<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION CONTROL
Washington, D. C. 20549
Form 10-KSB
(Mark One)
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, 1995
-----------------
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
0-8902
----------------------
REAL ESTATE FUND INVESTMENT TRUST
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0402813
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
304 South Main Street
P. O. Box 396, Fountain Inn, South Carolina 29644
-------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 862-3765
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- --------------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest
-----------------------------
(Title of Class)
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 x No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not 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 the issuer's revenues for its most recent fiscal year $956,813
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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 asked prices of such stock, as of a specified date within the past 60
days:
Not available
State the number of shares outstanding of each of the registrant's classes of
common stock, as of March 29, 1996:
Shares of Beneficial Interest 2,090,108
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement (to be filed pursuant to
Regulation 14A) or definitive information statement (to be filed pursuant to
Regulation 14C) for registrant's 1995 Annual Meeting are incorporated by
reference in Part III.
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PART I
ITEM 1. BUSINESS
The registrant, Real Estate Fund Investment Trust, was organized pursuant to a
Declaration of Trust dated March 1, 1972, and filed with the Office of the
Secretary of State for the State of South Carolina in Columbia, South Carolina
on April 12, 1972. The registrant is a real estate investment trust under the
laws of the State of South Carolina, and qualifies for tax purposes as a real
estate investment trust under the Internal Revenue Code, Section 856, et. seq.,
as amended.
The registrant is engaged in the business of investing in, managing and leasing
real estate interests, specifically commercial shopping centers and buildings.
Item 2 contains a more detailed description of the exact properties which the
registrant owns. However, as a general statement, the registrant owns
properties which are leased to individuals and businesses, and includes
shopping center complexes, trucking terminals, post office buildings, service
station buildings, and other office and commercial buildings and structures
such as restaurant facilities, convenience food stores and miscellaneous
businesses offering services and products to the general public.
In May 1989, the shareholders of the Trust voted to direct the Board of
Trustees to develop a formal plan of liquidation of the Trust's assets by the
selling of its properties. The Trust's shareholders must approve the plan
before the Trustees may proceed with a plan of liquidation. The proceeds from
the eventual sales will be distributed to the shareholders.
The real estate market and real estate investments are highly competitive, and
the registrant, by and through its officers and trustees, has throughout its
existence made investment decisions only after careful and detailed analysis
and consideration. Usually the properties owned by the registrant are in
highly competitive areas as far as the availability of other leasehold
properties and, therefore, a constant effort must be made to ensure that the
registrant acquires quality tenants for its properties. As a general
statement, it can be stated that the majority of the revenue consists of rental
income from its shopping center complexes. However, as can be seen by
reference to Item 2, the registrant is diversified and has numerous rental
properties in various areas of North Carolina, South Carolina and Georgia.
Anchor tenants are present in most of the shopping complexes because they
attract many shoppers who usually then shop at other retail establishments in
the shopping center.
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It has been the policy of the registrant to invest in equity real estate
interests which may be expected to yield high long-term investment income,
which have good prospects for appreciation in value, and which can be mortgaged
for relatively long terms for a high percentage of total costs. The registrant
has ten trustees at present and employs one office secretary. The management
of all of the properties is performed by an independent contractor, W. B.
McDannald, who is very experienced in the real estate field and has been
retained by the registrant for twenty years.
The registrant is engaged only in one line of business as stated herein above,
namely, real estate investments. The registrant does not at present, nor does
it intend in the future, to purchase property primarily for resale. The
registrant is not involved in any type of research or development activities.
The registrant is not affiliated nor does it engage in any foreign operations
or derive revenues of any type from any foreign corporations or other similar
sources.
ITEM 2. PROPERTIES
All of the following properties are located on real estate which is owned in
fee simple by the registrant. All of the buildings are suitable and adequate
for the purposes for which they were designed and are being used at present by
tenants with the exception of the vacancies indicated in the following
schedule. All properties are in a good state of repair. The independent
contractor makes every effort to ensure that the rent is timely paid by all of
the tenants, that the taxes and insurance are up to date on all properties, and
that all buildings are being properly maintained and repaired and are in
operating condition in general so as to be attractive to not only new tenants
but also to the general public. The following list briefly describes the type
and location of the property, the size of the buildings in square feet and the
space which is unoccupied, if applicable.
