
|
|
|
|
|
|
13.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
11,744
|
|
|
$
|
11,502
|
|
Salaries and related costs
|
|
|
14,592
|
|
|
|
13,643
|
|
Accounts payable
|
|
|
17,864
|
|
|
|
14,323
|
|
Broker commissions
|
|
|
8,807
|
|
|
|
14,002
|
|
Bonuses
|
|
|
7,797
|
|
|
|
9,741
|
|
Property management fees and commissions due to third parties
|
|
|
2,063
|
|
|
|
2,940
|
|
Severance
|
|
|
|
|
|
|
2,957
|
|
Interest
|
|
|
|
|
|
|
651
|
|
Other
|
|
|
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
62,867
|
|
|
$
|
70,222
|
|
|
|
|
|
|
|
|
|
|
87
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
NOTES PAYABLE
AND CAPITAL LEASE OBLIGATIONS
|
Notes payable and capital lease obligations consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
Mortgage debt payable to a financial institution collateralized
by real estate held for investment. Fixed interest rate of 6.29%
per annum as of December 31, 2009. The note is non-recourse
up to $60 million with a $10 million recourse
guarantee and matures in February 2017. As of December 31,
2009, note requires monthly interest-only payments
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
Mortgage debt payable to financial institution collateralized by
real estate held for investment. Fixed interest rate of 6.32%
per annum as of December 31, 2009. The non-recourse note
matures in August 2014. As of December 31, 2009, note
requires monthly interest-only payments
|
|
|
37,000
|
|
|
|
37,000
|
|
Capital lease obligations
|
|
|
1,694
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
108,694
|
|
|
|
107,536
|
|
Less portion classified as current
|
|
|
(939
|
)
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
107,755
|
|
|
$
|
107,203
|
|
|
|
|
|
|
|
|
|
|
The future minimum payments due related to notes payable and
capital lease obligations for each of the next five years ending
December 31 and thereafter are summarized as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
2010
|
|
$
|
1,043
|
|
2011
|
|
|
751
|
|
2012
|
|
|
63
|
|
2013
|
|
|
|
|
2014
|
|
|
37,000
|
|
Thereafter
|
|
|
70,000
|
|
|
|
|
|
|
Less imputed interest attributed to capital lease obligations
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
$
|
108,694
|
|
|
|
|
|
|
On December 10, 2009, the loan agreement for the
$37.0 million in principal outstanding was modified to
reduce the interest pay rate from 6.32% to 4.25% for the first
24 months following the modification and provide for a
6.32% interest rate on the accrued but unpaid interest which
will begin to fully amortize beginning in the 25th month
following the modification. The August 1, 2014 maturity
date of the loan and the 6.32% interest accrual rate on the
outstanding principal balance of the loan were not changed.
88
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
NOTES PAYABLE
OF PROPERTIES HELD FOR SALE
|
Notes payable of properties held for sale consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
Mortgage debt payable to a financial institution collateralized
by real estate held for sale. The non-recourse mortgage note
charged variable interest rate based on the higher of LIBOR plus
3.00% or 6.00%. The notes required monthly interest-only
payments and matured on July 9, 2009. On December 21,
2009 the Company entered into a loan modification agreement
regarding these notes pursuant to which the notes were
deconsolidated from these financial statements as further
described in Note 18
|
|
$
|
|
|
|
$
|
108,677
|
|
Unsecured notes payable to third-party investors with fixed
interest at 6.00% per annum and matured in December 2011.
Principal and interest payments were due quarterly. The notes
were repaid in April 2009
|
|
|
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
108,959
|
|
|
|
|
|
|
|
|
|
|
The Company historically had entered into several interest rate
lock agreements with commercial banks. All rate locks were
cancelled and all deposits in connection with these agreements
were refunded to the Company in April 2008.
On December 7, 2007, the Company entered into a
$75.0 million credit agreement by and among the Company,
the guarantors named therein, and the financial institutions
defined therein as lender parties, with Deutsche Bank
Trust Company Americas, as lender and administrative agent
(the Credit Facility). The Company was restricted to
solely use the line of credit for investments, acquisitions,
working capital, equity interest repurchase or exchange, and
other general corporate purposes. The line bore interest at
either the prime rate or LIBOR based rates, as the Company may
choose on each of its borrowings, plus an applicable margin
ranging from 1.50% to 2.50% based on the Companys
Debt/Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) ratio as defined in the credit
agreement.
The Company entered into four amendments to its Credit Facility
on August 5, 2008, November 4, 2008, May 20, 2009
and September 30, 2009. In conjunction with the third
amendment, the Company issued warrants to the lenders giving
them the right, commencing October 1, 2009, to purchase
common stock of the Company equal to 15% of the common stock of
the Company on a fully diluted basis as of such date. The
Company calculated the fair value of the warrants to be $534,000
and recorded such amount in shareowners equity with a
corresponding debt discount to the line of credit balance. Such
debt discount amount was fully amortized into interest expense
as of December 31, 2009 as a result of the repayment of the
Credit Facility as discussed below. The final amendment, among
other things, extended the time to effect a recapitalization
under its Credit Facility from September 30, 2009 to
November 30, 2009. Pursuant to the final amendment, the
Company also received the right to prepay its Credit Facility in
full at any time on or prior to November 30, 2009 at a
discounted amount equal to 65% of the aggregate principal amount
outstanding. On November 6, 2009, concurrently with the
closing of the private placement of 12% Preferred Stock (see
Note 19), the Company repaid its Credit Facility in full at
the discounted amount equal to $43.4 million and the Credit
Facility was terminated in accordance with its terms. As a
result of the early repayment of the Credit Facility, the
Company recorded a gain on early extinguishment of debt of
$21.9 million, or $0.35 per common share, net of expenses.
From August 2006 to January 2007, NNN Collateralized Senior
Notes, LLC (the Senior Notes Program), a wholly
owned subsidiary of the Company, issued $16.3 million of
notes which mature in 2011
89
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and bear interest at a rate of 8.75% per annum. Interest on the
notes is payable monthly in arrears on the first day of each
month, commencing on the first day of the month occurring after
issuance. The notes mature five years from the date of first
issuance of any of such notes, with two one-year options to
extend the maturity date of the notes at the Senior Notes
Programs option. The interest rate will increase to 9.25%
per annum during any extension. The Senior Notes Program has the
right to redeem the notes, in whole or in part, at:
(1) 102.0% of their principal amount plus accrued interest
any time after January 1, 2008; (2) 101.0% of their
principal amount plus accrued interest any time after
July 1, 2008; and (3) par value after January 1,
2009. The notes are the Senior Notes Programs senior
obligations, ranking pari passu in right of payment with
all other senior debt incurred and ranking senior to any
subordinated debt it may incur. The notes are effectively
subordinated to all present or future debt secured by real or
personal property to the extent of the value of the collateral
securing such debt. The notes are secured by a pledge of the
Senior Notes Programs membership interest in NNN
Series A Holdings, LLC, which is the Senior Notes
Programs wholly owned subsidiary for the sole purpose of
making the investments. Each note is guaranteed by
Grubb & Ellis Realty Investors, LLC
(GERI). The guarantee is secured by a pledge of GERI
membership interest in the Senior Notes Program.
As of December 31, 2009 and 2008, the Senior Notes
Programs balance is reflected in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Maturity
|
|
December 31,
|
|
Current
|
|
Call
|
Ownership
|
|
Subsidiary
|
|
Issued
|
|
Date
|
|
2009
|
|
2009
|
|
Rate
|
|
Date
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
100%
|
|
Senior Notes Program
|
|
08/01/2006
|
|
08/01/2011
|
|
$
|
16,277
|
|
|
$
|
16,277
|
|
|
|
8.75
|
%
|
|
|
N/A
|
|
|
|
18.
|
PROPERTIES
HELD FOR SALE AND DISCONTINUED OPERATIONS
|
A summary of the balance sheet information for properties held
for sale is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
|
|
|
$
|
23,459
|
|
Properties held for sale including investments in unconsolidated
entities
|
|
|
|
|
|
|
78,708
|
|
Identified intangible assets and other assets
|
|
|
|
|
|
|
25,747
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
127,914
|
|
|
|
|
|
|
|
|
|
|
Notes payable of properties held for sale including investments
in unconsolidated entities
|
|
$
|
|
|
|
$
|
108,959
|
|
Liabilities of properties held for sale
|
|
|
|
|
|
|
9,257
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
118,216
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the requirements of the Property, Plant, and
Equipment Topic, the Company assessed the value of the
properties held for sale. The Company generally uses a
discounted cash flow model to estimate the fair value of its
properties held for sale unless better market comparable data is
available. Management uses its best estimate in determining the
key assumptions, including the expected holding period, future
occupancy levels, capitalization rates, discount rates, rental
rates,
lease-up
periods and capital expenditure requirements. The estimated fair
value is further adjusted for anticipated selling expenses. This
valuation review resulted in the Company recognizing real estate
related impairments of approximately $28.9 million during
the year ended December 31, 2008 which is included in
discontinued operations as of December 31, 2008. There were
no real estate related impairments related to properties held
for sale recognized during the years ended December 31,
2009 or December 31, 2007.
On June 3, 2009, the Company completed the sale of Danbury
Corporate Center for $72.4 million. The Company recognized
a loss on sale of $1.1 million.
90
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On December 29, 2009, GERA Abrams Centre LLC
(Abrams) and GERA 6400 Shafer LLC
(Shafer) modified the terms of its
$42.5 million loan initially due on July 9, 2009. The
amendment to the loan provided, among other things, for an
extension of the term of the loan until March 31, 2010. In
addition, the principal balance of the Loan was reduced from
$42.5 million to $11.0 million in connection with the
transfer of the Shafer Property to an affiliate of the lender
for nominal consideration pursuant to a special warranty deed
that was recorded on December 29, 2009.
Pursuant to the amendment, the lender remains obligated under
the loan, in its reasonable discretion, to fund any shortfalls
relating to tenant improvements and leasing commission expenses
and to fund any operational shortfalls and debt service,
provided that there is no event of default existing with respect
to the Loan. The Amendment also grants the lender a call option,
and the borrower a put option, with respect to the Abrams
Property through the Loan Extension Date. Each of the
Lenders call option and the Borrowers put option
requires 10 business days prior written notice and provides for
the transfer of the Abrams Property pursuant to a deed identical
in all material respects to the Special Warranty Deed that was
executed with respect to the Shafer Property. If neither the put
option nor the call option is exercised by March 30, 2010,
the Borrower has the right to file a deed conveying the Abrams
Property to the Lender or its designee on March 31, 2010.
The Amendment also released the borrower and the guarantor under
the Loan, from and against any claims, obligations
and/or
liabilities that the Lender or any of party related to or
affiliated with the Lender, whether known or unknown, that such
party had, has or may have in the future, arising from or
related to the Loan.
In connection with the completion of the deed in lieu of
foreclosure on the Shafer property prior to December 31,
2009, the Company deconsolidated the property and related assets
and liabilities. Additionally, the Abrams property and related
assets and liabilities were deconsolidated pursuant to the
Consolidation Topic due to the loss of control over this
property, of which the fair value of the assets and liabilities
totaled $6.7 million as of December 31, 2009. The
Company recognized a gain on extinguishment of debt of
$13.3 million, or $0.21 per common share, during the year
ended December 31, 2009 related to the deconsolidation of
the Shafer and Abrams properties. As the Shafer and Abrams
properties were effectively abandoned under the accounting
standards, the results of operations were reclassified to
discontinued operations.
The investments in unconsolidated entities held for sale
represent the Companys interest in certain real estate
properties that it holds through various limited liability
companies. In accordance with the requirements of the Real
Estate Sales Topic, and the Property, Plant and
Equipment Topic, the Company treats the disposition of these
interests similar to the disposition of real estate it holds
directly. In addition, pursuant to the requirements of the
Consolidation Topic, when the Company is no longer the primary
beneficiary of the LLC, the Company deconsolidates the LLC.
During the year ended December 31, 2008, the Company sold
interests in certain real estate properties that it holds
through various consolidated LLCs resulting in the
deconsolidation of the LLCs and a decrease of approximately
$198.0 million in properties held for sale including
investments in unconsolidated entities. These non-cash
transactions concurrently resulted in a decrease in restricted
cash of approximately $20.7 million, a decrease in other
assets, identified intangible assets and other assets held for
sale of approximately $48.4 million, a decrease in
investments in unconsolidated entities of approximately
$34.6 million, a decrease in accounts payable and accrued
expenses of approximately $13.5 million, a decrease in
notes payable of properties held for sale including investments
in unconsolidated entities of approximately $180.2 million,
a decrease in noncontrolling interest liability of approximately
$27.6 million, a decrease in other liabilities of
approximately $1.3 million and an increase in proceeds from
related parties of approximately $79.1 million.
During the year ended December 31, 2007, the Company sold
interests in certain real estate properties that it holds
through various consolidated LLCs resulting in the
deconsolidation of the LLCs and a decrease of approximately
$290.3 million in properties held for sale including
investments in unconsolidated entities. These non-cash
transactions concurrently resulted in a decrease in restricted
cash of approximately
91
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$33.5 million, a decrease in other assets, identified
intangible assets and other assets held for sale of
approximately $48.9 million, a decrease in accounts payable
and accrued expenses of approximately $8.6 million, a
decrease in notes payable of properties held for sale including
investments in unconsolidated entities of approximately
$238.1 million, a decrease in noncontrolling interest
liability of approximately $19.4 million, a decrease in
other liabilities of approximately $3.7 million and an
increase in proceeds from related parties of approximately
$102.9 million.
In instances when the Company expects to have significant
ongoing cash flows or significant continuing involvement in the
component beyond the date of sale, the income (loss) from
certain properties held for sale continue to be fully recorded
within the continuing operations of the Company through the date
of sale. The net results of discontinued operations and the net
gain on dispositions of properties sold or classified as held
for sale as of December 31, 2009, in which the Company has
no significant ongoing cash flows or significant continuing
involvement, are reflected in the consolidated statements of
operations as discontinued operations. The Company will receive
certain fee income from these properties on an ongoing basis
that is not considered significant when compared to the
operating results of such properties.
The following table summarizes the income (loss) and expense
components net of taxes that comprised
discontinued operations for the years ended December 31,
2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
10,103
|
|
|
$
|
23,325
|
|
|
$
|
10,471
|
|
Rental expense
|
|
|
(8,779
|
)
|
|
|
(16,182
|
)
|
|
|
(5,210
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
(8,030
|
)
|
|
|
(417
|
)
|
Interest expense (including amortization of deferred financing
costs)
|
|
|
(2,867
|
)
|
|
|
(7,522
|
)
|
|
|
(6,442
|
)
|
Real estate related impairments
|
|
|
(6,612
|
)
|
|
|
(31,237
|
)
|
|
|
|
|
Tax benefit
|
|
|
3,199
|
|
|
|
15,368
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(4,956
|
)
|
|
|
(24,278
|
)
|
|
|
(960
|
)
|
Gain on disposal of discontinued operations
net of taxes ($4.8 million, $0.2 million and
$0.2 million for the years ended December 31, 2009,
2008 and 2007, respectively)
|
|
|
7,442
|
|
|
|
357
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations
|
|
$
|
2,486
|
|
|
$
|
(23,921
|
)
|
|
$
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 2, 2009, the Company issued a $5.0 million
senior subordinated convertible note (the Note) to
Kojaian Management Corporation. Kojaian Management Corporation
is an affiliate of a director of the Company. The Note
(i) bore interest at twelve percent (12%) per annum,
(ii) was co-terminus with the term of the Credit Facility
(including if the Credit Facility was terminated pursuant to the
Discount Prepayment Option), (iii) was unsecured and fully
subordinate to the Credit Facility, and (iv) in the event
the Company issues or sells equity securities in connection with
or pursuant to a transaction with a non-affiliate of the Company
while the Note was outstanding, at the option of the holder of
the Note, the principal amount of the Note then outstanding was
convertible into those equity securities of the Company issued
or sold in such non-affiliate transaction. In connection with
the issuance of the Note, Kojaian Management Corporation, the
lenders to the Credit Facility and the Company entered into a
subordination agreement.
During the fourth quarter of 2009, the Company completed a
private placement of 965,700 shares of 12% cumulative
participating perpetual convertible preferred stock, par value
$0.01 per share (Preferred Stock), to qualified
institutional buyers and other accredited investors, including
directors, executive officers and
92
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
employees of the Company. In conjunction with the offering, the
entire $5.0 million principal balance of the Note was
converted into Preferred Stock at the offering price and the
holder of the Note received accrued interest of approximately
$57,000. In addition, the holder of the Note also purchased an
additional $5.0 million of Preferred Stock at the offering
price.
Each share of Preferred Stock is convertible, at the
holders option, into the Companys common stock, par
value $.01 per share at a conversion rate of 60.606 shares
of common stock for each share of Preferred Stock, which
represents a conversion price of approximately $1.65 per share
of common stock, a 10.0% premium to the closing price of the
common stock on October 22, 2009.
Upon the closing of the sale of the Preferred Stock, the Company
received net cash proceeds of approximately $90.1 million
after deducting the initial purchasers discounts and
certain offering expenses and after giving effect to the
conversion of the $5.0 million subordinated note. A portion
of proceeds were used to pay in full borrowings under the Credit
Facility then outstanding of $66.8 million for a reduced
amount equal to $43.4 million, with the balance of the
proceeds to be used for general corporate purposes.
The terms of the Preferred Stock provide for cumulative
dividends from and including the date of original issuance in
the amount of $12.00 per share each year. Dividends on the
Preferred Stock will be payable when, as and if declared,
quarterly in arrears, on March 31, June 30, September
30 and December 31, beginning on December 31, 2009. In
addition, in the event of any cash distribution to holders of
the Common Stock, holders of Preferred Stock will be entitled to
participate in such distribution as if such holders had
converted their shares of Preferred Stock into Common Stock.
If the Company fails to pay the quarterly Preferred Stock
dividend in full for two consecutive quarters, the dividend rate
will automatically be increased by .50% of the initial
liquidation preference per share per quarter (up to a maximum
amount of increase of 2% of the initial liquidation preference
per share) until cumulative dividends have been paid in full. In
addition, subject to certain limitations, in the event the
dividends on the Preferred Stock are in arrears for six or more
quarters, whether or not consecutive, holders representing a
majority of the shares of Preferred Stock voting together as a
class with holders of any other class or series of preferred
stock upon which like voting rights have been conferred and are
exercisable will be entitled to nominate and vote for the
election of two additional directors to serve on the board of
directors until all unpaid dividends with respect to the
Preferred Stock and any other class or series of preferred stock
upon which like voting rights have been conferred or are
exercisable have been paid or declared and a sum sufficient for
payment has been set aside therefore.
During the six-month period following November 6, 2009, if
the Company issues any securities, other than certain permitted
issuances, and the price per share of the Common Stock (or the
equivalent for securities convertible into or exchangeable for
Common Stock) is less than the then current conversion price of
the Preferred Stock, the conversion price will be reduced
pursuant to a weighted average anti-dilution formula.
Holders of Preferred Stock may require the Company to repurchase
all, or a specified whole number, of their Preferred Stock upon
the occurrence of a Fundamental Change (as defined
in the Certificate of Designations) with respect to any
Fundamental Change that occurs (i) prior to
November 15, 2014, at a repurchase price equal to 110% of
the sum of the initial liquidation preference plus accumulated
but unpaid dividends, and (ii) from November 15, 2014
until prior to November 15, 2019, at a repurchase price
equal to 100% of the sum of the initial liquidation preference
plus accumulated but unpaid dividends. On or after
November 15, 2014, the Company may, at its option, redeem
the Preferred Stock, in whole or in part, by paying an amount
equal to 110% of the sum of the initial liquidation preference
per share plus any accrued and unpaid dividends to and including
the date of redemption.
In the event of certain events that constitute a Change in
Control (as defined in the Certificate of Designations)
prior to November 15, 2014, the conversion rate of the
Preferred Stock will be subject to increase. The amount of the
increase in the applicable conversion rate, if any, will be
based on the date in
93
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which the Change in Control becomes effective, the price to be
paid per share with respect to the Common Stock and the
transaction constituting the Change in Control.
The Company entered into a registration rights agreement with
one of the lead investors (and its affiliates) with respect to
125,000 of such shares of Preferred Stock, and the Common Stock
issuable upon the conversion of such Preferred Stock, that was
acquired by such lead investor (and affiliates) in the Offering.
The registration of the shares became effective on
December 29, 2009. No other purchasers of the Preferred
Stock in the Offering have the right to have their shares of
Preferred Stock, or shares of Common Stock issuable upon
conversion of such Preferred Stock, registered. In addition,
subject to certain limitations, the lead investor who acquired
the registration rights also has certain preemptive rights in
the event the Company issues for cash consideration any Common
Stock or any securities convertible into or exchangeable for
Common Stock (or any rights, warrants or options to purchase any
such Common Stock) during the six-month period subsequent to the
closing of the Offering. Such preemptive right is intended to
permit such lead investor to maintain its pro rata ownership of
the Preferred Stock acquired in the Offering.
Except as otherwise provided by law, the holders of the
Preferred Stock vote together with the holders of common stock
as one class on all matters on which holders of common stock
vote. Holders of the Preferred Stock when voting as a single
class with holders of common stock are entitled to voting rights
equal to the number of shares of Common Stock into which the
Preferred Stock is convertible, on an as if
converted basis. Holders of Preferred Stock vote as a separate
class with respect to certain matters.
Upon any liquidation, dissolution or winding up of the Company,
holders of the Preferred Stock will be entitled, prior to any
distribution to holders of any securities ranking junior to the
Preferred Stock, including but not limited to the Common Stock,
and on a pro rata basis with other preferred stock of equal
ranking, a cash liquidation preference equal to the greater of
(i) 110% of the sum of the initial liquidation preference
per share plus accrued and unpaid dividends thereon, if any,
from November 6, 2009, the date of the closing of the
Offering, and (ii) an amount equal to the distribution
amount each holder of Preferred Stock would have received had
all shares of Preferred Stock been converted to Common Stock.
On December 11, 2009, the Board of Directors declared a
dividend of $1.8333 per share on the Companys 12%
Cumulative Participating Perpetual Convertible Preferred Stock
to shareowners of record as of December 21, 2009, which was
paid on December 31, 2009.
Management accounted for the Preferred Stock transaction in
accordance with the requirements of the Derivatives and Hedging
Topic and Distinguishing Liabilities and Equity Topic. Pursuant
to those topics, Management determined that the Preferred Stock
should be accounted for as a single instrument as the terms of
the Preferred Stock do not include any embedded derivatives that
would require bifurcation from the host instrument. Pursuant to
the Distinguishing Liabilities and Equity Topic, Management
determined that the Preferred Stock should not be classified as
a liability as the characteristics of the Preferred Stock are
more closely related to equity as there is no mandatory
redemption date. According to the terms of the Preferred Stock,
the Preferred Stock will only become redeemable at the option of
the holder upon (i) a fundamental change or (ii) the
Companys failure to amend its Certificate of Incorporation
within 120 days of the date of issuance of the Preferred
Stock, which was not considered probable. The Company amended
its Certificate of Incorporation as required by the Preferred
Stock articles. In addition, Management determined that there
are various events and circumstances that would allow for
redemption of the Preferred Stock at the option of the holders,
however, several of these redemption events are not within the
Companys control and, therefore, the Preferred Stock
should be classified outside of permanent equity in accordance
with the Distinguishing Liabilities and Equity Topic as these
events were assessed as not probable of becoming redeemable.
94
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating Leases The Company has
non-cancelable operating lease obligations for office space and
certain equipment ranging from one to ten years, and sublease
agreements under which the Company acts as a sublessor. The
office space leases often times provide for annual rent
increases, and typically require payment of property taxes,
insurance and maintenance costs.
Rent expense under these operating leases was approximately
$24.1 million, $23.2 million and $4.3 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Rent expense is included in general and
administrative expense in the accompanying consolidated
statements of operations.
As of December 31, 2009, future minimum amounts payable
under non-cancelable operating leases are as follows for the
years ending December 31:
|
|
|
|
|
|
|
(In
|
|
|
|
thousands)
|
|
|
2010
|
|
$
|
24,580
|
|
2011
|
|
|
21,829
|
|
2012
|
|
|
19,494
|
|
2013
|
|
|
13,899
|
|
2014
|
|
|
8,898
|
|
Thereafter
|
|
|
15,510
|
|
|
|
|
|
|
|
|
$
|
104,210
|
|
|
|
|
|
|
The Company subleases certain office spaces to third parties.
The total future minimum rental income to be received under
these non-cancellable subleases is $8.6 million as of
December 31, 2009.
Operating Leases Other The
Company is a master lessee of seven multi-family residential
properties in various locations under non-cancelable leases. The
leases, which commenced in various months and expire from June
2015 through March 2016, require minimum monthly payments
averaging $795,000 over the
10-year
period. Rent expense under these operating leases was
approximately $9.2 million, $9.4 million and
$8.6 million, for the years ended December 31, 2009,
2008 and 2007, respectively. As of December 31, 2009,
rental related expense, based on contractual amounts due, is as
follows for the years ending December 31:
|
|
|
|
|
|
|
Rental
|
|
|
|
Related
|
|
|
|
Expense
|
|
(In thousands)
|
|
|
|
|
2010
|
|
$
|
10,766
|
|
2011
|
|
|
10,942
|
|
2012
|
|
|
10,942
|
|
2013
|
|
|
10,942
|
|
2014
|
|
|
10,942
|
|
Thereafter
|
|
|
8,852
|
|
|
|
|
|
|
|
|
$
|
63,386
|
|
|
|
|
|
|
The Company subleases these multifamily spaces to third parties
for no more than one year. Rental income from these subleases
was approximately $15.1 million, $16.4 million and
$16.4 million for the years ended December 31, 2009,
2008 and 2007, respectively.
The Company is also a 50% joint venture partner of four multi
family residential properties in various locations under
non-cancelable leases. The leases, which commenced in various
months and expire from
95
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
November 2014 through January 2015, require minimum monthly
payments averaging $372,000 over the
10-year
period. Rent expense under these operating leases was
approximately $4.5 million, $4.5 million and
$4.3 million, for the years ended December 31, 2009,
2008 and 2007, respectively. As of December 31, 2009,
rental related expense, based on contractual amounts due, is as
follows for the years ending December 31:
|
|
|
|
|
(In thousands)
|
|
|
|
|
2010
|
|
$
|
4,474
|
|
2011
|
|
|
4,474
|
|
2012
|
|
|
4,474
|
|
2013
|
|
|
4,474
|
|
2014
|
|
|
4,405
|
|
Thereafter
|
|
|
113
|
|
|
|
|
|
|
|
|
$
|
22,414
|
|
|
|
|
|
|
The Company subleases these multifamily spaces to third parties
for no more than one year. Rental income from these subleases
was approximately $8.9 million, $9.0 million and
$8.4 million for the years ended December 31, 2009,
2008 and 2007, respectively.
As of December 31, 2009, the Company had recorded
liabilities totaling $9.1 million related to such master
lease arrangements, consisting of $5.2 million of
cumulative deferred revenues relating to acquisition fees and
loan fees received from 2004 through 2006 and $3.9 million
of additional loss reserves which were recorded in 2008 and 2009.
TIC Program Exchange Provision Prior to the
Merger, NNN entered into agreements in which NNN agreed to
provide certain investors with a right to exchange their
investment in certain TIC Programs for an investment in a
different TIC program. NNN also entered into an agreement with
another investor that provided the investor with certain
repurchase rights under certain circumstances with respect to
their investment. The agreements containing such rights of
exchange and repurchase rights pertain to initial investments in
TIC programs totaling $31.6 million. In July 2009 the
Company received notice from an investor of their intent to
exercise such rights of exchange and repurchase with respect to
an initial investment totaling $4.5 million. The Company is
currently evaluating such notice to determine the nature and
extent of the right of such exchange and repurchase, if any.
The Company deferred revenues relating to these agreements of
$0.3 million, $1.0 million and $0.4 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Additional losses of $4.7 million and
$14.3 million related to these agreements were incurred
during the years ended December 31, 2009 and 2008,
respectively, to reflect the impairment in value of properties
underlying the agreements with investors. As of
December 31, 2009 the Company had recorded liabilities
totaling $22.8 million related to such agreements, which is
included in other current liabilities, consisting of
$3.8 million of cumulative deferred revenues and
$19.0 million of additional losses related to these
agreements. In addition, the Company is joint and severally
liable on the non-recourse mortgage debt related to these TIC
Programs totaling $277.0 million and $277.8 million as
of December 31, 2009 and 2008, respectively. This mortgage
debt is not consolidated as the LLCs account for the interests
in the Companys TIC investments under the equity method
and the non-recourse mortgage debt does not meet the criteria
under the Transfers and Servicing Topic for recognizing the
share of the debt assumed by the other TIC interest holders for
consolidation. The Company considers the third-party TIC
holders ability and intent to repay their share of the
joint and several liability in evaluating the recoverability of
the Companys investment in the TIC Program.
