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,
2010
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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 Website, 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, 2010 was
approximately $46,658,151 based on the last sales price on
June 30, 2010 on the New York Stock Exchange of $0.98 per
share for the registrants common stock.
The number of shares outstanding of the registrants common
stock as of March 28, 2011 was 69,921,581 shares.
GRUBB &
ELLIS COMPANY
FORM 10-K
TABLE OF CONTENTS
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GRUBB &
ELLIS COMPANY
General
Grubb & Ellis Company (which we may refer to as we,
us, or our) was founded more than 50 years ago with a
single office in San Francisco. Today, Grubb &
Ellis is a commercial real estate services and investment
management company with over 5,200 professionals in more than
100 company-owned and affiliate offices throughout the
United States (U.S.). Our professionals draw from a
unique platform of real estate services, practice groups and
investment products to deliver comprehensive, integrated
solutions to real estate owners, tenants, investors, lenders and
corporate occupiers. Our range of services includes tenant
representation, property and agency leasing, commercial property
and corporate facilities management, property sales, appraisal
and valuation and commercial mortgage brokerage and investment
management. Our transaction, management, consulting and
investment services are supported by highly regarded proprietary
market research and extensive local expertise. Through our
investment management business, we are a leading sponsor of real
estate investment programs, including public non-traded real
estate investment trusts (REITs).
During 2010, we generated revenue of $575.5 million, a
9 percent increase compared with 2009. This increase was
largely attributable to the investments we have made in talent
over the past two years, the expansion of our service platform
and the improvement in overall market conditions. We recruited
122 senior brokerage professionals to our company in 2010 and
expanded our service offerings to include debt and equity
placement and appraisal and valuation services. We also expanded
our geographic reach by opening owned offices in Cincinnati,
Phoenix and San Diego and acquiring our affiliates in Las
Vegas and central Florida, adding offices in Orlando, Tampa and
Melbourne. We also took steps to rationalize our cost structure,
reducing our corporate overhead by 24 percent to
$34.0 million in 2010, from $44.7 million in 2009.
Recent
Strategic and Financing Initiatives
On March 21, 2011, we announced, among other things, that
we had retained JMP Securities LLC as an advisor to explore
strategic alternatives for the Company, including a potential
merger or sale transaction. On March 30, 2011, we entered
into a commitment letter and exclusivity agreement with Colony
Capital Acquisitions, LLC, pursuant to which, as discussed more
fully below, (i) Colony Capital Acquisitions, LLC and one
or more of its affiliates (collectively, Colony)
agreed to provide an $18.0 million senior secured multiple
draw term loan credit facility (the Senior Secured Credit
Facility), and (ii) Colony obtained the exclusive
right for sixty (60) days, commencing on March 30,
2011, to negotiate a strategic transaction with the Company. The
entering into the Senior Secured Credit Facility, and all
closings thereunder, are subject to customary terms and
provisions, including delivery of opinions, good standing
certificates, and customary representations, warranties and
covenants.
Under the Senior Secured Credit Facility, we will have the
right, upon twelve (12) business days notice and prior to
May 15, 2011, to effect an initial draw of the lesser of
$9.0 million or 100% of the eligible accounts receivable of
(i) Grubb & Ellis Company (Parent)
plus (ii) its subsidiary, Grubb & Ellis
Management Services, Inc. (the Borrower).
Thereafter, we will have the right to draw up to the lesser of
$18.0 million or 100% of the eligible accounts receivable
of the Parent and Borrower; provided, that, we may
not make more than two (2) draws during the term (the
Loan). The Loan, which will mature on March 1,
2012, will bear interest at the rate of 11% per annum and
increases by 50 basis points at the end of each three
(3) month period the Loan is outstanding. The Loan will be
required to be prepaid upon certain events, including upon
acceleration of or a monetary default under our Convertible
Notes, and may be prepaid at our option at a premium equal to 4%
of the principal amount of the Loan outstanding in the event
only the initial draw is made under the Senior Secured Credit
Facility and 2% of the principal amount of the Loan outstanding
if both draws have been made under the Senior Secured Credit
Facility. The Loan will be secured by a first priority lien on
all of our assets, subject to certain customary exceptions, and
the Senior Credit Facility will expressly permit the sale of our
Daymark subsidiary. Upon the closing of the Senior Secured
Credit Facility, Colony will receive (i) a closing fee of
$180,000, plus (ii) a three (3) year common stock
purchase warrant, exercisable for a nominal consideration, for
up to 6,712,000 shares of our common stock, provided that
the warrants shall not be exercisable unless (x) a
fundamental change occurs and the price paid for our common
stock is equal to $1.10 per share (subject to customary
adjustments), or (y) the volume weighted average price of
our common stock for any consecutive
30-day
period is equal to or greater than $1.10 per share. The warrant
holder will be entitled to cashless exercise, and will also be
entitled to piggyback and demand registration rights with
respect to the shares of common stock issuable upon the exercise
of the warrant. In addition, we will be entitled to make, in
lieu of cash interest,
payment-in-kind
interest payments on the Loan, in which event there will be a
formulaic increase in the number of shares issuable upon the
exercise of the warrant. We are also obligated to pay
Colonys reasonable costs to effect the Loan transaction.
Pursuant to the exclusivity agreement, Colony has sixty
(60) days, commencing on March 30, 2011, to negotiate
a strategic transaction with us. In the event we and Colony
enter into a definitive agreement for a strategic transaction,
we then have twenty-five (25) business days to conduct a
market check to solicit a competing transaction, subject to a
twenty-four (24) hour matching right by Colony, as well as
a 1% termination fee. Following this twenty-five
(25) business day market check, the strategic transaction
entered into with Colony will be subject to a customary no shop
and fiduciary out with a 3% termination fee.
Business
Segments
In the fourth quarter of 2010, we added a fourth reporting
segment with the creation of Daymark Realty Advisors, Inc.
(Daymark) to manage our legacy
tenant-in-common
(TIC) portfolio. Our four business segments are as
follows: (1) Management Services, which includes property
management, corporate facilities management, project management,
client accounting, business services and engineering services
for corporate occupier and real estate investor clients
(2) Transaction Services, which comprises our real estate
brokerage, valuation and appraisal operations;
(3) Investment Management, which encompasses acquisition,
financing, disposition and asset management services for our
investment programs and dealer-manager services by our
securities broker-dealer, which facilitates capital raising
transactions for its real estate investment trust
(REIT) and other investment programs; and
(4) Daymark, which includes our legacy TIC business.
Additional information on these business segments can be found
in Note 26 of Notes to Consolidated Financial Statements in
Item 8 of this Report.
Management
Services
We deliver a full suite of integrated property, facility, asset,
construction, business and engineering management services to
corporate and institutional clients as well as property owners
and tenants. Additionally, we provide consulting services,
including site selection, feasibility studies, exit strategies,
market forecasts, appraisals, strategic planning and research
services.
We manage a broad range of properties including headquarters,
facilities and office space for a broad cross section of
corporations, including Fortune 500 companies. Our skills
extend to management of industrial, manufacturing and
warehousing facilities as well as data centers and retail
outlets for real estate users and investors.
Our business objective is to provide customized programs that
focus on cost-efficient operations and tenant retention, and we
believe that Grubb & Ellis has differentiated itself
in this highly competitive arena through service quality and a
commitment to value-added solutions.
We are focused on expanding the scope of products and services
offered, while ensuring that we continue to build client
relationships with
best-in-class
service. In 2010, we announced a strategic alliance with
Manhattan Software, Inc. (Manhattan), the global
leader in enterprise real estate software, creating a unique
real estate management partnership which we will offer to new
and existing clients. By partnering with Manhattan, we will be
able to provide corporate real estate users
best-in-class
workplace management technology and a truly integrated real
estate management solution.
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Our Management Services business ended 2010 with
255.1 million square feet of property under management, up
from 240.7 million square feet a year earlier. During 2010,
we added six new corporate outsourcing relationships and
expanded the work we do for an additional 14 clients. During the
fourth quarter of 2010, we were selected by a Fortune 100 global
financial services provider to manage its more than
10-million-square-foot
U.S. real estate portfolio.
Our Management Services segments five largest customers
accounted for 37.2% of Management Services revenue in 2010,
including 13.7% and 11.9% from its largest and second largest
customers, respectively.
Transaction
Services
With over 1,500 brokerage sales professionals within our owned
and affiliate offices, we are one of the largest real estate
brokerage firms in the country. Each year, our professionals
successfully complete thousands of transactions on behalf of our
clients. As of December 31, 2010, we operated 109 owned and
affiliate offices throughout North America (56 owned and 53
affiliates). Focusing on the overall business objectives of our
clients, we utilize our research capabilities, local knowledge,
extensive properties database and the skill of our brokerage
professionals to create, buy, sell and lease opportunities for
both users and owners of commercial real estate. With a
comprehensive approach to transactions, we offer 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.
We actively engage our brokerage sales professionals in the
execution of our marketing strategy. Regional and metro-area
managing directors, who are responsible for operations in each
major market, facilitate the professional development of our
brokers. Through our specialty practice groups, sales
professionals 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 enhance client service as
well as the expertise of our professionals. We also support the
continuing education of our brokerage sales professionals
through more formal education, including programs offering sales
and motivational training and cross-functional networking and
business development opportunities.
In the local markets in which we do not own offices, we have
affiliation agreements with independent real estate services
providers that conduct business under our brand. These affiliate
relationships are primarily in key secondary and tertiary
markets where our clients have a need for real estate services,
but would not support an owned office. Our affiliation
agreements, which are generally multi-year contracts, provide
for exclusive mutual referrals in their respective markets,
generating referral fees. Through our affiliate offices, we have
access to over 550 brokers with local market research
capabilities. During 2010, as part of our strategy to increase
our presence in the Top 50 markets, we acquired our affiliates
in Las Vegas and central Florida, and opened offices in
Cincinnati, Phoenix and San Diego, all markets in which we
previously operated with an affiliate.
Our Corporate Services Group provides comprehensive coordination
of real estate related services to help realize the needs of
corporate occupiers 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.
During 2010, we extended our service offerings to include
appraisal services and debt and equity brokerage services. In
the fourth quarter of 2010, we launched Grubb & Ellis
Landauer Valuation Advisory Services taking space in 24 existing
office locations, creating a national appraisal platform for
these services. As of December 31, 2010, we had
73 employees in this business and expect to significantly
grow and expand this platform. In addition, as of
December 31, 2010, we had 11 debt and equity-focused
brokers located in a number of key markets.
Investment
Management
Grubb & Ellis and its subsidiaries sponsor real estate
investment programs that provide individual investors the
opportunity to invest in a broad range of real estate investment
vehicles, with a primary focus on
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public non-traded REITs. We brand our investment programs to
capitalize on the strength of the Grubb & Ellis brand
and to leverage our various real estate service platforms.
Investment management products are distributed through our
broker-dealer subsidiary, which is registered with the
U.S. Securities and Exchange Commission (the
SEC), the Financial Industry Regulatory Authority
(FINRA) and all 50 states and the District of
Columbia. Our securities company has agreements with an
extensive network of broker dealers with selling relationships
providing access to thousands of licensed registered
representatives. Part of our focus is to continue to expand our
network of broker-dealers which increases the opportunity to
raise the amount of equity in our various investment programs.
Through our subsidiary, Grubb & Ellis Equity Advisors,
LLC (GEEA), we sponsor and advise Grubb &
Ellis Healthcare REIT II, Inc. (Healthcare REIT II),
a public non-traded REIT focused on healthcare-related real
estate that is registered with the SEC but is not listed on a
national securities exchange. During 2010, Healthcare REIT II
raised $136.9 million, up from $14.9 million in 2009
when the REIT first began raising equity. As of
December 31, 2010, Healthcare REIT IIs portfolio
consisted of nearly $200.0 million in healthcare related
assets.
According to the Stanger Report, Winter 2011, published by
Robert A. Stanger and Co., an independent investment banking
firm, approximately $8.0 billion was raised in the
non-traded REIT sector in 2010, an increase of over 19% from
2009, and we believe it is an industry in which we have
considerable expertise and the opportunity to expand our
operations.
Our Investment Management segment earns substantially all of its
revenue from Healthcare REIT II.
Daymark
Realty Advisors
On February 10, 2011, we announced the creation of Daymark,
a wholly owned and separately managed subsidiary that is
responsible for the management of our
tenant-in-common
portfolio. Subsequent thereto we announced that we had retained
FBR Capital Markets & Co to explore strategic
alternatives with respect to Daymark and its portfolio, which
includes over 8,700 multi-family units and 33.3 million
square feet of commercial office properties. Daymark will
provide specialized services to our TIC portfolio, which require
unique expertise and client focus, especially as the commercial
real estate industry begins to recover from the significant
downturn of the past few years. Daymark will provide strategic
asset management, property management, structured finance,
accounting and loan advisory services to our existing portfolio.
On March 25, 2011, we entered into a Services Agreement
(the Services Agreement) with certain of our
wholly-owned subsidiaries, including Daymark, pursuant to which
we will provide certain corporate, administrative and other
services to the various subsidiaries, and in connection
therewith, such subsidiaries shall recognize the provision of
such services and the allocation of the costs associated
therewith. The Services Agreement, among other things,
memorializes the intercompany account balances between us and
certain of our subsidiaries and the treatment of such
intercompany balances upon the occurrence of certain events.
Our
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.
Our strategy is to leverage these strengths to broaden our real
estate services to the industry. We are focused on four primary
goals: increasing the scale and productivity of our leasing and
investment sales brokerage professionals; increasing the scope
of innovative comprehensive solutions and services we provide to
our commercial real estate clients; expanding our owner and
occupier property and facilities management portfolio; and
growing our position in the sponsorship of public non-traded
REITs.
Convertible
Notes
During the second quarter of 2010, we completed an offering
(Offering) of $31.5 million of unsecured
convertible notes (Convertible Notes) to qualified
institutional buyers pursuant to Section 144A of the
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Securities Act of 1933, as amended. The Convertible Notes pay
interest at a rate of 7.95% per year semi-annually in arrears on
May 1 and November 1 of each year, beginning November 1,
2010. The Convertible Notes mature on May 1, 2015. We
received net proceeds from the Offering of approximately
$29.4 million after deducting all offering expenses. We
used the net proceeds from the Offering to fund growth
initiatives, short-term working capital and for general
corporate purposes.
Holders of the Convertible Notes may convert notes into shares
of our common stock at the initial conversion rate of
445.583 shares per $1,000 principal amount of the
Convertible Notes (equal to a conversion price of approximately
$2.24 per share of our common stock), subject to adjustment in
certain events (but not for accrued interest) at any time prior
to the close of business on the scheduled trading day before the
stated maturity date. In addition, following certain corporate
transactions, we will increase the conversion rate for a holder
who elects to convert in connection with such corporate
transaction by a number of additional shares of our common stock
as set forth in the indenture.
No holder of the Convertible Notes will be entitled to acquire
shares of common stock delivered upon conversion to the extent
(but only to the extent) such receipt would cause such
converting holder to become, directly or indirectly, a
beneficial owner (within the meaning of
Section 13(d) of the Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder) of more than
14.99% of the shares of our common stock outstanding at such
time.
We may not redeem the Convertible Notes prior to May 6,
2013. On or after May 6, 2013 and prior to the maturity
date, we may redeem for cash all or part of the Convertible
Notes at 100% of the principal amount of the Convertible Notes
to be redeemed, plus accrued and unpaid interest, including any
additional interest, up to but excluding the redemption date.
Under certain circumstances following a fundamental change,
which is substantially similar to a fundamental change with
respect to our Preferred Stock, we will be required to make an
offer to purchase all of the Convertible Notes at a purchase
price of 100% of their principal amount, plus accrued and unpaid
interest, if any, to the date of repurchase.
The Convertible Notes are our unsecured senior obligations that:
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rank equally with all of our other unsecured senior indebtedness;
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effectively rank junior to any of our existing and future
secured indebtedness to the extent of the assets securing such
indebtedness; and
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will be structurally subordinated to any indebtedness and other
liabilities of our subsidiaries.
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The indenture provides for customary events of default,
including our failure to pay any indebtedness for borrowed
money, other than non-recourse mortgage debt, when due in excess
of $1.0 million.
On March 8, 2011, we commenced a consent solicitation to
amend the indenture under which the Convertible Notes were
issued to exclude our subsidiaries, Daymark and NNN Realty
Advisors, Inc. (and each of their direct and indirect
subsidiaries) from certain events of default under the
Convertible Notes. The consent solicitation was initially
scheduled to expire on March 21, 2011 and was extended by
us on that date to March 25, 2011. We subsequently extended
the expiration date of the consent solicitation a second time on
March 25, 2011 to April 4, 2011. We offered a consent
fee to holders of the Convertible Notes who consented to this
amendment in the form of restricted shares of our common stock,
subject to registration rights. Specifically, we initially
offered a consent fee to consenting Note holders of
approximately 36 restricted shares of common stock per each
$1,000 principal amount of the Convertible Notes. In connection
with the second extension of the consent solicitation, we
increased the consent fee to an amount equal to 4% of the
principal amount of the Convertible Notes held by the consenting
holder divided by the closing price of the common stock on the
expiration of the consent solicitation, but in no event greater
than $.99 per share and in no event less than $.89 per share. In
the event that we obtain the requisite consents, the restricted
shares of common stock that we will issue to those holders of
Convertible Notes who properly consent are subject to
registration rights. Pursuant to a registration rights agreement
we have agreed to enter into with the consenting holders of
Convertible Notes, we will promptly file a shelf registration
statement registering the resale of the restricted
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stock with the Securities and Exchange Commission (the
Commission), and will use commercially reasonable
efforts to cause the shelf registration statement to become
effective within 30 days after the date the shelf
registration statement is filed (or within 75 days of the
date the shelf registration statement is filed if the
registration statement is reviewed by the Commission). We will
use its commercially reasonable efforts to keep the shelf
registration statement effective until the earlier to occur of:
(x) the date all of the restricted shares of common stock
have been sold pursuant to the shelf registration statement,
(y) the one-year anniversary of the latest issue date of
restricted shares of common stock, and (z) the date all
restricted shares of common stock have been sold pursuant to
Rule 144. If we default on our registration obligations
under the registration rights agreement, we will have to pay the
holder cash in an amount that shall accrue at a rate of 2.0% per
month on the average daily aggregate market value of the
restricted stock issued as payment of the consent fee,
determined daily by multiplying the amount of such Restricted
Stock by $1.11 per share, until all such registration defaults
are cured.
Property
Dispositions
On December 30, 2010, we completed the sale of NNN/SOF
Avallon LLC (Avallon), an office building located in
Austin, Texas, to an unaffiliated entity for a sales price of
$37.0 million.
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.
We compete 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. We face
competition not only from other regional and national service
providers, but also from global real estate providers, boutique
real estate advisory firms and appraisal firms. Although many of
our competitors are local or regional firms that are
substantially smaller than us, some competitors are
substantially larger than us on a local, regional, national
and/or
international basis.
Within the management services business, according to a recent
survey published in 2010 by National Real Estate Investor, the
top 25 companies in the industry manage over
10.5 billion square feet of commercial property. We rank as
the seventh largest property management company in this survey
with 304.7 million square feet under management at year end
2009, including property under management in our affiliate
offices. The largest company in the survey had 2.5 billion
square feet under management.
Our investment management business is subject to competition on
a number of different levels. We compete with both large and
small investment sponsors of non-traded REITs and face
competition from new entrants or entrants that focus on raising
capital through the same channels as us. With regard to
fundraising in the retail securities arena, our securities
company 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. 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 we will be able to
continue to compete effectively, maintain current fee levels or
margins, or maintain or increase our market share, based on our
competitive strengths, we believe that we have the
infrastructure and personnel to continue to operate in this
highly competitive industry. Specifically, as our business
involves the management, leasing, 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. In addition, the
performance of real estate investment and leasing markets is
dependent on the level of economic activity on a regional and
local basis.
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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 we are involved are delayed
or abandoned as a result of these restrictions, the brokerage
business could be adversely affected. In addition, a failure by
us to disclose known environmental concerns in connection with a
real estate transaction may subject us to liability to a buyer
or lessee of property.
We generally undertake 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 existing
release, a post release or a material threat of a release. A
Phase I investigation does not typically include any sampling.
Our 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, we could be held liable
as an operator for any such contamination or discharges, even if
the original activity was legal and we had no knowledge of, or
did not cause, the release or contamination. Further, because
liability under some of these laws is joint and several, we
could be held responsible for more than our share, or even all,
of the costs for such contaminated site if the other responsible
parties are unable to pay. We 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 our 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 our
costs of legal compliance and potentially subject us to
violations or claims. Although such costs have not had a
material impact on our financial results or competitive position
in 2010, the enactment of additional regulations, or more
stringent enforcement of existing regulations, could cause us to
incur significant costs in the future,
and/or
adversely impact the brokerage and management services
businesses.
Seasonality
A substantial portion of our revenues are derived from brokerage
transaction services, which are seasonal in nature. As a
consequence, our revenue stream and the related commission
expense are also subject to seasonal fluctuations. However, our
non-variable operating expenses, which are treated as expenses
when incurred during the year, are relatively constant in total
dollars on a quarterly basis. We typically experience our 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
41.5% of total revenue for 2010.
Regulation
Transaction
and Property Management Services
We along with our brokers, salespersons, appraisers and, in some
instances, property managers are regulated by the states in
which we conduct business. These regulations may include
licensing procedures,
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prescribed professional responsibilities and anti-fraud
provisions. Our 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 register with the SEC and to be
members of FINRA. As a member of FINRA, our securities companies
are 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 the broker-dealers. 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
We have 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 ours and we actively
defend and enforce such trade names and service marks.
Real
Estate Markets
Our 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, our 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.
Employees
As of December 31, 2010, we had over 4,500 employees
including more than 950 transaction professionals working in 56
owned offices as well as over 550 affiliate transaction
professionals working in 53 affiliate offices. Nearly
2,350 employees serve as property and facilities management
staff at our client-owned properties and our clients reimburse
us fully for their salaries and benefits. We consider our
relationship with our employees to be good and have not
experienced any interruptions of our operations as a result of
labor disagreements.
Availability
of this Report
Our internet address is www.grubb-ellis.com. On the
Investor Relations page on this web site, we post our Annual
Reports on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and our 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.
8
Risks
Related to Our Business in General
Our
current cash on-hand and cash flow from operations may not be
sufficient to fund our future operating costs and liabilities or
our growth strategy.
There can be no assurances that our current cash on-hand and
anticipated cash flow from operations will be sufficient to meet
all of our cash requirements. As December 31, 2010, our
consolidated cash and cash equivalents balance was
$30.9 million. Given the seasonality of our business, we
anticipate net negative cash flow over the course of at least
the first two quarters of the year. We have historically relied
upon access to the credit markets from time to time as a source
of liquidity for the portion of our working capital requirements
not provided by cash from operations.
A
failure to close our Senior Secured Credit Facility with Colony
Capital would have a material adverse affect on our business and
financial condition.
On March 30, 2011 we entered into a commitment letter with
respect to the $18.0 million Senior Secured Credit
Facility. The entering into of the Senior Secured Credit
Facility, and all closings thereunder, are subject to customary
terms and provisions, including delivery of opinions, good
standing certificates, and customary representations, warranties
and covenants. In the event that we are not successful in
meeting such conditions and are unable to obtain the full
$18.0 million of funding under the Senior Secured Credit
Facility, or an alternative funding facility, it could create
substantial doubt about our ability to continue as a going
concern for the twelve month period ending December 31,
2011.
We may
not have sufficient liquidity to satisfy our intercompany
payable to NNN Realty Advisors, Inc., should such obligation
become due and payable.
Since our merger with NNNRA in December of 2007, we, on the one
hand, and NNN Realty Advisors, Inc. (NNNRA) and its
subsidiaries, on the other hand, have engaged in on-going
intercompany transactions and services in the normal course of
business. It has been our long-standing practice to calculate
and report these intercompany balances on a net basis. As of
December 31, 2010, based upon unaudited numbers, the
cumulative net result of these transactions and services was an
intercompany balance payable from us to NNNRA in the amount of
approximately $13.9 million. Furthermore, NNNRA and its
subsidiaries held approximately $8.1 million of cash and
cash equivalents at December 31, 2010, of our total cash
and cash equivalents of approximately $30.9 million. The
intercompany balance will fluctuate over time as a result of
ongoing intercompany transactions. Similarly, the amount of cash
and cash equivalents held by NNNRA and its subsidiaries may
increase or decrease over time based on such entities
results of operations. In the event of any adversity between us
and NNNRA, there can be no assurance that NNNRA will not make an
immediate demand for payment of the intercompany payable or that
we will have access to the cash and cash equivalents held by
NNNRA. Moreover, the ability to net debits and credits between
us, NNNRA and our subsidiaries in the event of a bankruptcy
filing by all or any one of these entities may be limited by
11 U.S.C. § 553 and the case law interpreting
11 U.S.C. § 553.
We and
our Daymark affiliate are involved in litigation relating to its
tenant-in-common
portfolio that may have a material adverse effect.
We and our Daymark affiliate have been named as defendants in
multiple lawsuits relating to certain of our investment
management offerings, in particular Daymarks TIC programs.
These lawsuits allege a variety of claims in connection with
these offerings, including mismanagement, breach of contract,
negligence, fraud,
9
breach of fiduciary duty and violations of state and federal
securities laws, among other claims. Plaintiffs in these suits
seek a variety of remedies, including rescission, actual and
punitive damages, injunctive relief, and attorneys fees
and costs. In many instances, the damages being sought are
unspecified and to be determined at trial. It is difficult to
predict the ultimate disposition of these lawsuits and our
ultimate liability with respect to such claims and lawsuits. It
is also difficult to predict the cost of defending these matters
and to what extent claims will be covered by our existing
insurance policies. In the event of an unfavorable outcome, the
amounts we may be required to pay in the discharge of
liabilities or settlements could have a material adverse effect
on our cash flows, financial position and results of operations.
Additional information on our legal proceedings can be found in
Item 3.
We may
be required to satisfy guaranty and indemnity obligations in
connection with loans that were used to finance properties
acquired by our investment programs now managed by
Daymark.
Historically our investment management subsidiaries provided
non-recourse carve-out guarantees or indemnities relating to
loans for properties now under the management of Daymark. As of
December 31, 2010, there were 133 properties under
management with non-recourse carve-out loan guarantees or
indemnities of approximately $3.1 billion in total
principal outstanding with terms ranging from 1 to
10 years, secured by properties with a total aggregate
purchase price of approximately $4.3 billion as of
December 31, 2010.
A non-recourse carve-out guarantee or indemnity
potentially imposes liability on the guarantor or indemnitor in
the event the borrower engages in certain acts prohibited by the
loan documents. Each non-recourse/carve-out guarantee or
indemnity 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 and indemnities, liability under the
non-recourse/carve-out guarantees or indemnities 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 indemnity agreement from borrower.
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Certain acts (typically the first three listed above) may render
the entire debt balance recourse to the guarantor or indemnitor,
while the liability for other acts is typically limited to the
damages incurred by the lender. Notice and cure provisions vary
between guarantees and indemnities. Generally the guarantor or
indemnitor irrevocably and unconditionally guarantees or
indemnifies the lender the payment and performance of the
guaranteed or indemnified 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 or indemnitor covenants
and agrees that it is liable for the guaranteed or indemnified
obligations as a primary obligor.
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 our TIC investments totaling
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$405.3 million and $277.0 million for the consolidated
VIEs as of December 31, 2010 and 2009, respectively, and $0
and $93.3 million for the unconsolidated VIEs as of
December 31, 2010 and 2009, respectively.
If 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
requirements of ASC Topic 460, Guarantees,
(Guarantees Topic). As of December 31, 2010 and
2009, we had recourse guarantees of $24.9 million and
$33.9 million, respectively, relating to debt of properties
under management (of which $12.0 million and
$12.0 million, respectively, is recourse back to
Grubb & Ellis Company, the remainder of which is
recourse to our Daymark subsidiary). As of December 31,
2010 and 2009, approximately $9.5 million and
$9.8 million, respectively, of these recourse guarantees
relate to debt that has matured, is in default, or is not
currently in compliance with certain loan covenants (of which
$2.0 million and $0, respectively, is recourse back to
Grubb & Ellis Company, the remainder of which is
recourse to our Daymark subsidiary). In addition, as of December
31, 2010, we had $8.0 million of recourse guarantees related to
debt that will mature in the next twelve months (of which the
entire amount is recourse back to Grubb & Ellis Company).
Our evaluation of the potential liability arising from
guarantees 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 of our subsidiaries to pay such debts as they become due
would likely have a materially negative impact on our ongoing
business, and the investment management operations in
particular. As of December 31, 2010 and 2009, we recorded a
liability of $0.8 million and $3.8 million,
respectively, which is included in other current liabilities,
related to our estimate of probable loss related to recourse
guarantees of debt of properties under management and previously
under management.
Failure
by our subsidiaries to pay liabilities arising under the
non-recourse carve-out guarantees and indemnities when due, or
the insolvency of Daymark or certain of its subsidiaries,
including NNNRA, may trigger a cross default under our
Convertible Notes.
In the event we or our Daymark subsidiaries incur liabilities
under the non-recourse carve-out guarantees and indemnities in
excess of $1,000,000 which are not satisfied when due, or
Daymark or certain of its subsidiaries go into bankruptcy, it
may result in a cross default under our Convertible Notes. Upon
a cross default the entire $31.5 million principal amount
of Convertible Notes could become due and payable, which would
have a material and adverse effect on our liquidity and
financial position.
There
are no assurances that we will be able to obtain the requisite
consents from our holders of Convertible Notes to amend the
Convertible Note indenture to eliminate certain events of
default, certain of which could occur as a consequence of recent
events.
Our Convertible Notes contain various events of default,
including, among others, that in the event we or any of our
subsidiaries fail to pay any indebtedness for borrowed money in
excess of $1,000,000 (other than non-recourse mortgage debt)
when due, or go into bankruptcy, it could result in a cross
default under our Convertible Notes. We are currently seeking
the consent of holders of Convertible Notes holding in excess of
50% of the principal amount of the Convertible Notes to amend
the indenture with respect to the Convertible Notes so as to
eliminate these potential cross defaults with respect to our
Daymark subsidiary and all of Daymarks direct and indirect
subsidiaries. Currently, in connection with bankruptcy filings
effected by two unaffiliated, individual investor entities which
are minority owners in two TIC programs located in Texas, Met
Center 10 and 2400 West Marshall, that were originally
sponsored by a subsidiary of Daymark, such subsidiary may become
liable for amounts in excess of $1,000,000 with respect to
either or both of these properties. In the event such were to
occur, and we do not obtain the requisite consents and were
unable to pay these amounts, it could result in a cross default
of the Convertible Notes and accelerate the entire
$30 million principal amount of the Convertible Notes,
which would have a material adverse effect on our liquidity and
financial position.
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The
insolvency of Daymark or one or more of its subsidiaries,
including NNNRA and GERI, could subject us to variety of legal
claims, cause reputational damage, result in a loss of business
and employees and may have a material adverse effect on our
business.
The current market value of many of the properties managed by
Daymark and its affiliates have decreased as a result of the
overall decline in the economy and commercial real estate
markets and resulted in reductions in distributions in numerous
investment programs, in many instances to a zero percent
distribution rate. In addition, there have been a number of
lawsuits initiated regarding the Daymark portfolio and its
operations and, as noted above, Daymark and its subsidiaries may
be liable with respect to certain loan guarantees, including
partial recourse and non-recourse carve-out guarantees and
indemnities. A materially adverse outcome with respect to these
various factors, either individually or in their totality, may
result in Daymark or one or more of its subsidiaries seeking
protection from creditors through an insolvency proceeding. In
such event, all or part of Daymarks assets and operations
would come under the supervision of the bankruptcy court.
Because a bankruptcy or other insolvency proceeding involves an
adjustment of the assets and liabilities of the bankrupt entity,
a bankruptcy proceeding may result in adverse claims being
brought against us and involve an adjustment of intercompany
claims, including with respect to the intercompany payable from
us to NNNRA, the result of which may result in material
liabilities to us and our related parties and affiliates. In
addition, a bankruptcy of Daymark or one or more of its
affiliates may cause us reputational damage and may, among other
things, negatively affect our ongoing investment management
programs, including our sponsored non-traded REIT, which could
have a material adverse effect on our business.
We are
obligated to pay quarterly dividends with respect to our
Preferred Stock; we failed to make our last preferred dividend
payment.
We are 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 our 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 us to violate the corporate governance
requirements of the New York Stock Exchange (NYSE)
(or any other exchange or automated quotation system on which
our 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.
We failed to pay our last dividend which was due on
March 31, 2011.
The
ongoing weakness in the general economy and the real estate
market has negatively impacted and could continue to negatively
impact our business and financial results.
Periods of economic slowdown or recession can significantly
reduce access to credit, lower employment levels, decreased
demand for real estate, decreased 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 condition of the national economy
and the downturn in real estate markets 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 us 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 weakened real estate market in the United States, the
limited availability of credit, high levels of unemployment, and
the current general business and 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. We
are not able to predict with certainty these economic and real
estate market factors. 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. A continued downturn in
the real estate market or weakening of the national economy
could negatively impact our business and results of operation.
We may
not be able to comply with the NYSEs continued listing
requirements, which failure would cause our common stock to be
delisted from trading on the NYSE, trigger a fundamental
change and repurchase obligation under our Convertible
Notes, and could have a material adverse effect on the liquidity
and value of our common stock.
The NYSEs continued listing standards require that we
maintain an average market capitalization and shareowners
equity of not less than $50.0 million and that our common
stock, among other things, not have an average closing price of
at least $1.00 over a consecutive thirty trading day period. As
of December 31, 2010, we had a market capitalization and
shareowners deficit of $89.1 million and
$68.1 million, respectively, and a stock price of $1.27 per
share. As of March 30, 2011, we had a stock price of $0.75
per share and a thirty day average of $1.04 per share. There can
be no assurance that we will be able to maintain the minimum
levels of market capitalization and shareowners equity and
stock price as required by the NYSE. If we are unable to
maintain compliance with the NYSEs continued listing
standard, our common stock will be delisted from the NYSE. As a
result, we likely would have our common stock listed on another
national exchange or 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 and failure to register on
another national exchange would trigger a fundamental
change under the indenture for our Convertible Notes and
allow the holders of the Convertible Notes to trigger a
repurchase obligation by us of the Convertible Notes. We may not
have sufficient funds to repurchase the Convertible Notes should
such a fundamental change occur. Delisting from the NYSE may
also 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 us
and the value and liquidity of our common stock.
We
operate in a highly competitive business with numerous
competitors, some of which may have greater financial and
operational resources than we do.
We compete 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. We face 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, we also faces competition from other real estate
service providers, institutional lenders, insurance
13
companies, investment banking firms, investment managers and
accounting firms, some of which may have greater financial
resources than we do. We are also subject to competition from
other large national firms and from multi-national firms that
have similar service competencies to it. Although many of our
competitors are local or regional firms that are substantially
smaller than it, some of our competitors are substantially
larger than us on a local, regional, national or international
basis. In general, there can be no assurance that we will be
able to continue to compete effectively with respect to any of
our business lines or on an overall basis, or to maintain
current fee levels or margins, or maintain or increase our
market share.
As a
service-oriented company, we depend upon the retention of senior
management and key personnel, and the loss of our current
personnel or our failure to hire and retain additional personnel
could harm our business. Our current stock price, as well as
limited number of stock available under our Omnibus Equity Plan,
could materially impair our ability to hire and retain key
personnel.
Our success is dependent upon our ability to retain our
executive officers and other key employees and to attract and
retain highly skilled personnel. We believe that our future
success in developing our business and maintaining a competitive
position will depend in large part on our 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 we
may not be able to successfully recruit, assimilate or retain
sufficiently qualified personnel. We use equity incentives to
attract and retain our key personnel. Our decreased stock price
results 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. In
addition, as of December 31, 2010, only 299,724 shares
of common stock remained eligible for future grant under the
Omnibus Equity Plan. The limited shares available for future
grant under our Omnibus Equity Plan may limit our ability to
retain key personnel and attract new hires. Our failure to
recruit and retain necessary executive, managerial, sales,
marketing and customer service personnel could harm our business
and our ability to obtain new customers.
Failure
to manage any future growth effectively may have a material
adverse effect on our financial condition and results of
operations.
Management will need to successfully manage the integration of
recent acquisitions any future growth effectively. The
integration and additional growth may place a significant strain
upon management, administrative, operational and financial
infrastructure. In addition, there can be no assurance that such
acquisitions will be accretive or generate operating margins.
Our ability to grow also depends upon our ability to
successfully hire, train, supervise and manage additional
executive officers and new employees, obtain financing for our
capital needs, expand our systems effectively, allocate our
human resources optimally, maintain clear lines of communication
between our transactional and management functions and our
finance and accounting functions, and manage the pressures on
our management and administrative, operational and financial
infrastructure. Additionally, managing future growth may be
difficult due to the new geographic locations and our business
lines. There can be no assurance that we will be able to
accurately anticipate and respond to the changing demands we
will face as we integrate and continues to expand our
operations, and we may not be able to manage growth effectively
or to achieve growth at all. Any failure to manage the
integration of recent acquisitions and future growth effectively
could have a material adverse effect on our business, financial
condition and results of operations.
Risks
Related to Our Transaction Services and Management Services
Businesses
Our
quarterly operating results are likely to fluctuate due to the
seasonal nature of our business and may fail to meet
expectations, which may cause the price of our securities to
decline.
Historically, the majority of our revenue has been derived from
the transaction services that it provides. Such services are
typically subject to seasonal fluctuations. We typically
experience our 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
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calendar year-end. However, our 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 our
operating results in a quarter. In addition, our quarterly
operating results have fluctuated in the past and will likely
continue to fluctuate in the future. If our quarterly operating
results fail to meet expectations, the price of our securities
could fluctuate or decline significantly.
If the
properties that we manage fail to perform, then our business and
results of operations could be harmed.
Our success partially depends upon the performance of the
properties it manages. We could be adversely affected by the
nonperformance of, or the deteriorating financial condition of,
certain of our clients. The revenue we generate from our
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 our control:
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our 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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our 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
we manage, which could have a material adverse effect on our
business and results of operations.
If we
fail to comply with laws and regulations applicable to real
estate brokerage, appraisal and mortgage transactions and other
business lines, then we may incur significant financial
penalties.
Due to the broad geographic scope of our operations and the real
estate services performed, we are 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 us to maintain brokerage licenses
in each state in which we operates. If we fail to maintain our
licenses or conduct brokerage activities without a license or
violate any of the regulations applicable to our licenses, then
we 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
our 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 our business and
results of operations.
15
We may
not be able to replace affiliate offices when affiliation
agreements are terminated which may decrease our scope of
services and geographic reach.
As of December 31, 2010, we operated 109 owned and
affiliate offices throughout North America, of which 56 were
owned and 53 were affiliates. From time to time our affiliate
arrangements may be terminated pursuant to the terms of the
individual affiliation agreements. In 2010, our affiliate
arrangements were terminated in a number of markets and in some
cases we replaced such affiliate offices with owned offices in
lieu of entering into replacement affiliation arrangements. The
opening of an owned office to replace an affiliate office
requires us to invest capital, which in some cases may be
material. In the event our affiliation relationships are
terminated, we will lose our market coverage in such market if
we do not enter into a replacement affiliation arrangement or
open an owned office. There can be no assurance that if we lose
additional affiliates we will be able to identify suitable
replacement affiliates or fund the establishment of an owned
office. Failure to maintain coverage in important geographic
markets may negatively impact our operations, reputation, and
affect or ability to attract and retain key employees and could
have a material adverse effect on our business and results of
operations.
We may
have liabilities in connection with real estate brokerage and
property and facilities management activities.
As a licensed real estate broker, we and our licensed employees
and independent contractors that work for us are subject to
statutory due diligence, disclosure and
standard-of-care
obligations. Failure to fulfill these obligations could subject
us or our employees to litigation from parties who purchased,
sold or leased properties that we or they brokered or managed.
We 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 we did not fulfill
our statutory obligations as a broker.
In addition, in our property and facilities management
businesses, we hire and supervises third-party contractors to
provide construction and engineering services for our managed
properties. While our role is limited to that of a supervisor,
we 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
our business, financial condition and results of operations.
Environmental
regulations may adversely impact our business and/or cause us 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 our real estate brokerage
business. In addition, a failure by us to disclose environmental
concerns in connection with a real estate transaction may
subject us to liability to a buyer or lessee of property.
In addition, in our role as a property manager, we could incur
liability under environmental laws for the investigation or
remediation of hazardous or toxic substances or wastes at
properties we 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 our 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. We 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 we
manage. 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 certain buildings, could increase our
costs of legal compliance and potentially subject us to
violations or
16
claims. Although such costs have not had a material impact on
our financial results or competitive position during fiscal year
2008, 2009 or 2010, the enactment of additional regulations, or
more stringent enforcement of existing regulations, could cause
us to incur significant costs in the future,
and/or
adversely impact our brokerage and management services
businesses.
We may
expand our business to include international operations so that
we may be more competitive, but in doing so we could subject
ourselves to social, political and economic risks of doing
business in foreign countries.
Although we do not currently conduct significant business
outside the United States, we are considering an expansion of
our international operations so that we may be more competitive.
Currently, our lack of international capabilities sometimes
places us 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 we will be able to successfully expand our
business in international markets. Current global economic
conditions may restrict, limit or delay our ability to expand
our business into international markets or make such expansion
less economically feasible. If we expand into international
markets, circumstances and developments related to international
operations that could negatively affect our 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, we may establish joint ventures with foreign
entities for the provision of brokerage services abroad, which
may involve the purchase or sale of our equity securities or the
equity securities of the joint venture participant(s). In these
joint ventures, we 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 our instructions or
requests and against our policies and objectives. In addition,
the other participants may become bankrupt or have economic or
other business interests or goals that are inconsistent with
ours. If a joint venture participant acts contrary to our
interest, then it could have a material adverse effect on our
business and results of operations.
Risks
Related to our Investment Management Businesses
The
performance of our Daymark operations could adversely affect our
non-traded REIT business, as it could cause harm to our
reputation, cause the loss of third-party broker-dealer selling
agreements and limit our ability to sign future third-party
broker-dealer selling agreements.
In the event that Daymark is unable to overcome its current
business challenges and successfully defend itself from the
potential liabilities that it currently faces, such events could
cause us to lose third-party broker-dealer selling agreements
for investment programs, including our non-traded REIT, and
limit our ability to
17
sign future third-party broker-dealer agreements, which could
have a material adverse effect on our business, results of
operations and financial condition.
Our
revenue streams generated from our sponsored non-traded REIT are
subject to limitation or cancellation.
Our ability to earn fees in connection with our sponsored
non-traded REIT will depend on our ability to raise equity
capital for the REIT and to provide asset acquisition and
management services, including identifying appropriate assets
for acquisition and effectively and efficiently closing
transactions. If we are unable to identify suitable investment
properties, or if property valuations or performance declines,
our fees may be reduced, including our disposition and
management fees. For our REIT, investment decisions are
controlled by the Board of Directors of the REIT that is
independent of us and investment decisions of the Board affect
the fees we earn. In addition, failures of our programs to
provide competitive investment returns could significantly
impair our ability to market future programs. Our inability to
spread risk among a large number of programs could cause us to
be over-reliant on a limited number of programs for our
revenues. In addition, the agreements under which we raise
equity capital for the REIT and provide advisory and management
services may generally be terminated by the REITs
independent Board of Directors following a notice period, with
or without cause. We cannot assure you that these agreements
will not be terminated. The termination of these agreements
could have a material adverse effect on our business, results of
operations and financial condition.
The
inability to access investors for our non-traded REIT through
broker-dealers or other intermediaries could have a material
adverse effect on our business.
Our ability to source equity for our REIT depends significantly
on access to the client base of securities broker-dealers and
other financial investment intermediaries that may offer
competing investment products. We believe that our future
success in developing our business and maintaining a competitive
position will depend in large part on our ability to continue to
maintain these relationships as well as finding additional
securities broker-dealers to facilitate offerings by our
programs or to find investors for our REIT and other investment
programs. We cannot be sure that we will continue to gain access
to these channels.
The
termination of any of our broker-dealer relationships,
especially given the limited number of key broker-dealers, could
have a material adverse effect on our business.
Our REIT is sold through third-party broker-dealers who are
members of our selling group. While we have established
relationships with our selling group, we are required to enter
into a new agreement with each member of the selling group for
each new program we offer. In addition, our REIT may be removed
from a selling broker-dealers approved program list at any time
for any reason. We cannot assure you of the continued
participation of existing members of our selling group nor can
we make an assurance that our selling group will expand. While
we seek to diversify and add new investment channels for our
programs, a significant portion of the growth in recent years in
our REIT platform have 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 our expanding business through new
investment channels, could have a material adverse effect on our
business and results of operations.
Misconduct
by third-party selling broker-dealers or our sales force, could
have a material adverse effect on our business.
We rely on selling broker-dealers and our sales force to
properly offer our securities programs to customers in
compliance with our 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 us.
Our
REIT is structured to provide favorable tax treatment to
investors. If our REIT fails to satisfy the requirements
necessary to permit this favorable tax treatment, we could be
subject to claims by investors
18
and our reputation for structuring these transactions
would be negatively affected, which would have an adverse effect
on our financial condition and results of operations.
We structure public non-traded REITs to provide favorable tax
treatment to investors. For example, 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 our REIT fails to satisfy the complex
requirements for qualification and taxation as a REIT under the
Internal Revenue Code, we 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
our programs would negatively affect our reputation, which would
in turn affect our ability to earn additional fees from new
programs. Claims by investors could lead to losses and any
reduction in our fees would have a material adverse effect on
our revenues.
Regulatory
uncertainties related to our broker-dealer services could harm
our 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 our
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. We 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 our operations and
profitability.
An
increase in interest rates may negatively affect the equity
value of our programs or cause us to lose potential investors to
alternative investments, causing the fees we receive for
transaction and management services to be reduced.
