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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NUMBER 0-20047
ROYALE INVESTMENTS, INC.
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-1691930
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
3430 LIST PLACE, MINNEAPOLIS, MINNESOTA 55416
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612/920-4078
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, .01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year: $2,509,548
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within 60 days. (SEE
definition of affiliate in Rule 12b-2 of the Exchange Act): $7,100,000 AS OF
MARCH 14, 1997
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 1,420,000 SHARES OF COMMON
STOCK AS OF MARCH 14, 1997
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should
be clearly described for identification purposes (e. g., annual report to
securities holders for fiscal year ended December 24, 1990).
1. PART III--DEFINITIVE PROXY STATEMENT TO BE FILED WITHIN
120 DAYS OF DECEMBER 31, 1996.
Transitional Small Business Disclosure Format (check one) Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Royale Investments, Inc. (the "Company") was incorporated on February 19,
1988 to become an infinite-life real estate investment trust ("REIT") for the
purpose of acquiring, leasing and managing income-producing commercial real
estate properties. This format provides its shareholders an opportunity to
participate in the benefits of real estate ownership under professional
management, while enjoying the liquidity of publicly-traded securities. The
Company currently owns seven properties located in Minnesota, Indiana,
Wisconsin, Illinois and North Dakota. The leases are triple net, whereby the
tenant is responsible for all costs and expenses of ownership, including roof
and structure repairs and maintenance. Three of the stores are leased to and
operated by a subsidiary of Fleming Companies, Inc. ("Fleming"), two are leased
to and operated by Nash Finch Company ("Nash Finch"), and two are leased to and
operated by franchisees of SUPERVALU INC. ("Supervalu")
The Company has operated and will continue to operate as a REIT under
Sections 856 through 860 of the Internal Revenue Code. Under such provisions,
the Company must distribute at least 95% of its taxable income to its
shareholders and meet certain other asset and income tests. As a REIT, the
Company generally is not subject to federal income tax.
The Company has no employees. Subject to the supervision of the Company's
Board of Directors, the business of the Company is managed by Crown Advisors,
Inc. (the "Advisor"), which provides investment advisory and administrative
services to the Company and is owned by John Parsinen and Vernon R. Beck,
officers and directors of the Company. In addition, the Advisor serves as the
Company's consultant in connection with policy decisions and renders other
services delegated to it by the Board of Directors. As of December 31, 1996, the
Advisor employed three persons.
The Company does not maintain or pay for any office space.The Company's
offices are located at the offices of the Advisor and are paid for by the
Advisor. However, the advisory agreement between the Advisor and the Company
provides that the Company pay a reasonable allocation of the Advisor's rent
necessary for the officers, directors and agents of the Company to conduct
business in the offices of the Advisor. There is no assurance that the Advisor
will not allocate some portion of its rent to the Company in the future.
INVESTMENT STRATEGY
The Company's objectives are to acquire, own and manage a portfolio of
commercial retail property which will provide steady cash flow and potential for
long-term capital appreciation. The Company will hold its properties until it
determines that the sale or other disposition of the properties is advantageous.
The Company intends to continue its current strategy of acquiring free-standing
retail properties under long-term leases to creditworthy national or regional
tenants. Management believes that the Company's real estate portfolio will
benefit from the stability offered by long-term net leased properties. The
Company may consider real estate interests other than in the food or
food-related distribution business, other than long-term net leased properties,
and other opportunities as may be determined by the Board of Directors to be
consistent with general investment objectives, including, but not limited to,
enhancing shareholder value and cash flow.
FINANCING POLICIES
The Company may incur indebtedness on a secured or unsecured basis.The Board
of Directors periodically reviews the Company's borrowings for reasonableness in
relation to the net assets of the
1
Company. The Company may, from time to time, negotiate lines of credit or
arrange for other short-term or long-term borrowings from commercial lenders or
from public offerings or institutional investors. Where advisable, the Company
may invest in properties subject to leases, existing loans, mortgages, deeds of
trust or similar liens. The Company may also obtain other mortgage financing for
unleveraged properties in which it has invested or may refinance properties
acquired on a leveraged basis. The only limitations to incurring additional
indebtedness is the requirement that additional financing be approved by a
majority of the directors, including a majority of the independent directors,
and a provision in the Bylaws of the Company limiting aggregate indebtedness to
300% of the book value of the gross tangible assets of the Company before
deduction for depreciation and non-cash reserves.
POTENTIAL ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws and regulations, an owner of
real estate is liable for the costs of removal or remediation of certain
hazardous or toxic substances on such property. Such laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. As an owner of its properties, the Company may be liable
for remediation costs, even though the Company's tenants are responsible for
such costs under the leases.
The Company has obtained Phase I environmental assessments on all of its
properties, which are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed properties and surrounding
properties. The Phase I assessments include a historical review, a public
records review, a preliminary investigation of the site and surrounding
properties, screening for the presence of asbestos, polychlorinated biphenyls
("PCBs") and underground storage tanks and the preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
The Phase I assessments have not revealed any environmental liability that
the Company believes would have a material adverse affect on the Company's
business, assets or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, no assurances can be given that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Company's properties will not be affected by tenants and occupants, by the
condition of properties in the vicinity (such as the presence of underground
storage tanks) or by third parties unrelated to the Company.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances. The Company has not been notified by any
governmental authority, or is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances in
connection with its properties.