Capital Lease Obligations The Company leases
computers, copiers, and postage equipment that are accounted for
as capital leases (See Note 14 of for additional
information).
96
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
General The Company is involved in various
claims and lawsuits arising out of the ordinary conduct of its
business, as well as in connection with its participation in
various joint ventures and partnerships, many of which may not
be covered by the Companys insurance policies. In the
opinion of management, the eventual outcome of such claims and
lawsuits is not expected to have a material adverse effect on
the Companys financial position or results of operations.
Guarantees From time to time the Company
provides guarantees of loans for properties under management. As
of December 31, 2009, there were 146 properties under
management with loan guarantees of approximately
$3.5 billion in total principal outstanding with terms
ranging from one to 10 years, secured by properties with a
total aggregate purchase price of approximately
$4.8 billion. As of December 31, 2008, there were 151
properties under management with loan guarantees of
approximately $3.5 billion in total principal outstanding
with terms ranging from one to 10 years, secured by
properties with a total aggregate purchase price of
approximately $4.8 billion. In addition, the consolidated
VIEs and unconsolidated VIEs are jointly and severally liable on
the non-recourse mortgage debt related to the interests in the
Companys TIC investments totaling $277.0 million and
$154.8 million as of December 31, 2009, respectively.
The Companys guarantees consisted of the following as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Non-recourse/carve-out guarantees of debt of properties under
management(1)
|
|
$
|
3,416,849
|
|
|
$
|
3,372,007
|
|
Non-recourse/carve-out guarantees of the Companys debt(1)
|
|
$
|
97,000
|
|
|
$
|
97,000
|
|
Recourse guarantees of debt of properties under management
|
|
$
|
33,898
|
|
|
$
|
42,426
|
|
Recourse guarantees of the Companys debt(2)
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
|
|
(1) |
|
A non-recourse/carve-out guarantee imposes personal
liability on the guarantor in the event the borrower engages in
certain acts prohibited by the loan documents. Each non-recourse
carve-out guarantee is an individual document entered into with
the mortgage lender in connection with the purchase or refinance
of an individual property. While there is not a standard
document evidencing these guarantees, liability under the
non-recourse carve-out guarantees generally may be triggered by,
among other things, any or all of the following: |
|
|
|
|
|
a voluntary bankruptcy or similar insolvency proceeding of any
borrower;
|
|
|
|
a transfer of the property or any interest therein
in violation of the loan documents;
|
|
|
|
a violation by any borrower of the special purpose entity
requirements set forth in the loan documents;
|
|
|
|
any fraud or material misrepresentation by any borrower or any
guarantor in connection with the loan;
|
|
|
|
the gross negligence or willful misconduct by any borrower in
connection with the property, the loan or any obligation under
the loan documents;
|
|
|
|
the misapplication, misappropriation or conversion of
(i) any rents, security deposits, proceeds or other funds,
(ii) any insurance proceeds paid by reason of any loss,
damage or destruction to the property, and (iii) any awards
or other amounts received in connection with the condemnation of
all or a portion of the property;
|
|
|
|
any waste of the property caused by acts or omissions of
borrower of the removal or disposal of any portion of the
property after an event of default under the loan
documents; and
|
|
|
|
the breach of any obligations set forth in an environmental or
hazardous substances indemnification agreement from borrower.
|
Certain violations (typically the first three listed above)
render the entire debt balance recourse to the guarantor
regardless of the actual damage incurred by lender, while the
liability for other violations is
97
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limited to the damages incurred by the lender. Notice and cure
provisions vary between guarantees. Generally the guarantor
irrevocably and unconditionally guarantees to the lender the
payment and performance of the guaranteed obligations as and
when the same shall be due and payable, whether by lapse of
time, by acceleration or maturity or otherwise, and the
guarantor covenants and agrees that it is liable for the
guaranteed obligations as a primary obligor. As of
December 31, 2009, to the best of the Companys
knowledge, there is no amount of debt owed by the Company as a
result of the borrowers engaging in prohibited acts.
|
|
|
(2) |
|
In addition to the $10.0 million principal guarantee, the
Company has guaranteed any shortfall in the payment of interest
on the unpaid principal amount of the mortgage debt on one owned
property. |
Management initially evaluates these guarantees to determine if
the guarantee meets the criteria required to record a liability
in accordance with the requirements of the Guarantees Topic. Any
such liabilities were insignificant as of December 31, 2009
and 2008. In addition, on an ongoing basis, the Company
evaluates the need to record additional liability in accordance
with the requirements of the Contingencies Topic. As of
December 31, 2009 and 2008, the Company had recourse
guarantees of $33.9 million and $42.4 million,
respectively, relating to debt of properties under management.
As of December 31, 2009, approximately $9.8 million of
these recourse guarantees relate to debt that has matured or is
not currently in compliance with certain loan covenants. In
evaluating the potential liability relating to such guarantees,
the Company considers factors such as the value of the
properties secured by the debt, the likelihood that the lender
will call the guarantee in light of the current debt service and
other factors. As of December 31, 2009 and 2008, the
Company recorded a liability of $3.8 million and
$9.1 million, respectively, which is included in other
current liabilities, related to its estimate of probable loss
related to recourse guarantees of debt of properties under
management which matured in January and April 2009.
Investment Program Commitments During June
and July 2009, the Company revised the offering terms related to
certain investment programs which it sponsors, including the
commitment to fund additional property reserves and the waiver
or reduction of future management fees and disposition fees. The
Company recorded a liability for future funding commitments as
of December 31, 2009 for these investment programs totaling
$1.3 million to fund TIC Program reserves.
Environmental Obligations In the
Companys role as property manager, it could incur
liabilities for the investigation or remediation of hazardous or
toxic substances or wastes at properties the Company currently
or formerly managed or at off-site locations where wastes were
disposed. Similarly, under debt financing arrangements on
properties owned by sponsored programs, the Company has agreed
to indemnify the lenders for environmental liabilities and to
remediate any environmental problems that may arise. The Company
is not aware of any environmental liability or unasserted claim
or assessment relating to an environmental liability that the
Company believes would require disclosure or the recording of a
loss contingency as of December 31, 2009 and 2008.
Real Estate Licensing In connection with
NNNs 144A financing transaction in November 2006,
Mr. Thompson, Louis J. Rogers, former President of GERI,
and Jeffrey T. Hanson, the Companys Chief Investment
Officer, agreed to forfeit to the Company up to an aggregate of
4,124,120 escrowed shares of the Companys common stock in
the event of any claims or liabilities during the period
November 16, 2006 through November 16, 2009 related to
the failure of NNNs subsidiaries to comply with real
estate broker licensing requirements in all states where they
conducted business. In addition, Mr. Thompson agreed to
indemnify the Company for an additional $9.4 million in
cash to the extent such claims or liabilities exceeded the
deemed $46.9 million value of these shares. As of
November 16, 2009, no claims or liabilities occurred, these
obligations terminated and the shares were released. As of
December 31, 2009, there have been no claims, and the
Company cannot assess or estimate whether it will incur any
losses as a result of the foregoing.
Alesco Seed Capital On November 16,
2007, the Company completed the acquisition of a 51% membership
interest in Grubb & Ellis Alesco Global Advisors, LLC
(Alesco). Pursuant to the Intercompany Agreement
between the Company and Alesco, dated as of November 16,
2007, the Company committed to
98
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
invest $20.0 million in seed capital into the open and
closed end real estate funds that Alesco expects to launch.
Additionally, upon achievement of certain earn-out targets, the
Company would be required to purchase up to an additional 27%
interest in Alesco for $15.0 million. The Company is
allowed to use $15.0 million of seed capital to fund the
earn-out payments. As of December 31, 2009, the Company has
invested $0.5 million in seed capital into the open and
closed end real estate funds that Alesco launched during 2008.
In January 2010, the Company invested an additional
$1.0 million in seed capital.
Deferred Compensation Plan During 2008, the
Company implemented a deferred compensation plan that permits
employees and independent contractors to defer portions of their
compensation, subject to annual deferral limits, and have it
credited to one or more investment options in the plan. As of
December 31, 2009 and December 31, 2008,
$3.3 million and $1.7 million, respectively,
reflecting the non-stock liability under this plan were included
in accounts payable and accrued expenses. The Company has
purchased whole-life insurance contracts on certain employee
participants to recover distributions made or to be made under
this plan and as of December 31, 2009 and 2008 have
recorded the cash surrender value of the policies of
$1.0 million and $1.1 million, respectively, in
prepaid expenses and other assets.
In addition, the Company awards phantom shares of
Company stock to participants under the deferred compensation
plan. As of December 31, 2009 and 2008, the Company awarded
an aggregate of 6.0 million and 5.4 million phantom
shares, respectively, to certain employees with an aggregate
value on the various grant dates of $23.0 million and
$22.5 million, respectively. As of December 31, 2009,
an aggregate of 5.6 million phantom share grants were
outstanding. Generally, upon vesting, recipients of the grants
are entitled to receive the number of phantom shares granted,
regardless of the value of the shares upon the date of vesting;
provided, however, grants with respect to 900,000 phantom shares
had a guaranteed minimum share price ($3.1 million in the
aggregate) that will result in the Company paying additional
compensation to the participants should the value of the shares
upon vesting be less than the grant date value of the shares.
The Company accounts for additional compensation relating to the
guarantee portion of the awards by measuring at each
reporting date the additional payment that would be due to the
participant based on the difference between the then current
value of the shares awarded and the guaranteed value. This award
is then amortized on a straight-line basis as compensation
expense over the requisite service (vesting) period, with an
offset to deferred compensation liability.
|
|
21.
|
EARNINGS
(LOSS) PER SHARE
|
The Company computes earnings per share in accordance with the
requirements of the Earnings Per Share Topic. Under the Topic,
basic earnings (loss) per share is computed using the
weighted-average number of common shares outstanding during the
period. Diluted earnings (loss) per share is computed using the
weighted-average number of common and common equivalent shares
of stock outstanding during the periods utilizing the treasury
stock method for stock options and unvested restricted stock.
On December 7, 2007, pursuant to the Merger Agreement
(i) each issued and outstanding share of common stock of
NNN was automatically converted into 0.88 of a share of common
stock of the Company, and (ii) each issued and outstanding
stock option of NNN, exercisable for common stock of NNN, was
automatically converted into the right to receive stock option
exercisable for common stock of the Company based on the same
0.88 share conversion ratio.
Unless otherwise indicated, all pre-merger NNN share data have
been adjusted to reflect the 0.88 conversion as a result of the
Merger.
99
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation between weighted-average
shares used in the basic and diluted earnings (loss) per share
calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
Numerator for earnings per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(82,985
|
)
|
|
$
|
(318,668
|
)
|
|
$
|
23,741
|
|
Less: Net loss (income) attributable to noncontrolling interests
|
|
|
1,661
|
|
|
|
11,719
|
|
|
|
(1,961
|
)
|
Less: Preferred dividends
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating shareowners
|
|
|
|
|
|
|
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(83,094
|
)
|
|
$
|
(306,949
|
)
|
|
$
|
21,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
2,486
|
|
|
$
|
(23,921
|
)
|
|
$
|
(708
|
)
|
Less: Income allocated to participating security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
2,486
|
|
|
$
|
(23,921
|
)
|
|
$
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to Grubb & Ellis Company
|
|
$
|
(78,838
|
)
|
|
$
|
(330,870
|
)
|
|
$
|
21,072
|
|
Less: Preferred dividends
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
Less: Income allocated to participating security holders
|
|
|
|
|
|
|
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(80,608
|
)
|
|
$
|
(330,870
|
)
|
|
$
|
20,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,652
|
|
Earnings per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.31
|
)
|
|
$
|
(4.83
|
)
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
0.04
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.31
|
)
|
|
$
|
(4.83
|
)
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
0.04
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participating shareowners:
|
|
|
|
|
|
|
|
|
|
|
|
|
(as of the end of the period used to allocate earnings)
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares (as if converted to common shares)
|
|
|
58,527
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock
|
|
|
3,601
|
|
|
|
2,014
|
|
|
|
1,432
|
|
Unvested phantom stock
|
|
|
5,523
|
|
|
|
5,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participating shares
|
|
|
67,651
|
|
|
|
7,351
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common shares outstanding
|
|
|
63,784
|
|
|
|
63,369
|
|
|
|
63,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
Outstanding non-vested restricted stock and options to purchase
shares of common stock and restricted stock, the effect of which
would be anti-dilutive, were approximately 4.1 million,
3.1 million and 2.0 million shares as of
December 31, 2009, 2008 and 2007, respectively. These
shares were not included in the computation of diluted earnings
per share because an operating loss was reported or the option
exercise price was greater than the average market price of the
common shares for the respective periods. In addition, excluded
from the calculation of diluted weighted-average common shares
as of December 31, 2009 and 2008 were approximately
5.6 million and 5.2 million phantom shares,
respectively, that may be awarded to employees related to the
deferred compensation plan. |
|
|
22.
|
OTHER
RELATED PARTY TRANSACTIONS
|
Offering Costs and Other Expenses Related to Public
Non-traded REITs The Company, through its
consolidated subsidiaries Grubb & Ellis Apartment REIT
Advisor, LLC, Grubb & Ellis Healthcare REIT Advisor,
LLC, and Grubb & Ellis Healthcare REIT II Advisor,
LLC, bears certain general and administrative expenses in its
capacity as advisor of Apartment REIT, Healthcare REIT (through
September 20, 2009 when its advisory agreement terminated)
and Healthcare REIT II, respectively, and is reimbursed for
these expenses. However, Apartment REIT, Healthcare REIT and
Healthcare REIT II will not reimburse the Company for any
operating expenses that, in any four consecutive fiscal
quarters, exceed the greater of 2.0% of average invested assets
(as defined in their respective advisory agreements) or 25.0% of
the respective REITs net income for such year, unless the
board of directors of the respective REITs approve such excess
as justified based on unusual or nonrecurring factors. All
unreimbursable amounts are expensed by the Company.
The Company also paid for the organizational, offering and
related expenses on behalf of Apartment REIT for its initial
offering that ended July 17, 2009 and Healthcare REIT for
its initial offering (through August 28, 2009 when its
dealer manager agreement terminated). These organizational,
offering and related expenses include all expenses (other than
selling commissions and the marketing support fee which
generally represent 7.0% and 2.5% of the gross offering
proceeds, respectively) to be paid by Apartment REIT and
Healthcare REIT in connection with their initial offerings.
These expenses only become the liability of Apartment REIT and
Healthcare REIT to the extent other organizational and offering
expenses do not exceed 1.5% of the gross proceeds of the initial
offerings. As of December 31, 2009, 2008 and 2007, the
Company had incurred expenses of $4.3 million,
$3.8 million and $2.7 million, respectively, in excess
of 1.5% of the gross proceeds of the Apartment REIT offering.
During the year ended December 31, 2009, the additional
$0.5 million of expenses incurred in connection with the
Apartment REIT offering were fully reserved for and as of
December 31, 2009, the $4.3 million in total expenses
incurred were written off. As of December 31, 2008, the
Company had recorded an allowance for bad debt of approximately
$3.6 million, related to the Apartment REIT offering costs
incurred as the Company believed that such amounts would not be
reimbursed. As of December 31, 2009 and 2008, the Company
did not incur expenses in excess of 1.5% of the gross proceeds
of the Healthcare REIT offering. As of December 31, 2007,
the Company had incurred expenses of $1.1 million in excess
of 1.5% of the gross proceeds of the Healthcare REIT offering.
The Company also pays for the organizational, offering and
related expenses on behalf of Apartment REITs follow-on
offering and Healthcare REIT IIs initial offering. These
organizational and offering expenses include all expenses (other
than selling commissions and a dealer manager fee which
represent 7.0% and 3.0% of the gross offering proceeds,
respectively) to be paid by Apartment REIT and Healthcare REIT
II in connection with these offerings. These expenses only
become a liability of Apartment REIT and Healthcare REIT II to
the extent other organizational and offering expenses do not
exceed 1.0% of the gross proceeds of the offerings. As of
December 31, 2009 and 2008, the Company has incurred
expenses of $1.6 million and $0, respectively, in excess of
1.0% of the gross proceeds of the Apartment REIT follow-on
offering. As of December 31, 2009 and 2008, the Company has
incurred expenses of $2.0 million and $0.1 million,
respectively, in excess of 1.0% of the gross proceeds of the
Healthcare REIT II initial offering. The Company
101
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
anticipates that such amount will be reimbursed in the future
from the offering proceeds of Apartment REIT and Healthcare REIT
II.
Management Fees The Company provides both
transaction and management services to parties, which are
related to a principal shareowner and director of the Company
(collectively, Kojaian Companies). In addition, the
Company also pays asset management fees to the Kojaian Companies
related to properties the Company manages on their behalf.
Revenue, including reimbursable expenses related to salaries,
wages and benefits, earned by the Company for services rendered
to these affiliates, including joint ventures, officers and
directors and their affiliates, was $6.7 million,
$7.3 million and $0.5 million, respectively for the
years ended December 31, 2009, 2008 and 2007.
Other Related Party GERI, which is wholly
owned by the Company, owns a 50.0% managing member interest in
Grubb & Ellis Apartment REIT Advisor, LLC and each of
Grubb & Ellis Apartment Management, LLC and ROC REIT
Advisors, LLC own a 25.0% equity interest in Grubb &
Ellis Apartment REIT Advisor, LLC. As of December 31, 2009
and 2008, Andrea R. Biller, the Companys General Counsel,
Executive Vice President and Secretary, owned an equity interest
of 18.0% of Grubb & Ellis Apartment Management, LLC
and GERI owned an 82.0% interest. As of December 31, 2009
and 2008, Stanley J. Olander, the Companys Executive Vice
President Multifamily, owned an equity interest of
33.3% of ROC REIT Advisors, LLC.
GERI owns a 75.0% managing member interest in Grubb &
Ellis Healthcare REIT Advisor, LLC and, therefore, consolidates
Grubb & Ellis Healthcare REIT Advisor, LLC.
Grubb & Ellis Healthcare Management, LLC owns a 25.0%
equity interest in Grubb & Ellis Healthcare REIT
Advisor, LLC. As of December 31, 2009 and 2008, each of
Ms. Biller and Mr. Hanson, the Companys Chief
Investment Officer and GERIs President, owned an equity
interest of 18.0% of Grubb & Ellis Healthcare
Management, LLC and GERI owned a 64.0% interest in
Grubb & Ellis Healthcare Management, LLC.
The grants of membership interests in Grubb & Ellis
Apartment Management, LLC and Grubb & Ellis Healthcare
Management, LLC to certain executives are being accounted for by
the Company as a profit sharing arrangement. Compensation
expense is recorded by the Company when the likelihood of
payment is probable and the amount of such payment is estimable,
which generally coincides with Grubb & Ellis Apartment
REIT Advisor, LLC and Grubb & Ellis Healthcare REIT
Advisor, LLC recording its revenue. There was no compensation
expense related to the profit sharing arrangement with
Grubb & Ellis Apartment Management, LLC, and therefore
no distributions to any members, for the year ended
December 31, 2009. Compensation expense related to this
profit sharing arrangement associated with Grubb &
Ellis Apartment Management, LLC includes distributions of
$88,000 and $175,000, respectively, to Mr. Thompson,
$85,000 and $159,000, respectively, to Scott D. Peters, the
Companys former President and Chief Executive Officer, and
$122,000 and $159,000, respectively, to Ms. Biller for the
years ended December 31, 2008 and 2007, respectively.
Compensation expense related to this profit sharing arrangement
associated with Grubb & Ellis Healthcare Management,
LLC includes distributions of $44,000, $175,000 and $175,000 to
Mr. Thompson, $0, $387,000 and $414,000 to Mr. Peters
and $380,000, $548,000 and $414,000, to each of Ms. Biller
and Mr. Hanson for the years ended December 31, 2009,
2008 and 2007, respectively.
As of December 31, 2009 and 2008, respectively, the
remaining 82.0% equity interest in Grubb & Ellis
Apartment Management, LLC and the remaining 64.0% equity
interest in Grubb & Ellis Healthcare Management, LLC
were owned by GERI. Any allocable earnings attributable to
GERIs ownership interests are paid to GERI on a quarterly
basis.
The Companys directors and officers, as well as officers,
managers and employees have purchased, and may continue to
purchase, interests in offerings made by the Companys
programs at a discount. The purchase price for these interests
reflects the fact that selling commissions and marketing
allowances will not be paid in connection with these sales. The
net proceeds to the Company from these sales made net of
commissions will be substantially the same as the net proceeds
received from other sales.
102
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2007, NNN acquired Cunningham Lending Group LLC
(Cunningham), a company that was wholly owned by
Mr. Thompson, for $255,000 in cash. Prior to the
acquisition, Cunningham made unsecured loans to some of the
properties under management by GERI. The loans, which bear
interest at rates ranging from 8.0% to 12.0% per annum are
reflected in advances to related parties on the Companys
balance sheet and are serviced by the cash flows from the
programs. In accordance with the Consolidation Topic, the
Company consolidates Cunningham in its financial statements.
On November 6, 2009, the Company effected the private
placement of 900,000 shares of its 12% Preferred Stock, to
qualified institutional buyers and other accredited investors.
In conjunction with the offering, the entire $5.0 million
principal balance of the Note was converted into the 12%
Preferred Stock at the offering price and the holder of the Note
received accrued interest of approximately $57,000. In addition,
certain of the Companys directors, executive officers and
employees also purchased 12% Preferred Stock in the private
placement at the offering price as follows:
|
|
|
|
|
Kojaian Management Corporation, an affiliate of C. Michael
Kojaian, purchased $10 million of 12% Preferred Stock
(effected by the conversion of the $5.0 million principal
balance of the Note with the Company into 12% Preferred Stock
and the purchase of an additional $5.0 million of 12%
Preferred Stock)
|
|
|
|
Thomas P. DArcy purchased $500,000 of 12% Preferred Stock
|
|
|
|
Devin I. Murphy purchased $100,000 of 12% Preferred Stock
|
|
|
|
Rodger D. Young purchased $50,000 of 12% Preferred Stock
|
|
|
|
Andrea R. Biller purchased $100,000 of 12% Preferred Stock
|
|
|
|
Jeffrey T. Hanson purchased $25,000 of 12% Preferred Stock
|
|
|
|
Richard W. Pehlke purchased $50,000 of 12% Preferred Stock
|
|
|
|
Jacob Van Berkel purchased $25,000 of 12% Preferred Stock
|
|
|
|
other employees who are not NEOs purchased an aggregate of
$1,135,000 of 12% Preferred Stock
|
|
|
23.
|
EMPLOYEE
BENEFIT PLANS
|
Share-Based
Incentive Plans
Unless otherwise indicated, all pre-merger NNN share data have
been adjusted to reflect the conversion as a result of the
Merger (see Note 10).
2006 Omnibus Equity Plan In September 2006,
NNNs board of directors and then sole shareowner approved
and adopted the 2006 Long-Term Incentive Plan (the 2006
Plan). As a result of the merger of Grubb &
Ellis and NNN, all issued and outstanding stock option awards
under the 2006 Plan were merged into and are subject to the
general provisions of the 2006 Omnibus Equity Plan (the
Omnibus Plan). Awards previously issued pursuant to
the 2006 Plan maintain all of the specific rights and
characteristics as they held when originally issued, except for
the number of shares represented within each award. The numbers
of shares contained in awards issued under the 2006 Plan have
been multiplied by a conversion factor of 0.88 to calculate a
post-merger equivalent share amount for each award. In addition,
the exercise price of any option award originally granted under
the 2006 Plan has been divided by the same conversion factor of
0.88 to achieve a post-merger equivalent exercise price. All
tables contained within this Note 23 of Notes to
Consolidated Financial Statements have been retroactively
restated to reflect the above conversion factors, effective as
if the conversion had been calculated as of January 1,
2007, the earliest date presented.
A total of 2,539,910 shares of common stock (plus
restricted shares issuable to non-management directors pursuant
to a formula contained in the plan) remained eligible for future
grant under the Omnibus Plan as of December 31, 2009.
103
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Non-Qualified Stock Options. Non-qualified
stock options, or NQSOs, provide for the right to purchase
shares of common stock at a specified price not less than its
fair market value on the date of grant, and usually will become
exercisable (in the discretion of the administrator) in one or
more installments after the grant date, subject to the
completion of the applicable vesting service period or the
attainment of pre-established performance goals.
In terms of vesting periods, 1,105,219 stock options were
granted and vested at the date of merger. Other stock options
granted during the year ended December 31, 2007 vest in
equal annual increments over the three years following the date
of grant.
These NQSOs are subject to a maximum term of ten years from the
date of grant and are subject to earlier termination under
certain conditions. Because these stock option awards were
granted to the Companys senior executive officers, no
forfeiture rate has been assumed.
The following table provides a summary of the Companys
stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
(In Years)
|
|
|
per Share
|
|
|
Options outstanding as of December 31, 2006
|
|
|
180,400
|
|
|
$
|
11.36
|
|
|
|
9.87
|
|
|
$
|
4.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
610,940
|
|
|
$
|
11.36
|
|
|
|
|
|
|
$
|
3.61
|
|
Options forfeited or expired
|
|
|
(140,800
|
)
|
|
$
|
11.36
|
|
|
|
|
|
|
$
|
3.78
|
|
Options converted and vested related to acquired company
|
|
|
1,105,219
|
|
|
$
|
7.06
|
|
|
|
|
|
|
$
|
3.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2007
|
|
|
1,755,759
|
|
|
$
|
8.65
|
|
|
|
6.14
|
|
|
$
|
3.65
|
|
Options exercised
|
|
|
(76,666
|
)
|
|
$
|
6.53
|
|
|
|
|
|
|
$
|
4.23
|
|
Options forfeited or expired
|
|
|
(601,918
|
)
|
|
$
|
10.74
|
|
|
|
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2008
|
|
|
1,077,175
|
|
|
$
|
7.76
|
|
|
|
6.79
|
|
|
$
|
4.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited or expired
|
|
|
(607,429
|
)
|
|
$
|
5.67
|
|
|
|
|
|
|
$
|
3.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2009
|
|
|
469,746
|
|
|
$
|
10.46
|
|
|
|
6.55
|
|
|
$
|
3.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2009
|
|
|
364,470
|
|
|
$
|
10.20
|
|
|
|
6.40
|
|
|
$
|
3.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest as of December 31, 2009
|
|
|
105,276
|
|
|
$
|
11.36
|
|
|
|
7.06
|
|
|
$
|
3.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of December 31, 2009
|
|
|
469,746
|
|
|
$
|
10.46
|
|
|
|
6.55
|
|
|
$
|
3.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the strike price for all of the
stock options is greater than the stock price, resulting in an
intrinsic value of zero.
The Compensation Stock Compensation Topic
requires companies to estimate the fair value of its stock
option equity awards on the date of grant using an
option-pricing model. The Company uses the Black-Scholes
option-pricing model. The determination of the fair value of
option-based awards using the Black-Scholes model incorporates
various assumptions including exercise price, fair value at date
of grant, volatility, and expected life of awards, risk-free
interest rates and expected dividend yield. The expected
volatility is based on the historical volatility of comparable
publicly traded companies in the real estate sector over the
most recent period commensurate with the estimated expected life
of the Companys stock options. The expected life of the
Companys stock options represents the average between the
vesting and contractual term,
104
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pursuant to the requirements of the Compensation
Stock Compensation Topic. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants during the year ended
December 31, 2007. (The Company did not grant any options
during the years ended December 31, 2009 and 2008):
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2007
|
|
Exercise price
|
|
$
|
8.59
|
|
Expected term (in years)
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
3.97
|
%
|
Expected volatility
|
|
|
81.79
|
%
|
Expected dividend yield
|
|
|
4.1
|
%
|
Fair value at date of grant
|
|
$
|
3.61
|
|
Option valuation models require the input of subjective
assumptions including the expected stock price volatility and
expected life. For the years ended December 31, 2009, 2008
and 2007, the Company recognized share-based compensation
related to stock option awards of $0.4 million,
$0.6 million and $0.6 million, respectively. The
related income tax benefit for the years ended December 31,
2009, 2008 and 2007 was $0.1 million, $0.2 million and
$0.2 million, respectively. The total fair value of stock
options that vested for the years ended December 31, 2009,
2008 and 2007 was $0.5 million, $0.8 million and
$0.2 million, respectively. As of December 31, 2009,
there was $24,000 in unrecognized compensation expense related
to stock option awards that the Company expects to recognize
over a weighted average period of one month.
Restricted Stock. Restricted stock may be
issued at such price, if any, and may be made subject to such
restrictions (including time vesting or satisfaction of
performance goals), as may be determined by the administrator.
Restricted stock typically may be repurchased by the Company at
the original purchase price, if any, or forfeited, if the
vesting conditions and other restrictions are not met.