Although in the last few years, interest rates in the United
States have generally decreased, if interest rates were to rise,
our financing costs would likely rise and our net yield to
investors may decline. This downward pressure on net yields to
investors in our 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 our 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 our results of operations.
Increasing
competition for the acquisition of real estate may impede our
ability to make future acquisitions which would reduce the fees
we generate from investment programs and could adversely affect
our operating results and financial condition.
The commercial real estate industry is highly competitive on an
international, national and regional level. Our 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 our 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 our programs pay higher prices for
properties, investors may experience a lower return on
investment and be less inclined to invest in our next program
which may decrease our profitability. Increased competition for
properties may also preclude our programs from acquiring
properties that would generate the most attractive returns to
investors or may reduce the number of properties our programs
could acquire, which could have an adverse effect on our
business.
19
Healthcare
REIT IIs real estate investments may be concentrated in
medical office buildings or other healthcare-related facilities,
making it more vulnerable economically than if its investments
were diversified.
As a REIT, Healthcare REIT II will invest primarily in real
estate. Within the real estate industry, Healthcare REIT II has
and will continue to acquire or selectively develop and own
medical office buildings and healthcare-related facilities.
Therefore, Healthcare REIT II is subject to risks inherent in
concentrating investments in real estate. These risks resulting
from a lack of diversification become even greater as a result
of its business strategy to invest to a substantial degree in
healthcare-related facilities.
A downturn in the commercial real estate industry generally
could significantly adversely affect the value of Healthcare
REIT IIs properties. A downturn in the healthcare industry
could negatively affect Healthcare REIT IIs lessees
ability to make lease payments to it and its ability to pay
distributions to its stockholders. These adverse effects could
be more pronounced than if Healthcare REIT II diversified its
investments outside of real estate or if its portfolio did not
include a substantial concentration in medical office buildings
and healthcare-related facilities. Such adverse effects to
Healthcare REIT II could result in an adverse effect on our
business, results of operations and financial condition.
Risks
Related to our Daymark Business
Declines
in asset value, reductions in distributions in investment
programs or loss of properties to foreclosure could adversely
affect Daymarks business, as it could cause harm to its
reputation, cause the loss of management contracts and
potentially expose it to legal liability.
The current market value of many of the properties owned through
the investment programs managed by Daymark has 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 many instances
to a zero percent distribution rate. Many investment programs
may have insufficient capitalization, and may not be able to
satisfy near and mid-term operating and capital expense
requirements. Significant declines in value and reductions in
distributions in the investment programs managed by Daymark
could adversely affect our and Daymarks reputation and
cause it to lose asset and property management contracts or
cause it to waive or reduce its fees, including disposition
fees. 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 increase the risk of claims or legal actions by
program investors. Any such legal liability could result in
further damage to our and Daymarks reputation and
incurrence of legal expenses which could have a material adverse
effect on our business, results of operations and financial
condition.
Failure
by Daymarks subsidiaries, including NNNRA, to maintain
minimum net worth requirements could negatively impact
Daymarks operations.
NNNRA and certain of its affiliates are required to maintain a
specified level of minimum net worth under loan documents
related to certain TIC programs that it has sponsored. As of
December 31, 2010, NNNRAs net worth was below the
contractually specified level of $10 million or
$15 million required with respect to approximately
30 percent of its managed TIC programs. Except as discussed
below, this circumstance does not, in and of itself, create any
direct recourse liability for NNNRA under the mortgage loans,
failure to meet the minimum net worth on these programs could
result in the imposition of an event of default under these TIC
loan agreements, and may result in the termination of TIC
management agreements, other loss of business, reputational
damage and other negative effects that may, in the aggregate,
have a material adverse effect on Daymarks operations. As
of December 31, 2010, NNNRAs failure to maintain the
minimum required net worth may result in NNNRA and
Grubb & Ellis Company potentially becoming liable for
up to $7.5 million and $2.0 million, respectively, in
the aggregate, in loan repayment obligations pursuant to certain
partial-recourse loan guarantees issued for certain of these TIC
programs. There can be no assurance that NNNRA,
Grubb & Ellis Company or any of its other affiliates
required to maintain a specified level of minimum net worth
under TIC program loan documents will be able to meet such
requirements on an ongoing basis.
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Failure
by Daymarks subsidiary, Grubb & Ellis Realty
Investors, to maintain a minimum net worth of $500,000 will
trigger an event of default under the NNN Collateralized Senior
Notes of $16.3 million.
As of December 31, 2010, NNN Collateralized Senior Notes,
LLC, an affiliate of Daymark, had $16.3 million in senior
notes outstanding at a fixed interest rate of 8.75% per annum
(the NNN Senior Notes). As described in Note 18
of Notes to Consolidated Financial Statements in Item 8 of
this Report, the NNN Senior Notes mature on August 29,
2011, with two one-year options to extend the maturity date. The
NNN Senior Notes are a general obligation of NNN Collateralized
Senior Notes, LLC and are guaranteed by GERI. The GERI guarantee
requires GERI to maintain an ongoing minimum net worth of
$0.5 million. There can be no assurance that GERI will be
able to maintain this level of net worth or to maintain a net
worth above $0.5 million. GERIs failure to maintain a
net worth of $0.5 million would trigger a default under the
NNN Senior Notes. Should such a default be triggered and the
repayment of the NNN Senior Notes accelerated, NNN
Collateralized Senior Notes, LLC and GERI may not be able to
repay or refinance the NNN Senior Notes. Failure of NNN
Collateralized Senior Notes, LLC and GERI to repay the NNN
Senior Notes as they come due would likely have a materially
negative impact on our ongoing business, and the Daymark
operations in particular.
Daymarks
affiliates may have liability under certain non-recourse
carve-out guarantees as a result of bankruptcy filings by
non-affiliated
tenant-in-common
owners.
Two unaffiliated, individual investor entities, who are minority
owners in two TIC programs managed by Daymark, filed for
bankruptcy protection in February 2011. One of our investment
management affiliates, GERI, a wholly owned indirect subsidiary
of Daymark and formerly known as Triple Net Properties, LLC,
executed a non-recourse carve-out guarantee in connection with
the mortgage loan associated with one of these programs, and a
non-recourse indemnity in connection with the mortgage loans
associated with the other program. As a consequence of these
bankruptcy filings, GERI may become liable under these guarantee
and indemnity agreements. The principal balance of the mortgage
debt for these two properties was approximately
$36.0 million in the aggregate at the time of the
bankruptcies. While GERIs ultimate liability under these
agreements is uncertain as a result of numerous factors,
including, without limitation, the amount of the lenders
credit bids at the time of foreclosure, events in the individual
bankruptcy proceedings and the ultimate disposition of those
bankruptcy proceedings, the value of the underlying properties
and the defenses GERI may raise under the guarantee and
indemnity, such liability may be in an amount in excess of the
net worth of GERI and may have a material adverse effect on
GERIs cash flows, financial position and results of
operations. Further, there can be no assurance that additional
investor entities will not file for bankruptcy protection under
other TIC programs and trigger additional potential liability
under non-recourse carve-out guarantees and indemnities.
Daymarks officers and directors, in the exercise of
their fiduciary duties, may make decisions that are contrary to
our best interests.
While Daymark is our wholly owned direct subsidiary, Daymark is
managed by a separate board of directors and officers. The
directors and officers of Daymark and its subsidiaries owe
fiduciary duties to the various stakeholders of Daymark,
including us. However, in the operation of its business, there
may be situations that arise whereby the officers and directors
of Daymark and its affiliates, in the exercise of their
fiduciary duties, take actions that may be contrary to our best
interests.
Daymarks
revenues are depended on the performance of the portfolio it
manages.
We derive fees for Daymarks services based on a percentage
of the price of the properties sold and for management services
based on a percentage of the rental amounts of the properties in
our programs. As a result, Daymarks revenues are dependent
on the overall value of the properties it manages, as well as
the ability of such properties to attract and retain tenants and
generate incomes. If property valuations or performance
declines, Daymarks services fees will be reduced,
including the disposition fees that are collected upon sale of
the properties. There can be no assurance that Daymark will
maintain current levels of transaction and management service
fees in the future.
21
Daymarks
management agreements are subject to termination.
The management agreements under which Daymark 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. We have received termination notices on
approximately one-third of our managed TIC properties resulting
in the termination of several property management agreements
during 2010. As a result of these termination notices, it is not
likely that we 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 our
business, results of operations and financial condition.
A
significant amount of Daymarks managed programs were
structured to provide favorable tax treatment to investors. If a
program fails to satisfy the requirements necessary to permit
this favorable tax treatment, Daymark and its affiliates could
be subject to claims by investors, which would have an adverse
effect on our financial condition and results of
operations.
Daymarks affiliates structured TIC programs to permit TIC
investors to defer the recognition of gain on sale of investment
or business property upon entering into a 1031 exchange. If
Daymarks affiliates failed to properly structure a TIC
transaction, they 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 our programs
would negatively affect Daymarks reputation. Claims by
investors could lead to losses and any reduction in management
fees could have a material adverse effect on our revenues.
Future
pressures to lower, waive or credit back our fees could reduce
Daymarks revenue and profitability.
We have on occasion waived or credited our fees for financings,
dispositions and management fees for our TIC programs to improve
projected investment returns and attract and retain TIC
management assignments. 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
Daymarks TIC programs have followed these trends. In order
for us to maintain our fee structure in a competitive
environment, we must be able to provide clients with investment
returns and service that will encourage them to be willing to
pay such fees. We cannot assure you that we will be able to
maintain our current fee structures. Fee reductions on existing
or future new business could have a material adverse impact on
our revenue and profitability.
We
depend upon our programs tenants to pay rent, and their
inability to pay rent may substantially reduce certain fees we
receive which are based on gross rental amounts.
Our programs are subject to varying degrees of risk that
generally arise from the ownership of real estate. For example,
the income we are able to generate from management fees is
derived from the gross rental income on the properties in our
programs. The rental income depends upon the ability of the
tenants of our programs properties to generate enough
income to make their lease payments. Changes beyond our 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 we receive. These
changes include, among others, the following:
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downturns in national or regional economic conditions where our
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 our
programs, making it more difficult for our programs to lease
space at attractive rental rates or at all;
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competition from other available properties, which could cause
our 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.
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 our
ability as property manager to successfully find a substitute
tenant, have a material adverse effect on our revenue.
Conflicts
of interest inherent in transactions between our programs and
us, and among our programs, could create liability for us that
could have a material adverse effect on our results of
operations and financial condition.
These conflicts include but are not limited to the following:
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we experience conflicts of interests with certain of our
directors, officers and affiliates from time to time with regard
to any of our investments, transactions and agreements in which
we hold a direct or indirect pecuniary interest;
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since we receive both management fees and disposition fees for
our programs properties, we could be in conflict with our
programs over whether their properties should be sold or held by
the program and we 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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we may face conflicts of interests as to how we allocate
prospective tenants among competing programs;
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we may face conflicts of interests if programs sell properties
to each other or invest in each other; and
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our 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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We cannot assure you that one or more of these conflicts will
not result in claims by investors in our programs, which could
have a material adverse effect on our results of operations and
financial condition.
The
offerings conducted to raise capital for our TIC programs were
done in reliance on exemptions from the registration
requirements of the Securities Act. A failure to satisfy the
requirements for the appropriate exemption could provide the
investors with rescission rights, which would have a material
adverse effect on our business and results of
operations.
The securities of our TIC programs were offered and sold in
reliance upon a private placement offering exemption from
registration under the Securities Act and applicable state
securities laws. If we or our dealer-manager failed to comply
with the requirements of the relevant exemption and an offering
were in process, we 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 our business and as a result, the fees generated by us
from such program. If one of our programs was forced to make a
rescission offer, our 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 our business and results of operations.
The
inability to identify suitable refinance options may negatively
impact investment program performance and cause harm to our
reputation, cause the loss of management contracts and
potentially expose us to legal liability.
The availability of real estate financing, particularly for TIC
ownership structures, has greatly diminished over the past few
years as a result of the global credit crisis and overall
decline in the real estate market. In
23
addition, reductions in asset values have made it necessary to
infuse additional capital in order to refinance maturing loans.
As a result, the TIC owners may not be able to refinance some or
all of the loans maturing in our TIC management portfolio. In
addition, TIC owners may be required to alter their ownership
structure in order to recapitalize or refinance their properties
and lose the ability to complete future Section 1031
tax-deferred exchanges. 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 Daymarks
reputation and cause us to lose asset and property management
contracts. 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 our reputation, loss of management contracts and
incurrence of legal expenses which could have a material adverse
effect on our business, results of operations and financial
condition.
Risks
Related to us in General
Delaware
law and provisions of our 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 us, even if a change of control would be beneficial
to our existing shareowners, and we will be subject to these
Delaware anti-takeover provisions. Additionally, our amended and
restated certificate of incorporation and our restated bylaws
contain provisions that might enable our management to resist a
proposed takeover of us. The provisions include:
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the authority of our board to issue, without shareowner
approval, preferred stock with such terms as our board may
determine;
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the authority of our board to adopt, amend or repeal our bylaws;
and
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a prohibition on holders of less than a majority of our
outstanding shares of capital stock calling a special meeting of
our shareowners.
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These provisions could discourage, delay or prevent us from a
change of control or an acquisition at a price that our
shareowners may find attractive. These provisions also may
discourage proxy contests and make it more difficult for our
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
our common stock.
We
have the ability to issue blank check preferred stock, which
could adversely affect the voting power and other rights of the
holders of our 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 us. There are currently nineteen million
authorized and undesignated shares of preferred stock that could
be so issued. Our 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. We are 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 our common stock.
24
We
have shelf registrations on behalf of various security owners
currently outstanding and may be obligated to file another shelf
registration statement immediately, all of which could have a
negative impact on our share price.
We currently have three (3) effective registrations
outstanding, (i) one for an institutional purchaser of the
12% Preferred Stock, (ii) one for Kojaian Ventures, L.L.C.
and Kojaian Holdings, LLC, and (iii) one for the purchasers
of our Convertible Notes. These three (3) shelf
registration statements represent an aggregate of
37,656,937 shares of our common stock. We will be obligated
to file a fourth registration statement in the event we obtain
the requisite consents in connection with out current consent
solicitation under our Convertible Notes. In the event that
holders of a material amount of these currently registered
shares (and shares to be registered) decided to sell them at the
same time or at an inopportune time, it could have a negative
impact on the market price of our common stock.
Future
sales of our common stock could adversely affect our stock
price.
There are an aggregate of 401,928 shares of our common
stock as of December 31, 2010 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 our common stock to decline.
The
12% Preferred Stock will rank senior to our common stock but
junior to all of our liabilities and our subsidiaries
liabilities, in the event of a bankruptcy, liquidation or
winding-up.
In the event of bankruptcy, liquidation or
winding-up,
our assets will be available to pay obligations on the 12%
Preferred Stock only after all of our liabilities have been
paid, but prior to any payments are made with respect to our
common stock. In addition, the 12% Preferred Stock effectively
ranks junior to all existing and future liabilities of our
subsidiaries. The rights of holders of the 12% Preferred Stock
to participate in the assets of our 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 our
liabilities, and our 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 our 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 our business or
operations or on our 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 our 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.
There
may be future sales or other dilution of our equity, which may
adversely affect the market price of our common stock or the 12%
Preferred Stock and may negatively impact the holders
investment.
We are 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, we
may issue additional preferred stock that ranks senior to, or on
parity with, the 12% Preferred Stock. The market price of our
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 we issue
preferred stock in the future that has a preference over our
common stock with respect to the payment of dividends or upon
our liquidation, dissolution, or
winding-up,
or if we issue preferred stock with voting rights that dilute
the voting power of our common stock, the rights of holders of
our common stock or the market price of our common stock could
be adversely affected.
25
In addition, each share of 12% Preferred Stock is convertible at
the option of the holder thereof into shares of our common
stock. The conversion of some or all of the 12% Preferred Stock
will dilute the ownership interest of our existing common
shareowners. Any sales in the public market of our common stock
issuable upon such conversion could adversely affect prevailing
market prices of the outstanding shares of our common stock and
the 12% Preferred Stock. In addition, the existence of our 12%
Preferred Stock may encourage short selling or arbitrage trading
activity by market participants because the conversion of our
12% Preferred Stock could depress the price of our 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.
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 our
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).
We 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 us to repurchase
the 12% Preferred Stock in cash upon the occurrence of a
fundamental change prior to November 15, 2019. We 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, our 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 our ability to make such
payments.
Uninsured
and underinsured losses may adversely affect
operations.
Should a property sustain damage or an occupant sustain an
injury, we 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, we could lose some or all of our
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 we receive, if any, might
not be adequate to restore our economic position with respect to
the property. In the event of a significant loss at one or more
of the properties in our programs, the 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 our programs, which in turn would reduce the
fees we receive from these programs. Any decrease or loss in
fees could have a material adverse effect on our financial
condition or results of operations.
We carry commercial general liability, fire and extended
coverage insurance with respect to our programs
properties. We obtain coverage that has policy specifications
and insured limits that we believe are customarily
26
carried for similar properties. We 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, we
generally do not obtain insurance against certain risks, such as
floods.
There
are risks associated with our outstanding
indebtedness.
During the second quarter of 2010, we issued $31.5 million
of senior unsecured notes due 2015 which are convertible into
shares of our common stock, and we may incur additional
indebtedness in the future, including the Senior Secured Credit
Facility. Our ability to pay interest and repay the principal on
our indebtedness is dependent upon our ability to manage our
business operations. There can be no assurance that we will be
able to manage any of these risks successfully. In addition,
changes by any rating agency to our outlook or credit rating
could negatively affect the value and liquidity of both our debt
and equity securities.
The
Convertible Notes are subject to customary events of
default.
The indenture governing the Convertible Notes contains customary
events of default, including but not limited to a default in the
event of our failure to pay any indebtedness for borrowed money
in excess of $1.0 million when due, other than non-recourse
mortgage debt. A default would result in acceleration of our
repayment obligations under the indenture, which we may not be
able to meet or refinance at such time. Even if new financing
were available, it may not be on commercially reasonable terms
or acceptable terms. Accordingly, if we are in default of our
Convertible Notes, our business, financial condition and results
of operations could be materially and adversely affected.
We may
not have the funds, or the ability to raise the funds, necessary
to repurchase the Convertible Notes upon a fundamental change or
to repay the Convertible Notes at maturity.
Holders of the Convertible Notes have the right to require us to
repurchase the Convertible Notes at par, plus any accrued
interest, in cash upon the occurrence of a fundamental change
and at maturity of the Convertible Notes. The Convertible Notes
will mature on May 1, 2015 and a fundamental change is
generally deemed to have occurred:
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when a person or group becomes the beneficial owner, directly or
indirectly, of 50% or more of the total voting power of
us; or
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upon the consummation of (i) any recapitalization,
reclassification or change of our common stock; (ii) any
statutory share exchange consolidation or merger pursuant to
which our common stock is converted into cash, securities or
other property; (iii) any disposition, directly or
indirectly, of all or substantially all our assets and the
assets of our subsidiaries, considered as a whole; or
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during any period of two consecutive years, individuals who at
the beginning of such period constituted our Board cease for any
reason to constitute 50% or more of our Board then in
office; or
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our shareowners shall have approved any plan of liquidation or
dissolution; or
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our common stock ceases to be listed on the NYSE, the Nasdaq
Global Select Market, the Nasdaq Global Market or the NYSE Amex
(or their respective successors).
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We may not have sufficient funds to repurchase the Convertible
Notes at such time, and may not have the ability to arrange
necessary financing on acceptable terms. In addition, our
ability to purchase the Convertible Notes may be limited by law
or the terms of other agreements outstanding at such time.
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Item 1B.
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Unresolved
Staff Comments.
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None.
We lease all of our 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, 2010,
we leased over 827,000 square feet of office space in 89
locations under leases which expire at various dates through
July 30, 2021. For those
27
leases that are not renewable, we believe that there are
adequate alternatives available at acceptable rental rates to
meet our needs, although there can be no assurances in this
regard. Many of our offices that contain employees of the
Transaction Services, Investment Management, Management Services
or Daymark segments also contain employees of other segments.
Our corporate headquarters are in Santa Ana, California. See
Note 21 of Notes to Consolidated Financial Statements in
Item 8 of this Report for additional information.
As of December 31, 2010, we owned a commercial office
property comprising 440,000 square feet of gross leasable
area in Atlanta, Georgia. As of December 31, 2010, the
mortgage debt related to this property was $70.0 million.
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Item 3.
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Legal
Proceedings.
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General
We and our Daymark affiliate have been named as defendants in
multiple lawsuits relating to certain of our investment
management offerings, in particular our
tenant-in-common
programs. These lawsuits allege a variety of claims in
connection with these offerings, including mismanagement, breach
of contract, negligence, fraud, breach of fiduciary duty and
violations of state and federal securities laws, among other
claims. Plaintiffs in these suits seek a variety of remedies,
including rescission, actual and punitive damages, injunctive
relief, and attorneys fees and costs. In many instances,
the damages being sought are unspecified and to be determined at
trial. It is difficult to predict the ultimate disposition of
these lawsuits and our ultimate liability with respect to such
claims and lawsuits. It is also difficult to predict the cost of
defending these matters and to what extent claims will be
covered by our existing insurance policies. In the event of an
unfavorable outcome, the amounts we may be required to pay in
the discharge of liabilities or settlements could have a
material adverse effect on our cash flows, financial position
and results of operations.
Met Center 10 One such matter relates to a
tenant-in-common
property know as Met Center 10, located in Austin, Texas. The
Company and its subsidiaries have been involved in multiple
legal proceedings relating to Met Center 10, including three
actions pending in state court in Austin, Texas and an
arbitration proceeding being conducted in California. The
arbitration proceeding involves Grubb & Ellis Realty
Investors, LLC (GERI), a subsidiary of Daymark, and
is pending before the American Arbitration Association in Orange
County, California captioned NNN Met Center 10 1, LLC, et
al. v. Grubb & Ellis Realty Investors, LLC,
No. 73 115 Y 00140 HLT (the Met 10
Arbitration). A state court action involving GERI is
pending in the District Court of Travis County, Texas captioned
NNN Met Center 10, LLC v. Met Center Partners-6, Ltd.,
et al.,
No. D-1-GN-08-002104
(the Met 10 Texas Action). Two additional state
court actions involving the Company, GERI, and Grubb &
Ellis Management Services, Inc. are pending in the District
Court for Travis County, Texas captioned NNN Met Center
10-1,
LLC v. Lexington Insurance Company, et al.,
No. D-1-GN-10-004495
and NNN Met Center 10, LLC v. Lexington Insurance
Company, et al.,
No. D-1-GN-11-000848
(together, the Met 10 Lexington Actions).
In the Met 10 Arbitration, TIC investors are asserting, among
other things, that GERI should bear responsibility for alleged
diminution in the value of the property and their investments as
a result of ground movement. The Met 10 Arbitration has been
bifurcated into two phases. In the first phase, the arbitrator
ruled in favor of the TIC investors, finding, among other
things, that the TIC investors had properly terminated the
property management agreement for cause. The second phase of the
Met 10 Arbitration involves the TICs claims for damages.
The hearing will be conducted in June 2011, and will result in
the arbitrators determination of whether the TICs have
proven any of their claims, and what damages, if any, should be
awarded against GERI. GERI is vigorously defending those claims.
GERI has tendered this matter to its insurance carriers for
indemnity, and will vigorously pursue coverage. While the
outcome of the second phase of the Met 10 Arbitration is
uncertain, an adverse determination by the arbitrator could
result in a material and adverse effect to us.
In the Met 10 Texas Action, GERI and an affiliate are pursuing
claims against the developers and sellers of the property and
other defendants to recover damages arising from, among other
things, undisclosed ground movement.. The developers, sellers,
and certain other defendants are asserting counterclaims against
GERI and its affiliate. GERI and its affiliate are vigorously
defending those counterclaims. The outcome of that proceeding,
and the damages, if any, that GERI and its affiliate will
recover are uncertain In the Met 10
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Lexington Actions, the TIC investors are asserting claims
against our former officers and employees in connection with the
negotiation and documentation of an insurance settlement
relating to the Met Center 10 property, and an alleged
misallocation
and/or
misappropriation of the proceeds of that settlement. In
addition, Lexington Insurance Company is asserting claims
against NNN Met Center 10, LLC, the Company, GERI, and
Grubb & Ellis Management Services, Inc. arising of the
insurance settlement. We are vigorously defending those claims.
TIC Program Exchange Litigation GERI is a
defendant in an action filed on or about February 14, 2011
in the Superior Court of Orange County, California captioned S.
Sidney Mandel, et al. v. Grubb & Ellis Realty
Investors, LLC, et al, Case No. 00449598. The
plaintiffs allege that, in order to induce the plaintiffs to
purchase $22.3 million in tenant in common investments that
GERI (formerly known as Triple Net Properties, LLC) was
syndicating, GERI offered to subsequently repurchase
those investments and provide certain put rights
under certain terms and conditions pursuant to a letter
agreement executed between GERI and the plaintiffs. The
plaintiffs allege that GERI has failed to honor its purported
obligations under the letter agreement and have initiated suit
for breach of contract, breach of the implied covenant of good
faith and fair dealing and declaratory relief as to the rights
and obligations of the parties under the letter agreement. The
plaintiffs are seeking damages, attorneys fees and costs.
We intend to vigorously defend these claims and to assert all
applicable defenses. At this time we are unable to predict the
likelihood of an unfavorable or adverse award or outcome.
Britannia II Office Park The Company and
various Daymark subsidiaries are defendants in an action filed
on or about July 22, 2010 in Superior Court of Alameda
County, California captioned NNN Britannia Business Center
II 17, LLC, et al. v. Grubb & Ellis
Inc., et al., Case
No. RG10-527282.
Plaintiffs allegedly invested more than $14 million for
tenant in common interests in a commercial real estate project
in Pleasanton, California, known as Britannia Business Center
II, which ultimately was foreclosed upon. Plaintiffs claim that
they were induced to invest with misrepresentations concerning
the financial projections and risks for the project, and allege
various mismanagement claims. Plaintiffs have asserted
claims of negligent misrepresentation, breach of contract,
breach of the implied covenant of good faith and fair dealing,
breach of fiduciary duty, and violations of California
Corporations Code sections 25401 and 25504. Plaintiffs seek
rescission of their agreements to purchase the tenant in common
interests, as well as compensatory and exemplary damages in an
unspecified amount, along with costs and attorneys fees.
We intend to vigorously defend these claims and to assert all
applicable defenses. At this time we are unable to predict the
likelihood of an unfavorable or adverse award or outcome.
Durham Office Park The Company and various
Daymark subsidiaries are defendants in an action filed on or
about July 21, 2010 in North Carolina Business Court,
Durham County Superior Court Division, captioned NNN Durham
Office Portfolio I, LLC, et al. v. Grubb &
Ellis Company, et al., Case No. 10 CVS 4392. Plaintiffs
allegedly invested more than $11 million for tenant in
common interests in a commercial real estate project in Durham,
North Carolina. Plaintiffs claim, among other things, that
information regarding the intentions of the propertys
anchor tenant to remain in occupancy was withheld and
misrepresented. Plaintiffs have asserted claims for breach of
contract, negligence, negligent misrepresentation, breach of
fiduciary duty, fraud, unfair and deceptive trade practices and
conspiracy. We intend to vigorously defend these claims and to
assert all applicable defenses. At this time we are unable to
predict the likelihood of an unfavorable or adverse award or
outcome.
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Item 4.
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[Removed
and Reserved].
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29
GRUBB &
ELLIS COMPANY
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Market
and Price Information
The principal market for our common stock is the NYSE. The
following table sets forth the high and low sales prices of our
common stock on the respective market for each quarter of the
years ended December 31, 2010 and 2009.
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2010
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2009
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High
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Low
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High
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Low
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First Quarter
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$
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2.34
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$
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1.26
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$
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1.29
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$
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0.25
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Second Quarter
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$
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2.35
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$
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0.91
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$
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1.31
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$
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0.50
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Third Quarter
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$
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1.47
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$
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0.91
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$
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1.96
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$
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0.55
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Fourth Quarter
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$
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1.43
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$
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1.03
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$
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2.17
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$
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1.15
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As of March 28, 2011, there were 986 registered holders of
our common stock and 69,921,581 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 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. During the year ended December 31,
2010, the Board of Directors declared four quarterly dividend
payments of $3.00 per share on our Preferred Stock, which were
paid on March 31, 2010, June 30, 2010,
September 30, 2010 and December 31, 2010. On
March 21, 2011, the Board of Directors determined, as
permitted, not to declare a dividend on our 12% Preferred Stock,
for the quarter ending March 31, 2011.
Sales of
Unregistered Securities
On December 10, 2010, pursuant to our 2006 Omnibus Equity
Plan, we granted each of the five independent members of our
Board of Directors 52,174 restricted shares of our common stock
which immediately vested on the date of grant and had a fair
market value of $60,000 on the date of grant.
On August 4, 2010, we granted an employee an aggregate of
250,000 restricted shares of our common stock which vest in
equal one-third installments on each of the next three
anniversaries of the date of grant and had an aggregate fair
market value of $295,000 on the date of grant.
On December 27, 2010, we issued an aggregate of
358,424 shares of our common stock from our treasury share
account related to fully vested phantom stock awards.
The issuance of restricted shares in the transactions described
above were exempt from the registration requirements of
Section 5 of the Securities Act pursuant to
Section 4(2) of the Securities Act, as amended, as such
transaction did not involve a public offering by us.
30
Equity
Compensation Plan Information
The following table provides information on our equity
compensation plans as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
401,928
|
|
|
$
|
10.31
|
|
|
|
299,724
|
|
Equity compensation plans not approved by security holders(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
401,928
|
|
|
$
|
10.31
|
|
|
|
299,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010, an aggregate of 4.1 million
phantom shares of our common stock under the (1) deferred
compensation plan were outstanding. |
Issuer
Purchases of Equity Securities
A summary of our quarterly purchases of Grubb & Ellis
Company common stock during the year ended December 31,
2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Average Price
|
|
|
|
Purchased(1)
|
|
|
Paid per Share
|
|
|
January 1 March 31
|
|
|
38,962
|
|
|
$
|
1.74
|
|
April 1 June 30
|
|
|
34,591
|
|
|
$
|
1.25
|
|
July 1 September 30
|
|
|
16,787
|
|
|
$
|
1.16
|
|
October 1 December 31
|
|
|
155,360
|
|
|
$
|
1.10
|
|
|
|
|
(1) |
|
Represents shares that were purchased in connection with funding
employee income tax withholding obligations arising upon the
lapse of restrictions on restricted shares. |
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
we specifically request that such information be treated as
soliciting material or specifically incorporate 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 our 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, 2005 to
December 31, 2010.
31
COMPARISON OF 66
MONTH CUMULATIVE TOTAL RETURN*
Among
Grubb & Ellis Company, the S&P 500 Index
and a Peer Group
*$100
invested on
6/30/05 in
stock or index, including reinvestment of dividends. Fiscal year
ending December 31.
Copyright©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/05
|
|
|
6/06
|
|
|
6/07
|
|
|
12/07
|
|
|
12/08
|
|
|
12/09
|
|
|
12/10
|
|
|
|
|
Grubb & Ellis Company
|
|
|
100.00
|
|
|
|
132.14
|
|
|
|
165.71
|
|
|
|
91.95
|
|
|
|
18.56
|
|
|
|
19.16
|
|
|
|
19.01
|
|
S&P 500
|
|
|
100.00
|
|
|
|
108.63
|
|
|
|
131.00
|
|
|
|
129.21
|
|
|
|
81.40
|
|
|
|
102.94
|
|
|
|
118.45
|
|
Peer Group
|
|
|
100.00
|
|
|
|
178.69
|
|
|
|
251.32
|
|
|
|
151.47
|
|
|
|
40.44
|
|
|
|
104.38
|
|
|
|
152.16
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
32
|
|
Item 6.
|
Selected
Financial Data.
|
The following tables set forth the selected historical
consolidated financial data for us and our subsidiaries, as of
and for the years ended, December 31, 2010, 2009, 2008,
2007 and 2006. The selected historical consolidated financial
data set forth below as of and for the years ended
December 31, 2010 and 2009 and the selected consolidated
operating and cash flow data for the year ended
December 31, 2008 has been derived from the audited
financial statements included in Item 8 of this Report. The
selected consolidated financial data set forth below as of
December 31, 2008, 2007 and 2006 and for the years ended
December 31, 2007 and 2006, 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. 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)
|
|
2010
|
|
2009
|
|
2008
|
|
2007(1)
|
|
2006(2)
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services revenue
|
|
$
|
554,095
|
|
|
$
|
505,360
|
|
|
$
|
595,495
|
|
|
$
|
201,538
|
|
|
$
|
99,599
|
|
Total revenue
|
|
|
575,457
|
|
|
|
527,914
|
|
|
|
619,678
|
|
|
|
225,210
|
|
|
|
108,543
|
|
Total compensation costs
|
|
|
519,694
|
|
|
|
475,068
|
|
|
|
512,280
|
|
|
|
104,109
|
|
|
|
49,449
|
|
Total operating expense
|
|
|
646,001
|
|
|
|
633,310
|
|
|
|
896,288
|
|
|
|
189,508
|
|
|
|
97,633
|
|
Operating (loss) income
|
|
|
(70,544
|
)
|
|
|
(105,396
|
)
|
|
|
(276,610
|
)
|
|
|
35,702
|
|
|
|
10,910
|
|
(Loss) income from continuing operations
|
|
|
(70,793
|
)
|
|
|
(82,675
|
)
|
|
|
(304,072
|
)
|
|
|
24,801
|
|
|
|
21,012
|
|
Net (loss) income
|
|
|
(69,731
|
)
|
|
|
(80,499
|
)
|
|
|
(342,589
|
)
|
|
|
23,033
|
|
|
|
20,049
|
|
Net (loss) income attributable to Grubb & Ellis Company
|
|
|
(66,780
|
)
|
|
|
(78,838
|
)
|
|
|
(330,870
|
)
|
|
|
21,072
|
|
|
|
19,971
|
|
Net (loss) income attributable to Grubb & Ellis
Company common shareowners
|
|
|
(78,368
|
)
|
|
|
(80,608
|
)
|
|
|
(330,870
|
)
|
|
|
20,607
|
|
|
|
19,552
|
|
Basic (loss) income from continuing operations per share
attributable to Grubb & Ellis Company common
shareowners
|
|
$
|
(1.23
|
)
|
|
$
|
(1.30
|
)
|
|
$
|
(4.60
|
)
|
|
$
|
0.58
|
|
|
$
|
1.04
|
|
Basic (loss) earnings per share attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.21
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
$
|
0.99
|
|
Diluted (loss) earnings per share attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.21
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
$
|
0.53
|
|
|
$
|
0.99
|
|
Basic weighted average shares outstanding
|
|
|
64,756
|
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,652
|
|
|
|
19,681
|
|
Diluted weighted average shares outstanding
|
|
|
64,756
|
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
38,653
|
|
|
|
19,694
|
|
Dividends declared per common share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.205
|
|
|
$
|
0.36
|
|
|
$
|
0.10
|
|
Dividends declared per preferred share
|
|
$
|
12.00
|
|
|
$
|
1.8333
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Consolidated Statement of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(21,744
|
)
|
|
$
|
(51,789
|
)
|
|
$
|
(33,629
|
)
|
|
$
|
33,543
|
|
|
$
|
17,356
|
|
Net cash provided by (used in) investing activities
|
|
|
38,025
|
|
|
|
86,557
|
|
|
|
(76,330
|
)
|
|
|
(486,909
|
)
|
|
|
(56,203
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(24,463
|
)
|
|
|
(28,652
|
)
|
|
|
93,616
|
|
|
|
400,468
|
|
|
|
140,525
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Consolidated Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
286,946
|
|
|
$
|
357,324
|
|
|
$
|
520,277
|
|
|
$
|
988,542
|
|
|
$
|
347,709
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
Mortgage notes, notes payable and capital lease obligations
|
|
|
70,589
|
|
|
|
70,755
|
|
|
|
70,203
|
|
|
|
70,343
|
|
|
|
843
|
|
NNN Senior Notes
|
|
|
16,277
|
|
|
|
16,277
|
|
|
|
16,277
|
|
|
|
16,277
|
|
|
|
10,263
|
|
Convertible notes
|
|
|
30,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock (12% cumulative participating perpetual
convertible)
|
|
|
90,080
|
|
|
|
90,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & Ellis shareowners (deficit) equity
|
|
|
(68,089
|
)
|
|
|
1,327
|
|
|
|
70,171
|
|
|
|
404,056
|
|
|
|
217,125
|
|
|
|
|
(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 stock merger with Grubb & Ellis Company on
December 7, 2007 (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
Grubb & Ellis Securities Inc. (formerly NNN Capital
Corp.) (acquired on December 14, 2006). GERI was treated as
the acquirer in connection with these transactions. |
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.
We use 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 our 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 our ability to meet our future capital
expenditures and working capital requirements.
EBITDA and Adjusted EBITDA are not a substitute for GAAP net
income or cash flow from operating, investing or financing
activities and do not provide a measure of our ability to fund
future cash requirements. Other companies may calculate EBITDA
and Adjusted EBITDA differently than we have and, therefore,
EBITDA and Adjusted EBITDA have material limitations as a
comparative performance measure. The
34
following table reconciles EBITDA and Adjusted EBITDA with the
net loss attributable to Grubb & Ellis Company for the
years ended December 31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
$
|
(66,780
|
)
|
|
$
|
(78,838
|
)
|
|
$
|
(330,870
|
)
|
Interest expense, depreciation and amortization from
discontinued operations
|
|
|
4,460
|
|
|
|
5,772
|
|
|
|
20,054
|
|
Interest expense
|
|
|
8,504
|
|
|
|
13,138
|
|
|
|
11,014
|
|
Interest income
|
|
|
(428
|
)
|
|
|
(555
|
)
|
|
|
(902
|
)
|
Depreciation and amortization
|
|
|
12,665
|
|
|
|
11,727
|
|
|
|
13,313
|
|
Taxes
|
|
|
(78
|
)
|
|
|
(975
|
)
|
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
(41,657
|
)
|
|
|
(49,731
|
)
|
|
|
(278,796
|
)
|
Gain related to the repayment of the credit facility, net
|
|
|
|
|
|
|
(21,935
|
)
|
|
|
|
|
Other discontinued operations
|
|
|
(5,522
|
)
|
|
|
(7,948
|
)
|
|
|
18,463
|
|
Charges related to sponsored programs
|
|
|
6,530
|
|
|
|
23,348
|
|
|
|
27,771
|
|
Real estate related impairment
|
|
|
859
|
|
|
|
15,305
|
|
|
|
35,637
|
|
Goodwill and intangible asset impairment
|
|
|
2,769
|
|
|
|
738
|
|
|
|
181,285
|
|
Write off of investment in Grubb & Ellis Realty
Advisors, net
|
|
|
|
|
|
|
|
|
|
|
5,828
|
|
Share-based based compensation
|
|
|
9,147
|
|
|
|
10,876
|
|
|
|
11,907
|
|
Amortization of signing bonuses
|
|
|
7,058
|
|
|
|
7,535
|
|
|
|
7,603
|
|
Severance and other charges
|
|
|
5,880
|
|
|
|
|
|
|
|
|
|
Loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,783
|
|
Merger related costs
|
|
|
|
|
|
|
|
|
|
|
14,732
|
|
Amortization of contract rights
|
|
|
|
|
|
|
|
|
|
|
1,179
|
|
Real estate operations
|
|
|
(3,805
|
)
|
|
|
(3,497
|
)
|
|
|
(4,626
|
)
|
Other
|
|
|
(913
|
)
|
|
|
1,319
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(19,654
|
)
|
|
$
|
(23,990
|
)
|
|
$
|
22,929
|
|
|
|
|
|
|
|
|
|
|
|
|
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Item 7.
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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 our liquidity and possible or
assumed future results of operations, including descriptions of
our 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 we have made in light of our
experience in the industry as well as our perceptions of the
historical trends, current conditions, expected future
developments and other factors we believe are appropriate under
these circumstances.
All such forward-looking statements speak only as of the date
of this Annual Report. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any
change in our 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 our
35
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:
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|
|
our limited current cash on-hand and negative cash flow from
operations;
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|
our intercompany payable to NNN Realty Advisors, Inc.;
|
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|
|
litigation relating to Daymarks TIC portfolio;
|
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|
|
our potential liability under loan guaranties executed in
connection with Daymarks TIC portfolio;
|
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|
the potential insolvency of NNN Realty Advisors, Inc. and its
affiliates;
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|
our obligation to pay quarterly dividends under our preferred
stock;
|
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|
our ability to meet the continued listing requirements under the
New York Stock Exchange for our common stock;
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|
the continued weakened national economy in general and the
commercial real estate markets in particular;
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|
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;
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|
our ability to retain major clients and renew related contracts;
|
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|
our ability to retain advisory and management contracts on
sponsored REIT and TIC programs, respectively;
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|
the failure of properties sponsored or managed by us to perform
as anticipated;
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|
|
the current failure by NNN Realty Advisors, Inc. or its
affiliates to maintain minimum net worth requirements under TIC
program loan documents;
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|
significant variability in our results of operations among
quarters;
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|
our ability to retain our senior management and attract and
retain qualified and experienced employees;
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|
our ability to comply with the laws and regulations applicable
to real estate brokerage investment syndication, property
management and mortgage transactions;
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|
our ability to sign and retain selling agreements for our
non-traded REIT;
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|
reliance of companies on outsourcing for their commercial real
estate needs;
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|
diversification of our client base;
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|
trends in pricing for commercial real estate services; and
|
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|
|
the effect of implementation of new tax and accounting rules and
standards.
|
Overview
and Background
We report our revenue by four operating business segments in
accordance with the provisions of the Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 280, Segment
Reporting, (Segment Reporting Topic). The four
business segments are as follows: (1) Management Services,
which includes property management, corporate facilities
management, project management, client accounting, business
services and engineering services for corporate occupier and
real estate investor clients (2) Transaction Services,
which comprises our real estate brokerage valuation and
appraisal operations; (3) Investment Management, which
encompasses acquisition, financing, disposition and asset
management services for our investment programs and
dealer-manager services by our securities broker-dealer, which
facilitates capital raising transactions for our REIT and other
investment programs; and (4) Daymark, which
36
includes our legacy TIC business. Additional information on
these business segments can be found in Note 26 of Notes to
Consolidated Financial Statements in Item 8 of this Report.
Critical
Accounting Policies
Our 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.
We believe that the following critical accounting policies
reflect the more significant judgments and estimates used in the
preparation of our consolidated financial statements.
Revenue
Recognition
Management
Services
Management fees are recognized at the time the related services
have been performed by us, unless future contingencies exist. In
addition, in regard to management and facility service
contracts, the owner of the property will typically reimburse us
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 us in the same period as the related
expenses are incurred. In certain instances, we subcontract our
property management services to independent property managers,
in which case we pass a portion of their property management fee
on to the subcontractor, and we retain the balance. Accordingly,
we record these fees net of the amounts paid to our
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 our 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 us to the client, unless future
contingencies exist.
Investment
Management
We earn fees associated with our transactions by structuring,
negotiating and closing acquisitions of real estate properties
for our REIT. Such fees include acquisition fees for locating
and acquiring the property on behalf of our REIT. We account for
acquisition fees in accordance with the requirements of the ASC
Topic 970, Real Estate General Topic,
(Real Estate General Topic) and ASC
Topic 976, Real Estate Retail Land
(Real Estate Retail Land Topic). In
general, we record the acquisition 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,
is reasonably assured, and we are not responsible for supporting
operations of the property. We earn disposition fees for
disposing of the property on behalf of the REIT. We recognize
the disposition fee when the sale of the property closes.
We earn asset and property management fees primarily for
managing the operations of real estate properties owned by the
REITs we sponsor. Such fees are based on pre-established
formulas and contractual arrangements and are earned as such
services are performed. We are 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. We are also
entitled to leasing commissions when a new tenant is secured and
upon tenant renewals. Leasing commissions are recognized upon
execution of leases.
37
Through our dealer-manager, we facilitate capital raising
transactions for our sponsored programs. Our wholesale
dealer-manager services are comprised of raising capital for our
programs through our selling broker-dealer relationships. Most
of the commissions, fees and allowances earned for our
dealer-manager services are passed on to the selling
broker-dealers as commissions and to cover offering expenses,
and we retain the balance. Accordingly, we record these fees net
of the amounts paid to our selling broker-dealer relationships.
Investment
Management Daymark
We earn transaction fees associated with structuring,
negotiating and closing acquisitions of real estate properties
for third-party investors in our TIC and other investment
programs. Such fees include acquisition fees for locating and
acquiring the property on behalf of our various TIC investors
and sponsored real estate funds. We account for acquisition and
loan fees in accordance with the requirements of the Real
Estate General Topic and Real Estate
Retail Land Topic. In general, we record 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 we are 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 we do not meet the criteria for revenue
recognition under the Real Estate General Topic and
the Real Estate Retail Land Topic, revenue is
deferred until revenue can be reasonably estimated or until we
defer revenue up to our maximum exposure to loss. We earn
disposition fees for disposing of the property on behalf of the
investment fund or TIC program. We recognize the disposition fee
when the sale of the property closes. In certain circumstances,
we are entitled to loan advisory fees for arranging financing
related to properties under management.
We earn asset and property management fees primarily for
managing the operations of real estate properties owned by the
real estate programs and TIC programs we sponsor. Such fees are
based on pre-established formulas and contractual arrangements
and are earned as such services are performed. We are 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.
We are also entitled to leasing commissions when a new tenant is
secured and upon tenant renewals. Leasing commissions are
recognized upon execution of leases.