COMPETITION
The Company will compete within its geographic areas of operation for
acquisition, development and financing of properties with a wide variety of
investors, including syndicators, insurance companies, pension funds, corporate
and individual real estate developers, and other real estate investors which
have investment objectives similar to those of the Company.
Competitive factors in the real estate industry will be heightened for the
Company because of a lack of investment diversification of its assets. Because
the Company currently owns only seven properties, the risk of material loss to
the Company on a tenant's default is greater than it would be if the Company had
a more diverse portfolio of properties.
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Moreover, the Company will be relying upon the expertise of tenants to
ensure that properties are operated profitably. There is no assurance that any
property will be operated profitably.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns seven properties located in the central United States, and
leases the properties to operators of supermarkets under long-term operating
lease agreements. The leases have initial terms of 15 to 20 years. As of
December 31, 1996, the average remaining lease term was approximately 15
years. All of the properties are leased under net leases where the tenant
typically will bear responsibility for substantially all property costs and
expenses associated with operations and maintenance, including real estate
taxes. The leases provide for annual base rental payments (payable in monthly
installments) ranging from $168,300 to $548,200. The leases also provide for
contractual increases in annual rent, and have renewal options of 4 to 8
five-year periods, subject to substantially the same terms and conditions as the
initial lease.
Substantially all of the Company's income is derived from rental payments
received from its tenants. The table below sets forth certain information
concerning the Company's properties as of December 31, 1996.
STRAIGHT
GROSS LINE ANNUAL REAL
LEASABLE PERCENT OF ANNUAL ESTATE LEASE
LOCATION AREA (GLA) TOTAL GLA BASE RENT TAXES EXPIRATION
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Plymouth, MN................. 67,650 sq ft 19% $ 522,813 $ 213,036 2006
Indianapolis, IN............. 67,541 19% 548,196 102,300 2011
Peru, IL..................... 44,300 13% 347,112 21,269 2014
Minot, ND.................... 46,000 13% 316,272 53,291 2014
Glendale, WI................. 36,000 10% 177,984 64,244 2010
Oconomowac, WI............... 40,000 11% 264,798 49,985 2014
Delafield, WI................ 52,800 15% 330,564 68,791 2014
The Minnesota and Indiana locations are operated by franchisees of SUPERVALU
INC. under the Cub Foods name. Supervalu is one of the nation's leading food
distribution companies and is engaged primarily in the business of selling food
and other products at wholesale to independently owned supermarkets. It is also
the 14th largest food retailer in the United States, based on sales. Supervalu's
common stock is traded on the New York Stock Exchange.
The Minnesota property is leased to Innsbruck Investments, Inc., and is
personally guaranteed by certain principals of the tenant. The Indiana property
was leased to Goldmark, Inc. until April 1996, when the Company approved a
transfer of Goldmark's interest as tenant to Wigest Corporation, an Indiana
corporation. Supervalu has guaranteed the obligations of each of the tenants for
a period of ten years, commencing June 25, 1992, up to $3.5 million in
aggregate. The Supervalu guaranty may be used on either or both of the
properties. In consideration of this guaranty, the Company has agreed to pay
Supervalu an annual fee of 1% of the unused portion of the guaranty. As an
inducement to allow the Indiana lease transfer, Wigest Corporation has agreed to
pay one-half of this fee effective April 16, 1996.
The Company and Supervalu have executed a companion lease in order to enable
Supervalu to control either of the properties upon a tenant default. The
companion lease for each property is on substantially the same terms as each of
the leases, and will allow (but not require) Supervalu to take over the
operation of the property upon a default by one or both of the tenants.
The three Wisconsin properties are leased by Fleming Companies, Inc., the
largest food distributor in the United States. As of year end 1996, Fleming
served over 2,900 retail food stores in 36 states. In addition, Fleming provides
support services to retail customers and operates retail food stores under the
3
names Piggly Wiggly, Thriftway and Sentry. Fleming's common stock is traded on
the New York Stock Exchange.
The properties located in Illinois and North Dakota are operated by Nash
Finch Company. Nash Finch is a Minnesota-based company engaged principally in
the wholesale and retail distribution of food and non-food products typically
found in supermarkets. Nash Finch is the third largest public grocery wholesaler
in the country. On a wholesale basis, Nash Finch supplies products to
approximately 1,400 supermarkets, military bases and other customers in
approximately 30 states. Nash Finch also operates conventional supermarkets,
principally under the names Sun Mart, Econofoods, Family Thrift Center, Food
Folks and Easter's. Nash Finch's common stock is traded on the NASDAQ National
Market System.
The federal tax basis of all of the Company's properties is the same as the
basis for financial statement purposes. All tax depreciation is computed by the
straight line method. Buildings have depreciable lives of from 31.5 to 40 years.
Building improvements, which include landscaping, parking lots, etc., have
depreciable lives of 15 to 20 years.