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<TABLE>
<CAPTION>
SIZE/ SPACE UNOCCUPIED/
SQUARE SQUARE FEET AT PROPERTY
NAME AND LOCATION FEET DECEMBER 31, 1995 TAXES
- -------------------------------------------------------------------
<S> <C> <C> <C>
A. Shopping Centers
Lavonne Shopping Center
Laurens, SC 30,150 None $ 5191
Golden Strip Shopping Center
Mauldin, SC 56,900 None 20,245
Brevard Shopping Center
Brevard, NC 22,960 None 6,343
Southgate Shopping Center
Woodruff, SC 22,500 None 10,462
A & G Shopping Center
Greer, SC 32,030 3,000 16,322
Seneca Plaza
Seneca, SC 23,000 None 4,496
Spartan Plaza Shopping Center
Spartanburg, SC 103,000 22,500 20,265
Mauldin Plaza Shopping Center
Mauldin, SC 82,500 60,000 14,207
B. Trucking Terminals
Spartan Express
Clearwater, SC 7,700 None 2,561
Eagle Express
Greer, SC 5,000 None 2,678
ABF Freight Terminal
Charleston, SC 3,500 None 1,612
Refrigco Inc.
Greenville, SC 8,700 None 2,807
</TABLE>
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<TABLE>
<CAPTION>
SIZE/ SPACE UNOCCUPIED/
SQUARE SQUARE FEET AT PROPERTY
NAME AND LOCATION FEET DECEMBER 31, 1995 TAXES
- --------------------------------------------------------------------------
<S> <C> <C> <C>
C. Post Offices
Post Office Building
Pickens, SC 4,880 None $2,196
Post Office Building
Abbeville, Georgia 2,350 None 857
Post Office Building
St. Stephens, SC 2,550 None 1,582
Post Office Building
McBee, SC 2,000 None 882
D. Other Commercial and Residential
Properties
Telephone Building
Fountain Inn, SC 2,400 None 668
Laurens Road Property
Greenville, SC 9,000 None 3,326
Hillsman Building
Atlanta, Georgia 20,000 None 7,898
Cox Furniture
Ninety Six, SC 5,600 None 1,509
Cycles Unlimited
Decatur, GA 15,000 None 10,394
Kentucky Fried Chicken
Easley, SC 2,500 None 2,753
Burris Chemical
Greenville, SC 12,000 None 3,725
Southern Steel Building
Greenville, SC 28,000 None 4,988
</TABLE>
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<TABLE>
<CAPTION>
SIZE/ SPACE UNOCCUPIED/
SQUARE SQUARE FEET AT PROPERTY
NAME AND LOCATION FEET DECEMBER 31, 1995 TAXES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
D. Other Commercial and Residential
Properties (continued)
Hardees Restaurant
Augusta, GA 5,000 None $*
Hardees Restaurant
Waynesville, NC 2,100 None *
</TABLE>
- ------------
* Paid by leasee directly.
ITEM. 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings by the registrant or against
the registrant or against any of its properties at December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the holders of shares of Beneficial
Interest during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES OF BENEFICIAL INTEREST AND RELATED
SECURITY HOLDER MATTERS
The registrant's shares of Beneficial Interest are traded on the
Over-the-Counter market in the Greenville, South Carolina area. The
approximate number of recordholders of shares of Beneficial Interest at
December 31, 1995 was 429.
The brokerage firm that quotes over-the-counter market prices in Greenville,
South Carolina has not quoted a market price since September 8, 1981. The last
quoted bid price on September 8, 1981 was $1.50 per share.
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DIVIDEND DATA
Dividends declared per share of Beneficial Interest for the last two years
were:
<TABLE>
<CAPTION>
<C> <C> <C>
1995 1994
---------------------
First Quarter $.05 $.04
Second Quarter .05 .04
Third Quarter .05 .04
Fourth Quarter .32 .04
---------------------
$.47 $.16
=====================
</TABLE>
The balance of the dividends needed to comply with the 95% dividend payout
requirement not distributed during the year in which they are earned is
declared in the first quarter of the year after they are earned. Cash
dividends are paid each quarter to distribute the required amount.
The registrant expects to continue its policy of paying regular quarterly cash
dividends, although there is no assurance as to future dividend amounts since
they are dependent on future earnings and financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Rental income increased by approximately 3% or $23,000 in 1995, primarily as a
result of leasing properties which were previously vacant. Due to the sale of
various pieces of real estate, the Trust held a larger amount of cash in
interest bearing accounts during 1995. Therefore interest income increased by
approximately $1,800 during 1995.
Property tax expense increased by approximately $12,000 during 1995, due to a
general increase in property valuations. Depreciation expense also increased
by approximately $3,400 during 1995, primarily due to a large amount of capital
improvements placed in service during the fourth quarter of 1994. Bad debt
expense increased significantly during 1995 as allowances were established for
several slow paying tenants. Repair and maintenance expense increased by
approximately 77% during 1995, as a result of giving attention to deferred
maintenance projects on various properties.