Through our dealer-manager, we facilitate capital raising
transactions for our sponsored programs. Our wholesale
dealer-manager services are comprised of raising capital for our
programs through our selling broker-dealer relationships. Most
of the commissions, fees and allowances earned for our
dealer-manager services are passed on to the selling
broker-dealers as commissions and to cover offering expenses,
and we retain the balance. Accordingly, we record these fees net
of the amounts paid to our selling broker-dealer relationships.
Basis
of Presentation and Principles of Consolidation
Pursuant to the requirements of ASC Topic 810,
Consolidation, (Consolidation Topic) that
existed prior to January 1, 2010, we consolidated VIEs if
we determined if we were the primary beneficiary of the VIE. We
were deemed to be the primary beneficiary of the VIE if we were
to absorb a majority of the entitys expected losses,
receive a majority of the entitys expected residual
returns or both. However, under the requirements that exist
subsequent to January 1, 2010, we are deemed to be the
primary beneficiary of the VIE if we have a variable interest in
the VIE that provides us with a controlling financial interest.
Our variable interest provides us with a controlling financial
interest if we have both (i) the power to direct the
activities of the VIE that most significantly impact the
entitys economic performance and (ii) the obligation
to absorb losses of the entity that could potentially be
significant to the VIE or the right to receive benefits from the
entity that could potentially be significant to the VIE. There
is subjectivity around the determination of power and which
activities of the VIE most significantly impact the
entitys economic performance. As reconsideration events
occur, we will reconsider our 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
38
basis. In addition, we will continuously evaluate our VIEs
primary beneficiary as facts and circumstances change to
determine if such changes warrant a change in an
enterprises status as primary beneficiary of our VIEs.
Litigation
We routinely assess the likelihood of any adverse judgments or
outcomes related to legal matters, as well as ranges of probable
losses. A determination of the amount of the reserves required,
if any, for these contingencies is made after analysis of each
known issue and an analysis of historical experience. Therefore,
we have recorded reserves related to certain legal matters for
which we believe it is probable that a loss will be incurred and
the range of such loss can be estimated. With respect to other
matters, we have concluded that a loss is only reasonably
possible or remote, or is not estimable and, therefore, no
liability is recorded. Assessing the likely outcome of pending
litigation, including the amount of potential loss, if any, is
highly subjective. Our judgments regarding likelihood of loss
and our estimates of probable loss amounts may differ from
actual results due to difficulties in predicting the outcome of
jury trials, arbitration hearings, settlement discussions and
related activity, sufficiency
and/or
applicability of insurance coverage and various other
uncertainties. Due to the number of claims which are
periodically asserted against us, and the magnitude of damages
sought in those claims, actual losses in the future could
significantly exceed our current estimates.
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, we
would recognize an impairment loss to the extent the carrying
amount exceeded the fair value of the property. We estimate 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 $0.7 million, $21.6 million
and $87.6 million against the carrying value of the
properties and real estate investments during the years ended
December 31, 2010, 2009 and 2008, respectively.
We recognize goodwill and other
non-amortizing
intangible assets in accordance with the requirements of ASC
Topic 350, Intangibles Goodwill and Other,
(Goodwill and Other Topic). Under this Topic,
goodwill is recorded at our 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. We recognize goodwill in accordance with the
Goodwill and Other Topic and test 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 our carrying
value, including goodwill. To estimate the fair value of our
reporting units, we used a discounted cash flow model and market
comparable data. Significant judgment is required by us 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 our 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 may exist. 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, we
identified the uncertainty surrounding the global economy and
the volatility of our market capitalization as goodwill
impairment indicators. Our goodwill impairment analysis resulted
in the recognition of an impairment charge of approximately
$172.7 million during the year ended December 31,
2008. We also analyzed our trade name for impairment pursuant to
the requirements of the Goodwill and Other Topic and determined
that the trade name was not impaired as of
39
December 31, 2010, 2009 and 2008. Accordingly, no
impairment charges were recorded related to the trade name
during the years ended December 31, 2010, 2009 and 2008. In
addition to testing goodwill and our trade name for impairment,
we tested the intangible contract rights for impairment during
the fourth quarter of 2010, 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, we determined
that there are certain properties for which receipt of
disposition fees was improbable. As a result, we recorded an
impairment charge of approximately $2.6 million,
$0.7 million and $8.6 million related to the impaired
intangible contract rights as of December 31, 2010, 2009
and 2008, respectively.
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.
RESULTS
OF OPERATIONS
Overview
We reported revenue of $575.5 million for the year ended
December 31, 2010, compared with revenue of
$527.9 million for the same period of 2009. The increase
was primarily the result of increases in Transaction Services
revenue of $62.8 million, partially offset by decreases in
Investment Management and Investment Management
Daymark revenue of $9.0 million and $4.8 million,
respectively. The increase in revenue as compared to the prior
year period can be attributed to increased sales and leasing
transactions from Transaction Services. The decrease in our
Investment Management and Investment Management
Daymark revenues resulted from a reduction of our assets under
management by approximately 12.1% from $5.8 billion as of
December 31, 2009 to $5.1 billion as of
December 31, 2010 and lower broker-dealer revenue resulting
from lower equity raised.
The net loss attributable to Grubb & Ellis Company for
the year ended December 31, 2010 was $66.8 million and
included non-cash charges of $12.7 million for depreciation
and amortization, a $9.4 million charge for bad debt,
$9.1 million of share-based compensation, $7.1 million
for amortization of signing bonuses, $2.8 million for
intangible asset impairment and $0.9 million for real
estate related impairments. In addition, the year end results
included approximately $5.9 million of severance and other
charges. After payment of preferred stock dividends of
$11.6 million, the net loss attributable to
Grubb & Ellis Company common shareowners for the year
ended December 31, 2010 was $78.4 million, or $1.21
per diluted share.
In the fourth quarter of 2010, we added a fourth reporting
segment following the creation of Daymark Realty Advisors to
manage our
tenant-in-common
(TIC) programs. The four business segments are as
follows: (1) Management Services, which includes property
management, corporate facilities management, project management,
client accounting, business services and engineering services
for corporate occupier and real estate investor clients
(2) Transaction Services, which comprises our real estate
brokerage operations; (3) Investment Management, which
encompasses acquisition, financing, disposition and asset
management services for our investment programs and
dealer-manager services by our securities broker-dealer, which
facilitates capital raising transactions for our REIT, and other
investment programs; and (4) Daymark, which includes our
legacy TIC business. As of December 31, 2010, Daymark
managed TIC programs as well as certain other legacy investment
programs which includes over 8,700 residential units and
33.3 million square feet of commercial office space.
Additional information on these business segments can be found
in Note 26 of Notes to Consolidated Financial Statements in
Item 8 of this Report.
40
Year Ended December 31, 2010 Compared to Year Ended
December 31, 2009
The following summarizes comparative results of operations for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services
|
|
$
|
274,606
|
|
|
$
|
274,880
|
|
|
$
|
(274
|
)
|
|
|
(0.1
|
)%
|
Transaction services
|
|
|
236,238
|
|
|
|
173,394
|
|
|
|
62,844
|
|
|
|
36.2
|
|
Investment management
|
|
|
21,333
|
|
|
|
30,368
|
|
|
|
(9,035
|
)
|
|
|
(29.8
|
)
|
Investment Management Daymark
|
|
|
21,918
|
|
|
|
26,718
|
|
|
|
(4,800
|
)
|
|
|
(18.0
|
)
|
Rental related
|
|
|
21,362
|
|
|
|
22,554
|
|
|
|
(1,192
|
)
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
575,457
|
|
|
|
527,914
|
|
|
|
47,543
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
519,694
|
|
|
|
475,068
|
|
|
|
44,626
|
|
|
|
9.4
|
|
General and administrative
|
|
|
75,624
|
|
|
|
74,390
|
|
|
|
1,234
|
|
|
|
1.7
|
|
Provision for doubtful accounts
|
|
|
9,363
|
|
|
|
24,752
|
|
|
|
(15,389
|
)
|
|
|
(62.2
|
)
|
Depreciation and amortization
|
|
|
12,665
|
|
|
|
11,727
|
|
|
|
938
|
|
|
|
8.0
|
|
Rental related
|
|
|
16,523
|
|
|
|
18,192
|
|
|
|
(1,669
|
)
|
|
|
(9.2
|
)
|
Interest
|
|
|
8,504
|
|
|
|
13,138
|
|
|
|
(4,634
|
)
|
|
|
(35.3
|
)
|
Real estate related impairments
|
|
|
859
|
|
|
|
15,305
|
|
|
|
(14,446
|
)
|
|
|
(94.4
|
)
|
Intangible asset impairment
|
|
|
2,769
|
|
|
|
738
|
|
|
|
2,031
|
|
|
|
275.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
646,001
|
|
|
|
633,310
|
|
|
|
12,691
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(70,544
|
)
|
|
|
(105,396
|
)
|
|
|
34,852
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of unconsolidated entities
|
|
|
(1,413
|
)
|
|
|
(1,148
|
)
|
|
|
(265
|
)
|
|
|
(23.1
|
)
|
Interest income
|
|
|
428
|
|
|
|
555
|
|
|
|
(127
|
)
|
|
|
(22.9
|
)
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
21,935
|
|
|
|
(21,935
|
)
|
|
|
(100.0
|
)
|
Other
|
|
|
658
|
|
|
|
404
|
|
|
|
254
|
|
|
|
62.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(327
|
)
|
|
|
21,746
|
|
|
|
(22,073
|
)
|
|
|
(101.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax provision
|
|
|
(70,871
|
)
|
|
|
(83,650
|
)
|
|
|
12,779
|
|
|
|
15.3
|
|
Income tax benefit
|
|
|
78
|
|
|
|
975
|
|
|
|
(897
|
)
|
|
|
(92.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(70,793
|
)
|
|
|
(82,675
|
)
|
|
|
11,882
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(211
|
)
|
|
|
(5,266
|
)
|
|
|
5,055
|
|
|
|
96.0
|
|
Gain on disposal of discontinued operations net of
taxes
|
|
|
1,273
|
|
|
|
7,442
|
|
|
|
(6,169
|
)
|
|
|
(82.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
1,062
|
|
|
|
2,176
|
|
|
|
(1,114
|
)
|
|
|
(51.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(69,731
|
)
|
|
|
(80,499
|
)
|
|
|
10,768
|
|
|
|
13.4
|
|
Net loss attributable to noncontrolling interests
|
|
|
(2,951
|
)
|
|
|
(1,661
|
)
|
|
|
(1,290
|
)
|
|
|
(77.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
|
(66,780
|
)
|
|
|
(78,838
|
)
|
|
|
12,058
|
|
|
|
15.3
|
|
Preferred stock dividends
|
|
|
(11,588
|
)
|
|
|
(1,770
|
)
|
|
|
(9,818
|
)
|
|
|
(554.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(78,368
|
)
|
|
$
|
(80,608
|
)
|
|
$
|
2,240
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Revenue
Management
Services Revenue
Management Services revenue decreased $0.3 million, or
0.1%, to $274.6 million for the year ended
December 31, 2010, compared to $274.9 million for the
same period in 2009 due to a shift in the mix of business during
2010, which had a negative impact on revenue in the second half
of the year, despite continuing to grow square feet under
management. As of December 31, 2010, we managed
approximately 255.1 million square feet of commercial real
estate and multi-family property, including 35.1 million
square feet of our Investment Management and Daymark portfolios
compared to 240.7 million square feet of property as of
December 31, 2009.
Transaction
Services Revenue
Transaction Services revenue increased $62.8 million, or
36.2%, to $236.2 million for the year ended
December 31, 2010, compared to $173.4 million for the
same period in 2009 due to increased sales and leasing
transaction volume and values as a result of the recovering real
estate market. Leasing activity represented approximately 68% of
the total sales and leasing revenue in 2010, while sales
accounted for 32% of total sales and leasing revenue. In 2009,
the revenue breakdown was 80% leasing and 20% sales. As of
December 31, 2010, Grubb & Ellis had 1,006
brokers, up from 824 as of December 31, 2009.
Investment
Management Revenue
Investment Management revenue decreased $9.0 million, or
29.8%, to $21.3 million for the year ended
December 31, 2010, compared to $30.4 million for the
same period in 2009. Investment Management revenue reflects
revenue generated through the fee structure of our non-traded
REIT programs and for the year ended December 31, 2010,
includes acquisition fees of $9.4 million, broker dealer
revenue of $3.1 million, management fees of
$5.5 million and a $3.0 million settlement fee earned
as a result of a settlement reached with our first sponsored
healthcare REIT in October 2010. 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.
Broker dealer revenue decreased $5.8 million, or 65.2%, to
$3.1 million for the year ended December 31, 2010,
compared to $8.9 for the same period in 2009 as a result of a
decrease in equity raised during the year ended
December 31, 2010. In total, $160.9 million in equity
was raised for our non-traded REIT programs for the year ended
December 31, 2010, compared with $536.9 million in the
same period in 2009. The decrease in equity raised by our public
non-traded REITs is a result of the termination of the
dealer-manager agreement of our first sponsored healthcare REIT
in August 2009 and the
start-up of
our new Healthcare REIT II program which commenced sales on
September 21, 2009.
Acquisition fees decreased $1.8 million, or 15.9%, to
$9.4 million for the year ended December 31, 2010,
compared to $11.3 million for the same period in 2009.
Management fees decreased $3.3 million, or 37.5%, to
$5.5 million for the year ended December 31, 2010,
compared to $8.8 million for the same period in 2009, which
primarily reflects the termination of management services for
our first sponsored healthcare REIT in September 2009.
Investment
Management Daymark Revenue
Investment Management Daymark revenue decreased
$4.8 million, or 18.0%, to $21.9 million for the year
ended December 31, 2010, compared to $26.7 million for
the same period in 2009. Investment Management
Daymark revenue primarily reflects revenue generated through
property and asset management of Daymarks portfolio for
the year ended December 31, 2010. Key drivers of this
business are the amount of TIC assets under management and the
financing, leasing and disposition transaction volume generated
in the portfolio.
Acquisition and loan fees increased $1.7 million, or
130.8%, to $3.0 million for the year ended
December 31, 2010, compared to $1.3 million for the
same period in 2009. The
year-over-year
decrease in
42
acquisition and loan fees was primarily attributed to an
increase in deferred revenue recognized of $1.8 million
primarily as a result of our termination as master lessee on
five multifamily properties during the third and fourth quarters
of 2010. As a result of the termination of the master leases, we
no longer have significant continuing involvement with these
properties and, accordingly, recognized fees that were
previously deferred related to these properties.
Management fees decreased approximately $4.3 million, or
20.5%, to $16.7 million for the year ended
December 31, 2010 compared to $21.0 million for the
same period in 2009, which primarily reflects lower average fees
on TIC programs and the decline in assets under management.
Rental
Revenue
Rental revenue includes pass-through revenue for the master
lease accommodations related to our TIC programs. Rental revenue
also includes revenue from one property held for investment.
During 2010, we reduced the number of master lease programs from
seven to two and as a result this revenue is expected to decline
in future periods.
Operating
Expense Overview
Operating expenses increased $12.7 million, or 2.0%, to
$646.0 million for the year ended December 31, 2010,
compared to $633.3 million for the same period in 2009.
This increase primarily reflects increases in variable
compensation costs of $44.6 million offset by a decrease in
provision for doubtful accounts of $15.4 million, a
decrease in interest expense of $4.6 million and a decrease
in real estate related impairments of $14.4 million. We
realized approximately $15.1 million in cost savings during
the year ended December 31, 2010 as a result of
managements cost saving efforts which were offset by costs
incurred to support growth initiatives and incremental costs
incurred in operating the business.
Compensation
Costs
Compensation costs increased approximately $44.6 million,
or 9.4%, to $519.7 million for the year ended
December 31, 2010, compared to approximately
$475.1 million for the same period in 2009 due to increases
in transaction commissions and related costs paid to our
brokerage professionals of $45.6 million as a result of
increased sales and leasing activity offset by decreases in
reimbursable salaries, wages and benefits of $2.0 million.
Other compensation costs decreased $2.5 million as a result
of managements cost saving efforts
43
partially offset by costs incurred to support growth
initiatives. The following table summarizes compensation costs
by segment for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
MANAGEMENT SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
$
|
37,604
|
|
|
$
|
36,701
|
|
|
$
|
903
|
|
Transaction commissions and related costs
|
|
|
16,999
|
|
|
|
12,623
|
|
|
|
4,376
|
|
Reimbursable salaries, wages and benefits
|
|
|
190,538
|
|
|
|
193,682
|
|
|
|
(3,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
245,141
|
|
|
|
243,006
|
|
|
|
2,135
|
|
TRANSACTION SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
48,690
|
|
|
|
44,273
|
|
|
|
4,417
|
|
Transaction commissions and related costs
|
|
|
156,290
|
|
|
|
112,399
|
|
|
|
43,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
204,980
|
|
|
|
156,672
|
|
|
|
48,308
|
|
INVESTMENT MANAGEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
10,481
|
|
|
|
13,428
|
|
|
|
(2,947
|
)
|
Transaction commissions and related costs
|
|
|
3,215
|
|
|
|
5,530
|
|
|
|
(2,315
|
)
|
Reimbursable salaries, wages and benefits
|
|
|
3,187
|
|
|
|
2,824
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,883
|
|
|
|
21,782
|
|
|
|
(4,899
|
)
|
INVESTMENT MANAGEMENT DAYMARK
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
11,078
|
|
|
|
13,397
|
|
|
|
(2,319
|
)
|
Transaction commissions and related costs
|
|
|
(261
|
)
|
|
|
84
|
|
|
|
(345
|
)
|
Reimbursable salaries, wages and benefits
|
|
|
7,415
|
|
|
|
6,606
|
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,232
|
|
|
|
20,087
|
|
|
|
(1,855
|
)
|
Compensation costs related to corporate overhead
|
|
|
20,115
|
|
|
|
22,645
|
|
|
|
(2,530
|
)
|
Severance costs
|
|
|
5,196
|
|
|
|
|
|
|
|
5,196
|
|
Share-based compensation
|
|
|
9,147
|
|
|
|
10,876
|
|
|
|
(1,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation costs
|
|
$
|
519,694
|
|
|
$
|
475,068
|
|
|
$
|
44,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
General and administrative expense increased approximately
$1.2 million, or 1.7%, to $75.6 million for the year
ended December 31, 2010, compared to $74.4 million for
the same period in 2009 due to an increase of $6.0 million
related to Daymark legal and related costs increases related to
our growth initiatives partially offset by decreases related to
managements cost saving efforts.
General and administrative expense was 13.1% of total revenue
for the year ended December 31, 2010, compared with 14.1%
for the same period in 2009.
Provision
for Doubtful Accounts
Provision for doubtful accounts decreased approximately
$15.4 million, or 62.2%, to $9.4 million for the year
ended December 31, 2010, compared to $24.8 million for
the same period in 2009 primarily due to a decrease in the
provision for reserves on related party receivables and advances
to sponsored investment programs. The decrease in the provision
for doubtful accounts in the current year reflects the
stabilization of the real estate market. Significant reserves
were recorded in the prior year as a result of the deterioration
in the real estate market.
Depreciation
and Amortization
Depreciation and amortization expense increased approximately
$0.9 million, or 8.0%, to $12.6 million for the year
ended December 31, 2010, compared to approximately
$11.7 million for the same period in 2009.
44
Included in depreciation and amortization expense for the years
ended December 31, 2010 and 2009 was $3.8 million and
$3.2 million, respectively, for amortization of identified
intangible assets.
Rental
Expense
Rental expense includes pass-through expenses for master lease
accommodations related to our TIC programs. Rental expense also
includes expense from one property held for investment. During
2010, we reduced the number of master lease programs from seven
to two and as a result this revenue is expected to decline in
future periods.
Interest
Expense
Interest expense decreased approximately $4.6 million, or
35.3%, to $8.5 million for the year ended December 31,
2010, compared to $13.1 million for the same period in
2009. The decrease in interest expense is primarily due to the
repayment in full of our line of credit in November 2009,
partially offset by interest expense related to our Convertible
Notes issued in May 2010.
Real
Estate Related Impairments
We recognized impairment charges of approximately
$0.9 million during the year ended December 31, 2010
which includes $2.2 million related to certain
unconsolidated real estate investments and funding commitments
for obligations related to certain of our sponsored real estate
programs, $0.8 million related to a contingent liability
associated with a recourse guarantee on the mortgage debt
related to one of our TIC programs, $1.6 million related to
the write down of our note receivable from Apartment Trust of
America, Inc. (formerly Grubb & Ellis Apartment REIT,
Inc) to fair market value offset by reversals of
$0.5 million related to the release of our obligation under
a recourse guarantee on the mortgage debt related to one of our
TIC programs and $3.2 million related to the release of
certain obligations providing a TIC investor with certain
repurchase rights with respect to their investment.
We recognized impairment charges of approximately
$15.3 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 our sponsored real estate
programs and $5.0 million related to one property held for
investment as of December 31, 2010. In addition, we
recognized impairment charges of approximately $8.7 million
during the year ended December 31, 2009 related to one
property sold during the year ended December 31, 2010 and
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.
Intangible
Assets Impairment
We analyzed our 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, 2010 and 2009. Accordingly, no impairment
charge was recorded related to the trade name during the years
ended December 31, 2010 and 2009. In addition to testing
goodwill and our trade name for impairment, we tested the
intangible contract rights for impairment during years ended
December 31, 2010 and 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, we
determined that there are certain properties for which receipt
of disposition fees was improbable. As a result, we recorded an
impairment charge of approximately $2.8 and $0.7 million,
respectively, related to the impaired intangible contract rights
during the years ended December 31, 2010 and 2009,
respectively.
Equity in
Losses of Unconsolidated Real Estate
Equity in losses includes $1.4 million and
$1.1 million for the years ended December 31, 2010 and
2009, respectively, related to our investment in five joint
ventures and certain LLCs and other LLCs that are consolidated
pursuant to the requirements of the Consolidation Topic. Equity
in losses are recorded based on the pro rata ownership interest
in the underlying unconsolidated properties.
45
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 at a discounted amount and termination of the
Credit Facility on November 6, 2009. No gains or losses on
extinguishment of debt were realized in 2010.
Other
Income
Other income of $0.7 million and $0.4 million for the
year ended December 31, 2010 and 2009, respectively,
includes investment income related to Alesco of
$0.2 million and $0.6 million for the year ended
December 31, 2010 and 2009, respectively. In addition,
other income for the year ended December 31, 2010 includes
a $0.5 million gain on remeasurement of our previously held
40% interest in a regional commercial real estate services
company as a result of the acquisition of the remaining 60%
interest in July 2010.
Discontinued
Operations
In accordance with the requirements of ASC Topic 360,
Property, Plant, and Equipment, (Property, Plant,
and Equipment Topic), for the year ended December 31,
2010, discontinued operations includes net income of
$1.1 million which includes a $1.3 million gain on
sale, net of taxes, related to the sale of the Avallon property
on December 30, 2010 and a $0.2 million loss from
discontinued operations, net of taxes. Net income of
$2.2 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 $5.2 million loss from
discontinued operations, net of taxes, which includes
$8.7 million of real estate related impairments.
Income
Tax
We recognized a tax benefit from continuing operations of
approximately $0.1 million for the year ended
December 31, 2010, compared to a tax benefit of
$1.0 million for the same period in 2009. In 2010 and 2009,
the reported effective income tax rates were 0.11% and 1.20%,
respectively. The 2009 effective income tax rate reflects the
adoption of the requirements of the amended Consolidation Topic.
The 2010 and 2009 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 all
of the deferred tax assets will not be realized. Our deferred
tax assets are primarily attributable to net operating losses,
put option guarantees and other liabilities, real estate
impairments, bad debt reserves, and share-based compensation.
(See Note 25 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 increased by
$1.3 million, or 77.7%, to $3.0 million during the
year ended December 31, 2010, compared to net loss
attributable to noncontrolling interests of $1.7 million
for the same period in 2009. The increase in net loss
attributable to noncontrolling interests includes
$1.5 million related to the consolidation of six VIEs
during the year ended December 31, 2010 pursuant to an
amendment to the requirements of the Consolidation Topic.
Net Loss
Attributable to Grubb & Ellis Company
As a result of the above items, we recognized a net loss of
$66.8 million for the year ended December 31, 2010,
compared to a net loss of $78.8 million for the same period
in 2009.
Net Loss
Attributable to Grubb & Ellis Company Common
Shareowners
We paid $11.6 million in preferred stock dividends during
the year ended December 31, 2010 resulting in a net loss
attributable to our common shareowners of $78.4 million, or
$1.21 per diluted share, for the year ended December 31,
2010, compared to a net loss attributable to our common
shareowners of $80.6 million, or $1.27 per diluted share,
for the same period in 2009.
46
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
|
|
$
|
274,880
|
|
|
$
|
253,664
|
|
|
$
|
21,216
|
|
|
|
8.4
|
%
|
Transaction services
|
|
|
173,394
|
|
|
|
240,250
|
|
|
|
(66,856
|
)
|
|
|
(27.8
|
)
|
Investment management
|
|
|
30,368
|
|
|
|
50,982
|
|
|
|
(20,614
|
)
|
|
|
(40.4
|
)
|
Investment Management Daymark
|
|
|
26,718
|
|
|
|
50,599
|
|
|
|
(23,881
|
)
|
|
|
(47.2
|
)
|
Rental related
|
|
|
22,554
|
|
|
|
24,183
|
|
|
|
(1,629
|
)
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
527,914
|
|
|
|
619,678
|
|
|
|
(91,764
|
)
|
|
|
(14.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
475,068
|
|
|
|
512,280
|
|
|
|
(37,212
|
)
|
|
|
(7.3
|
)
|
General and administrative
|
|
|
74,390
|
|
|
|
90,397
|
|
|
|
(16,007
|
)
|
|
|
(17.7
|
)
|
Provision for doubtful accounts
|
|
|
24,752
|
|
|
|
19,831
|
|
|
|
4,921
|
|
|
|
24.8
|
|
Depreciation and amortization
|
|
|
11,727
|
|
|
|
13,313
|
|
|
|
(1,586
|
)
|
|
|
(11.9
|
)
|
Rental related
|
|
|
18,192
|
|
|
|
17,799
|
|
|
|
393
|
|
|
|
2.2
|
|
Interest
|
|
|
13,138
|
|
|
|
11,014
|
|
|
|
2,124
|
|
|
|
19.3
|
|
Merger related costs
|
|
|
|
|
|
|
14,732
|
|
|
|
(14,732
|
)
|
|
|
(100.0
|
)
|
Real estate related impairments
|
|
|
15,305
|
|
|
|
35,637
|
|
|
|
(20,332
|
)
|
|
|
(57.1
|
)
|
Goodwill and intangible asset impairment
|
|
|
738
|
|
|
|
181,285
|
|
|
|
(180,547
|
)
|
|
|
(99.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
633,310
|
|
|
|
896,288
|
|
|
|
(262,978
|
)
|
|
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(105,396
|
)
|
|
|
(276,610
|
)
|
|
|
171,214
|
|
|
|
61.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(83,650
|
)
|
|
|
(295,477
|
)
|
|
|
211,827
|
|
|
|
71.7
|
|
Income tax benefit (provision)
|
|
|
975
|
|
|
|
(8,595
|
)
|
|
|
9,570
|
|
|
|
111.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(82,675
|
)
|
|
|
(304,072
|
)
|
|
|
221,397
|
|
|
|
72.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(5,266
|
)
|
|
|
(38,874
|
)
|
|
|
33,608
|
|
|
|
86.5
|
|
Gain on disposal of discontinued operations net of
taxes
|
|
|
7,442
|
|
|
|
357
|
|
|
|
7,085
|
|
|
|
1,984.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations
|
|
|
2,176
|
|
|
|
(38,517
|
)
|
|
|
40,693
|
|
|
|
105.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Revenue
Management
Services Revenue
Management Services revenue increased $21.2 million, or
8.4% to $274.9 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, we managed
approximately 240.7 million square feet of commercial real
estate and multi-family property, including 24.3 million
square feet of our Investment Management and Daymark portfolios
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 sales accounted for 20% of total revenue. In 2008,
the revenue breakdown was 77% leasing and 23% sales. As of
December 31, 2009, we had 824 brokers, up from 805 as of
December 31, 2008.
Investment
Management Revenue
Investment Management revenue decreased $20.6 million or
40.4% to $30.4 million for the year ended December 31,
2009, compared to $51.0 million for the same period in
2008. Investment Management revenue reflects revenue generated
through the fee structure of our non-traded REIT programs which
includes acquisition fees of $11.3 million, broker dealer
revenue of $8.9 million and management fees of
$8.8 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.
Broker dealer revenue decreased $6.2 million, or 41.1%, to
$8.9 million for the year ended December 31, 2009,
compared to $15.1 for the same period in 2008 as a result of a
decrease in equity raised during the year ended
December 31, 2009. In total, $536.9 million in equity
was raised for our non-traded REIT programs for the year ended
December 31, 2009, compared with $592.7 million in the
same period in 2008. The decrease in equity raised by our public
non-traded REITs is a result of the termination of the
dealer-manager agreement of our first sponsored healthcare REIT
in August 2009 and the
start-up of
our new Healthcare REIT II program which commenced sales on
September 21, 2009.
Acquisition fees decreased $8.1 million, or 41.8%, to
$11.3 million for the year ended December 31, 2009,
compared to $19.4 million for the same period in 2008.
Management fees decreased $3.4 million or 27.9% to
$8.8 million for the year ended December 31, 2009,
compared to $12.2 million for the same period in 2008,
which primarily reflects the termination of management services
for our first sponsored healthcare REIT in September 2009.
Investment
Management Daymark Revenue
Investment Management Daymark revenue decreased
$23.9 million, or 47.2%, to $26.7 million for the year
ended December 31, 2009, compared to $50.6 million for
the same period in 2008. Investment Management
Daymark revenue reflects revenue generated through the fee
structure of our TIC investment products which includes
acquisition and loan fees of $1.3 million and management
fees of $21.0 million for the year ended December 31,
2009. Key drivers of this business were 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, $15.5 million in equity was raised for our TIC
programs for 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 decline in market conditions.
Acquisition and loan fees decreased $12.4 million, or
90.5%, to $1.3 million for the year ended December 31,
2009, compared to $13.7 million for the same period in
2008. Management fees decreased
48
$2.9 million, or 12.1%, to $21.0 million for the year
ended December 31, 2009 compared to $23.9 million for
the same period in 2008, which primarily reflects lower average
fees on TIC programs.
Rental
Revenue
Rental revenue includes pass-through revenue for the master
lease accommodations related to our TIC programs. Rental revenue
also includes revenue from one property held for investment.
Operating
Expense Overview
Operating expenses decreased $263.0 million, or 29.3%, to
$633.3 million for the year ended December 31, 2009,
compared to $896.3 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 $37.2 million and decreases of merger related
costs of $14.7 million and general and administrative
expense of $16.0 million offset by an increase in provision
for doubtful accounts of $4.9 million. We recognized real
estate impairments of $15.3 million during the year ended
December 31, 2009, a decrease of $20.3 million over
the same period in 2008. In addition, we 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 we wrote off all of our
goodwill during the year ended December 31, 2008. Partially
offsetting the overall decrease was an increase in interest
expense of $2.1 million for the year ended
December 31, 2009 primarily related to our line of credit.
Compensation
Costs
Compensation costs decreased approximately $37.2 million,
or 7.3%, to $475.1 million for the year ended
December 31, 2009, compared to approximately
$512.3 million for the same period in 2008 due to a
decrease in transaction commissions and related costs of
$42.9 million as a result of a decrease in sales and
leasing activity and a decrease in other compensation costs of
$11.9 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
|
|
|
44,273
|
|
|
|
50,272
|
|
|
|
(5,999
|
)
|
Transaction commissions and related costs
|
|
|
112,399
|
|
|
|
155,668
|
|
|
|
(43,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
156,672
|
|
|
|
205,940
|
|
|
|
(49,268
|
)
|
INVESTMENT MANAGEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
13,428
|
|
|
|
14,697
|
|
|
|
(1,269
|
)
|
Transaction commissions and related costs
|
|
|
5,530
|
|
|
|
9,278
|
|
|
|
(3,748
|
)
|
Reimbursable salaries, wages and benefits
|
|
|
2,824
|
|
|
|
1,941
|
|
|
|
883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21,782
|
|
|
|
25,916
|
|
|
|
(4,134
|
)
|
INVESTMENT MANAGEMENT DAYMARK
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
13,397
|
|
|
|
15,550
|
|
|
|
(2,153
|
)
|
Transaction commissions and related costs
|
|
|
84
|
|
|
|
16
|
|
|
|
68
|
|
Reimbursable salaries, wages and benefits
|
|
|
6,606
|
|
|
|
4,517
|
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,087
|
|
|
|
20,083
|
|
|
|
4
|
|
Compensation costs related to corporate overhead
|
|
|
22,645
|
|
|
|
22,670
|
|
|
|
(25
|
)
|
Share-based compensation
|
|
|
10,876
|
|
|
|
11,907
|
|
|
|
(1,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation costs
|
|
$
|
475,068
|
|
|
$
|
512,280
|
|
|
$
|
(37,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
General
and Administrative
General and administrative expense decreased approximately
$16.0 million, or 17.7%, to $74.4 million for the year
ended December 31, 2009, compared to $90.4 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 related to recourse guarantees of
debt of properties under management and various decreases
related to managements cost saving efforts.
General and administrative expense was 14.1% of total revenue
for the year ended December 31, 2009, compared with 14.6%
for the same period in 2008.
Provision
for Doubtful Accounts
Provision for doubtful accounts increased approximately
$4.9 million, or 24.8%, 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
$1.6 million, or 11.9%, to $11.7 million for the year
ended December 31, 2009, compared to approximately
$13.3 million for the same period in 2008. The decrease is
primarily due to one property we held for investment as of
December 31, 2010. This property was previously held for
sale through June 30, 2009. In accordance with the
provisions of Property, Plant, and Equipment Topic,
management determined that the carrying value of the
property, before the 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, we made no additional adjustments to the
carrying value of the asset as of December 31, 2009 and no
depreciation expense was recorded during the period the property
was held for sale. Included in depreciation and amortization
expense for the years ended December 31, 2009 and 2008 was
$3.2 million and $3.5 million, respectively, for
amortization of identified intangible assets.
Rental
Expense
Rental expense includes pass-through expenses for master lease
accommodations related to our TIC programs. Rental expense also
includes expense from one property held for investment.
Interest
Expense
Interest expense increased approximately $2.1 million, or
19.3%, to $13.1 million for the year ended
December 31, 2009, compared to $11.0 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
3rd
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. We 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
We recognized impairment charges of approximately
$15.3 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 our sponsored real estate
programs and $5.0 million related to one property held for
investment as of December 31, 2010. We recognized an
impairment charge of
50
approximately $35.6 million during the year ended
December 31, 2008, which includes $18.0 million
related to certain unconsolidated real estate investments and
$17.6 million related to one property held for investment.
In addition, we recognized impairment charges of approximately
$8.7 million and $54.7 million during the year ended
December 31, 2009 and 2008, respectively, related to one
property sold during the year ended December 31, 2010 and
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
We 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, we identified the uncertainty surrounding the
global economy and the volatility of our market capitalization
as goodwill impairment indicators. Our goodwill impairment
analysis resulted in the recognition of an impairment charge of
approximately $172.7 million during the year ended
December 31, 2008. We also analyzed our 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 our trade name for impairment, we 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, we
determined that there are certain properties for which receipt
of disposition fees was improbable. As a result, we 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
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 our
investment in five joint ventures and seven LLCs that are
consolidated pursuant to the requirements of the Consolidation
Topic. Equity in 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
our 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.
51
Discontinued
Operations
In accordance with the requirements of the Property, Plant and
Equipment Topic, discontinued operations includes the net income
(loss) of one property that was sold during the year ended
December 31, 2010 and two properties that were sold and two
properties that were effectively abandoned under the accounting
standards during the year ended December 31, 2009. The net
income of $2.2 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 $5.2 million loss
from discontinued operations, net of taxes, which includes
$8.7 million of real estate related impairments. The net
loss of $38.5 million for the year ended December 31,
2008 includes a $0.4 million gain on sale, net of taxes,
and a $38.9 million loss from discontinued operations, net
of taxes, which includes $54.7 million of real estate
related impairments.
Income
Tax
We recognized a tax benefit from continuing operations of
approximately $1.0 million for the year ended
December 31, 2009, compared to a tax provision of
$8.6 million for the same period in 2008. In 2009 and 2008,
the reported effective income tax rates were 1.20% and (3.01%),
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. Our
deferred tax assets are primarily attributable to impairments of
various real estate holdings, net operating losses and
share-based compensation. (See Note 25 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, we 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
We paid $1.8 million in preferred stock dividends during
the year ended December 31, 2009 resulting in a net loss
attributable to our 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 our common
shareowners of $330.9 million, or $5.21 per diluted share,
for the same period in 2008.
Liquidity
and Capital Resources
Our accompanying financial statements have been prepared
assuming that we will continue as a going concern, which
contemplates realization of assets and the satisfaction of
liabilities in the normal course of business for the twelve
month period following the date of these financial statements.
On March 21, 2011, the Company announced that it had
engaged an external advisor to explore strategic alternatives,
including the potential sale or merger of the Company. In
conjunction with the announcement, the board of directors also
determined, as permitted, not to declare the March 31, 2011
quarterly dividend to holders of its 12% Cumulative
Participating Perpetual Convertible Preferred Stock.
52
The Company had been seeking additional financing to address
liquidity needs resulting from operating losses relating to the
seasonal nature of the real estate services businesses,
investments made in growth initiatives and increased legal
expenses related to its Daymark subsidiary. As more fully
discussed in Note 28 of Notes to Consolidated Financial
Statements in Item 8 of this Report, on March 30, 2011
the Company entered into a commitment letter with respect to an
$18.0 million senior secured term loan facility. The
commitment letter contains customary conditions to closing. If
the Company is not successful in meeting such conditions to
closing and is unable to obtain funding under the proposed
credit facility or an alternative funding facility, it could
create substantial doubt about the Companys ability to
continue as a going concern for the twelve month period
following the date of these financial statements. Management
believes that with the completion of the $18.0 million
senior secured term loan facility, they will have sufficient
liquidity to operate in the normal course through at least
December 31, 2011.
Current
Sources of Capital and Liquidity
We believe that we will have sufficient capital resources to
satisfy our liquidity needs over the next twelve-month period.
We expect to meet our short-term liquidity needs, which may
include losses from operations, principal repayments of mortgage
debt in connection with recourse guarantee obligations,
potential litigation losses, payment of fixed charges,
investments in various real estate investor programs and capital
expenditures, through cash on hand and proceeds from the
potential issuance of equity securities, debt offerings and the
potential sale of other assets.
In February 2011, we sold the note receivable we held from
Apartment Trust of America, Inc. (formerly Grubb &
Ellis Apartment REIT, Inc.) to a third party for
$6.1 million in net proceeds.
Long-Term
Liquidity Needs
We expect to meet our long-term liquidity needs, which may
include losses from operations, principal repayments of debt
obligations, payment of fixed charges, investments in various
real estate investor programs and capital expenditures, through
current and retained cash flow earnings, the sale of real estate
property and proceeds from the potential issuance of debt or
equity securities and the potential sale of other assets. We may
seek to obtain new secured or unsecured lines of credit in the
future, although we can provide no assurance that we will find
financing on favorable terms or at all.
Factors
That May Influence Future Sources of Capital and
Liquidity
As further described under Commitments, Contingencies and
Other Contractual Obligations below, we are involved in
multiple legal proceedings and have certain contingent
liabilities arising from guarantees and other contractual
obligations. While the ultimate outcome and potential
liabilities related to these commitments and contingencies is
uncertain, adverse determinations and outcomes in these matters
could result in material and adverse effects on the liquidity
and assets of us or our subsidiaries. For additional discussion
of factors that may affect our liquidity and capital resources,
please see Item 1A Risk Factors.
Cash
Flow
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
Net cash used in operating activities improved by
$30.1 million to $21.7 million for the year ended
December 31, 2010, compared to net cash used in operating
activities of $51.8 million for the same period in 2009.
Net cash used in operating activities included a decrease in net
loss of $10.8 million adjusted for increases in non-cash
reconciling items totaling $8.8 million, resulting in a net
increase of $19.6 million. In addition, there was an
increase of $10.5 million due to positive working capital
consisting of accounts payable and accrued expenses, accounts
receivable from related parties and other liabilities.
Net cash provided by investing activities was $38.0 million
and $86.6 million for the years ended December 31,
2010 and 2009, respectively. For the years ended
December 31, 2010 and 2009, net cash
53
provided by investing activities related primarily to proceeds
from the sale of a properties $38.5 million and
$93.5 million, respectively.
Net cash used in financing activities was $24.5 million and
$28.7 million for the years ended December 31, 2010
and 2009, respectively. For the year ended December 31,
2010, net cash used in financing activities related primarily to
repayment of mortgage notes, notes payable and capital lease
obligations of $37.9 million, payment of preferred
dividends of $11.6 million and distributions to
noncontrolling interests of $4.9 million offset by net cash
proceeds of $29.9 million from the issuance of convertible
notes. 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.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Net cash used in operating activities increased
$18.2 million to $51.8 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
$86.6 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
($28.7) 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.
Borrowings
Convertible Notes Offering During the second
quarter of 2010, we completed the offering
(Offering) of $31.5 million unsecured
convertible notes (Convertible Notes) to qualified
institutional buyers pursuant to Section 144A of the
Securities Act of 1933, as amended. The Convertible Notes pay
interest at a rate of 7.95% per year payable semiannually in
arrears on May 1 and November 1 of each year, beginning
November 1, 2010. The Convertible Notes mature on
May 1, 2015. The Convertible Notes are convertible into
common stock at an initial conversion price of approximately
$2.24 per share, or a 17.5% premium above the closing price of
our common stock on May 3, 2010. The conversion rate is
subject to adjustment in certain circumstances. We may not
redeem the Convertible Notes prior to May 6, 2013. On or
after May 6, 2013 and prior to the maturity date, we may
redeem for cash all or part of the Convertible Notes at 100% of
the
54
principal amount of the Convertible Notes to be redeemed, plus
accrued and unpaid interest, including any additional interest,
up to but excluding the redemption date.
NNN Senior Notes From August 1, 2006 to
January 2007, NNN Collateralized Senior Notes, LLC (the
NNN Senior Notes Program), a wholly owned subsidiary
of Daymark, issued $16.3 million of notes which mature on
August 29, 2011 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 NNN 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 NNN
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 NNN Senior Notes Program. The
guarantee requires GERI to maintain at all times during the term
the notes are outstanding a net worth of at least
$0.5 million. As of December 31, 2010, GERI met the
net worth requirement. Pursuant to the terms of the indenture
underlying the NNN Senior Notes, we anticipate exercising our
one year extension option prior to the maturity of the NNN
Senior Notes in August 2011.
Mortgage Note As of December 31, 2010,
we had a $70.0 million mortgage loan payable to a financial
institution collateralized by real estate held for investment.
The note has a fixed interest rate of 6.29% per annum, matures
in February 2017 and is non-recourse up to $60.0 million
with a $10.0 million recourse guarantee. As of
December 31, 2010, the note requires monthly interest-only
payments.
Commitments,
Contingencies and Other Contractual Obligations
Contractual
Obligations
We lease office space throughout the country through
non-cancelable operating leases, which expire at various dates
through July 30, 2021.
55
The following table summarizes contractual obligations as of
December 31, 2010 and the effect that such obligations are
expected to have on our 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)
|
|
2011
|
|
|
(2012-2013)
|
|
|
(2014-2015)
|
|
|
(After 2015)
|
|
|
Total
|
|
|
Principal properties held for investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
Interest properties held for investment
|
|
|
4,467
|
|
|
|
8,946
|
|
|
|
8,934
|
|
|
|
5,581
|
|
|
|
27,928
|
|
Principal senior notes(1)
|
|
|
|
|
|
|
16,277
|
|
|
|
|
|
|
|
|
|
|
|
16,277
|
|
Interest senior notes(1)
|
|
|
1,397
|
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
3,906
|
|
Principal convertible notes
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
|
|
|
|
|
|
31,500
|
|
Interest convertible notes
|
|
|
2,504
|
|
|
|
5,009
|
|
|
|
3,334
|
|
|
|
|
|
|
|
10,847
|
|
Principal notes payable
|
|
|
330
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
884
|
|
Interest notes payable
|
|
|
22
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Operating lease obligations others
|
|
|
4,585
|
|
|
|
9,170
|
|
|
|
7,468
|
|
|
|
|
|
|
|
21,223
|
|
Operating lease obligations general
|
|
|
20,037
|
|
|
|
31,496
|
|
|
|
15,011
|
|
|
|
8,963
|
|
|
|
75,507
|
|
Capital lease obligations
|
|
|
712
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,054
|
|
|
$
|
74,007
|
|
|
$
|
66,247
|
|
|
$
|
84,544
|
|
|
$
|
258,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes we exercise two one-year extension options. The interest
rate will increase to 9.25% per annum during the extension
period. |
TIC Program Exchange Provisions Prior to the
Merger, Triple Net Properties, LLC (now known as GERI) entered
into agreements providing certain investors the right to
exchange their investments in certain TIC programs for
investments in a different TIC program or in substitute
replacement properties. The agreements containing such rights of
exchange and repurchase rights pertain to initial investments in
TIC programs totaling $31.6 million. In the fourth quarter
of 2010, GERI was released from certain obligations relating to
$6.2 million in initial investments. In addition, we were
released from certain obligations totaling $2.0 million as
a result of the sale of the TIC programs property during
the year ended December 31, 2010. In July 2009, we received
notice on behalf of certain investors stating their intent to
exercise rights under one of those agreements with respect to an
initial investment totaling $4.5 million. Subsequently, in
February 2011, an action was filed in the Superior Court of
Orange County, California on behalf of those same investors
against GERI alleging breach of contract and breach of the
implied covenant of good faith and fair dealing, and seeking
declaratory relief of $26.5 million with respect to initial
cash investments totaling $22.3 million, which is inclusive
of the $4.5 million for which we received the notice in
July 2009. While the outcome of that action is uncertain, GERI
will vigorously defend those claims.
