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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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 January 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 .
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Commission File No. 1-7062
REALTY REFUND TRUST
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(Exact Name of Registrant as Specified in Its Charter)
OHIO 34-6647590
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(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
1385 Eaton Center Cleveland, Ohio 44114
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(Address of Principal Executive Office) (ZIP Code)
(216) 771-7663
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
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Shares of Beneficial
Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
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[Cover Continued on Following Page]
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[Cover Continued From Previous Page]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of March 17, 1995: $6,560,440
Portions of Registrant's Notice of Annual Meeting and Proxy Statement Dated
April 7, 1995--Part III. The Trust Performance Graph contained in the
Registrant's Notice of Annual Meeting and Proxy Statement dated April 7, 1995
shall not be deemed incorporated by reference herein.
Portions of the Registrant's 1995 Annual Report--Parts I and II.
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PART I
Item 1. BUSINESS.
Introduction.
The Registrant is an unincorporated Ohio real estate investment
trust under a Declaration of Trust dated April 28, 1971 and has elected to be
taxed as a real estate investment trust, as that term is used in Sections
856-860 of the Internal Revenue Code.
Although the Registrant's Declaration of Trust permits it to make
a broad range of mortgage loans and other real estate investments, the
Registrant historically has specialized in mortgage financing as its investment
vehicle. In particular, such mortgage financing has taken the form of
refinancing existing income-producing commercial, industrial and multi-unit
residential real property by supplementing or replacing existing financing. The
primary refinancing technique which the Registrant in the past has employed is
wrap-around mortgage lending, whereby the borrower is offered a total mortgage
loan (the wrap-around loan), the principal amount of which loan equals the
balance outstanding on an existing prior mortgage loan on the borrower's
property, plus an additional amount supplied by the Registrant. The Registrant
also pursues other refinancing techniques, including, but not limited to, first
or junior mortgages which may be short-term, intermediate-term or long-term and
which may or may not be self-liquidating. Refinancing can occur at various
stages in the life of an eligible property, beginning with the achievement of
acceptable occupancy and cash flow and recurring as existing mortgage balances
are reduced or income or other positive factors have increased the property
value. The Registrant made one mortgage loan during the fiscal year ended
January 31, 1995.
In addition to mortgage investments, the Trustees in 1990
authorized the Registrant to pursue equity investments in shopping center,
multi-family residential, office building, industrial and warehouse properties.
Accordingly, the Registrant's investment advisor, at the direction of the
Trustees, is pursuing alternative avenues of investment.
Wrap-Around Financing and Other Mortgage Loans.
In wrap-around financing, the borrower is offered a new total
mortgage loan (the wrap-around loan), the principal amount of which equals the
balance outstanding on an existing prior mortgage loan on the borrower's
property plus an additional amount supplied by the Registrant. Typically, a
wrap-around loan
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made by the Registrant is subordinate to the lien of the existing prior mortgage
loan that remains on the property. The Registrant agrees with the borrower to
make the principal and interest payments to the holder of the existing prior
mortgage, but only to the extent payments are received from the borrower and no
other default exists. This method of mortgage financing is desirable for a
borrower in those cases in which an existing mortgage has an interest rate below
presently prevailing interest rates or in which replacing an existing mortgage
is either prohibited entirely or involves a pre-payment penalty. The decline in
recent years in prevailing interest rates coupled with the low cost of
traditional refinancing has decreased significantly the desirability of
wrap-around financing as a form of refinancing.
In certain cases, the Registrant has provided refinancing in the
form of junior mortgage loans. Such mortgages are substantially similar to the
Registrant's wrap-around mortgages except that the stated principal amount of
the mortgage is only the amount advanced by the Registrant. The Registrant still
requires the borrower to remit to the Registrant an amount equal to the
principal and interest payments due on the prior mortgage loan in addition to
the payments required on the junior mortgage.
In general, the income-producing properties which secure the
Registrant's loans tend to be relatively large. As of January 31, 1995, the
Registrant had investments in two wrap-around loans, one first mortgage loan
and one junior mortgage loan. The Registrant's original cash investments in
these loans ranged from $2,050,000 to approximately $9,000,000, with the average
being approximately $5,280,000.