The following table provides a summary of the Companys
restricted stock activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Non vested shares outstanding as of December 31, 2006
|
|
|
541,200
|
|
|
$
|
10.83
|
|
Shares issued upon merger
|
|
|
40,000
|
|
|
$
|
12.49
|
|
Shares issued
|
|
|
1,409,372
|
|
|
$
|
10.31
|
|
Shares vested
|
|
|
(456,133
|
)
|
|
$
|
10.78
|
|
Shares forfeited
|
|
|
(102,667
|
)
|
|
$
|
10.89
|
|
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2007
|
|
|
1,431,772
|
|
|
$
|
10.37
|
|
Shares issued
|
|
|
1,552,227
|
|
|
$
|
3.06
|
|
Shares vested
|
|
|
(455,195
|
)
|
|
$
|
10.65
|
|
Shares forfeited
|
|
|
(514,792
|
)
|
|
$
|
9.79
|
|
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2008
|
|
|
2,014,012
|
|
|
$
|
4.95
|
|
Shares issued(1)
|
|
|
2,711,565
|
|
|
$
|
1.26
|
|
Shares vested
|
|
|
(612,077
|
)
|
|
$
|
6.61
|
|
Shares forfeited
|
|
|
(512,598
|
)
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2009
|
|
|
3,600,902
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
|
|
|
105
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
Amount includes 2,000,000 restricted shares of the
Companys common stock that were awarded on
November 16, 2009 to Thomas P. DArcy, the
Companys President and Chief Executive Officer. 1,000,000
of the restricted shares awarded to Mr. DArcy are
subject to vesting over 3 years in equal annual increments
of 1/3 each, commencing on the day immediately preceding the
1 year anniversary of the grant date (November 16,
2009). The other 1,000,000 restricted shares are subject to
vesting based upon the market price of the Companys common
stock during the 3 year period beginning November 16,
2009. Specifically, (i) in the event that for any 30
consecutive trading days during the 3 year period
commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock is at
least $3.50, then 50% of such restricted shares shall vest, and
(ii) in the event that for any 30 consecutive trading days
during the 3 year period commencing November 16, 2009
the volume weighted average closing price per share of the
Companys common stock is at least $6.00, then the
remaining 50% of such restricted shares shall vest. |
The Company valued the restricted shares subject to market-based
vesting criteria issued in 2009 with the following assumptions:
|
|
|
Term
|
|
Up to 3 years
|
Risk free rate
|
|
1.34%
|
Volatility
|
|
117%
|
Dividend yield
|
|
0.0%
|
Stock price on date of grant
|
|
$1.52
|
The Company determined that the fair value of the restricted
shares subject to vesting based upon the market price of the
Companys stock was approximately $1.2 million upon
grant date and is amortizing the components of this award over
the derived service period of approximately 245 and 341 days,
for the two tranches with market-based vesting criteria.
Total compensation expense recognized for restricted stock
awards was $3.8 million, $7.8 million and
$5.5 million for the years ended December 31, 2009,
2008 and 2007, respectively. The related income tax benefit for
the years ended December 31, 2009, 2008 and 2007 was
$1.4 million, $2.9 million and $2.2 million,
respectively. As of December 31, 2009, there was
$2.9 million of unrecognized compensation expense related
to unvested restricted stock awards that the Company expects to
recognize over a weighted average period of 18 months.
Other Equity Awards In accordance with the
requirements of the Compensation Stock Compensation
Topic, share-based payments awarded to an employee of the
reporting entity by a related party, or other holder of an
economic interest in the entity, as compensation for services
provided to the entity are share-based payment transactions to
be accounted for under this Topic unless the transfer is clearly
for a purpose other than compensation for services to the
reporting entity. The economic interest holder is one who either
owns 10.0% or more of an entitys common stock or has the
ability, directly or indirectly, to control or significantly
influence the entity. The substance of such a transaction is
that the economic interest holder makes a capital contribution
to the reporting entity, and that entity makes a share-based
payment to its employee in exchange for services rendered. The
Topic also requires that the fair value of unvested stock
options or awards granted by an acquirer in exchange for stock
options or awards held by employees of the acquiree shall be
determined at the consummation date of the acquisition. The
incremental compensation cost shall be (1) the portion of
the grant-date fair value of the original award for which the
requisite service is expected to be rendered (or has already
been rendered) at that date plus (2) the incremental cost
resulting from the acquisition (the fair market value at the
consummation date of the acquisition over the fair value of the
original grant).
On July 29, 2006, Mr. Thompson and Mr. Rogers
agreed to transfer up to 15.0% of the outstanding common stock
of Realty to Mr. Hanson, assuming he remained employed by
the Company, in equal
106
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
increments on July 29, 2007, 2008 and 2009. Due to the
acquisition of Realty, the transfers were settled with
743,160 shares of the Companys common stock
(557,370 shares from Mr. Thompson and
185,790 shares from Mr. Rogers). Since
Mr. Thompson and Mr. Rogers were affiliates who owned
more than 10.0% of Realtys common stock and had the
ability, directly or indirectly, to control or significantly
influence the entity, and the award was granted to
Mr. Hanson in exchange for services provided to Realty
which are vested upon completion of the respective service
period, the fair value of the award was accounted for as
share-based compensation in accordance with the
Compensation Stock Compensation Topic. These shares
included rights to dividends or other distributions declared on
or prior to July 29, 2009. As a result, the Company
recognized $1.6 million, $2.8 million and
$2.7 million in share-based compensation and a related
income tax benefit (deferred tax asset) of $0.6 million,
$1.1 million and $1.1 million for the years ended
December 31, 2009, 2008 and 2007 respectively.
On December 7, 2007, Mr. Thompson transferred
528,000 shares of his own Company common stock to
Mr. Peters, which were to vest in equal annual increments
over the five years following the date of grant. Since
Mr. Thompson was an affiliate who owned more than 10.0% of
the Companys common stock and had the ability, directly or
indirectly, to control or significantly influence the entity,
and the award was granted to Mr. Peters in exchange for
services provided to the Company which would vest upon
completion of the respective service period, the fair value of
the award was accounted for as share-based compensation in
accordance with the Compensation Stock Compensation
Topic. These shares included rights to dividends or other
distributions declared. As a result, the Company recognized
$48,000 in share-based compensation and a related income tax
benefit (deferred tax asset) of $19,000 for the year ended
December 31, 2007.
On July 10, 2008, Scott D. Peters resigned as the
Companys Chief Executive Officer and President, and as a
consequence, the employment agreement between the Company and
Mr. Peters was terminated in accordance with its terms. As
such, previously recognized share-based compensation expense
related to the transfer of shares, including accrued dividends
or distributions declared, was reversed, along with forfeiture
of all rights and interests. Additionally, there will be no
further recognition of share-based compensation related to the
unvested portion of the award.
401k Plan The Company adopted a 401(k) plan
(the Plan) for the benefit of its employees. The
Plan covers employees of the Company and eligibility begins the
first of the month following the hire date. For the years ended
December 31, 2009, 2008 and 2007, the Company contributed
$0.8 million, $3.3 million and $0.8 million to
the Plan, respectively.
Deferred
Compensation Plan
During 2008, the Company implemented a deferred compensation
plan that permits employees and independent contractors to defer
portions of their compensation, subject to annual deferral
limits, and have it credited to one or more investment options
in the plan. Deferrals made by employees and independent
contractors and earnings thereon are fully accrued and held in a
rabbi trust. In addition, the Company may make discretionary
contributions to the plan which vest over one to five years.
Contributions made by the Company and earnings thereon are
accrued over the vesting period and have not been funded to
date. Benefits are paid according to elections made by the
participants. As of December 31, 2009 and 2008,
$3.3 million and $1.7 million, respectively,
reflecting the non-stock liability under this plan were included
in accounts payable and accrued expenses. The Company has
purchased whole-life insurance contracts on certain employee
participants to recover distributions made or to be made under
this plan and as of December 31, 2009 and 2008 have
recorded the cash surrender value of the policies of
$1.0 million and $1.1 million, respectively, in
prepaid expenses and other assets.
In addition, the Company awards phantom shares of
Company stock to participants under the deferred compensation
plan. These awards vest over three to five years. Vested phantom
stock awards are also unfunded and paid according to
distribution elections made by the participants at the time of
vesting and will
107
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
be settled by the Company purchasing shares of Company common
stock in the open market from time to time and delivering such
shares to the participant. As of December 31, 2009 and
2008, the Company awarded an aggregate of 6.0 million and
5.4 million phantom shares, respectively, to certain
employees with an aggregate value on the various grant dates of
$23.0 million and $22.5 million, respectively. As of
December 31, 2009, an aggregate of 5.6 million phantom
share grants were outstanding. The Company recorded share-based
compensation expense of $4.9 million and $3.1 million
during the years ended December 31, 2009 and 2008,
respectively, related to phantom stock awards. Generally, upon
vesting, recipients of the grants are entitled to receive the
number of phantom shares granted, regardless of the value of the
shares upon the date of vesting; provided, however, grants with
respect to 900,000 phantom shares had a guaranteed minimum share
price ($3.1 million in the aggregate) that will result in
the Company paying additional compensation to the participants
should the value of the shares upon vesting be less than the
grant date value of the shares. The Company accounts for
additional compensation relating to the guarantee
portion of the awards by measuring at each reporting date the
additional payment that would be due to the participant based on
the difference between the then current value of the shares
awarded and the guaranteed value. This award is then amortized
on a straight-line basis as compensation expense over the
requisite service (vesting) period, with an offset to deferred
compensation liability. The Company recorded compensation
expense of $0.5 million and $0.2 million during the
years ended December 31, 2009 and 2008, respectively,
related to certain of these grants which provided for a minimum
guaranteed value upon vesting.
Grants of phantom shares are accounted for as equity awards in
accordance with the requirements of the Compensation
Stock Compensation Topic, with the award value of the shares on
the grant date being amortized on a straight-line basis over the
requisite service period.
The components of income tax (benefit) provision from continuing
operations for the years ended December 31, 2009, 2008 and
2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,431
|
)
|
|
$
|
(10,981
|
)
|
|
$
|
16,991
|
|
State
|
|
|
163
|
|
|
|
(1,891
|
)
|
|
|
3,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,268
|
)
|
|
|
(12,872
|
)
|
|
|
20,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
96
|
|
|
|
17,367
|
|
|
|
(4,886
|
)
|
State
|
|
|
(3
|
)
|
|
|
(5,322
|
)
|
|
|
(547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
12,045
|
|
|
|
(5,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,175
|
)
|
|
$
|
(827
|
)
|
|
$
|
14,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded prepaid taxes totaling approximately
$1.2 million and $1.2 million as of December 31,
2009 and 2008, respectively, comprised primarily of state tax
refunds receivable and state prepaid taxes net of state tax
liabilities of approximately $370,000. The Company also received
federal and state tax refunds of approximately
$12.0 million and $6.2 million during 2009 and 2008,
respectively, comprised primarily of federal net operating loss
carryback claims resulting in refunds of taxes paid in previous
years and refunds of state estimated tax overpayments.
The Company generated a federal net operating loss
(NOL) of approximately $9.5 million for the
taxable period of the acquired entity ending on the Merger date
December 7, 2007. The Company carried back
108
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$6.6 million of this NOL to 2006 and claimed a refund of
taxes paid of $1.7 million. As of December 31, 2008
the Company generated an ordinary loss of approximately
$32.3 million. The Company carried back the total loss
generated in 2008 to 2006 and 2007 and claimed a refund of taxes
paid of $11.5 million in 2009. After the issuance of this
Annual Report, the Company intends to file its 2009 federal
income tax return reporting a net operating loss of
approximately $72.5 million. The Company intends to file a
Form 1139 to carry back approximately $14.3 million of
this NOL to 2007 to claim a refund of taxes paid of
$4.9 million. As of December 31, 2009, federal net
operating loss carryforwards in the amount of approximately
$60.5 million are available to the Company, translating to
a deferred tax asset before valuation allowance of
$21.2 million. These NOLs will expire between 2027 and
2030. The current year increase in deferred tax assets related
to the federal net operating loss has been offset by an increase
in the valuation allowance of $25.3 million as the future
utilization of the NOL is uncertain.
The Company also has state net operating loss carryforwards from
December 31, 2009 and previous periods totaling
$185.2 million, translating to a deferred tax asset of
$13.1 million before valuation allowances, which will begin
to expire in 2017. The current year increase in deferred tax
assets related to state net operating losses has been offset by
an increase in the valuation allowances of $5.2 million as
the future utilization of these state NOLs is uncertain.
The Company regularly reviews its deferred tax assets for
recoverability and establishes a valuation allowance based upon
historical taxable income, projected future taxable income and
the expected timing of the reversals of existing temporary
differences to reduce its deferred tax assets to the amount that
it believes is more likely than not to be realized. Due to the
cumulative pre-tax book loss in the past three years and the
inherent volatility of the business in recent years, the Company
believes that this negative evidence supports the position that
a valuation allowance is required pursuant to the Income Taxes
Topic. As of December 31, 2009 and 2008, there is
approximately $14.3 million and $32.3 million
respectively, of taxable income available in carryback years
that could be used to offset deductible temporary differences.
Management determined that as of December 31, 2009,
$85.7 million of deferred tax assets do not satisfy the
recognition criteria set forth in the Income Taxes Topic.
Accordingly, a valuation allowance has been recorded for this
amount. If released, the entire amount would result in a benefit
to continuing operations. During the year ended
December 31, 2009, our valuation allowances increased by
approximately $30.5 million.
The differences between the total income tax (benefit) provision
of the Company from continuing operations for financial
statement purposes and the income taxes computed using the
applicable federal income tax rate of 35.0% for 2009, 2008 and
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal income taxes at the statutory rate
|
|
$
|
(28,875
|
)
|
|
$
|
(107,721
|
)
|
|
$
|
12,792
|
|
State income taxes, net of federal benefit
|
|
|
(3,182
|
)
|
|
|
(5,433
|
)
|
|
|
1,923
|
|
Credits
|
|
|
(189
|
)
|
|
|
(236
|
)
|
|
|
(250
|
)
|
Other
|
|
|
7
|
|
|
|
(235
|
)
|
|
|
(251
|
)
|
Non-deductible expenses
|
|
|
528
|
|
|
|
63,121
|
|
|
|
460
|
|
Change in valuation allowance
|
|
|
30,536
|
|
|
|
49,677
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
(1,175
|
)
|
|
$
|
(827
|
)
|
|
$
|
14,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes. The
significant components of deferred tax assets and liabilities as
of December 31, 2009 and 2008 from continuing and
discontinued operations consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Share-based compensation
|
|
$
|
9,914
|
|
|
$
|
5,673
|
|
Allowance for bad debts
|
|
|
9,990
|
|
|
|
3,764
|
|
Intangible assets
|
|
|
(40,233
|
)
|
|
|
(41,039
|
)
|
Prepaid service contracts
|
|
|
(1,020
|
)
|
|
|
(1,055
|
)
|
Property and equipment
|
|
|
3,042
|
|
|
|
3,523
|
|
Insurance and legal reserve
|
|
|
1,984
|
|
|
|
1,449
|
|
Real estate impairments
|
|
|
32,049
|
|
|
|
40,139
|
|
Put option guarantee
|
|
|
6,038
|
|
|
|
5,002
|
|
Other
|
|
|
1,479
|
|
|
|
6,642
|
|
Capital losses
|
|
|
2,528
|
|
|
|
2,528
|
|
Net operating losses
|
|
|
34,492
|
|
|
|
9,200
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
60,263
|
|
|
|
35,826
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(85,740
|
)
|
|
|
(55,204
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities:
|
|
$
|
(25,477
|
)
|
|
$
|
(19,378
|
)
|
|
|
|
|
|
|
|
|
|
The Company classifies estimated interest and penalties related
to unrecognized tax benefits in our provision for income taxes.
As of December 31, 2009, the Company remains subject to
examination by certain tax jurisdictions for the tax years ended
December 31, 2005 through 2009. The Company has evaluated
its uncertain tax positions in accordance with the Income Taxes
Topic and has concluded that there are no material uncertain tax
positions that would disallow the recognition of a current tax
benefit or the derecognition of a previously recognized tax
benefit as of December 31, 2009.
In conjunction with the Merger, management re-evaluated its
reportable segments and determined that the Companys
reportable segments remain unchanged from the prior year and
consist of Management Services, Transaction Services and
Investment Management. The Companys Investment Management
segment includes all of NNNs historical business units
and, therefore, all historical data have been conformed to
reflect the reportable segments as a combined company.
Management Services Management services
provide property management and related services for owners of
investment properties and facilities management services for
corporate owners and occupiers.
Transaction Services Transaction services
advises buyers, sellers, landlords and tenants on the sale,
leasing and valuation of commercial property and includes the
Companys national accounts group and national affiliate
program operations.
Investment Management Investment Management
includes services for acquisition, financing and disposition
with respect to the Companys investment programs, asset
management services related to the Companys programs, and
dealer-manager services by its securities broker-dealer, which
facilitates capital raising transactions for its investment
programs.
110
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company also has certain corporate-level activities
including interest income from notes and advances, property
rental related operations, legal administration, accounting,
finance, and management information systems which are not
considered separate operating segments.
The Company evaluates the performance of its segments based upon
operating (loss) income. Operating (loss) income is defined as
operating revenue less compensation and general and
administrative costs and excludes other rental related, rental
expense, interest expense, depreciation and amortization and
certain other operating and non-operating expenses. The
accounting policies of the reportable segments are the same as
those described in the Companys summary of significant
accounting policies (See Note 2). Beginning in 2009,
allocations of corporate compensation and corporate general and
administrative costs have been excluded from the evaluation of
segment performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Management Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
274,684
|
|
|
$
|
253,664
|
|
|
$
|
16,365
|
|
Compensation costs
|
|
|
243,006
|
|
|
|
225,764
|
|
|
|
14,574
|
|
General and administrative
|
|
|
9,397
|
|
|
|
8,796
|
|
|
|
869
|
|
Provision for doubtful accounts
|
|
|
1,472
|
|
|
|
81
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
20,809
|
|
|
|
19,023
|
|
|
|
969
|
|
Transaction Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
173,394
|
|
|
|
240,250
|
|
|
|
35,522
|
|
Compensation costs
|
|
|
156,672
|
|
|
|
205,940
|
|
|
|
27,081
|
|
General and administrative
|
|
|
33,339
|
|
|
|
34,727
|
|
|
|
3,791
|
|
Provision for doubtful accounts
|
|
|
598
|
|
|
|
846
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) income
|
|
|
(17,215
|
)
|
|
|
(1,263
|
)
|
|
|
4,547
|
|
Investment Management
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
57,282
|
|
|
|
101,581
|
|
|
|
149,651
|
|
Compensation costs
|
|
|
35,789
|
|
|
|
36,730
|
|
|
|
62,454
|
|
General and administrative
|
|
|
14,605
|
|
|
|
22,982
|
|
|
|
38,797
|
|
Provision for doubtful accounts
|
|
|
22,545
|
|
|
|
14,392
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) income
|
|
|
(15,657
|
)
|
|
|
27,477
|
|
|
|
47,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net loss attributable to Grubb &
Ellis Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating (loss) income
|
|
|
(12,063
|
)
|
|
|
45,237
|
|
|
|
53,178
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations, net of rental related expenses
|
|
|
8,245
|
|
|
|
11,964
|
|
|
|
28,119
|
|
Corporate overhead (compensation, general and administrative
costs)
|
|
|
(56,208
|
)
|
|
|
(72,463
|
)
|
|
|
(47,363
|
)
|
Other operating expenses
|
|
|
(45,880
|
)
|
|
|
(285,366
|
)
|
|
|
|
|
Other income (expense)
|
|
|
21,746
|
|
|
|
(18,867
|
)
|
|
|
4,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax
benefit (provision)
|
|
|
(84,160
|
)
|
|
|
(319,495
|
)
|
|
|
38,494
|
|
Income tax benefit (provision)
|
|
|
1,175
|
|
|
|
827
|
|
|
|
(14,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(82,985
|
)
|
|
|
(318,668
|
)
|
|
|
23,741
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
2,486
|
|
|
|
(23,921
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(80,499
|
)
|
|
$
|
(342,589
|
)
|
|
$
|
23,033
|
|
Less: Net (loss) income attributable to noncontrolling interests
|
|
|
(1,661
|
)
|
|
|
(11,719
|
)
|
|
|
1,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company
|
|
$
|
(78,838
|
)
|
|
$
|
(330,870
|
)
|
|
$
|
21,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets and reconciliation to consolidated balance
sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
$
|
45,723
|
|
|
$
|
50,232
|
|
|
$
|
14,469
|
|
Transaction Services
|
|
|
100,662
|
|
|
|
100,606
|
|
|
|
141,348
|
|
Investment Management
|
|
|
60,037
|
|
|
|
90,047
|
|
|
|
480,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
206,422
|
|
|
|
240,885
|
|
|
|
635,972
|
|
Corporate assets
|
|
|
150,902
|
|
|
|
279,392
|
|
|
|
352,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
357,324
|
|
|
$
|
520,277
|
|
|
$
|
988,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
SELECTED
QUARTERLY FINANCIAL DATA (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
|
Quarter Ended
|
|
|
|
March 31, 2009
|
|
|
June 30, 2009
|
|
|
September 30, 2009
|
|
|
December 31, 2009
|
|
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
122,153
|
|
|
$
|
126,838
|
|
|
$
|
136,104
|
|
|
$
|
150,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(42,279
|
)
|
|
$
|
(31,833
|
)
|
|
$
|
(20,881
|
)
|
|
$
|
(10,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(43,280
|
)
|
|
$
|
(32,618
|
)
|
|
$
|
(21,457
|
)
|
|
$
|
16,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis Company
|
|
$
|
(41,502
|
)
|
|
$
|
(32,808
|
)
|
|
$
|
(21,359
|
)
|
|
$
|
16,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(41,502
|
)
|
|
$
|
(32,808
|
)
|
|
$
|
(21,359
|
)
|
|
$
|
7,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share attributable to Grubb & Ellis
Company common shareowners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.65
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
63,525
|
|
|
|
63,587
|
|
|
|
63,628
|
|
|
|
63,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.65
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
63,525
|
|
|
|
63,587
|
|
|
|
63,628
|
|
|
|
63,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
Quarter Ended
|
|
|
|
March 31, 2008
|
|
|
June 30, 2008
|
|
|
September 30, 2008
|
|
|
December 31, 2008
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
154,427
|
|
|
$
|
161,183
|
|
|
$
|
153,191
|
|
|
$
|
159,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(5,014
|
)
|
|
$
|
(2,622
|
)
|
|
$
|
(57,410
|
)
|
|
$
|
(235,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6,294
|
)
|
|
$
|
(5,238
|
)
|
|
$
|
(62,726
|
)
|
|
$
|
(268,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
$
|
(6,298
|
)
|
|
$
|
(5,380
|
)
|
|
$
|
(56,282
|
)
|
|
$
|
(262,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company common
shareowners
|
|
$
|
(6,298
|
)
|
|
$
|
(5,380
|
)
|
|
$
|
(56,282
|
)
|
|
$
|
(262,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to Grubb & Ellis Company
common shareowners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(4.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
63,521
|
|
|
|
63,600
|
|
|
|
63,601
|
|
|
|
63,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.88
|
)
|
|
$
|
(4.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
63,521
|
|
|
|
63,600
|
|
|
|
63,601
|
|
|
|
63,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Loss) income attributable to Grubb & Ellis Company
and (loss) income per share attributable to Grubb &
Ellis Company common shareowners is computed independently for
each of the quarters presented and therefore may not sum to the
annual amount for the year. Previously reported revenues and
operating loss have been adjusted to account for current
discontinued operations in accordance with the Property, Plant
and Equipment Topic.
On March 4, 2010, the Board of Directors declared a
dividend of $3.00 per share on the Companys 12% Cumulative
Participating Perpetual Convertible Preferred Stock to
shareowners of record as of March 19, 2010, to be paid on
March 31, 2010.
113
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of disclosure controls and procedures
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in our reports pursuant to the Securities Exchange Act of 1934,
as amended, or the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the
SEC rules and regulations, and that such information is
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, as the Companys are designed to do, and
management necessarily was required to apply its judgment in
evaluating whether the benefits of the controls and procedures
that the Company adopts outweigh their costs.
Management of the Company, including our Chief Executive Officer
and our Chief Financial Officer evaluated the effectiveness of
our disclosure controls and procedures pursuant to SEC
Rule 13a-15(e)
and
15d-15(e)
under the Exchange Act as of December 31, 2009, the end of
the period covered by this report. Based upon that evaluation,
our CEO and CFO concluded that our disclosure controls and
procedures were effective.
Remediation
of Previous Material Weaknesses
In our quarterly and annual reports for the periods ended from
December 31, 2008 through September 30, 2009, we
reported the following material weaknesses in our internal
controls over financial reporting:
|
|
|
|
|
The control environment did not adequately address communication
of agreements to Legal and Accounting. As a result, the Company
failed to identify, appropriately account for, and adequately
disclose certain agreements entered into by NNN prior to the
Merger.
|
|
|
|
The Company did not maintain internal controls with regard to
properly evaluating the revenue recognition related to a number
of
tenant-in-common
investment programs.
|
We took the following actions to remediate these material
weaknesses:
|
|
|
|
|
Restructured the Finance and Accounting functions and engaged
additional resources with the appropriate depth of experience
for our Finance and Accounting departments
|
|
|
|
Updated accounting policies and procedures to ensure that
accounting personnel have sufficient guidance to remediate
previously communicated weaknesses and to appropriately account
for transactions
|
|
|
|
Implemented a required legal and accounting review prior to
execution of investor agreements
|
|
|
|
Enhanced executive and senior management certifications to
specifically address disclosure and communication of all known
agreements
|
|
|
|
Enhanced management communications to address acceptable
transactions and authorization requirements
|
During the quarter ended December 31, 2009, management
tested the design and operating effectiveness of the newly
implemented controls and concluded that the material weaknesses
described above have been remediated as of December 31,
2009.
114
Managements
Report on Internal Control over Financial
Reporting
Management recognizes its responsibility for establishing and
maintaining adequate internal control over financial reporting
and has designed internal controls and procedures to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial
statements and related notes in accordance with generally
accepted accounting principles in the United States of America.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on that assessment,
our management concluded our internal control over financial
reporting was effective as of December 31, 2009.
This Annual Report on
Form 10-K
does not include an attestation report of the Companys
independent registered public accounting firm regarding internal
control over financial reporting. Managements report was
not subject to attestation by the Companys registered
public accounting firm pursuant to temporary rules of the SEC
that permit the Company to provide only managements report
in this Annual Report.
Changes
in Internal Control over Financial Reporting
Management has evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, whether any
changes in our internal control over financial reporting that
occurred during our last fiscal quarter have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting. As described above
under Remediation of Previous Material Weaknesses,
there were changes in our internal control over financial
reporting during the fiscal quarter ended December 31, 2009
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
115
GRUBB &
ELLIS COMPANY
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Information
about the Directors
The Companys Board is comprised of six directors. Each
director is elected for a one-year term that will expire at the
Companys 2010 annual meeting.
|
|
|
Thomas P. DArcy |
|
50, has served as the President and Chief Executive Officer and
as a director of the Company since November 16, 2009.
Mr. DArcy has been since April 2008 and is currently
the non-executive chairman of the board of directors of Inland
Real Estate Corporation (NYSE: IRC), where he has also been an
independent director since 2005. Mr. DArcy has over
20 years of experience acquiring, developing and financing
all forms of commercial and residential real estate. He is
currently a principal in Bayside Realty Partners, a private real
estate company focused on acquiring, renovating and developing
land and income producing real estate primarily in the New
England area. From 2001 to 2003, Mr. DArcy was
president and chief executive officer of Equity Investment
Group, a private real estate company owned by an investor group
which included The Government of Singapore, The Carlyle Group
and Northwestern Mutual Life Insurance Company. Prior to his
tenure with Equity Investment Group, Mr. DArcy was
the chairman of the board, president and chief executive officer
of Bradley Real Estate, Inc., a Boston-based real estate
investment trust traded on the NYSE, from 1989 to 2000.
Mr. DArcy is a graduate of Bates College. |
|
C. Michael Kojaian |
|
48, has served as a director of the Company since December 1996.
He served as the Chairman of the Board of Directors of the
Company from June 2002 until December 7, 2007 and has
served as the Chairman of the Board of Directors of the Company
since January 6, 2009. He has been the President of Kojaian
Ventures, L.L.C. and also Executive Vice President, a director
and a shareholder of Kojaian Management Corporation, both of
which are investment firms headquartered in Bloomfield Hills,
Michigan, since 2000 and 1985, respectively. He is also a
director of Arbor Realty Trust, Inc. Mr. Kojaian has also
served as the Chairman of the Board of Directors of
Grubb & Ellis Realty Advisors, Inc., an affiliate of
the Company, from its inception in September 2005 until April
2008, and as its Chief Executive Officer from December 13,
2007 until April 2008. |
|
Robert J. McLaughlin |
|
76, has served as a director of the Company since July 2004.