In the opinion of Company's management, the real estate owned by the Company
is adequately covered by insurance. The Company does not anticipate the need to
renovate any of the properties in the foreseeable future.
MORTGAGE DEBT. See note 5 to the financial statements for a detailed
description of the terms of the mortgages.
ITEM 3. LEGAL PROCEEDINGS
During 1996, the Company was not a party to any legal proceedings.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
Company's fourth quarter.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol RLIN. The following table sets forth
the range of the high and low last reported sale prices as reported by Nasdaq.
The quotations shown represent interdealer prices without adjustment for retail
markups, markdowns or commission, and may not reflect actual transactions.
1995 LOW HIGH
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First Quarter..................................................................................... 5 1/4 7 1/4
Second Quarter.................................................................................... 4 3/4 5 5/8
Third Quarter..................................................................................... 5 6 3/8
Fourth Quarter.................................................................................... 4 3/4 6
1996 LOW HIGH
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First Quarter..................................................................................... 4 3/4 5 3/8
Second Quarter.................................................................................... 4 7/8 5 3/4
Third Quarter..................................................................................... 5 1/8 5 3/4
Fourth Quarter.................................................................................... 4 3/4 5 1/2
4
On March 14, 1997, the last sale price for the Common Stock, as reported by
Nasdaq, was $5.00 per share. As of March 14, 1997, there were approximately 275
record holders of the Common Stock. The Company estimates that there are
approximately 1,200 beneficial holders of the Common Stock.
CASH DIVIDENDS
In 1996 and 1995, the Company declared quarterly dividends of $.125 per
share for each of the four fiscal quarters. The Company's ability to pay
dividends in the future will be dependent upon cash flow generated from lease
payments received by the Company and cash generated from financing transactions,
as well as limitations imposed by applicable state laws. The Company's dividend
policy is determined by the Company's Board of Directors based upon the yield
available for similar securities, cash available to the Company and cash
required by the Company to meet anticipated requirements to purchase additional
properties. In early 1995, the Company established a dividend policy of basing
future distributions on funds from operations. It is expected that the Company
will pay out aggregate dividends in 1997 of $.50 per share, if no additional
properties are purchased.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company was founded in 1988, but did not conduct any operations until
February 1990. On December 31, 1991, the Company closed its initial public
offering of Common Stock. On June 25, 1992, the Company acquired two properties
from Supervalu. On June 30, 1993, the Company sold additional shares of Common
Stock in a public offering. During 1993 and 1994, the Company purchased three
properties from Fleming and two from Nash Finch.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 1996 AND 1995
In 1996, rental revenue increased by $41,230 to $2,477,412 from $2,436,182
in 1995, due to a contractual increase in two of the properties, as explained in
the following paragraph. Since 1995 was the first year in which all of the
Company's properties were leased for an entire year, rental revenue increased by
$397,672 to $2,436,182 from $2,038,510 in 1994. Projected rental revenue for
1997 is approximately $2,500,000.
Rent on the Company's Minnesota and Indiana properties is fixed for the term
of the leases, but is adjusted every five years by 50% of the increase in the
"Food-at-Home" component of the Consumer Price Index up to a maximum of 10% for
any five-year period. In March 1996, rent on the Minnesota property increased
approximately 6%, and in November 1996, rent on the Indiana property increased
approximately 8%. Remaining leases are for initial terms of seventeen to twenty
years, and the rents due under these leases adjust upward every five years based
upon a negotiated minimum rate or a percentage of sales, whichever is greater.
The principal expenses of the Company will be mortgage interest and
depreciation, and the leases are structured to provide sufficient rents to allow
the Company to service the debt and pay other operating costs of the leased
premises, including advisory fees. If rent is not paid as provided in the
leases, the Company may be unable to meet its mortgage or other payments.
Interest income decreased in 1996 by approximately $16,000 due to a
reduction in cash and marketable securities. Interest income for 1995 decreased
to $48,467 from $216,726 in 1994. The decrease was the result of construction
period interest received on the Oconomowac and Delafield purchases during 1994,
which was no longer applicable in 1995.
All operating expenses relating to the Company's properties, such as
utilities, property taxes, repairs and maintenance and insurance, are the
responsibility of the Company's tenants. Accordingly, the Company did not incur
any material costs for these expenses in 1996 or 1995. Operation and management
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expenses consist mainly of fees paid to Crown Advisors, Inc., the Company's
advisor and affiliate. The contractual fee was $250,274 in both 1996 and 1995,
as compared to $510,964 in 1994. The higher amount in 1994 was the result of
acquisition fees paid on properties acquired in that year. General and
administrative expenses consist primarily of professional fees, travel expense
and state income taxes. These expenses increased to $42,505 in 1996 from $34,595
in 1995 and $34,874 in 1994.
Mortgage interest expense decreased to $1,246,386 in 1996 from $1,266,506 in
1995, due to a reduction in mortgage principal of approximately $257,000 during
the year. Mortgage interest expense increased in 1995 from $1,098,030 in 1994.
This increase in expense resulted from additional mortgages obtained to purchase
additional properties in 1994. Correspondingly, depreciation expense increased
from $467,298 in 1994 to $554,428 in 1995 and 1996.