We deferred revenues relating to these agreements of
$0.2 million, $0.3 million and $1.0 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. Additional losses of $0.6 million,
$4.7 million and $14.3 million related to these
agreements were recorded during the years ended
December 31, 2010, 2009 and 2008, respectively, to record a
liability underlying the agreements with investors. In addition,
during the year ended December 31, 2010, we reduced an
obligation of $3.2 million related to our release from
certain obligations. As of December 31, 2010 we had
recorded liabilities totaling $20.2 million related to such
agreements, consisting of $3.9 million of cumulative
deferred revenues and $16.3 million of additional losses
related to these agreements, which is included in other current
liabilities.
Met 10 litigation GERI has been involved in
multiple legal proceedings, including an action pending in state
court in Austin, Texas (the Met 10 Texas Action),
and an arbitration proceeding being conducted in California (the
Met 10 Arbitration). In the Met 10 Texas Action,
GERI and an affiliate are pursuing claims
56
against the developers and sellers of the property and other
defendants to recover damages arising from undisclosed ground
movement. The outcome of that proceeding, and the damages, if
any, that GERI and its affiliate will recover, are uncertain. In
the Met 10 Arbitration, TIC investors are asserting, among other
things, that GERI should bear responsibility for alleged
diminution in the value of the property and their investments as
a result of ground movement. The Met 10 Arbitration has been
bifurcated into two phases. In the first phase, the arbitrator
ruled in favor of the TIC investors, finding, among other
things, that the TIC investors had properly terminated the
property management agreement for cause. The second phase of the
Met 10 Arbitration involves the TICs claims for damages.
The hearing will be conducted in June 2011, and will result in
the arbitrators determination of whether the TICs have
proven any of their claims, and what damages, if any, should be
awarded against GERI. GERI is vigorously defending those claims.
GERI has tendered this matter to its insurance carriers for
indemnity, and will vigorously pursue coverage. While the
outcome of the second phase of the Met 10 Arbitration is
uncertain, an adverse determination by the arbitrator could
result in a material and adverse effect on our subsidiarys
liquidity and assets.
Guarantees Historically our investment
management subsidiaries provided non-recourse carve-out
guarantees or indemnities with respect to loans for properties
now under the management of Daymark. As of December 31,
2010, there were 133 properties under management with
non-recourse carve-out loan guarantees or indemnities of
approximately $3.1 billion in total principal outstanding
with terms ranging from one to 10 years, secured by
properties with a total aggregate purchase price of
approximately $4.3 billion. As of December 31, 2009,
there were 146 properties under management with non-recourse
carve-out loan guarantees or indemnities 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. In addition, the consolidated VIEs and
unconsolidated VIEs are jointly and severally liable on the
non-recourse mortgage debt related to the interests in our TIC
investments as further described in Note 7 of the Notes to
Consolidated Financial Statements in Item 8 of this Report.
Our guarantees consisted of the following as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2010
|
|
2009
|
|
Daymark non-recourse/carve-out guarantees of debt of properties
under management(1)
|
|
$
|
2,944,311
|
|
|
$
|
3,306,631
|
|
Grubb & Ellis Company non-recourse/carve-out
guarantees of properties under management(1)
|
|
$
|
78,363
|
|
|
$
|
78,655
|
|
Daymark and Grubb & Ellis Company
non-recourse/carve-out guarantees of properties under
management(2)
|
|
$
|
31,271
|
|
|
$
|
31,563
|
|
Daymark non-recourse/carve-out guarantees of Company owned
properties(1)
|
|
$
|
60,000
|
|
|
$
|
97,000
|
|
Daymark recourse guarantees of debt of properties under
management
|
|
$
|
12,900
|
|
|
$
|
21,900
|
|
Grubb & Ellis Company recourse guarantees of debt of
properties under management
|
|
$
|
11,998
|
|
|
$
|
11,998
|
|
Daymark recourse guarantees of Company owned properties(3)
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,148,843
|
|
|
$
|
3,557,747
|
|
|
|
|
(1) |
|
A non-recourse/carve-out guarantee or indemnity
generally imposes liability on the guarantor or indemnitor in
the event the borrower engages in certain acts prohibited by the
loan documents. Each non-recourse carve-out guarantee or
indemnitor 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 or indemnities, liability under the
non-recourse carve-out guarantees or indemnities 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;
|
57
|
|
|
|
|
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 indemnity agreement from borrower.
|
Certain acts (typically the first three listed above) may render
the entire debt balance recourse to the guarantor or indemnitor,
while the liability for other acts is typically limited to the
damages incurred by the lender. Notice and cure provisions vary
between guarantees and indemnities. Generally the guarantor or
indemnitor irrevocably and unconditionally guarantees or
indemnifies the lender the payment and performance of the
guaranteed or indemnified 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 or indemnitor covenants
and agrees that it is liable for the guaranteed or indemnified
obligations as a primary obligor. As of December 31, 2010,
to the best of our knowledge, there was no debt owed by us as a
result of the borrowers engaging in prohibited acts.
|
|
|
(2) |
|
Daymark and Grubb & Ellis Company are each joint and
severally liable on such non-recourse/carve-out guarantees. |
|
(3) |
|
In addition to the $10.0 million principal guarantee,
Daymark has guaranteed any shortfall in the payment of interest
on the unpaid principal amount of the mortgage debt on one owned
property. |
If property values and performance decline, the risk of exposure
under these guarantees increases. We initially evaluate these
guarantees to determine if the guarantee meets the criteria
required to record a liability in accordance with the
requirements of ASC Topic 460, Guarantees,
(Guarantees Topic). Any such liabilities were
insignificant upon execution of the guarantees. In addition, on
an ongoing basis, we evaluate the need to record additional
liability in accordance with the requirements of ASC Topic 450,
Contingencies, (Contingencies Topic). As of
December 31, 2010 and 2009, we had recourse guarantees of
$24.9 million and $33.9 million, respectively,
relating to debt of properties under management (of which
$12.0 million and $12.0 million, respectively, is
recourse to Grubb & Ellis Company, the remainder of
which is recourse to our Daymark subsidiary). As of
December 31, 2010 and 2009, approximately $9.5 million
and $9.8 million, respectively, of these recourse
guarantees relate to debt that has matured, is in default, or is
not currently in compliance with certain loan covenants (of
which $2.0 million and $0, respectively, is recourse back
to Grubb & Ellis Company, the remainder of which is
recourse to our Daymark subsidiary). In addition, as of December
31, 2010, we have $8.0 million of recourse guarantees related to
debt that will mature in the next twelve months (of which the
entire amount is recourse back to Grubb & Ellis Company).
In addition, we had a recourse guarantee related to a property
that was previously under management, but was sold during the
year ended December 31, 2009. In connection with the sale
of the property, we entered into a promissory note with the
lender to repay the outstanding principal balance on the
mortgage loan of $4.2 million. As of December 31,
2010, the entire principal balance on the mortgage loan had been
repaid. Our evaluation of the potential liability under these
guarantees 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 of our subsidiaries to pay its debts as they become due
would likely have a materially negative impact on our ongoing
business, and our investment management operations in
particular. In evaluating the potential liability relating to
such guarantees, we consider factors such as the value of the
properties secured by the debt, the likelihood that the lender
will call
58
the guarantee in light of the current debt service and other
factors. As of December 31, 2010 and 2009, we recorded a
liability of $0.8 million and $3.8 million,
respectively, which is included in other current liabilities,
related to our estimate of probable loss related to recourse
guarantees of debt of properties under management and previously
under management.
Two unaffiliated, individual investor entities, who are minority
owners in two TIC programs located in Texas, Met Center 10 and
2400 West Marshall, that were originally sponsored by GERI,
filed bankruptcy in January 2011. The principal balances of the
mortgage debt for these two properties was approximately
$29.4 million and $6.6 million, respectively, at the
time of the bankruptcy filings. We have also become aware that
on February 1, 2011, the special servicer for each of these
loans foreclosed on all of the undivided TIC ownership interests
in these properties, except those owned by the unaffiliated
investor entities which effected the bankruptcy filings. The
automatic stay imposed following the bankruptcy filings by each
of these investor entities prevented the special servicer from
foreclosing on 100% of the TIC ownership interests.
GERI executed a non-recourse carve-out guarantee in connection
with the mortgage loan for the Met 10 property, and a
non-recourse indemnity for the 2400 West Marshall property.
As discussed in the Guarantees disclosure
above, such non-recourse carve-out guarantees and
indemnities only impose liability on GERI if certain acts
prohibited by the loan documents take place. Liability under
these non-recourse carve-out guarantees and indemnities may be
triggered by the voluntary bankruptcy filings made by the two
unaffiliated, individual investor entities. As a consequence of
these bankruptcy filings, GERI may become liable under the
guarantee and indemnity for the benefit of the mortgage lender
in connection with these TIC programs. While GERIs
ultimate liability under these agreements is uncertain as a
result of numerous factors, including, without limitation, the
amount of the lenders credit bids at the time of
foreclosure, events in the individual bankruptcy proceedings and
the ultimate disposition of those bankruptcy proceedings, and
the defenses GERI may raise under the guarantee and indemnity,
such liability may be in an amount in excess of the net worth of
NNNRA and its subsidiaries, including GERI. NNNRA and GERI are
investigating the facts and circumstances surrounding these
events, and the potential liabilities related thereto, and
intend to vigorously dispute any imposition of any liability
under any such guarantee or indemnity obligation. In the event
that GERI receives a demand for payment from the lenders
pursuant to such guarantee and indemnity arrangements, in an
amount that exceeds $1,000,000, and GERI fails to pay such
amount when due, a cross -default under our Convertible Notes
may result. We are seeking consents from the Convertible Note
holders to proposed amendments to certain provisions of the
Convertible Notes (which requires a majority of the holders in
interest thereunder) relating to any liabilities of NNNRA or its
subsidiaries. Should an event of default occur which we are
unable to cure with an amendment or waiver from the Convertible
Note holders, there would be a material and adverse effect on
our liquidity and financial position.
Daymark On February 10, 2011, we
announced that Daymark Realty Advisors, Inc.
(Daymark), our newly created, wholly-owned and
separately managed subsidiary, has been introduced into our
ownership structure to manage our nationwide
tenant-in-common
(TIC) portfolio of commercial real estate properties
managed by NNNRA. NNNRA will be a direct wholly-owned subsidiary
of Daymark. NNNRA is required to maintain a specified level of
minimum net worth under loan documents related to certain TIC
programs that it has sponsored. As of December 31, 2010,
NNNRAs net worth was below the contractually specified
level of $10 or $15 million with respect to approximately
30 percent of its managed TIC programs. Except as discussed
below, this circumstance does not, in and of itself, create any
direct recourse liability for NNNRA, failure to meet the minimum
net worth on these programs could result in the imposition of an
event of default under these TIC loan agreements and NNNRA
potentially becoming liable for up to $7.5 million, in the
aggregate, of certain partial-recourse guarantee obligations of
the underlying mortgage debt for certain of these TIC programs.
To date, no events of default have been declared and we and
NNNRA are exploring a number of measures to increase
NNNRAs net worth to the requisite amount required under
the TIC loan arrangements. In addition, as of December 31,
2010, based upon unaudited numbers, we believe that there was a
net intercompany balance payable from us to NNNRA in the amount
of approximately $13.9 million, and further, that NNNRA and
its subsidiaries, on a preliminary unaudited basis, held
$8.1 million of our $30.9 million of cash and cash
equivalents as of such date. The net payable amount is the
result of on-going transactions and services provided amongst us
and NNNRA and its subsidiaries and is a
59
reconciliation of payables and expenses for services rendered
between such entities in the normal course of business. There
can be no assurance that an independent third party would arrive
at the same net payable obligation.
On March 25, 2011, we entered into a Services Agreement (the
Services Agreement) with certain of our wholly-owned
subsidiaries pursuant to which we will provide certain
corporate, administrative and other services to the various
subsidiaries, and in connection therewith, such subsidiaries
shall recognize the provision of such services and the
allocation of the costs associated therewith. The Services
Agreement, among other things, memorializes the intercompany
account balances between us and certain of our subsidiaries and
the treatment of such intercompany balances upon the occurrence
of certain events.
Alesco On November 16, 2007, we
completed the acquisition of a 51.0% membership interest in
Grubb & Ellis Alesco Global Advisors, LLC
(Alesco) from Jay P. Leupp (Leupp).
Pursuant to the Intercompany Agreement between us and Alesco,
dated as of November 16, 2007, we committed to invest up to
$20.0 million in seed capital into certain real estate
funds that Alesco planned to launch. Additionally, upon
achievement of certain earn-out targets, we were required to
purchase up to an additional 27% interest in Alesco for
$15.0 million. To date those earn-out targets have not been
achieved. We are allowed to use $15.0 million of seed
capital to fund the earn-out payments. As of December 31,
2010, we have invested $1.5 million into the three funds
that Alesco has launched to date (the Existing Alesco
Funds). Our unfunded seed capital commitments with respect
to the Existing Alesco Funds total $2.5 million. As of
February 14, 2011, our obligation to make further seed
capital investments under the Intercompany Agreement terminated.
Subsequent
Events
For a discussion of subsequent events, see Note 28,
Subsequent Events, of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
|
|
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 we would be exposed would be interest rate risk. As of
December 31, 2010, we had no outstanding variable rate
debt; therefore we believe we have 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 we have entered into derivative financial instruments such
as interest rate swap and cap agreements when appropriate and
may do so in the future. We had no such agreements outstanding
as of December 31, 2010.
In addition to interest rate risk, the value of our 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 our ability to
refinance our outstanding mortgage debt, if necessary.
Except for the acquisition of Grubb & Ellis Alesco
Global Advisors, LLC, as previously described, we do not utilize
financial instruments for trading or other speculative purposes,
nor does it utilize leveraged financial instruments.
The table below presents, as of December 31, 2010, 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
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
Fixed rate debt principal payments
|
|
$
|
330
|
|
|
$
|
554
|
|
|
$
|
16,277
|
|
|
$
|
|
|
|
$
|
31,500
|
|
|
$
|
70,000
|
|
|
$
|
118,661
|
|
|
$
|
105,257
|
|
Weighted average interest rate on maturing debt
|
|
|
3.39
|
%
|
|
|
2.83
|
%
|
|
|
9.25
|
%
|
|
|
|
|
|
|
7.95
|
%
|
|
|
6.29
|
%
|
|
|
7.11
|
%
|
|
|
|
|
60
As of December 31, 2010, our notes payable, senior notes,
mortgage notes and Convertible Notes totaled $118.7 million
had fixed interest rates ranging from 2.00% to 9.25%, a weighted
average effective interest rate of 7.11% per annum and a fair
value of $105.3 million.
61
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Grubb & Ellis Company
|
|
|
|
|
|
|
|
63
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
70
|
|
62
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareowners of Grubb &
Ellis Company
We have audited the accompanying consolidated balance sheets of
Grubb & Ellis Company as of December 31, 2010 and
2009, and the related consolidated statements of operations,
shareowners equity, and cash flows for each of the three
years in the period ended December 31, 2010. 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 year ended
December 31, 2008, which statements reflect total assets of
$6,264,000 as of December 31, 2008, and total revenues of
$15,224,000. 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.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for its
variable interest entities as a result of the adoption of
Accounting Standards Update
No. 2009-17,
Consolidations (Topic 810): Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities, effective January 1, 2010.
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,
2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2010, 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 31, 2011
63
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 statement 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 year ended December 31, 2008. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We have conducted our audit 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
controls over financial reporting. Our audit 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 audit provides 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 year then ended 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
|
64
GRUBB &
ELLIS COMPANY
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including $307 and $581 from VIEs,
respectively)
|
|
$
|
30,919
|
|
|
$
|
39,101
|
|
Restricted cash (including $237 and $36 from VIEs, respectively)
|
|
|
8,488
|
|
|
|
13,875
|
|
Investment in marketable equity securities (including $1,703 and
$147 from VIEs, respectively)
|
|
|
2,849
|
|
|
|
690
|
|
Accounts receivable from related parties net
(including $0 and $3 from VIEs, respectively)
|
|
|
3,834
|
|
|
|
9,117
|
|
Note receivable net
|
|
|
6,126
|
|
|
|
|
|
Notes and advances to related parties net (including
$3,610 and $0 from VIEs, respectively)
|
|
|
4,004
|
|
|
|
1,019
|
|
Service fees receivable net (including $915 and
$1,076 from VIEs, respectively)
|
|
|
31,048
|
|
|
|
30,293
|
|
Professional service contracts net
|
|
|
3,468
|
|
|
|
3,626
|
|
Real estate deposits and pre-acquisition costs
|
|
|
|
|
|
|
1,321
|
|
Properties held for sale net
|
|
|
|
|
|
|
36,416
|
|
Identified intangible assets and other assets held for
sale net
|
|
|
|
|
|
|
4,370
|
|
Prepaid expenses and other assets (including $111 and $38 from
VIEs, respectively)
|
|
|
12,524
|
|
|
|
20,975
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
103,260
|
|
|
|
160,803
|
|
Accounts receivable from related parties net
|
|
|
12,344
|
|
|
|
15,609
|
|
Notes and advances to related parties net (including
$4,482 and $0 from VIEs, respectively)
|
|
|
8,271
|
|
|
|
14,607
|
|
Professional service contracts net
|
|
|
5,750
|
|
|
|
7,271
|
|
Investments in unconsolidated entities (including $4,814 and
$2,239 from VIEs, respectively)
|
|
|
5,178
|
|
|
|
3,783
|
|
Properties held for investment net
|
|
|
45,572
|
|
|
|
45,773
|
|
Property, equipment and leasehold improvements net
(including $0 and $17 from VIEs, respectively)
|
|
|
11,493
|
|
|
|
13,134
|
|
Identified intangible assets net (including $20 and
$44 from VIEs, respectively)
|
|
|
88,096
|
|
|
|
91,883
|
|
Other assets net (including $7 and $6 from VIEs,
respectively)
|
|
|
5,461
|
|
|
|
4,461
|
|
Goodwill
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
286,946
|
|
|
$
|
357,324
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREOWNERS (DEFICIT) EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (including $1,055 and $769
from VIEs, respectively)
|
|
$
|
77,388
|
|
|
$
|
62,385
|
|
Due to related parties (including $681 and $681 from VIEs,
respectively)
|
|
|
2,178
|
|
|
|
2,749
|
|
Notes payable and capital lease obligations
|
|
|
1,041
|
|
|
|
939
|
|
Mortgage notes of properties held for sale
|
|
|
|
|
|
|
37,000
|
|
Liabilities of properties held for sale net
|
|
|
|
|
|
|
4,885
|
|
Other liabilities
|
|
|
25,885
|
|
|
|
38,243
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
106,492
|
|
|
|
146,201
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
NNN senior notes
|
|
|
16,277
|
|
|
|
16,277
|
|
Convertible notes
|
|
|
30,133
|
|
|
|
|
|
Mortgage notes
|
|
|
70,000
|
|
|
|
70,000
|
|
Notes payable and capital lease obligations (including $0 and
$13 from VIEs, respectively)
|
|
|
589
|
|
|
|
755
|
|
Other long-term liabilities
|
|
|
7,065
|
|
|
|
7,358
|
|
Deferred tax liabilities
|
|
|
25,269
|
|
|
|
25,477
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
255,825
|
|
|
|
266,068
|
|
Commitments and contingencies (Note 21)
|
|
|
|
|
|
|
|
|
Preferred stock: 12% cumulative participating perpetual
convertible; $0.01 par value; 1,000,000 shares
authorized as of December 31, 2010 and 2009;
965,700 shares issued and outstanding as of
December 31, 2010 and 2009
|
|
|
90,080
|
|
|
|
90,080
|
|
Shareowners (deficit) equity:
|
|
|
|
|
|
|
|
|
Preferred stock: $0.01 par value; 19,000,000 shares
authorized as of December 31, 2010 and 2009; no shares
issued and outstanding as of December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value; 200,000,000 shares
authorized as of December 31, 2010 and 2009; 70,076,451 and
67,352,440 shares issued and outstanding as of
December 31, 2010 and 2009, respectively
|
|
|
701
|
|
|
|
674
|
|
Additional paid-in capital
|
|
|
409,943
|
|
|
|
412,754
|
|
Accumulated deficit
|
|
|
(478,881
|
)
|
|
|
(412,101
|
)
|
Other comprehensive income
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Grubb & Ellis Company shareowners
(deficit) equity
|
|
|
(68,089
|
)
|
|
|
1,327
|
|
Noncontrolling interests (including $9,130 and ($507) from VIEs,
respectively)
|
|
|
9,130
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
Total (deficit) equity
|
|
|
(58,959
|
)
|
|
|
1,176
|
|
Total liabilities and (deficit) equity
|
|
$
|
286,946
|
|
|
$
|
357,324
|
|
|
|
|
|
|
|
|
|
|
The abbreviation VIEs above means Variable Interest Entities.
See accompanying notes to consolidated financial statements.
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Management services
|
|
$
|
274,606
|
|
|
$
|
274,880
|
|
|
$
|
253,664
|
|
Transaction services
|
|
|
236,238
|
|
|
|
173,394
|
|
|
|
240,250
|
|
Investment management
|
|
|
21,333
|
|
|
|
30,368
|
|
|
|
50,982
|
|
Investment Management Daymark
|
|
|
21,918
|
|
|
|
26,718
|
|
|
|
50,599
|
|
Rental related
|
|
|
21,362
|
|
|
|
22,554
|
|
|
|
24,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
575,457
|
|
|
|
527,914
|
|
|
|
619,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
519,694
|
|
|
|
475,068
|
|
|
|
512,280
|
|
General and administrative
|
|
|
75,624
|
|
|
|
74,390
|
|
|
|
90,397
|
|
Provision for doubtful accounts
|
|
|
9,363
|
|
|
|
24,752
|
|
|
|
19,831
|
|
Depreciation and amortization
|
|
|
12,665
|
|
|
|
11,727
|
|
|
|
13,313
|
|
Rental related
|
|
|
16,523
|
|
|
|
18,192
|
|
|
|
17,799
|
|
Interest
|
|
|
8,504
|
|
|
|
13,138
|
|
|
|
11,014
|
|
Merger related costs
|
|
|
|
|
|
|
|
|
|
|
14,732
|
|
Real estate related impairments
|
|
|
859
|
|
|
|
15,305
|
|
|
|
35,637
|
|
Goodwill and intangible asset impairment
|
|
|
2,769
|
|
|
|
738
|
|
|
|
181,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
646,001
|
|
|
|
633,310
|
|
|
|
896,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(70,544
|
)
|
|
|
(105,396
|
)
|
|
|
(276,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of unconsolidated entities
|
|
|
(1,413
|
)
|
|
|
(1,148
|
)
|
|
|
(13,311
|
)
|
Interest income
|
|
|
428
|
|
|
|
555
|
|
|
|
902
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
21,935
|
|
|
|
|
|
Other
|
|
|
658
|
|
|
|
404
|
|
|
|
(6,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(327
|
)
|
|
|
21,746
|
|
|
|
(18,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax (provision)
benefit
|
|
|
(70,871
|
)
|
|
|
(83,650
|
)
|
|
|
(295,477
|
)
|
Income tax benefit (provision)
|
|
|
78
|
|
|
|
975
|
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(70,793
|
)
|
|
|
(82,675
|
)
|
|
|
(304,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(211
|
)
|
|
|
(5,266
|
)
|
|
|
(38,874
|
)
|
Gain on disposal of discontinued operations net of
taxes
|
|
|
1,273
|
|
|
|
7,442
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations
|
|
|
1,062
|
|
|
|
2,176
|
|
|
|
(38,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(69,731
|
)
|
|
|
(80,499
|
)
|
|
|
(342,589
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(2,951
|
)
|
|
|
(1,661
|
)
|
|
|
(11,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO GRUBB & ELLIS COMPANY
|
|
|
(66,780
|
)
|
|
|
(78,838
|
)
|
|
|
(330,870
|
)
|
Preferred stock dividends
|
|
|
(11,588
|
)
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company common
shareowners
|
|
$
|
(78,368
|
)
|
|
$
|
(80,608
|
)
|
|
$
|
(330,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.23
|
)
|
|
$
|
(1.30
|
)
|
|
$
|
(4.60
|
)
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
|
0.02
|
|
|
|
0.03
|
|
|
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(1.21
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.23
|
)
|
|
$
|
(1.30
|
)
|
|
$
|
(4.60
|
)
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
|
0.02
|
|
|
|
0.03
|
|
|
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Grubb & Ellis
Company common shareowners
|
|
$
|
(1.21
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
64,756
|
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
64,756
|
|
|
|
63,645
|
|
|
|
63,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
(Accumulated
|
|
|
Total Grubb &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Deficit)
|
|
|
Ellis Company
|
|
|
Non-
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Shareowners
|
|
|
Controlling
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Earnings
|
|
|
(Deficit) Equity
|
|
|
Interests
|
|
|
(Deficit)
|
|
|
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
|
|
Forfeiture 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of share-based compensation
|
|
|
|
|
|
|
|
|
|
|
9,147
|
|
|
|
|
|
|
|
|
|
|
|
9,147
|
|
|
|
|
|
|
|
9,147
|
|
Preferred dividend declared
|
|
|
|
|
|
|
|
|
|
|
(11,588
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,588
|
)
|
|
|
|
|
|
|
(11,588
|
)
|
Issuance of restricted shares to directors, officers and
employees
|
|
|
3,094
|
|
|
|
31
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of non-vested restricted shares
|
|
|
(370
|
)
|
|
|
(3
|
)
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
(343
|
)
|
|
|
|
|
|
|
(343
|
)
|
Consolidation of VIEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,219
|
|
|
|
15,219
|
|
Deconsolidation of VIEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
73
|
|
Consolidation of sponsored mutual fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
823
|
|
|
|
823
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589
|
|
|
|
589
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,932
|
)
|
|
|
(4,932
|
)
|
Compensation expense on profit sharing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
460
|
|
Change in unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
148
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,780
|
)
|
|
|
(66,780
|
)
|
|
|
(2,951
|
)
|
|
|
(69,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,632
|
)
|
|
|
(2,951
|
)
|
|
|
(69,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
70,076
|
|
|
$
|
702
|
|
|
$
|
409,942
|
|
|
$
|
148
|
|
|
$
|
(478,881
|
)
|
|
$
|
(68,089
|
)
|
|
$
|
9,130
|
|
|
$
|
(58,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The abbreviation VIEs above means Variable Interest Entities.
See accompanying notes to consolidated financial statements.
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(69,731
|
)
|
|
$
|
(80,499
|
)
|
|
$
|
(342,589
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of real estate
|
|
|
(2,039
|
)
|
|
|
1,073
|
|
|
|
|
|
Equity in losses of unconsolidated entities
|
|
|
1,413
|
|
|
|
1,148
|
|
|
|
13,311
|
|
Depreciation and amortization (including amortization of signing
bonuses)
|
|
|
21,180
|
|
|
|
17,999
|
|
|
|
28,961
|
|
Loss on disposal of property, equipment and leasehold
improvements
|
|
|
887
|
|
|
|
80
|
|
|
|
494
|
|
Goodwill and intangible asset impairment
|
|
|
2,769
|
|
|
|
738
|
|
|
|
181,285
|
|
Impairment of real estate
|
|
|
859
|
|
|
|
23,984
|
|
|
|
90,351
|
|
Share-based compensation
|
|
|
9,147
|
|
|
|
10,878
|
|
|
|
11,705
|
|
Compensation expense on profit sharing arrangements
|
|
|
460
|
|
|
|
102
|
|
|
|
1,878
|
|
Amortization/write-off of intangible contractual rights
|
|
|
|
|
|
|
251
|
|
|
|
1,179
|
|
Amortization of deferred financing costs
|
|
|
691
|
|
|
|
2,213
|
|
|
|
1,006
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
(35,253
|
)
|
|
|
|
|
(Gain) loss on sale of marketable equity securities
|
|
|
(196
|
)
|
|
|
(460
|
)
|
|
|
7,215
|
|
Deferred income taxes
|
|
|
(208
|
)
|
|
|
1,107
|
|
|
|
(3,784
|
)
|
Allowance for uncollectible accounts
|
|
|
9,363
|
|
|
|
10,714
|
|
|
|
13,319
|
|
Loss on write-off of real estate deposits, pre-acquisition costs
and advances to related parties
|
|
|
|
|
|
|
446
|
|
|
|
2,415
|
|
Other operating noncash gains (losses)
|
|
|
(488
|
)
|
|
|
|
|
|
|
2,267
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from related parties
|
|
|
2,479
|
|
|
|
7,596
|
|
|
|
6,481
|
|
Prepaid expenses and other assets
|
|
|
(831
|
)
|
|
|
(1,603
|
)
|
|
|
(28,945
|
)
|
Accounts payable and accrued expenses
|
|
|
13,203
|
|
|
|
(5,479
|
)
|
|
|
(19,915
|
)
|
Other liabilities
|
|
|
(10,702
|
)
|
|
|
(6,824
|
)
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(21,744
|
)
|
|
|
(51,789
|
)
|
|
|
(33,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash effect from deconsolidation of VIE
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,416
|
)
|
|
|
(2,881
|
)
|
|
|
(4,407
|
)
|
Tenant improvements and capital expenditures
|
|
|
(2,318
|
)
|
|
|
(2,531
|
)
|
|
|
|
|
Purchases of marketable equity securities
|
|
|
(1,608
|
)
|
|
|
(3,860
|
)
|
|
|
(997
|
)
|
Proceeds from sale of marketable equity securities
|
|
|
616
|
|
|
|
|
|
|
|
2,653
|
|
Advances to related parties
|
|
|
(941
|
)
|
|
|
(4,171
|
)
|
|
|
(28,273
|
)
|
Proceeds from repayment of advances to related parties
|
|
|
5,256
|
|
|
|
2,323
|
|
|
|
33,643
|
|
Payments to related parties
|
|
|
|
|
|
|
(180
|
)
|
|
|
(882
|
)
|
Investments in unconsolidated entities
|
|
|
(863
|
)
|
|
|
(566
|
)
|
|
|
(29,163
|
)
|
Sale of
tenant-in-common
interests in unconsolidated entities
|
|
|
391
|
|
|
|
|
|
|
|
|
|
Distributions of capital from unconsolidated entities
|
|
|
670
|
|
|
|
752
|
|
|
|
914
|
|
Acquisition of businesses net of cash acquired
|
|
|
(2,740
|
)
|
|
|
|
|
|
|
|
|
Acquisition of properties
|
|
|
|
|
|
|
|
|
|
|
(122,163
|
)
|
Proceeds from sale of properties
|
|
|
38,456
|
|
|
|
93,471
|
|
|
|
|
|
Real estate deposits and pre-acquisition costs
|
|
|
(5,593
|
)
|
|
|
(199
|
)
|
|
|
(59,780
|
)
|
Proceeds from collection of real estate deposits and
pre-acquisition costs
|
|
|
5,972
|
|
|
|
4,717
|
|
|
|
118,835
|
|
Change in restricted cash
|
|
|
5,327
|
|
|
|
(318
|
)
|
|
|
13,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
38,025
|
|
|
|
86,557
|
|
|
|
(76,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
GRUBB &
ELLIS COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on line of credit
|
|
|
|
|
|
|
15,206
|
|
|
|
55,000
|
|
Repayment of advances on line of credit
|
|
|
|
|
|
|
(56,271
|
)
|
|
|
|
|
Borrowings on mortgage notes and notes payable
|
|
|
|
|
|
|
1,417
|
|
|
|
103,339
|
|
Repayments of mortgage notes, notes payable and capital lease
obligations
|
|
|
(37,935
|
)
|
|
|
(79,394
|
)
|
|
|
(56,386
|
)
|
Financing costs
|
|
|
(522
|
)
|
|
|
(1,801
|
)
|
|
|
(2,412
|
)
|
Proceeds from the issuance of convertible notes
|
|
|
29,925
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
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
|
)
|
Dividends paid to preferred shareowners
|
|
|
(11,588
|
)
|
|
|
(1,770
|
)
|
|
|
|
|
Contributions from noncontrolling interests
|
|
|
589
|
|
|
|
5,959
|
|
|
|
15,084
|
|
Distributions to noncontrolling interests
|
|
|
(4,932
|
)
|
|
|
(2,078
|
)
|
|
|
(4,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(24,463
|
)
|
|
|
(28,652
|
)
|
|
|
93,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(8,182
|
)
|
|
|
6,116
|
|
|
|
(16,343
|
)
|
Cash and cash equivalents beginning of year
|
|
|
39,101
|
|
|
|
32,985
|
|
|
|
49,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year
|
|
$
|
30,919
|
|
|
$
|
39,101
|
|
|
$
|
32,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
8,797
|
|
|
$
|
15,431
|
|
|
$
|
21,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
409
|
|
|
$
|
1,298
|
|
|
$
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
$
|
|
|
|
$
|
534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for tenant improvements, lease commissions and capital
expenditures
|
|
$
|
199
|
|
|
$
|
236
|
|
|
$
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired with capital lease obligations
|
|
$
|
|
|
|
$
|
2,270
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of assets held by VIEs
|
|
$
|
15,917
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of liabilities held by VIEs
|
|
$
|
699
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of noncontrolling interests held by VIEs
|
|
$
|
15,218
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of assets held by VIEs
|
|
$
|
338
|
|
|
$
|
20,356
|
|
|
$
|
301,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of liabilities held by VIEs
|
|
$
|
411
|
|
|
$
|
33,674
|
|
|
$
|
222,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of noncontrolling interests held by VIEs
|
|
$
|
73
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of sponsored mutual fund
|
|
$
|
823
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of noncontrolling interests related to sponsored
mutual fund
|
|
$
|
823
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of sponsored mutual fund
|
|
$
|
|
|
|
$
|
5,141
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses
|
|
$
|
2,543
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed in acquisition of businesses
|
|
$
|
1,629
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The abbreviation VIEs above means Variable Interest Entities.
See accompanying notes to consolidated financial statements.
69
GRUBB &
ELLIS COMPANY
FOR THE
YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
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. With
over 5,200 professionals in more than 100 company-owned and
affiliate offices throughout the United States
(U.S.), our professionals draw from a platform of
real estate services, practice groups and investment products to
deliver comprehensive, integrated solutions to real estate
owners, tenants, investors, lenders and corporate occupiers. Our
range of services includes tenant representation, property and
agency leasing, commercial property and corporate facilities
management, property sales, appraisal and valuation and
commercial mortgage brokerage and investment management. Our
transaction, management, consulting and investment services are
supported by proprietary market research and extensive local
expertise. Through our investment management business, we are a
sponsor of real estate investment programs, including public
non-traded real estate investment trusts (REITs).
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation Our accompanying
financial statements have been prepared assuming that we will
continue as a going concern, which contemplates realization of
assets and the satisfaction of liabilities in the normal course
of business for the twelve month period following the date of
these financial statements.
On March 21, 2011, the Company announced that it had
engaged an external advisor to explore strategic alternatives,
including the potential sale or merger of the Company. In
conjunction with the announcement, the board of directors also
determined, as permitted, not to declare the March 31, 2011
quarterly dividend to holders of its 12% Cumulative
Participating Perpetual Convertible Preferred Stock.
The Company had been seeking additional financing to address
liquidity needs resulting from operating losses relating to the
seasonal nature of the real estate services businesses,
investments made in growth initiatives and increased legal
expenses related to its Daymark subsidiary. As more fully
discussed in Note 28, on March 30, 2011 the Company
entered into a commitment letter with respect to an
$18.0 million senior secured term loan facility. The
commitment letter contains customary conditions to closing. If
the Company is not successful in meeting such conditions to
closing and is unable to obtain funding under the proposed
credit facility or an alternative funding facility, it could
create substantial doubt about the Companys ability to
continue as a going concern for the twelve month period
following the date of these financial statements. Management
believes that with the completion of the $18 million senior
secured term loan facility, they will have sufficient liquidity
to operate in the normal course through at least
December 31, 2011.
Principles of Consolidation The consolidated
financial statements include our accounts and those of our
wholly owned and majority-owned controlled subsidiaries,
variable interest entities (VIEs) in which we are
the primary beneficiary, and partnerships/limited liability
companies (LLCs) in which we are the managing member
or general partner and the other partners/members lack
substantive rights. All significant intercompany accounts and
transactions have been eliminated in consolidation.
We consolidate entities that are VIEs when we are deemed to be
the primary beneficiary of the VIE. We are deemed to be the
primary beneficiary of the VIE if we have a significant variable
interest in the VIE that provides us with a controlling
financial interest in the VIE. Our variable interest provides us
with a controlling financial interest if we have both
(i) the power to direct the activities of the VIE that most
significantly impact the entitys economic performance and
(ii) the obligation to absorb losses of the entity that
could potentially be significant to the VIE or the right to
receive benefits from the entity that could potentially be
significant to the VIE. There is subjectivity around the
determination of power and which activities of the VIE most
significantly impact the entitys economic performance. For
entities in which (i) we are not deemed to be the primary
beneficiary, (ii) our ownership is 50.0% or less and
(iii) we have the ability to exercise significant
influence, we use the equity method of accounting (i.e. at cost,
increased or decreased by our share of earnings or losses, plus
contributions less distributions). We also use the equity method
of accounting for
70
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
jointly controlled
tenant-in-common
interests. As reconsideration events occur, we will reconsider
our 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. In addition, we will continuously evaluate our
VIEs primary beneficiary as facts and circumstances change
to determine if such changes warrant a change in an
enterprises status as primary beneficiary of the VIEs.
On January 1, 2010, we adopted an amendment to the
requirements of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC), Topic 810, Consolidation,
(Consolidation Topic) and as a result, consolidated
four LLCs and deconsolidated one joint venture LLC. We recorded
the cumulative effect of the adoption of this amendment to our
financial statements as of January 1, 2010. For the four
LLCs that were consolidated, this consisted primarily of
consolidating: (i) investments in unconsolidated entities
for the LLCs ownership interest in properties,
(ii) advances made by a consolidated LLC to other
unconsolidated LLCs, (iii) restricted cash,
(iv) accounts payable and accrued liabilities and
(v) noncontrolling interests related to the LLCs equity.
For the one joint venture LLC that was deconsolidated, this
consisted primarily of deconsolidating: (i) cash,
(ii) accounts payable and accrued liabilities and
(iii) noncontrolling interests related to the LLC equity.
The adoption of the amendment to the requirements of the
Consolidation Topic resulted in the following impact to our
Consolidated Balance Sheet as of January 1, 2010:
(i) assets increased by $14.9 million,
(ii) liabilities increased by $0.1 million and
(iii) noncontrolling interests increased by
$14.8 million. See the parenthetical disclosures on our
Consolidated Balance Sheets regarding amounts of VIEs assets and
liabilities that are consolidated as of December 31, 2010
and 2009.
Use of Estimates The financial statements
have been prepared in conformity with accounting principles
generally accepted in the United States (GAAP),
which require 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.
Reclassifications Certain reclassifications
have been made to prior year amounts in order to conform to the
current period presentation. These reclassifications have no
effect on reported net loss.
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, 2010 and 2009, the restricted cash balance
was $8.5 million and $13.9 million, respectively.
Marketable Securities We account for
investments in marketable debt and equity securities in
accordance with the requirements of ASC Topic 320,
Investments Debt and Equity Securities,
(Investments Topic). We determine the appropriate
classification of debt and equity securities at the time of
purchase and re-evaluate 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 Investments 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
71
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 our 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 include funds held by
escrow agents and others to be applied towards the purchase of
real estate. Real estate deposits may become nonrefundable under
certain circumstances. Pre-acquisition costs include costs
incurred when we evaluate properties for our sponsored REITs.
Such costs are reimbursed by the REIT if the property is
purchased. If the property is no longer sought for acquisition,
the pre-acquisition costs are written off and are included in
general and administrative expense in our consolidated statement
of operations. There were no real estate deposits and
pre-acquisition costs outstanding as of December 31, 2010.
The real estate deposits and pre-acquisition costs outstanding
as of December 31, 2009 were either refunded to us during
the subsequent year or used to purchase property by our
sponsored REITs and subsequently reimbursed by the sponsored
REIT.
Identified Intangible Assets Our acquisitions
require the application of purchase accounting in accordance
with the requirements of ASC Topic 805, Business Combinations
(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. 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.
Properties Held for Sale In accordance with
the requirements of ASC Topic 360, Property, Plant, and
Equipment, (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. We classify
operating properties as properties held for sale in the period
in which all of the required criteria are met.
The Property, Plant and Equipment 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
72
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
beyond the date of sale, the operations of the component instead
continue to be fully recorded within our continuing operations
through the date of sale. In accordance with this requirement,
we record the results of operations related to real estate held
for sale as discontinued operations only when we expect 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, we would recognize an
impairment loss to the extent the carrying amount exceeded the
fair value of the property. If an impairment indicator exists,
we generally use a discounted cash flow model to estimate the
fair value of the property and measure the impairment. We use
our 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, 2010, capitalization rates used in these
measurements generally fell within a range of 7.8% to 9.0%. We
recorded real estate impairments related to a property held for
investment of $0, $5.0 million and $17.7 million
during the years ended December 31, 2010, 2009 and 2008,
respectively. We recorded real estate related impairments
related to investments in unconsolidated entities and funding
commitments for obligations related to certain of our sponsored
real estate programs of $0.9 million, $10.3 million
and $18.0 million during the years ended December 31,
2010, 2009 and 2008, respectively. We recorded real estate
impairments related to properties sold and effectively abandoned
under the accounting standards of approximately $0,
$8.7 million and $54.7 million during the years ended
December 31, 2010, 2009 and 2008, respectively, which are
included in discontinued operations.
We recognize goodwill and other
non-amortizing
intangible assets in accordance with the requirements of ASC
Topic 350, Intangibles Goodwill and Other,
(Goodwill and Other Topic). Under the Goodwill and
Other 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. We recognize goodwill in accordance with
the requirements of the Goodwill and Other Topic and test 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 the reporting units, we used a discounted cash flow model and
market comparable data. Significant judgment is required by us
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 may exist. 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. We also test our trade name for
impairment during the
73
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fourth quarter of each year. We estimated the fair value of our
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 our trade name for impairment, we test 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. We analyze
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 we determine that certain disposition
fees are improbable, we record 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 us, unless future contingencies exist. In
addition, in regard to management and facility service
contracts, the owner of the property will typically reimburse us
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 us in the same period as the related
expenses are incurred. In certain instances, we subcontract
property management services to independent property managers,
in which case we pass a portion of their property management fee
on to the subcontractor, and we retain the balance. Accordingly,
we record these fees net of the amounts paid to our
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 of our 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 us to the client, unless future
contingencies exist.
Investment
Management
We earn fees associated with our transactions by structuring,
negotiating and closing acquisitions of real estate properties
for our REIT. Such fees include acquisition fees for locating
and acquiring the property on behalf of our REIT. We account for
acquisition fees in accordance with the requirements of the ASC
Topic 970, Real Estate General Topic,
(Real Estate General Topic) and ASC
Topic 976, Real Estate Retail Land
(Real Estate Retail Land Topic). In
general, we record the acquisition 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,
is reasonably assured, and we are not responsible for supporting
operations of the property. We earn disposition fees for
disposing of the property on behalf of the REIT. We recognize
the disposition fee when the sale of the property closes.
We earn asset and property management fees primarily for
managing the operations of real estate properties owned by the
REITs we sponsor. Such fees are based on pre-established
formulas and contractual arrangements and are earned as such
services are performed. We are entitled to receive reimbursement
for
74
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expenses associated with managing the properties; these expenses
include salaries for property managers and other personnel
providing services to the property. We are also entitled to
leasing commissions when a new tenant is secured and upon tenant
renewals. Leasing commissions are recognized upon execution of
leases.
Through our dealer-manager, we facilitate capital raising
transactions for our sponsored programs. Our wholesale
dealer-manager services are comprised of raising capital for our
programs through our selling broker-dealer relationships. Most
of the commissions, fees and allowances earned for our
dealer-manager services are passed on to the selling
broker-dealers as commissions and to cover offering expenses,
and we retain the balance. Accordingly, we record these fees net
of the amounts paid to our selling broker-dealer relationships.
Investment
Management Daymark
We earn transaction fees associated with structuring,
negotiating and closing acquisitions of real estate properties
for third-party investors in our TIC and other investment
programs. Such fees include acquisition fees for locating and
acquiring the property on behalf of our various TIC investors
and sponsored real estate funds. We account for acquisition and
loan fees in accordance with the requirements of the Real
Estate General Topic and Real Estate
Retail Land Topic. In general, we record 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 we are 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 we do not meet the criteria for revenue
recognition under the Real Estate General Topic and
the Real Estate Retail Land Topic, revenue is
deferred until revenue can be reasonably estimated or until we
defer revenue up to our maximum exposure to loss. We earn
disposition fees for disposing of the property on behalf of the
investment fund or TIC program. We recognize the disposition fee
when the sale of the property closes. In certain circumstances,
we are entitled to loan advisory fees for arranging financing
related to properties under management.
We earn asset and property management fees primarily for
managing the operations of real estate properties owned by the
real estate programs and TIC programs we sponsor. Such fees are
based on pre-established formulas and contractual arrangements
and are earned as such services are performed. We are 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 our TIC programs may also be charged an
accounting fee for costs associated with preparing financial
reports. We are also entitled to leasing commissions when a new
tenant is secured and upon tenant renewals. Leasing commissions
are recognized upon execution of leases.
Through our dealer-manager, we facilitate capital raising
transactions for our sponsored programs. Our wholesale
dealer-manager services are comprised of raising capital for our
programs through our selling broker-dealer relationships. Most
of the commissions, fees and allowances earned for our
dealer-manager services are passed on to the selling
broker-dealers as commissions and to cover offering expenses,
and we retain the balance. Accordingly, we record these fees net
of the amounts paid to our selling broker-dealer relationships.