The following table sets forth the geographic distribution of the
Registrant's loans as of January 31, 1995:
<TABLE>
<CAPTION>
State Number of Loans
-------- ---------------
<S> <C>
Florida 1
Michigan 1
Ohio 1
Texas 1
</TABLE>
The Florida loan is secured by a mortgage on two properties located in Florida.
A partnership in which an affiliate of Alan M. Krause, a Trustee
and the Chairman and Co-Chief Executive Officer of the Registrant, is general
partner accounted for 31.1% of the Registrant's investment portfolio as of
January 31, 1995. See "Properties - Toledo, Ohio". In general, the Registrant is
not dependent upon a single borrower or a very few borrowers for making future
loans.
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As of January 31, 1995, the Registrant's loans receivable totalled
$35,509,779, of which $29,677,194 represented loans secured by wrap-around
mortgages. Loans payable underlying these wrap-around mortgages totalled
$14,096,986. The Registrant's net investment in its loans receivable at
January 31, 1995 totalled $21,412,793. Assuming that all of the other
mortgages remain in existence until their respective scheduled maturity dates, a
total of $23,940,000 of these loans receivable would be payable to the
Registrant in lump sum "balloon" payments at such maturities. The ability of a
borrower to satisfy the obligation to pay the lump sum at maturity applicable to
its property may be dependent upon the borrower's ability to obtain refinancing.
For a detailed analysis of these totals and a description of the periodic
payment terms and maturity dates of the Registrant's loans receivable as of
January 31, 1995, see Note 9 of Notes to Financial Statements set forth on page
16 of the Registrant's 1995 Annual Report (Exhibit 13), which information is
incorporated herein by reference.
Equity Investments.
In July 1992, the Registrant, through a wholly-owned corporate
subsidiary, took title in lieu of foreclosure to the leasehold estate in the
Chicago office building upon which the Registrant previously had mortgage loans.
At January 31, 1992, the Registrant's net investment in the Chicago office
building was approximately $11,261,900, net of senior mortgage loans of
approximately $942,000. The Registrant's investment was written down to
$7,260,000, based upon the report of an independent real estate appraisal firm,
with a corresponding charge to the Registrant's operations in the third quarter
of fiscal 1993. In the first quarter of fiscal year 1994, the Registrant,
through a wholly-owned corporate subsidiary, consummated the purchase of an 83%
interest in the underlying fee simple estate in the property for approximately
$897,000. Net book value for the Chicago office building, improvements and
land as of January 31, 1995, was $8,650,257. While the Registrant presently is
operating the office building, its present intention is to seek a purchaser and
not to hold the building as a long-term investment.
The Registrant currently has no other equity investments in real estate.
The Board of Trustees has authorized, and the Registrant's investment advisor is
exploring opportunities for, equity investments by the Registrant, as well as
mortgage loan opportunities, in shopping centers, multi-family residential,
hospitality and other types of properties.
Competition and Inflation.
In connection with its investments, the Registrant competes
against banks, insurance companies, savings and loan associations, mortgage
bankers, pension funds and other lenders
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and investors, including a number of other real estate investment trusts, many
of which are larger and have substantially greater financial resources than the
Registrant. The Registrant's primary competition in refinancing existing
income-producing properties is with the holder or holders of a property's
existing financing. The principal elements of competition include the amount,
maturity, interest rate, debt service charged and other terms of a refinancing,
and whether the personal liability of a borrower is required in addition to the
mortgage lien on the refinanced property.
Wrap-around mortgage financing in certain instances provides a
lender with competitive advantages over the more traditional refinancing
techniques of a new first mortgage at prevailing interest rates or a second
mortgage. As compared with the more traditional refinancing technique of
replacing an existing mortgage with a new first mortgage in a larger amount at
the then-current interest rate, a property owner can sometimes save by
refinancing with a wrap-around mortgage where the interest rate of the existing
first mortgage falls substantially below presently prevailing interest rates.
This savings occurs when the stated rate of interest for the Registrant's
wrap-around mortgage is below the then-prevailing rate of interest for a first
mortgage on the same property. In recent years wrap-around mortgages have become
a less feasible method of refinancing in the face of lower prevailing interest
rates and the low cost of traditional refinancing.