Net income for 1996 was $293,046, an increase of $20,873 from 1995. This
increase was mostly due to additional revenues of $25,000 and reduced interest
expense of $20,000, offset by a $22,000 charge to operations for an unsuccessful
attempt to raise capital and acquire additional properties. Net income for 1995
was $272,173, a decrease of $28,742 from 1994. Although total revenue increased
by approximately $230,000 in 1995, interest and depreciation expense increased
by approximately $260,000, resulting in a decrease in net income.
FUNDS FROM OPERATIONS
The Company believes that to facilitate a clear understanding of its
operating results, funds from operations ("FFO") should be examined in
conjunction with net income. FFO are generally considered by industry analysts
to be the most appropriate measure of performance by a real estate investment
trust. Although there are variations in the REIT industry as to how funds from
operations are calculated, the Company has adopted the NAREIT (National
Association of Real Estate Investment Trusts) definition, adding back real
estate depreciation expense to net income. No other adjustments were required by
the Company. FFO has increased to $847,000 (60 cents per share) in 1996,
compared to $827,000 (58 cents per share) in 1995 and $768,000 (54 cents per
share) in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Proceeds from equity offerings and long-term mortgage financing have been
the principal sources of capital to fund the Company's property acquisitions.
Cash flow from operations has been the principal source of capital to fund
ongoing operations. Cash and cash equivalents and marketable securities at
December 31, 1996 aggregated $737,654 compared with $838,091 at December 31,
1995, and $1,130,864 at December 31, 1994. The Company anticipates that it will
have sufficient cash to meet its various cash requirements, including the
payment of debt service obligations and dividends in 1997.
The Company declared dividends of $.50 per share to its shareholders in 1996
and 1995, and $.85 per share in 1994. To the extent that dividends are paid in
excess of net income plus amortization and depreciation, and cash is not
generated through borrowings or sale of equity, the Company's liquidity will be
adversely affected. In early 1995, the Company established a dividend policy of
basing future distributions on projected funds from operations. The Company
anticipates paying annual dividends of $.50 per share during 1997 if no
additional properties are purchased. Operating cash flows are expected to
increase due to future growth in rental revenues and from any property acquired
in the future.
The ability of the Company to acquire additional properties is dependent
upon obtaining additional equity capital through the issuance and sale of Common
Stock or other securities as well as obtaining acceptable mortgage financing on
its properties and properties to be acquired. Whether the Company will be able
to procure the necessary financing will depend upon the prevailing market for
the Company's Common Stock, interest rates and the lending market for real
estate generally. There is no assurance that the Company will be able to raise
additional capital on terms satisfactory to the Company.
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The leases require the tenants to pay all costs associated with the
Company's properties, including most capital expenditures for repairs and
improvements. Consequently, it is not expected that the Company will be required
to incur any significant capital expenditures in connection with the maintenance
of its properties or any properties acquired in the future.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements required by this Item can be found beginning on page
F-2 of this Form 10-KSB and are deemed incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
Pursuant to instruction E(3) to Form 10-KSB, the information required by
Part III (Items 9, 10, 11, and 12) is hereby incorporated by reference to the
materials contained in "Election of Directors"; "Executive Officers and
Compensation"; "Certain Transactions" and "Security Ownership of Certain
Beneficial Owners and Management", contained in the Company's definitive proxy
materials to be filed with the Commission within 120 days of December 31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-KSB:
1. FINANCIAL STATEMENTS. Audited balance sheets as of December 31, 1996 and
1995, and the related statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996 are
filed as part of this Form 10-KSB. See Index to Financial Statements on Page
F-1.
2. EXHIBITS. Refer to the Exhibit Index that follows.
EXHIBIT INDEX
EXHIBIT NUMBER TITLE METHOD OF FILING
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3.1 Restated Articles of Incorporation of the Company, as amended (1)
3.2 Bylaws of the Company (1)
3.3 Bylaws of the Company as amended June 15, 1993 (5)
10.1 Amendment of Advisory Agreement (Amended as of September 11, 1992) (2)
10.2 Amended Advisory Agreement (Amended as of October 1, 1991) (1)
10.5 Amended Form of Directors' Warrant (1)
10.6 Executed Indianapolis Purchase Agreement together with Exhibits (1)
10.7 Executed Amendment to Indianapolis Purchase Agreement (1)
10.8 Executed Plymouth Purchase Agreement together with Exhibits (1)
10.9 Super Valu Guaranty (1)
10.11 Plymouth Property Appraisal (1)
10.12 Indianapolis Property Appraisal (1)
10.13 Promissory Note dated June 25, 1992 issued by Royale Investments, Inc. to
American United Life Insurance Company for $4.8 million (3)
10.14 Guaranty Agreement dated June 25, 1992 between Super Valu Stores, Inc. and
Royale Investments, Inc. (3)