Professional Service Contracts We hold
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 $7.2 million,
$7.9 million and $9.2 million was recorded for the
years ended December 31, 2010, 2009 and 2008, respectively,
and is included in compensation costs in our consolidated
statement of operations.
75
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair Value of Financial Instruments ASC Topic
825, Financial Instruments, (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 Financial Instruments 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 unobservable
assumptions categorized in Level 3 of the hierarchy,
including 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 our 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.
The fair value of our mortgage notes, notes payable, senior
notes, convertible notes and preferred stock is estimated using
borrowing rates available to us for debt instruments with
similar terms and maturities. As of December 31, 2010, the
fair values of our mortgage notes, notes payable, senior notes,
convertible notes and preferred stock were calculated to be
approximately $59.6 million, $0.7 million,
$16.1 million, $28.8 million (which includes an
unamortized debt discount of $1.4 million) and
$91.8 million, respectively, compared to the carrying
values of $70.0 million, $0.9 million,
$16.3 million, $30.1 million and $90.1 million,
respectively. As of December 31, 2009, the fair values of
our mortgage notes, senior notes and preferred stock were
approximately $94.5 million, $15.8 million and
$94.6 million, respectively, compared to the carrying
values of $107.0 million, $16.3 million and
$90.1 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, we adopted the requirements of ASC Topic
820, Fair Value Measurements and Disclosures, (Fair
Value Measurements and Disclosures Topic). The Fair Value
Measurements and Disclosures Topic defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. The Fair Value
Measurements and Disclosures 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 Fair Value Measurements and Disclosures
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 are the highest priority and are quoted
prices in active markets for identical assets or liabilities
Level 2 inputs reflect other than quoted prices included in
Level 1 that are observable directly or through
corroboration with observable market data. 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, due to little or no market activity for the
asset or liability, such as internally-developed valuation
models. If quoted market prices or inputs are not available,
fair value measurements are based upon valuation models that
utilize current market or independently sourced market inputs,
such as interest rates, option volatilities, credit spreads and
market capitalization rates. Items
76
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valued using such internally-generated valuation techniques are
classified according to the lowest level input that is
significant to the fair value measurement. As a result, the
asset or liability could be classified in either Level 2 or
3 even though there may be some significant inputs that are
readily observable. 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. Our 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.
We generally use a discounted cash flow model to estimate the
fair value of our consolidated real estate investments, 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.
Generally, if a property is under contract, the contract price
adjusted for selling expenses is used to estimate the fair value
of the property.
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, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
Total
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
Impairment
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Losses Incurred
|
(In thousands)
|
|
2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
in 2010
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable equity securities
|
|
$
|
2,849
|
|
|
$
|
2,849
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Properties held for investment
|
|
$
|
45,572
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,572
|
|
|
$
|
|
|
Investments in unconsolidated entities
|
|
$
|
5,178
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,178
|
|
|
$
|
(646
|
)
|
Life insurance contracts
|
|
$
|
1,062
|
|
|
$
|
|
|
|
$
|
1,062
|
|
|
$
|
|
|
|
$
|
|
|
77
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, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Total
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Impairment
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Losses Incurred
|
|
(In thousands)
|
|
2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
in 2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable equity securities
|
|
$
|
690
|
|
|
$
|
690
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Properties held for sale
|
|
$
|
36,416
|
|
|
|
|
|
|
|
|
|
|
$
|
36,416
|
|
|
$
|
(2,067
|
)
|
Properties held for investment
|
|
$
|
45,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45,773
|
|
|
$
|
(4,983
|
)
|
Investments in unconsolidated entities
|
|
$
|
3,783
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,783
|
|
|
$
|
(3,201
|
)
|
Life insurance contracts
|
|
$
|
1,044
|
|
|
$
|
|
|
|
$
|
1,044
|
|
|
$
|
|
|
|
$
|
|
|
Share-based Compensation Effective
January 1, 2006, we adopted the requirements of ASC Topic
718, Compensation Stock 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. For an award that has a graded vesting schedule,
we recognize share-based compensation expense on a straight-line
basis over the requisite service period for the entire award.
(Loss) earnings per share We apply the
two-class method when computing our (loss) earnings per share as
required by ASC Topic 260, Earnings Per Share
(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
our net income is distributed as dividends to each class of
stock based on their contractual rights. To the extent we have
undistributed earnings in any calendar quarter, we 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.
Concentration of Credit Risk Financial
instruments that potentially subject us to a concentration of
credit risk are primarily cash investments and accounts
receivable. We currently maintain substantially all of our cash
with several major financial institutions. We have 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, 2010, we had cash accounts
in excess of FDIC insured limits. We believe this risk is not
significant. Concentration of credit risk with respect to
accounts receivable is limited due to the large number of
customers and their geographic dispersion.
Accrued Claims and Settlements We maintain
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
78
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 We account for our guarantees in
accordance with the requirements of ASC Topic 460, Guarantees
(Guarantees Topic). The Guarantees Topic
elaborates on the disclosures to be made by the guarantor in our
interim and annual financial statements about our obligations
under certain guarantees that it has issued. It also requires
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 ASC Topic 740, Income Taxes (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, 2010 and 2009, we
recorded a valuation allowance of $24.8 million and
$30.5 million, respectively. The Income Taxes 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. We also assess
our ability to utilize tax attributes, including those in the
form of carryforwards, for which the benefits have already been
reflected in the financial statements. We do not record
valuation allowances for deferred tax assets that we believe
will be realized in future periods. While we believe the
resulting tax balances as of December 31, 2010 and 2009 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 our
consolidated financial statements and such adjustments could be
material. See Note 25 for further information regarding
income taxes.
Comprehensive (Loss) Income Pursuant to the
requirements of ASC Topic 220, Comprehensive Income
(Comprehensive Income Topic), we have included a
calculation of comprehensive (loss) income in our accompanying
consolidated statements of shareowners equity for the
years ended December 31, 2010, 2009 and 2008. Comprehensive
(loss) income includes net (loss) income adjusted for certain
revenues, expenses, gains and losses that are excluded from net
(loss) income.
Segment Disclosure We divide our services
into segments in accordance with the requirements of ASC Topic
280, Segment Reporting (Segment Reporting
Topic). In the fourth quarter of 2010, we added a fourth
reporting segment with the creation of Daymark Realty Advisors,
Inc. (Daymark) to manage our legacy
tenant-in-common
(TIC) portfolio. Our four business segments are as
follows: (1) Management Services, which includes property
management, corporate facilities management, project management,
client accounting, business services and engineering services
for corporate occupier and real estate investor clients
(2) Transaction Services, which comprises our real estate
brokerage, valuation and appraisal operations;
(3) Investment Management, which encompasses acquisition,
financing, disposition and asset management services for our
investment programs and dealer-manager services by our
securities broker-dealer, which facilitates capital raising
transactions for its real estate investment trust
(REIT) and other investment programs; and
(4) Daymark, which includes our legacy TIC business.
Derivative Instruments and Hedging Activities
We apply the requirements of ASC Topic 815, Derivatives and
Hedging (Derivatives and Hedging Topic). The
Derivatives and Hedging Topic requires
79
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Derivatives and
Hedging Topic, but will have no effect on cash flows. We do not
have any derivative instruments as of December 31, 2010 and
2009. As of December 31, 2008, our derivatives consisted
solely of four interest rate cap agreements with third parties,
which were executed in relation to our credit agreement or notes
payable obligations. These cap agreements were accounted for as
ineffective cash flow hedges as of December 31, 2008.
Litigation We routinely assess the likelihood
of any adverse judgments or outcomes related to legal matters,
as well as ranges of probable losses. A determination of the
amount of the reserves required, if any, for these contingencies
is made after analysis of each known issue and an analysis of
historical experience. Therefore, we have recorded reserves
related to certain legal matters for which we believe it is
probable that a loss will be incurred and the range of such loss
can be estimated. With respect to other matters, we have
concluded that a loss is only reasonably possible or remote, or
is not estimable and, therefore, no liability is recorded.
Assessing the likely outcome of pending litigation, including
the amount of potential loss, if any, is highly subjective. Our
judgments regarding likelihood of loss and our estimates of
probable loss amounts may differ from actual results due to
difficulties in predicting the outcome of jury trials,
arbitration hearings, settlement discussions and related
activity, and various other uncertainties. Due to the number of
claims which are periodically asserted against us, and the
magnitude of damages sought in those claims, actual losses in
the future could significantly exceed our current estimates.
Recently
Issued Accounting Pronouncements
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. We adopted
this amendment to the requirements of the Consolidation Topic on
January 1, 2010 and as a result, consolidated four VIEs and
deconsolidated one VIE as of January 1, 2010. See
Note 7 for further information.
In January 2010, the FASB issued Accounting Standards Update, or
ASU,
2010-06,
Improving Disclosures about Fair Value Measurements, or
ASU 2010-06.
ASU 2010-06
amends the Fair Value Measurements and Disclosures Topic to
require additional disclosure and clarify existing disclosure
requirements about fair value measurements. ASU
2010-06
requires entities to provide fair value disclosures by each
class of assets and liabilities, which may be a subset of assets
and liabilities within a line item in the statement of financial
position. The additional requirements also include disclosure
regarding the amounts and reasons for significant transfers in
and out of Level 1 and 2 of the fair value hierarchy and
separate presentation of purchases, sales, issuances and
settlements of items within Level 3 of the fair value
hierarchy. The guidance clarifies existing disclosure
requirements regarding the inputs and valuation techniques used
to measure fair value for measurements that fall in either
Level 2 or Level 3 of the hierarchy. ASU
2010-06 is
effective for interim and annual reporting periods beginning
after December 15, 2009 except for the disclosures about
purchases, sales, issuances and settlements which is effective
for fiscal years beginning after December 15, 2010 and for
interim periods within those fiscal years. We adopted ASU
2010-06 on
January 1, 2010, which only applies to our disclosures on
the fair value of financial instruments. The adoption of ASU
2010-06 did
not have a material impact on our footnote disclosures. We have
provided these disclosures in Note 2, Summary of
Significant Accounting Policies, above.
80
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2010, the FASB issued ASU
2010-21,
Accounting for Technical Amendments to Various SEC Rules and
Schedules, or ASU
2010-21. ASU
2010-21
updates various SEC paragraphs pursuant to the issuance of
Release
No. 33-9026:
Technical Amendments to Rules, Forms, Schedules and Codification
of Financial Reporting Policies. The changes affect provisions
relating to consolidation and reporting requirements under
conditions of majority and minority ownership positions and
ownership by both controlling and noncontrolling entities. The
amendments also deal with redeemable and non-redeemable
preferred stocks and convertible preferred stocks. We adopted
ASU 2010-21
upon issuance in August 2010. The adoption of ASU
2010-21 did
not have a material impact on our consolidated financial
statements.
In August 2010, the FASB issued ASU
2010-22,
Accounting for Various Topics Technical
Corrections to SEC Paragraphs, or ASU
2010-22. ASU
2010-22
amends various SEC paragraphs based on external comments
received and the issuance of Staff Accounting Bulletin, or SAB,
112, which amends or rescinds portions of certain SAB topics.
The topics affected include reporting of inventories in
financial statements for
Form 10-Q,
debt issue costs in conjunction with a business combination,
business combinations prior to an initial public offering,
accounting for divestitures, and accounting for oil and gas
exchange offers. We adopted ASU
2010-22 upon
issuance in August 2010. The adoption of ASU
2010-22 did
not have a material impact on our consolidated financial
statements.
In December 2010, the FASB issued ASU
2010-29,
Business Combinations (Topic 805), or ASU
2010-29. ASU
2010-29
amends the Business Combinations Topic to require the disclosure
of pro forma revenue and earnings for all business combinations
that occurred during the current year to be presented as of the
beginning of the comparable prior annual reporting period. The
amendments in ASU
2010-29 also
expand the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and
earnings. ASU
2010-29 is
effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. Early
adoption is permitted.
We apply the provisions of the Fair Value Measurements and
Disclosures Topic to our 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 us to estimate the fair value of our
available-for-sale
marketable securities.
The historical cost and estimated fair value of the
available-for-sale
marketable securities held by us are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Historical
|
|
|
Unrealized
|
|
|
Market
|
|
|
Historical
|
|
|
Gross Unrealized
|
|
|
Market
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
998
|
|
|
$
|
148
|
|
|
$
|
|
|
|
$
|
1,146
|
|
|
$
|
543
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of equity securities, or other than
temporary impairments recorded, for the years ended
December 31, 2010 and 2009. Sales of marketable equity
securities resulted in realized losses of approximately
$1.8 million during 2008, of which we recognized
$1.6 million of these losses during the second quarter,
prior to the sale of all the securities, as we believed that the
decline in the value of these securities was other than
temporary.
81
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments
in Limited Partnerships
We served as general partner and investment advisor, through our
51.0% ownership interest in Grubb & Ellis Alesco
Global Advisors, LLC (Alesco), to one limited
partnership and as investment advisor to three mutual funds as
of December 31, 2010 and 2009. As of December 31, 2010
and 2009, the limited partnership, Grubb & Ellis AGA
Real Estate Investment Fund LP, is required to be
consolidated in accordance with the Consolidation Topic. In
addition, as of December 31, 2010, one mutual fund,
Grubb & Ellis AGA International Realty Fund, is
required to be consolidated in accordance with the requirements
of the Consolidation Topic.
For the years ended December 31, 2010, 2009 and 2008,
Alesco had investment income (loss) of approximately
$0.2 million, $0.6 million and $(4.6) million,
respectively. The investment income (loss) is related to the
limited partnership and mutual funds and is reflected in other
income and offset in noncontrolling interest in loss of
consolidated entities on the statement of operations. As of
December 31, 2010 and 2009, the consolidated limited
partnership and mutual fund had assets of approximately
$1.7 million and $0.1 million, respectively, primarily
consisting of exchange traded marketable securities, including
equity securities and foreign currencies.
The following table reflects trading securities owned by limited
partnership and the mutual fund which we consolidate. 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, 2010
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Historical
|
|
|
Unrealized
|
|
|
Market
|
|
|
Historical
|
|
|
Gross Unrealized
|
|
|
Market
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Equity securities
|
|
$
|
1,507
|
|
|
$
|
218
|
|
|
$
|
(22
|
)
|
|
$
|
1,703
|
|
|
$
|
170
|
|
|
$
|
|
|
|
$
|
(23
|
)
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
|
For The Year Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Gains
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Gains
|
|
|
|
|
(In thousands)
|
|
Income
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
Total
|
|
|
Income
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
Total
|
|
|
Equity securities
|
|
$
|
53
|
|
|
$
|
171
|
|
|
$
|
9
|
|
|
$
|
233
|
|
|
$
|
206
|
|
|
$
|
(191
|
)
|
|
$
|
651
|
|
|
$
|
666
|
|
Less investment expenses
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23
|
|
|
$
|
171
|
|
|
$
|
9
|
|
|
$
|
203
|
|
|
$
|
180
|
|
|
$
|
(191
|
)
|
|
$
|
651
|
|
|
$
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Gains
|
|
|
|
|
(In thousands)
|
|
Income
|
|
|
(Losses)
|
|
|
(Losses)
|
|
|
Total
|
|
|
Equity securities
|
|
$
|
307
|
|
|
$
|
(5,454
|
)
|
|
$
|
841
|
|
|
$
|
(4,306
|
)
|
Less investment expenses
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
$
|
24
|
|
|
$
|
(5,454
|
)
|
|
$
|
841
|
|
|
$
|
(4,589
|
)
|
82
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Related party balances are summarized below:
Accounts
Receivable
Accounts receivable from related parties consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
Accrued property and asset management fees
|
|
$
|
18,623
|
|
|
$
|
21,564
|
|
Accrued lease commissions
|
|
|
4,850
|
|
|
|
7,449
|
|
Other accrued fees
|
|
|
2,392
|
|
|
|
2,200
|
|
Accounts receivable from sponsored REIT
|
|
|
2,741
|
|
|
|
3,696
|
|
Accrued real estate acquisition fees
|
|
|
|
|
|
|
697
|
|
Other receivables
|
|
|
432
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,038
|
|
|
|
35,716
|
|
Allowance for uncollectible receivables
|
|
|
(12,860
|
)
|
|
|
(10,990
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable from related parties net
|
|
|
16,178
|
|
|
|
24,726
|
|
Less portion classified as current
|
|
|
(3,834
|
)
|
|
|
(9,117
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
12,344
|
|
|
$
|
15,609
|
|
|
|
|
|
|
|
|
|
|
Notes
and Advances to Related Parties
We make advances to affiliated real estate entities under
management in the normal course of business. Such advances are
uncollateralized, have payment terms of one year or less unless
extended by us, and generally bear interest at a range of 6.0%
to 12.0% per annum. The advances consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
Notes and advances to related parties
|
|
$
|
23,569
|
|
|
$
|
28,302
|
|
Allowance for uncollectible advances
|
|
|
(11,294
|
)
|
|
|
(12,676
|
)
|
|
|
|
|
|
|
|
|
|
Notes and advances to related parties net
|
|
|
12,275
|
|
|
|
15,626
|
|
Less portion classified as current
|
|
|
(4,004
|
)
|
|
|
(1,019
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
8,271
|
|
|
$
|
14,607
|
|
|
|
|
|
|
|
|
|
|
Notes and advances to related parties as of December 31,
2010 includes $8.0 million advanced by a VIE that was
consolidated as of January 1, 2010 pursuant to an amendment
to the requirements of the Consolidation Topic which was
effective as of January 1, 2010.
In 2009, we revised the offering terms related to certain
investment programs which we sponsor, including the commitment
to fund additional property reserves and the waiver or reduction
of future management fees and disposition fees. Such future
funding commitments have been made in the form of guaranteeing
the collectability of advances that one of our consolidated VIEs
has made to these investment programs. As of December 31,
2010, the future funding commitments under the guarantee totaled
approximately $2.0 million.
83
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note
Receivable
Included in notes and advances to related parties as of
December 31, 2009 is a note receivable from
Grubb & Ellis Apartment REIT, Inc. (Apartment
REIT) of $9.1 million. The note had 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 note
was subject to a one-time adjustment to a maximum rate of 6.0%
per annum on July 1, 2010. The interest rate was not
adjusted on July 1, 2010 and remained at 4.5% per annum.
On August 11, 2010, we executed the Amended Consolidated
Promissory Note with Apartment REIT. The material terms of the
Amended Consolidated Promissory Note extended the maturity date
from January 1, 2011 to July 17, 2012, and fixed the
interest rate at 4.5% per annum and the default interest rate at
6.5% per annum.
On November 1, 2010, we terminated our advisory and
dealer-manager relationship with Apartment REIT. In February
2011 we sold the note receivable from Apartment REIT with a
remaining principal balance of $7.75 million to a third
party for $6.1 million in net proceeds. We recognized an
impairment charge of $1.6 million during the fourth quarter
of 2010 to write down the note receivable to its fair market
value of $6.1 million as of December 31, 2010, which
is included in Notes Receivable, net.
|
|
5.
|
SERVICE
FEES RECEIVABLE, NET
|
Service fees receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
Management services fees receivable
|
|
$
|
21,740
|
|
|
$
|
14,729
|
|
Transaction services fees receivable
|
|
|
10,451
|
|
|
|
11,436
|
|
Investment management fees receivable
|
|
|
2,461
|
|
|
|
5,275
|
|
Allowance for uncollectible accounts
|
|
|
(3,424
|
)
|
|
|
(751
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,228
|
|
|
|
30,689
|
|
Less portion classified as current
|
|
|
(31,048
|
)
|
|
|
(30,293
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion (included in other assets)
|
|
$
|
180
|
|
|
$
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
PROFESSIONAL
SERVICE CONTRACTS
|
As part of the transaction services business, we have entered
into service contracts with various employee real estate
brokers. These service contracts generally have terms ranging
from 12 to 60 months. We recorded assets, net of
amortization, of approximately $9.2 million and
$10.9 million related to these contracts as of
December 31, 2010 and 2009, respectively. In addition, we
have approximately $2.4 million of additional commitments
and expect to incur amortization expense of approximately
$5.8 million, $2.9 million, $1.8 million,
$0.8 million and $0.3 million related to these
contracts during the years ended 2011, 2012, 2013, 2014 and
2015, respectively.
|
|
7.
|
VARIABLE
INTEREST ENTITIES
|
The determination of the appropriate accounting method with
respect to our VIEs, including joint ventures, is based on the
requirements of the Consolidation Topic. We consolidate any VIE
for which we are the primary beneficiary. In accordance with the
requirements of the Consolidation Topic, we analyze our variable
interests, including equity investments, guarantees, management
agreements and advances, to determine if an
84
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
entity in which we have a variable interest, is a VIE. Our
analysis includes both quantitative and qualitative reviews. We
base our quantitative analysis on the estimated future cash
flows of the entity, and our qualitative analysis on the design
of the entity, our organizational structure including
decision-making ability and relevant financial agreements.
Pursuant to the requirements of the Consolidation Topic that
existed prior to January 1, 2010, we consolidated VIEs if
we determined we were the primary beneficiary of the VIE. We
were deemed to be the primary beneficiary of the VIE if we were
to absorb a majority of the entitys expected losses,
receive a majority of the entitys expected residual
returns or both. However, under the requirements that exist
subsequent to January 1, 2010, we are deemed to be the
primary beneficiary of the VIE if we have a significant variable
interest in the VIE that provides us with a controlling
financial interest. Our variable interest provides us with a
controlling financial interest if we have both (i) the
power to direct the activities of the VIE that most
significantly impact the entitys economic performance and
(ii) the obligation to absorb losses of the entity that
could potentially be significant to the VIE or the right to
receive benefits from the entity that could potentially be
significant to the VIE. There is subjectivity around the
determination of power and which activities of the VIE most
significantly impact the entitys economic performance. As
reconsideration events occur, we will reconsider our
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. In addition, we will continuously evaluate our VIEs
primary beneficiary as facts and circumstances change to
determine if such changes warrant a change in an
enterprises status as primary beneficiary of our VIEs.
Our Daymark segment is a sponsor of TIC programs and related
formation LLCs. As of December 31, 2010, we had investments
in 12 LLCs that are VIEs in which we are the primary
beneficiary. This includes an additional three LLCs that were
consolidated as of January 1, 2010 pursuant to an amendment
to the requirements of the Consolidation Topic, two LLCs that
were consolidated in the second and third quarters of 2010 as a
result of equity investments we made in the LLC during the
second and third quarters of 2010. These LLCs hold interests in
our TIC investments. The carrying value of the assets and
liabilities for these consolidated VIEs as of December 31,
2010 was $5.0 million and $14,000 respectively. 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 assets of these
LLCs are only used to settle the liabilities associated with
these LLCs. In addition, these consolidated VIEs are joint and
severally liable on the non-recourse mortgage debt related to
the interests in our TIC investments totaling
$405.3 million and $277.0 million as of
December 31, 2010 and 2009, respectively. This non-recourse
mortgage debt is not consolidated as the LLCs account for the
interests in our TIC investments under the equity method and the
non-recourse mortgage debt does not meet the criteria under the
requirements of ASC Topic 860, Transfers and Servicing,
(Transfers and Servicing Topic) for recognizing
the share of the debt assumed by the other TIC interest holders
for consolidation. We consider the third party TIC holders
ability and intent to repay their share of the joint and several
liability in evaluating the recovery of our investments.
We are also a sponsor of an LLC that was formed for the primary
purpose of providing mezzanine financing to entities acquiring,
investing in, holding, developing, managing, operating, selling,
selling undivided interests in, or owning direct and indirect
interests in real estate. The LLC provides capital to TIC
programs in the form of advances. We have guaranteed the
collectability of certain advances this LLC has made to various
TIC programs which we have determined represents a variable
interest in the LLC. As of December 31, 2010, the future
funding commitments totaled approximately $2.0 million. In
accordance with the requirements of the amendment to the
Consolidation Topic, we determined that we are the primary
beneficiary of this LLC, which is a VIE, and consolidated this
LLC as of January 1, 2010. The carrying value of the assets
and liabilities associated with this LLC as of December 31,
2010 were $8.2 million and $0, respectively. The assets of
the LLC are only used to settle the liabilities associated with
the LLC.
85
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have a 51.0% equity interest in an LLC that serves as an
investment advisor to a limited partnership and mutual fund
programs. This LLC is a VIE in which we are the primary
beneficiary. The carrying value of the assets and liabilities
associated with this VIE as of December 31, 2010 was
$1.9 million and $0.8 million, respectively. The
carrying value of the assets and liabilities associated with
this VIE as of December 31, 2009 was $0.4 million and
$0.2 million, respectively. The assets of the LLC are only
used to settle the liabilities associated with the LLC.
We have a 67.0% equity interest in an LLC that invests in and
manages foreign entities. Further, this LLC has a 49.0% equity
interest in an LLC that provides property management and
facilities management services. These LLCs are VIEs in which we
are the primary beneficiary. The carrying value of the assets
and liabilities associated with these VIEs as of
December 31, 2010 was $1.1 million and
$0.9 million, respectively. The carrying value of the
assets and liabilities associated with these VIEs as of
December 31, 2009 was $1.3 million and
$1.0 million, respectively. The assets of these LLCs are
only used to settle the liabilities associated with these LLCs.
We have a 60.0% equity interest in a joint venture that serves
as an advisor to energy and infrastructure programs. This joint
venture is a VIE which we determined we were the primary
beneficiary of as of December 31, 2009 as we were to absorb
a majority of the entitys expected losses and to receive a
majority of the entitys expected residual returns.
However, pursuant to the requirements of the amendment to the
Consolidation Topic, we deconsolidated this VIE as of
January 1, 2010 as our variable interest does not provide
us with a controlling financial interest in the VIE. Pursuant to
the organizational documents for this joint venture, all major
decisions require the consent of both us and our joint venture
partner. Therefore, the power to direct the activities of the
VIE that most significantly impact the VIEs economic
performance is shared. The carrying value of the assets and
liabilities associated with this VIE as of December 31,
2009 were $0.2 million and $0.2 million, respectively.
The assets of the joint venture are only used to settle the
liabilities associated with the joint venture.
We advanced $3.6 million and $2.9 million during the
years ended December 31, 2010 and 2009 to one of our
consolidated VIEs to fund operations. In addition, we invested
an additional $0.6 million in our unconsolidated VIE during
the year ended December 31, 2010 to fund operations. We may
provide additional financial support to our consolidated and
unconsolidated VIEs in the future; however, we are not
contractually required to do so.
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, 2010 and 2009, we 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 ($0.3) million and $0.3 million as of
December 31, 2010 and 2009, respectively, and was
classified under Investments in Unconsolidated Entities in the
consolidated balance sheet. Our maximum exposure to loss as a
result of our 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, future funding commitments and mortgage debt guarantees.
There were no future funding commitments as of December 31,
2010 and 2009 related to these unconsolidated VIEs. In addition,
as of December 31, 2010 and 2009, these unconsolidated VIEs
are joint and severally liable on non-recourse mortgage debt
totaling $0 and $93.3 million, respectively. This mortgage
debt is not consolidated as the LLCs account for the interests
in our 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. We consider the third party TIC holders
ability and intent to repay their share of the joint and several
liability in evaluating the recovery of our investment or
outstanding deposits and advances. In
86
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
evaluating the recovery of the TIC investment, we 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, 2010 and 2009, we held investments in
five joint ventures totaling $0.3 million and
$0.4 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, we have
consolidated seven LLCs with investments in unconsolidated
entities totaling $2.1 million and $2.2 million as of
December 31, 2010 and 2009, respectively. In addition,
pursuant to the requirements of an amendment to the
Consolidation Topic which were effective as of January 1,
2010, we have consolidated five LLCs which have investments in
unconsolidated entities totaling $2.7 million as of
December 31, 2010 and have deconsolidated a joint venture
that was previously consolidated as of December 31, 2009.
Accordingly, we now reflect an investment in such joint venture
of $(0.3) million as of December 31, 2010. The
remaining amounts within investments in unconsolidated entities
of $0.4 million and $1.2 million as of
December 31, 2010 and 2009, respectively, are related to
various LLCs, which represent ownership interests in each
property of less than 1.0% and are accounted for under the cost
method of accounting.
As of December 31, 2007, we 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, we wrote off our 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.
|
|
9.
|
PROPERTY,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
3-5 years
|
|
$
|
32,350
|
|
|
$
|
30,155
|
|
Capital leases
|
|
1-5 years
|
|
|
3,818
|
|
|
|
3,836
|
|
Furniture and fixtures
|
|
7 years
|
|
|
25,897
|
|
|
|
26,006
|
|
Leasehold improvements
|
|
1-5 years
|
|
|
8,482
|
|
|
|
8,921
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
70,547
|
|
|
|
68,918
|
|
Accumulated depreciation and amortization
|
|
|
|
|
(59,054
|
)
|
|
|
(55,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment net
|
|
|
|
$
|
11,493
|
|
|
$
|
13,134
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized $4.9 million, $5.9 million and
$6.8 million of depreciation expense for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
|
10.
|
BUSINESS
COMBINATIONS AND GOODWILL
|
Merger
of Grubb & Ellis Company with NNN
On December 7, 2007, we 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. As a result of the Merger, approximately
$110.9 million was recorded to goodwill as of
December 31, 2008, which was subsequently written off as an
impairment charge during the year ended December 31, 2008.
87
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
|
Management
|
|
|
Investment
|
|
|
Goodwill
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Management
|
|
|
Unassigned(1)
|
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Balance as of December 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Goodwill acquired
|
|
|
1,406
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
1,406
|
|
|
$
|
115
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2010, approximately
$5.9 million of goodwill is expected to be deductible for
tax purposes. |
During the fourth quarter of 2008, we identified the uncertainty
surrounding the global economy and the volatility of our market
capitalization as goodwill impairment indicators. Our goodwill
impairment analysis resulted in the recognition of an impairment
charge of approximately $172.7 million during the year
ended December 31, 2008.
Business
Acquisitions
In March 2010 and November 2010, we acquired regional commercial
real estate services companies for $1.0 million and
$1.8 million, respectively. In December 2010, we acquired a
regional appraisal and valuation company for $0.7 million.
In July 2010, we purchased 60% of the outstanding membership
interests in a regional commercial real estate services company
for $2.0 million. We previously owned a 40% interest in
such company and following the completion of the transaction, we
became the owner of 100% of the membership interests. In
accordance with the requirements of the Business Combinations
Topic, we remeasured our previously held 40% interest at our
acquisition date fair value of $0.7 million and recognized
the resulting $0.5 million gain in earnings during the
third quarter of 2010, which is included in other income on the
statement of operations. In remeasuring the acquisition date
fair value of our previously held interest, we measured the fair
value of the tangible and identified intangible assets acquired
and liabilities assumed. The fair value of the tangible assets
acquired and liabilities assumed were generally based on the
book value of such assets and liabilities due to their short
term-nature. The fair value of the identified intangible assets
acquired (customer relationships and customer backlog) was based
on the present value of projected future earnings associated
with clients transacting business with the office we acquired.
88
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We allocated the purchase price to the assets acquired and
liabilities assumed based on the estimated fair value as of the
acquisition date as follows (in thousands):
|
|
|
|
|
Cash
|
|
$
|
250
|
|
Accounts receivable
|
|
|
1,757
|
|
Prepaid expenses and other assets
|
|
|
(247
|
)
|
Property and equipment
|
|
|
256
|
|
Indentified intangible assets
|
|
|
4,070
|
|
Goodwill
|
|
|
1,521
|
|
Accounts payable and accrued expenses
|
|
|
(1,629
|
)
|
Gain on remeasurement of previously held interest
|
|
|
(454
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
5,524
|
|
|
|
|
|
|
Pro forma financial information has not been included as it is
immaterial.
|
|
11.
|
IDENTIFIED
INTANGIBLE ASSETS
|
Identified intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(In thousands)
|
|
Useful Life
|
|
2010
|
|
|
2009
|
|
|
Non-amortizing
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
Indefinite
|
|
$
|
64,100
|
|
|
$
|
64,100
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Contract rights, established for the legal right to future
disposition fees of a portfolio of real estate properties under
contract
|
|
Amortize per disposition
transactions
|
|
|
8,628
|
|
|
|
11,186
|
|
Affiliate agreements
|
|
20 years
|
|
|
10,600
|
|
|
|
10,600
|
|
Customer relationships
|
|
5 to 7 years
|
|
|
8,725
|
|
|
|
5,400
|
|
Internally developed software
|
|
4 years
|
|
|
6,200
|
|
|
|
6,200
|
|
Customer backlog
|
|
1 year
|
|
|
746
|
|
|
|
|
|
Other contract rights
|
|
5 to 7 years
|
|
|
953
|
|
|
|
1,164
|
|
Non-compete and employment agreements
|
|
3 to 4 years
|
|
|
97
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,949
|
|
|
|
34,647
|
|
Accumulated amortization
|
|
|
|
|
(15,227
|
)
|
|
|
(11,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other identified intangible assets, net
|
|
|
|
|
20,722
|
|
|
|
23,260
|
|
|
|
|
|
|
|
|
|
|
|
|
Identified intangible assets of property held for
investment:
|
|
|
|
|
|
|
|
|
|
|
In place leases and tenant relationships
|
|
1 to 104 months
|
|
|
7,091
|
|
|
|
7,091
|
|
Above market leases
|
|
1 to 92 months
|
|
|
2,364
|
|
|
|
2,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,455
|
|
|
|
9,455
|
|
Accumulated amortization
|
|
|
|
|
(6,181
|
)
|
|
|
(4,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Identified intangible assets of property held for investment, net
|
|
|
|
|
3,274
|
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identified intangible assets, net
|
|
|
|
$
|
88,096
|
|
|
$
|
91,883
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible contract rights is charged
as a reduction to Investment Management Daymark
revenue in the applicable 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. Amortization expense recorded for the
contract rights was $0.3 million and $1.2 million for
the years
89
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ended December 31, 2009 and 2008, respectively. No
amortization expense for the contract rights was recorded during
the year ended December 31, 2010. 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, we determined that there are certain
properties for which receipt of disposition fees was improbable.
As a result, we recorded an impairment charge of approximately
$2.8 million, $0.7 million and $8.6 million
related to the impaired intangible contract rights during 2010,
2009 and 2008, respectively. Amortization expense recorded for
the remaining identified intangible assets was approximately
$3.8 million, $3.2 million and $3.5 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. Amortization expense is included as part of
operating expense in the accompanying consolidated statement of
operations.
Amortization expense recorded for the in place leases and tenant
relationships was approximately $0.9 million,
$0.5 million and $1.1 million for the years ended
December 31, 2010, 2009 and 2008. Amortization expense is
included as part of operating expense in the accompanying
consolidated statement of operations.
Amortization expense recorded for the above market leases was
approximately $0.4 million, $0.5 million and
$0.5 million for the years ended December 31, 2010,
2009 and 2008, respectively. Amortization expense is charged as
a reduction to rental related revenue in the accompanying
consolidated statement of operations.
also analyzed our 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, 2010, 2009 and 2008. Accordingly, no
impairment charge was recorded related to the trade name during
the years ended December 31, 2010, 2009 and 2008.
Amortization expense for the other identified intangible assets,
which excludes the
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)
|
|
|
2011
|
|
$
|
4,973
|
|
2012
|
|
|
2,756
|
|
2013
|
|
|
2,308
|
|
2014
|
|
|
2,220
|
|
2015
|
|
|
1,370
|
|
Thereafter
|
|
|
6,442
|
|
|
|
|
|
|
|
|
$
|
20,069
|
|
|
|
|
|
|
90
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
12,313
|
|
|
$
|
11,744
|
|
Salaries and related costs
|
|
|
23,817
|
|
|
|
14,592
|
|
Accounts payable
|
|
|
18,437
|
|
|
|
17,382
|
|
Broker commissions
|
|
|
10,519
|
|
|
|
8,807
|
|
Bonuses
|
|
|
8,951
|
|
|
|
7,797
|
|
Property management fees and commissions due to third parties
|
|
|
3,351
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77,388
|
|
|
$
|
62,385
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 2010, we completed our offering
(Offering) of $31.5 million of unsecured
convertible notes (Convertible Notes) to qualified
institutional buyers pursuant to Section 144A of the
Securities Act of 1933, as amended. The Convertible Notes pay
interest at a rate of 7.95% per year semi-annually in arrears on
May 1 and November 1 of each year, beginning November 1,
2010. The Convertible Notes mature on May 1, 2015.
We received net proceeds from the Offering of approximately
$29.4 million after deducting offering expenses. We used
the net proceeds from the Offering to fund growth initiatives,
short-term working capital and for general corporate purposes.
Holders of the Convertible Notes may convert notes into shares
of our common stock at the initial conversion rate of
445.583 shares per $1,000 principal amount of the
Convertible Notes (equal to a conversion price of approximately
$2.24 per share of our common stock), subject to adjustment in
certain events (but not for accrued interest) at any time prior
to the close of business on the scheduled trading day before the
stated maturity date. In addition, following certain corporate
transactions, we will increase the conversion rate for a holder
who elects to convert in connection with such corporate
transaction by a number of additional shares of our common stock
as set forth in the indenture. As of December 31, 2010, the
maximum number of shares of common stock that could be required
to be issued upon conversion of the Convertible Notes was
14,035,865 shares of common stock.
No holder of the Convertible Notes will be entitled to acquire
shares of common stock delivered upon conversion to the extent
(but only to the extent) such receipt would cause such
converting holder to become, directly or indirectly, a
beneficial owner (within the meaning of
Section 13(d) of the Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder) of more than
14.99% of the shares of our common stock outstanding at such
time.
We may not redeem the Convertible Notes prior to May 6,
2013. On or after May 6, 2013 and prior to the maturity
date, we may redeem for cash all or part of the Convertible
Notes at 100% of the principal amount of the Convertible Notes
to be redeemed, plus accrued and unpaid interest, including any
additional interest, up to but excluding the redemption date.
Under certain circumstances following a fundamental change,
which is substantially similar to a Fundamental Change with
respect to the Preferred Stock, we will be required to make an
offer to purchase all of the Convertible Notes at a purchase
price of 100% of their principal amount, plus accrued and unpaid
interest, if any, to the date of repurchase.
91
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Convertible Notes are our unsecured senior obligations that:
|
|
|
|
|
rank equally with all of our other unsecured senior indebtedness;
|
|
|
|
effectively rank junior to any of our existing and future
secured indebtedness to the extent of the assets securing such
indebtedness; and
|
|
|
|
will be structurally subordinated to any indebtedness and other
liabilities of our subsidiaries.
|
The indenture provides for customary events of default,
including our failure to pay any indebtedness for borrowed
money, other than non-recourse mortgage debt, when due in excess
of $1.0 million.
On March 8, 2011, we commenced a consent solicitation to
amend the indenture under which the Convertible Notes were
issued to exclude our subsidiaries, Daymark and NNN Realty
Advisors, Inc. (and each of their direct and indirect
subsidiaries) from certain events of default under the
Convertible Notes. The consent solicitation was initially
scheduled to expire on March 21, 2011 and was extended by
us on that date to March 25, 2011. We subsequently extended
the expiration date of the consent solicitation a second time on
March 25, 2011 to April 4, 2011. We offered a consent
fee to holders of the Convertible Notes who consented to this
amendment in the form of restricted shares of our common stock,
subject to registration rights. Specifically, we initially
offered a consent fee to consenting Note holders of
approximately 36 restricted shares of common stock per each
$1,000 principal amount of the Convertible Notes. In connection
with the second extension of the consent solicitation, we
increased the consent fee to an amount equal to 4% of the
principal amount of the Convertible Notes held by the consenting
holder divided by the closing price of the common stock on the
expiration of the consent solicitation, but in no event greater
than $.99 per share and in no event less than $.89 per share. In
the event that we obtain the requisite consents, the restricted
shares of common stock that we will issue to those holders of
Convertible Notes who properly consent are subject to
registration rights. Pursuant to a registration rights
agreement, we have agreed to enter into with the consenting
holders of Convertible Notes, we will promptly file a shelf
registration statement registering the resale of the restricted
stock with the Securities and Exchange Commission (the
Commission), and will use commercially reasonable
efforts to cause the shelf registration statement to become
effective within 30 days after the date the shelf
registration statement is filed (or within 75 days of the
date the shelf registration statement is filed if the
registration statement is reviewed by the Commission). We will
use its commercially reasonable efforts to keep the shelf
registration statement effective until the earlier to occur of:
(x) the date all of the restricted shares of common stock
have been sold pursuant to the shelf registration statement,
(y) the one-year anniversary of the latest issue date of
restricted shares of common stock, and (z) the date all
restricted shares of common stock have been sold pursuant to
Rule 144. If we default on our registration obligations
under the registration rights agreement, we will have to pay the
holder cash in an amount that shall accrue at a rate of 2.0% per
month on the average daily aggregate market value of the
restricted stock issued as payment of the consent fee,
determined daily by multiplying the amount of such Restricted
Stock by $1.11 per share, until all such registration defaults
are cured.
Registration
Rights Agreement
In connection with the Offering, we entered into a registration
rights agreement pursuant to which we agreed to file with the
Securities and Exchange Commission (SEC) a shelf
registration statement registering the resale of the notes and
the shares of common stock issuable upon conversion of the
Convertible Notes no later than June 30, 2010, and to use
commercially reasonable efforts to cause the shelf registration
statement to become effective within 85 days of May 7,
2010, or within 115 days of the closing date of the
Offering if the registration statement is reviewed by the SEC.
The shelf registration statement was filed on June 25, 2010
and became effective on July 19, 2010.
We have an obligation to continue to keep the shelf registration
statement effective for a certain period of time, subject to
certain suspension periods under certain circumstances. In the
event that we fail to keep the
92
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
registration statement effective in excess of such permissible
suspension periods, we will be obligated to pay additional
interest to holders of the Convertible Notes in an amount equal
to 0.25% of the principal amount of the outstanding Convertible
Notes to and including the 90th day following any such
registration default and 0.50% of the principal amount of the
outstanding Convertible Notes from and after the 91st day
following any such registration default. Such additional
interest will accrue until the date prior to the day the default
is cured, or until the Convertible Notes are converted.
|
|
14.
|
NOTES PAYABLE
AND CAPITAL LEASE OBLIGATIONS
|
Notes payable and capital lease obligations consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
Note payable in connection with business acquisition in November
2010. Fixed interest rate of 4.0% per annum as of
December 31, 2010. The note requires monthly principal and
interest payments and matures in November 2012
|
|
$
|
459
|
|
|
$
|
|
|
Note payable in connection with business acquisition in December
2010. Fixed interest rate of 2.0% per annum as of
December 31, 2010. The note requires monthly principal and
interest payments and matures in December 2013
|
|
|
425
|
|
|
|
|
|
Capital lease obligations
|
|
|
746
|
|
|
|
1,694
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,630
|
|
|
|
1,694
|
|
Less portion classified as current
|
|
|
(1,041
|
)
|
|
|
(939
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
589
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
The future minimum payments due related to notes payable and
capital lease obligations for each of the next three years
ending December 31 and thereafter are summarized as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
2011
|
|
|
1,041
|
|
2012
|
|
|
439
|
|
2013
|
|
|
150
|
|
|
|
|
|
|
|
|
$
|
1,630
|
|
|
|
|
|
|
|
|
15.
|
MORTGAGE
NOTE OF PROPERTY HELD FOR SALE
|
As of December 31, 2009, we had a $37.0 million
mortgage loan payable to a financial institution collateralized
by a real estate held for sale. The non-recourse note had a
fixed interest rate of 6.32% per annum as of December 31,
2009 and a maturity date of August 1, 2014. The property
was sold in December 2010 as further described in Note 19.
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.
As of December 31, 2010 and 2009, we had a
$70.0 million mortgage loan payable to a financial
institution collateralized by real estate held for investment.
The note has a fixed interest rate of 6.29% per
93
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annum, matures in February 2017 and is non-recourse up to
$60.0 million with a $10.0 million recourse guarantee.
As of December 31, 2010, the note requires monthly
interest-only payments.
On December 7, 2007, we entered into a $75.0 million
credit agreement by and among us, 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).
We amended our Credit Facility four times: on August 5,
2008; November 4, 2008; May 20, 2009; and,
September 30, 2009. In conjunction with the May 20,
2009 amendment, among other things, we issued warrants to the
lenders giving them the right, commencing October 1, 2009,
to purchase common stock equal to 15% of our common stock on a
fully diluted basis if we did not effect the recapitalization
required by the May 20th amendment. We 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
September 30th amendment, among other things, extended
the time to effect a recapitalization under our Credit Facility
from September 30, 2009 to November 30, 2009 and also
extended the date on which the warrants could first be executed
from October 1, 2009 to December 1, 2009. In addition,
pursuant to the September 30th amendment, we also
received the right to prepay our 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 our 12% cumulative
participating perpetual convertible preferred stock, we repaid
our 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 such, the warrants never became
exercisable). As a result of the early repayment of the Credit
Facility, we recorded a gain on early extinguishment of debt of
$21.9 million, or $0.35 per common share, net of expenses,
for the year ended December 31, 2009.
From August 1, 2006 to January 2007, NNN Collateralized
Senior Notes, LLC (the NNN Senior Notes Program), a
wholly owned subsidiary of Daymark, issued $16.3 million of
notes which mature on August 29, 2011 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
NNN 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 NNN 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 NNN Senior Notes Program. The
guarantee requires GERI to maintain at all times during the term
the notes are outstanding a net worth of at least
$0.5 million. As of December 31, 2010, GERI met the
net worth requirement. Pursuant to the terms of the indenture
underlying the NNN Senior Notes, we anticipate exercising our
one year extension option prior to the maturity of the NNN
Senior Notes in August 2011.
94
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
PROPERTIES
HELD FOR SALE AND DISCONTINUED OPERATIONS
|
A summary of the balance sheet information for properties held
for sale is as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
(In thousands)
|
|
|
|
|
Restricted cash
|
|
$
|
1,256
|
|
Properties held for sale
|
|
|
36,416
|
|
Identified intangible assets and other assets
|
|
|
4,370
|
|
|
|
|
|
|
Total assets
|
|
$
|
42,042
|
|
|
|
|
|
|
Mortgage notes of properties held for sale
|
|
$
|
37,000
|
|
Liabilities of properties held for sale
|
|
|
4,885
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
41,885
|
|
|
|
|
|
|
We had no properties held for sale as of December 31, 2010.