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1995 COMPARED TO 1994 (CONTINUED)
The Trust sold four pieces of real estate during 1995 for a combined sales
price of $806,500. The Trust recognized a gain of $645,581 and $595,977 for
financial reporting and for tax purposes, respectively, as a result of these
sales. The individual sales price for each property, and the individual
financial and tax gain from the sale of each property are fully disclosed in
footnote 8 to the financial statements.
There were no sales of real estate during 1994.
LIQUIDITY, SOURCES OF CAPITAL AND THE EFFECTS OF INFLATION
The majority of the Trust's assets consist of real property and improvements
thereon, which are considered nonliquid in nature. The liquid assets consist
of cash, short-term investments, rents and tenant charges receivable. The
Trust generates from operations the cash needed for day-to-day commitments and
obligations.
Historically, the Trust's principal source for funding large equity investments
in real estate has been long-term permanent financing. Other sources of
capital funding available to the Trust include issuance of additional shares of
beneficial interest. At present the Trust does not foresee a need to exercise
any of these options since there are no significant outstanding commitments
requiring capital funding.
In May 1989, the Trust's shareholders voted to direct the Board of Trustees to
develop a formal plan of liquidation of the Trust's assets by the selling of
its properties. The Trust's shareholders must approve the plan before the
Trustees may proceed with a plan of liquidation. Based on recent inquiries
from prospective buyers and recent sales, management is of the opinion that
liquidation of the Trust's assets will not result in a loss to the Trust.
EFFECTS OF INFLATION ON OPERATIONS
Historically, inflation has had both positive and negative effects on the
Trust. Inflation has generally created an increase in operating expenses.
Increases in short-term rental rates have offset these increased operating
expenses. Also, management has attempted to build provisions into leases
requiring the lessee to pay all or a portion of taxes, insurance, and
maintenance.
No significant effects of inflation were noted on the results of operations for
1995 or 1994.
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted together with Item 13 of this report.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10. EXECUTIVE COMPENSATION AND TRANSACTIONS
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 9, 10, 11 and 12 has been omitted because
the registrant will file with the SEC not later than 120 days after the close
of its fiscal year a definitive proxy statement pursuant to Regulation 14A or a
definitive information statement pursuant to Regulation 14C. Such information
is hereby incorporated by reference from registrant's definitive proxy
statement or definitive information statement as may be appropriate.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The financial statements listed in the accompanying index to financial
statements are filed as part of this report.
EXHIBITS
Exhibit 27 - Financial Data Schedule (for SEC use only)
(B) REPORTS ON FORM 8-K
None.
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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.
REAL ESTATE FUND INVESTMENT TRUST
---------------------------------
(Registrant)
MARCH 29, 1996 /S/ G. B. NALLEY, JR.
- ------------------------------- ---------------------------------
DATE G. B. NALLEY, JR.
PRESIDENT, TRUSTEE
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 date indicated.
/S/ DOUGLAS C. BROWN /S/ PAUL S. GOLDSMITH
- --------------------------- ------------------------------
DOUGLAS C. BROWN PAUL S. GOLDSMITH
TRUSTEE TRUSTEE
/S/ PAUL B. COSTNER, JR. /S/ WILLIAM R. TIMMONS, JR.
- --------------------------- ------------------------------
PAUL B. COSTNER, JR. WILLIAM R. TIMMONS, JR.