10.15 Letter of Credit Agreement dated July 2, 1991 between Super Valu Stores, Inc.
and Goldmark, Inc. (3)
10.16 Indenture of Mortgage and Security Agreement with Assignment of Rents dated as
of June 1, 1992 from Royale Investments, Inc. to American United Life
Insurance Company re: Indianapolis (3)
10.17 Indenture of Mortgage and Security Agreement with Assignment of Rents and
Fixture Financing Statement dated as of June 1, 1992 from Royale Investments,
Inc. to American United Life Insurance Company (3)
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EXHIBIT NUMBER TITLE METHOD OF FILING
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10.18 First Amendment to Lease between Super Valu Stores, Inc. and Innsbruck
Investments, Inc. dated June 25, 1992 (3)
10.19 Companion Lease dated June 25, 1992 by and between Royale Investments, Inc.
and Super Valu Stores, Inc. (3)
10.20 First Amendment to Guaranty Agreement dated June 25, 1992 (4)
10.21 First Amendment to Companion Lease dated June 25, 1992 (4)
10.22 First Amendment to Memorandum of Lease dated June 25, 1992 (4)
10.25 Executed Glendale Purchase Agreement dated August 31, 1993 with Exhibits (6)
10.26 Executed Glendale Lease with Malone & Hyde, Inc. dated October 1, 1993 (6)
10.27 Fleming Companies Guaranty dated September 27, 1993 (6)
10.28 Glendale Property Appraisal dated August 17, 1993 (6)
10.29 Executed Peru Purchase Agreement dated November 30, 1993 with Exhibits (6)
10.30 Executed Peru Lease with Nash-Finch Company dated December 1, 1993 (6)
10.31 Peru Property Appraisal dated August 13, 1993 (6)
10.32 Peru Mortgage and Assignment of Leases and Rents and Security Agreement and
Fixture Financing Statement dated December 17, 1993 from Royale Investments,
Inc. to Northern Life Insurance Company (6)
10.33 Peru Secured Lease Obligation Note due November 1, 2013 from Royale
Investments, Inc. to Northern Life Insurance Company dated December 17, 1993 (6)
10.34 Peru Subordination, Non-Disturbances and Attornment Agreement dated November
30, 1993 (6)
10.35 Stock Option Plan for Directors (6)
10.36 Form of Directors Stock Option (6)
10.37 Executed Minot Purchase Agreement dated January 31, 1994, with Exhibits (7)
10.38 Executed Minot Lease with Nash Finch Company dated January 31, 1994 (7)
10.39 Minot Property Appraisal dated August 12, 1993 (7)
10.40 Minot Mortgage and Security Agreement and Fixture and Financing Statement
dated January 31, 1994 from Royale Investments, Inc. to Northern Life
Insurance Company (7)
10.41 Minot Secured Lease Obligation Note due February 1, 2014, from Royale
Investments, Inc. to Northern Life Insurance Company dated January 31, 1994 (7)
10.42 Minot Recognition Agreement dated January 31, 1994 (7)
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EXHIBIT NUMBER TITLE METHOD OF FILING
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10.43 Executed Oconomowoc Purchase Agreement dated November 30, 1993, with Exhibits (7)
10.44 Executed Oconomowoc Lease with Malone & Hyde, Inc. dated January 10,1994 (7)
10.45 Fleming Companies, Inc. Guaranty dated January 10, 1994 (7)
10.46 Oconomowoc Property Appraisal dated October 26, 1993 (7)
10.47 Oconomowoc Mortgage and Security Agreement dated June 6, 1994 from Royale
Investments, Inc. to Modern Woodmen of America (7)
10.48 Oconomowoc Mortgage Note dated June 6, 1994 issued by Royale Investments, Inc.
to Modern Woodmen of America for $1.8 million (7)
10.49 Amended and Restated Mortgage Note dated June 6, 1994 issued by Royale
Investments, Inc. to Modern Woodmen of America for $1.8 million (7)
10.50 Executed Delafield Purchase Agreement dated March 11, 1994 with Exhibits (7)
10.51 Executed Delafield Lease with Malone & Hyde, Inc. dated March 11, 1994 (7)
10.52 Fleming Companies, Inc. Guaranty dated March 11, 1994 (7)
10.53 Delafield Property Appraisal dated March 7, 1994 (7)
10.54 Delafield Mortgage and Security Agreement dated November 28, 1994 from Royale
Investments, Inc. to Modern Woodmen of America (7)
10.55 Delafield Mortgage Note dated November 28, 1994 issued by Royale Investments,
Inc. to Modern Woodmen of America for $2 million (7)
10.56 Glendale Mortgage Note dated March 28, 1994 issued by Royale Investments, Inc.
to Firstar Bank Milwaukee, N.A. (7)
10.57 Amended and Restated Royale Investments, Inc. REIT Advisory Agreement dated
November 22, 1995 (8)
10.58 Assignment of Tenant's Interest in Lease and Assumption Agreement dated April
22, 1996, with Exhibits Filed Herewith
10.59 Second Amendment of Lease between Royale Investments, Inc. and Wigest
Corporation, dated April 22, 1996 Filed Herewith
10.60 Release of Mark Murphy Guaranty, dated April 22, 1996 Filed Herewith
10.61 Subordination Agreement, dated April 22, 1996 Filed Herewith
- ------------------------
(1) Incorporated by reference to the same numbered Exhibit to the Company's
Registration Statement on Form S-11, File No. 33-43202.