On December 30, 2010, we completed the sale of NNN/SOF
Avallon LLC (Avallon) for $37.0 million. We
recognized a gain on sale of $1.3 million. On June 3,
2009, we completed the sale of Danbury Corporate Center for
$72.4 million. We recognized a loss on sale of
$1.1 million. 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. On March 31,
2010, the Abrams property was transferred from the borrower to
an affiliate of the lender for nominal consideration pursuant to
a special warranty deed recorded on March 31, 2010.
In connection with the completion of the deed in lieu of
foreclosure on the Shafer property prior to December 31,
2009, we 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. We
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 abandoned under the accounting standards, the
results of operations were reclassified to discontinued
operations.
In instances when we expect 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
continuing operations through the date of sale.
The net results of discontinued operations and the net gain
(loss) on dispositions of properties sold during the years ended
December 31, 2010 and 2009, in which we have no significant
ongoing cash flows or significant continuing involvement, are
reflected in the consolidated statements of operations as
discontinued operations. We 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.
95
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the income (loss) and expense
components net of taxes that comprised
discontinued operations for the years ended December 31,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
7,333
|
|
|
$
|
17,834
|
|
|
$
|
32,427
|
|
Rental expense
|
|
|
(3,202
|
)
|
|
|
(12,047
|
)
|
|
|
(19,916
|
)
|
Depreciation and amortization
|
|
|
(2,047
|
)
|
|
|
(598
|
)
|
|
|
(10,745
|
)
|
Interest expense (including amortization of deferred financing
costs)
|
|
|
(2,413
|
)
|
|
|
(5,175
|
)
|
|
|
(10,716
|
)
|
Real estate related impairments
|
|
|
|
|
|
|
(8,678
|
)
|
|
|
(54,714
|
)
|
Tax benefit
|
|
|
118
|
|
|
|
3,398
|
|
|
|
24,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations net of taxes
|
|
|
(211
|
)
|
|
|
(5,266
|
)
|
|
|
(38,874
|
)
|
Gain on disposal of discontinued operations net of
taxes ($0.8 million, $4.8 million and
$0.2 million for the years ended December 31, 2010,
2009 and 2008, respectively)
|
|
|
1,273
|
|
|
|
7,442
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from discontinued operations
|
|
$
|
1,062
|
|
|
$
|
2,176
|
|
|
$
|
(38,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 2, 2009, we issued a $5.0 million senior
subordinated convertible note (the Note) to Kojaian
Management Corporation, which is an affiliate of one of our
directors. The Note (i) bore interest at twelve percent
(12%) per annum, (ii) was co-terminus with the term of the
Credit Facility, (iii) was unsecured and fully subordinate
to the Credit Facility, and (iv) in the event we issued or
sold equity securities in connection with or pursuant to a
transaction with a non-affiliate 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 issued or sold in such non-affiliate transaction. In
connection with the issuance of the Note, we entered into a
subordination agreement with Kojaian Management Corporation and
the lenders to the Credit Facility.
During the fourth quarter of 2009, we 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 our directors and
management. 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 our common stock, par value $0.01 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. As of December 31, 2010, the maximum
number of shares of common stock that could be required to be
issued upon conversion of the Preferred Stock was
58,527,214 shares of common stock.
Upon the closing of the sale of the Preferred Stock, we 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.
96
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 we fail to pay the quarterly Preferred Stock dividend in full
for two consecutive quarters, the dividend rate will
automatically be increased by 0.50% 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.
Holders of Preferred Stock may require us 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 we may,
at our 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 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.
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.
During the year ended December 31, 2010, the Board of
Directors declared four quarterly dividends of $3.00 per share
on our Preferred Stock, which were paid on March 31, 2010,
June 30, 2010, September 30,
97
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2010 and December 31, 2010. On March 21, 2011, the
Board of Directors determined, as permitted, not to declare a
dividend on our 12% Preferred Stock, for the quarter ending
March 31, 2011.
We accounted for the Preferred Stock transaction in accordance
with the requirements of ASC 815, Derivatives and
Hedging, (Derivatives and Hedging Topic) and ASC
Topic 480, Distinguishing Liabilities from Equity,
(Distinguishing Liabilities from Equity Topic).
Pursuant to those topics, we 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 from Equity Topic, we 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 a Fundamental Change. In addition, we 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 our
control and, therefore, the Preferred Stock should be classified
outside of permanent equity in accordance with the
Distinguishing Liabilities from Equity Topic as these events
were assessed as not probable of becoming redeemable.
|
|
21.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating Leases We have non-cancelable
operating lease obligations for office space and certain
equipment ranging from one to ten years, and sublease agreements
under which we act 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
$24.2 million, $24.1 million and $23.2 million
for the years ended December 31, 2010, 2009 and 2008,
respectively. Rent expense is included in general and
administrative expense in the accompanying consolidated
statements of operations.
As of December 31, 2010, future minimum amounts payable
under non-cancelable operating leases, net of future minimum
rental income to be received under non-cancellable subleases,
are as follows for the years ending December 31:
|
|
|
|
|
|
|
(In
|
|
|
|
thousands)
|
|
|
2011
|
|
$
|
18,576
|
|
2012
|
|
|
17,039
|
|
2013
|
|
|
11,915
|
|
2014
|
|
|
7,701
|
|
2015
|
|
|
5,430
|
|
Thereafter
|
|
|
7,913
|
|
|
|
|
|
|
|
|
$
|
68,574
|
|
|
|
|
|
|
Operating Leases Other We have
served as 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, required minimum monthly payments
averaging $795,000 over the
10-year
period. On September 29, 2010, we were terminated as the
master lessee on four of these multifamily properties and on
December 31, 2010, we were terminated as the master lessee
on one additional multifamily property. The two remaining master
lease agreements expire in July and October 2015 and require
minimum monthly payments averaging $382,000 over the remaining
lease term. Rent expense under these operating leases was
approximately $9.9 million, $9.2 million and
$9.4 million, for the years ended December 31, 2010,
2009 and 2008, respectively. In addition, we are required to pay
operating costs related to
98
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the operation, maintenance, management and security of the
property. Operating costs under these operating leases was
approximately $7.1 million, $7.4 million and
$6.6 million for the years ended December 31, 2010,
2009 and 2008, respectively. As of December 31, 2010,
rental related expense, based on contractual amounts due, is as
follows for the years ending December 31:
|
|
|
|
|
|
|
Rental
|
|
|
|
Related
|
|
|
|
Expense
|
|
(In thousands)
|
|
|
|
|
2011
|
|
$
|
4,585
|
|
2012
|
|
|
4,585
|
|
2013
|
|
|
4,585
|
|
2014
|
|
|
4,585
|
|
2015
|
|
|
2,883
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,223
|
|
|
|
|
|
|
We sublease these multifamily spaces to third parties for no
more than one year. Rental income from these subleases was
approximately $13.5 million, $15.1 million and
$16.4 million for the years ended December 31, 2010,
2009 and 2008, respectively.
We were also a 50% joint venture partner of four multifamily
residential properties in various locations under non-cancelable
leases until December 31, 2010, when we sold our interest.
The leases, which commenced in various months and expired from
November 2014 through January 2015, required minimum monthly
payments averaging $372,000 over the
10-year
period. Master lease rent expense under these operating leases
was approximately $4.5 million, $4.5 million and
$4.5 million, for the years ended December 31, 2010,
2009 and 2008, respectively. In addition, we were required to
pay operating costs related to the operation, maintenance,
management and security of the property. Operating costs under
these operating leases was approximately $4.4 million,
$4.4 million and $4.2 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
We subleased these multifamily spaces to third parties for no
more than one year. Rental income from these subleases was
approximately $8.5 million, $8.9 million and
$9.0 million for the years ended December 31, 2010,
2009 and 2008, respectively.
As of December 31, 2010, we had recorded liabilities
totaling $4.1 million related to such master lease
arrangements, consisting of $2.0 million of cumulative
deferred revenues relating to acquisition fees and loan fees
received from 2004 through 2006 and $2.1 million of
additional loss reserves which were recorded through
December 31, 2010.
TIC Program Exchange Provisions Prior to the
Merger, Triple Net Properties, LLC (now known as GERI) entered
into agreements providing certain investors the right to
exchange their investments in certain TIC programs for
investments in a different TIC program or in substitute
replacement properties. The agreements containing such rights of
exchange and repurchase rights pertain to initial investments in
TIC programs totaling $31.6 million. In the fourth quarter
of 2010, GERI was released from certain obligations relating to
$6.2 million in initial investments. In addition, we were
released from certain obligations totaling $2.0 million as
a result of the sale of a TIC programs property during the
year ended December 31, 2010. In July 2009, we received
notice on behalf of certain investors stating their intent to
exercise rights under one of those agreements with respect to an
initial investment totaling $4.5 million. Subsequently, in
February 2011, an action was filed in the Superior Court of
Orange County, California on behalf of those same investors
against GERI alleging breach of contract and breach of the
implied covenant of good faith and fair dealing,
99
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and seeking declaratory relief of $26.5 million with
respect to initial cash investments totaling $22.3 million,
which is inclusive of the $4.5 million for which we
received the notice in July 2009. While the outcome of that
action is uncertain, GERI will vigorously defend those claims.
We deferred revenues relating to these agreements of
$0.2 million, $0.3 million and $1.0 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. Additional losses of $0.6 million,
$4.7 million and $14.3 million related to these
agreements were incurred during the years ended
December 31, 2010, 2009 and 2008, respectively, to record a
liability underlying the agreements with investors. In addition,
during the year ended December 31, 2010, we reduced an
obligation of $3.2 million related to our release from
certain obligations in the fourth quarter of 2010. As of
December 31, 2010 we had recorded liabilities totaling
$20.2 million related to such agreements, which is included
in other current liabilities, consisting of $3.9 million of
cumulative deferred revenues and $16.3 million of
additional losses related to these agreements. In addition, we
are joint and severally liable on the non-recourse mortgage debt
related to these TIC programs totaling $276.1 million and
$277.0 million as of December 31, 2010 and 2009,
respectively. This mortgage debt is not consolidated as the LLCs
account for the interests in our 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. We consider the third-party
TIC holders ability and intent to repay their share of the
joint and several liability in evaluating the recoverability of
our investment in the TIC program.
Capital Lease Obligations We lease computers,
copiers, and postage equipment that are accounted for as capital
leases (See Note 14 for additional information).
Claims and Lawsuits We and our Daymark
affiliate have been named as defendants in multiple lawsuits
relating to certain of its investment management offerings, in
particular its
tenant-in-common
programs. These lawsuits allege a variety of claims in
connection with these offerings, including mismanagement, breach
of contract, negligence, fraud, breach of fiduciary duty and
violations of state and federal securities laws, among other
claims. Plaintiffs in these suits seek a variety of remedies,
including rescission, actual and punitive damages, injunctive
relief, and attorneys fees and costs. In many instances,
the damages being sought are unspecified and to be determined at
trial. It is difficult to predict the ultimate disposition of
these lawsuits and our ultimate liability with respect to such
claims and lawsuits. It is also difficult to predict the cost of
defending these matters and to what extent claims will be
covered by our existing insurance policies. In the event of an
unfavorable outcome, the amounts we may be required to pay in
the discharge of liabilities or settlements could have a
material adverse effect on our cash flows, financial position
and results of operations.
Met Center 10 GERI has been involved in multiple
legal proceedings, including an action pending in state court in
Austin, Texas (the Met 10 Texas Action), and an
arbitration proceeding being conducted in California (the
Met 10 Arbitration). In the Met 10 Texas Action,
GERI and an affiliate are pursuing claims against the developers
and sellers of the property and other defendants to recover
damages arising from undisclosed ground movement. The outcome of
that proceeding, and the damages, if any, that GERI and its
affiliate will recover, are uncertain. In the Met 10
Arbitration, TIC investors are asserting, among other things,
that GERI should bear responsibility for alleged diminution in
the value of the property and their investments as a result of
ground movement. The Met 10 Arbitration has been bifurcated into
two phases. In the first phase, the arbitrator ruled in favor of
the TIC investors, finding, among other things, that the TIC
investors had properly terminated the property management
agreement for cause. The second phase of the Met 10 Arbitration
involves the TICs claims for damages. The hearing will be
conducted in June 2011, and will result in the arbitrators
determination of whether the TICs have proven any of their
claims, and what damages, if any, should be awarded against
GERI. GERI is vigorously defending those claims. GERI has
tendered this matter to its insurance carriers for indemnity,
and will vigorously pursue coverage. While the outcome of the
second phase of the Met 10 Arbitration is uncertain, an adverse
determination by the arbitrator could result in a material and
adverse effect to us.
100
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mandel GERI is a defendant in an action filed
on or about February 14, 2011 in the Superior Court of
Orange County, California captioned S. Sidney Mandel, et
al. v. Grubb & Ellis Realty Investors, LLC, et
al, Case No. 00449598. The plaintiffs allege that, in
order to induce the plaintiffs to purchase $22.3 million in
tenant in common investments that GERI (formerly known as Triple
Net Properties, LLC) was syndicating, GERI offered to
subsequently repurchase those investments and
provide certain put rights under certain terms and
conditions pursuant to a letter agreement executed between GERI
and the plaintiffs. The plaintiffs allege that GERI has failed
to honor its purported obligations under the letter agreement
and have initiated suit for breach of contract, breach of the
implied covenant of good faith and fair dealing and declaratory
relief as to the rights and obligations of the parties under the
letter agreement. The plaintiffs are seeking damages,
attorneys fees and costs. We intend to vigorously defend
these claims and to assert all applicable defenses. At this time
we are unable to predict the likelihood of an unfavorable or
adverse award or outcome.
Britannia II Office Park The Company and
various Daymark subsidiaries are defendants in an action filed
on or about July 22, 2010 in Superior Court of Alameda
County, California captioned NNN Britannia Business Center
II 17, LLC, et al. v. Grubb & Ellis
Company, et al., Case
No. RG10-527282.
Plaintiffs allegedly invested more than $14 million for
tenant in common interests in a commercial real estate project
in Pleasanton, California, known as Britannia Business Center
II, which ultimately was foreclosed upon. Plaintiffs claim that
they were induced to invest with misrepresentations concerning
the financial projections and risks for the project, and allege
various mismanagement claims. Plaintiffs have asserted
claims of negligent misrepresentation, breach of contract,
breach of the implied covenant of good faith and fair dealing,
breach of fiduciary duty, and violations of California
Corporations Code sections 25401 and 25504. Plaintiffs seek
compensatory and exemplary damages in an unspecified amount,
along with costs and attorneys fees. We intend to
vigorously defend these claims and to assert all applicable
defenses. At this time we are unable to predict the likelihood
of an unfavorable or adverse award or outcome.
Durham Office Park The Company and various
Daymark subsidiaries are defendants in an action filed on or
about July 21, 2010 in North Carolina Business Court,
Durham County Superior Court Division, captioned NNN Durham
Office Portfolio I, LLC, et al. v. Grubb &
Ellis Company, et al., Case No. 10 CVS 4392. Plaintiffs
allegedly invested more than $11 million for tenant in
common interests in a commercial real estate project in Durham,
North Carolina. Plaintiffs claim, among other things, that
information regarding the intentions of the propertys
anchor tenant to remain in occupancy was withheld and
misrepresented. Plaintiffs have asserted claims for breach of
contract, negligence, negligent misrepresentation, breach of
fiduciary duty, fraud, unfair and deceptive trade practices and
conspiracy. We intend to vigorously defend these claims and to
assert all applicable defenses. At this time we are unable to
predict the likelihood of an unfavorable or adverse award or
outcome.
We are involved in various claims and lawsuits arising out of
the ordinary conduct of our business, many of which may not be
covered by our insurance policies. In the opinion of management,
in the event of an unfavorable outcome, the amounts we may be
required to pay in the discharge of liabilities or settlements
could have a material adverse effect on our cash flows,
financial position and results of operations.
Guarantees Historically our investment
management subsidiaries provided non-recourse carve-out
guarantees or indemnities with respect to loans for properties
now under the management of Daymark (including properties we
own). As of December 31, 2010, there were 133 properties
under management with non-recourse carve-out loan guarantees or
indemnities of approximately $3.1 billion in total
principal outstanding with terms ranging from one to
10 years, secured by properties with a total aggregate
purchase price of approximately $4.3 billion. As of
December 31, 2009, there were 146 properties under
management with non-recourse carve-out loan guarantees or
indemnities 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. In addition,
the consolidated VIEs and unconsolidated VIEs are jointly
101
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and severally liable on the non-recourse mortgage debt related
to the interests in our TIC investments as further described in
Note 7.
Our guarantees consisted of the following as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Daymark non-recourse/carve-out guarantees of debt of properties
under management(1)
|
|
$
|
2,944,311
|
|
|
$
|
3,306,631
|
|
Grubb & Ellis Company non-recourse/carve-out
guarantees of properties under management(1)
|
|
$
|
78,363
|
|
|
$
|
78,655
|
|
Daymark and Grubb & Ellis Company
non-recourse/carve-out guarantees of properties under
management(2)
|
|
$
|
31,271
|
|
|
$
|
31,563
|
|
Daymark non-recourse/carve-out guarantees of Company owned
properties(1)
|
|
$
|
60,000
|
|
|
$
|
97,000
|
|
Daymark recourse guarantees of debt of properties under
management
|
|
$
|
12,900
|
|
|
$
|
21,900
|
|
Grubb & Ellis Company recourse guarantees of debt of
properties under management
|
|
$
|
11,998
|
|
|
$
|
11,998
|
|
Daymark recourse guarantees of Company owned properties(3)
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,148,843
|
|
|
$
|
3,557,747
|
|
|
|
|
(1) |
|
A non-recourse/carve-out guarantee or indemnity
generally imposes liability on the guarantor or indemnitor in
the event the borrower engages in certain acts prohibited by the
loan documents. Each non-recourse carve-out guarantee or
indemnity 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 or indemnities, liability under the
non-recourse carve-out guarantees or indemnities 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 indemnity agreement from borrower.
|
Certain acts (typically the first three listed above) may render
the entire debt balance recourse to the guarantor or indemnitor,
while the liability for other acts is typically limited to the
damages incurred by the lender. Notice and cure provisions vary
between guarantees and indemnities. Generally the guarantor or
indemnitor irrevocably and unconditionally guarantees or
indemnifies the lender the payment and performance of the
guaranteed or indemnified 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 or indemnitor
102
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
covenants and agrees that it is liable for the guaranteed or
indemnified obligations as a primary obligor. As of
December 31, 2010, to the best of our knowledge, there was
no debt owed by us as a result of the borrowers engaging in
prohibited acts.
|
|
|
(2) |
|
Daymark and Grubb & Ellis Company are each joint and
severally liable on such non-recourse/carve-out guarantees. |
|
(3) |
|
In addition to the $10.0 million principal guarantee,
Daymark has guaranteed any shortfall in the payment of interest
on the unpaid principal amount of the mortgage debt on one owned
property. |
If property values and performance decline, the risk of exposure
under these guarantees increases. We initially evaluate these
guarantees to determine if the guarantee meets the criteria
required to record a liability in accordance with the
requirements of ASC Topic 460, Guarantees,
(Guarantees Topic). Any such liabilities were
insignificant upon execution of the guarantees. In addition, on
an ongoing basis, we evaluate the need to record an additional
liability in accordance with the requirements of ASC Topic 450,
Contingencies, (Contingencies Topic). As of
December 31, 2010 and 2009, we had recourse guarantees of
$24.9 million and $33.9 million, respectively,
relating to debt of properties under management (of which
$12.0 million and $12.0 million, respectively, is
recourse back to Grubb & Ellis Company, the remainder
of which is recourse to our Daymark subsidiary). As of
December 31, 2010 and 2009, approximately $9.5 million
and $9.8 million, respectively, of these recourse
guarantees relate to debt that has matured, is in default, or is
not currently in compliance with certain loan covenants (of
which $2.0 million and $0, respectively, is recourse back
to Grubb & Ellis Company, the remainder of which is
recourse to our Daymark subsidiary). In addition, as of December
31, 2010, we had $8.0 million of recourse guarantees related to
debt that will mature in the next twelve months (of which the
entire amount is recourse back to Grubb & Ellis Company).
In addition, we had a recourse guarantee related to a property
that was previously under management, but was sold during the
year ended December 31, 2009. In connection with the sale
of the property, we entered into a promissory note with the
lender to repay the outstanding principal balance on the
mortgage loan of $4.2 million. As of December 31,
2010, the entire principal balance on the mortgage loan had been
repaid. Our evaluation of the potential liability under these
guarantees 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 of our subsidiaries to pay its debts as they become due
would likely have a materially negative impact on our ongoing
business, and the investment management operations in
particular. In evaluating the potential liability relating to
such guarantees, we consider 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, 2010 and 2009, we
recorded a liability of $0.8 million and $3.8 million,
respectively, which is included in other current liabilities,
related to our estimate of probable loss related to recourse
guarantees of debt of properties under management and previously
under management.
Two unaffiliated, individual investor entities, who are minority
owners in two TIC programs located in Texas, Met Center 10 and
2400 West Marshall, that were originally sponsored by GERI,
filed bankruptcy in January 2011. The principal balances of the
mortgage debt for these two properties was approximately
$29.4 million and $6.6 million, respectively, at the
time of the bankruptcy filings. We are also aware that on
February 1, 2011, the special servicer for each of these
loans foreclosed on all of the undivided TIC ownership interests
in these properties, except those owned by the unaffiliated
investor entities which effected the bankruptcy filings. The
automatic stay imposed following the bankruptcy filings by each
of these investor entities prevented the special servicer from
foreclosing on 100% of the TIC ownership interests.
GERI executed a non-recourse carve-out guarantee in connection
with the mortgage loan for the Met 10 property, and a
non-recourse indemnity for the 2400 West Marshall property.
As discussed in the Guarantees disclosure
above, such non-recourse carve-out guarantees and
indemnities only impose liability on GERI if certain acts
prohibited by the loan documents take place. Liability under
these non-
103
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recourse carve-out guarantees and indemnities may be triggered
by the voluntary bankruptcy filings made by the two
unaffiliated, individual investor entities. As a consequence of
these bankruptcy filings, GERI may become liable under the
guarantee and indemnity for the benefit of the mortgage lender
in connection with these TIC programs. While GERIs
ultimate liability under these agreements is uncertain as a
result of numerous factors, including, without limitation, the
amount of the lenders credit bids at the time of
foreclosure, events in the individual bankruptcy proceedings and
the ultimate disposition of those bankruptcy proceedings, and
the defenses GERI may raise under the guarantee and indemnity,
such liability may be in an amount in excess of the net worth of
NNNRA and its subsidiaries, including GERI. NNNRA and GERI are
investigating the facts and circumstances surrounding these
events, and the potential liabilities related thereto, and
intend to vigorously dispute any imposition of any liability
under any such guarantee or indemnity obligation. In the event
that GERI receives a demand for payment from the lenders
pursuant to such guarantee and indemnity arrangements, in an
amount that exceeds $1,000,000, and GERI fails to pay such
amount when due, a cross -default under our Convertible Notes
may result. We are seeking consents from the Convertible Note
holders to proposed amendments to certain provisions of the
Convertible Notes (which requires a majority of the holders in
interest thereunder) relating to any liabilities of NNNRA or its
subsidiaries. Should an event of default occur which we are
unable to cure with an amendment or waiver from the Convertible
Note holders, there would be a material and adverse effect on
our liquidity and financial position.
Investment Program Commitments In 2009, we
revised the offering terms related to certain investment
programs which we sponsor, including the commitment to fund
additional property reserves and the waiver or reduction of
future management fees and disposition fees. Such future funding
commitments have been made in the form of guaranteeing the
collectability of advances that one of our consolidated VIEs has
made to these investment programs. As of December 31, 2010
and 2009, the future funding commitments under the guarantees
totaled approximately $2.0 million and $1.3 million,
respectively.
Environmental Obligations In our role as
property manager, we could incur liabilities for the
investigation or remediation of hazardous or toxic substances or
wastes at properties we currently or formerly managed or at
off-site locations where wastes were disposed of. Similarly,
under debt financing arrangements on properties owned by
sponsored programs, we have agreed to indemnify the lenders for
environmental liabilities and to remediate any environmental
problems that may arise. We are not aware of any environmental
liability or unasserted claim or assessment relating to an
environmental liability that we believe would require disclosure
or the recording of a loss contingency.
Alesco Seed Capital On November 16,
2007, we completed the acquisition of a 51.0% membership
interest in Alesco from Jay P. Leupp (Leupp).
Pursuant to the Intercompany Agreement between us and Alesco,
dated as of November 16, 2007, we committed to invest up to
$20.0 million in seed capital into certain real estate
funds that Alesco planned to launch. Additionally, upon
achievement of certain earn-out targets, we were required to
purchase up to an additional 27% interest in Alesco for
$15.0 million. To date those earn-out targets have not been
achieved. We are allowed to use $15.0 million of seed
capital to fund the earn-out payments. As of December 31,
2010, we have invested $1.5 million into the three funds
that Alesco has launched to date (the Existing Alesco
Funds). Our unfunded seed capital commitments with respect
to the Existing Alesco Funds total $2.5 million. As of
February 14, 2011, our obligation to make further seed
capital investments under the Intercompany Agreement terminated.
Deferred Compensation Plan During 2008, we
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, 2010 and 2009, $3.4 million and
$3.3 million, respectively, reflecting the non-stock
liability under this plan were included in accounts payable and
accrued expenses. We have 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,
104
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2010 and 2009 have recorded the cash surrender value of the
policies of $1.1 million and $1.0 million,
respectively, in prepaid expenses and other assets.
In addition, we award phantom shares of our common
stock to participants under the deferred compensation plan. As
of December 31, 2010 and 2009, we awarded an aggregate of
6.0 million phantom shares, respectively, to certain
employees with an aggregate value on the various grant dates of
$23.0 million. During the year ended December 31,
2010, we issued 358,424 shares of common stock from our
treasury share account related to fully vested phantom stock
awards. As of December 31, 2010 and 2009, an aggregate of
4.1 million and 5.6 million phantom share grants were
outstanding, respectively. 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, as of December 31,
2010, grants with respect to 816,000 phantom shares had a
guaranteed minimum share price ($2.8 million in the
aggregate) that will result in us paying additional compensation
to the participants should the value of the shares upon vesting
be less than the grant date value of the shares. We account 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.
|
|
22.
|
EARNINGS
(LOSS) PER SHARE
|
We compute earnings (loss) per share in accordance with the
requirements of the Earnings Per Share Topic. Under the Earnings
Per Share 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.
105
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
Numerator for (loss) income per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(70,793
|
)
|
|
$
|
(82,675
|
)
|
|
$
|
(304,072
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
2,951
|
|
|
|
1,661
|
|
|
|
11,719
|
|
Less: Preferred dividends
|
|
|
(11,588
|
)
|
|
|
(1,770
|
)
|
|
|
|
|
Less: Income allocated to participating shareowners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(79,430
|
)
|
|
$
|
(82,784
|
)
|
|
$
|
(292,353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
1,062
|
|
|
$
|
2,176
|
|
|
$
|
(38,517
|
)
|
Less: Income allocated to participating security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
1,062
|
|
|
$
|
2,176
|
|
|
$
|
(38,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to Grubb & Ellis Company
|
|
$
|
(66,780
|
)
|
|
$
|
(78,838
|
)
|
|
$
|
(330,870
|
)
|
Less: Preferred dividends
|
|
|
(11,588
|
)
|
|
|
(1,770
|
)
|
|
|
|
|
Less: Income allocated to participating security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company common
shareowners
|
|
$
|
(78,368
|
)
|
|
$
|
(80,608
|
)
|
|
$
|
(330,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for (loss) income per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding
|
|
|
64,756
|
|
|
|
63,645
|
|
|
|
63,515
|
|
(Loss) income per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.23
|
)
|
|
$
|
(1.30
|
)
|
|
$
|
(4.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to Grubb & Ellis Company
common shareowners
|
|
$
|
(1.21
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share diluted(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
(1.23
|
)
|
|
$
|
(1.30
|
)
|
|
$
|
(4.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations attributable to
Grubb & Ellis Company common shareowners
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to Grubb & Ellis Company
common shareowners
|
|
$
|
(1.21
|
)
|
|
$
|
(1.27
|
)
|
|
$
|
(5.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participating shareowners:
|
|
|
|
|
|
|
|
|
|
|
|
|
(as of the end of the period used to allocate earnings)
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares (as if converted to common shares)
|
|
|
58,527
|
|
|
|
58,527
|
|
|
|
|
|
Unvested restricted stock
|
|
|
4,671
|
|
|
|
3,601
|
|
|
|
2,014
|
|
Unvested phantom stock
|
|
|
3,962
|
|
|
|
5,523
|
|
|
|
5,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participating shares
|
|
|
67,160
|
|
|
|
67,651
|
|
|
|
7,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common shares outstanding
|
|
|
65,535
|
|
|
|
63,784
|
|
|
|
63,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluded from the calculation of diluted weighted-average common
shares as of December 31, 2010, 2009 and 2008 were the
following securities, the effect of which would be
anti-dilutive, because an operating |
106
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
loss was reported or the option exercise price was greater than
the average market price of the common shares for the respective
periods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding unvested restricted stock
|
|
|
4,671
|
|
|
|
3,601
|
|
|
|
2,014
|
|
Outstanding options to purchase shares of common stock
|
|
|
402
|
|
|
|
470
|
|
|
|
1,077
|
|
Outstanding unvested shares of phantom stock
|
|
|
3,962
|
|
|
|
5,523
|
|
|
|
5,337
|
|
Convertible preferred shares (as if converted to common shares)
|
|
|
58,527
|
|
|
|
58,527
|
|
|
|
|
|
Convertible notes (as if converted to common shares)
|
|
|
14,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
81,598
|
|
|
|
68,121
|
|
|
|
8,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.
|
OTHER
RELATED PARTY TRANSACTIONS
|
Offering Costs and Other Expenses Related to Public
Non-traded REITs We, through our consolidated
subsidiaries Grubb & Ellis Apartment REIT Advisor,
LLC, Grubb & Ellis Healthcare REIT Advisor, LLC, and
Grubb & Ellis Healthcare REIT II Advisor, LLC, bear
certain general and administrative expenses in our capacity as
advisor of Apartment REIT (now known as Apartment Trust of
America, Inc.), Grubb & Ellis Healthcare REIT, Inc.
(Healthcare REIT) (now known as Healthcare Trust of
America, Inc.) (through September 20, 2009 when its
advisory agreement terminated) and Grubb & Ellis
Healthcare REIT II, Inc. (Healthcare REIT II),
respectively, and are reimbursed for these expenses. However,
Apartment REIT, Healthcare REIT and Healthcare REIT II will not
reimburse us 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, if any, are
expensed by us. There were no unreimbursed amounts expensed by
us during the years ended December 31, 2010, 2009 and 2008.
We 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
represented 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 respective initial
offerings. As of December 31, 2009 and 2008, we incurred
expenses of $4.3 million and $3.8 million,
respectively, in excess of 1.5% of the gross proceeds of the
Apartment REIT offering. We expensed the excess costs of
$4.3 million incurred during the year ended
December 31, 2009. As of December 31, 2008, we had
recorded an allowance for bad debt of approximately
$3.6 million, related to the Apartment REIT offering costs
incurred as we believed that such amounts would not be
reimbursed. We will not incur any additional expenses related to
the Apartment REIT initial offering as the offering ended
July 17, 2009. As of December 31, 2009 and 2008, we
did not incur expenses in excess of 1.5% of the gross proceeds
of the Healthcare REIT offering. We will not incur any
additional expenses related to the Healthcare REIT initial
offering as the dealer manager agreement terminated on
August 28, 2009.
We also paid 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
107
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 respective offerings. As of
December 31, 2010, 2009 and 2008, we have incurred expenses
of $2.5 million, $1.6 million and $0, respectively, in
excess of 1.0% of the gross proceeds of the Apartment REIT
follow-on offering. On November 1, 2010, we terminated our
advisory and dealer-manager relationship with Apartment REIT. As
of December 31, 2010, we have recorded an allowance for bad
debt of approximately $2.5 million, related to the
Apartment REIT follow-on offering costs as we believe that such
amounts may not be reimbursed. As of December 31, 2010,
2009 and 2008, we have incurred expenses of $2.7 million,
$2.0 million and $0.1 million, respectively, in excess
of 1.0% of the gross proceeds of the Healthcare REIT II initial
offering. We anticipate that such amounts will be reimbursed in
the future from the offering proceeds of Healthcare REIT II.
Management Fees We provide both transaction
and management services to parties, which are related to one of
our principal shareowner and directors (collectively,
Kojaian Companies). In addition, we also pay asset
management fees to the Kojaian Companies related to properties
we manage on their behalf. Revenue, including reimbursable
expenses related to salaries, wages and benefits, earned by us
for services rendered to these affiliates, including joint
ventures, officers and directors and their affiliates, net of
asset management fees paid to Kojaian Companies, was
$5.4 million, $6.7 million and $7.3 million,
respectively for the years ended December 31, 2010, 2009
and 2008, respectively.
Office Leases In December 2010, we entered
into two office leases with landlords related to Kojaian
Companies, providing for an annual average base rent of $414,000
and $404,000 over the ten-year terms of the leases which begin
in April 2011 and November 2012, respectively.
Other Related Party Grubb & Ellis
Equity Advisors (GEEA), which is wholly owned by us,
owns a 50.0% managing member interest in Grubb & Ellis
Apartment REIT Advisor, LLC and, therefore, consolidates
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, our former General Counsel, Executive Vice
President and Secretary, owned an equity interest of 18.0% of
Grubb & Ellis Apartment Management, LLC and GEEA owned
an 82.0% interest therein. On October 22, 2010, in
accordance with the terms of an assignment agreement,
Ms. Biller assigned all of her membership interests in
Grubb & Ellis Apartment Management, LLC to GEEA and
Grubb & Ellis Equity Advisors, Property Management,
Inc. (GEEA PM), a wholly owned subsidiary of GEEA,
for nominal consideration. As a consequence, through GEEA and
GEEA PM, our equity interest in Grubb & Ellis
Apartment Management, LLC increased from 82.0% to 100.0% after
giving effect to this assignment from Ms. Biller. As of
December 31, 2010 and 2009, Stanley J. Olander, our former
Executive Vice President Multifamily, owned an
equity interest in ROC REIT Advisors, LLC of 33.3%.
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, each of
Ms. Biller and Mr. Hanson owned an equity interest in
Grubb & Ellis Healthcare Management, LLC of 18.0% and
GERI owned a 64.0% interest. In connection with her resignation
on October 22, 2010, Ms. Biller is no longer a member
of Grubb & Ellis Healthcare Management, LLC. As of
December 31, 2010, Mr. Hanson, our Chief Investment
Officer and GERIs President, owned an equity interest in
Grubb & Ellis Healthcare Management, LLC of 18.0% and
GERI owed an 82.0% interest. Grubb & Ellis Healthcare
REIT Advisor, LLC and Grubb & Ellis Healthcare
Management, LLC are entities that previously advised and managed
Healthcare REIT (now known as Healthcare Trust of America,
Inc.). As a result of the termination of the advisory agreement
in September 2009 and the final settlement agreement reached
with Healthcare REIT in October 2010, we do not expect to
recognize any further revenues or expenses related to these
entities.
108
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
us as a profit sharing arrangement. We record compensation
expense 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. Compensation expense related to this profit sharing
arrangement associated with Grubb & Ellis Apartment
Management, LLC, includes distributions earned of $41,000, $0
and $122,000, to Ms. Biller for the years ended
December 31, 2010, 2009 and 2008, respectively.
Compensation expense related to this profit sharing arrangement
associated with Grubb & Ellis Healthcare Management,
LLC includes distributions earned of $230,000, $362,000 and
$548,000, respectively, to each of Ms. Biller and
Mr. Hanson, and $0, $44,000 and $175,000, respectively, to
Anthony W. Thompson, our former Chairman, and $0, $0 and
$387,000 to Scott D. Peters, our former President and Chief
Executive Officer, for the years ended December 31, 2010,
2009 and 2008, respectively. Any allocable earnings attributable
to GEEAs and GERIs ownership interests are paid to
such entities on a quarterly basis.
Our directors and officers, as well as officers, managers and
employees have purchased, and may continue to purchase,
interests in offerings made by our 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. Our net proceeds from these sales
made net of commissions will be substantially the same as the
net proceeds received from other sales.
In the fourth quarter of 2009, we effected the private placement
of an aggregate of 965,700 shares of our 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 and the holder of the Note also purchased an additional
$5.0 million of Preferred Stock at the offering price. In
addition, certain of our directors and management also purchased
an aggregate of an additional $1,985,000 of Preferred Stock in
the private placement at the offering price.
|
|
24.
|
EMPLOYEE
BENEFIT PLANS
|
Share-Based
Incentive Plans
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.
A total of 364,390 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, 2010.
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. We have not
granted any options since 2007. All options granted during the
year ended December 31, 2007 vested in equal increments
over the three years following the date of grant. Accordingly,
as of December 31, 2010, all options granted have vested.
109
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
primarily granted to our senior executive officers, no
forfeiture rate has been assumed.
The following table provides a summary of our 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, 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 forfeited or expired
|
|
|
(67,818
|
)
|
|
$
|
11.36
|
|
|
|
|
|
|
$
|
3.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2010
|
|
|
401,928
|
|
|
$
|
10.31
|
|
|
|
5.47
|
|
|
$
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the strike price for all of the
stock options is greater than the stock price, resulting in an
intrinsic value of zero.
Share-based Compensation The 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. We use 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 our stock options. The expected life of our stock options
represents the average between the vesting and contractual term,
pursuant to the requirements of the 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. We have not granted any
options during the years ended December 31, 2010, 2009 and
2008.
Option valuation models require the input of subjective
assumptions including the expected stock price volatility and
expected life. For the years ended December 31, 2010, 2009
and 2008, we recognized share-based compensation related to
stock option awards of $22,000, $0.4 million and
$0.6 million, respectively. The related income tax benefit
for the years ended December 31, 2010, 2009 and 2008 was
$9,000, $0.1 million and $0.2 million, respectively.
The total fair value of stock options that vested for the years
ended December 31, 2010, 2009 and 2008 was
$0.4 million, $0.5 million and $0.8 million,
respectively. As of December 31, 2010, there was no
unrecognized compensation expense related to stock option awards.
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 us at the
original purchase price, if any, or forfeited, if the vesting
conditions and other restrictions are not met.
110
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides a summary of our restricted stock
activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
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
|
|
Shares issued(2)
|
|
|
2,735,870
|
|
|
$
|
1.62
|
|
Shares vested
|
|
|
(1,525,575
|
)
|
|
$
|
3.34
|
|
Shares forfeited
|
|
|
(140,020
|
)
|
|
$
|
2.72
|
|
|
|
|
|
|
|
|
|
|
Non vested shares outstanding as of December 31, 2010
|
|
|
4,671,177
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes 2,000,000 restricted shares of our common stock
that were awarded on November 16, 2009 to Thomas P.
DArcy, our 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 one-third 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 our
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 our 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 our
common stock is at least $6.00, then the remaining 50% of such
restricted shares shall vest. |
|
(2) |
|
Amount includes 1,000,000 restricted shares of our common stock
that were awarded on March 10, 2010 to each Jeffrey T.
Hanson, our Chief Investment Officer, and Jacob Van Berkel, our
Executive Vice President and Chief Operating Officer, 500,000 of
the restricted shares awarded to Messrs Hanson and Van Berkel
are subject to vesting over 3 years in equal annual
increments of one-third each, commencing on the day immediately
preceding the 1 year anniversary of the grant date
(March 10, 2010). The other 500,000 restricted shares are
subject to vesting based upon the market price of our common
stock during the 3 year period beginning March 10,
2010. Specifically, (i) in the event that for any 30
consecutive trading days during the 3 year period
commencing March 10, 2010 the volume weighted average
closing price per share of our 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 March 10, 2010 the volume
weighted average closing price per share of our common stock is
at least $6.00, then the remaining 50% of such restricted shares
shall vest. |
111
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We valued the restricted shares subject to market-based vesting
criteria issued in 2010 and 2009 based on the following
assumptions:
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Term
|
|
Up to 3 years
|
|
Up to 3 years
|
Risk free rate
|
|
1.48%
|
|
1.34%
|
Volatility
|
|
119%
|
|
117%
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
Stock price on date of grant
|
|
$1.87
|
|
$1.52
|
Fair value of restricted shares subject to market-based vesting
|
|
$1.6 million
|
|
$1.2 million
|
For Mr. DArcys grant in 2009, we determined
that the fair value of the restricted shares subject to
market-based vesting criteria was approximately
$1.2 million upon grant date and are 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. The fair value of the restricted
shares subject to time vesting was approximately
$1.5 million based upon the market price of our common
stock on the date of grant and is being amortized over the
service period of three years.
For Mr. Hanson and Mr. Van Berkels grants in
2010, we determined that the fair value of the restricted shares
subject to market-based vesting criteria was approximately
$1.6 million upon grant date and are amortizing the
components of this award over the derived service period of
approximately 146 and 258 days, for the two tranches with
market-based vesting criteria. The fair value of the restricted
shares subject to time vesting was approximately
$1.9 million based upon the market price of our common
stock on the date of grant and is being amortized over the
service period of three years.
Total compensation expense recognized for restricted stock
awards was $5.8 million, $3.8 million and
$7.8 million for the years ended December 31, 2010,
2009 and 2008, respectively. The related income tax benefit for
the years ended December 31, 2010, 2009 and 2008 was
$2.1 million, $1.4 million and $2.9 million,
respectively. As of December 31, 2010, there was
$3.5 million of unrecognized compensation expense related
to unvested restricted stock awards that we expect to recognize
over a weighted average period of 10 months.
Other Equity Awards In accordance with the
requirements of the 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 the
Stock Compensation 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 our employee in exchange for services rendered. The
Stock Compensation 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
us, in equal increments on July 29, 2007, 2008 and 2009.
Due to the acquisition of Realty, the transfers were settled
with 743,160 shares
112
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of our 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 Stock
Compensation Topic. These shares included rights to dividends or
other distributions declared on or prior to July 29, 2009.
As a result, we recognized $1.6 million and
$2.8 million in share-based compensation and a related
income tax benefit (deferred tax asset) of $0.6 million and
$1.1 million for the years ended December 31, 2009 and
2008. No compensation expense was recorded by us in 2010 as the
shares were fully vested in 2009.
401k Plan We adopted a 401(k) plan (the
Plan) for the benefit of our employees. The Plan
covers our employees and eligibility begins the first of the
month following the hire date. For the years ended
December 31, 2010, 2009 and 2008, we contributed $0,
$0.8 million and $3.3 million to the Plan,
respectively.
Deferred
Compensation Plan
During 2008, we 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, we may make discretionary contributions to the plan
which vest over one to five years. Contributions made by us 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, 2010
and 2009, $3.4 million and $3.3 million, respectively,
reflecting the non-stock liability under this plan were included
in accounts payable and accrued expenses. We have 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, 2010 and 2009 have recorded the cash
surrender value of the policies of $1.1 million and
$1.0 million, respectively, in prepaid expenses and other
assets.
In addition, we award phantom shares of our 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 be settled
by issuing shares of our common stock from our treasury share
account or issuing unregistered shares of our common stock to
the participant. As of December 31, 2010 and 2009, we had
awarded an aggregate of 6.0 million phantom shares to
certain employees with an aggregate value on the various grant
dates of $23.0 million. During the year ended
December 31, 2010, we issued 358,424 shares of common
stock from our treasury share account related to fully vested
phantom stock awards. As of December 31, 2010 and 2009, an
aggregate of 4.1 million and 5.6 million phantom share
grants were outstanding, respectively. 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, as of
December 31, 2010, grants with respect to 816,000 phantom
shares had a guaranteed minimum share price ($2.8 million
in the aggregate) that will result in us paying additional
compensation to the participants should the value of the shares
upon vesting be less than the grant date value of the shares. We
account 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. We recorded
compensation expense of $0.4 million, $0.5 million and
$0.2 million during the years ended December 31, 2010,
2009 and 2008, respectively, related to certain of these grants
which provided for a minimum guaranteed value upon vesting.
113
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Grants of phantom shares are accounted for as equity awards in
accordance with the requirements of the 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, 2010, 2009 and
2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
572
|
|
|
$
|
1,431
|
|
|
$
|
10,981
|
|
State
|
|
|
(611
|
)
|
|
|
(163
|
)
|
|
|
1,891
|
|
Foreign
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
|
|
1,268
|
|
|
|
12,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
(274
|
)
|
|
|
(25,775
|
)
|
State
|
|
|
255
|
|
|
|
(19
|
)
|
|
|
4,308
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
|
|
(293
|
)
|
|
|
(21,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78
|
|
|
$
|
975
|
|
|
$
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded net prepaid taxes totaling approximately
$0.2 million and $1.2 million as of December 31,
2010 and 2009, respectively, comprised primarily of state tax
refunds receivable and state prepaid taxes net of state tax
liabilities of approximately $0.6 million and
$0.4 million, respectively. We also received federal and
state tax refunds of approximately $5.6 million and
$12.0 million during 2010 and 2009, 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.
We generated a federal net operating loss (NOL) of
approximately $32.3 million for the taxable period ended
December 31, 2008. We 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. We generated a federal net operating
loss of approximately $109.1 million reduced by
$23.4 million relating to debt relief income for the
taxable period ended December 31, 2009. We carried back
approximately $14.3 million of this NOL to 2007 to claim a
refund of taxes paid of $5.0 million. As of
December 31, 2010, federal net operating loss carryforwards
in the amount of approximately $154.1 million are available
to us, translating to a deferred tax asset before valuation
allowance of $53.9 million. These NOLs will expire between
2027 and 2030. The current year increase in federal deferred tax
assets has been fully offset by an increase in the valuation
allowance of $21.2 million as the future benefit of the
deferred tax assets including the federal NOL carryforward is
uncertain.