TRUSTEE CHAIRMAN, TRUSTEE
/S/ BLAKE P. GARRETT, JR. /S/ R. WAYNE WEAVER
- --------------------------- ------------------------------
BLAKE P. GARRETT, JR. R. WAYNE WEAVER
VICE PRESIDENT, TRUSTEE TRUSTEE
/S/ DAVID H. GARRETT /S/ MELVIN K. YOUNTS
- --------------------------- ------------------------------
DAVID H. GARRETT MELVIN K. YOUNTS
TRUSTEE TRUSTEE
/S/ STEWART H. GARRETT
- ---------------------------
STEWART H. GARRETT
SECRETARY/TREASURER, TRUSTEE
MARCH 29, 1996
- ---------------------------
DATE
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ANNUAL REPORT ON FORM 10-KSB
ITEM 7 AND ITEM 13(a)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
REAL ESTATE FUND INVESTMENT TRUST
FOUNTAIN INN, SOUTH CAROLINA
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FORM 10-KSB - ITEMS 7 and 13(a)
REAL ESTATE FUND INVESTMENT TRUST
LIST OF FINANCIAL STATEMENTS
The following financial statements of Real Estate Fund Investment Trust are
included in response to Item 7:
Report of Independent Auditors
Balance Sheet - December 31, 1995
Statements of Income - Years ended December 31, 1995 and 1994
Statements of Shareholders' Equity - Years ended December 31, 1995 and
1994
Statements of Cash Flows - Years ended December 31, 1995 and 1994
Notes to Financial Statements
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Report of Ernst & Young LLP, Independent Auditors
The Shareholders and Trustees
Real Estate Fund Investment Trust
We have audited the accompanying balance sheet of Real Estate Fund Investment
Trust as of December 31, 1995, and the related statements of income,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Real Estate Fund Investment
Trust at December 31, 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 21, 1996
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Real Estate Fund Investment Trust
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Real estate investments:
Equity investments in real estate, less allowances
for depreciation (Notes 2 and 7):
Earning $1,386,714
Non-earning 382,766
----------
1,769,480
Net investment in direct financing leases (Notes 2 and 7) 257,851
Mortgage notes receivable (Note 6) 245,566
----------
2,272,897
Other assets:
Cash and cash equivalents $ 565,247
Rents and tenant charges receivable, net of
allowance for uncollectible accounts of $47,500 55,617
Prepaid expenses and other 82,566 703,430
-------------------------------------------
Total assets $2,976,327
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other accrued expenses and sundry liabilities $ 125,721
Deferred income taxes (Note 4) 2,000
----------
127,721
Shareholders' equity (Notes 5 and 10):
Shares of Beneficial Interest, $1 par value:
Authorized - unlimited $ -
Issued and outstanding - 2,090,108 2,090,108
Additional paid-in capital 759,110
(Deficit) (Note 5) (612) 2,848,606
-------------------------------------------
Total liabilities and shareholders' equity $2,976,327
==========
</TABLE>
See accompanying notes.
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Real Estate Fund Investment Trust
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
----------------------
<S> <C> <C>
Revenues:
Rental income $880,629 $857,376
Earned income from direct financing leases 43,507 51,464
Interest on mortgage notes and interest-bearing accounts 32,677 30,901
---------------------
956,813 939,741
Expenses:
Operating expenses of leasing operations:
Property and miscellaneous taxes 178,496 166,112
Insurance 86,793 76,950
Maintenance and repairs, including payments of $95,825
(1995) and $51,664 (1994) to a company in which
the independent contractor is a principal owner 156,755 88,737
Utilities and other 15,603 15,936
Depreciation of equity investments in real estate 171,108 167,662
Advisor's fee and other salary 35,701 34,785
Provision for bad debts 11,500 -
Other administrative expenses 83,546 83,777
---------------------
739,502 633,959
---------------------
Income from operations before income taxes 217,311 305,782
Provision for Federal and state income taxes (Note 4) 3,250 3,800
---------------------
Income from operations 214,061 301,982
Gain on sales of equity investments in real estate, net of
taxes of $750 (1995) (Note 8) 644,831 -
---------------------
Net income $858,892 $301,982
=====================
Income per share of Beneficial Interest (Note 3):
Income from operations $ .10 $ .14
Gain on sale of equity investments in real estate .31 -
---------------------
Net income $ .41 $ .14
=====================
Dividends declared per share of Beneficial Interest
(Notes 3 and 5):
Ordinary income $ .22 $ .15
Capital gains .25 .01
---------------------
Total $ .47 $ .16
=====================
</TABLE>
See accompanying notes
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Real Estate Fund Investment Trust
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
---------------------- ADDITIONAL UNDISTRIBUTED
PAID-IN NET INCOME
NUMBER AMOUNT CAPITAL (DEFICIT) TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,090,108 $2,090,108 $759,110 $ 155,282 $3,004,500
Net income for the year - - - 301,982 301,982
Dividends declared - - - (334,417) (334,417)
--------------------------------------------------------------
Balance at December 31, 1994 2,090,108 2,090,108 759,110 122,847 2,972,065
Net income for the year - - - 858,892 858,892
Dividends declared - - - (982,351) (982,351)
--------------------------------------------------------------
Balance at December 31, 1995 2,090,108 $2,090,108 $759,110 $ (612) $2,848,606
==============================================================
</TABLE>
See accompanying notes.