Second mortgages, another more traditional refinancing technique,
are generally for shorter periods than the Registrant's wrap-around mortgages,
which are usually coterminous with the senior financing. In addition, lenders
secured by second mortgages often require the personal liability of the borrower
in addition to the security of the mortgaged property, whereas generally the
Registrant looks solely to the mortgaged property. Additionally, existing
mortgage loans increasingly have prohibited any junior financing, thereby
precluding not only wrap-around mortgage loans, but all types of secondary
financing.
In respect of equity investments, the Registrant will compete
against insurance companies, pension funds, other real estate investment trusts,
limited partnerships, private investors, owner-operators and numerous other
potential investors, many of which may have greater financial resources and more
experience than the Registrant. The Registrant's Chicago property has, and it is
expected that any additional rental properties acquired by the Registrant will
have, substantial competition from similar properties in the vicinity. To the
extent the Registrant has acquired or acquires commercial properties, the
success of the Registrant will depend, in part, upon the ability of its tenants
in competing with businesses similar to those conducted by the tenants and upon
other factors
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which may affect the economic viability of the tenants.
Generally, inflation affects the Registrant as it affects its
borrowers and the underlying real estate collateral. Although this type of
collateral traditionally has been able to sustain itself during periods of
inflation, there has been a significant down-turn in market values of real
property in the United States over the past few years. The Registrant is unable
to predict future real estate market conditions.
Advisory Agreement And Advisor.
The Registrant has an Advisory Agreement with Mid-America ReaFund
Advisors, Inc. (the "Advisor") which provides for the Advisor's services as the
investment advisor and administrator of the day-to-day investment operations of
the Registrant and pursuant to which the Advisor is responsible for providing
the Registrant with a continuing and suitable investment program. Therefore, the
Registrant employs no persons on a full-time basis. The Registrant's Chairman
and President are the sole shareholders of the Advisor.
The Advisory Agreement is renewable annually and can be terminated
upon 60 days' notice by the Registrant and 120 days' notice by the Advisor. The
Advisor receives, subject to certain limitations, an annual fee equal to 1% of
the average invested assets for the year (as defined in the Advisory Agreement)
and an annual incentive fee equal to 10% of the amount by which the net profits
(as defined in the Advisory Agreement) of the Registrant exceeds 8% of the
average net worth for the year, and 10% of any realized net capital gains of the
Registrant.
Lines Of Credit.
The Registrant has an agreement with National City Bank (the
"Bank") providing for a secured revolving line of credit. The
loan agreement provides for borrowings at either the Bank's prime lending rate
or a fixed rate equal to 1.5% over the LIBOR then in effect throughout the term
of the loan agreement, which expires on July 31, 1996. Availability under the
line of credit will be $22,000,000 until August 1, 1995, and $10,000,000
thereafter. Among other provisions, the loan agreement provides for a borrowing
base equal to 83.3% of the Registrant's investments (as defined) and $3,000,000
of availability for working capital, with the remainder available for new
investments. The loan agreement also provides that the Registrant cannot permit
its net worth (including subordinated debt) to be less than $17,000,000 or its
total debt (excluding wrap-around mortgages) and senior indebtedness to exceed
300% and 225%, respectively, of its net worth. At January 31, 1995, the
Registrant had borrowed $11,810,000 under this line of credit.
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On March 16, 1993, the Registrant sold a $5,000,000 secured note
(the "Note") to Mr. Krause at par. The Note bears interest at the prime lending
rate of the Bank, and will mature on August 31, 1995, subject to extension for
up to one additional year in certain circumstances. The Note is secured by a
lien on the assets of the Registrant, which lien is subordinate to the prior
lien of the Bank. In connection with the closing of the sale of the Note, the
Registrant's Trustees received the written opinion of an independent investment
banking firm that the terms of such sale were fair, from a financial point of
view, to the other Shareholders of the Registrant. The proceeds of the sale of
the Note were used to reduce the outstanding indebtedness of the Registrant to
the Bank under its secured revolving line of credit.
Item 2. PROPERTIES.
The Registrant maintains its headquarters in leased facilities in
Cleveland, Ohio which it shares with the Advisor. The Registrant owns no real
property other than the Chicago office building. See "Business-Equity
Investments".
The following is a detailed description of the property owned by
the Registrant as well as the properties underlying each of the Registrant's
material mortgage loans. All of the information set forth below in respect of
the Registrant's mortgage loans has been furnished by the respective borrowers.