Mr. McLaughlin previously served as a director of the
Company from September 1994 to March 2001. He founded The Sutter
Group in 1982, a management consulting company that focuses on
enhancing shareowner value, and currently serves as its
President. Previously, Mr. McLaughlin served as President
and Chief Executive Officer of Tru-Circle Corporation, an
aerospace subcontractor, from November 2003 to April 2004, and
as Chairman of the Board of Directors from August 2001 to
February |
116
|
|
|
|
|
2003, and as Chairman and Chief Executive Officer from October
2001 to April 2002 of Imperial Sugar Company. |
|
Devin I. Murphy |
|
49, has served as a director of the Company since July 2008.
Mr. Murphy is currently a Vice Chairman in Investment
Banking for Morgan Stanley. Prior to joining Morgan Stanley in
November 2009, Mr. Murphy was a Managing Partner of
Coventry Real Estate Advisors, a real estate private equity firm
founded in 1998 which sponsors institutional investment funds.
Prior to joining Coventry Real Estate Advisors, LLC in March
2008, Mr. Murphy was the Global Head of Real Estate
Investment Banking at Deutsche Bank Securities, Inc. from 2004
to 2007. Prior to joining Deutsche Bank, he was at Morgan
Stanley & Company for 14 years in a variety of
roles, including as Co-Head North American Real Estate
Investment Banking and Global Head of the firms Real
Estate Private Capital Markets Group. |
|
D. Fleet Wallace |
|
42, has served as a director of the Company since December 2007.
Mr. Wallace also had served as a director of NNN Realty
Advisors, Inc. (NNN) from November 2006 to December
2007. Mr. Wallace is a principal and co-founder of McCann
Realty Partners, LLC, an apartment investment company focusing
on garden apartment properties in the Southeast formed in 2004.
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. From September 1994 to April 1998, Mr. Wallace was
in the private practice of law with McGuire Woods in Richmond,
Virginia. Mr. Wallace has also served as a Trustee of
G REIT Liquidating Trust since January 2008. |
|
Rodger D. Young |
|
63, has served as a director of the Company since April 2003.
Mr. Young has been a name partner of the law firm of
Young & Susser, P.C. since its founding in 1991,
a boutique firm specializing in commercial litigation with
offices in Southfield, Michigan and New York City. In 2001,
Mr. Young was named Chairman of the Bush
Administrations Federal Judge and U.S. Attorney
Qualification Committee by Governor John Engler and
Michigans Republican Congressional Delegation.
Mr. Young is a member of the American College of Trial
Lawyers and was listed in the 2007 edition of Best Lawyers of
America. Mr. Young was named by Chambers International
and by Best Lawyers in America as one of the top commercial
litigators in the United States. |
Communications
with the Directors
Shareowners, employees and others interested in communicating
with the Chairman of the Board may do so by writing to C.
Michael Kojaian,
c/o Corporate
Secretary, Grubb & Ellis Company, 1551 North Tustin
Avenue, Suite 300, Santa Ana, California 92705.
Shareowners, employees and others interested in communicating
with any of the other directors of the Company may do so by
writing to such director,
c/o Corporate
Secretary, Grubb & Ellis Company, 1551 North Tustin
Avenue, Suite 300, Santa Ana, California 92705.
117
Information
About Executive Officers
Thomas P. DArcy has served as the Companys President
and Chief Executive Officer since November 16, 2009. For
information on Mr. DArcy see Information about
the Directors above. In addition to Mr. DArcy,
the following are the current executive officers of the Company:
|
|
|
Andrea R. Biller |
|
60, has served as Executive Vice President, General Counsel and
Corporate Secretary of the Company since December 2007. She
joined Grubb & Ellis Realty Investors, LLC in March
2003 as General Counsel and served as NNNs General
Counsel, Executive Vice President and Corporate Secretary since
November 2006 and director since December 2007. Ms. Biller
also has served as Executive Vice President and Corporate
Secretary of Grubb & Ellis Healthcare REIT II, Inc.
since January 2009 and Corporate Secretary of Grubb &
Ellis Apartment REIT, Inc. since April 2009 and from December
2005 to February 2009. Ms. Biller also has served as a
director of Grubb & Ellis Apartment REIT, Inc. since
June 2008. Ms. Biller has served as Executive Vice
President and Secretary for Grubb & Ellis Equity
Advisors since June 2009. Ms. Biller served as an Attorney
at the Securities and Exchange Commission, Division of Corporate
Finance, in Washington D.C. from
1995-2000,
including two years as Special Counsel, and as a private
attorney specializing in corporate and securities law from
1990-1995
and
2000-2002.
Ms. Biller is licensed to practice law in California,
Virginia, and Washington, D.C. |
|
Jeffrey T. Hanson |
|
39, has served as Chief Investment Officer of the Company since
December 2007. He has served as Chief Investment Officer of NNN
since November 2006 and as a director since November 2008 and
joined Grub & Ellis Realty Investors in July 2006 and
has served as its President and Chief Investment Officer since
November 2007. Mr. Hanson has also served as the President
and Chief Executive Officer of Realty since July 2006 and as
Chairman since April 2007. Mr. Hanson also has served as
Chief Executive Officer and Chairman of the Board of
Grubb & Ellis Healthcare REIT II, Inc. since January
2009. Mr. Hanson has served as President and Chief
Executive Officer for Grubb & Ellis Equity Advisors
since June 2009. From December 1997 to July 2006,
Mr. Hanson was a Senior Vice President with the Grubb and
Ellis Institutional Investment Group in Grubb &
Ellis Newport Beach office. Mr. Hanson served as a
real estate broker with CB Richard Ellis from 1996 to December
1997. Mr. Hanson formerly served as a member of the
Grubb & Ellis Presidents Counsel and
Institutional Investment Group Board of Advisors. |
|
Stanley J. Olander, Jr. |
|
55, has served as an Executive Vice President
Multifamily of the Company since December 2007. He has also
served as Chief Executive Officer and a director of
Grubb & Ellis Apartment REIT, Inc. and Chief Executive
Officer of Grubb & Ellis Apartment REIT Advisors, LLC
since December 2005. Mr. Olander has also served as
Grubb & Ellis Apartment REIT, Inc.s Chairman of
the Board since December 2006 and has also served as President
of Grubb & Ellis Apartment REIT, Inc. and President of
Grubb & Ellis Apartment REIT Advisors, LLC since April
2007. Mr. Olander has also been a Managing Member of ROC
REIT Advisors, LLC since |
118
|
|
|
|
|
2006 and a Managing Member of ROC Realty Advisors since 2005.
Additionally, since July 2007, Mr. Olander has also served
as Chief Executive Officer, President and Chairman of the Board
of Grubb & Ellis Residential Management, Inc. He
served as President and Chief Financial Officer and a member of
the board of directors of Cornerstone Realty Income Trust, Inc.
from 1996 until April 2005. |
|
Richard W. Pehlke |
|
56, has served as the Executive Vice President and Chief
Financial Officer of the Company since February 2007. Prior to
joining the Company, Mr. Pehlke served as Executive Vice
President and Chief Financial Officer and a member of the board
of directors of Hudson Highland Group, a publicly held global
professional staffing and recruiting business, from 2003 to
December 2005 and served as a consultant during 2006. From 2001
to 2003, Mr. Pehlke operated his own consulting business
specializing in financial strategy and leadership development.
In 2000, he was the Executive Vice President and Chief Financial
Officer of ONE, Inc. a privately held software implementation
business. Prior to 2000, Mr. Pehlke held senior financial
positions in the telecommunications, financial services and food
and consumer products industries. |
|
Jacob Van Berkel |
|
49, has served as Executive Vice President and Chief Operating
Officer of the Company since February 2008 and President, Real
Estate Services since May 2008. Mr. Van Berkel oversees
operations and business integration for Grubb & Ellis,
having joined NNN in August 2007 to assist with the merger of
the two companies. He is responsible for the strategic direction
of all Grubb & Ellis brokerage operations,
marketing and communications, research and other
day-to-day
operational activities. He has 25 years of experience,
including more than four years at CB Richard Ellis as senior
vice president, human resources as well as in senior global
human resources, operations and sales positions with First Data
Corporation, Gateway Inc. and Western Digital. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors,
executive officers and shareowners holding ten percent (10%) or
more of our voting securities (Insiders) to file
with the SEC reports showing their ownership and changes in
ownership of Company securities, and to send copies of these
filings to us. To our knowledge, based upon review of copies of
such reports furnished to us and upon written representations
that the Company has received to the effect that no other
reports were required during the year ended December 31,
2009, the Insiders complied with all Section 16(a) filing
requirements applicable to them.
Code of
Ethics
The Company has adopted, and revised effective January 25,
2008, a code of business conduct and ethics (Code of
Business Conduct and Ethics) that applies to all of the
Companys directors, officers, employees and independent
contractors, including the Companys principal executive
officer, principal financial officer and controller and complies
with the requirements of the Sarbanes-Oxley Act of 2002 and the
NYSE listing requirements. The January 25, 2008 revision
was effected to make the Code of Business Conduct and Ethics
consistent with the amendment of even date to the Companys
by-laws so as to provide that members of the board of directors
who are not an employee or executive officer of the Company have
the right to directly or
119
indirectly engage in the same or similar business activities or
lines of business as the Company, or any of its subsidiaries,
including those business activities or lines of business deemed
to be competing with the Company or any of its subsidiaries. In
the event that a non-management director acquires knowledge,
other than as a result of his or her position as a director of
the Company, of a potential transaction or matter that may be a
corporate opportunity for the Company, or any of its
subsidiaries, such non-management director shall be entitled to
offer such corporate opportunity to the Company as such
non-management director deems appropriate under the
circumstances in their sole discretion.
The Companys Code of Business Conduct and Ethics is
designed to deter wrongdoing, and to promote, among other
things, honest and ethical conduct, full, timely, accurate and
clear public disclosures, compliance with all applicable laws,
rules and regulations, the prompt internal reporting of
violations of the code, and accountability. In addition, the
Company maintains an Ethics Hotline with an outside service
provider in order to assure compliance with the so-called
whistle blower provisions of the Sarbanes Oxley Act
of 2002. This toll-free hotline and confidential web-site
provide officers, employees and independent contractors with a
means by which issues can be communicated to management on a
confidential basis. A copy of the Companys Code of
Business Conduct and Ethics is available on the companys
website at www.grubb-ellis.com and upon request and without
charge by contacting Investor Relations, Grubb & Ellis
Company, 1551 North Tustin Avenue, Suite 300, Santa Ana,
California 92705.
Board
Leadership Structure, Executive Sessions of Non-Management
Directors
Mr. DArcy currently serves as the chief executive
officer of the Company and Mr. Kojaian, a non-management
director, serves as Chairman of the Board. The Board has chosen
to separate the principal executive officer and Board chair
positions because it believes that independent oversight of
management is an important component of an effective Board and
this structure benefits the interests of all shareowners.
The Companys non-management directors meet without
management present at each of the Boards regularly
scheduled in-person meetings. If the Board convenes for a
special meeting, the non-management directors will meet in
executive session if circumstances warrant. The Chairman of the
Board, Mr. Kojaian, who is a non-management director,
presides over executive sessions of the Board.
Risk
Oversight
The Board oversees the business of the Company and considers the
risks associated with the Companys business strategy and
decisions. The Board implements its risk oversight function both
as a whole and through its Committees. In particular:
The Audit Committee oversees risks related to the Companys
financial statements, the financial reporting process,
accounting and legal matters. The Audit Committee meets in
executive session with each of the Companys Chief
Financial Officer, Vice President of Internal Audit and with
representatives of our independent registered public accounting
firm.
The Compensation Committee manages risks related to the
Companys compensation philosophy and programs. The
Compensation Committee reviews and approves compensation
programs and engages the services of compensation consultants to
ensure that it adopts appropriate levels of compensation
commensurate with industry standards.
The Governance and Nominating Committee oversees risks related
to corporate governance and the selection of Board nominees.
Each of the Committee Chairs reports to the full Board regarding
materials risks as deemed appropriate.
Corporate
Governance Guidelines
Effective July 6, 2006, the Board adopted corporate
governance guidelines to assist the Board in the performance of
its duties and the exercise of its responsibilities. The
Companys Corporate Governance Guidelines are available on
the Companys website at www.grubb-ellis.com and printed
copies may be
120
obtained upon request by contacting Investor Relations,
Grubb & Ellis Company, 1551 North Tustin Avenue,
Suite 300, Santa Ana, California 92705.
Audit
Committee
The Audit Committee of the Board is a separately designated
standing audit committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934
as amended (the Exchange Act) and the rules
thereunder. The Audit Committee operates under a written charter
adopted by the Board of Directors. The charter of the Audit
Committee was last revised effective January 28, 2008 and
is available on the Companys website at
www.grubb-ellis.com and printed copies of which may be obtained
upon request by contacting Investor Relations, Grubb &
Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa
Ana, California 92705. The members of the Audit Committee as of
December 31, 2009 are Robert J. McLaughlin, Chair, D. Fleet
Wallace and Rodger D. Young. The Board has determined that the
members of the Audit Committee are independent under the NYSE
listing requirements and the Exchange Act and the rules
thereunder, and that Mr. McLaughlin is an audit committee
financial expert in accordance with rules established by the SEC.
Corporate
Governance and Nominating Committee
The functions of the Companys Corporate Governance and
Nominating Committee are to assist the Board with respect to:
(i) director qualification, identification, nomination,
independence and evaluation; (ii) committee structure,
composition, leadership and evaluation; (iii) succession
planning for the CEO and other senior executives; and
(iv) corporate governance matters. The Corporate Governance
and Nominating Committee operates under a written charter
adopted by the Board, which is available on the Companys
website at www.grubb-ellis.com and printed copies of which may
be obtained upon request by contacting Investor Relations,
Grubb & Ellis Company, 1551 North Tustin Avenue,
Suite 300, Santa Ana, California 92705. The members of the
Corporate Governance and Nominating Committee as of
December 31, 2009, are Rodger D. Young, Chair, and Devin I.
Murphy. The Board has determined that Messrs. Young and
Murphy are independent under the NYSE listing requirements and
the Exchange Act and the rules thereunder.
Director
Nominations
The Corporate Governance and Nominating Committee considers
candidates for director who are recommended by its members, by
other Board members, by shareowners and by management. The
Corporate Governance and Nominating Committee evaluates director
candidates recommended by shareowners in the same way that it
evaluates candidates recommended by its members, other members
of the Board, or other persons. The Corporate Governance and
Nominating Committee considers all aspects of a candidates
qualifications in the context of the Companys needs at
that point in time with a view to creating a Board with a
diversity of experience and perspectives. Among the
qualifications, qualities and skills of a candidate considered
important by the Corporate Governance and Nominating Committee
are a commitment to representing the long-term interests of the
shareowners; an inquisitive and objective perspective; the
willingness to take appropriate risks; leadership ability;
personal and professional ethics, integrity and values;
practical wisdom and sound judgment; business and professional
experience in fields such as real estate, finance and
accounting; and geographic, gender, age and ethnic diversity.
Nominations by shareowners of persons for election to the Board
of Directors must be made pursuant to timely notice in writing
to our Secretary. To be timely, a shareowners notice shall
be delivered or mailed to and received at our principal
executive offices not later than the close of business on the
90th day, nor earlier than the close of business on the
120th day prior to the first anniversary of last
years annual meeting; provided, however, that if the date
of the annual meeting is more than 30 days before or more
than 70 days after such anniversary date, notice must be
delivered not earlier than the close of business on the
120th day prior to the annual meeting and not later than
the close of business on the later of the 90th day prior to
the annual meeting or the tenth day following the day on which
public announcement of the date of the meeting is first made.
Such shareowners notice shall set forth: (1) the
name, age, business address or, if known, residence address of
each proposed nominee; (2) the principal occupation or
employment of each proposed
121
nominee; (3) the name and residence of the Chairman of the
Board for notice by the Board of Directors, or the name and
residence address of the notifying shareowner for notice by said
shareowner; and (4) the total number of shares that to the
best of the knowledge and belief of the person giving the notice
will be voted for each of the proposed nominees.
Certifications
On January 12, 2010, the Companys General Counsel
certified to the NYSE that she was not aware of any violation by
the Company of the corporate governance listing standards of the
NYSE. The Company has filed with the SEC, as an exhibit to this
Annual Report, the certifications required by Section 302
of the Sarbanes-Oxley Act of 2002.
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Item 11.
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Executive
Compensation.
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Compensation
Discussion and Analysis
This compensation discussion and analysis describes the
governance and oversight of the Companys executive
compensation programs and the material elements of compensation
paid or awarded to those who served as the Companys
principal executive officer, the Companys principal
financial officer, and the three other most highly compensated
executive officers of the Company during the period from
January 1, 2009 through December 31, 2009
(collectively, the named executive officers or
NEOs and individually, a named executive
officer or NEO). The specific amounts and
material terms of such compensation paid, payable or awarded are
disclosed in the tables and narrative included in this section
of this Annual Report. The compensation disclosure provided with
respect to the Companys NEOs and directors with respect to
calendar year s 2009, 2008 and 2007 represent their full
years compensation incurred by the Company with respect to
each calendar year.
Compensation
Committee
The Board of Directors has delegated to the Compensation
Committee oversight responsibilities for the Companys
executive compensation programs. The Compensation Committee
determines the policy and strategies of the Company with respect
to executive compensation taking into account certain factors
that the Compensation Committee deems appropriate such as
(a) compensation elements that will enable the Company to
attract and retain executive officers who are in a position to
achieve the strategic goals of the Company which are in turn
designed to enhance shareowner value, and (b) the
Companys ability to compensate its executives in relation
to its profitability and liquidity.
The Compensation Committee approves, subject to further, final
approval by the full Board of Directors, (a) all
compensation arrangements and terms of employment, and any
material changes to the compensation arrangements or terms of
employment, for the NEOs and certain other key employees
(including employment agreements and severance arrangements),
and (b) the establishment of, and changes to, equity-based
awards programs. In addition, each calendar year, the
Compensation Committee approves the annual incentive goals and
objectives of each NEO and certain other key employees,
evaluates the performance of each NEO and certain other key
employees against the approved performance goals and objectives
applicable to him or her, determines whether and to what extent
any incentive awards have been earned by each NEO, and makes
recommendations to the Companys Board of Directors
regarding the approval of incentive awards. Consistent with the
Compensation Committees objectives, the Companys
overall compensation program is structured to attract, motivate
and retain highly qualified executives by paying them
competitively and tying their compensation to the Companys
success as a whole and their contribution to the Companys
success. The Compensation Committee also provides general
oversight of the Companys employee benefit and retirement
plans.
The Compensation Committee operates under a written charter
adopted by the full Board and revised effective
December 10, 2007, which is available on the Companys
website at www.grubb-ellis.com. Printed copies may be obtained
upon request by contacting Investor Relations, Grubb &
Ellis Company, 1551 North Tustin Avenue,
Suite 300, Santa Ana, California 92705. The members of the
Compensation Committee as of December 31, 2009 are D. Fleet
Wallace, Chair, Robert J. McLaughlin and Rodger D.
122
Young. The Board has determined that Messrs. Wallace,
McLaughlin and Rodgers are independent under the NYSE listing
requirements and the Exchange Act and the rules there under.
Use of
Consultants
Under its charter, the Compensation Committee has the power to
select, retain, compensate and terminate any compensation
consultant it determines is useful in the fulfillment of the
Committees responsibilities. The committee also has the
authority to seek advice from internal or external legal,
accounting or other advisors.
During 2009, Equinox Partners, an executive search firm engaged
by the Board in 2008, continued to manage the search for a
permanent Chief Executive Officer. Pursuant to that search, on
November 16, 2009, Mr. DArcy became the
Companys Chief Executive Officer.
In June 2009, the Compensation Committee engaged Mercer (US),
Inc. to develop recommendations for the compensation packages
and key features of the ongoing compensation packages for the
Companys Section 16(b) executive officers. The
Compensation Committee directed Mercer to collect and review
documentation on existing compensation programs, determine
overall objectives for the 16(b) compensation packages, analyze
relevant market information, outline a mix of salary, annual and
long-term incentives, and develop proposals for the design and
implementation of a recommended compensation program.
During 2008, the Special Committee of the Board of Directors
appointed to direct the search for a permanent Chief Executive
Officer engaged the services of Steven Hall & Partners
to develop and recommend a compensation package for the Chief
Executive Officer position. The Special Committee utilized the
services of Steven Hall Partners in connection with its search
for a permanent Chief Executive Officer in 2009, which
culminated in the hiring of Mr. DArcy in November
2009.
Role of
Executives in Establishing Compensation
In advance of each Compensation Committee meeting, the Chief
Executive Officer and the Chief Operating Officer work with the
Compensation Committee Chairman to set the meeting agenda. The
Compensation Committee periodically consults with the Chief
Executive of the Company with respect to the hiring and the
compensation of the other NEOs and certain other key employees.
Certain
Compensation Committee Activity
The Compensation Committee met four times during the year ended
December 31, 2009 and in fulfillment of its obligations,
among other things, determined on December 3, 2008, based
upon a recommendation of Christenson Advisors, LLC, that the
cash retainer for independent, non-management directors of
$50,000 per annum would remain the same as would the Board
Meeting and Committee Meeting fees of $1,500 per meeting.
Similarly, the Compensation Committee determined that the Audit
Chair retainer, the Compensation Chair retainer and the
Governance Chair retainer would remain constant at $15,000,
$10,000 and $7,500 per annum, respectively.
Compensation
Philosophy, Goals and Objectives
As a commercial real estate services company, the Company is a
people oriented business which strives to create an environment
that supports its employees in order to achieve its growth
strategy and other goals established by the board so as to
increase shareowner value over the long term.
The primary goals and objectives of the Companys
compensation programs are to:
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Compensate management, key employees, independent contractors
and consultants on a competitive basis in order to attract,
motivate and retain high quality, high performance individuals
who will achieve the Companys short-term and long term
goals;
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Motivate and reward executive officers whose knowledge, skill
and performance are critical to the Companys success;
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123
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Align the interests of the Companys executive officers and
shareowners through equity-based long-term incentive awards that
motivate executive officers to increase shareowner value and
reward executive officers when shareowner value
increases; and
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Ensure fairness among the executive management team by
recognizing contributions each executive officer makes to the
Companys success.
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The Compensation Committee established these goals in order to
enhance shareowner value.
The Company believes that it is important for variable
compensation, i.e., where an NEO has a significant portion of
his or her total cash compensation at risk, to
constitute a significant portion of total compensation and that
such variable compensation be designed so as to reward effective
team work (through the achievement of Company-wide financial
goals) as well as the achievement of individual goals (through
the achievement of business unit/functional goals and individual
performance goals and objectives). The Company believes that
this dual approach best aligns the individual NEOs
interest with the interests of the shareowners.
Compensation
During Term of Employment
The Companys compensation program for NEOs is currently
comprised of four key elements base salary, annual
bonus incentive compensation, share-based compensation and a
retirement plan that are intended to balance the
goals of achieving both short-term and long-term results which
the Company believes will effectively align management with
shareowners.
Base
Salary
Amounts paid to NEOs as base salaries are included in the column
captioned Salary in the Summary Compensation Table
below. The base salary of each NEO is determined based upon
their position, responsibility, qualifications and experience,
and reflects consideration of both external comparison to
available market data and internal comparison to other executive
officers.
The base salary for an NEO is typically established by the
Compensation Committee at the time of an NEOs initial
employment and may be modified during the course of employment.
In the case of the Companys Chief Executive Officer and
President, Thomas P. DArcy, his base salary of $650,000
was determined by the Compensation Committee after reviewing
advice from its outside consultant regarding market comparisons
of peer group companies and other relevant factors. In the case
of the Companys General Counsel Executive Vice President
and Corporate Secretary, Andrea R. Biller, her compensation has
not been adjusted since the inception of her former employment
agreement. In the case of the Companys Chief Financial
Officer and Executive Vice President, Richard W. Pehlke, his
base salary was increased on January 1, 2008 from $350,000
to $375,000. With respect to the Companys Chief Investment
Officer, Jeffrey T. Hansons base salary was increased
on August 1, 2008 from $350,000 to $450,000. As a result of
Jacob Van Berkel being promoted to Chief Operating Officer and
Executive Vice President on March 1, 2008, Mr. Van
Berkels base salary was increased from $280,000 to
$400,000. Effective March 1, 2009, the base salary for each
of Ms. Biller and Messrs. Hanson, Pehlke and Van
Berkel was reduced by 10.0%.
The base salary component is designed to constitute between 40%
and 50% of total annual compensation a target for the NEOs based
upon each individuals position in the organization and the
Compensation Committees determination of each
positions ability to directly impact the Companys
financial results.
Annual
Bonus Incentive Compensation
Amounts paid to NEOs under the annual bonus plan are included in
the column captioned Bonus in the Summary
Compensation Table below. In addition to earning base salaries,
each of the Companys NEOs is eligible to receive an annual
cash bonus, the target amount of which is set by the individual
employment agreement
and/or
Compensation Committee with each NEO. The annual bonus incentive
of each NEO is determined based upon his or her position,
responsibility, qualifications and experience, and reflects
consideration of both external comparison to available market
data and internal comparison to other executive officers.
124
The annual cash bonus plan target for NEOs is between 50% and
200% of base salary and is designed to constitute from 20% to
50% of an NEOs total annual target compensation. The bonus
plan component is based on each individuals role and
responsibilities in the company and the Committees
determination of each NEOs ability to directly impact the
Companys financial results. The 2009 annual cash bonus
plan target was 150% of base salary for Ms. Biller and
Messrs. Pehlke and Hanson and 100% of base salary for
Mr. Van Berkel. If the highest level of performance
conditions with respect to the 2009 annual cash bonus is
satisfied, then the value of the 2009 annual cash bonuses would
be $540,000 for Ms. Biller, $506,250 for Mr. Pehlke,
$607,500 for Mr. Hanson and $360,000 for Mr. Van
Berkel. There is no 2009 annual cash bonus for
Mr. DArcy with respect to the period commencing on
November 16, 2009 and continuing up to and through
December 31, 2009. No annual cash bonus plan payments were
made to the NEOs for fiscal year 2009. On March 10, 2010,
the Compensation Committee awarded to each of
Messrs. Pehlke, Hanson and Van Berkel a cash bonus of
$400,000 (which is inclusive of any other bonuses that would
otherwise be payable to any of them with respect to
2009) for 2009 performance and retention through the first
quarter of 2010. Such bonuses will be paid to each of
Messrs. Pehlke, Hanson and Van Berkel during 2010.
The Compensation Committee reviews each NEOs bonus plan
annually. Annual Company EBITDA targets are determined in
connection with the annual calendar-year based budget process. A
minimum threshold of 80% of Company EBITDA must be achieved
before any payment is awarded with respect to this component of
bonus compensation. At the end of each calendar year, the Chief
Executive Officer reviews the performance of each of the other
NEOs and certain other key employees against the financial
objectives and against their personal goals and objectives and
makes recommendations to the Compensation Committee for payments
on the annual cash bonus plan. The Compensation Committee
reviews the recommendations and forwards these to the Board for
final approval of payments under the plan.
Share-based
Compensation and Incentives
The compensation associated with stock awards granted to NEOs is
included in the Summary Compensation Table and other tables
below (including the charts that show outstanding equity
awards). Except for the November 16, 2009 grant of
2,000,000 restricted shares of common stock to Thomas P.
DArcy, no other grants were made to NEOs during the year
ended December 31, 2009.
In February of 2009, each of Messrs. Pehlke and Van Berkel,
on their own initiative, voluntarily returned an aggregate of
131,000 and 130,000 restricted shares, respectively, to the
Company for re-allocation of such restricted shares, on the same
terms and conditions, to various employees in their respective
business units. The returned shares were part of a grant of
250,000 shares made to each of Messrs. Pehlke and Van
Berkel in December 2008.
On March 10, 2010, the Compensation Committee granted
1,000,000 restricted shares of common stock to each of Jeffrey
T. Hanson and Jacob Van Berkel. Equity grants to NEOs are
intended to align management with the long-term interests of the
Companys shareowners and to have a retentive effect upon
the Companys NEOs. The Compensation Committee and the
Board of Directors approve all equity grants to NEOs.
Profit
Sharing Plan
NNN established a profit sharing plan for its employees;
pursuant to which NNN provided matching contributions.
Generally, all employees were eligible to participate following
one year of service with NNN. Matching contributions were made
in NNNs sole discretion. Participants interests in
their respective contribution account vest over 4 years,
with 0.0% vested in the first year of service, 25.0% in the
second year, 50.0% in the third year and 100.0% in the fourth
year. The Profit Sharing Plan was terminated on
December 31, 2007.
Retirement
Plans
The amounts paid to the Companys NEOs under the retirement
plan are included in the column captioned All Other
Compensation in the Summary Compensation Table directly
below. The Company has established and maintains a retirement
savings plan under Section 401(k) of the Internal Revenue
Code of 1986 (the
125
Code) to cover the Companys eligible employees
including the Companys NEOs. The Code allows eligible
employees to defer a portion of their compensation, within
prescribed limits, on a tax deferred basis through contributions
to the Companys 401(k) plan. The Companys 401(k)
plan is intended to constitute a qualified plan under
Section 401(k) of the Code and its associated trust is
intended to be exempt from federal income taxation under
Section 501(a) of the Code. The Company makes discretionary
Company matching contributions to the 401(k) plan for the
benefit of the Companys employees including the
Companys NEOs. In April 2009, the Companys matching
contributions to the 401(k) plan were suspended.