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Real Estate Fund Investment Trust
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 858,892 $ 301,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of equity investments in real estate 171,108 167,662
Gain on sales of equity investments in real estate and net
investment in a direct financing lease (645,581) -
Recovery of investment in direct financing leases 45,593 39,968
Decrease (increase) in rents and tenant charges
receivable and prepaid expenses 26,097 (9,142)
Decrease in accrued expenses and sundry liabilities (109,078) (16,860)
-----------------------
Net cash provided by operating activities 347,031 483,610
INVESTING ACTIVITIES
Proceeds from sale of equity investments in real estate
and net investment in a direct financing lease, net of
selling expenses of $20,010 (1995) 714,847 -
Additional costs of equity investments (83,369) (322,662)
Collections of mortgage notes receivable 27,008 27,426
-----------------------
Net cash provided by (used in) investing activities 658,486 (295,236)
FINANCING ACTIVITIES
Cash dividends (982,351) (334,417)
-----------------------
Increase (decrease) in cash and cash equivalents 23,166 (146,043)
Cash and cash equivalents at beginning of year 542,081 688,124
-----------------------
Cash and cash equivalents at end of year $ 565,247 $ 542,081
</TABLE>
See accompanying notes.
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Real Estate Fund Investment Trust
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Trust owns and is lessor of commercial and industrial properties,
principally shopping centers, located in three southeastern states. The Trust
generally does not require collateral on accounts receivable.
INCOME RECOGNITION
For financial reporting, the Trust accounts for rental income from operating
leases by the accrual method. Income from direct financing leases is
recognized as earned, using a method which provides a constant yield on the
investment in the leased real estate.
INCOME TAXES
The Trust has elected to be treated as a real estate investment trust under the
Internal Revenue Code. As such, the Trust will not be taxed on that portion of
its taxable income which is distributed to the shareholders provided that it
complies with certain requirements. These requirements include, among others,
that at least 95% of its taxable income other than capital gains be
distributed. To avoid any additional taxes or penalties, an amount at least
equal to the sum of 85% of ordinary income and 95% of capital gains must be
distributed in the year it is earned. The amount of capital gains required to
be distributed is reduced by any capital gains taxed at the Trust level.
Income taxes are computed in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for income taxes. Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Under SFAS No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
DEPRECIATION
Equity investments in real estate are stated at cost. Depreciation is
principally computed by declining-balance methods for income tax and financial
reporting purposes. For property improvements made subsequent to 1980,
depreciation for income tax reporting is computed based upon "Accelerated Cost
Recovery System" and "Modified Accelerated Cost Recovery System" guidelines.
Estimated useful lives of assets range from 3 to 40 years.
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Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPAIRS AND BETTERMENTS
Expenditures for routine repairs and maintenance are charged to expense as
incurred; expenditures for renewals and improvements which add to the value or
extend the useful life are capitalized at cost. Upon disposal, the investment
in the property and the related allowance for depreciation is removed from the
accounts, and any resulting gain or loss is recognized.
INVESTMENTS IN REAL ESTATE
Equity investments in real estate are carried at cost less accumulated
depreciation, which is less than the estimated net realizable value of these
assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all money market funds and certificates of
deposits with original maturities of three months or less, which approximate
fair value. At December 31, 1995, these balances exceed the limits on insured
deposits by approximately $274,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which required impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement
121 in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
2. OPERATING AND DIRECT FINANCING LEASES
The Trust leases real estate, principally shopping centers, to others under
leases which expire in various years to 2002. Under some of the leases, the
lessees have renewal options for one to five terms of one to five years. The
leases require fixed minimum monthly rentals and, in some cases, additional
rentals equal to 1% to 5% of the lessee's sales in excess of stated amounts.
21
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Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
2. OPERATING AND DIRECT FINANCING LEASES (CONTINUED)
Leases are classified as operating leases or as direct financing leases,
depending upon the relationship between the provisions of the leases and the
value of the leased property. The Trust's investments in property leased to
others under operating leases are included in equity investments in real
estate.
Component's of the Trust's net investment in direct financing leases are set
forth below:
<TABLE>
<CAPTION>
<S> <C>
Total minimum lease payments to be received $204,779
Less amounts representing estimated executory costs,
such as taxes and insurance, included in total minimum
lease payments -
--------
Net minimum lease payments receivable 204,779
Estimated residual values of leased property (unguaranteed) 121,229
--------
326,008
Less unearned income 68,157
--------
Net investment in direct financing leases $257,851
========
</TABLE>
See Note 7 for a description of real estate subject to the direct financing
leases.
Aggregate future minimum lease payments to be received under noncancelable
operating leases with initial terms of more than one year and direct financing
leases as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
DIRECT
OPERATING FINANCING
LEASES LEASES
----------------------------
<S> <C> <C>
1996 $ 76,748 $ 84,819
1997 44,100 71,976
1998 31,600 47,984
1999 31,600 -
2000 3,600 -
Later years 5,400 -
--------------------------
$193,048 $204,779
==========================
</TABLE>
Contingent rentals based on lessees' sales amounted to approximately $-0-
(1995) and $33,000 (1994).