We also have state net operating loss carryforwards from
December 31, 2010 and previous periods totaling
$244.1 million, translating to a deferred tax asset of
$16.3 million before valuation allowances, which will begin
to expire in 2017. The current year increase in state deferred
tax assets has been fully offset by an increase in the valuation
allowances of $3.6 million as the future benefit of these
deferred tax assets including the state NOL carryforwards is
uncertain.
We regularly review our deferred tax assets for realizability
and has established a valuation allowance based upon historical
taxable income, projected future taxable income and the expected
timing of the reversals
114
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, we believe 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 was approximately $14.3 million and
$32.3 million respectively, of taxable income available in
carryback years that were used to offset deductible temporary
differences. Management determined that as of December 31,
2010, $112.7 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.
The differences between our total income tax benefit (provision)
from continuing operations for financial statement purposes and
the income taxes computed using the applicable federal income
tax rate of 35.0% for 2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal income taxes at the statutory rate
|
|
$
|
23,772
|
|
|
$
|
28,697
|
|
|
$
|
99,314
|
|
State income taxes, net of federal benefit
|
|
|
1,793
|
|
|
|
3,160
|
|
|
|
4,419
|
|
Foreign income taxes
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
Credits
|
|
|
|
|
|
|
189
|
|
|
|
236
|
|
Other
|
|
|
223
|
|
|
|
(7
|
)
|
|
|
235
|
|
Non-deductible expenses
|
|
|
(736
|
)
|
|
|
(528
|
)
|
|
|
(63,122
|
)
|
Change in valuation allowance
|
|
|
(24,836
|
)
|
|
|
(30,536
|
)
|
|
|
(49,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
$
|
78
|
|
|
$
|
975
|
|
|
$
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010 and 2009 from continuing and
discontinued operations consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Share-based compensation
|
|
$
|
6,894
|
|
|
$
|
8,847
|
|
Allowance for bad debts
|
|
|
10,386
|
|
|
|
9,946
|
|
Intangible assets
|
|
|
(29,764
|
)
|
|
|
(40,233
|
)
|
Prepaid service contracts
|
|
|
(845
|
)
|
|
|
(1,081
|
)
|
Property and equipment
|
|
|
2,435
|
|
|
|
2,740
|
|
Insurance and legal reserve
|
|
|
1,912
|
|
|
|
2,471
|
|
Real estate impairments
|
|
|
11,254
|
|
|
|
21,146
|
|
Put option guarantee and accrued liabilities
|
|
|
11,087
|
|
|
|
15,235
|
|
Other
|
|
|
1,355
|
|
|
|
2,949
|
|
Capital losses
|
|
|
2,455
|
|
|
|
2,528
|
|
Net operating losses
|
|
|
70,220
|
|
|
|
35,715
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
87,389
|
|
|
|
60,263
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(112,658
|
)
|
|
|
(85,740
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(25,269
|
)
|
|
$
|
(25,477
|
)
|
|
|
|
|
|
|
|
|
|
115
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2010, we remain subject to examination
by certain tax jurisdictions for the tax years ended
December 31, 2006 through 2010. We have evaluated our
uncertain tax positions in accordance with the Income Taxes
Topic and have 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, 2010. No interest and penalties
related to unrecognized tax benefits has been accrued.
Management has determined the reportable segments identified
below according to the types of services offered and the manner
in which operations and decisions are made. We operate in the
following reportable segments:
Management Services Management Services
provides 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, financing and valuation of commercial property and
includes our national accounts group and national affiliate
program operations.
Investment Management Investment Management
includes services for acquisition, financing and disposition
with respect to our REITs, asset management services related to
our REITs, and dealer-manager services by our securities
broker-dealer, which facilitates capital raising transactions
for our REITs.
Daymark Daymark includes services for
acquisition, financing and disposition with respect to our TIC
programs and asset and property management services related to
our TIC programs.
We also have 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.
We evaluate the performance of our 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 our
summary of significant accounting policies (See Note 2).
116
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Management Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
274,606
|
|
|
$
|
274,880
|
|
|
$
|
253,664
|
|
Compensation costs
|
|
|
37,604
|
|
|
|
36,701
|
|
|
|
39,125
|
|
Transaction commissions and related costs
|
|
|
16,999
|
|
|
|
12,623
|
|
|
|
8,581
|
|
Reimbursable salaries, wages and benefits
|
|
|
190,538
|
|
|
|
193,682
|
|
|
|
178,058
|
|
General and administrative
|
|
|
9,339
|
|
|
|
9,397
|
|
|
|
8,796
|
|
Provision for doubtful accounts
|
|
|
1,752
|
|
|
|
1,472
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
18,734
|
|
|
|
21,005
|
|
|
|
19,023
|
|
Transaction Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
236,238
|
|
|
|
173,394
|
|
|
|
240,250
|
|
Compensation costs
|
|
|
48,960
|
|
|
|
44,273
|
|
|
|
50,272
|
|
Transaction commissions and related costs
|
|
|
156,290
|
|
|
|
112,399
|
|
|
|
155,668
|
|
General and administrative
|
|
|
35,910
|
|
|
|
33,339
|
|
|
|
34,727
|
|
Provision for doubtful accounts
|
|
|
1,975
|
|
|
|
598
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating loss
|
|
|
(6,897
|
)
|
|
|
(17,215
|
)
|
|
|
(1,263
|
)
|
Investment Management
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
21,333
|
|
|
|
30,368
|
|
|
|
50,982
|
|
Compensation costs
|
|
|
10,481
|
|
|
|
13,428
|
|
|
|
14,697
|
|
Transaction commissions and related costs
|
|
|
3,215
|
|
|
|
5,530
|
|
|
|
9,278
|
|
Reimbursable salaries, wages and benefits
|
|
|
3,187
|
|
|
|
2,824
|
|
|
|
1,941
|
|
General and administrative
|
|
|
7,766
|
|
|
|
6,376
|
|
|
|
7,550
|
|
Provision for doubtful accounts
|
|
|
2,424
|
|
|
|
1,120
|
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) income
|
|
|
(5,740
|
)
|
|
|
1,090
|
|
|
|
13,896
|
|
Daymark
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
21,918
|
|
|
|
26,718
|
|
|
|
50,599
|
|
Compensation costs
|
|
|
11,078
|
|
|
|
13,397
|
|
|
|
15,550
|
|
Transaction commissions and related costs
|
|
|
(261
|
)
|
|
|
84
|
|
|
|
16
|
|
Reimbursable salaries, wages and benefits
|
|
|
7,415
|
|
|
|
6,606
|
|
|
|
4,517
|
|
General and administrative
|
|
|
7,615
|
|
|
|
2,751
|
|
|
|
6,153
|
|
Provision for doubtful accounts
|
|
|
2,069
|
|
|
|
21,425
|
|
|
|
10,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating (loss) income
|
|
|
(5,998
|
)
|
|
|
(17,545
|
)
|
|
|
13,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net loss attributable to Grubb &
Ellis Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating (loss) income
|
|
|
(261
|
)
|
|
|
(12,665
|
)
|
|
|
45,247
|
|
Non-segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other operations, net of rental related and other
expenses
|
|
|
3,502
|
|
|
|
3,768
|
|
|
|
13,318
|
|
Corporate overhead (compensation, general and administrative
costs)
|
|
|
(33,961
|
)
|
|
|
(44,715
|
)
|
|
|
(75,234
|
)
|
Share-based compensation
|
|
|
(9,147
|
)
|
|
|
(10,876
|
)
|
|
|
(11,907
|
)
|
Severance and other charges
|
|
|
(5,880
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(12,665
|
)
|
|
|
(11,727
|
)
|
|
|
(13,313
|
)
|
Interest
|
|
|
(8,504
|
)
|
|
|
(13,138
|
)
|
|
|
(17,799
|
)
|
Real estate related impairments
|
|
|
(859
|
)
|
|
|
(15,305
|
)
|
|
|
(35,637
|
)
|
Goodwill and intangible asset impairment
|
|
|
(2,769
|
)
|
|
|
(738
|
)
|
|
|
(181,285
|
)
|
Other (expense) income
|
|
|
(327
|
)
|
|
|
21,746
|
|
|
|
(18,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax benefit
(provision)
|
|
|
(70,871
|
)
|
|
|
(83,650
|
)
|
|
|
(295,477
|
)
|
Income tax benefit (provision)
|
|
|
78
|
|
|
|
975
|
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(70,793
|
)
|
|
|
(82,675
|
)
|
|
|
(304,072
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
1,062
|
|
|
|
2,176
|
|
|
|
(38,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(69,731
|
)
|
|
|
(80,499
|
)
|
|
|
(342,589
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(2,951
|
)
|
|
|
(1,661
|
)
|
|
|
(11,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
$
|
(66,780
|
)
|
|
$
|
(78,838
|
)
|
|
$
|
(330,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Segment assets and reconciliation to consolidated balance
sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Services
|
|
$
|
50,785
|
|
|
$
|
45,723
|
|
|
|
|
|
Transaction Services
|
|
|
99,098
|
|
|
|
100,662
|
|
|
|
|
|
Investment Management
|
|
|
3,320
|
|
|
|
2,682
|
|
|
|
|
|
Daymark
|
|
|
32,504
|
|
|
|
57,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
185,707
|
|
|
|
206,422
|
|
|
|
|
|
Corporate assets
|
|
|
101,239
|
|
|
|
150,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
286,946
|
|
|
$
|
357,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.
|
SELECTED
QUARTERLY FINANCIAL DATA
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2010
|
|
|
|
Quarter Ended
|
|
|
|
March 31, 2010
|
|
|
June 30, 2010
|
|
|
September 30, 2010
|
|
|
December 31, 2010
|
|
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
130,661
|
|
|
$
|
138,915
|
|
|
$
|
142,334
|
|
|
$
|
163,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(23,689
|
)
|
|
$
|
(18,443
|
)
|
|
$
|
(15,367
|
)
|
|
$
|
(13,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,052
|
)
|
|
$
|
(19,195
|
)
|
|
$
|
(15,316
|
)
|
|
$
|
(11,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company
|
|
$
|
(23,781
|
)
|
|
$
|
(17,460
|
)
|
|
$
|
(14,804
|
)
|
|
$
|
(10,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Grubb & Ellis Company common
shareowners
|
|
$
|
(26,678
|
)
|
|
$
|
(20,356
|
)
|
|
$
|
(17,702
|
)
|
|
$
|
(13,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to Grubb & Ellis Company
common shareowners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.41
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
64,350
|
|
|
|
64,644
|
|
|
|
64,860
|
|
|
|
65,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.41
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
64,350
|
|
|
|
64,644
|
|
|
|
64,860
|
|
|
|
65,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
120,263
|
|
|
$
|
124,570
|
|
|
$
|
134,363
|
|
|
$
|
148,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(40,529
|
)
|
|
$
|
(32,662
|
)
|
|
$
|
(21,430
|
)
|
|
$
|
(10,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income attributable to Grubb & Ellis Company
common shareowners 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 8, 2011, we commenced a consent solicitation to
amend the indenture under which the Convertible Notes were
issued to exclude our subsidiaries, Daymark and NNN Realty
Advisors, Inc. (and each of their direct and indirect
subsidiaries) from certain events of default under the
Convertible Notes. The consent solicitation was initially
scheduled to expire on March 21, 2011 and was extended by
us on that date to March 25, 2011. We subsequently extended
the expiration date of the consent solicitation a second time on
March 25, 2011 to April 4, 2011. We offered a consent
fee to holders of the Convertible Notes who consented to this
amendment in the form of restricted shares of our common stock,
subject to registration rights. Specifically, we initially
offered a consent fee to consenting Note holders of
approximately 36 restricted shares of common stock per each
$1,000 principal amount of the Convertible Notes. In connection
with the second extension of the consent solicitation, we
increased the consent fee to an amount equal to 4% of the
principal amount of the Convertible Notes held by the consenting
holder divided by the closing price of the common stock on the
expiration of the consent solicitation, but in no event greater
than $.99 per share and in no event less than $.89 per share. In
the event that we obtain the requisite consents, the restricted
shares of common stock that we will issue to those holders of
Convertible Notes who properly consent are subject to
registration rights. Pursuant to a registration rights
agreement, we have agreed to enter into with the consenting
holders of Convertible Notes, we will promptly file a shelf
registration statement registering the resale of the restricted
stock with the Securities and Exchange Commission (the
Commission), and will use commercially reasonable
efforts to cause the shelf registration statement to become
effective within 30 days after the date
119
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the shelf registration statement is filed (or within
75 days of the date the shelf registration statement is
filed if the registration statement is reviewed by the
Commission). We will use its commercially reasonable efforts to
keep the shelf registration statement effective until the
earlier to occur of: (x) the date all of the restricted
shares of common stock have been sold pursuant to the shelf
registration statement, (y) the one-year anniversary of the
latest issue date of restricted shares of common stock, and
(z) the date all restricted shares of common stock have
been sold pursuant to Rule 144. If we default on our
registration obligations under the registration rights
agreement, we will have to pay the holder cash in an amount that
shall accrue at a rate of 2.0% per month on the average daily
aggregate market value of the restricted stock issued as payment
of the consent fee, determined daily by multiplying the amount
of such Restricted Stock by $1.11 per share, until all such
registration defaults are cured.
On March 21, 2011, the Board of Directors determined, as
permitted, not to declare a dividend on our 12% Preferred Stock,
for the quarter ending March 31, 2011.
On March 21, 2011, we announced, among other things, that
we had retained JMP Securities LLC as an advisor to explore
strategic alternatives for the Company, including a potential
merger or sale transaction. On March 30, 2011, we entered
into a commitment letter and exclusivity agreement with Colony
Capital Acquisitions, LLC, pursuant to which, as discussed more
fully below, (i) Colony Capital Acquisitions, LLC and one
or more of its affiliates (collectively, Colony)
agreed to provide an $18.0 million senior secured multiple
draw term loan credit facility (the Senior Secured Credit
Facility), and (ii) Colony obtained the exclusive
right for sixty (60) days, commencing on March 30,
2011, to negotiate a strategic transaction with the Company. The
entering into the Senior Secured Credit Facility, and all
closings thereunder, are subject to customary terms and
provisions, including delivery of opinions, good standing
certificates, and customary representations, warranties and
covenants.
Under the Senior Secured Credit Facility, we will have the
right, upon twelve (12) business days notice and prior to
May 15, 2011, to effect an initial draw of the lesser of
$9.0 million or 100% of the eligible accounts receivable of
(i) Grubb & Ellis Company (Parent)
plus (ii) its subsidiary, Grubb & Ellis
Management Services, Inc. (the Borrower).
Thereafter, we will have the right to draw up to the lesser of
$18.0 million or 100% of the eligible accounts receivable
of the Parent and Borrower; provided, that, we may
not make more than two (2) draws during the term (the
Loan). The Loan, which will mature on March 1,
2012, will bear interest at the rate of 11% per annum and
increases by 50 basis points at the end of each three
(3) month period the Loan is outstanding. The Loan will be
required to be prepaid upon certain events, including upon
acceleration of or a monetary default under our Convertible
Notes, and may be prepaid at our option at a premium equal to 4%
of the principal amount of the Loan outstanding in the event
only the initial draw is made under the Senior Secured Credit
Facility and 2% of the principal amount of the Loan outstanding
if both draws have been made under the Senior Secured Credit
Facility. The Loan will be secured by a first priority lien on
all of our assets, subject to certain customary exceptions, and
the Senior Credit Facility will expressly permit the sale of our
Daymark subsidiary. Upon the closing of the Senior Secured
Credit Facility, Colony will receive (i) a closing fee of
$180,000, plus (ii) a three (3) year common stock
purchase warrant, exercisable for a nominal consideration, for
up to 6,712,000 shares of our common stock, provided that
the warrants shall not be exercisable unless (x) a
fundamental change occurs and the price paid for our common
stock is equal to $1.10 per share (subject to customary
adjustments), or (y) the volume weighted average price of
our common stock for any consecutive
30-day
period is equal to or greater than $1.10 per share. The warrant
holder will be entitled to cashless exercise, and will also be
entitled to piggyback and demand registration rights with
respect to the shares of common stock issuable upon the exercise
of the warrant. In addition, we will be entitled to make, in
lieu of cash interest,
payment-in-kind
interest payments on the Loan, in which event there will be a
formulaic increase in the number of shares issuable upon the
exercise of the warrant. We are also obligated to pay
Colonys reasonable costs to effect the Loan transaction.
120
GRUBB &
ELLIS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to the exclusivity agreement, Colony has sixty
(60) days, commencing on March 30, 2011, to negotiate
a strategic transaction with us. In the event we and Colony
reach a strategic transaction, we then have twenty-five
(25) business days to conduct a market check to solicit a
competing transaction, subject to a twenty-four (24) hour
matching right by Colony, as well as a 1% termination fee.
Following this twenty-five (25) business day market check,
the strategic transaction entered into with Colony will be
subject to a customary no shop and fiduciary out with a 3%
termination fee.
121
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Item 9.
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Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
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None.
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Item 9A.
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Controls
and Procedures.
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Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports 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.
Our management, including our Chief Executive Officer and our
Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures pursuant to SEC
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act as of December 31, 2010, 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.
Managements
Report on Internal Control over Financial
Reporting
We recognize our responsibility for establishing and maintaining
adequate internal control over financial reporting and have
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. We assessed the
effectiveness of our internal control over financial reporting
as of December 31, 2010. In making this assessment, we 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, 2010.
Changes
in Internal Control over Financial Reporting
We have 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. Based on that evaluation, we have
concluded that there were no changes in our internal control
over financial reporting during the fiscal quarter ended
December 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
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Item 9B.
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Other
Information
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None.
122
GRUBB &
ELLIS COMPANY
PART III
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Item 10.
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Directors,
Executive Officers and Corporate Governance.
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Information
about the Directors
Our Board of Directors is comprised of six directors. Each
director is elected for a one-year term that will expire at our
2011 annual meeting.
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Thomas P. DArcy |
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51, has served as the President and Chief Executive Officer and
as our director 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
25 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. In light of
Mr. DArcys broad experience in the real estate
industry, with respect to both private and public entities, the
Board of Directors concluded that it was in the Companys
best interests for Mr. DArcy to serve as the
President and Chief Executive Officer of the Company and on the
Board. |
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C. Michael Kojaian |
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49, has served as our director since December 1996. He served as
our Chairman of the Board of Directors from June 2002 until
December 7, 2007 and has served as our Chairman of the
Board of Directors 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 ours, from its inception in September 2005 until
April 2008, and as its Chief Executive Officer from
December 13, 2007 until April 2008. The Board believes that
the Company is well served by Mr. Kojaians
perspective as an experienced real estate investor and as a
director of other public real estate entities. |
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Robert J. McLaughlin |
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77, has served as our director since July 2004.
Mr. McLaughlin previously served as our director 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 |
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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 2003, and as Chairman and Chief
Executive Officer from October 2001 to April 2002 of Imperial
Sugar Company. The Board believes that the Company is well
served by Mr. McLaughlins experience as an officer
and director of numerous companies and his background in
financial matters. |
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Devin I. Murphy |
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50, has served as our director 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. The Company believes that
it is well served by Mr. Murphys extensive experience
in financial real estate matters. |
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D. Fleet Wallace |
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43, has served as our director 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. The Company
believes that it is well served by Mr. Wallaces
perspective as a principal of a real estate investment company. |
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Rodger D. Young |
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64, has served as our director 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. The Company believes that it is
well served by Mr. Youngs commercial experience and
acumen in legal and financial matters. |
124
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 ours 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.
Information
About Executive Officers
Thomas P. DArcy has served as our 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 our current executive officers:
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Michael J. Rispoli |
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38, has served as our Executive Vice President and Chief
Financial Officer since August 2010 and as our investment
subsidiaries since 2008, and senior vice president, Strategic
Planning and Investor Relations, since Grubb &
Ellis merger with NNN Realty Advisors in December 2007.
From 2000 to 2007, Mr. Rispoli was executive director and
corporate controller at Conexant Systems, a publicly traded
semiconductor company and Globespan Virata, Inc., an entity that
merged with Conexant in 2004. He began his career at
PricewaterhouseCoopers LLP in 1993. Mr. Rispoli is a
Certified Public Accountant and holds a bachelors degree
from Seton Hall University. |
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Mathieu B. Streiff |
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35, has served as our Executive Vice President, General Counsel
and Corporate Secretary since October 2010. He joined
Grubb & Ellis Realty Investors, LLC, our indirect
wholly owned subsidiary, in March 2006 as the firms real
estate counsel responsible for structuring and negotiating
property acquisitions, financings, joint ventures and
disposition transactions. He was promoted to chief real estate
counsel and senior vice president, investment operations in
2009. In this role, his responsibility was expanded to include
the structuring and strategic management of our securitized real
estate investment platforms. Prior to joining us,
Mr. Streiff was an associate in the real estate department
of Latham & Watkins LLP in New York. Mr. Streiff
received a juris doctorate from Columbia University Law School
and a bachelors degree from the University of California,
Berkeley. He is a member of the New York State Bar Association. |
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Jeffrey T. Hanson |
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40, has served as our Chief Investment Officer 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 & Ellis Institutional |
125
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Investment Group in our 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. |
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Jacob Van Berkel |
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50, has served as our Executive Vice President and Chief
Operating Officer 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 our 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 we
have received to the effect that no other reports were required
during the year ended December 31, 2010, the Insiders
complied with all Section 16(a) filing requirements
applicable to them with the following exceptions.
Each of Messrs. DArcy, Engel and Rispoli failed to
report one transaction in fiscal year 2010, in each case, with
respect to the withholding for tax purposes of such
persons restricted shares upon vesting. Each of
Messrs. Rispoli and Streiff failed to report one
transaction thus far for fiscal year 2011 with respect to the
withholding for tax purposes of their restricted shares upon
vesting. Mr. Hanson failed to report a total of three
transactions, one in each of fiscal years 2008, 2009 and 2010.
In fiscal year 2008, Mr. Hanson failed to report the
vesting of certain restricted shares of our common stock and in
fiscal years 2009 and 2010, Mr. Hanson failed to report the
withholding for tax purposes of certain other of
Mr. Hansons restricted shares that had vested.
Mr. Van Berkel failed to report one transaction in fiscal
2008, three transactions in fiscal 2009, three transactions in
fiscal 2010 and one transaction thus far for fiscal year 2011,
in each case, with respect to the withholding for tax purposes
of his restricted shares upon vesting.
Code of
Ethics
We have 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 our directors,
officers, employees and independent contractors, including our
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
January 25, 2008 amendment to our by-laws so as to provide
that members of the board of directors who are not an employee
or executive officer of us have the right to directly or
indirectly engage in the same or similar business activities or
lines of business as us, or any of our subsidiaries, including
those business activities or lines of business deemed to be in
competition with us or any of our subsidiaries. In the event
that a non-management director acquires knowledge, other than as
a result of his or her position as a director with us, of a
potential transaction or matter that may be a corporate
opportunity for us, or any of our subsidiaries, such
non-management director shall be entitled to offer such
corporate opportunity to us as such non-management director
deems appropriate under the circumstances in their sole
discretion.
126
Our 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, we maintain 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
our Code of Business Conduct and Ethics is available on our
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 our chief executive
officer 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.
Our 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 our business and considers the risks
associated with our 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 our financial
statements, the financial reporting process, accounting and
legal matters. The Audit Committee meets in executive session
with each of our 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 our
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. Our
Corporate Governance Guidelines are available on our website at
www.grubb-ellis.com and printed copies may be 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
127
Directors. The charter of the Audit Committee was last revised
effective January 28, 2008 and is available on our 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, 2010 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 our 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 our 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, 2010, 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 consider
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 our 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 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.
128
Certifications
On January 8, 2011, we certified to the NYSE that we were
not aware of any violation by us of the corporate governance
listing standards of the NYSE. We have 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 our executive compensation programs
and the material elements of compensation paid or awarded to
those who served as our principal executive officer, our
principal financial officer, and our three other most highly
compensated executive officers during the period from
January 1, 2010 through December 31, 2010
(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 our NEOs and directors with
respect to calendar years 2010, 2009 and 2008 represent their
full years compensation incurred by us with respect to
each calendar year.
Compensation
Committee
The Board of Directors has delegated to the Compensation
Committee oversight responsibilities for our executive
compensation programs. The Compensation Committee determines our
policy and strategies with respect to executive compensation
taking into account certain factors that the Compensation
Committee deems appropriate such as (a) compensation
elements that will enable us to attract and retain executive
officers who are in a position to achieve our strategic goals
which are in turn designed to enhance shareowner value, and
(b) our ability to compensate our executives in relation to
our 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 our Board of Directors regarding the approval
of incentive awards. Consistent with the Compensation
Committees objectives, our overall compensation program is
structured to attract, motivate and retain highly qualified
executives by paying them competitively and tying their
compensation to our success as a whole and their contribution to
our success. The Compensation Committee also provides general
oversight of our employee benefit and retirement plans.
The Compensation Committee operates under a written charter
adopted by the full Board, revised effective as of
December 10, 2007, and available on our 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, 2010 are D. Fleet Wallace, Chair, Robert J.
McLaughlin and Rodger D. 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 our 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
Compensation Committees
129
responsibilities. The Compensation Committee also has the
authority to seek advice from internal or external legal,
accounting or other advisors.
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 our
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.
The Compensation Committee did not engage any compensation
consultants with respect to any fiscal year 2010 compensation
matters.
Role of
Executives in Establishing Compensation
In advance of each Compensation Committee meeting, our Chief
Executive Officer or our Chief Operating Officer works with the
Compensation Committee Chairman to set the meeting agenda. The
Compensation Committee periodically consults with our Chief
Executive Officer with respect to the hiring of the other NEOs
and the hiring and compensation of certain other key employees.
Certain
Compensation Committee Activity
The Compensation Committee met five times during the year ended
December 31, 2010 and in fulfillment of our 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, we are a
people-oriented business which strives to create an environment
that supports our employees in order to achieve our growth
strategy and other goals established by our Board so as to
increase shareowner value over the long term.
The primary goals and objectives of our 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 our short-term and long term goals;
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Motivate and reward executive officers whose knowledge, skill
and performance are critical to our success;
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Align the interests of our 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 our
success.
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The Compensation Committee established these goals in order to
enhance shareowner value.
We believe 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
130
business unit/functional goals and individual performance goals
and objectives). We believe that this dual approach best aligns
the individual NEOs interest with the interests of our
shareowners.
Compensation
During Term of Employment
Our compensation program for NEOs is currently comprised of four
key elements base salary, annual bonus incentive
compensation, share-based compensation and a retirement
plan in addition to our profit sharing plan,
personal benefits and perquisites and long term incentive plan,
all of which are intended to balance the goals of achieving both
short-term and long-term results that we believe 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 our Chief Executive Officer and President, Thomas
P. DArcy, his base salary of $650,000 was determined by
the Compensation Committee after reviewing advice from our
outside consultant regarding market comparisons of peer group
companies and other relevant factors. Each of our General
Counsel, Executive Vice President and Corporate Secretary,
Mathieu B. Streiff, and our Chief Financial Officer and
Executive Vice President, Michael J. Rispoli, receives an annual
base salary of $325,000. In the case of our former General
Counsel, Executive Vice President and Corporate Secretary,
Andrea R. Biller, her compensation had not been adjusted since
the inception of her former employment agreement. Neither our
Chief Investment Officer, Jeffrey T. Hanson, nor our former
Chief Financial Officer and Executive Vice President, Richard W.
Pehlke, received any base salary increases during fiscal 2010.
The base salary of our Chief Operating Officer and Executive
Vice President, Jacob Van Berkel, was increased from $360,000 to
$425,000 in August 2010.
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 our 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 our 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.
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 and the Committees determination of each
NEOs ability to directly impact our financial results. The
2010 annual cash bonus plan target was 200% of base salary for
Mr. DArcy, 150% of base salary for
Messrs. Hanson and Van Berkel and 100% of base salary for
Messrs. Rispoli and Streiff. If the highest level of
performance conditions with respect to the 2010 annual cash
bonus is satisfied, then the value of the 2010 annual cash
bonuses would be $1,300,000 for Mr. DArcy, $675,000
for Mr. Hanson, $637,500 for Mr. Van Berkel, $325,000
for Mr. Rispoli, and $325,000 for Mr. Streiff.
No annual cash bonus plan payments were made to the NEOs for
fiscal year 2010 and 2009, except for
Mr. DArcys guaranteed bonus for 2010 of
$1.3 million, which we expect to pay no later than
December 31,
131
2011. 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 were 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 such EBITDA targets 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). 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, subject to such terms
and conditions as described further below.
Equity grants to NEOs are intended to align management with the
long-term interests of our shareowners and to have a retentive
effect upon our NEOs. The Compensation Committee and the Board
of Directors approve all equity grants to NEOs.
Retirement
Plans
The amounts paid to our NEOs under the retirement plan are
included in the column captioned All Other
Compensation in the Summary Compensation Table directly
below. We have established and maintain a retirement savings
plan under Section 401(k) of the Internal Revenue Code of
1986 (the Code) to cover our eligible
employees including our NEOs. The Code allows eligible employees
to defer a portion of their compensation, within prescribed
limits, on a tax deferred basis through contributions to our
401(k) plan. Our 401(k) plan is intended to constitute a
qualified plan under Section 401(k) of the Code and our
associated trust is intended to be exempt from federal income
taxation under Section 501(a) of the Code. We make
discretionary matching contributions to the 401(k) plan for the
benefit of our employees including our NEOs. In April 2009, our
matching contributions to the 401(k) plan were suspended.
Profit
Sharing Plan
We established a profit sharing plan for our employees; pursuant
to which provided matching contributions. Generally, all
employees were eligible to participate following one year of
service with us. Matching contributions were made in our 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.
Personal
Benefits and Perquisites
The amounts paid to our 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 our 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
us.
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 our executive officers to
132
successfully attain our long-term goals by directly tying the
executive officers compensation to Company-wide and
individual results. During fiscal year 2010 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 given
fiscal year and continued employment through the date such
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 our common stock, subject to our right to distribute cash or
other non-equity forms of compensation in lieu of our 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 our 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 our common
stock will be paid on the Grant Date; and (ii) 50% on the
first year anniversary of the Grant Date.
133
Summary
Compensation Table
The following table sets forth certain information with respect
to compensation for the calendar years ended December 31,
2010, 2009 and 2008 earned by or paid to our 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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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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Salary
|
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Bonus
|
|
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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Year
|
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($)
|
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($)
|
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($)(12)
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($)(13)
|
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($)
|
|
Earnings
|
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($)(14)
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Total
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|
|
|
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|
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|
|
|
|
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|
Thomas P. DArcy(1)
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2010
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$
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652,500
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|
$
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1,300,000
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(8)
|
|
$
|
|
|
|
$
|
|
|
|
$
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|
|
$
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|
|
$
|
662
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|
|
$
|
1,953,162
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|
Chief Executive
Officer and President
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2009
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|
|
81,250
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|
|
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|
2,720,000
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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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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
|
|
|
|
|
Michael J. Rispoli(2)
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|
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2010
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|
|
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282,500
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|
|
|
25,000
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(9)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
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|
|
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307,759
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|
Chief Financial
Officer and Executive Vice President
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|
Matthew A. Engel(3)
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|
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2010
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|
|
|
277,820
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|
|
|
25,000
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(9)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
288
|
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|
|
303,108
|
|
Former Interim Chief
Financial Officer, Current Executive Vice President and Chief
Accounting Officer
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|
|
|
Richard W. Pehlke(4)
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2010
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|
|
|
514,807
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|
|
|
200,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,237
|
|
|
|
716,044
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Former Executive
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|
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2009
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|
|
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343,750
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|
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200,000
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(10)
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7,759
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551,509
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|
Vice President and Chief Financial Officer
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2008
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375,000
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642,750
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8,577
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1,026,327
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Mathieu B. Streiff(5)
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2010
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264,808
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|
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|
|
|
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|
|
|
|
|
259
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|
|
265,067
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|
Executive Vice
President, General
Counsel and Corporate
Secretary
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Andrea R. Biller(6)
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2010
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292,153
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523,571
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815,724
|
|
Former Executive
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2009
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|
366,667
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
369,335
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|
|
|
736,002
|
|
Vice President,
|
|
|
2008
|
|
|
|
400,000
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
675,234
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|
|
|
1,075,234
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|
General Counsel and
Corporate Secretary
|
|
|
|
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|
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|
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|
|
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|
|
|
|
|
|
|
|
Jeffrey T. Hanson
|
|
|
2010
|
|
|
|
406,557
|
|
|
|
200,000
|
(10)
|
|
|
1,732,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,687
|
|
|
|
2,575,744
|
|
Chief
|
|
|
2009
|
|
|
|
412,500
|
|
|
|
200,000
|
(10)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,702
|
|
|
|
991,202
|
|
Investment Officer
|
|
|
2008
|
|
|
|
391,667
|
|
|
|
250,000
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560,968
|
|
|
|
1,202,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Jacob Van Berkel(7)
|
|
|
2010
|
|
|
|
394,135
|
|
|
|
190,000
|
(10)
|
|
|
1,732,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
662
|
|
|
|
2,317,297
|
|
Chief Operating
|
|
|
2009
|
|
|
|
366,667
|
|
|
|
200,000
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,383
|
|
|
|
569,050
|
|
Officer and Executive Vice President
|
|
|
2008
|
|
|
|
380,000
|
|
|
|
|
|
|
|
664,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,050
|
|
|
|
1,049,650
|
|
|
|
|
(1) |
|
Mr. DArcy has served as the Chief Executive Officer
and President 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 our Compensation Committee.
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. Rispoli has served as our Chief Financial Officer and
Executive Vice President from August 2010. Mr. Rispoli is
entitled to receive target bonus cash compensation of up to 150%
of his base salary based upon annual performance goals to be
established by our Compensation Committee. |
|
(3) |
|
Mr. Engel served as our Interim Chief Financial Officer
from May 2010 to August 2010. |
134
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|
|
(4) |
|
Mr. Pehlke served as the Chief Financial Officer from
February 2007 until May 2, 2010. |
|
(5) |
|
Mr. Streiff has served as our Executive Vice President,
Corporate Secretary and General Counsel since October 28,
2010. Mr. Streiff is entitled to receive target bonus cash
compensation of up to 100% of his base salary based upon annual
performance goals to be established by our Compensation
Committee. |
|
(6) |
|
Ms. Biller served as our Executive Vice President,
Corporate Secretary and General Counsel until October 28,
2010. |
|
(7) |
|
Mr. Van Berkel has served as our Chief Operating Officer
and Executive Vice President from since March 2008. |
|
(8) |
|
Amount includes a guaranteed bonus for 2010 of $1,300,000, which
we expect to pay no later than December 31, 2011. |
|
(9) |
|
Amount includes a special bonus of $25,000 that was awarded to
each of Messrs. Rispoli and Engel for their efforts in
connection with the Convertible Notes offering. |
|
(10) |
|
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
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. |
|
(11) |
|
Amount includes a special bonus of $250,000. The 2008 special
bonus was paid in January 2010. |
|
(12) |
|
The amounts shown are the aggregate grant date fair value
related to the grants of restricted stock. |
|
(13) |
|
The amounts shown are the aggregate grant date fair value
related to the grants of stock options. |
|
(14) |
|
All other compensation includes the following: |
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Severance
|
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Medical
|
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|
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|
Profit-Sharing
|
|
|
|
|
|
|
|
|
and Paid
|
|
|
|
|
|
Tax Gross
|
|
and
|
|
401(k) Plan
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
Time Off at
|
|
Living
|
|
Travel
|
|
Up
|
|
Dental
|
|
Company
|
|
Life Insurance
|
|
Company
|
|
Cash
|
|
|
|
|
|
|
Termination
|
|
Expenses
|
|
Expenses
|
|
Payment
|
|
Premiums
|
|
Contributions
|
|
Coverage
|
|
Contributions
|
|
Distributions
|
|
Total
|
Named Executive Officer
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)(16)
|
|
($)
|
|
Thomas P. DArcy
|
|
|
2010
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
662
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
662
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
35,000
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
35,058
|
|
Michael J. Rispoli
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
Matthew A. Engel
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
288
|
|
Richard W. Pehlke
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,237
|
|
|
|
|
|
|
|
|
|
|
|
1,237
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,469
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
7,759
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,287
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
8,577
|
|
Mathieu B. Streiff
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
Andrea R. Biller
|
|
|
2010
|
|
|
|
249,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,568
|
|
|
|
|
|
|
|
1,650
|
|
|
|
|
|
|
|
271,122
|
|
|
|
523,571
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,925
|
|
|
|
|
|
|
|
1,980
|
|
|
|
|
|
|
|
362,430
|
|
|
|
369,335
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,621
|
|
|
|
|
|
|
|
1,290
|
|
|
|
|
|
|
|
669,323
|
|
|
|
675,234
|
|
Jeffrey T. Hanson
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,792
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
229,687
|
|
|
|
236,687
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,176
|
|
|
|
1,826
|
|
|
|
270
|
|
|
|
|
|
|
|
362,430
|
|
|
|
378,702
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,179
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
547,519
|
|
|
|
560,968
|
|
Jacob Van Berkel
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
662
|
|
|
|
|
|
|
|
|
|
|
|
662
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,933
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
2,383
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,600
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
5,050
|
|
|
|
|
(15) |
|
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. |
|
(16) |
|
Includes (i) cash distributions based on membership
interests of $41,435, $0 and $121,804 earned by Ms. Biller
from Grubb & Ellis Apartment Management, LLC for each
of the calendar years ended December 31, 2010, 2009 and
2008, respectively; and (ii) cash distributions based on
membership interests of $229,687, $362,430 and $547,519 earned
by each of Mr. Hanson and Ms. Biller from
Grubb & Ellis Healthcare Management, LLC for each of
the calendar years ended December 31, 2010, 2009 and 2008,
respectively. |
135
Grants of
Plan-Based Awards
The following table sets forth information regarding the grants
of plan-based awards made to our NEOs for the fiscal year ended
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
All Other
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
Number of
|
|
Number of
|
|
Base Price
|
|
Fair
|
|
|
|
|
Shares of
|
|
Securities
|
|
of Option
|
|
Value of Stock
|
|
|
Grant
|
|
Stock or
|
|
Underlying
|
|
Awards
|
|
and Option
|
Name
|
|
Date
|
|
Units
|
|
Options
|
|
($/Share)
|
|
Awards($)(1)
|
|
Thomas P. DArcy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Michael J. Rispoli
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew A. Engel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard W. Pehlke
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mathieu B. Streiff
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea R. Biller
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Hanson
|
|
|
03/10/10
|
|
|
|
1,000,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
1,732,500
|
|
Jacob Van Berkel
|
|
|
03/10/10
|
|
|
|
1,000,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
1,732,500
|
|
|
|
|
(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) |
|
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 one-third 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 our common stock during the
3-year
period beginning March 10, 2010 of which
250,000 restricted shares have a grant date fair value of
approximately $1.68 per share and the other 250,000 restricted
shares have a grant date fair value of approximately $1.51 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 our 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 our
common stock is at least $6.00, then the remaining 50% of such
restricted shares shall vest. |
136
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth summary information regarding the
outstanding equity awards held our named executive officers at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
of Shares
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
or Units
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
of Stock
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock that
|
|
That
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Date
|
|
Vested
|
|
Vested(1)
|
|
Thomas P. DArcy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666,667
|
(4)
|
|
$
|
2,213,334
|
|
Michael J. Rispoli
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,333
|
|
|
$
|
22,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
$
|
45,000
|
|
Matthew A. Engel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
9,000
|
|
Richard W. Pehlke(2)
|
|
|
25,000
|
(5)
|
|
|
|
|
|
$
|
11.75
|
|
|
|
03/31/2011
|
|
|
|
|
|
|
$
|
|
|
Mathieu B. Streiff
|
|
|
10,560
|
(6)
|
|
|
|
|
|
$
|
11.36
|
|
|
|
01/23/2017
|
|
|
|
3,333
|
|
|
$
|
22,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,666
|
|
|
$
|
46,000
|
|
Andrea R. Biller(3)
|
|
|
35,200
|
(7)
|
|
|
|
|
|
$
|
11.36
|
|
|
|
01/22/2011
|
|
|
|
|
|
|
$
|
|
|
Jeffrey T. Hanson
|
|
|
22,000
|
(8)
|
|
|
|
|
|
$
|
11.36
|
|
|
|
11/16/2016
|
|
|
|
1,000,000
|
(9)
|
|
$
|
1,732,500
|
|
Jacob Van Berkel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,667
|
|
|
$
|
117,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(10)
|
|
$
|
50,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
(9)
|
|
$
|
1,732,500
|
|
|
|
|
(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 our 2006 Omnibus Equity Plan
or NNNs 2006 Long Term Incentive Plan, except for grants
made to Mr. DArcy. |
|
(2) |
|
Mr. Pehlke resigned as our Executive Vice President and
Chief Financial Officer on May 3, 2010 and his employment
was terminated on December 31, 2010. Outstanding
unexercised options expire 3 months after termination.
Accordingly, Mr. Pehlkes options are set to expire on
March 31, 2011. |
|
(3) |
|
Ms. Biller ceased to serve as our Executive Vice President,
Corporate Secretary and General Counsel upon the termination of
her employment on October 22, 2010. Outstanding unexercised
options expire 3 months after termination. Accordingly,
Ms. Billers options expired on January 22, 2011. |
|
(4) |
|
Amounts shown represent 1,666,667 of 2,000,000 restricted shares
of our 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 one-third 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 our
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 our 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 our
common stock is at least $6.00, then the remaining 50% of such
restricted shares shall vest. |
|
(5) |
|
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 our common stock on each of November 16, 2006,
November 16, 2007 and November 16, 2008 and have a
maximum term of ten years. |
137
|
|
|
(6) |
|
Includes stock options to acquire 10,560 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 our common stock on each of January 23, 2008,
January 23, 2009 and January 23, 2010 and have a
maximum term of ten years. |
|
(7) |
|
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 our common stock on each of November 16, 2006,
November 16, 2007 and November 16, 2008 and have a
maximum term of ten years. |
|
(8) |
|
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 our common stock on each of November 16, 2006,
November 16, 2007 and November 16, 2008 and have a
maximum term of ten years. |
|
(9) |
|
Includes the restricted stock grant of 1,000,000 shares
awarded to each of Messrs. Hanson and Van 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 based upon the market price of our
common stock during the three year period commencing
March 10, 2010. On March 10, 2010, the closing price
for our common stock was $1.87. |
|
(10) |
|
Includes 40,000 restricted shares of our common stock that will
vest on December 3, 2011, subject to continued service. |
Options
Exercises and Stock Vested
The following table sets forth summary information regarding
exercise of stock options and vesting of restricted stock held
by our named executive officers during the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
|
|
Number of Shares
|
|
|
|
|
Acquired on
|
|
Value Realized on
|
|
Acquired on
|
|
Value realized on
|
Name
|
|
Exercise
|
|
Exercise ($)
|
|
Vesting
|
|
Vesting ($)
|
|
Thomas P. DArcy
|
|
|
|
|
|
$
|
|
|
|
|
333,333
|
(1)
|
|
$
|
363,333
|
(2)
|
Michael J. Rispoli
|
|
|
|
|
|
|
|
|
|
|
2,933
|
(3)
|
|
|
3,021
|
(4)
|
Matthew A. Engel
|
|
|
|
|
|
|
|
|
|
|
5,000
|
(5)
|
|
|
5,750
|
(6)
|
Richard W. Pehlke
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(7)
|
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|
39,500
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
39,667
|
(9)
|
|
|
45,617
|
(6)
|
Mathieu B. Streiff
|
|
|
|
|
|
|
|
|
|
|
3,333
|
(10)
|
|
|
6,366
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
33,334
|
(12)
|
|
|
44,334
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
4,400
|
(14)
|
|
|
4,532
|
(4)
|
Andrea R. Biller
|
|
|
|
|
|
|
|
|
|
|
8,800
|
(15)
|
|
|
9,064
|
(4)
|
Jeffrey T. Hanson
|
|
|
|
|
|
|
|
|
|
|
5,867
|
(16)
|
|
|
6,043
|
(4)
|
Jacob Van Berkel
|
|
|
|
|
|
|
|
|
|
|
5,867
|
(17)
|
|
|
6,923
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
26,666
|
(19)
|
|
|
42,132
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(20)
|
|
|
46,000
|
(6)
|
|
|
|
(1) |
|
Amount shown represents 333,333 restricted shares of our common
stock that vested on November 15, 2010. |
|
(2) |
|
On November 15, 2010, the closing price of a share of our
common stock on the NYSE was $1.09 |
|
(3) |
|
Amount shown represents 2,933 restricted shares of our common
stock that vested on June 27, 2010. |
|
(4) |
|
On June 25, 2010, the closing price of a share of our
common stock on the NYSE was $1.03. |
|
(5) |
|
Amount shown represents 5,000 restricted shares of our common
stock that vested on December 3, 2010. |
138
|
|
|
(6) |
|
On December 2, 2010, the closing price of a share of our
common stock on the NYSE was $1.15. |
|
(7) |
|
Amount shown represents 25,000 restricted shares of our common
stock that vested on January 24, 2010. |
|
(8) |
|
On January 21, 2010, the closing price of a share of common
stock on the NYSE was $1.58. |
|
(9) |
|
Amount shown represents 39,667 restricted shares of our common
stock that vested on December 3, 2010. |
|
(10) |
|
Amount shown represents 3,333 restricted shares of our common
stock that vested on March 12, 2010. |
|
(11) |
|
On March 11, 2010, the closing price of a share of common
stock on the NYSE was $1.91. |
|
(12) |
|
Amount shown represents 33,334 restricted shares of our common
stock that vested on June 3, 2010. |
|
(13) |
|
On June 2, 2010, the closing price of a share of common
stock on the NYSE was $1.33. |
|
(14) |
|
Amount shown represents 4,400 restricted shares of our common
stock that vested on June 27, 2010. |
|
(15) |
|
Amount shown represents 8,800 restricted shares of our common
stock that vested on June 27, 2010. |
|
(16) |
|
Amount shown represents 5,867 restricted shares of our common
stock that vested on June 27, 2010. |
|
(17) |
|
Amount shown represents 5,867 restricted shares of our common
stock that vested on December 4, 2010. |
|
(18) |
|
On December 3, 2010, the closing price of a share of common
stock on the NYSE was $1.18. |
|
(19) |
|
Amount shown represents 26,666 restricted shares of our common
stock that vested on January 24, 2010 |
|
(20) |
|
Amount shown represents 40,000 restricted shares of our common
stock that vested on December 3, 2010 |
Non-Qualified
Deferred Compensation
During fiscal year 2010, two NEOs were participants in the
Deferred Compensation Plan (DCP).