Personal
Benefits and Perquisites
The amounts paid to the Companys NEOs for personal
benefits and perquisites are included in the column captioned
All Other Compensation in the Summary Compensation
Table below. Perquisites to which all of the Companys NEOs
are entitled include health, dental, life insurance, long-term
disability, profit-sharing and a 401(k) savings plan, and 100%
of the premium cost of health insurance for certain NEOs is paid
for by the Company.
Long Term
Incentive Plan
On May 1, 2008, the Compensation Committee adopted the Long
Term Incentive Plan (LTIP) of Grubb &
Ellis Company, effective January 1, 2008, designed to
reward the efforts of the executive officers of the Company to
successfully attain the Companys long-term goals by
directly tying the executive officers compensation to the
Company and individual results. During fiscal year 2009, no
named executive officer received an award under the LTIP.
The LTIP is divided into two components: (i) annual
long-term incentive target which comprises 50% of the overall
target, and (ii) multi-year annual incentive target which
comprises the other 50%.
Awards under the LTIP are earned by performance during a fiscal
year and by remaining employed by the Company through the date
awards are granted, usually in March for annual long-term
incentive awards or though the conclusion of the three-year
performance period for multi-year long term incentive awards
(Grant Date). All awards are paid in shares of the
Companys common stock, subject to the rights of the
Company to distribute cash or other non-equity forms of
compensation in lieu of the Companys common stock.
The annual long-term incentive target is broken down into three
components: (i) absolute shareholder return (30%);
corporate EBITDA (35%); and individual performance priorities
(35%). Vesting of awards upon achievement of the annual
long-term incentive targets is as follows: (i) 33.33% of
the restricted shares of the Companys common stock will
vest on the Grant Date; (ii) 33.33% will vest in the first
anniversary of the Grant Date; and (iii) the remaining
33.33% will vest on the second anniversary of the Grant Date.
The multi-year long-term incentive target is broken down into
two components: (i) absolute shareholder return (50%); and
relative total shareholder return (50%). Vesting of wards upon
achievement of the multi-year long-term incentive awards is as
follows: (i) 50% of the restricted shares of the
Companys common stock will be paid on the Grant Date; and
(ii) 50% on the first year anniversary of the Grant Date.
126
Summary
Compensation Table
The following table sets forth certain information with respect
to compensation for the calendar years ended December 31,
2009, 2008 and 2007 earned by or paid to the Companys
named executive officers for such full calendar years.
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Change
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in
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Pension
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Non-
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Value
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Equity
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And
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Incentive
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Nonqualified
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Name and
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Year
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Stock
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Option
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Plan
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Deferred
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All other
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Principal
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Ended
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Salary
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Bonus
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Awards
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Awards
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Compensation
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Compensation
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Compensation
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Position
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December
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($)
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($)(5)
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($)(10)
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($)(11)
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($)
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Earnings
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($)(8)(12)(13)
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Total
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Thomas P. DArcy(1)
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2009
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$
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81,250
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$
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$
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2,720,000
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$
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$
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$
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$
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35,058
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$
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2,836,308
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Chief Executive Officer
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H. Hunt(2)
|
|
|
2009
|
|
|
|
560,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560,000
|
|
Former Interim Chief Executive Officer
|
|
|
2008
|
|
|
|
300,000
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke(3)
|
|
|
2009
|
|
|
|
343,750
|
|
|
|
200,000
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,759
|
|
|
|
551,509
|
|
Executive Vice
|
|
|
2008
|
|
|
|
375,000
|
|
|
|
|
|
|
|
642,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017,750
|
|
President, and
Chief Financial
Officer
|
|
|
2007
|
|
|
|
299,500
|
|
|
|
200,000
|
|
|
|
|
|
|
|
198,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller
|
|
|
2009
|
|
|
|
366,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387,391
|
|
|
|
754,058
|
|
Executive Vice
|
|
|
2008
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688,565
|
|
|
|
1,088,565
|
|
President, General
Counsel and Corporate Secretary
|
|
|
2007
|
|
|
|
400,000
|
|
|
|
451,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592,134
|
|
|
|
1,743,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson
|
|
|
2009
|
|
|
|
412,500
|
|
|
|
200,000
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,758
|
|
|
|
1,009,258
|
|
Chief
|
|
|
2008
|
|
|
|
391,667
|
|
|
|
250,000
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556,727
|
|
|
|
1,198,394
|
|
Investment
Officer
|
|
|
2007
|
|
|
|
350,000
|
|
|
|
500,350
|
(9)
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,106
|
|
|
|
1,475,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel(4)
|
|
|
2009
|
|
|
|
366,667
|
|
|
|
200,000
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,383
|
|
|
|
569,050
|
|
Chief Operating
|
|
|
2008
|
|
|
|
380,000
|
|
|
|
|
|
|
|
664,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,816
|
|
|
|
1,049,416
|
|
Officer and
Executive Vice President
|
|
|
2007
|
|
|
|
115,096
|
|
|
|
225,000
|
|
|
|
88,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
429,006
|
|
|
|
|
(1) |
|
Mr. DArcy has served as the Chief Executive Officer
since November 16, 2009. Mr. DArcy is entitled
to receive target bonus cash compensation of up to 200% of his
base salary based upon annual performance goals to be
established by the Compensation Committee of the Company.
Mr. DArcy is guaranteed a cash bonus with respect to
the 2010 calendar year of 200% of base salary, but there is no
guaranteed bonus with respect to any subsequent year. In
addition, there is no cash bonus compensation with respect to
the period commencing on November 16, 2009 and continuing
up to and through December 31, 2009. |
|
(2) |
|
Mr. Hunt served as the Interim Chief Executive Officer from
July 2008 to November 16, 2009. |
|
(3) |
|
Mr. Pehlke has served as the Chief Financial Officer since
February 2007. Mr. Pehlke had a minimum guaranteed bonus of
$125,000 for calendar 2007, prorated based on his hire date in
February 2007 (equal to $110,577). |
|
(4) |
|
Mr. Van Berkel joined the Company in August 2007. |
|
(5) |
|
2009 and 2008 bonuses calculated based on Company EBITDA and
2007 bonuses calculated based on Company EBIT. |
|
(6) |
|
Amounts paid to Mr. Hunt represent a consulting fee as
Mr. Hunt consulted as the Interim Chief Executive Officer
and was not an employee of the Company. |
|
(7) |
|
Amount includes a portion of the special bonus of $400,000 that
was awarded to each of Messrs. Pehlke, Hanson and Van
Berkel on March 10, 2010. Specifically, fifty percent (50%)
of such special bonus was in recognition of 2009 performance and
fifty percent (50%) was in connection with the retention of such |
127
|
|
|
|
|
executives services through the first quarter of 2010. The
entire special bonus is payable in 2010. Such amount is
inclusive of any other bonus compensation that might otherwise
be payable to any of them with respect to 2009. |
|
(8) |
|
All other compensation also includes: (i) cash
distributions based on membership interests of $0, $121,804, and
$159,418 earned by Ms. Biller from Grubb & Ellis
Apartment Management, LLC for each of the calendar years ended
December 31, 2009, 2008 and 2007, respectively; and
(ii) cash distributions based on membership interests of
$380,486, $547,519, and $413,546 earned by each of
Mr. Hanson and Ms. Biller from Grubb & Ellis
Healthcare Management, LLC for each of the calendar years ended
December 31, 2009, 2008 and 2007, respectively. |
|
(9) |
|
Amount includes a special bonus of $250,000. The 2008 special
bonus was paid in January 2010. |
|
(10) |
|
The amounts shown are the aggregate grant date fair value
related to the grants of restricted stock. |
|
(11) |
|
The amounts shown are the aggregate grant date fair value
related to the grants of stock options. |
|
(12) |
|
The amounts shown include the Companys incremental cost
for the provision to the named executive officers of certain
specified perquisites in fiscal 2009, 2008 and 2007, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Gross
|
|
|
Medical &
|
|
|
|
|
|
|
|
|
|
Living
|
|
|
Travel
|
|
|
Up
|
|
|
Dental
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
Expenses
|
|
|
Payment
|
|
|
Premiums
|
|
|
Total
|
|
Named Executive
Officer
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Thomas P. DArcy
|
|
|
2009
|
|
|
$
|
35,000
|
(13)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,000
|
|
Gary H. Hunt
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,469
|
|
|
|
6,469
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,287
|
|
|
|
7,287
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,925
|
|
|
|
4,925
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,621
|
|
|
|
4,621
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,740
|
|
|
|
1,740
|
|
Jeffrey T. Hanson
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,176
|
|
|
|
14,176
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,179
|
|
|
|
13,179
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,340
|
|
|
|
8,340
|
|
Jacob Van Berkel
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) |
|
Mr. DArcy received a one-time cash payment as
reimbursement for all of his
out-of-pocket
transitory relocation expenses, including transitory housing and
travel expenses for six months. |
128
|
|
|
(14) |
|
The amounts shown also include the following 401(k) matching
contributions made by the Company, income attributable to life
insurance coverage and contributions to the profit-sharing plan
in fiscal 2009, 2008 and 2007, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharing
|
|
|
|
|
|
|
|
|
|
401(k) Plan
|
|
|
Life
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Insurance
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
Coverage
|
|
|
Contributions
|
|
|
Total
|
|
Named Executive
Officer
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Thomas P. DArcy
|
|
|
2009
|
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
|
|
|
$
|
58
|
|
Gary H. Hunt
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke
|
|
|
2009
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller
|
|
|
2009
|
|
|
|
|
|
|
|
1,980
|
|
|
|
|
|
|
|
1,980
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
2007
|
|
|
|
3,100
|
|
|
|
120
|
|
|
|
14,210
|
|
|
|
17,430
|
|
Jeffrey T. Hanson
|
|
|
2009
|
|
|
|
1,826
|
|
|
|
270
|
|
|
|
|
|
|
|
2,096
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
270
|
|
|
|
|
2007
|
|
|
|
3,100
|
|
|
|
120
|
|
|
|
|
|
|
|
3,220
|
|
Jacob Van Berkel
|
|
|
2009
|
|
|
|
1,933
|
|
|
|
450
|
|
|
|
|
|
|
|
2,383
|
|
|
|
|
2008
|
|
|
|
4,600
|
|
|
|
450
|
|
|
|
|
|
|
|
5,050
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
Grants of
Plan-Based Awards
The following table sets forth information regarding the grants
of plan-based awards made to its NEOs for the fiscal year ended
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise or
|
|
|
Grant Date
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Base Price
|
|
|
Fair
|
|
|
|
|
|
|
Shares of
|
|
|
Securities
|
|
|
of Option
|
|
|
Value of Stock
|
|
|
|
Grant
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Awards
|
|
|
and Option
|
|
Name
|
|
Date
|
|
|
Units
|
|
|
Options
|
|
|
($/Share)
|
|
|
Awards($)(1)
|
|
|
Thomas P. DArcy
|
|
|
11/16/09
|
|
|
|
2,000,000
|
(2)
|
|
|
|
|
|
$
|
|
|
|
$
|
2,720,000
|
(2)
|
Gary H. Hunt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The grant date fair value of the shares of restricted stock and
stock options granted were computed in accordance with the
requirements of the Compensation Stock Compensation
Topic. |
|
(2) |
|
Amounts shown with respect to Mr. DArcy represent
restricted stock awarded. 1,000,000 of the restricted shares
awarded to Mr. DArcy are subject to vesting over
3 years in equal annual increments of 1/3 each, commencing
on the day immediately preceding the 1 year anniversary of
the grant date (November 16, 2009) and which have a
grant date fair value of $1.52 per share. The other 1,000,000
restricted shares are subject to vesting based upon the market
price of the Companys common stock during the 3 year
period beginning November 16, 2009, 500,000 restricted
shares of which have a grant date fair value of $1.28 per share
and the other 500,000 restricted shares have a grant date fair
value of $1.12 per share. Specifically, |
129
|
|
|
|
|
(i) in the event that for any 30 consecutive trading days
during the 3 year period commencing November 16, 2009
the volume weighted average closing price per share of the
Companys common stock is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that
for any 30 consecutive trading days during the 3 year
period commencing November 16, 2009 the volume weighted
average closing price per share of the Companys common
stock is at least $6.00, then the remaining 50% of such
restricted shares shall vest. |
|
(3) |
|
In March 2010, each of Messrs. Hanson and Van Berkel were
awarded 1,000,000 shares of restricted stock. 500,000 of
the restricted shares awarded to each of Mr. Hanson and
Mr. Van Berkel are subject to vesting over 3 years in
equal annual increments of 1/3 each, commencing on the one year
anniversary of the March 10, 2010 grant date and which have
a grant date fair value of $1.87 per share. The other 500,000
restricted shares are subject to vesting based on the market
price of the Companys common stock during the 3 year
period beginning March 10, 2010, 250,000 restricted shares
of which have a grant date fair value of approximately $1.57 per
share and the other 250,000 restricted shares have a grant date
fair value of approximately $1.38 per share. Specifically,
(i) in the event that for any 30 consecutive trading days
during the 3 year period following the March 10, 2010
grant date the volume weighted average closing price per share
of the Companys common stock is at least $3.50, then 50%
of such restricted shares shall vest, and (ii) in the event
that for any 30 consecutive trading days during the 3 year
period following the March 10, 2010 grant date the volume
weighted average closing price per share of the Companys
common stock is at least $6.00, then the remaining 50% of such
restricted shares shall vest. |
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth summary information regarding the
outstanding equity awards held by the Companys named
executive officers at December 31, 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
of Shares
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
or Units
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
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|
|
of Stock
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Stock that
|
|
|
That
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
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Price
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Date
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Vested
|
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|
Vested(1)
|
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|
Thomas P. DArcy
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
(2)
|
|
$
|
2,720,000
|
|
Gary H. Hunt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,667
|
(3)
|
|
$
|
41,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,999
|
(4)
|
|
$
|
20,000
|
|
Richard W. Pehlke
|
|
|
25,000
|
(5)
|
|
|
|
|
|
$
|
11.75
|
|
|
|
02/14/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(6)
|
|
$
|
220,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,333
|
(7)
|
|
$
|
99,960
|
|
Andrea R. Biller
|
|
|
35,200
|
(9)
|
|
|
|
|
|
$
|
11.36
|
|
|
|
11/16/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,800
|
(10)
|
|
$
|
99,968
|
|
Jeffrey T. Hanson
|
|
|
22,000
|
(11)
|
|
|
|
|
|
$
|
11.36
|
|
|
|
11/16/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,867
|
(12)(14)
|
|
$
|
66,649
|
|
Jacob Van Berkel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,867
|
(13)
|
|
$
|
29,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,333
|
(6)
|
|
$
|
235,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
(8)(14)
|
|
$
|
100,800
|
|
|
|
|
(1) |
|
The grant date fair value of the shares of restricted stock is
computed in accordance with the requirements of the
Compensation Stock Compensation Topic, is reflected
in the Grants of Plan-Based Awards table. Grants of restricted
stock were made pursuant to either the Companys 2006
Omnibus Equity Plan or NNNs 2006 Long Term Incentive Plan,
except for grants made to Mr. DArcy. |
130
|
|
|
(2) |
|
Amounts shown represent 2,000,000 restricted shares of the
Companys common stock that were awarded on
November 16, 2009. 1,000,000 of the restricted shares
awarded to Mr. DArcy are subject to vesting over
3 years in equal annual increments of 1/3 each, commencing
on the day immediately preceding the 1 year anniversary of
the grant date (November 16, 2009). The other 1,000,000
restricted shares are subject to vesting based upon the market
price of the Companys common stock during the 3 year
period beginning November 16, 2009. Specifically,
(i) in the event that for any 30 consecutive trading days
during the 3 year period commencing November 16, 2009
the volume weighted average closing price per share of the
Companys common stock is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that
for any 30 consecutive trading days during the 3 year
period commencing November 16, 2009 the volume weighted
average closing price per share of the Companys common
stock is at least $6.00, then the remaining 50% of such
restricted shares shall vest. |
|
(3) |
|
Includes 3,667 restricted shares of the Companys common
stock that will vest on June 27, 2010, subject to continued
service with the Company. On January 7, 2010, the
Compensation Committee determined to accelerate the vesting of
these shares following the termination of Mr. Hunts
directorship on December 17, 2010. |
|
(4) |
|
Includes 2,999 shares of the Companys common stock
that will vest on December 10, 2010, subject to continued
service with the Company. On January 7, 2010, the
Compensation Committee determined to accelerate the vesting of
these shares following the termination of Mr. Hunts
directorship on December 17, 2010. |
|
(5) |
|
Amounts shown represent options granted on February 15,
2007. The full 25,000 options vested on the date of the Merger. |
|
(6) |
|
Includes 25,000 and 26,667 restricted shares of the
Companys common stock that were awarded to
Messrs. Pehlke and Van Berkel, respectively, on
January 23, 2008 which will vest in equal 1/3 installments
in each of the first, second and third anniversaries of the
grant date, subject to continued service with the Company. |
|
(7) |
|
Includes 39,667 and 39,666 restricted shares of the
Companys common stock that will vest on December 3,
2010 and December 3, 2011, respectively, subject to
continued service. |
|
(8) |
|
Includes 40,000 and 40,000 restricted shares of the
Companys common stock that will vest on December 3,
2010 and December 3, 2011, respectively, subject to
continued service. |
|
(9) |
|
Includes stock options to acquire 35,200 shares of the
common stock for $11.36 per share. These options vested and
became exercisable with respect to one-third of the underlying
shares of the Companys common stock on each of
November 16, 2006, November 16, 2007 and
November 16, 2008 and have a maximum term of ten years. |
|
(10) |
|
Includes 8,800 restricted shares of the Companys common
stock that will vest on June 27, 2010, subject to continued
service with the Company. |
|
(11) |
|
Includes stock options to acquire 22,000 shares of the
common stock for $11.36 per share. These options vested and
became exercisable with respect to one-third of the underlying
shares of the Companys common stock on each of
November 16, 2006, November 16, 2007 and
November 16, 2008 and have a maximum term of ten years. |
|
(12) |
|
Includes 5,867 restricted shares of the Companys common
stock that will vest on June 27, 2010, subject to continued
service with the Company. |
|
(13) |
|
Includes 5,867 restricted shares of the Companys common
stock that will vest on December 4, 2010, subject to
continued service with the Company. |
|
(14) |
|
Does not include the restricted stock grant of
1,000,000 shares awarded to each of Messrs. Hanson and
Van Berkel on March 10, 2010. |
131
Options
Exercises and Stock Vested
The following table sets forth summary information regarding
exercise of stock options and vesting of restricted stock held
by the Companys named executive officers at
December 31, 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
Acquired on
|
|
|
Value realized on
|
|
Name
|
|
Exercise
|
|
|
Exercise ($)
|
|
|
Vesting
|
|
|
Vesting ($)
|
|
|
Thomas P. DArcy
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Gary H. Hunt
|
|
|
|
|
|
|
|
|
|
|
3,666
|
(1)
|
|
$
|
2,566
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
2,998
|
(3)
|
|
|
4,107
|
(4)
|
Richard W. Pehlke
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(5)
|
|
|
22,500
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
39,667
|
(8)
|
|
|
59,104
|
(10)
|
Andrea R. Biller
|
|
|
|
|
|
|
|
|
|
|
8,800
|
(11)
|
|
|
6,160
|
(2)
|
Jeffrey T. Hanson
|
|
|
|
|
|
|
|
|
|
|
5,866
|
(12)
|
|
|
4,106
|
(2)
|
Jacob Van Berkel
|
|
|
|
|
|
|
|
|
|
|
5,866
|
(13)
|
|
|
8,682
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
26,667
|
(6)
|
|
|
24,000
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(9)
|
|
|
59,600
|
(10)
|
|
|
|
(1) |
|
Amount shown represents 3,666 restricted shares of the
Companys common stock that vested on June 27, 2009. |
|
(2) |
|
On June 26, 2009, the closing price of a share of common
stock on the NYSE was $0.70. |
|
(3) |
|
Amount shown represents 2,998 restricted shares of the
Companys common stock that vested on December 10,
2009. |
|
(4) |
|
On December 9, 2009, the closing price of a share of common
stock on the NYSE was $1.37. |
|
(5) |
|
Amount shown represents 25,000 restricted shares of the
Companys common stock that vested on January 23, 2009. |
|
(6) |
|
Amount shown represents 26,667 restricted shares of the
Companys common stock that vested on January 23, 2009. |
|
(7) |
|
On January 22, 2009, the closing price of a share of common
stock on the NYSE was $0.90. |
|
(8) |
|
Amount shown represents 39,667 restricted shares of the
Companys common stock that vested on December 3, 2009. |
|
(9) |
|
Amount shown represents 40,000 restricted shares of the
Companys common stock that vested on December 3, 2009. |
|
(10) |
|
On December 2, 2009, the closing price of a share of common
stock on the NYSE was $1.49. |
|
(11) |
|
Amount shown represents 8,800 restricted shares of the
Companys common stock that vested on June 27, 2009. |
|
(12) |
|
Amount shown represents 5,886 restricted shares of the
Companys common stock that vested on June 27, 2009. |
|
(13) |
|
Amount shown represents 5,886 restricted shares of the
Companys common stock that vested on December 3, 2009. |
|
(14) |
|
On December 3, 2009, the closing price of a share of common
stock on the NYSE was $1.48. |
Non-Qualified
Deferred Compensation
During fiscal year 2009, no NEO was a participant in the
Deferred Compensation Plan (DCP).
132
Contributions
Under the DCP, the participants designated by the committee
administering the DCP (the Committee) may elect to
defer up to 80% of their base salary and commissions, and up to
100% of their bonus compensation. In addition, the Company may
make discretionary Company contributions to the DCP at any time
on behalf of the participants. Unless otherwise specified by the
Company, Company contributions shall be deemed to be invested in
the Companys common stock.
Investment
Elections
Participants designate the investment funds selected by the
Committee in which the participants deferral accounts
shall be deemed to be invested for purposes of determining the
amount of earnings and losses to be credited to such accounts.
Vesting
The participants are fully vested at all times in amounts
credited to the participants deferral accounts. A
participant shall vest in his or her Company contribution
account as provided by the Committee, but not earlier than
12 months from the date the Company contribution is
credited to a participants Company contribution account.
Except as otherwise provided by the Company in writing, all
vesting of Company contributions shall cease upon a
participant termination of service with the Company and
any portion of a participants Company contribution account
which is unvested as of such date shall be forfeited; provided,
however, that if a participants termination of service is
the result of his or her death, the participant shall be 100%
vested in his or her Company contribution account(s).
Distributions
Scheduled distributions elected by the participants shall be no
earlier than two years from the last day of the fiscal year in
which the deferrals are credited to the participants
account, or, if later, the last day of the fiscal year in which
the Company contributions vest. The participant may elect to
receive the scheduled distribution in a lump sum or in equal
installments over a period of up to five years. Company
contributions are only distributable in a lump sum.
In the event of a participants retirement (termination of
service after attaining age 60, or age 55 with at
least 10 years of service) or disability (as defined in the
DCP), the participants vested deferral accounts shall be
paid to the participant in a single lump sum on a date that is
not prior to the end of the six month period following the
participants retirement or disability, unless the
participant has made an alternative election to receive the
retirement or disability benefits in equal installments over a
period of up to 15 years, in which event payments shall be
made as elected.
In the event of a participants death, the Company shall
pay to the participants beneficiary a death benefit equal
to the participants vested accounts in a single lump sum
within 30 days after the end of the month during which the
participants death occurred. The Company may accelerate
payment in the event of a participants financial
hardship.
Employment
Contracts and Compensation Arrangements
Thomas P.
DArcy
Effective November 16, 2009, Thomas P. DArcy entered
into a three-year employment agreement with the Company,
pursuant to which Mr. DArcy serves as president,
chief executive officer and a member of the Board. The term of
the employment agreement is subject to successive one
(1) year extensions unless either party advises the other
to the contrary at least ninety (90) days prior to the then
expiration of the then current term. Pursuant to the employment
agreement, Mr. DArcy was appointed to serve on the
Companys Board of Directors as a Class C Director
until the 2010 annual meeting of shareowners, unless prior to
such meeting, the Company eliminates its staggered Board, in
which event Mr. DArcys appointment to the Board
shall be voted on at the next annual meeting of shareowners.
Mr. DArcy will be a nominee for election to the
133
Companys Board of Directors at each subsequent annual
meeting of the shareowners for so long as the employment
agreement remains in effect.
Mr. DArcy will receive a base salary of $650,000 per
annum. Mr. DArcy is entitled to receive target bonus
cash compensation of up to 200% of his base salary based upon
annual performance goals to be established by the Compensation
Committee of the Company. Mr. DArcy is guaranteed a
cash bonus with respect to the 2010 calendar year of 200% of
base salary, but there is no guaranteed bonus with respect to
any subsequent year. In addition, there is no cash bonus
compensation with respect to the period commencing on
November 16, 2009 and continuing up to and through
December 31, 2009.
Commencing with calendar year 2010, at the discretion of the
Board, Mr. DArcy is also eligible to participate in a
performance-based long term incentive plan, consisting of an
annual award payable either in cash, restricted shares of common
stock, or stock options exercisable for shares of common stock,
as determined by the Compensation Committee. The target for any
such long-term incentive award will be $1.2 million per
year, subject to ratable, annual vesting over three years.
Subject to the provisions of Mr. DArcys
employment agreement, an initial long-term incentive award with
respect to calendar year 2010 will be granted in the first
quarter of 2011 and will vest in equal tranches of
1/3
each commencing on December 31, 2011. In addition, in
connection with the entering into of the employment agreement,
Mr. DArcy purchased $500,000 of Preferred Stock.
Mr. DArcy received a restricted stock award of
2,000,000 restricted shares of common stock, of which 1,000,000
of such restricted shares are subject to vesting over three
years in equal annual increments of one-third each, commencing
on the day immediately preceding the one-year anniversary of
November 16, 2009. The remaining 1,000,000 such restricted
shares are subject to the vesting based upon the market price of
the Companys common stock during the initial three-year
term of the employment agreement. Specifically, (i) in the
event that for any 30 consecutive trading days during the
3 year period commencing November 16, 2009 the volume
weighted average closing price per share of the Companys
common stock on the exchange or market on which the
Companys shares are publically listed or quoted for
trading is at least $3.50, then 50% of such restricted shares
shall vest, and (ii) in the event that for any thirty
(30) consecutive trading days during the 3 year period
commencing November 16, 2009 the volume weighted average
closing price per share of the Companys common stock on
the exchange or market on which the Companys shares of
common stock are publically listed or quoted for trading is at
least $6.00, then the remaining 50% percent of such restricted
shares shall vest. Vesting with respect to all
Mr. DArcys restricted shares is subject to
Mr. DArcys continued employment by the Company,
subject to the terms of a Restricted Share Agreement entered
into by Mr. DArcy and the Company on
November 16, 2009, and other terms and conditions set forth
in the employment agreement.
Mr. DArcy will receive from the Company a one-time
cash payment of $35,000 as reimbursement for all of his
out-of-pocket
transitory relocation expenses. Mr. DArcy is also
entitled to reimbursement expenses of $100,000 incurred in
relocating to the Companys principal executive offices.
Mr. DArcy is also entitled to a professional fee
reimbursement of up to $15,000 incurred by Mr. DArcy
for legal and tax advice in connection with the negotiation and
entering into the employment agreement.
Mr. DArcy is entitled to participate in the
Companys health and other benefit plans generally afforded
to executive employees and is reimbursed for reasonable travel,
entertainment and other reasonable expenses incurred in
connection with his duties. The employment agreement contains
confidentiality, non-competition, no raid, non-solicitation,
non-disparagement and indemnification provisions.
The employment agreement is terminable by the Company upon
Mr. DArcys death or incapacity or for Cause (as
defined in the employment agreement), without any additional
compensation other than what has accrued to Mr. DArcy
as of the date of any such termination.
In the event that Mr. DArcy is terminated without
Cause, or if Mr. DArcy terminates the agreement for
Good Reason (as defined in the employment agreement),
Mr. DArcy is entitled to receive: (i) all monies
due to him which right to payment or reimbursement accrued prior
to such discharge; (ii) his annual base salary, payable in
accordance with the Companys customary payroll practices
for 24 months; (iii) in lieu of any
134
bonus cash compensation for the calendar year of termination, an
amount equal to two times Mr. DArcys bonus cash
compensation earned in the calendar year prior to termination,
subject to Mr. DArcys right to receive the
guaranteed bonus with respect to the 2010 calendar year
regardless when the termination without Cause occurs;
(iv) an amount payable monthly, equal to the amount
Mr. DArcy paid for continuation of health insurance
coverage for such month under the Consolidated Omnibus Budget
Reconciliation Act of 1986 (COBRA) until the earlier
of 18 months from the termination date or when
Mr. DArcy obtains replacement health coverage from
another source; (v) the number of shares of common stock or
unvested options with respect to any long-term incentive awards
granted prior to termination shall immediately vest; and
(vi) all Mr. DArcys restricted shares
shall automatically vest.