22
<PAGE> 23
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
3. NET INCOME PER SHARE OF BENEFICIAL INTEREST
Net income and dividends declared per Share of Beneficial Interest are based
upon 2,090,108 shares outstanding during 1995 and 1994.
4. INCOME TAXES
The Trust is required to distribute at least 95% of its taxable income other
than capital gains.
The difference between income from operations before income taxes and taxable
income is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Income from operations before income taxes $217,311 $305,782
Taxable gain on sale of equity investments in real estate 595,977 -
Direct financing leases accounted for as operating leases 45,593 51,464
Depreciation 43,530 40,217
Installment sales 12,947 13,147
Recognition of rental income on cash basis 36,077 (28,258)
Other - 5,052
-------------------
Taxable income available for distribution, before
dividends paid deduction 951,435 387,404
Dividends paid deduction 929,990 368,691
-------------------
Taxable Income $ 21,445 $ 18,713
===================
</TABLE>
23
<PAGE> 24
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
Reconciliation between income taxes at the Federal statutory rate of 15% and
actual taxes provided are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------
<S> <C> <C>
Income taxes at the Federal statutory rate $2,250 $2,850
State taxes, net of Federal benefit 1,000 950
--------------
Provision for income taxes $3,250 $3,800
==============
</TABLE>
The temporary differences between the tax and financial reporting basis of
assets that gave rise to deferred taxes are as follows:
<TABLE>
<S> <C>
Investments in real estate $ 500
Accounts receivable 1,500
------
$2,000
======
</TABLE>
Income taxes paid were approximately $2,700 (1995) and $3,400 (1994).
5. DISTRIBUTIONS AND UNDISTRIBUTED NET INCOME
Distributions include dividends declared during each year. Subsequent to 1995,
additional distributions of approximately $43,000 were made to complete
distribution of at least 95% of the Trust's Federal taxable income other than
capital gains. During 1995, the Trust distributed $982,351. For Federal
income tax reporting, the Trust had 1994 earnings of $387,404 available for
distribution.
Cash distributions generally represent ordinary income, except for capital
gains income related to the sale of certain properties, to the shareholders.
For financial reporting purposes, the deficit at December 31, 1995 includes:
<TABLE>
<S> <C>
Earnings prior to qualification as a real estate investment
trust - not subject to distribution-to-shareholder
requirements $ 332,992
Distributions in excess of earnings available for distribution,
arising primarily from differences in financial and income tax
reporting of certain revenues and expenses (333,604)
---------
$ (612)
=========
</TABLE>
24
<PAGE> 25
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
6. SCHEDULE OF MORTGAGE NOTES RECEIVABLE
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF LOANS SUBJECT
FINAL PERIODIC FACE CARRYING TO DELINQUENT
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
MORTGAGE LOANS RATE DATE TERMS (1) LIENS MORTGAGES MORTGAGES INTEREST
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial building 7.5 01/01/00 $3,458 None $200,000 $145,566 None
Lafayette Shopping Center 8.0 01/01/01 2,028 None 100,000 100,000 None
</TABLE>
(1) Per month including interest.
The summary of changes in the carrying amount of mortgage notes receivable is
as follows:
<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
Balance at beginning of year $172,574 $200,000
Principal collections on mortgage notes receivable (27,008) (27,426)
Mortgage note receivable from sale of equity investment
in real estate 100,000 -
------------------
Balance at end of year $245,566 $172,574
==================
</TABLE>
The fair values for mortgage notes receivable estimated using discounted cash
flow analyses, using interest rates currently being offered for similar loans
to borrowers with similar credit ratings approximate the recorded amounts.