Financial information concerning the Chicago office building as well as the
Registrant's mortgages, including any mortgage loans underlying the Registrant's
wrap-around mortgages, is outlined in Notes 2, 8 and 9, respectively, to Notes
to Financial Statements set forth on Pages 13, 15 and 16, respectively, of the
Registrant's 1995 Annual Report (Exhibit 13), which information hereby is
incorporated by reference.
1. CHICAGO, ILLINOIS - OFFICE BUILDING. This office building, known
as The Carbon and Carbide Building, is located at 230 North Michigan Avenue in
downtown Chicago, and is a thirty-eight story steel frame, concrete and stone
structure situated on a long-term leasehold estate. The building has a total
rentable floor area of approximately 192,000 square feet and is approximately 63
years old. In the opinion of the Registrant's management, the building is
covered adequately by insurance.
The general market for office leasing in downtown Chicago is very
competitive. According to the fourth quarter 1994 Building Owners and Managers
Association of Chicago
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occupancy survey, the overall occupancy in the area where this building is
located, the Central Business District/East Loop, was 78.42%, a decrease of .45%
since the fourth quarter of 1993 and 1.18% since the fourth quarter of 1992.
Occupancy for Class C Buildings has increased to approximately 87.9%. A Class C
Building generally is described as an older building in need of some repair
and/or renovation.
The following table sets forth the average occupancy rate and
average rent per square foot for this building as of December 31 for the years
indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Occupancy 61.0% 57.0% 55.0% 63.6% 81.8%
Rate
Average Rent Per $16.19 $15.99 $16.15 $16.35 $15.50
Square Foot
</TABLE>
No tenant occupies 10% or more of the rentable square footage of
the building. The following table sets forth further information concerning the
office building leases:
<TABLE>
<CAPTION>
Year of Number Net Percentage
Lease of Square Annual of Gross
Expiration Tenants Feet Rent Annual Rent
- ---------- ------- ------ ----------- -----------
<S> <C> <C> <C> <C>
1995 20 21,327 $327,988.68 9.4%
1996 12 12,857 200,917.68 7.3%
1997 8 9,516 155,426.28 7.4%
1998 16 38,605 557,024.28 28.9%
1999 8 13,671 244,174.56 19.0%
2000 1 1,410 21,502.56 2.1%
2001 1 3,300 62,000.00 1.4%
2002 1 1,265 29,325.96 3.4%
2003 1 1,059 18,691.32 0.9%
2004 0 0 0 0
</TABLE>
For federal income tax purposes, the Registrant's tax basis in the
building, improvements and land is $8,843,000 less accumulated depreciation on
the building and improvements as of January 31, 1995 of $483,000. For federal
income tax purposes, the Registrant depreciates the building using the straight
line method over a life of 40 years.
The real estate tax rate is $205.22 per $1,000 of assessed
valuation. The current annual real estate taxes are $494,980.18.
2. TOLEDO, OHIO - OFFICE BUILDING. This office building, known as
The Fiberglas Tower, is located at 319 Madison Avenue, Toledo, Ohio, and is a
thirty-story structure having a total
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rentable floor area of approximately 332,570 square feet. The building is owned
by Riverview Tower Limited Partnership, a limited partnership of which an
affiliate of Mr. Krause is a general partner. The building is 23 years old and
was acquired by the borrower on July 31, 1985. In the opinion of the
Registrant's management, the building is covered adequately by insurance.
At January 31, 1995, the outstanding principal balance of the
Registrant's loan was $11,033,109 and interest accrued thereon at 8.60%.
This loan is payable in monthly installments of approximately $128,000 until
maturity thereof on December 31, 1996, at which time the entire principal sum
including unpaid interest will be due. In connection with the extension of such
loan maturity to December 31, 1996, the Borrower was required to make principal
payments of $1,350,000 and $850,000 in June 1994 and January 1995, respectively;
an additional principal prepayment of $850,000 is due in January 1996.
The Owens-Corning Corporation ("Owens"), a manufacturer of
fiberglass products, occupies 100% of the building's office space under leases
dated May 1, 1967 and April 30, 1981, respectively and a lease amendment and
extension agreement dated June 4, 1994 (collectively, the "Owens Lease").