In the event that Mr. DArcy is terminated without
Cause or resigns for Good Reason (i) within one year after
a Change of Control (as defined in the employment agreement) or
(ii) within three months prior to a Change of Control, in
contemplation thereof, Mr. DArcy is entitled to
receive (a) all monies due to him which right to payment or
reimbursement accrued prior to such discharge, (b) two
times his base salary payable in accordance with the
Companys customary payroll practices, over a
24-month
period, (c) in lieu of any bonus cash compensation for the
calendar year of termination, an amount equal to two times his
target annual cash bonus earned in the calendar year prior to
termination, subject to Mr. DArcys right to
receive the guaranteed bonus with respect to the 2010 calendar
year regardless when the termination in connection with a Change
of Control occurs, (d) an amount payable monthly, equal to
the amount Mr. DArcy paid for continuation of health
insurance coverage for such month under the COBRA until the
earlier of 18 months from the termination date or when
Mr. DArcy obtains replacement health coverage from
another source; (e) the number of shares of common stock or
unvested options with respect to any long-term incentive awards
granted prior to termination shall immediately vest; and
(f) Mr. DArcys restricted shares will
automatically vest.
The Companys payment of any amounts to
Mr. DArcy upon his termination without Cause, for
Good Reason or upon a Change of Control is contingent upon
Mr. DArcy executing the Companys then standard
form of release.
Potential
Payments upon Termination or Change of Control
Thomas P. DArcy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
Involuntary
|
|
|
Resignation
|
|
|
|
|
|
|
|
Executive Payments
|
|
Voluntary
|
|
|
Cause
|
|
|
for Cause
|
|
|
for Good
|
|
|
Change of
|
|
|
Death and
|
|
Upon Termination
|
|
Termination
|
|
|
Termination
|
|
|
Termination
|
|
|
Reason
|
|
|
Control
|
|
|
Disability
|
|
|
Severance Payments
|
|
$
|
|
|
|
$
|
1,300,000
|
|
|
$
|
|
|
|
$
|
1,300,000
|
|
|
$
|
1,300,000
|
|
|
$
|
|
|
Bonus Incentive Compensation
|
|
|
|
|
|
|
2,600,000
|
|
|
|
|
|
|
|
2,600,000
|
|
|
|
2,600,000
|
|
|
|
|
|
Long Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (unvested and accelerated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock (unvested and accelerated)
|
|
|
|
|
|
|
1,280,000
|
|
|
|
|
|
|
|
1,280,000
|
|
|
|
1,280,000
|
|
|
|
|
|
Performance Shares (unvested and accelerated)
|
|
|
|
|
|
|
1,280,000
|
|
|
|
|
|
|
|
1,280,000
|
|
|
|
1,280,000
|
|
|
|
|
|
Benefit Continuation
|
|
|
|
|
|
|
23,944
|
|
|
|
|
|
|
|
23,944
|
|
|
|
23,944
|
|
|
|
|
|
Tax Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value
|
|
$
|
|
|
|
$
|
6,483,944
|
|
|
$
|
|
|
|
$
|
6,483,944
|
|
|
$
|
6,483,944
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary H.
Hunt
Mr. Hunt served as Interim Chief Executive Officer of the
Company from July 2008 until November 16, 2009, when Thomas
P. DArcy became the Companys President and Chief
Executive Officer. The following is a description of
Mr. Hunts arrangement with the Company while he
served as Interim Chief Executive Officer of the Company.
135
In July 2008, Mr. Hunt became Interim Chief Executive
Officer of the Company. Mr. Hunt served as a consultant and
did not have an employment agreement with the Company. On
August 28, 2008, the Compensation Committee of the Board of
Directors determined that until the appointment of a permanent
Chief Executive Officer and President, Mr. Hunt will be
paid a monthly fee of $50,000. On January 6, 2009, the
Board of Directors determined that commencing on January 1,
2009, and until the appointment of a permanent Chief Executive
Officer, Mr. Hunts compensation was to be increased
from $50,000 to $100,000 a month. On February 6, 2009,
Mr. Hunt advised the Board of Directors that, effective
immediately, he was voluntarily reducing his compensation as
Interim Chief Executive Officer of the Company from $100,000 per
month to $50,000 per month. Beginning April 1, 2009
Mr. Hunts compensation was reduced by 10.0% to
$45,000 per month in connection with the reduction by 10.0% of
NEO salaries. Mr. Hunt did not receive a bonus or any
directors fees for his service as a member of the
Companys Board of Directors while he served as Interim
Chief Executive Officer.
Richard
W. Pehlke
Effective February 15, 2007, Mr. Pehlke and the
Company entered into a three-year employment agreement pursuant
to which Mr. Pehlke serves as the Companys Executive
Vice President and Chief Financial Officer at an annual base
salary of $350,000. In addition, Mr. Pehlke is entitled to
receive target bonus cash compensation of up to 50% of his base
salary based upon annual performance goals to be established by
the Compensation Committee of the Company. Mr. Pehlke is
also eligible to receive a target annual performance based
equity bonus of 65% of his base salary based upon annual
performance goals to be established by the Compensation
Committee. The equity bonus is payable in restricted shares that
vest on the third anniversary of the date of the grant.
Mr. Pehlke was also granted stock options to purchase
25,000 shares of the Companys common stock which have
a term of 10 years, are exercisable at $11.75 per share
(equal to the market price of the Companys common stock on
the date immediately preceding the grant date) and vest ratably
over three years.
The term of Mr. Pehlkes employment agreement expired
on February 15, 2010. Mr. Pehlke is currently employed
on an at-will basis.
Mr. Pehlkes annual base salary was increased from
$350,000 to $375,000 on January 1, 2008. Similarly,
Mr. Pehlkes target bonus compensation was increased
from 50% to 150% of his base salary on January 1, 2008. On
March 10, 2010, Mr. Pehlke was awarded a $400,000 cash
bonus for 2009 performance and retention through the first
quarter of 2010 (and is inclusive of any other bonus otherwise
payable with respect to Mr. Pehlke with respect to 2009)
which is payable to Mr. Pehlke during 2010.
Mr. Pehlke is also entitled to participate in the
Companys health and other benefit plans generally afforded
to executive employees and is reimbursed for reasonable travel,
entertainment and other reasonable expenses incurred in
connection with his duties.
Andrea R.
Biller
In November 2006, Ms. Biller entered into an executive
employment agreement with the Company pursuant to which
Ms. Biller serves as the Companys General Counsel,
Executive Vice President and Corporate Secretary. The agreement
provides for an annual base salary of $400,000 per annum.
Ms. Biller is eligible to receive an annual discretionary
bonus of up to 150% of her base salary. The executive employment
agreement has an initial term of three (3) years, and on
the final day of the original term, and on each anniversary
thereafter, the term of the agreement is extended automatically
for an additional year unless the Company or Ms. Biller
provides at least one years written notice that the term
will not be extended. On October 23, 2008, the Company
provided a notice not to extend the term of the executive
employment agreement beyond its initial term and the agreement
expired on November 15, 2009. Ms. Biller is currently
employed on an at-will basis. In connection with the
entering into of her executive employment agreement in November
2006, Ms. Biller received 114,400 shares of restricted
stock and 35,200 stock options at an exercise price of $11.36
per share, one-third of which options vested on the grant date,
and the remaining options vest in equal installments on the
first and second anniversary date of the option grant.
136
Ms. Biller is also entitled to participate in the
Companys health and other benefit plans generally afforded
to executive employees and is reimbursed for reasonable travel,
entertainment and other reasonable expenses incurred in
connection with her duties.
Jeffrey
T. Hanson
In November, 2006, Mr. Hanson entered into an executive
employment agreement with the Company pursuant to which
Mr. Hanson serves as the Companys Chief Investment
Officer. The agreement provides for an annual base salary of
$350,000 per annum. Mr. Hanson is eligible to receive an
annual discretionary bonus of up to 100% of his base salary. The
executive employment agreement has an initial term of three
(3) years, and on the final day of the original term, and
on each anniversary thereafter, the term of the Agreement is
extended automatically for an additional year unless the Company
or Mr. Hanson provides at least one years written
notice that the term will not be extended. On October 23,
2008, the Company provided a notice not to extend the term of
the executive employment agreement beyond its initial term and
the agreement expired on November 15, 2009. Mr. Hanson
is currently employed on an at-will basis.
In connection with the entering into of his executive employment
agreement in November, 2006, Mr. Hanson received
44,000 shares of restricted stock and 22,000 stock options
at an exercise price of $11.36 per share, one-third of which
options vest on the grant date, and the remaining options vest
in equal installments on the first and second anniversary date
of the option grant. Mr. Hanson is entitled to receive a
special bonus of $250,000 if, during the applicable fiscal year,
(x) Mr. Hanson is the procuring cause of at least
$25 million of equity from new sources, which equity is
actually received by the Company during such fiscal year, for
real estate investments sourced by the Company, and
(y) Mr. Hanson is employed by the Company on the last
day of such fiscal year.
Mr. Hansons annual base salary was increased from
$350,000 to $450,000 on August 1, 2008.
Mr. Hansons target bonus compensation was increased
from 100% to 150% of his base salary on August 1, 2008. On
March 10, 2010, Mr. Hanson was awarded a $400,000 cash
bonus for 2009 performance and retention through the first
quarter of 2010 (and is inclusive of any other bonus otherwise
payable with respect to Mr. Hanson with respect to 2009),
which is payable to Mr. Hanson during 2010.
On March 10, 2010, Mr. Hanson received a restricted
stock award of 1,000,000 restricted shares of common stock, of
which 500,000 restricted shares are subject to vesting over
three years in equal annual installments of one-third each,
commencing on the one year anniversary of March 10, 2010.
The remaining 500,000 of such restricted shares are subject to
vesting based upon the market price of the Companys common
stock during the three year period commencing March 10,
2010. Specifically, (i) in the event that for any 30
consecutive trading days during the three year period commencing
March 10, 2010 the volume weighted average closing price
per share of the Companys common stock on the exchange or
market on which the Companys shares are publically listed
or quoted for trading is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that
for any 30 consecutive trading days during the three year period
commencing March 10, 2010 the volume weighted average
closing price per share of the Companys common stock on
the exchange or market on which the Companys shares of
common stock are publically listed or quoted for trading is at
least $6.00, then the remaining 50% of such restricted shares
shall vest. Vesting with respect to all of
Mr. Hansons restricted shares is subject to
Mr. Hansons continued employment by the Company,
subject to the terms and conditions of the Restricted Stock
Award Grant Notice and Restricted Stock Award Agreement dated
March 10, 2010.
Mr. Hanson is also entitled to participate in the
Companys health and other benefit plans generally afforded
to executive employees and is reimbursed for reasonable travel,
entertainment and other reasonable expenses incurred in
connection with his duties.
Jacob Van
Berkel
Mr. Van Berkel was promoted to Chief Operating Officer and
Executive Vice President on March 1, 2008 and his annual
base salary was increased to $400,000 per annum. Mr. Van
Berkel is eligible to receive an annual discretionary bonus of
up to 100% of his base salary. On March 10, 2010,
Mr. Van Berkel was
137
awarded a $400,000 cash bonus for 2009 performance and retention
through the first quarter of 2010 (and is inclusive of any other
bonus otherwise payable with respect to Mr. Van Berkel with
respect to 2009), which is payable to Mr. Van Berkel in
2010. On March 10, 2010, Mr. Van Berkel received a
restricted stock award of 1,000,000 restricted shares of common
stock, of which 500,000 restricted shares are subject to vesting
over three years in equal annual installments of one-third each,
commencing on the one year anniversary of March 10, 2010.
The remaining 500,000 of such restricted shares are subject to
vesting based upon the market price of the Companys common
stock during the three year period commencing March 10,
2010. Specifically, (i) in the event that for any 30
consecutive trading days during the three year period commencing
March 10, 2010 the volume weighted average closing price
per share of the Companys common stock on the exchange or
market on which the Companys shares are publically listed
or quoted for trading is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that
for any 30 consecutive trading days during the three year period
commencing March 10, 2010 the volume weighted average
closing price per share of the Companys common stock on
the exchange or market on which the Companys shares of
common stock are publically listed or quoted for trading is at
least $6.00, then the remaining 50% of such restricted shares
shall vest. Vesting with respect to all of Mr. Van
Berkels restricted shares is subject to Mr. Van
Berkels continued employment by the Company, subject to
the terms and conditions of the Restricted Stock Award Grant
Notice and Restricted Stock Award Agreement dated March 10,
2010.
Effective December 23, 2008, Mr. Van Berkel and the
Company entered into a change of control agreement pursuant to
which in the event that Mr. Van Berkel is terminated
without Cause or resigns for Good Reason upon a Change of
Control (as defined in the change of control agreement) or
within six months thereafter or is terminated without Cause or
resigns for Good Reason within three months prior to a Change of
Control, in contemplation thereof, Mr. Van Berkel is
entitled to receive two times his base salary payable in
accordance with the Companys customary payroll practices,
over a twelve month period (subject to the provisions of
Section 409A of the Code) plus an amount equal to one time
his target annual cash bonus payable in cash on the next
immediately following date when similar annual cash bonus
compensation is paid to other executive officers of the Company
(but in no event later than March 15th of the calendar
year following the calendar year to which such bonus payment
relates). In addition, upon a Change of Control, all then
unvested restricted shares automatically vest. The
Companys payment of any amounts to Mr. Van Berkel
upon his termination upon a Change of Control is contingent upon
his executing the Companys then standard form of release.
Potential
Payments upon Termination or Change of Control
Jacob Van Berkel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
Involuntary
|
|
|
Resignation
|
|
|
|
|
|
|
|
Executive Payments
|
|
Voluntary
|
|
|
Cause
|
|
|
for Cause
|
|
|
for Good
|
|
|
Change of
|
|
|
Death and
|
|
Upon Termination
|
|
Termination
|
|
|
Termination
|
|
|
Termination
|
|
|
Reason
|
|
|
Control
|
|
|
Disability
|
|
|
Severance Payments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,200,000
|
|
|
$
|
|
|
Bonus Incentive Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (unvested and accelerated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock (unvested and accelerated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,176
|
|
|
|
|
|
Performance Shares (unvested and accelerated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Continuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,378,176
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
Compensation
of Directors
Only individuals who serve as non-management directors and are
otherwise unaffiliated with the Company receive compensation for
serving on the Board and on its committees. Non-management
directors are compensated for serving on the Board with a
combination of cash and equity based compensation which includes
annual grants of restricted stock, an annual retainer fee,
meeting fees and chairperson fees. Directors are also reimbursed
for
out-of-pocket
travel and lodging expenses incurred in attending Board and
committee meetings.
Board compensation consists of the following: (i) an annual
retainer fee of $50,000 per annum; (ii) a fee of $1,500 for
each regular meeting of the Board of Directors attended in
person or telephonically; (iii) a fee of $1,500 for each
meeting of a standing committee of the Board of Directors
attended in person or telephonically; and (iv) $60,000
worth of restricted shares of common stock issued at the then
current market price of the common stock. Prior to the 2009
annual restricted stock grant, such restricted shares vested
ratably in equal annual installments over three years, except in
the event of a change of control, in which event vesting was
accelerated. On March 10, 2010, the Compensation Committee
amended the terms and conditions of the directors annual
restricted stock awards to provide that all annual restricted
share awards granted thereafter would vest, in full, immediately
upon being granted, subject to forfeiture in the event a
director was terminated for cause. In addition, the Compensation
Committee also accelerated the vesting of the annual restricted
stock award granted in December 2009, such that the
December 2009 restricted stock award was fully vested as of
March 10, 2010. Any stock grants awarded prior to 2009
remain subject to the three (3) year ratable vesting
schedule. In addition, an annual retainer fee is paid to the
Chair of each of the Boards standing committees as
follows: (i) Audit Committee Chair $15,000;
(ii) Compensation Committee Chair $10,000; and
(iii) Corporate Governance and Nominating Committee
Chair $7,500. If the Board forms any additional
committees, it will determine the fees to be paid to the Chair
and/or
members of such committees.
Director
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
or Paid in
|
|
|
Stock
|
|
|
|
|
Director
|
|
Cash(1)
|
|
|
Awards(2)(3)
|
|
|
Total
|
|
|
Glenn L. Carpenter
|
|
$
|
78,500
|
|
|
$
|
|
|
|
$
|
78,500
|
|
Harold H. Greene
|
|
$
|
95,000
|
|
|
$
|
|
|
|
$
|
95,000
|
|
Gary H. Hunt(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
C. Michael Kojaian(5)
|
|
$
|
|
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Robert J. McLaughlin
|
|
$
|
119,000
|
|
|
$
|
60,000
|
|
|
$
|
179,000
|
|
Devin I. Murphy
|
|
$
|
91,125
|
|
|
$
|
60,000
|
|
|
$
|
151,125
|
|
D. Fleet Wallace
|
|
$
|
106,500
|
|
|
$
|
60,000
|
|
|
$
|
166,500
|
|
Rodger D. Young
|
|
$
|
99,500
|
|
|
$
|
60,000
|
|
|
$
|
159,500
|
|
|
|
|
(1) |
|
Represents annual retainers plus all meeting and committee
attendance fees earned by non-employee directors in 2009. |
|
(2) |
|
The amounts shown are the aggregate grant date fair value
related to the grants of restricted stock. Each of the current
non-management directors (Messrs. Kojaian, McLaughlin,
Murphy, Wallace and Young) received a grant of
45,113 shares on December 17, 2009 which vest in three
equal increments on each of the next three annual anniversary
dates of the grant. The grant date fair value of the
45,113 shares of restricted stock was $60,000, which is
based upon the closing price of the Companys common stock
on the grant date of $1.33 per share. Those shares represent the
Companys annual grant to its non-management directors
which, pursuant to the Companys 2006 Omnibus Equity Plan,
is set at $60,000 worth of restricted shares of the
Companys common stock based upon the closing price of such
common stock on the date of the grant. |
139
|
|
|
(3) |
|
The following table shows the aggregate number of unvested stock
awards and option awards granted to non-employee directors and
outstanding as of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Options Outstanding
|
|
Outstanding at
|
Director
|
|
at Fiscal Year End
|
|
Fiscal Year End
|
|
Glenn L. Carpenter
|
|
|
0
|
|
|
|
27,971
|
|
Harold H. Greene
|
|
|
0
|
|
|
|
19,999
|
|
Gary H. Hunt
|
|
|
0
|
|
|
|
6,666
|
|
C. Michael Kojaian
|
|
|
0
|
|
|
|
61,445
|
|
Robert J. McLaughlin
|
|
|
0
|
|
|
|
61,445
|
|
Devin I. Murphy
|
|
|
0
|
|
|
|
71,432
|
|
D. Fleet Wallace
|
|
|
0
|
|
|
|
65,112
|
|
Rodger D. Young
|
|
|
10,000
|
|
|
|
61,445
|
|
|
|
|
(4) |
|
Mr. Hunt was not paid any annual retainers or committee
attendance fees while he served as the Companys Interim
Chief Executive Officer from July 2008 to November 16, 2009. |
|
(5) |
|
Mr. Kojaian waived his right to payment of all annual
retainers and committee attendance fees during the year ended
December 31, 2009. |
Stock
Ownership Policy for Non-Management Directors
Under the current stock ownership policy, non-management
directors are required to accumulate an equity position in the
Company over five years in an amount equal to $250,000 worth of
common stock (the previous policy required an accumulation of
$200,000 worth of common stock over a five year period). Shares
of common stock acquired by non-management directors pursuant to
the restricted stock grants can be applied toward this equity
accumulation requirement.
Compensation
Committee Interlocks and Insider Participation
The members of the Compensation Committee as of
December 31, 2009 are D. Fleet Wallace, Chair, Robert J.
McLaughlin and Rodger D. Young. In addition,
Messrs. Kojaian and Carpenter served on the Compensation
Committee during 2009.
During the year ended December 31, 2009, none of the
current or former members of the Compensation Committee is or
was a current or former officer or employee of the Company or
any of its subsidiaries or had any relationship requiring
disclosure by the Company under any paragraph of Item 404
of
Regulation S-K
of the SECs Rules and Regulations. During the year ended
December 31, 2009, none of the executive officers of the
Company served as a member of the board of directors or
compensation committee of any other company that had one or more
of its executive officers serving as a member of the
Companys Board of Directors or Compensation Committee.
Compensation
Committee Report
The forgoing Compensation Committee Report is not to be
deemed to be soliciting material or to be
filed with the SEC or subject to Regulation 14A
or 14C or to the liabilities of Section 18 of the Exchange
Act, except to the extent that the Company specifically requests
that such information be treated as soliciting material or
specifically incorporates it by reference into any filing under
the Securities Act of 1933, as amended (the Securities
Act) or the Exchange Act.
140
The Compensation Committee has reviewed and discussed with the
Companys management the Compensation Discussion and
Analysis presented in this Annual Report. Based on such review
and discussion, the Compensation Committee has recommended to
the Board of Directors that the Compensation Discussion and
Analysis be included in this Annual Report.
The Compensation Committee
D. Fleet Wallace, Chair
Robert J. McLaughlin
Rodger D. Young
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Equity
Compensation Plan Information
This information is included in Part II, Item 5, of
this Annual Report.
Stock
Ownership Table
The following table shows the share ownership as of
March 11, 2010 by persons known by the Company to be
beneficial holders of more than 5% of the Companys
outstanding capital stock, directors, named executive officers,
and all current directors and executive officers as a group.
Unless otherwise noted, the stock listed is common stock, and
the persons listed have sole voting and disposition powers over
the shares held in their names, subject to community property
laws if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
Name and Address
|
|
Number of
|
|
Percentage
|
|
Number of
|
|
Percentage
|
of Beneficial Owner(1)
|
|
Shares
|
|
of Class
|
|
Shares(2)
|
|
of Class(3)
|
|
FMR LLC(4)
|
|
|
189,800
|
|
|
|
19.7
|
%
|
|
|
11,503,018
|
|
|
|
16.6
|
%
|
Persons affiliated with Kojaian Holdings LLC(5)
|
|
|
|
|
|
|
|
|
|
|
4,316,326
|
|
|
|
6.2
|
%
|
Persons affiliated with Kojaian Ventures, L.L.C.(6)
|
|
|
|
|
|
|
|
|
|
|
11,700,000
|
|
|
|
16.9
|
%
|
Persons affiliated with Kojaian Management Corporation(7)
|
|
|
100,000
|
|
|
|
10.4
|
%
|
|
|
6,060,600
|
|
|
|
8.7
|
%
|
Lions Gate Capital
|
|
|
55,500
|
|
|
|
5.7
|
%
|
|
|
3,363,633
|
|
|
|
4.9
|
%
|
Wellington Management Company, LLP(8)
|
|
|
125,000
|
|
|
|
12.9
|
%
|
|
|
15,609,501
|
|
|
|
22.5
|
%
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas P. DArcy
|
|
|
5,000
|
|
|
|
|
*
|
|
|
2,303,030
|
(12)
|
|
|
3.3
|
%
|
C. Michael Kojaian
|
|
|
100,000
|
(13)
|
|
|
10.4
|
%
|
|
|
22,151,035
|
(10)(11)(13)
|
|
|
31.9
|
%
|
Robert J. McLaughlin
|
|
|
|
|
|
|
|
|
|
|
259,664
|
(10)(11)(14)
|
|
|
|
*
|
Devin I. Murphy
|
|
|
1,000
|
|
|
|
|
*
|
|
|
165,200
|
(11)(15)
|
|
|
|
*
|
D. Fleet Wallace
|
|
|
|
|
|
|
|
|
|
|
93,909
|
(9)(10)(11)
|
|
|
|
*
|
Rodger D. Young
|
|
|
500
|
|
|
|
|
*
|
|
|
146,657
|
(10)(11)(16)
|
|
|
|
*
|
Andrea R. Biller
|
|
|
1,000
|
|
|
|
|
*
|
|
|
398,416
|
(17)
|
|
|
|
*
|
Jeffrey T. Hanson
|
|
|
250
|
(18)
|
|
|
|
*
|
|
|
1,731,335
|
(19)(23)
|
|
|
2.5
|
%
|
Richard W. Pehlke
|
|
|
500
|
|
|
|
|
*
|
|
|
256,803
|
(20)
|
|
|
|
*
|
Jacob Van Berkel
|
|
|
250
|
|
|
|
|
*
|
|
|
1,232,752
|
(21)(23)
|
|
|
1.8
|
%
|
All Current Directors and Executive Officers as a Group
(10 persons)
|
|
|
108,500
|
|
|
|
11.2
|
%
|
|
|
28,738,801
|
(22)
|
|
|
41.5
|
%
|
141
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
Unless otherwise indicated, the address for each of the
individuals listed below is
c/o Grubb &
Ellis Company, 1551 Tustin Avenue, Suite 300, Santa Ana,
California 92705. |
|
(2) |
|
Each share of Preferred Stock currently converts into
60.606 shares of common stock, and all common stock share
numbers include, where applicable, the number of shares of
common stock into which any Preferred Stock held by the
beneficial owner is convertible at such rate of conversion. |
|
(3) |
|
The percentage of shares of capital stock shown for each person
in this column and in this footnote assumes that such person,
and no one else, has exercised or converted any outstanding
warrants, options or convertible securities held by him or her
exercisable or convertible on March 11, 2010 or within
60 days thereafter. |
|
(4) |
|
Pursuant to a Schedule 13G filed with the SEC by FMR LLC on
February 16, 2010, FMR is deemed to be the beneficial owner
of 189,800 shares of Preferred Stock, or 11,503,018, shares
of common stock. |
|
(5) |
|
Kojaian Holdings LLC is affiliated with each of C. Michael
Kojaian, a director of the Company, Kojaian Ventures, L.L.C. and
Kojaian Management Corporation (see footnote 13 below). The
address for Kojaian Holdings LLC is 39400 Woodward Avenue,
Suite 250, Bloomfield Hills, Michigan 48304. |
|
(6) |
|
Kojaian Ventures, L.L.C. is affiliated with each of C. Michael
Kojaian, a director of the Company, Kojaian Holdings LLC and
Kojaian Management Corporation (see footnote 13 below). The
address of Kojaian Ventures, L.L.C. is 39400 Woodward Ave.,
Suite 250, Bloomfield Hills, Michigan 48304. |
|
(7) |
|
Kojaian Management Corporation is affiliated with each of C.
Michael Kojaian, a director of the Company, Kojaian Holdings LLC
and Kojaian Ventures, L.L.C. (see footnote 13 below). The
address of Kojaian Management Corporation is 39400 Woodward
Ave., Suite 250, Bloomfield Hills, Michigan 48304. |
|
(8) |
|
Wellington Management Company, LLP (Wellington
Management) is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. Wellington
Management, in such capacity, may be deemed to share beneficial
ownership over the shares held by its client accounts.
Wellingtons address is 75 State Street, Boston,
Massachusetts 02109. |
|
(9) |
|
Beneficially owned shares include 3,666 restricted shares of
common stock which vest on June 27, 2010. |
|
(10) |
|
Beneficially owned shares include 2,999 restricted shares of
common stock that vest on the first business day following
December 10, 2010, such 2,999 shares granted pursuant
to the Companys 2006 Omnibus Equity Plan. |
|
(11) |
|
Beneficially owned shares include (i) 13,333 restricted
shares of common stock which vest in 1/2 portions on each of the
second and third anniversaries of December 10, 2008 and
(ii) 45,113 restricted shares of common stock all of which
vested on March 10, 2010; in each case, such shares granted
pursuant to the Companys 2006 Omnibus Equity Plan. |
|
(12) |
|
Beneficially owned shares include (i) 1,000,000 restricted
shares of common stock which vest in equal
331/3
portions on each of the first, second, and third anniversaries
of November 16, 2009, and (ii) 1,000,000 restricted
shares of common stock which vest based upon the market price of
the Companys common stock during the initial three-year
term of Mr. DArcys employment agreement.
Specifically, (i) in the event that for any 30 consecutive
trading days during the initial three year term of
Mr. DArcys employment agreement the volume
weighted average closing price per share of the common stock on
the exchange or market on which the Companys shares are
publically listed or quoted for trading is at least $3.50, then
50% of such restricted shares shall vest, and (ii) in the
event that for any 30 consecutive trading days during the
initial three year term of Mr. DArcys
employment agreement the volume weighted average closing price
per share of the Companys common stock on the exchange or
market on which the Companys shares of common stock are
publically listed or quoted for trading is at least $6.00, then
the remaining 50% percent of such restricted shares shall vest.