(2) Incorporated by reference to the same Numbered Exhibit to the Company's Form
10-Q filed for the quarter ended September 30, 1992.
(3) Incorporated by reference to Exhibit Nos. 10.1-10.7 to the Company's Form 8
dated June 25, 1992.
(4) Incorporated by reference to Exhibit Nos. 10.20-10.22 to the Company's Form
10-K filed for the year ended December 31, 1992.
10
(5) Incorporated by reference to Exhibit No. 11.1 of the Company's Form 10-Q
filed for the quarter ended June 30, 1993.
(6) Incorporated by reference to Exhibit Nos. 10.25-10.36 to the Company's Form
10-KSB filed for the year ended December 31, 1993.
(7) Incorporated by reference to Exhibit Nos. 10.37-10.56 to the Company's Form
10-KSB filed for the year ended December 31, 1994.
(8) Incorporated by reference to Exhibit No. 10.57 to the Company's Form 10-KSB
filed for the year ended December 31, 1995.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
11
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: March 28, 1997 ROYALE INVESTMENTS, INC.
By: /s/ VERNON R. BECK
-----------------------------------------
Vernon R. Beck
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ KENNETH R. NEUBAUER
-----------------------------------------
Kenneth R. Neubauer
CHIEF FINANCIAL OFFICER
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ VERNON R. BECK President and Chief
- ------------------------------ Executive Officer and
Vernon R. Beck Director
/s/ JOHN PARSINEN Vice President, Secretary
- ------------------------------ and Director
John Parsinen
/s/ ORVIN J. HALL Director
- ------------------------------
Orvin J. Hall
/s/ KURT SCHOENROCK Director
- ------------------------------
Kurt Schoenrock
/s/ KENNETH D. WETHE Director
- ------------------------------
Kenneth D. Wethe
/s/ ALLEN C. GEHRKE Director
- ------------------------------
Allen C. Gehrke
12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB/A-1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 0-20047
ROYALE INVESTMENTS, INC.
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-1691930
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
3430 LIST PLACE, MINNEAPOLIS, MINNESOTA 55416
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612/920-4078
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, .01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year: $2,509,548
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within 60 days. (SEE
definition of affiliate in Rule 12b-2 of the Exchange Act): $7,100,000 AS OF
MARCH 14, 1997
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 1,420,000 SHARES OF COMMON
STOCK AS OF MARCH 14, 1997
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (check one) Yes / / No /X/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the directors
and executive officers of the Company.
NAME AGE OFFICE DIRECTOR SINCE
- --------------------------------------------- --- --------------------------------------------- ---------------
Vernon R. Beck............................... 55 President, Treasurer and Director 1988
John Parsinen................................ 54 Vice President, Secretary and Director 1988
Orvin J. Hall................................ 70 Director 1990
Kurt Schoenrock.............................. 64 Director 1990
Kenneth D. Wethe............................. 55 Director 1990
Allen C. Gehrke.............................. 62 Director 1995
VERNON R. BECK is Chairman of the Board of Directors of the Company. Mr.
Beck has served as President of the Company since 1988 and as President of Crown
Advisors, Inc., the Company's advisor, since its inception in 1988. Since 1976,
Mr. Beck has been President of Vernon Beck & Associates, Inc. a commercial
mortgage banking and real estate development firm, which has developed and
financed numerous commercial real estate projects. Mr. Beck is a former
commercial loan officer with IDS Mortgage Corporation and senior analyst with
Northwestern National Life Insurance Company. Mr. Beck is also Vice President of
Enterprise Maintenance, LLC, a company which provides maintenance services to
commercial buildings.
JOHN PARSINEN has over 29 years of experience in commercial real estate. Mr.
Parsinen has developed and owns various real estate projects. Mr. Parsinen has
been a senior attorney at Parsinen Kaplan Levy Rosberg & Gotlieb, P.A.
(Minneapolis, Minnesota) since it was formed in 1982. Mr. Parsinen specializes
in commercial real estate and represents mortgage lenders, brokers, and
developers in all types of residential and commercial transactions. Mr. Parsinen
owns 50% of Guaranty Title, Inc., a Minneapolis-based real estate title
insurance company. Mr. Parsinen was a general partner of Earle Brown Commons
Limited Partnership II, which owned and operated an elderly housing facility in
Brooklyn Center, MN. In 1994, the limited partnership initiated a Chapter 11
bankruptcy reorganization proceeding to restructure certain tax and debt
obligations. The bankruptcy was dismissed in 1995 and the project was sold. Mr.
Parsinen is Vice President of Crown Advisors, Inc., the Company's advisor, and
also an owner of Enterprise Maintenance, LLC.
ORVIN J. HALL has over 31 years of real estate experience. Mr. Hall is now
retired from Towle Real Estate, a Minneapolis-based real estate management
company. Mr. Hall has been a real estate sales associate for several agencies
since 1980. Prior to that, Mr. Hall worked as Mortgage Branch Manager for
Investors Diversified Services, Inc. for 14 years, Mortgage Underwriter at
Northwestern National Life Insurance Company for five years and worked for five
years at Equitable Life Assurance Society of the United States. Mr. Hall is a
Member of the Appraisal Institute (MAI).