Pursuant to the Owens Lease and two additional agreements for basement storage
space, Owens leases the entire rentable floor area of the building at an annual
base rent of $2,261,000. The initial term of the Owens Lease expired on December
31, 1994; however, Owens and the borrower have negotiated an extension of such
lease until December 31, 1996 with two six-month renewal options. In October
1993, Owens announced that it would be relocating from the building to an as-yet
unbuilt facility. Such relocation, when it occurs, will impact directly the
borrower's ability to meet timely its loan obligations to the Registrant. In the
event that the borrower defaults in its obligations to the Registrant, the
Registrant may be faced with a write-down of this investment. The borrower is
unable to determine competitive conditions affecting office space which might
exist at the time Owens relocates from this building.
The following table sets forth the average occupancy rate and
average rent per square foot as of December 31 for the years indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Occupancy 100% 99% 99% 99% 99%
Rate
Average Rent Per $22.43 $11.81 $12.07 $11.62 $12.03
Square Foot
</TABLE>
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For federal income tax purposes, the borrower's tax basis in the
property is $16,705,077, less accumulated depreciation as of December 31, 1994
equal to $4,102,470. The borrower depreciates the building using the
straight-line method over a life of 19 years. The borrower also depreciates
various building improvements using the straight line method over lives of 10
years.
The effective real estate tax rate is $62.44 per $1,000 of
assessed valuation. The current annual real estate taxes are $271,360.
3. FORT WORTH, TEXAS - OFFICE BUILDING. This facility is located on a
portion of the General Dynamics West Campus, Fort Worth, Texas, and consists of
a 44.3 acre site on which is located three buildings having a total rentable
floor area of approximately 550,500 square feet. The facility is owned by
Pacific Place Partners, LTD., a Texas limited partnership. The facility is
approximately five years old and was acquired by the borrower in November 1991.
At January 31, 1995, the outstanding principal balance of the
Registrant's loan was $18,644,085 and interest accrued thereon at 10.4%.
This loan is payable in monthly installments of principal and interest of
approximately $625,000 until maturity thereof on October 31, 1996, at which time
the entire principal sum remaining unpaid will be due.
General Dynamics Corporation ("General Dynamics"), a defense
contractor, leased the entire facility until March 1, 1993, at which time
General Dynamics assigned all of its right, title and interest in, to and under
the lease to Lockheed Corporation. However, General Dynamics remains liable for
all promises, covenants, conditions and agreements to be kept, made or performed
by Lockheed Corporation under the lease. The lease permits Lockheed Corporation
to use the facility for general business office purposes, including engineering
facilities, computer software development facilities and storage facilities
incidental to such uses. However, the property may not be used for chemical
laboratories. The term of the lease expires in November 1996. Annual rent for
the first lease year was approximately $11,500,000 and for each lease year
thereafter is approximately $7,500,000. The borrower is unable to determine
competitive conditions which might exist at the time the lease expires.
For federal income tax purposes, the borrower's tax basis in the
property, which was acquired in a Section 1031 exchange, is $48,404,030, less
accumulated depreciation and amortization of deferred charges as of December 31,
1994 equal to $8,543,039. The borrower depreciates the three buildings using the
straight line method over lives of 15 years. Personal
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property is depreciated using the declining balance method over lives of five
years.
The effective real estate tax rate is $30.72 per $1,000 of
assessed valuation. The current annual real estate taxes are $507,784.
Item 3. LEGAL PROCEEDINGS.
The Registrant is not a party to any material pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The age (as of March 18, 1995), business experience during the
past five years and offices presently held by each of the Registrant's executive
officers are reported below. The Registrant's By-Laws provide that officers
shall hold office until their successors are duly elected and qualified and that
any officer may be removed from office at any time by the Registrant's Trustees.
Alan M. Krause: Age 65; Chairman of the Board of Trustees and
Co-Chief Executive Officer of the Registrant since 1990 and prior thereto Vice
Chairman of the Board of Trustees of the Registrant since 1971. Chairman of the
Board and Co-Chief Executive Officer of Mid-America ReaFund Advisors, Inc.
(Advisor to the Registrant) since 1990. Principal, The Mid-America Companies
(real estate ownership) since prior to 1983 and President, The Mid-America
Management Corporation (real estate management) since 1983.