Vesting with respect to all restricted shares is subject to
Mr. DArcys continued employment by the Company,
subject to the terms of a Restricted Share Agreement entered
into by Mr. DArcy and the Company on
November 16, 2009, and other terms and conditions set forth
in Mr. DArcys employment agreement. |
142
|
|
|
(13) |
|
Beneficially owned shares include shares directly held by
Kojaian Holdings LLC, Kojaian Ventures, L.L.C. and Kojaian
Management Corporation. C. Michael Kojaian, a director of the
Company, is affiliated with Kojaian Ventures, L.L.C., Kojaian
Holdings LLC and Kojaian Management Corporation. Pursuant to
rules established by the SEC, the foregoing parties may be
deemed to be a group, as defined in
Section 13(d) of the Exchange Act, and C. Michael Kojaian
is deemed to have beneficial ownership of the shares directly
held by each of Kojaian Ventures, L.L.C., Kojaian Holdings LLC
and Kojaian Management Corporation. |
|
(14) |
|
Beneficially owned shares include 89,310 shares of common
stock held directly by: (i) Katherine McLaughlins IRA
(Mr. McLaughlin wifes IRA of which
Mr. McLaughlin disclaims beneficial ownership);
(ii) Robert J. and Katherine McLaughlin Trust; and
(iii) Louise H. McLaughlin Trust. |
|
(15) |
|
Beneficially owned shares include 12,986 restricted shares of
common stock which vest in equal portions on each first business
day following July 10, 2010 and 2011 granted pursuant to
the Companys 2006 Omnibus Equity Plan. |
|
(16) |
|
Beneficially owned shares include 10,000 shares of common
stock issuable upon exercise of fully vested outstanding options. |
|
(17) |
|
Beneficially owned shares include 35,200 shares of common
stock issuable upon exercise of fully vested outstanding
options. Beneficially owned shares include 8,800 shares of
restricted stock that vest on June 27, 2010. |
|
(18) |
|
Mr. Hansons beneficially owned shares include
250 shares of Preferred Stock which are indirectly held
through Jeffrey T. Hanson and April L. Hanson, as Trustees of
the Hanson Family Trust. |
|
(19) |
|
Beneficially owned shares include 22,000 shares of common
stock issuable upon exercise of fully vested options.
Beneficially owned shares include 5,867 restricted shares of
common stock that vest on June 27, 2010. |
|
(20) |
|
Beneficially owned shares include 25,000 shares of common
stock issuable upon exercise of fully vested options.
Beneficially owned shares include 25,000 restricted shares of
common stock that vest on the first business day after
January 24, 2010 and 25,000 restricted shares of common
stock that vest on the first business day after January 24,
2011, all of these 50,000 shares are subject to certain
terms and conditions contained in that certain Restricted Stock
Agreement between the Company and Mr. Pehlke dated
January 24, 2008. In addition, beneficially owned shares
include 79,333 restricted shares of common stock awarded to
Mr. Pehlke pursuant to the Companys 2006 Omnibus
Equity Plan which will vest in
1/2
installments on each first business day after the second and
third anniversaries of the grant date (December 3,
2008) and are subject to acceleration under certain
conditions. |
|
(21) |
|
Beneficially owned shares include 120,000 restricted shares of
common stock awarded to Mr. Van Berkel pursuant to the
Companys 2006 Omnibus Equity Plan which will vest in equal
331/3%
installments on each first business day after the first, second
and third anniversaries of the grant date (December 3,
2008) and are subject to acceleration under certain
conditions. Beneficially owned shares also include 26,667
restricted shares of common stock which vest on the first
business day following January 24, 2010 and 26,666
restricted shares of common stock which vest on the first
business day following January 24, 2011. Furthermore,
beneficially owned shares include 5,867 shares of
restricted common stock which vest on the first business day
after December 4, 2009 and 5,866 shares of restricted
common stock which vest on the first business day after
December 4, 2010. |
|
(22) |
|
Beneficially owned shares include the following shares of common
stock issuable upon exercise of outstanding options which are
exercisable on March 11, 2010 or within 60 days
thereafter under the Companys various stock option plans:
Mr. Young 10,000 shares,
Ms. Biller 35,200 shares,
Mr. Hanson 22,000 shares,
Mr. Pehlke 25,000 shares, and all current
directors and executive officers as a group 92,200 shares. |
|
(23) |
|
Beneficially owned shares include restricted stock award of
1,000,000 shares of restricted stock received by each of
Messrs. Hanson and Berkel on March 10, 2010, of which
500,000 restricted shares are subject to vesting over three
years in equal annual installments of one-third each commencing
on the one year anniversary of March 10, 2010. The
remaining 500,000 of such restricted shares are subject to
vesting |
143
|
|
|
|
|
based upon the market price of the Companys common stock
during the three year period commencing March 10, 2010.
Specifically, (i) in the event that for any 30 consecutive
trading days during the three year period commencing
March 10, 2010 the volume weighted average closing price
per share of the Companys common stock on the exchange or
market on which the Companys shares are publically listed
or quoted for trading is at least $3.50, then 50% of such
restricted shares shall vest, and (ii) in the event that
for any 30 consecutive trading days during the three year period
commencing March 10, 2010 the volume weighted average
closing price per share of the Companys common stock on
the exchange or market on which the Companys shares of
common stock are publically listed or quoted for trading is at
least $6.00, then the remaining 50% of such restricted shares
shall vest. Vesting with respect to all such restricted shares
is subject to Messrs. Hansons and Van Berkels
continued employment, respectively, by the Company, subject to
the terms and conditions of the Restricted Stock Award Grant
Notices and Restricted Stock Award Agreements dated
March 10, 2010 for each of Mr. Van Berkel and
Mr. Hanson. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Related
Party Transaction Review Policy
The Company recognizes that transactions between the Company and
any of its directors, officers or principal shareowners or an
immediate family member of any director, executive officer or
principal shareowner can present potential or actual conflicts
of interest and create the appearance that Company decisions are
based on considerations other than the best interests of the
Company and its shareowners. The Company also recognizes,
however, that there may be situations in which such transactions
may be in, or may not be inconsistent with, the best interests
of the Company.
The review and approval of related party transactions are
governed by the Code of Business Conduct and Ethics. The Code of
Business Conduct and Ethics is a part of the Companys
Employee Handbook, a copy of which is distributed to each of the
Companys employees at the time that they begin working for
the Company, and the Companys Salespersons Manual, a copy
of which is distributed to each of the Companys brokerage
professionals at the time that they begin working for the
Company. The Code of Business Conduct and Ethics is also
available on the Companys website at
www.grubb-ellis.com. In addition, within
60 days after he or she begins working for the Company and
once per year thereafter, the Company requires that each
employee and brokerage professional to complete an on-line
Business Ethics training class and certify to the
Company that he or she has read and understands the Code of
Business Conduct and Ethics and is not aware of any violation of
the Code of Business Conduct and Ethics that he or she has not
reported to management.
In order to ensure that related party transactions are fair to
the Company and no worse than could have been obtained through
arms-length negotiations with unrelated parties,
such transactions are monitored by the Companys management
and regularly reviewed by the Audit Committee, which
independently evaluates the benefit of such transactions to the
Companys shareowners. Pursuant to the Audit
Committees charter, on a quarterly basis, management
provides the Audit Committee with information regarding related
party transactions for review and discussion by the Audit
Committee and, if appropriate, the Board of Directors. The Audit
Committee, in its discretion, may approve, ratify, rescind or
take other action with respect to a related party transaction
or, if necessary or appropriate, recommend that the Board of
Directors approve, ratify, rescind or take other action with
respect to a related party transaction.
In addition, each director and executive officer annually
delivers to the Company a questionnaire that includes, among
other things, a request for information relating to any
transactions in which both the director, executive officer, or
their respective family members, and the Company participates,
and in which the director, executive officer, or such family
member, has a material interest.
Related
Party Transactions
The following are descriptions of certain transactions since the
beginning of 2009 in which the Company is a participant and in
which any of the Companys directors, executive officers,
principal shareowners or any
144
immediate family member of any director, executive officer or
principal shareowner has or may have a direct or indirect
material interest.
Other
Related Party Transactions
A director of the Company, C. Michael Kojaian, is affiliated
with and has a substantial economic interest in Kojaian
Management Corporation and its various affiliated portfolio
companies (collectively, KMC). KMC is engaged in the
business of investing in and managing real property both for its
own account and for third parties. During the 2009 calendar
year, KMC paid the Company and its subsidiaries the following
approximate amounts in connection with real estate services
rendered: $8.6 million for management services, which
include reimbursed salaries, wages and benefits of
$3.7 million; $0.7 million in real estate sale and
leasing commissions; and $0.2 million for other real estate
and business services. The Company also paid KMC approximately
$2.7 million, which reflected fees paid by KMCs asset
management clients for asset management services performed by
KMC, but for which the Company billed the clients.
The Company believes that the fees and commissions paid to and
by the Company as described above were comparable to those that
would have been paid to or received from unaffiliated third
parties in connection with similar transactions.
In August 2002, the Company entered into an office lease with a
landlord related to KMC, providing for an annual average base
rent of $365,400 over the ten-year term of the lease.
GERI owns a 50.0% managing member interest in Grubb &
Ellis Apartment REIT Advisor, LLC. Each of Grubb &
Ellis Apartment Management, LLC and ROC REIT Advisors, LLC own a
25.0% equity interest in Grubb & Ellis Apartment REIT
Advisor, LLC. As of December 31, 2009, Andrea R. Biller,
the Companys General Counsel, Executive Vice President and
Secretary, owned an equity interest of 18.0% of
Grubb & Ellis Apartment Management, LLC and GERI owned
an 82.0%. As of December 31, 2009, Stanley J.
Olander, Jr., the Companys Executive Vice
President Multifamily, owned an equity interest of
33.3% of ROC REIT Advisors, LLC.
GERI owns a 75.0% managing member interest in Grubb &
Ellis Healthcare REIT Advisor, LLC. Grubb & Ellis
Healthcare Management, LLC owns a 25.0% equity interest in
Grubb & Ellis Healthcare REIT Advisor, LLC. As of
December 31, 2009, each of Ms. Biller and
Mr. Hanson, the Companys Chief Investment Officer and
GERIs President, owned an equity interest of 18.0% of
Grubb & Ellis Healthcare Management, LLC and GERI
owned a 64.0% interest in Grubb & Ellis Healthcare
Management, LLC.
The grants of membership interests in Grubb & Ellis
Apartment Management, LLC and Grubb & Ellis Healthcare
Management, LLC to certain executives are being accounted for by
the Company as a profit sharing arrangement. Compensation
expense is recorded by the Company when the likelihood of
payment is probable and the amount of such payment is estimable,
which generally coincides with Grubb & Ellis Apartment
REIT Advisor, LLC and Grubb & Ellis Healthcare REIT
Advisor, LLC recording its revenue. There was no compensation
expense related to the profit sharing arrangement with
Grubb & Ellis Apartment Management, LLC, and therefore
no distributions to any members, for the year ended
December 31, 2009. Compensation expense related to this
profit sharing arrangement associated with Grubb &
Ellis Healthcare Management, LLC includes distributions of
$380,486 earned by each of Ms. Biller and Mr. Hanson
for the year ended December 31, 2009.
As of December 31, 2009 the remaining 82.0% equity interest
in Grubb & Ellis Apartment Management, LLC and the
remaining 64.0% equity interest in Grubb & Ellis
Healthcare Management, LLC were owned by GERI. Any allocable
earnings attributable to GERIs ownership interests are
paid to GERI on a quarterly basis.
In 2006, Mr. Thompson and Mr. Rogers agreed to
transfer 743,160 shares of common stock of NNN they owned
to Mr. Hanson, assuming he remained employed by the Company
in equal increments on July 29, 2007, 2008 and 2009.
Mr. Hanson remained employed by the Company during this
three year period and accordingly, these stock transfers were
effected (557,370 from Mr. Thompson and 185,790 from
Mr. Rogers). Because Mr. Thompson and Mr. Rogers
were affiliates of NNN at the time of the agreement, NNN and the
145
Company recognized a compensation charge. Mr. Hanson was
not entitled to any reimbursement for his tax liability or any
gross-up
payment.
In connection with pre-merger transactions, Mr. Thompson,
Mr. Rogers and Mr. Hanson agreed to escrow shares of
NNNs common stock and indemnify NNN for certain other
matters. To the extent that the Company incurred any liability
arising from the failure to comply with real estate broker
licensing requirements in certain states prior to 2007,
Mr. Thompson, Mr. Rogers and Mr. Hanson agreed to
forfeit to the Company up to an aggregate of
4,124,120 shares of the Companys common stock, and
each share will be deemed to have a value of $11.36 per share in
satisfying this obligation. Mr. Thompson also agreed to
indemnify the Company, to the extent the liability incurred by
the Company for such matters exceeded the deemed
$46.9 million value of these shares, up to an additional
$9.4 million in cash. These obligations terminated on
November 16, 2009 and the shares were released from escrow
as no liabilities were incurred.
The Companys directors and officers, as well as officers,
managers and employees of the Companys subsidiaries, have
purchased, and may continue to purchase, interests in offerings
made by the Companys programs at a discount. As disclosed
in the offering documents, the purchase price for these
interests reflects the fact that selling commissions and
marketing allowances will not be paid in connection with these
sales. The net proceeds to the Company from these sales made net
of commissions will be substantially the same as the net
proceeds received from other sales.
Mr. Thompson has routinely provided personal guarantees to
various lending institutions that provided financing for the
acquisition of many properties by the Companys programs.
These guarantees cover certain covenant payments, environmental
and hazardous substance indemnification and indemnification for
any liability arising from the 2004 SEC investigation of Triple
Net Properties. In connection with the formation transactions,
the Company indemnified Mr. Thompson for amounts he may be
required to pay under all of these guarantees to which Triple
Net Properties, Realty or NNN Capital Corp. is an obligor to the
extent such indemnification would not require the Company to
book additional liabilities on the Companys balance sheet.
As of December 31, 2009, accounts receivable totaling
$310,000 is due from a program 30.0% owned and managed by
Anthony W. Thompson, the Companys former Chairman who
subsequently resigned in February 2008. The receivable of
$310,000 has been reserved for and is included in the allowance
for uncollectible advances as of December 31, 2009. On
November 4, 2008, the Company made a formal written demand
to Mr. Thompson for these monies.
As of December 31, 2009, advances to a program 40.0% owned
and, as of April 1, 2008, managed by Mr. Thompson,
totaled $983,000, which includes $61,000 in accrued interest,
was past due. The total amount of $983,000 has been reserved for
and is included in the allowance for uncollectible advances. On
November 4, 2008 and April 3, 2009, the Company made a
formal written demand to Mr. Thompson for these monies.
On October 2, 2009, the Company sold $5.0 million of
subordinated debt or equity securities of the Company (the
Permitted Placement) to an affiliate of
Mr. Kojaian, the Companys largest shareowner and
Chairman of the Board of Directors of the Company, and issued a
$5.0 million senior subordinated convertible note (the
Note) to Kojaian Management Corporation. The Note
(i) bore interest at twelve percent (12%) per annum,
(ii) was co-terminous with the term of the Credit Facility
(including if the Credit Facility was terminated pursuant to the
Discount Prepayment Option), (iii) was unsecured and fully
subordinate to the Credit Facility, and (iv) in the event
the Company issued or sold equity securities in connection with
or pursuant to a transaction with a non-affiliate of the Company
while the Note was outstanding, at the option of the holder of
the Note, the principal amount of the Note then outstanding was
convertible into those equity securities of the Company issued
or sold in such non-affiliate transaction. In connection with
the issuance of the Note, Kojaian Management Corporation, the
lenders to the Credit Facility and the Company entered into a
subordination agreement (the Subordination
Agreement). The Permitted Placement was a transaction by
the Company not involving a public offering in accordance with
Section 4(2) of the Securities Act.
In the fourth quarter of 2009, the Company effected the private
placement of an aggregate of 965,700 shares of its 12%
Preferred Stock, to qualified institutional buyers and other
accredited investors in a
146
transaction exempt from the registration requirements of the
Securities Act. In conjunction with the offering, the entire
$5.0 million principal balance of the Note was converted
into the 12% Preferred Stock at the offering price and the
holder of the Note, Kojaian Management Corporation, received
accrued interest of approximately $57,000. In addition, the
holder of the Note also purchased an additional
$5.0 million of 12% Preferred Stock at the offering price.
In addition to Kojaian Management Corporations acquisition
of $10.0 million of 12% Preferred Stock (including
conversion of the $5.0 million Note as described above),
certain of the Companys other directors, executive
officers and employees also purchased 12% Preferred Stock in the
private placement at the offering price as follows:
|
|
|
|
|
Thomas P. DArcy purchased $500,000 of 12% Preferred Stock
|
|
|
|
Devin I. Murphy purchased $100,000 of 12% Preferred Stock
|
|
|
|
Rodger D. Young purchased $50,000 of 12% Preferred Stock
|
|
|
|
Andrea R. Biller purchased $100,000 of 12% Preferred Stock
|
|
|
|
Jeffrey T. Hanson purchased $25,000 of 12% Preferred Stock
|
|
|
|
Richard W. Pehlke purchased $50,000 of 12% Preferred Stock
|
|
|
|
Jacob Van Berkel purchased $25,000 of 12% Preferred Stock
|
|
|
|
other employees who are not NEOs purchased an aggregate of
$1,135,000 of 12% Preferred Stock
|
Independent
Directors
The Board determined that seven of the nine directors serving in
2009, Messrs. Carpenter, Greene, Kojaian, McLaughlin,
Murphy, Wallace and Young were independent. For the year ended
December 31, 2009, Mr. DArcy and Mr. Hunt
were not considered independent under NYSE listing requirements
because Mr. DArcy was serving as Chief Executive
Officer as of November 16, 2009 and Mr. Hunt had been
serving as the Companys Interim Chief Executive Officer
commencing in July 2008 until November 16, 2009.
.
For purposes of determining the independence of its directors,
the Board applies the following criteria:
No
Material Relationship
The director must not have any material relationship with the
Company. In making this determination, the Board considers all
relevant facts and circumstances, including commercial,
charitable and familial relationships that exist, either
directly or indirectly, between the director and the Company.
Employment
The director must not have been an employee of the Company at
any time during the past three years. In addition, a member of
the directors immediate family (including the
directors spouse; parents; children; siblings; mothers-,
fathers-, brothers-, sisters-, sons- and
daughters-in-law;
and anyone who shares the directors home, other than
household employees) must not have been an executive officer of
the Company in the prior three years.
Other
Compensation
The director or an immediate family member must not have
received more than $100,000 per year in direct compensation from
the Company, other than in the form of director fees, pension or
other forms of deferred compensation during the past three years.
Auditor
Affiliation
The director must not be a current partner or employee of the
Companys internal or external auditor. An immediate family
member of the director must not be a current partner of the
Companys internal or external auditor, or an employee of
such auditor who participates in the auditors audit,
assurance or tax compliance
147
(but not tax planning) practice. In addition, the director or an
immediate family member must not have been within the last three
years a partner or employee of the Companys internal or
external auditor who personally worked on the Companys
audit.
Interlocking
Directorships
During the past three years, the director or an immediate family
member must not have been employed as an executive officer by
another entity where one of the Companys current executive
officers served at the same time on the compensation committee.
Business
Transactions
The director must not be an employee of another entity that,
during any one of the past three years, received payments from
the Company, or made payments to the Company, for property or
services that exceed the greater of $1 million or 2% of the
other entitys annual consolidated gross revenues. In
addition, a member of the directors immediate family must
not have been an executive officer of another entity that,
during any one of the past three years, received payments from
the Company, or made payments to the Company, for property or
services that exceed the greater of $1.0 million or 2% of
the other entitys annual consolidated gross revenues.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
Ernst & Young LLP, independent registered public
accountants, has served as the Companys auditors since
December 10, 2007 and audited the consolidated financial
statements for the years ended December 31, 2009 and 2008.
The following table lists the fees and costs for services
rendered during the years ended December 31, 2009 and 2008,
respectively.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit Fees(1)
|
|
|
|
|
|
|
|
|
Total Audit Fees
|
|
$
|
2,095,777
|
|
|
$
|
2,527,587
|
|
|
|
|
|
|
|
|
|
|
Audit Related Fees(2)
|
|
|
|
|
|
|
|
|
Total Audit-Related Fees
|
|
|
290,722
|
|
|
|
365,669
|
|
|
|
|
|
|
|
|
|
|
Tax Fees(2)
|
|
|
|
|
|
|
|
|
Total Tax Fees
|
|
|
144,042
|
|
|
|
540,487
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
2,530,541
|
|
|
$
|
3,433,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees and expenses related to the year-end audit and
interim reviews, notwithstanding when the fees and expenses were
billed or when the services were rendered. |
|
(2) |
|
Includes fees and expenses for services rendered from January
through December of the year, notwithstanding when the fees and
expenses were billed. |
All audit and non-audit services have been pre-approved by the
Audit Committee.
148
PART IV.
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The
following documents are filed as part of this report:
|
|
|
|
(a)
|
The following Reports of Independent Registered Public
Accounting Firm and Consolidated Financial Statements are
submitted herewith:
|
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2009 and 2008
Consolidated Statements of Operations for the years ended
December 31, 2009, 2008 and 2007
Consolidated Statements of Shareowners Equity for the
years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended
December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
|
|
|
|
(b)
|
Consolidated Financial Statements Schedules
|
Schedule II Valuation and Qualifying Accounts
Schedule III Real Estate and Accumulated
Depreciation
|
|
|
|
(c)
|
Exhibits required to be filed by Item 601 of
Regulation S-K:
|
(2) Plan
of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
|
|
|
|
2.1
|
Agreement and Plan of Merger, dated as of May 22, 2007,
among NNN Realty Advisors, Inc., B/C Corporate Holdings, Inc.
and the Registrant, incorporated herein by reference to
Exhibit 2.1 to the Registrants Current Report on
Form 8-K
filed on May 23, 2007.
|
|
|
2.2
|
Merger Agreement, dated as of January 22, 2009, by and
among the Registrant, GERA Danbury LLC, GERA Property
Acquisition, LLC, Matrix Connecticut, LLC and Matrix Danbury,
LLC, incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on
Form 8-K
filed on January 29, 2009.
|
|
|
2.3
|
First Amendment to Merger Agreement, dated as of
January 22, 2009, by and among the Registrant, GERA Danbury
LLC, GERA Property Acquisition, LLC, Matrix Connecticut, LLC and
Matrix Danbury, LLC, incorporated herein by reference to
Exhibit 2.2 to the Registrants Current Report on
Form 8-K
filed on January 29, 2009.
|
|
|
2.4
|
Second Amendment to Merger Agreement, dated as of May 19,
2009, by and among the Registrant, GERA Danbury LLC, GERA
Property Acquisition, LLC, Matrix Connecticut, LLC and Matrix
Danbury, LLC, incorporated herein by reference to
Exhibit 2.1 to the Registrants Current Report on
Form 8-K
filed on May 26, 2009.
|
(3) Articles
of Incorporation and Bylaws
|
|
|
|
3.1
|
Restated Certificate of Incorporation of the Registrant,
incorporated herein by reference to Exhibit 3.2 to the
Registrants Annual Report on
Form 10-K
filed on March 31, 1995.
|
|
|
3.2
|
Certificate of Retirement with Respect to 130,233 Shares of
Junior Convertible Preferred Stock of Grubb & Ellis
Company, filed with the Delaware Secretary of State on
January 22, 1997, incorporated herein by reference to
Exhibit 3.3 to the Registrants Quarterly Report on
Form 10-Q
filed on February 13, 1997.
|
149
|
|
|
|
3.3
|
Certificate of Retirement with Respect to 8,894 Shares of
Series A Senior Convertible Preferred Stock,
128,266 Shares of Series B Senior Convertible
Preferred Stock, and 19,767 Shares of Junior Convertible
Preferred Stock of Grubb & Ellis Company, filed with
the Delaware Secretary State on January 22, 1997,
incorporated herein by reference to Exhibit 3.4 to the
Registrants Quarterly Report on
Form 10-Q
filed on February 13, 1997.
|
|
|
3.4
|
Amendment to the Restated Certificate of Incorporation of the
Registrant as filed with the Delaware Secretary of State on
December 9, 1997, incorporated herein by reference to
Exhibit 4.4 to the Registrants Statement on
Form S-8
filed on December 19, 1997
(File No. 333-42741).
|
|
|
3.5
|
Amended and Restated Certificate of Designations, Number, Voting
Powers, Preferences and Rights of Series A Preferred Stock
of Grubb & Ellis Company, as filed with the Secretary
of State of Delaware on September 13, 2002, incorporated
herein by reference to Exhibit 3.8 to the Registrants
Annual Report on
Form 10-K
filed on October 15, 2002.
|
|
|
3.6
|
Certificate of Designations, Number, Voting Powers, Preferences
and Rights of
Series A-1
Preferred Stock of Grubb & Ellis Company, as filed
with the Secretary of State of Delaware on January 4, 2005,
incorporated herein by reference to Exhibit 2 to the
Registrants Current Report on
Form 8-K
filed on January 6, 2005.
|
|
|
3.7
|
Preferred Stock Exchange Agreement, dated as of
December 30, 2004, between the Registrant and Kojaian
Ventures, LLC, incorporated herein by reference to
Exhibit 1 to the Registrants Current Report on
Form 8-K
filed on January 6, 2005.
|
|
|
3.8
|
Certificate of Designations, Number, Voting Powers, Preferences
and Rights of
Series A-1
Preferred Stock of Grubb & Ellis Company, as filed
with the Secretary of State of Delaware on January 4, 2005,
incorporated herein by reference to Exhibit 2 to the
Registrants Current Report on
Form 8-K
filed on January 6, 2005.
|
|
|
3.9
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Grubb & Ellis Company as filed
with the Delaware Secretary of State on December 7, 2007,
incorporated herein by reference to Exhibit 3.1 to the
Registrants Current Report on
Form 8-K
filed on December 13, 2007.
|
|
|
3.10
|
Certificate of the Powers, Designations, Preferences and Rights
of the 12% Cumulative Participating Perpetual Convertible
Preferred Stock, as filed with the Secretary of State of
Delaware on November 4, 2009, incorporated herein by
reference to Annex B to the Registrants
Schedule 14A filed on November 6, 2009.
|
|
|
3.11
|
Amendment to the Restated Certificate of Incorporation of the
Registrant as filed with the Delaware Secretary of State on
December 17, 2009, incorporated herein by reference to
Exhibit 3.1 to the Registrants Current Report on
Form 8-K
filed on December 23, 2009.
|
|
|
3.12
|
Bylaws of the Registrant, as amended and restated effective
May 31, 2000, incorporated herein by reference to
Exhibit 3.5 to the Registrants Annual Report on Form
10-K filed
on September 28, 2000.
|
|
|
3.13
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of December 7, 2007, incorporated herein by
reference to Exhibit 3.2 to Registrants Current
Report on
Form 8-K
filed on December 13, 2007.
|
|
|
3.14
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of January 25, 2008, incorporated herein by
reference to Exhibit 3.1 to Registrants Current
Report on
Form 8-K
filed on January 31, 2008.
|
|
|
3.15
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of October 26, 2008, incorporated herein by
reference to Exhibit 3.1 to Registrants Current
Report on
Form 8-K
filed on October 29, 2008.
|
150
|
|
|
|
3.16
|
Amendment to the Amended and Restated By-laws of the Registrant,
effective as of February 5, 2009, incorporated herein by
reference to Exhibit 3.1 to Registrants Current
Report on
Form 8-K
filed on February 9, 2009.
|
|
|
3.17
|
Amendment to the Amended and Restated Bylaws of the Registrant,
effective December 17, 2009, incorporated herein by
reference to Exhibit 3.2 to the Registrants Current
Report on
Form 8-K
filed on December 23, 2009.
|
(4) Instruments
Defining the Rights of Security Holders, including
Indentures.
|
|
|
|
4.1
|
Registration Rights Agreement, dated as of April 28, 2006,
between the Registrant, Kojaian Ventures, LLC and Kojaian
Holdings, LLC, incorporated herein by reference to
Exhibit 99.2 to the Registrants Current Report on
Form 8-K
filed on April 28, 2006.
|
|
|
4.2
|
Warrant Agreement, dated as of May 18, 2009, by and between
the Registrant, Deutsche Bank Trust Company Americas, Fifth
Third Bank, JPMorgan Chase, N.A. and KeyBank, National
Association, incorporated herein by reference to
Exhibit 4.2 to the Registrants Annual Report on
Form 10-K
filed on May 27, 2009.
|
|
|
4.3
|
Registration Rights Agreement, dated as of October 27,
2009, by and among the Registrant and each of the persons listed
on the Schedule of Initial Holders attached thereto as
Schedule A, incorporated herein by reference to
Exhibit 4.3 to the Registrants Amendment No. 1
to Registration Statement on
Form S-1
Annual Report on Form
10-K filed
on December 28, 2009.
|
|
|
4.4
|
Amendment No. 1 to Registration Rights Agreement, dated as
of November 4, 2009, by and among the Registrant and each
of the persons listed on the Schedule of Initial Holders
attached thereto as Schedule A, incorporated herein by
reference to Exhibit 4.3 to the Registrants Amendment
No. 1 to Registration Statement on
Form S-1
Annual Report on
Form 10-K
filed on December 28, 2009.
|
On an individual basis, instruments other than Exhibits listed
above under Exhibit 4 defining the rights of holders of
long-term debt of the Registrant and its consolidated
subsidiaries and partnerships do not exceed ten percent of total
consolidated assets and are, therefore, omitted; however, the
Company will furnish supplementally to the Commission any such
omitted instrument upon request.