Messrs. Rispoli and Engel have 7,808 and 15,873 shares
of phantom stock, respectively, under the DCP plan.
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, we may
make discretionary contributions to the DCP at any time on
behalf of the participants. Unless otherwise specified by us,
contributions shall be deemed to be invested in our 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 own contribution account as
provided by the Committee, but not earlier than 12 months
from the date our contribution is credited to a
participants contribution account. Except as otherwise
provided by us in writing, all vesting of our contributions
shall cease upon a participants termination of service
with us and any portion of a participants 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 own 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
our contributions vest. The participant may elect to receive the
scheduled distribution in a
139
lump sum or in equal installments over a period of up to five
years. Our 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, we 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. We 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 us, 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-year extensions unless
either party advises the other to the contrary at least
90 days prior to the then expiration of the then current
term. The employment agreement was amended on August 11,
2010 in part to extend Mr. DArcys initial term
from November 16, 2012 to November 16, 2013. The
employment agreement was amended again on March 15, 2011 to
defer the date by which we are obligated to pay
Mr. DArcys guaranteed bonus for the 2010
calendar year from March 15, 2011 to no later than
December 31, 2011.
Pursuant to the employment agreement, Mr. DArcy was
appointed to serve on our Board of Directors as a Class C
Director until the 2010 annual meeting of shareowners, unless
prior to such meeting, we eliminate our 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 our 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 our Compensation
Committee. 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 one-third
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
our 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 three year period
commencing November 16, 2009 the
140
volume weighted average closing price per share of our common
stock on the exchange or market on which our 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 three year period commencing November 16, 2009
the volume weighted average closing price per share of our
common stock on the exchange or market on which our 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 us, subject
to the terms of a Restricted Share Agreement entered into by
Mr. DArcy and us on November 16, 2009, and other
terms and conditions set forth in the employment agreement.
Mr. DArcy received from us a one-time cash payment of
$35,000 as reimbursement for all of his
out-of-pocket
transitory relocation expenses. Mr. DArcy was also
entitled to reimbursement expenses of $100,000 incurred in
relocating to our principal executive offices.
Mr. DArcy was 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 our 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 indemnity provisions.
The employment agreement is terminable by us 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 our customary payroll practices for
24 months; (iii) in lieu of any 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 our 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.
141
Our 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 our
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)
|
|
|
|
|
|
|
846,667
|
|
|
|
|
|
|
|
846,667
|
|
|
|
846,667
|
|
|
|
|
|
Performance Shares (unvested and accelerated)
|
|
|
|
|
|
|
1,270,000
|
|
|
|
|
|
|
|
1,270,000
|
|
|
|
1,270,000
|
|
|
|
|
|
Benefit Continuation
|
|
|
|
|
|
|
27,585
|
|
|
|
|
|
|
|
27,585
|
|
|
|
27,585
|
|
|
|
|
|
Tax Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value
|
|
$
|
|
|
|
$
|
6,044,252
|
|
|
$
|
|
|
|
$
|
6,044,252
|
|
|
$
|
6,044,252
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
J. Rispoli
Mr. Rispoli has served as our executive vice president and
chief financial officer since August 2010. In connection with
Mr. Rispolis promotion, his annual base salary
increased from $250,000 to $325,000. Mr. Rispoli is also
entitled to bonus incentive cash compensation of up to 100% of
his base salary based upon performance mutually-agreed upon and
contingent upon our overall financial performance, and such
other standard benefits afforded to our other executives.
Matthew
A. Engel
Mr. Engel, our executive vice president and chief
accounting officer, served as our interim chief financial
officer from May 3, 2010 until Mr. Rispolis
appointment as chief financial officer in August 2010. In August
2010, in connection with Mr. Engels promotion from
senior vice president to executive vice president, his annual
base salary increased from $260,000 to $300,000.
Richard
W. Pehlke
Mr. Pehlke served as our executive vice president and chief
financial officer until May 3, 2010, on which date
Mr. Pehlke resigned from such positions. Mr. Pehlke
remained available to us on a consulting basis for a period up
to December 31, 2010.
Effective February 15, 2007, we entered into a three-year
employment agreement with Mr. Pehlke pursuant to which
Mr. Pehlke served as our Executive Vice President and Chief
Financial Officer at an annual base salary of $350,000. In
addition, Mr. Pehlke was entitled to receive target bonus
cash compensation of up to 50% of his base salary based upon
annual performance goals that were established by our
Compensation Committee. Mr. Pehlke was also eligible to
receive a target annual performance based equity bonus of 65% of
his base salary based upon annual performance goals that were
established by the Compensation Committee. The equity bonus was
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 our common stock which
have a term of 10 years, are exercisable at $11.75 per
share (equal to the market price of our common stock on the date
immediately preceding the grant date) and vest ratably over
three years. The term of Mr. Pehlkes employment
142
agreement expired on February 15, 2010. Mr. Pehlke
continued to be employed on an at-will basis through
the date of his resignation.
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 was also entitled to participate in our 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.
In connection with Mr. Pehlkes departure, we entered
into a Consulting and Separation Arrangement and General Release
of All Claims with him. This agreement provides, among other
things, that in return for Mr. Pehlkes execution of
and compliance with the Consulting Agreement, including, without
limitation, the provision of consultancy services and a general
release of us from all claims by Mr. Pehlke, we will
provide Mr. Pehlke with certain separation benefits,
subject to applicable tax- and payroll- related deductions,
including: (i) $200,000 on July 1, 2010 representing
the second installment of Mr. Pehlkes 2009 special
bonus payment; (ii) $400,000 to be made in equal
semi-monthly installments ending as of December 31, 2010
which payments shall terminate in the event Mr. Pehlke
discontinues his work as a consultant for any reason prior
thereto; and (iii) $37,981 representing accrued but unused
PTO balance to be paid at the time of termination. Under this
agreement, Mr. Pehlke also agreed to certain
non-solicitation/no raid covenants.
Mathieu
B. Streiff
Mr. Streiff has been our executive vice president,
corporate secretary and general counsel effective as of
October 28, 2010. In connection with his appointment,
Mr. Streiff will receive an annualized base salary of
$325,000, bonus incentive cash compensation of up to 100% of his
base salary based upon performance mutually-agreed upon and
contingent upon our overall financial performance, and such
other standard benefits afforded to our other executives.
Andrea R.
Biller
Ms. Biller served as our executive vice president,
corporate secretary and general counsel until October 22,
2010.
In November 2006, we entered into an executive employment
agreement with Ms. Biller pursuant to which Ms. Biller
served as our General Counsel, Executive Vice President and
Corporate Secretary. The agreement provides for an annual base
salary of $400,000 per annum. Ms. Biller was eligible to
receive an annual discretionary bonus of up to 150% of her base
salary. The executive employment agreement had 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 was extended automatically for an additional year
unless we or Ms. Biller provided at least one years
written notice that the term would not be extended. On
October 23, 2008 we provided a notice not to extend the
term of the executive employment agreement beyond our initial
term and the agreement expired on November 15, 2009.
Ms. Biller was 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. Ms. Biller was entitled to participate
in our 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.
In connection with Ms. Billers departure, we entered
into a separation agreement with Ms. Biller. The separation
agreement provides that, in return for Ms. Billers
execution of and compliance with such agreement (including,
without limitation, a general release of us from all claims by
Ms. Biller, and her
143
agreement to non-solicitation, non-hire and non-disparagement
covenants), we will provide her with certain separation
benefits, to which she would not otherwise be entitled to
receive; primarily, a one-time payment of $400,000 payable in
eight, equal bi-weekly installments of $50,000, starting on
November 26, 2010, subject to applicable tax- and payroll-
related deductions. The separation agreement further sets forth,
among other things, the terms of the termination of
Ms. Billers employment benefits and the return by
Ms. Biller of our property. In addition, in connection with
entering into the separation agreement, certain of our
affiliated entities also entered into a separate agreement with
Ms. Biller which provided for the assignment back of all
Ms. Billers membership interests in Grubb &
Ellis Apartment Management, LLC to one of our affiliates, for
nominal consideration, subject to Ms. Billers right
to receive up to $140,000 if, prior to December 2011, and when,
certain asset sales transactions close and fees are paid to our
affiliates, of which there can be no assurance.
Jeffrey
T. Hanson
In November 2006, we entered into an executive employment
agreement with Mr. Hanson pursuant to which Mr. Hanson
serves as our 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 we or Mr. Hanson provides at least one
years written notice that the term will not be extended.
On October 23, 2008, we provided a notice not to extend the
term of the executive employment agreement beyond our 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 us during such fiscal year, for real estate
investments sourced by us, and (y) Mr. Hanson is
employed by us 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 our 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 our common stock on the exchange or market on which
our 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 our common
stock on the exchange or market on which our 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, subject to the terms and conditions of the
Restricted Stock Award Grant Notice and Restricted Stock Award
Agreement dated March 10, 2010.
144
Mr. Hanson is also entitled to participate in our 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. On
August 5, 2010, the Board of Directors unanimously voted to
increase Mr. Van Berkels annual base salary from
$360,000 to $425,000.
Mr. Van Berkel is eligible to receive an annual
discretionary bonus of up to 150% of his base salary. On
March 10, 2010, Mr. Van Berkel 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. 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 our 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 our common stock on the exchange or market on which
our 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 our common
stock on the exchange or market on which our 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 us, subject to the terms and conditions
of the Restricted Stock Award Grant Notice and Restricted Stock
Award Agreement dated March 10, 2010.
Mr. Van Berkel is also entitled to participate in our
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.
Effective December 23, 2008, we entered into a change of
control agreement with Mr. Van Berkel 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 our
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 our other executive officers
(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. Our payment of
any amounts to Mr. Van Berkel upon his termination upon a
Change of Control is contingent upon his executing our then
standard form of release.
145
Potential
Payments upon Termination or Change of Control
Jacob Van Berkel
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Involuntary
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Not for
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Involuntary
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Resignation
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Executive Payments
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Voluntary
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Cause
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for Cause
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for Good
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Change of
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Death and
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Upon Termination
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Termination
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Termination
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Termination
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Reason
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Control
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Disability
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Severance Payments
|
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$
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|
$
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$
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$
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$
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1,487,500
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$
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Bonus Incentive Compensation
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Long Term Incentive Plan
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Stock Options (unvested and accelerated)
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Restricted Stock (unvested and accelerated)
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1,354,667
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Performance Shares (unvested and accelerated)
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Benefit Continuation
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Tax Gross-Up
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Total Value
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$
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$
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$
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$
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$
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2,842,167
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$
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Compensation
of Directors
Only individuals who serve as non-management directors and are
otherwise unaffiliated with us receive compensation for serving
on the Board and on our 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 $7,500. If the Board forms any additional
committees, it will determine the fees to be paid to the Chair
and/or
members of such committees.
Director
Compensation Table
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Fees Earned
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or Paid in
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Stock
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Director
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Cash(1)
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Awards(2)(3)
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Total
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C. Michael Kojaian(4)
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$
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$
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60,000
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$
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60,000
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Robert J. McLaughlin
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$
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119,000
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$
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60,000
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$
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179,000
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Devin I. Murphy
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$
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86,000
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$
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60,000
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$
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146,000
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D. Fleet Wallace
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$
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114,000
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$
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60,000
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$
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174,000
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Rodger D. Young
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$
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108,500
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$
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60,000
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$
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168,500
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146
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(1) |
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Represents annual retainers plus all meeting and committee
attendance fees earned by non-employee directors in 2010. |
|
(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
52,174 shares on December 10, 2010 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
52,174 shares of restricted stock was $60,000, which is
based upon the closing price of our common stock on the grant
date of $1.15 per share. Those shares represent our annual grant
to our non-management directors which, pursuant to our 2006
Omnibus Equity Plan, is set at $60,000 worth of restricted
shares of our common stock based upon the closing price of such
common stock on the date of the grant. |
|
(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, 2010: |
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Stock Awards
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Options Outstanding
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Outstanding at
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Director
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at Fiscal Year End
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Fiscal Year End
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C. Michael Kojaian
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0
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6,667
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Robert J. McLaughlin
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0
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6,667
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Devin I. Murphy
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0
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13,160
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D. Fleet Wallace
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0
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6,667
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Rodger D. Young
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10,000
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6,667
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(4) |
|
Mr. Kojaian waived his right to payment of all annual
retainers and committee attendance fees during the year ended
December 31, 2010. |
Stock
Ownership Policy for Non-Management Directors
Under the current stock ownership policy, non-management
directors are required to accumulate an equity position in us
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, 2010 are D. Fleet Wallace, Chair, Robert J.
McLaughlin and Rodger D. Young.
During the year ended December 31, 2010, none of the
current or former members of the Compensation Committee is or
was a current or former officer or employee of ours or any of
our subsidiaries or had any relationship requiring disclosure by
us under any paragraph of Item 404 of
Regulation S-K
of the SECs Rules and Regulations. During the year ended
December 31, 2010, none of our executive officers served as
a member of the board of directors or compensation committee of
any other company that had one or more of our executive officers
serving as a member of our 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 we 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.
147
The Compensation Committee has reviewed and discussed with our
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
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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 28, 2011 by persons known by us to be beneficial
owners of more than 5% of any class of our 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.
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Preferred Stock
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Common Stock
|
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Name and Address
|
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Number of
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|
Percentage
|
|
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Number of
|
|
|
Percentage
|
|
of Beneficial Owner(1)
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Shares
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of Class
|
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|
Shares(2)
|
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of Class(3)
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FMR LLC (and related persons)(4)
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139,800
|
|
|
|
14.5
|
%
|
|
|
10,481,244
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|
|
|
14.9
|
%
|
Highbridge International LLC (and related persons)(5)
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|
61,010
|
|
|
|
6.3
|
%
|
|
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5,479,904
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|
|
|
7.8
|
%
|
Persons affiliated with Kojaian Holdings LLC(6)
|
|
|
|
|
|
|
|
|
|
|
5,021,326
|
|
|
|
7.2
|
%
|
Persons affiliated with Kojaian Ventures, L.L.C.(7)
|
|
|
|
|
|
|
|
|
|
|
11,700,000
|
|
|
|
16.7
|
%
|
Persons affiliated with Kojaian Management Corporation(8)
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|
100,000
|
|
|
|
10.4
|
%
|
|
|
6,060,600
|
|
|
|
8.7
|
%
|
Lions Gate Capital
|
|
|
55,500
|
|
|
|
5.7
|
%
|
|
|
3,363,633
|
|
|
|
4.8
|
%
|
Wellington Management Company, LLP(9)
|
|
|
125,000
|
|
|
|
12.9
|
%
|
|
|
11,678,104
|
|
|
|
16.7
|
%
|
Zazove Associates, LLC (and related persons)(10)
|
|
|
|
|
|
|
|
|
|
|
7,285,282
|
|
|
|
10.4
|
%
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas P. DArcy
|
|
|
5,000
|
|
|
|
*
|
|
|
|
2,197,196
|
(11)
|
|
|
3.1
|
%
|
C. Michael Kojaian
|
|
|
100,000
|
(12)
|
|
|
10.4
|
%
|
|
|
22,908,209
|
(12)(13)
|
|
|
32.8
|
%
|
Robert J. McLaughlin
|
|
|
|
|
|
|
|
|
|
|
311,838
|
(13)(14)
|
|
|
*
|
|
Devin I. Murphy
|
|
|
1,000
|
|
|
|
*
|
|
|
|
217,374
|
(13)(15)
|
|
|
*
|
|
D. Fleet Wallace
|
|
|
|
|
|
|
|
|
|
|
146,083
|
(13)
|
|
|
*
|
|
Rodger D. Young
|
|
|
500
|
|
|
|
*
|
|
|
|
198,831
|
(13)(16)
|
|
|
*
|
|
Andrea R. Biller
|
|
|
1,000
|
|
|
|
*
|
|
|
|
363,216
|
(17)
|
|
|
*
|
|
Matthew A. Engel
|
|
|
1,000
|
|
|
|
*
|
|
|
|
102,729
|
(18)
|
|
|
*
|
|
Jeffrey T. Hanson
|
|
|
250
|
(19)
|
|
|
*
|
|
|
|
1,193,915
|
(20)(21)
|
|
|
1.7
|
%
|
Richard W. Pehlke
|
|
|
500
|
|
|
|
*
|
|
|
|
30,303
|
(22)
|
|
|
*
|
|
Michael J. Rispoli
|
|
|
250
|
|
|
|
*
|
|
|
|
84,166
|
(23)
|
|
|
*
|
|
Mathieu B. Streiff
|
|
|
|
|
|
|
|
|
|
|
113,735
|
(24)
|
|
|
*
|
|
Jacob Van Berkel
|
|
|
250
|
|
|
|
*
|
|
|
|
1,074,594
|
(21)(25)
|
|
|
1.5
|
%
|
All Current Directors and Executive Officers as a Group
(11 persons)
|
|
|
108,250
|
|
|
|
11.2
|
%
|
|
|
28,548,670
|
(26)
|
|
|
40.8
|
%
|
148
|
|
|
|
|
|
|
* |
|
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 28, 2011 or within
60 days thereafter. |
|
(4) |
|
Pursuant to a Schedule 13G/A filed with the SEC by FMR LLC
(FMR) (and related persons) on February 14,
2011, FMR is deemed to be the beneficial owner of
(i) 139,800 shares of Preferred Stock and
(ii) $8,400,000 principal amount of our
7.95% Convertible Senior Notes due 2015 (the
Notes), which are convertible into shares of common
stock at a conversion rate of 445.583 shares of common
stock for each $1,000 principal amount of the Notes, for an
aggregate beneficial ownership of 12,215,617 shares of
common stock. FMR and Edward C. Johnson 3d
(Johnson), Chairman of FMR and a member of a
controlling group of FMR, have sole voting power of 3,367,892 of
the shares of common stock and sole dispositive power of all
12,215,617 of the shares of common stock. Fidelity Management
and Research Company (FMRC), as investment advisor
to various investment companies and a wholly-owned subsidiary of
FMR, is the beneficial owner of 8,847,725 of the shares of
common stock, including 5,284,843 shares of common stock,
based on an assumed conversion of 87,200 shares of
Preferred Stock and 3,562,882 shares of common stock, based
on an assumed conversion of $7,996,000 principal amount of the
Notes. Fidelity Real Estate Income Fund (FREIF), one
of the investment companies, beneficially owns 4,117,372 of the
shares of common stock. Pyramis Global Advisors
Trust Company (PGATC), as investment manager, a
bank and an indirect wholly-owned subsidiary of FMR, is the
beneficial owner of 3,367,892 shares of common stock,
including 3,187,876 shares of common stock, based on an
assumed conversion of 52,600 shares of Preferred Stock and
180,016 shares of common stock, based on an assumed
conversion of $404,000 principal amount of the Notes. However,
no holder of the Notes will be entitled to acquire shares of
common stock delivered upon conversion to the extent (but only
to the extent) such receipt would cause such converting holder
to become, directly or indirectly, a beneficial
owner (within the meaning of Section 13(d) of the
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder) of more than 14.99% of the shares of our
common stock outstanding at such time. As a result, FMR is
deemed to be the beneficial owner of an aggregate of
10,481,244 shares of common stock. The address for FMR,
FMRC and FREIF is 82 Devonshire Street, Boston,
Massachusetts 02109. The address for PGATC is 900 Salem Street,
Smithfield, Rhode Island 02917. |
|
(5) |
|
Pursuant to a Schedule 13G filed with the SEC by Highbridge
International LLC (Highbridge) (and related persons)
on February 22, 2011, Highbridge is the beneficial owner of
(i) 61,010 shares of Preferred Stock and
(ii) $4,000,000 principal amount of the Notes, for an
aggregate beneficial ownership of 5,479,904 shares of
common stock. Highbridge Capital Management, LLC
(HCM) is the trading manager of Highbridge and Glenn
Dubin (Dubin) is the CEO of HCM. As such, each of
HCM and Dubin may be deemed the beneficial owner of the shares
beneficially owned by Highbridge. Each of HCM and Dubin
disclaims beneficial ownership of the shares beneficially owned
by Highbridge. The address for Highbridge is
c/o Harmonic
Fund Services, The Cayman Corporate Centre, 4th Floor,
27 Hospital Road, Grand Cayman, Cayman Islands, British
West Indies. The address for HCM is 40 West 57th Street,
33rd Floor, New York, New York 10019. The address for Dubin is
c/o Highbridge
Capital Management, LLC, 40 West 57th Street, 33rd Floor,
New York, New York 10019. |
|
(6) |
|
Kojaian Holdings LLC is affiliated with each of C. Michael
Kojaian, a director of ours, Kojaian Ventures, L.L.C. and
Kojaian Management Corporation (see footnote 11 below). The
address for Kojaian Holdings LLC is 39400 Woodward Avenue,
Suite 250, Bloomfield Hills, Michigan 48304. |
149
|
|
|
(7) |
|
Kojaian Ventures, L.L.C. is affiliated with each of C. Michael
Kojaian, a director of ours, Kojaian Holdings LLC and Kojaian
Management Corporation (see footnote 11 below). The address of
Kojaian Ventures, L.L.C. is 39400 Woodward Ave., Suite 250,
Bloomfield Hills, Michigan 48304. |
|
(8) |
|
Kojaian Management Corporation is affiliated with each of C.
Michael Kojaian, a director of ours, Kojaian Holdings LLC and
Kojaian Ventures, L.L.C. (see footnote 11 below). The address of
Kojaian Management Corporation is 39400 Woodward Ave.,
Suite 250, Bloomfield Hills, Michigan 48304. |
|
(9) |
|
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 280 Congress Street, Boston,
Massachusetts 02210. |
|
(10) |
|
Pursuant to a Schedule 13D filed with the SEC by Zazove
Associates, LLC (Zazove) on March 25, 2011,
Zazove, a registered investment advisor, is the beneficial owner
of $8,850,000 principal amount of the Notes, or
3,943,410 shares of common stock. Gene T. Pretti is the
CEO, Senior Portfolio Manager and controlling equity holder of
Zazove. On March 8, 2011, we commenced a consent
solicitation to amend the indenture under which the Notes were
issued to exclude our subsidiaries, Daymark and NNN Realty
Advisors, Inc. (and each of their direct and indirect
subsidiaries) from certain events of default under the Notes. On
March 18, 2011 Zazove, Nisswa Convertibles Master
Fund Ltd. (Nisswa), Cohanzick Management, LLC
(Cohanzick) and Stonerise Capital Partners Master
Fund L.P. (Stonerise) (collectively, the
Locked-Up
Holders) entered into a written
lock-up
agreement, pursuant to which among other things, each of them
agreed that they will not deliver consents to the proposed
amendment (the
Lock-Up
Agreement). As a result of the
Lock-Up
Agreement, the
Locked-Up
Holders may be deemed to have formed a group within the meaning
of
Rule 13d-5(b)
under the Exchange Act. The
Locked-Up
Holders beneficially own, in the aggregate, $16,350,000
principal amount of the Notes, or 7,285,282 shares of
common stock. Pursuant to a Schedule 13D filed with the SEC
by Pine River Capital Management L.P. (Pine River),
Nisswa and Brian Taylor (Taylor), the managing
member of Pine River Capital, LLC, the general partner of Pine
River, on March 28, 2011, Pine River, Nisswa and Taylor are
the beneficial owners of $2,000,000 principal amount of the
Notes, or 891,166 shares of common stock. Pine River,
Nisswa and Taylor all share voting and disposition power over
the share of common stock and all disclaim beneficial ownership
in the shares of common stock except to the extent of their
pecuniary interest therein. Pursuant to a Schedule 13D
filed with the SEC by Stonerise Capital Management, LLC
(Stonerise Capital), the sole general partner of
Stonerise, and Stonerise on March 25, 2011, Stonerise
Capital and Stonerise are the beneficial owners of $3,500,000
principal amount of the Notes, or 1,559,541 shares of
common stock. Stonerise Capital and Stonerise share voting and
disposition power over the share of common stock. The address
for Zazove is 1001 Tahoe Blvd., Incline Village, NV 89451. The
address for Pine River and Taylor is 601 Carlson Parkway,
Suite 330, Minnetonka, Minnesota 55305. The address for
Stonerise Capital and Stonerise is 44 Montgomery Street,
Suite 2000, San Francisco, California 94104. |
|
(11) |
|
Beneficially owned shares include (i) 666,667 restricted
shares of common stock which vest in equal
1/2 portions
on each of the second, and third anniversaries of
November 15, 2009, and (ii) 1,000,000 restricted
shares of common stock which vest based upon the market price of
our 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 our 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 our
common stock on the exchange or market on which our 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 us, subject to the terms of a Restricted Share Agreement
entered into by Mr. DArcy and us on November 16,
2009, and other terms and conditions set forth in
Mr. DArcys employment agreement. |
150
|
|
|
(12) |
|
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 ours,
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. |
|
(13) |
|
Beneficially owned shares include 6,667 restricted shares of
common stock which vest on December 10, 2011, such shares
granted pursuant to our 2006 Omnibus Equity Plan. |
|
(14) |
|
Beneficially owned shares include 89,310 shares of common
stock held directly by: (i) Katherine McLaughlins IRA
(Mr. McLaughlins 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 6,493 restricted shares of
common stock which vest on the first business day following
July 10, 2011, such shares granted pursuant to our 2006
Omnibus Equity Plan. |
|
(16) |
|
Beneficially owned shares include 10,000 shares of common
stock issuable upon exercise of fully vested outstanding options. |
|
(17) |
|
Ms. Biller resigned her position with us on
October 22, 2010. |
|
(18) |
|
Beneficially owned shares include (i) 10,000 restricted
shares of common stock that were granted to Mr. Engel on
February 4, 2009 pursuant to our 2006 Omnibus Equity Plan
and all such shares will vest on the fourth anniversary of the
grant date, (ii) 10,000 restricted shares of common stock
that were granted to Mr. Engel on December 3, 2008
pursuant to our 2006 Omnibus Equity Plan and which will vest in
equal 1/2 portions on each of the third and fourth anniversaries
of the grant date and (iii) 15,873 shares of our
phantom stock that were granted to Mr. Engel on
December 3, 2008 pursuant to the our Deferred Compensation
Plan and all such shares will vest on the fourth anniversary of
the grant date. |
|
(19) |
|
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. |
|
(20) |
|
Beneficially owned shares include 22,000 shares of common
stock issuable upon exercise of fully vested options. |
|
(21) |
|
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 based upon the market price of our 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 our common stock on the exchange or market on which
our 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 our common
stock on the exchange or market on which our 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 us, 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. |
|
(22) |
|
Mr. Pehlke resigned his position with us on May 3,
2010. |
|
(23) |
|
Beneficially owned shares include (i) 50,000 restricted
shares of common stock that were granted to Mr. Rispoli on
February 4, 2009 pursuant to our 2006 Omnibus Equity Plan
and all such shares will vest on the fourth anniversary of the
grant date and (ii) 7,808 shares of our phantom stock
that were granted |
151
|
|
|
|
|
to Mr. Rispoli on March 12, 2008 pursuant to our
Deferred Compensation Plan and all such shares will vest on the
fourth anniversary of the grant date. |
|
(24) |
|
Beneficially owned shares include (i) 66,666 restricted
shares of common stock that were granted to Mr. Streiff on
June 3, 2009 pursuant to our 2006 Omnibus Equity Plan and
which will vest in equal
1/2 portions
on each of the second and third anniversaries of the grant date
and (ii) 10,560 shares of common stock issuable upon
exercise of fully vested outstanding options. |
|
(25) |
|
Beneficially owned shares include 40,000 restricted shares of
common stock awarded to Mr. Van Berkel pursuant to our 2006
Omnibus Equity Plan which will vest on the first business day
after the third anniversary of the grant date (December 3,
2008) and are subject to acceleration under certain
conditions. |
|
(26) |
|
Beneficially owned shares include the following shares of common
stock issuable upon exercise of outstanding options which are
exercisable on March 28, 2011 or within 60 days
thereafter under our various stock option plans:
Mr. Young 10,000 shares,
Mr. Hanson 22,000 shares,
Mr. Streiff 10,560 shares, and all current
directors and executive officers as a group 42,560 shares. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Related
Party Transaction Review Policy
We recognize that transactions between us and any of our
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 our decisions are based on
considerations other than our best interests and our
shareowners. We also recognize, however, that there may be
situations in which such transactions may be in, or may not be
inconsistent with, our best interests.
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 our Employee Handbook,
a copy of which is distributed to each of our employees at the
time that they begin working for us, and our Salespersons
Manual, a copy of which is distributed to each of our brokerage
professionals at the time that they begin working for us. The
Code of Business Conduct and Ethics is also available on our
website at www.grubb-ellis.com. In addition,
within 60 days after he or she begins working for us and
once per year thereafter, we require that each employee and
brokerage professional to complete an on-line Business
Ethics training class and certify to us 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
us and no worse than could have been obtained through
arms-length negotiations with unrelated parties,
such transactions are monitored by our management and regularly
reviewed by the Audit Committee, which independently evaluates
the benefit of such transactions to our shareowners. Pursuant to
the Audit Committees charter, on a quarterly basis, we
provide 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 us 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 we participate, 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 which
occurred, or continued to occur during fiscal year 2010 in which
we are a participant and in which any of our directors,
executive officers, principal shareowners or any immediate
family member of any director, executive officer or principal
shareowner has or may have a direct or indirect material
interest.
152
Other
Related Party Transactions
Our director, C. Michael Kojaian, is affiliated with and has a
substantial economic interest in Kojaian Management Corporation
and our various affiliated portfolio companies (collectively,
Kojaian Companies). Kojaian Companies is engaged in
the business of investing in and managing real property both for
our own account and for third parties. We pay asset management
fees to the Kojaian Companies related to properties we manage on
their behalf. Revenue, including reimbursable expenses related
to salaries, wages and benefits, earned by us for services
rendered to these affiliates, including joint ventures, officers
and directors and their affiliates, net of asset management fees
paid to Kojaian Companies, was $5.4 million for the year
ended December 31, 2010.
In August 2002, we entered into an office lease with a landlord
related to Kojaian Companies, providing for an annual average
base rent of $365,400 over the ten-year term of the lease.
In December 2010, we entered into two office leases with
landlords related to Kojaian Companies, providing for an annual
average base rent of $414,000 and $404,000 over the ten-year
term of the leases which begin in April 2011 and November 2012,
respectively.
We believe that the fees, commissions and lease term amounts
paid to and by us as described above were comparable to those
that would have been paid to or received from unaffiliated third
parties in connection with similar transactions.
GEEA 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,
our former General Counsel, Executive Vice President and
Secretary, owned an equity interest of 18.0% of
Grubb & Ellis Apartment Management, LLC and GEEA owned
an 82.0% interest therein. On October 22, 2010, in
accordance with the terms of an assignment agreement,
Ms. Biller assigned all of her membership interests in
Grubb & Ellis Apartment Management, LLC to GEEA and
GEEA PM for nominal consideration. As a consequence, through
GEEA and GEEA PM, our equity interest in Grubb & Ellis
Apartment Management, LLC increased from 82.0% to 100.0% after
giving effect to this assignment from Ms. Biller. As of
December 31, 2010 and 2009, Stanley J. Olander, our former
Executive Vice President Multifamily, owned an
equity interest in ROC REIT Advisors, LLC of 33.3%.
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 owned an equity interest in Grubb &
Ellis Healthcare Management, LLC of 18.0% and GERI owned a 64.0%
interest. In connection with her resignation on October 22,
2010, Ms. Biller is no longer a member of Grubb &
Ellis Healthcare Management, LLC. As of December 31, 2010,
Mr. Hanson, our Chief Investment Officer and GERIs
President, owned an equity interest in Grubb & Ellis
Healthcare Management, LLC of 18.0% and GEEA owed an 82.0%
interest. Grubb & Ellis Healthcare REIT Advisor, LLC
and Grubb & Ellis Healthcare Management, LLC are
entities that previously advised and managed Healthcare REIT
(now known as Healthcare Trust of America, Inc.). As a result of
the termination of the advisory agreement in September 2009 and
the final settlement agreement reached with Healthcare REIT in
October 2010, we do not expect to recognize any further revenues
or expenses related to these entities.
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
us as a profit sharing arrangement. We record compensation
expense 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. Compensation expense related to this profit sharing
arrangement associated with Grubb & Ellis Apartment
Management, LLC, includes distributions earned of $41,000 to
Ms. Biller for the year ended December 31, 2010.
Compensation expense related to this profit sharing arrangement
associated with Grubb & Ellis Healthcare Management,
LLC includes distributions earned of $230,000, to each of
Ms. Biller and Mr. Hanson for the year ended
December 31, 2010. Any
153
allocable earnings attributable to GEEAs and GERIs
ownership interests are paid to such entities on a quarterly
basis.
Our directors and officers, as well as officers, managers and
employees have purchased, and may continue to purchase,
interests in offerings made by our 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. Our net proceeds from these sales
made net of commissions will be substantially the same as the
net proceeds received from other sales.
Independent
Directors
The Board determined that five of the six directors serving in
2010, Messrs. Kojaian, McLaughlin, Murphy, Wallace and
Young were independent. For the year ended December 31,
2010, Mr. DArcy was not considered independent under
NYSE listing requirements because Mr. DArcy was
serving as Chief Executive Officer.
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 us. 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 us.
Employment
The director must not have been an employee of ours 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
ours 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
us, 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 our
internal or external auditor. An immediate family member of the
director must not be a current partner of our internal or
external auditor, or an employee of such auditor who
participates in the auditors audit, assurance or tax
compliance (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 our internal or
external auditor who personally worked on our 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 our 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
us, or made payments to us, for property or services that exceed
the greater of $1.0 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 us, or made
payments to us, for property or services that exceed the greater
of $1.0 million or 2% of the other entitys annual
consolidated gross revenues.
154
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
Ernst & Young LLP, independent registered public
accountants, has served as our auditors since December 10,
2007 and audited the consolidated financial statements for the
years ended December 31, 2010, 2009 and 2008.
The following table lists the fees and costs for services
rendered during the years ended December 31, 2010 and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Audit Fees(1)
|
|
|
|
|
|
|
|
|
Total Audit Fees
|
|
$
|
1,887,702
|
|
|
$
|
2,125,674
|
|
|
|
|
|
|
|
|
|
|
Audit Related Fees(2)
|
|
|
|
|
|
|
|
|
Total Audit-Related Fees
|
|
|
215,618
|
|
|
|
260,825
|
|
|
|
|
|
|
|
|
|
|
Tax Fees(2)
|
|
|
|
|
|
|
|
|
Total Tax Fees
|
|
|
91,926
|
|
|
|
144,042
|
|
All Other Fees(3)
|
|
|
|
|
|
|
|
|
Total All Other Fees
|
|
|
647,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
2,842,569
|
|
|
$
|
2,530,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(3) |
|
Includes advisory 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.
155
PART IV.
|
|
Item 15.
|
Exhibits,
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, 2010 and 2009
Consolidated Statements of Operations for the years ended
December 31, 2010, 2009 and 2008
Consolidated Statements of Shareowners (Deficit) Equity
for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
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.
|
156
|
|
|
|
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
|
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.
|
|
|
3.6
|
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.
|
|
|
3.7
|
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.
|
|
|
3.8
|
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.
|
|
|
3.9
|
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.
|
|
|
3.10
|
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.
|
|
|
3.11
|
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.
|
|
|
3.12
|
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
|
Certificate of Incorporation, as amended and restated. See
Exhibits 3.1, 3.4 3.6.
|
|
|
4.2
|
By-laws, as amended and restated. See
Exhibits 3.7 3.12.
|
|
|
4.3
|
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.
|
|
|
4.4
|
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.
|
157
|
|
|
|
4.5
|
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.
|
|
|
4.6
|
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.
|
|
|
4.7
|
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.
|
|
|
4.8
|
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.
|
|
|
4.9
|
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.
|
|
|
4.10
|
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.
|
|
|
4.11
|
Indenture for the 7.95% Convertible Senior Securities due
2015, dated as of May 7, 2010, between Grubb &
Ellis Company, as Issuer, and U.S. Bank National
Association, as Trustee, incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on May 7, 2010.
|
|
|
4.12
|
Registration Rights Agreement, dated as of May 7, 2010,
between Grubb & Ellis Company and JMP Securities LLC,
as Initial Purchaser, incorporated herein by reference to
Exhibit 10.2 to the Registrants Current Report on
Form 8-K
filed on May 7, 2010.
|
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 our 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*
|
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
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).
|
|
|
10.2*
|
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.
|
|
|
10.3*
|
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.
|
158
|
|
|
|
10.4*
|
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.
|
|
|
10.5*
|
Consulting and Separation Agreement and General Release of All
Claims by and between Grubb & Ellis Company and
Richard W. Pehlke, dated May 3, 2010, incorporated herein
by reference to Exhibit 10.2 to the Registrants
Current Report on
Form 8-K
filed on May 4, 2010.
|
|
|
10.6*
|
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.
|
|
|
10.7*
|
Separation Agreement and General Release of All Claims, between
Andrea R. Biller and Grubb & Ellis Company, dated
October 22, 2010, incorporated herein by reference to
Exhibit 10.26 to the Registrants Current Report on
Form 8-K
filed on October 28, 2010.
|
|
|
10.8*
|
Membership Interest Assignment Agreement by and among Andrea R.
Biller, Grubb & Ellis Equity Advisors, LLC and
Grubb & Ellis Equity Advisors Property Management,
Inc., dated as of October 22, 2010, incorporated herein by
reference to Exhibit 10.26 to the Registrants Current
Report on Form
8-K filed on
October 28, 2010.
|
|
|
10.9*
|
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.
|
|
|
|
|
10.10
|
Indemnity 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.
|
|
|
10.11
|
Indemnity 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.
|
|
|
10.12*
|
Form of Indemnity 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 incorporated herein by reference to
Exhibit 10.41 to the Registrants Annual Report on
Form 10-K
filed on March 17, 2008.
|
|
|
10.13*
|
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.
|
|
|
10.14
|
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.
|
|
|
10.15
|
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.
|
159
|
|
|
|
10.16*
|
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.
|
|
|
10.17*
|
First Amendment to Employment Agreement by and between
Grubb & Ellis Company and Thomas P. DArcy, dated
as of August 11, 2010, incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on August 11, 2010.
|
|
|
10.18
|
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.
|
|
|
10.19
|
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.
|
|
|
10.20
|
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.
|
|
|
10.21
|
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.
|
|
|
10.22
|
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.
|
|
|
10.23
|
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.
|
|
|
10.24
|
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.
|
|
|
10.25
|
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.
|
|
|
10.26
|
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.
|
|
|
10.27
|
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.
|
160
|
|
|
|
10.28
|
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.
|
|
|
10.29
|
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, incorporated herein by reference to
Exhibit 10.75 to the Registrants Annual Report on Form
10-K filed on March 16, 2010.
|
|
|
10.30
|
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, incorporated herein by reference to
Exhibit 10.76 to the Registrants Annual Report on Form
10-K filed on March 6, 2010.
|
|
|
10.31
|
Form of Amended and Restated Restricted Stock Award Grant Notice
for Annual Restricted Stock Award to Non-Management Directors,
incorporated herein by reference to Exhibit 10.77 to the
Registrants Annual Report on Form 10-K filed on March 16,
2010.
|
|
|
10.32
|
Special Warranty Deed for GERA Abrams Centre LLC recorded on
March 31, 2010, incorporated herein by reference to Exhibit
99.1 to the Registrants Current Report on
Form 8-K
filed on April 6, 2010.
|
|
|
10.33
|
Purchase Agreement between Grubb & Ellis Company and
JMP Securities LLC, dated May 3, 2010, incorporated herein
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed on May 4, 2010.
|
|
|
10.34
|
Shared Services Agreement by and among Grubb & Ellis
Company, Daymark Realty Advisors, Inc., Grubb & Ellis
Management Services, Inc., Grubb & Ellis Equity
Advisors, LLC, Grubb & Ellis Advisors of California,
Inc., Grubb & Ellis Affiliates, Inc.,
Grubb & Ellis of Arizona, Inc., Grubb &
Ellis Europe, Inc., G&E Landauer Valuation Advisory
Services, LLC, G&E - Mortgage Group, Inc.,
G&E New York, Inc., G&E
Michigan, Inc., G&E of Nevada, Inc., G&E Consulting
Services Co., HSM Inc., Wm. A. White/G&E Inc.,
Grubb & Ellis Capital Corp., NNN Realty Advisors,
Inc., Triple Net Properties Realty, Inc., Grubb &
Ellis Realty Investors, LLC, and Grubb & Ellis
Residential Management, Inc., dated as of March 25, 2011,
incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed on March 28, 2011.
|
|
|
10.35
|
Exclusivity Agreement by and between Colony Capital
Acquisitions, LLC and Grubb & Ellis Company, dated as of
March 30, 2011, incorporated herein by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K filed on
March 30, 2011.
|
|
|
10.36
|
Commitment Letter for $18,000,000 Senior Secured Term Loan
Facility by and between Colony Capital Acquisitions, LLC and
Grubb & Ellis Company, dated as of March 30, 2011,
incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed on March 30,
2011.
|
(12) Statements
re Computation of Ratios
|
|
|
|
12.1
|
Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends.
|
(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.
|
161
(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
|
|
|
|
*
|
Management contract or compensatory plan arrangement.
|
162
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, 2010
|
|
$
|
11,741
|
|
|
$
|
5,744
|
|
|
|
|
|
|
$
|
(1,201
|
)
|
|
$
|
16,284
|
|
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
|
|
Allowance for advances and notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
$
|
12,676
|
|
|
$
|
1,051
|
|
|
|
|
|
|
$
|
(2,433
|
)
|
|
$
|
11,294
|
|
Year Ended December 31, 2009
|
|
$
|
3,170
|
|
|
$
|
9,521
|
|
|
|
|
|
|
$
|
(15
|
)
|
|
$
|
12,676
|
|
Year Ended December 31, 2008
|
|
$
|
1,839
|
|
|
$
|
1,331
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,170
|
|
Valuation allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
$
|
85,740
|
|
|
$
|
24,836
|
|
|
|
2,082
|
|
|
$
|
|
|
|
$
|
112,658
|
|
Year Ended December 31, 2009
|
|
$
|
55,204
|
|
|
$
|
30,536
|
|
|
|
|
|
|
$
|
|
|
|
$
|
85,740
|
|
Year Ended December 31, 2008
|
|
$
|
3,103
|
|
|
$
|
49,677
|
|
|
|
2,424
|
|
|
$
|
|
|
|
$
|
55,204
|
|
|
|
|
(1) |
|
2007 Pre-merger Grubb & Ellis Company state return
true-up
charged against goodwill. |
|
(2) |
|
Uncollectible accounts written off, net of recoveries |
163
GRUBB &
ELLIS COMPANY
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Maximum
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Life on
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Which
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Depreciation
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Costs
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Gross Amount at Which Carried
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in Latest
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Initial Costs to Company
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Capitalized
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as of December 31, 2010
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Income
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Buildings and
|
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Subsequent to
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Buildings and
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Accumulated
|
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Date
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Date
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Statement is
|
(In thousands)
|
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Encumbrance
|
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Land
|
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Improvements
|
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Acquisition
|
|
Land
|
|
Improvements
|
|
Total(a)
|
|
Depreciation(b)
|
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Constructed
|
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Acquired
|
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Computed
|
|
(Commercial Office Property)
|
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200 Galleria
Atlanta, GA
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|
$
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70,000
|
|
|
$
|
7,440
|
|
|
$
|
64,591
|
|
|
$
|
571
|
|
|
$
|
4,982
|
|
|
$
|
48,373
|
|
|
$
|
53,355
|
|
|
$
|
7,783
|
|
|
|
1984
|
|
|
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01/31/2007
|
|
|
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39 years
|
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|
(a) |
The changes in real estate for the years ended December 31,
2010, 2009 and 2008 are as follows:
|
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|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
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
|
|
Additions
|
|
|
2,320
|
|
Disposals
|
|
|
(39,112
|
)
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
53,355
|
|
|
|
|
|
|
|
|
|
(b) |
|
The changes in accumulated depreciation for the years ended
December 31, 2010, 2009 and 2008 are as follows: |
|
|
|
|
|
(In thousands)
|
|
|
|
|
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
|
|
Additions
|
|
|
3,559
|
|
Disposals
|
|
|
(3,734
|
)
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
7,783
|
|
|
|
|
|
|
164
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 31, 2011
|
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.
|
|
|
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|
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Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Thomas
P. DArcy
Thomas
P. DArcy
|
|
Chief Executive Officer, President and Director (Principal
Executive Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Michael
J. Rispoli
Michael
J. Rispoli
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ C.
Michael Kojaian
C.
Michael Kojaian
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Robert
J. McLaughlin
Robert
J. McLaughlin
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Devin
I. Murphy
Devin
I. Murphy
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ D.
Fleet Wallace
D.
Fleet Wallace
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Rodger
D. Young
Rodger
D. Young
|
|
Director
|
|
March 31, 2011
|
165