James H. Berick: Age 61; President, Treasurer and Co-Chief
Executive Officer of the Registrant since 1990 and prior thereto Vice Chairman
of the Board of Trustees and Secretary of the Registrant since 1971. President,
Co-Chief Executive Officer and Treasurer of Mid-America ReaFund Advisors, Inc.
(Advisor to the Registrant) since 1990. Chairman, Berick, Pearlman & Mills Co.,
L.P.A. (attorneys) since 1986.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Registrant's shares of beneficial interest are traded on the
New York Stock Exchange under the symbol "RRF". As of March 17, 1995, the
Registrant had approximately 789 shareholders.
The following table sets forth the high and low sales prices of
the Registrant's shares of beneficial interest, as well as dividends declared
thereon, for the last two fiscal years:
<TABLE>
<CAPTION>
Price Range
-----------
Fiscal Year 1994 High Low Dividends
- ---------------- ------ ----- ---------
<S> <C> <C> <C>
First Quarter 10 3/8 9 5/8 .25
Second Quarter 10 1/4 9 5/8 .25
Third Quarter 10 3/4 9 3/4 .18
Fourth Quarter 10 6 7/8 .18
Fiscal Year 1995 High Low Dividends
- ---------------- ------ ----- ---------
First Quarter 7 5/8 7 .20
Second Quarter 8 1/4 7 1/8 .20
Third Quarter 8 3/8 8 1/4 .20
Fourth Quarter 8 1/2 7 3/4 .20
</TABLE>
Item 6. SELECTED FINANCIAL DATA.
Information in response to this item is set forth on page 4 of the
Registrant's 1995 Annual Report (Exhibit 13), which information is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL POSITION.
Information in response to this Item is set forth on pages 5
through 8 of the Registrant's 1995 Annual Report (Exhibit 13), which information
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Registrant and the notes thereto
appear on pages 9 through 18 of the Registrant's 1995 Annual Report, which
information is incorporated herein by reference.
The other financial statements and schedules required
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herein are filed as "Financial Statement Schedules" pursuant to Item 14 of this
Report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this Item is set forth under the
caption "Election of Trustees" in the Registrant's proxy statement dated April
7, 1995 (Exhibit 99(a)), which information is incorporated herein by reference.
The information required by this Item in respect of Executive Officers is set
forth on Page 13 of this Form 10-K and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
Information in response to this Item is set forth under the
caption "Compensation of Trustees and Executive Officers" in the Registrant's
proxy statement dated April 7, 1995 (Exhibit 99(a)), which information is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this Item is set forth under the
caption "Ownership of Shares of Beneficial Interest" in the Registrant's proxy
statement dated April 7, 1995 (Exhibit 99(a)), which information is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this Item is set forth under the
caption "Certain Transactions" in the Registrant's proxy statement dated April
7, 1995 (Exhibit 99(a)), which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) 1. See the Index to Financial Statements set forth
on page 21 hereof for a list of financial
statements and financial schedules
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included or incorporated herein by reference.
2.1 The Financial Statements of Riverview Tower
Limited Partnership, a borrower of the Registrant
(which financial statements were audited by such
borrower's auditors), are set forth as Exhibit
99(b).
2.2 The Financial Statements of Pacific Place
Partners, LTD., a borrower of the Registrant
(which financial statements were audited by such
borrower's auditors), are set forth as Exhibit
99(c).
3. The exhibits filed as part of this report are set
forth on the Exhibit Index on pages 17 through 20
hereof and each management contract or
compensatory plan or arrangement required to be
filed as an exhibit hereto has been marked with
an asterisk on the Exhibit Index.
(b) No current reports on Form 8-K were filed during the last
quarter of fiscal year 1995.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALTY REFUND TRUST
Dated: April 28, 1995 By: /s/ Alan M. Krause
--------------------------
Alan M. Krause, Chairman
By: /s/ James H. Berick
--------------------------
James H. Berick, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: April 28, 1995 /s/ James H. Berick
--------------------------------
James H. Berick, Trustee,
Principal Executive Officer,
Principal Financial Officer
and Principal Accounting
Officer
Dated: April 28, 1995 /s/ Alan M. Krause
--------------------------------
Alan M. Krause, Trustee and
Principal Executive
Officer
Frank L. Kennard, Trustee
Alvin M. Kendis, Trustee
Samuel S. Pearlman, Trustee
Dated: April 28, 1995 By: /s/ Alan M. Krause
---------------------------
Alan M. Krause,
Attorney-In-Fact
Powers of attorney authorizing Alan M. Krause to sign this Form 10-K on
behalf of Trustees of the Registrant are being filed with the Securities and
Exchange Commission herewith (Exhibit 24).