(10) Material
Contracts
|
|
|
|
10.1*
|
Employment Agreement entered into on November 9, 2004,
between Robert H. Osbrink and the Registrant, effective
January 1, 2004, incorporated herein by reference to
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
filed on November 15, 2004.
|
|
|
10.2*
|
Employment Agreement entered into on March 8, 2005, between
Mark E. Rose and the Registrant, incorporated herein by
reference to Exhibit 10.1 to the Registrants Current
Report on
Form 8-K
filed on March 11, 2005.
|
|
|
10.3*
|
Employment Agreement, dated as of January 1, 2005, between
Maureen A. Ehrenberg and the Registrant, incorporated herein by
reference to Exhibit 1 to the Registrants Current
Report on
Form 8-K
filed on June 10, 2005.
|
|
|
10.4*
|
First Amendment to Employment Agreement entered into between
Robert Osbrink and the Registrant, dated as of September 7,
2005, incorporated herein by reference to Exhibit 10.6 to
the Registrants Report on
Form 10-K
filed on September 28, 2005.
|
|
|
10.5*
|
Form of Restricted Stock Agreement between the Registrant and
each of the Registrants Outside Directors, dated as of
September 22, 2005, incorporated herein by reference to
|
151
|
|
|
|
|
Exhibit 10.15 to Amendment No. 1 to the
Registrants Registration Statement on
Form S-1
filed on June 19, 2006 (File
No. 333-133659).
|
|
|
|
|
10.6*
|
Employment Agreement entered into on April 1, 2006, between
Frances P. Lewis and the Registrant, incorporated herein by
reference to Exhibit 10.17 to the Registrants Current
Report on
Form 10-K
filed on September 28, 2006.
|
|
|
10.7*
|
Grubb & Ellis Company 2006 Omnibus Equity Plan
effective as of November 9, 2006, incorporated herein by
reference to Appendix A to the Registrants Proxy
Statement for the 2006 Annual Meeting of Stockholders filed on
October 10, 2006.
|
|
|
10.8
|
Purchase and Sale Agreement between Abrams Office Center Ltd and
GERA Property Acquisition LLC, a wholly-owned subsidiary of the
Registrant, dated as of October 24, 2006, incorporated
herein by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K
filed on October 30, 2006.
|
|
|
10.9*
|
Second Amendment to Employment Agreement entered into between
Robert H. Osbrink and the Registrant, dated as of
November 15, 2006, incorporated herein by reference to
Exhibit 1 to the Registrants Current Report on
Form 8-K
filed on November 21, 2006.
|
|
|
10.10
|
Letter Agreement between Abrams Office Centre and GERA Property
Acquisition LLC, a wholly owned subsidiary of the Registrant,
dated December 8, 2006, incorporated herein by reference to
Exhibit 99.1 to the Registrants Current Report on
Form 8-K
filed on December 14, 2006.
|
|
|
10.11
|
Second Amendment to the Purchase and Sale Agreement between
Abrams Office Centre, Ltd. and GERA Property Acquisition LLC, a
wholly owned subsidiary of the Registrant, dated
December 15, 2006, incorporated herein by reference to
Exhibit 99.1 to the Registrants Current Report on
Form 8-K
filed on December 21, 2006.
|
|
|
10.12
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA
Property Acquisition LLC, a wholly owned subsidiary of the
Registrant, dated December 29, 2006, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K
filed on January 5, 2007.
|
|
|
10.13
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA
Property Acquisition LLC, a wholly owned subsidiary of the
Registrant, dated December 29, 2006, incorporated herein by
reference to Exhibit 99.2 to the Registrants Current
Report on
Form 8-K
filed on January 5, 2007.
|
|
|
10.14
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA
Property Acquisition LLC, a wholly owned subsidiary of the
Registrant, dated January 4, 2007, incorporated herein by
reference to Exhibit 99.3 to the Registrants Current
Report on
Form 8-K
filed on January 5, 2007.
|
|
|
10.15
|
Letter Agreement between Abrams Office Centre, Ltd. and GERA
Property Acquisition LLC, a wholly owned subsidiary of the
Registrant, dated January 19, 2007, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K
filed on January 25, 2007.
|
|
|
10.16
|
Purchase and Sale Agreement between F/B 6400 Shafer Ct.
(Rosemont), LLC and GERA Property Acquisition LLC, a wholly
owned subsidiary of the Registrant, dated as of February 9,
2007, incorporated herein by reference to Exhibit 99.1 to
the Registrants Current Report on
Form 8-K
filed on February 9, 2007.
|
|
|
10.17*
|
Employment Agreement between Richard W. Pehlke and the
Registrant, dated as of February 9, 2007, incorporated
herein by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K
filed on February 15, 2007.
|
152
|
|
|
|
10.18*
|
Amendment No. 1 Employment Agreement between Richard W.
Pehlke and the Registrant, dated as of December 23, 2008,
incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed on December 23, 2008.
|
|
|
10.19
|
Purchase and Sale Agreement between Danbury Buildings Co., L.P.,
Danbury Buildings, Inc. and GERA Property Acquisition LLC, a
wholly owned subsidiary of the Registrant, dated
February 20, 2007, incorporated herein by reference to
Exhibit 99.2 to the Registrants Current Report on
Form 8-K
filed on February 22, 2007.
|
|
|
10.20
|
Letter Agreement between Danbury Buildings Co., L.P., Danbury
Buildings, Inc. and GERA Property Acquisition LLC, a wholly
owned subsidiary of the Registrant, dated March 16, 2007,
incorporated herein by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K
filed on March 21, 2007.
|
|
|
10.21
|
Amendment to Purchase and Sale Agreement between Danbury
Buildings, Inc. and Danbury Buildings Co., L.P. and GERA
Property Acquisition LLC, a wholly owned subsidiary of the
Registrant, dated February 20, 2007, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K
filed on May 3, 2007.
|
|
|
10.22
|
Letter Amendment to Purchase and Sale Agreement between Danbury
Buildings, Inc. and Danbury Buildings Co., L.P. and GERA
Property Acquisition LLC, a wholly owned subsidiary of the
Registrant, dated as of April 30, 2007, incorporated herein
by reference to Exhibit 99.2 to the Registrants
Current Report on
Form 8-K
filed on May 3, 2007.
|
|
|
10.23
|
Form of Voting Agreement between Registrant and certain
stockholders or NNN Realty Advisors, Inc., incorporated herein
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed on May 23, 2007.
|
|
|
10.24
|
Form of Voting Agreement between NNN Realty Advisors, Inc. and
certain stockholders of the Registrant, incorporated herein by
reference to Exhibit 10.2 to the Registrants Current
Report on
Form 8-K
filed on May 23, 2007.
|
|
|
10.25
|
Form of Escrow Agreement between NNN Realty Advisors, Inc.,
Wilmington Trust Company and the Registrant, incorporated herein
by reference to Exhibit 10.3 to the Registrants
Current Report on
Form 8-K
filed on May 23, 2007.
|
|
|
10.26
|
Deed of Trust, Security Agreement, Assignment of Rents and
Fixture Filing by and among GERA Abrams Centre LLC, Rebecca S.
Conrad, as Trustee for the benefit of Wachovia Bank, National
Association, dated as of June 15, 2007 incorporated herein
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed on June 19, 2007.
|
|
|
10.27
|
Commercial Offer to purchase by and between Aurora Health Care,
Inc. and Triple Net Properties, LLC, dated November 21,
2007, incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.28
|
First Amendment to Offer to Purchase by and between Aurora
Medical Group, Inc. and Triple Net Properties, LLC, dated
November 29, 2007, incorporated herein by reference to
Exhibit 10.2 to the Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.29
|
Form of Lease among NNN Eastern Wisconsin Medical Portfolio, LLC
and Aurora Medical Group, Inc., dated as of December 21,
2007, incorporated herein by reference to Exhibit 10.3 to
the Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.30
|
Form of Subordination, Non-Disturbance and Attornment Agreement,
between Aurora Medical Group, Inc. and PNC Bank, National
Association dated as of December 21, 2007, incorporated
herein by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
153
|
|
|
|
10.31
|
Form of Estoppel Certificate from Aurora Medical Group, Inc. to
PNC Bank, National Association, dated as of December 21,
2007 incorporated herein by reference to Exhibit 10.5 to
the Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.32
|
Form of Guaranty executed by Aurora Health Care, Inc. in favor
of NNN Eastern Wisconsin Medical Portfolio, LLC dated
December 21, 2007, incorporated herein by reference to
Exhibit 10.6 to the Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.33
|
Promissory Note for $32,300,000 senior loan of NNN Eastern
Wisconsin Medical Portfolio, LLC to the order of PNC Bank,
National Association, dated December 21, 2007, incorporated
herein by reference to Exhibit 10.7 to the
Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.34
|
Promissory Note for $3,400,000 mezzanine loan by NNN Eastern
Wisconsin Medical Portfolio, LLC to the order of PNC Bank,
National Association, dated December 21, 2007, incorporated
herein by reference to Exhibit 10.8 to the
Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.35
|
Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing by NNN Eastern Wisconsin Medical Portfolio, LLC
in favor of PNC Bank, National Association, dated
December 21, 2007, incorporated herein by reference to
Exhibit 10.9 to the Registrants Current Report on
Form 8-K
filed on December 28, 2007.
|
|
|
10.36
|
Agreement for Purchase and Sale of Real Property and Escrow
Instructions, dated as of October 31, 2008, by and between
GERA Danbury LLC and Matrix Connecticut, LLC, incorporated
herein by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K
filed on November 5, 2008.
|
|
|
10.37*
|
Employment Agreement between NNN Realty Advisors, Inc. and Scott
D. Peters incorporated herein by reference to Exhibit 10.26
to the Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.38*
|
Employment Agreement between NNN Realty Advisors, Inc. and
Andrea R. Biller incorporated herein by reference to
Exhibit 10.27 to the Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.39*
|
Employment Agreement between NNN Realty Advisors, Inc. and
Francene LaPoint incorporated herein by reference to
Exhibit 10.28 to the Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.40
|
Employment Agreement between NNN Realty Advisors, Inc. and
Jeffrey T. Hanson incorporated herein by reference to
Exhibit 10.29 to the Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.41
|
Indemnification Agreement dated as of October 23, 2006
between Anthony W. Thompson and NNN Realty Advisors, Inc.,
incorporated herein by reference to Exhibit 10.30 to the
Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.42
|
Indemnification and Escrow Agreement by and among Escrow Agent,
NNN Realty Advisors, Inc., Anthony W. Thompson, Louis J. Rogers
and Jeffrey T. Hanson, together with Certificate as to
Authorized Signatures incorporated herein by reference to
Exhibit 10.31 to the Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.43*
|
Form of Indemnification Agreement executed by Andrea R. Biller,
Glenn L. Carpenter, Howard H. Greene, Jeffrey T. Hanson, Gary H.
Hunt, C. Michael Kojaian, Francene LaPoint, Robert J.
McLaughlin, Devin I. Murphy, Robert H. Osbrink, Richard W.
Pehlke, Scott D. Peters, Dylan Taylor, Jacob Van Berkel, D.
Fleet Wallace and Rodger D. Young.
|
154
|
|
|
|
|
incorporated herein by reference to Exhibit 10.41 to the
Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
|
|
10.44*
|
Change of Control Agreement dated December 23, 2008 by and
between Dylan Taylor and the Registrant, incorporated herein by
reference to Exhibit 10.2 to the Registrants Current
Report on
Form 8-K
filed on December 24, 2008.
|
|
|
10.45*
|
Change of Control Agreement dated December 23, 2008 by and
between Jacob Van Berkel and the Company, incorporated herein by
reference to Exhibit 10.3 to the Registrants Current
Report on
Form 8-K
filed on December 24, 2008.
|
|
|
10.46
|
First Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions, dated as of January 8,
2009, by and between GERA Danbury LLC and Matrix Connecticut,
LLC, incorporated herein by reference to Exhibit 99.1 to
the Registrants Current Report on
Form 8-K
filed on January 14, 2009.
|
|
|
10.47
|
Second Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions, dated as of January 12,
2009, by and between GERA Danbury LLC and Matrix Connecticut,
LLC, incorporated herein by reference to Exhibit 99.2 to
the Registrants Current Report on
Form 8-K
filed on January 14, 2009.
|
|
|
10.48
|
Third Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions, dated as of January 14,
2009, by and between GERA Danbury LLC and Matrix Connecticut,
LLC, incorporated herein by reference to Exhibit 99.1 to
the Registrants Current Report on
Form 8-K
filed on January 21, 2009.
|
|
|
10.49
|
Fourth Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions, dated as of January 16,
2009, by and between GERA Danbury LLC and Matrix Connecticut,
LLC, incorporated herein by reference to Exhibit 99.2 to
the Registrants Current Report on
Form 8-K
filed on January 21, 2009.
|
|
|
10.50
|
Fifth Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions, dated as of January 20,
2009, by and between GERA Danbury LLC and Matrix Connecticut,
LLC, incorporated herein by reference to Exhibit 99.3 to
the Registrants Current Report on
Form 8-K
filed on January 21, 2009.
|
|
|
10.51
|
Sixth Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions, dated as of January 21,
2009, by and between GERA Danbury LLC and Matrix Connecticut,
LLC, incorporated herein by reference to Exhibit 99.2 to
the Registrants Current Report on
Form 8-K
filed on January 27, 2009.
|
|
|
10.52
|
Escrow Agreement, dated as of January 22, 2009, by and
among Grubb & Ellis Company, Matrix Connecticut, LLC
and First American Title Insurance Company, incorporated
herein by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K/A
filed on January 29, 2009.
|
|
|
10.53
|
Mortgage, Security Agreement, Assignment of Rents and Fixture
Filing between GERA 6400 Shafer LLC to Wachovia Bank, National
Association dated as of June 15, 2007, incorporated herein
by reference to Exhibit 10.2 to the Registrants
Current Report on
Form 8-K
filed on June 19, 2007.
|
|
|
10.54
|
Open-end Mortgage, Security Agreement, Assignment of Rents and
Fixture Filing between GERA Danbury LLC to Wachovia Bank,
National Association dated as of June 15, 2007,
incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed on June 19, 2007.
|
|
|
10.55
|
Letter Agreement by and among Wachovia Bank, National
Association, GERA Abrams Centre LLC and GERA 6400 Shafer LLC,
dated September 28, 2007, incorporated herein
|
155
|
|
|
|
|
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed on October 4, 2007.
|
|
|
|
|
10.56
|
Letter Agreement by and between Wachovia Bank, National
Association and GERA Danbury, LLC, dated September 28,
2007, incorporated herein by reference to Exhibit 10.2 to
the Registrants Current Report on
Form 8-K
filed on October 4, 2007.
|
|
|
10.57
|
Second Amended and Restated Credit Agreement, dated as of
December 7, 2007, among the Registrant, certain of its
subsidiaries (the Guarantors), the
Lender (as defined therein), Deutsche Bank
Securities, Inc., as syndication agent, sole book-running
manager and sole lead arranger, and Deutsche Bank
Trust Company Americas, as initial issuing bank, swing line
bank and administrative agent, incorporated herein by reference
to Exhibit 10.1 to Registrants Current Report on
Form 8-K
filed on December 13, 2007.
|
|
|
10.58
|
Second Amended and Restated Security Agreement, dated as of
December 7, 2007, among the Registrant, certain of its
subsidiaries and Deutsche Bank Trust Company Americas, as
administrative agent, for the Secured Parties (as
defined therein), incorporated herein by reference to
Exhibit 10.2 to Registrants Current Report on Form
8-K filed on
December 13, 2007.
|
|
|
10.59
|
First Letter Amendment, dated as of August 4, 2008, by and
among the Registrant, the guarantors named therein, Deutsche
Bank Trust Company Americas, as administrative agent, the
financial institutions identified therein as lender parties,
Deutsche Bank Trust Company Americas, as syndication agent,
and Deutsche Bank Securities Inc., as sole book running manager
and sole lead arranger, incorporated herein by reference to
Exhibit 99.1 to Registrants Current Report on
Form 8-K
filed on August 6, 2008.
|
|
|
10.60
|
Second Letter Amendment to the Registrants senior secured
revolving credit facility executed on November 4, 2008, and
dated as of September 30, 2008, incorporated herein by
reference to Exhibit 10.2 to the Registrants
Quarterly Report on
Form 10-Q
filed on November 10, 2008.
|
|
|
10.61
|
Third Amended and Restated Credit Agreement, dated as of
May 18, 2009, among the Registrant, certain of its
subsidiaries (the Guarantors), the
Lender (as defined therein), Deutsche Bank
Securities, Inc., as syndication agent, sole book-running
manager and sole lead arranger, and Deutsche Bank
Trust Company Americas, as initial issuing bank, swing line
bank and administrative agent, incorporated herein by reference
to Exhibit 10.61 to the Registrants Annual Report on
Form 10-K
filed on May 27, 2009.
|
|
|
10.62
|
Third Amended and Restated Security Agreement, dated as of
May 18, 2009, among the Registrant, certain of its
subsidiaries and Deutsche Bank Trust Company Americas, as
administrative agent, for the Secured Parties (as
defined therein), incorporated herein by reference to
Exhibit 10.62 to the Registrants Annual Report on
Form 10-K
filed on May 27, 2009.
|
|
|
10.63*
|
Employment Agreement between Thomas P. DArcy and the
Registrant, dated as of November 16, 2009, incorporated
herein by reference to Exhibit 10.1 to the
Registrants Quarterly Report on
Form 10-Q/A
filed on November 19, 2009.
|
|
|
10.64
|
First Letter Amendment to Third Amended and Restated Credit
Agreement, dated as of September 30, 2009, by and among
Grubb & Ellis Company, the guarantors named therein,
Deutsche Bank Trust Company Americas, as administrative
agent, the financial institutions identified therein as lender
parties, Deutsche Bank Trust Company Americas, as
syndication agent, and Deutsche Bank Securities Inc., as sole
book running manager and sole lead arranger, incorporated herein
by reference to Exhibit 99.1 to the Registrants
Current Report on
Form 8-K
filed on October 2, 2009.
|
156
|
|
|
|
10.65
|
First Letter Amendment to Warrant Agreement, dated as of
September 30, 2009, by and between Grubb & Ellis
Company and the holders identified in Exhibit B thereto,
incorporated herein by reference to Exhibit 99.2 to the
Registrants Current Report on
Form 8-K
filed on October 2, 2009.
|
|
|
10.66
|
First Letter Amendment to the Third Amended and Restated
Security Agreement, dated as of September 30, 2009, made by
the grantors referred to therein in favor of Deutsche Bank
Trust Company Americas, as administrative agent for the
secured parties referred to therein, incorporated herein by
reference to Exhibit 99.3 to the Registrants Current
Report on
Form 8-K
filed on October 2, 2009.
|
|
|
10.67
|
Senior Subordinated Convertible Note dated October 2, 2009
issued by Grubb & Ellis Company to Kojaian Management
Corporation, incorporated herein by reference to Exhibit 99.4 to
the Registrants Current Report on
Form 8-K
filed on October 2, 2009.
|
|
|
10.68
|
Subordination Agreement dated October 2, 2009 by and among
Kojaian Management Corporation, Grubb & Ellis Company
and Deutsche Bank Trust Company Americas, incorporated
herein by reference to Exhibit 99.5 to the
Registrants Current Report on
Form 8-K
filed on October 2, 2009.
|
|
|
10.69
|
Form of Purchase Agreement by and between Grubb &
Ellis Company and the accredited investors set forth on
Schedule A attached thereto, incorporated herein by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K
filed on October 26, 2009.
|
|
|
10.70
|
Agreement regarding Tremont Net Funding II, LLC Loan Arrangement
with GERA 6400 Shafer LLC and GERA Abrams Centre LLC, dated as
of December 29, 2009, by and among GERA Abrams Centre LLC
and GERA 6400 Shafer LLC, collectively as Borrower,
Grubb & Ellis Company, as Guarantor, Grubb &
Ellis Management Services, Inc., as both Abrams Manager and
Shafer Manager, incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on January 6, 2010.
|
|
|
10.71
|
Form of Assignment of Personal Property, Name, Service
Contracts, Warranties and Leases for GERA Abrams Centre LLC,
incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed on January 6, 2010.
|
|
|
10.72
|
Form of Assignment of Personal Property, Name, Service
Contracts, Warranties and Leases for GERA 6400 Shafer LLC,
incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed on January 6, 2010.
|
|
|
10.73
|
Form of Special Warranty Deed for GERA Abrams Centre LLC,
incorporated herein by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K
filed on January 6, 2010.
|
|
|
10.74
|
Form of Special Warranty Deed for GERA 6400 Shafer LLC,
incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K
filed on January 6, 2010.
|
|
|
10.75
|
Form of Restricted Stock Award Grant Notice and Restricted Stock
Award Agreement by and between the Company and Jeffrey T. Hanson
dated March 10, 2010.
|
|
|
10.76
|
Form of Restricted Stock Award Grant Notice and Restricted Stock
Award Agreement by and between the Company and Jacob Van Berkel
dated March 10, 2010.
|
|
|
10.77
|
Form of Amended and Restated Restricted Stock Award Grant Notice
for Annual Restricted Stock Award to Non-Management Directors.
|
157
(14) Code
of Ethics
|
|
|
|
14.1
|
Amendment to Code of Business Conduct and Ethics of the
Registrant, incorporated herein by reference to
Exhibit 14.1 to the Registrants Current Report on
Form 8-K
filed on January 31, 2008.
|
(16) Change
in Certifying Accountants
|
|
|
|
16.1
|
Letter from Deloitte & Touche LLP to the Securities
and Exchange Commission, dated December 14, 2007,
incorporated herein by reference to Exhibit 16.1 to the
Registrants Current Report on
Form 8-K
filed on December 14, 2007.
|
(21) Subsidiaries
of the Registrant
|
|
(23)
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
23.1
|
Consent of Ernst & Young LLP
|
|
|
23.2
|
Consent of PKF
|
(31.1) Section 302
Certification of Principal Executive Officer
(31.2) Section 302
Certification of Chief Financial Officer
(32) Section 906
Certification
(99) Additional
Exhibits
|
|
|
|
99.1
|
Letter of termination from Grubb &Ellis Realty
Advisors, Inc. to the Registrant dated as of February 28,
2008, incorporated herein by reference to Exhibit 99.1 to
the Registrants Current Report on
Form 8-K
filed on February 29, 2008.
|
|
|
|
|
|
Filed herewith.
|
|
|
*
|
Management contract or compensatory plan arrangement.
|
158
GRUBB &
ELLIS COMPANY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged
|
|
|
|
|
|
|
|
|
Beginning
|
|
to
|
|
|
|
|
|
Balance at
|
|
|
of
|
|
Costs and
|
|
Charged to
|
|
|
|
End
|
(In thousands)
|
|
Period
|
|
Expenses
|
|
Other Accounts(1)
|
|
Deductions(2)
|
|
of Period
|
|
Allowance for accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
$
|
10,533
|
|
|
$
|
13,632
|
|
|
|
|
|
|
$
|
(12,424
|
)
|
|
$
|
11,741
|
|
Year Ended December 31, 2008
|
|
$
|
1,376
|
|
|
$
|
12,446
|
|
|
|
|
|
|
$
|
(3,289
|
)
|
|
$
|
10,533
|
|
Year Ended December 31, 2007
|
|
$
|
723
|
|
|
$
|
709
|
|
|
|
|
|
|
$
|
(56
|
)
|
|
$
|
1,376
|
|
Allowance for advances and notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
$
|
3,170
|
|
|
$
|
9,521
|
|
|
|
|
|
|
$
|
(15
|
)
|
|
$
|
12,676
|
|
Year Ended December 31, 2008
|
|
$
|
1,839
|
|
|
$
|
1,331
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,170
|
|
Year Ended December 31, 2007
|
|
$
|
1,400
|
|
|
$
|
451
|
|
|
|
|
|
|
$
|
(12
|
)
|
|
$
|
1,839
|
|
Valuation allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
$
|
55,204
|
|
|
$
|
30,536
|
|
|
|
|
|
|
$
|
|
|
|
$
|
85,740
|
|
Year Ended December 31, 2008
|
|
$
|
3,103
|
|
|
$
|
49,677
|
|
|
|
2,424
|
|
|
$
|
|
|
|
$
|
55,204
|
|
Year Ended December 31, 2007
|
|
$
|
3,024
|
|
|
$
|
79
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,103
|
|
|
|
|
(1) |
|
2007 Pre-merger Grubb & Ellis Company state return
true-up
charged against goodwill. |
|
(2) |
|
Uncollectible accounts written off, net of recoveries |
159
GRUBB &
ELLIS COMPANY
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Latest
|
|
|
|
|
|
|
Initial Costs to Company
|
|
|
Capitalized
|
|
|
Gross Amount at Which Carried as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Buildings and
|
|
|
Subsequent to
|
|
|
|
|
|
Buildings and
|
|
|
|
|
|
Accumulated
|
|
|
Date
|
|
|
Date
|
|
|
Statement
|
|
(In thousands)
|
|
Encumbrance
|
|
|
Land
|
|
|
Improvements
|
|
|
Acquisition
|
|
|
Land
|
|
|
Improvements
|
|
|
Total(a)
|
|
|
Depreciation(b)
|
|
|
Constructed
|
|
|
Acquired
|
|
|
is Computed
|
|
|
Commercial Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 Galleria
Atlanta, GA
|
|
$
|
70,000
|
|
|
$
|
7,440
|
|
|
$
|
64,591
|
|
|
$
|
571
|
|
|
$
|
4,982
|
|
|
$
|
46,406
|
|
|
$
|
51,388
|
|
|
$
|
5,616
|
|
|
|
1984
|
|
|
|
1/31/2007
|
|
|
|
39 years
|
|
The Avallon Complex
Austin, TX
|
|
|
37,000
|
|
|
|
7,748
|
|
|
|
54,771
|
|
|
|
|
|
|
|
4,498
|
|
|
|
34,261
|
|
|
|
38,759
|
|
|
|
2,342
|
|
|
|
1986-2001
|
|
|
|
7/10/2007
|
|
|
|
39 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,000
|
|
|
$
|
15,188
|
|
|
$
|
119,362
|
|
|
$
|
571
|
|
|
$
|
9,480
|
|
|
$
|
80,667
|
|
|
$
|
90,147
|
|
|
$
|
7,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The changes in real estate for the years ended December 31,
2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
44,325
|
|
Acquisitions
|
|
|
671,985
|
|
Additions
|
|
|
266
|
|
Disposals and deconsolidations
|
|
|
(380,619
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
335,957
|
|
Acquisitions
|
|
|
144,162
|
|
Additions
|
|
|
12,813
|
|
Real estate related impairments
|
|
|
(71,488
|
)
|
Disposals and deconsolidations
|
|
|
(242,644
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
178,800
|
|
Additions
|
|
|
2,970
|
|
Real estate related impairments
|
|
|
(6,752
|
)
|
Disposals and deconsolidations
|
|
|
(84,871
|
)
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
90,147
|
|
|
|
|
|
|
|
|
|
(b) |
|
The changes in accumulated depreciation for the years ended
December 31, 2009, 2008 and 2007 are as follows: |
|
|
|
|
|
(In thousands)
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
230
|
|
Additions
|
|
|
3,845
|
|
Disposals and deconsolidations
|
|
|
(294
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
3,781
|
|
Additions
|
|
|
7,760
|
|
Disposals and deconsolidations
|
|
|
(149
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
11,392
|
|
Additions
|
|
|
1,534
|
|
Disposals and deconsolidations
|
|
|
(4,968
|
)
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
7,958
|
|
|
|
|
|
|
160
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
Grubb & Ellis Company
(Registrant)
|
|
|
|
|
|
/s/ Thomas
P. DArcy
|
|
March 16, 2010
|
Thomas P. DArcy
Chief Executive Officer, President and Director
(Principal Executive Officer)
|
|
|
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.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Thomas
P. DArcy
Thomas
P. DArcy
|
|
Chief Executive Officer, President and Director (Principal
Executive Officer)
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Richard
W. Pehlke
Richard
W. Pehlke
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 16, 2010
|
|
|
|
|
|
/s/ C.
Michael Kojaian
C.
Michael Kojaian
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Robert
J. McLaughlin
Robert
J. McLaughlin
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Devin
I. Murphy
Devin
I. Murphy
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ D.
Fleet Wallace
D.
Fleet Wallace
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Rodger
D. Young
Rodger
D. Young
|
|
Director
|
|
March 16, 2010
|
161