25
<PAGE> 26
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
7. SCHEDULES OF REAL ESTATE
<TABLE>
<CAPTION>
COST
CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
INITIAL COST TO TRUST ACQUISITION AT CLOSE OF PERIOD
------------------------------------------------------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. EQUITY INVESTMENTS IN REAL ESTATE
Spartan Plaza Shopping Center
Spartanburg, South Carolina $- $406,500 $ 319,137 $ 374,579 $ 406,500 $ 693,716 $1,100,216
Golden Strip Shopping Center
Mauldin, South Carolina - 18,890 347,116 544,078 18,890 891,194 910,084
A&G Shopping Center
Greer, South Carolina - 20,394 163,345 330,403 20,394 493,748 514,142
Lavonne Shopping Center
Laurens, South Carolina - 24,700 192,663 174,148 24,700 366,811 391,511
Brevard Shopping Center
Brevard, North Carolina - 54,000 157,596 105,893 54,000 263,489 317,489
Seneca Plaza
Seneca, South Carolina - 24,245 141,989 46,361 24,245 188,350 212,595
Southgate Shopping Center
Woodruff, South Carolina - 2,779 104,566 174,470 2,779 279,036 281,815
Cycles Unlimited
Decatur, Georgia - 35,000 120,681 17,480 35,000 138,161 173,161
Hillsman Building
Atlanta, Georgia - 11,000 99,973 34,936 11,000 134,909 145,909
Mauldin Plaza Shopping Center
Mauldin, South Carolina - 30,000 473,504 100,403 30,000 573,907 603,907
Commercial property
Greenville, South Carolina - 14,761 145,420 151,963 14,761 297,383 312,144
Trucking terminals (4 locations, all
in South Carolina) - 43,057 158,850 90,399 43,057 249,249 292,306
U.S. Post Offices (4 locations, 3 in
South Carolina and 1 in Georgia) - 19,233 151,947 50,285 19,233 202,232 221,465
Miscellaneous investments
(4 locations, each location's total cost less
than $100,000 at December 31, 1995) - 29,350 64,187 46,653 29,350 110,840 140,190
-------------------------------------------------------------------------------------
Totals $- $733,909 $2,640,974 $2,242,051 $733,909 $4,883,025 $5,616,934
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. EQUITY INVESTMENTS IN REAL ESTATE
Spartan Plaza Shopping Center
Spartanburg, South Carolina $ 418,720 6/65 5/78 2-25 years
Golden Strip Shopping Center
Mauldin, South Carolina 659,961 1/59 4/72 3-33 years
A&G Shopping Center
Greer, South Carolina 440,071 4/59 4/72 3-33 years
Lavonne Shopping Center
Laurens, South Carolina 332,455 4/60 4/72 3-33 years
Brevard Shopping Center
Brevard, North Carolina 249,783 10/60 5/76 3-33 years
Seneca Plaza
Seneca, South Carolina 183,719 12/64 4/72 3-33 years
Southgate Shopping Center
Woodruff, South Carolina 207,300 12/62 4/72 3-33 years
Cycles Unlimited
Decatur, Georgia 138,007 4/60 4/72 3-33 years
Hillsman Building
Atlanta, Georgia 134,579 5/60 4/72 5-33 years
Mauldin Plaza Shopping Center
Mauldin, South Carolina 330,662 10/78 10/78 3-23 years
Commercial property
Greenville, South Carolina 244,281 Various 8/72 3-33 years
Trucking terminals (4 locations, all
in South Carolina) 210,973 Various Various 3-33 years
U.S. Post Offices (4 locations, 3 in
South Carolina and 1 in Georgia) 187,394 Various Various 3-40 years
Miscellaneous investments
(4 locations, each location's total cost less
than $100,000 at December 31, 1995) 109,549 Various Various 3-33 years
--------------------------
Totals $3,847,454
==========================
</TABLE>
26
<PAGE> 27
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
7. SCHEDULES OF REAL ESTATE (CONTINUED)
<TABLE>
<CAPTION>
DATE OF EXPIRATIONS
TOTAL COST NET AMOUNT ACQUISITION OF DIRECT
TO AT WHICH OF DIRECT FINANCING
DESCRIPTION ENCUMBRANCES TRUST CARRIED FINANCING LEASE LEASE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B. REAL ESTATE SUBJECT TO DIRECT FINANCING LEASES
Hardee's Restaurant
Augusta, Georgia $- $379,393 $179,783 1987 1998
Kentucky Fried Chicken
Easley, South Carolina - 143,206 47,884 1978 1996
Hardee's Restaurant
Waynesville, North Carolina - 18,777 30,184 1975 1996
----------------------------------
$- $541,376 $257,851
===================================
</TABLE>
27
<PAGE> 28
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
7. SCHEDULES OF REAL ESTATE (CONTINUED)
The aggregate costs and accumulated depreciation for Federal income tax
purposes for equity investments in real estate and for net investment in real
estate subject to direct financing leases are approximately $6,445,000 and
$4,420,000, respectively. Included in these aggregate costs is approximately
$464,000 for land.