KURT SCHOENROCK has over 31 years in real estate activities. Mr. Schoenrock
is currently an officer and director of Suncoast Appraisers, a full line real
estate appraisal and consulting firm in St. Petersburg, Florida. Prior to
starting his own appraisal firm, Mr. Schoenrock, for approximately 20 years, was
the senior real estate appraiser for Aid Association for Lutherans (AAL), the
world's largest fraternal association with assets exceeding $3.5 billion. Mr.
Schoenrock is a licensed real estate broker in the State of Florida. Mr.
Schoenrock is a Member of the Appraisal Institute (MAI).
KENNETH D. WETHE is a certified public accountant (CPA). He has a master's
degree in business administration (MBA) from Pepperdine University and has over
26 years of experience in the group insurance and employee benefits area. Mr.
Wethe is a Fellow of the Life Office Management Institute. Since 1990, Mr. Wethe
has been the owner and principal officer of Wethe & Associates, a Dallas-based
firm providing independent risk management, insurance and employee benefit
services to school districts
2
and governmental agencies. Since 1988, Mr. Wethe also has been a consultant to
Robert W. Lazarus & Associates in the area of employee benefits.
ALLEN C. GEHRKE has over 43 years of real estate construction and
development experience. Mr. Gehrke is a private investor who retired from
Fleming Companies, Inc., in 1995 after 35 years with the company. His most
recent position with the Milwaukee division of Fleming was Senior Vice President
of Corporate Development. His responsibilities included management of all
company physical assets, market research, store design and construction, fixture
purchasing and installation, lease negotiations and real estate financing. Prior
to his employment with Fleming Companies, he was in the construction business
for 7 years with Midwest Contractors and L.A. Construction Co. of Milwaukee. Mr.
Gehrke is a former director of United Cerebral Palsy, Milwaukee Yacht Club, and
Keep Greater Milwaukee Beautiful.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORT COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers to file reports of changes in beneficial ownership of the
Company's common stock with the Securities and Exchange Commission. Based on
information provided to the Company, the Company is not aware of any executive
officer or director of the Company who failed to timely file any report required
to be filed.
ITEM 10. EXECUTIVE COMPENSATION
No individual officer of the Company was paid any cash or other compensation
for the years ended December 31, 1994, 1995 or 1996. Mr. Beck and Mr. Parsinen
each received options to purchase 2,500 shares of Common Stock from the Company
pursuant to the Company's Stock Option Plan for Directors during the year ended
December 31, 1996. The options become exercisable May 20, 1997 at an option
price of $5.625 per share. No officer of the Company has received options or
warrants to purchase securities of the Company by reason of that person's
position as an officer, and no options or warrants held by officers of the
Company were exercised, adjusted or repriced in 1994, 1995 or 1996.
CERTAIN INFORMATION REGARDING
THE BOARD OF DIRECTORS AND COMMITTEES
AUDIT COMMITTEE. The Company has a standing Audit Committee which currently
consists of Kenneth D. Wethe (Chairman) and Orvin J. Hall. The Audit Committee
reviews, recommends and reports to the board on (1) independent auditors, (2)
the quality and effectiveness of internal controls, (3) engagement or discharge
of the independent auditors, (4) professional services provided by the
independent auditors, and (5) the review and approval of major changes in the
Company's accounting principles and practices. During 1996, the Audit Committee
held one meeting.
The Board presently does not have a Compensation Committee and acts as its
own Nominating Committee.
During the year ended December 31, 1996, the Board of the Company held five
regular meetings and four special meetings. No director attended fewer than 75%
of the aggregate number of meetings of the Board and the committees on which
they serve.
COMPENSATION OF DIRECTORS
DIRECTORS' FEES AND EXPENSES.
Directors who are not officers of the Company receive an annual fee of
$3,000, plus $500 for each meeting (other than telephonic Board meetings) they
attend. Directors incurring travel expenses in connection with their duties as
directors of the Company are reimbursed in full. The total directors' fees and
travel expense reimbursement in the year 1996 was approximately $18,000. Mr.
Beck and Mr. Parsinen received no fees in connection with board meetings for
1996.
3
AUTOMATIC OPTION GRANTS
Since 1993, the Company has maintained a Stock Option Plan for Directors. A
total of 75,000 shares of the Company's common stock are reserved for issuance
under this plan. Each director of the Company is eligible to participate in the
plan. The plan provides that each director will receive, upon initial election
or appointment, an option to purchase 2,500 shares of the Company's common stock
at the then fair market value of the common stock. The plan also provides for
the grant of an option to purchase an additional 2,500 shares of the Company's
common stock upon each director's re-election to the Board. The options become
exercisable in full one year after date of grant and expire ten years from the
date of grant.