Activity in equity investments in real estate for the two years in the period
ended December 31, 1995 for book purposes is summarized as follows:
<TABLE>
<CAPTION>
COST 1995 1994
----------------------
<S> <C> <C>
Balance at beginning of year $5,965,993 $5,643,331
Additions during year:
Costs capitalized 83,369 322,662
Deductions during year:
Cost of real estate sold (432,428) -
----------------------
Balance at end of year $5,616,934 $5,965,993
======================
ACCUMULATED DEPRECIATION
Balance at beginning of year $3,953,541 $3,785,879
Additions during year:
Depreciation expense 171,108 167,662
Deductions during year:
Allowance for depreciation on real estate sold (277,195) -
----------------------
Balance at end of year $3,847,454 $3,953,541
======================
</TABLE>
28
<PAGE> 29
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
7. SCHEDULES OF REAL ESTATE (CONTINUED)
Activity in direct financing leases for the two years in the period ended
December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------
<S> <C> <C>
Balance at beginning of year $317,477 $357,445
Payments received (45,593) (39,968)
Sale of property subject to lease (14,033) -
------------------
Balance at end of year $257,851 $317,477
==================
</TABLE>
8. SALE OF EQUITY IN REAL ESTATE INVESTMENTS
The Trust had the following sales of real estate as described below for 1995:
<TABLE>
<CAPTION>
TOTAL
SALES GAIN FOR FINANCIAL GAIN FOR TAX
DATE OF SALE DESCRIPTION OF PROPERTY PRICE REPORTING REPORTING
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/14/95 Pete's restaurant located at the
A&G Shopping Center, Greer, South
Carolina $147,500 $139,302 $134,667
04/26/95 Quik Way convenience store located
in Anderson, South Carolina 85,000 64,696 65,781
12/13/95 Airport Road property located in
Greenville, South Carolina 449,000 370,670 366,124
12/29/95 Lafayette Shopping Center located in
Sumter, South Carolina 125,000 70,913 29,405
----------------------------------------------------
Totals $806,500 $645,581 $595,977
====================================================
</TABLE>
The $125,000 proceeds from the sale of Lafayette Shopping Center was received
in the form of $25,000 cash and a $100,000 purchase money mortgage. The
$100,000 principal is being amortized at an annual rate of 8% over a 60-month
term, with monthly payments of $2,028 including interest. All other properties
were sold for cash.
There were no sales of real estate during 1994. Income taxes have been
provided on the undistributed capital gains portions of these sales, using the
applicable rates.
The Trust has received two separate offers to purchase the total assets (each
in excess of the total carrying value) of the Trust and the Board of Trustees
is in the initial process of evaulating such offers.
29
<PAGE> 30
Real Estate Fund Investment Trust
Notes to Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS
During 1995 and 1994, the Company engaged in transactions with companies in
which the independent contractor who manages the properties of the Trust and
certain Trustees have financial interests, as follows:
<TABLE>
<CAPTION>
1995 1994
----------------
<S> <C> <C>
Payments to a company in which the independent
contractor is a principal owner:
Capitalized costs $44,478 $71,397
Repairs, maintenance and administration costs 95,825 51,644
Payments to companies which are owned by
certain Trustees:
Capitalized costs - 773
Repairs and maintenance costs 120 551
Legal fees 840 3,892
Rent 900 900
</TABLE>
10. PROPOSED LIQUIDATION
In May 1989, the shareholders of the Trust voted to direct the Board of
Trustees to develop a formal plan of liquidation of the Trust by the selling of
its properties. The Trust's shareholders must approve the plan before the
Trustees may proceed with a plan of liquidation. Once shareholder approval of
a formal plan of liquidation is obtained and dependent upon the method of
liquidation, the Trust may adopt the liquidation basis of accounting. The
financial statements presently are not intended to and do not present the
assets and liabilities, results of operations and cash flows of the Trust on a
liquidation basis of accounting. Proceeds from the eventual sales of
properties will be distributed to the shareholders.
11. SUBSEQUENT EVENTS
The Trust sold the St. Stephens Post Office for $70,000 on January 9, 1996. A
gain of approximately $55,500 and $53,500 will be recognized for financial
reporting and income tax purposes, respectively.
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-KSB FOR 1995.<F1>
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 565,247
<SECURITIES> 0
<RECEIVABLES> 348,683
<ALLOWANCES> 47,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,976,327
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,090,108
<OTHER-SE> 758,498
<TOTAL-LIABILITY-AND-EQUITY> 2,976,327
<SALES> 0
<TOTAL-REVENUES> 956,813
<CGS> 0
<TOTAL-COSTS> 739,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 217,311
<INCOME-TAX> 3,250
<INCOME-CONTINUING> 214,061
<DISCONTINUED> 0
<EXTRAORDINARY> 644,831
<CHANGES> 0
<NET-INCOME> 858,892
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<FN>
<F1>THIS COMPANY IS A REAL ESTATE INVESTMENT TRUST. THEREFORE, SEVERAL OF THE
ITEMS REQUESTED ARE NOT SPECIFICALLY IDENTIFIED ON THE 10-KSB. A $11,500
PROVISION FOR DOUBTFUL ACCOUNTS IS INCLUDED WITH OTHER EXPENSES ON THE INCOME
STATEMENT.
</FN>
</TABLE>