The following table sets forth outstanding options granted to officers and
directors of the Company under the Stock Option Plan for Directors:
EXERCISE
NUMBER OF VESTING PRICE EXPIRATION
NAME SECURITIES DATE PER SHARE DATE
- -------------------------------------------------------------------- ----------- --------- ----------- -----------
Vernon R. Beck...................................................... 2,500 5-24-94 $ 9.50 5-24-03
2,500 5-16-95 9.87 5-16-04
2,500 5-15-96 5.38 5-15-05
2,500 5-20-97 5.63 5-20-06
John Parsinen....................................................... 2,500 5-24-94 9.50 5-24-03
2,500 5-16-95 9.87 5-16-04
2,500 5-15-96 5.38 5-15-05
2,500 5-20-97 5.63 5-20-06
Kenneth D. Wethe.................................................... 2,500 5-24-94 9.50 5-24-03
2,500 5-16-95 9.87 5-16-04
2,500 5-15-96 5.38 5-15-05
2,500 5-20-97 5.63 5-20-06
Orvin J. Hall....................................................... 2,500 5-24-94 9.50 5-24-03
2,500 5-16-95 9.87 5-16-04
2,500 5-15-96 5.38 5-15-05
2,500 5-20-97 5.63 5-20-06
Kurt Schoenrock..................................................... 2,500 5-24-94 9.50 5-24-03
2,500 5-16-95 9.87 5-16-04
2,500 5-15-96 5.38 5-15-05
2,500 5-20-97 5.63 5-20-06
Allen C. Gehrke..................................................... 2,500 5-15-96 5.38 5-15-05
2,500 5-20-97 5.63 5-20-06
4
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1997,
relating to the number of shares of Common Stock beneficially owned by each
director and by all executive officers and directors as a group. The Company is
not aware of any beneficial owner of more than five percent (5%) of the
outstanding shares of the Company's common stock.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
------------------------
DIRECTORS AND OFFICERS NUMBER(1) PERCENT
- -------------------------------------------------------------------------------------- ----------- -----------
Vernon R. Beck........................................................................ 23,116( (3) 1.6%
John Parsinen......................................................................... 20,687( (3) 1.5%
Orvin J. Hall......................................................................... 7,500( (4) *
Kurt Schoenrock....................................................................... 7,606( (4) *
Kenneth D. Wethe...................................................................... 7,724( (4) *
Allen C. Gehrke....................................................................... 2,750( (5) *
All executives, officers and directors as a group (seven individuals)................. 69,726(6) 4.9%
- ------------------------
* Less than one percent (1%)
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to such shares.
(2) Includes fifty percent of the 26,374 shares of Common Stock owned by Crown
Advisors, Inc., the Company's Advisor, which is owned equally by Messrs.
Beck and Parsinen. See "Certain Transactions and Related Transactions."
(3) Does not include 2,500 shares of Common Stock issuable upon exercise of
options granted in 1996 under the Company's Stock Option Plan for Directors
as they are not presently exercisable.
(4) Includes 7,500 shares of common stock issuable upon exercise of presently
exercisable options.
(5) Includes 2,500 shares of common stock issuable upon exercise of presently
exercisable options.
(6) Includes 40,000 shares of common stock issuable upon exercise of presently
exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective December 23, 1991, the Company issued five-year warrants to each
of Vernon R. Beck, John Parsinen, Orvin J. Hall, Kurt Schoenrock and Kenneth D.
Wethe to purchase 10,000, 10,000, 2,500, 2,500 and 2,500 shares of Common Stock,
respectively, at a purchase price of $10 per share. These warrants expired on
December 23, 1996. Options to purchase 2,500 shares of Common Stock were also
granted to the Company's directors in 1993, 1994, 1995 and 1996 under the
Company's Stock Option Plan for Directors. These options expire ten years after
their issue date. See the table under "CERTAIN INFORMATION REGARDING THE BOARD
OF DIRECTORS AND COMMITTEES".
Subject to the supervision of the Company's Board of Directors, the business
of the Company is managed by the Advisor, which provides investment advisory and
administrative services to the Company.
5
The Advisor is owned by John Parsinen and Vernon R. Beck, officers and directors
of the Company. As of March 31, 1997, the Advisor employed three persons on a
full-time basis.
Pursuant to an advisory agreement, the Company must pay the Advisor certain
advisory fees, expenses and performance fees, as defined in the agreement and a
3% fee for each real estate acquisition or disposition. For each of the years
ended December 31, 1996 and 1995, the advisory fee was $250,000. For the year
ended December 31, 1994, the advisory fee was $240,000 and the acquisition fee
was $271,000. There have been no performance fees in any of the above years.
Upon termination of the advisory agreement, the Company must pay a fee equal
to 3% of the invested real estate assets plus 25% of the increase in value of
invested real estate assets from the date of acquisition to the date of
termination.
Parsinen Kaplan Levy Rosberg & Gotlieb, P.A. was compensated for legal
services provided to the Company in connection with the 1991 initial public
offering of its Common Stock and the acquisition of the Company's properties in
1992, 1993 and 1994. The firm continues to provide legal services to the
Company, and incurred legal fees of $9,000 in 1996 and $0 in 1995. John Parsinen
is an officer, director and shareholder of Parsinen Kaplan Levy Rosberg &
Gotlieb, P.A.
See also Item 10.
6
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROYALE INVESTMENTS, INC.
By: /s/ VERNON R. BECK
-----------------------------------------
Vernon R. Beck
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: May 16, 1997