<PAGE> 17
Index of Exhibits
Exhibit
Number
- -------
3(a) First Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 3.1 of Registration Statement No. 2-40238
effective June 17, 1971).
3(b) By-Laws (incorporated by reference to Exhibit 3.2 of the Registrant's
Current Report on Form 8-K dated February 12, 1985 and filed with the
Securities and Exchange Commission on February 13, 1985).
10(a)* Form of Advisory Agreement between the Registrant and the Advisor
(incorporated by reference to Exhibit 12.1 of Registration Statement
No. 2-40238 effective June 17, 1971).
10(b)* Amendment dated June 1, 1987 to Advisory Agreement between Registrant
and the Advisor (incorporated by reference to Exhibit 10(b) of the
Registrant's Form 10-K for the fiscal year ended January 31, 1994).
10(c)* Amendment dated June 1, 1988 to Advisory Agreement between the
Registrant and the Advisor.
10(d)* Amendment dated June 1, 1989 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit 10(d)
of the Registrant's Form 10-K for the fiscal year ended January 31,
1990).
10(e)* Amendment dated June 1, 1990 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit 10(e)
of the Registrant's Form 10-K for the fiscal year ended January 31,
1991).
10(f)* Amendment dated June 1, 1991 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit 10(f)
of the Registrant's Form 10-K for the fiscal year ended January 31,
1992).
10(g)* Amendment dated June 1, 1992 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit 10(g)
of the Registrant's Form 10-K for the fiscal year ended January 31,
1993).
10(h)* Amendment dated June 1, 1993 to Advisory Agreement
-17-
<PAGE> 18
between the Registrant and the Advisor (incorporated by reference to
Exhibit 10(h) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1994).
10(i) Amendment dated June 1, 1994 to Advisory Agreement between the
Registrant and the Advisor.
10(j) Credit Agreement dated July 18, 1990 between the Registrant and the
Bank (incorporated by reference to Exhibit 10(f) of the Registrant's
Form 10-K for the fiscal year ended January 31, 1991).
10(k) Extension Agreement dated June 27, 1991 to Credit Agreement between
the Registrant and the Bank (incorporated by reference to Exhibit
10(g) of the Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(l) Amendment and Waiver Agreement dated as of July 7, 1992 to Credit
Agreement between the Registrant and the Bank (incorporated by
reference to Exhibit 10.5 of the Registrant's Current Report on Form
8-K dated March 16, 1993 and filed with the Securities and Exchange
Commission on March 24, 1993).
10(m) Security Agreement (Promissory Notes) dated as of July 7, 1992 between
Registrant and the Bank (incorporated by reference to Exhibit 10.6 of
the Registrant's Current Report on Form 8-K dated March 16, 1993 and
filed with the Securities and Exchange Commission on March 24, 1993).
10(n) Second Amendment dated March 16, 1993 to Credit Agreement between the
Registrant and the Bank (incorporated by reference to Exhibit 10.2 of
the Registrant's Current Report on Form 8-K dated March 16, 1993 and
filed with the Securities and Exchange Commission on March 24, 1993).
10(o) Third Amendment dated as of July 28, 1994 between the Registrant and
the Bank.
10(p) Security Agreement (Promissory Notes) dated as of March 16, 1993
between Registrant and the Bank (incorporated by reference to Exhibit
10.4 of the Registrant's Current Report on Form 8-K dated March 16,
1993 and filed with the Securities and Exchange Commission on March
24, 1993).
10(q) Security Agreement (Inventory, Receivables and Equipment) dated as of
March 16, 1993 between Registrant and Bank (incorporated by reference
to Exhibit 10.3 of
-18-
<PAGE> 19
the Registrant's Current Report on Form 8-K dated March 16, 1993 and
filed with the Securities and Exchange Commission on March 24, 1993).
10(r) Secured Note Purchase Agreement dated March 16, 1993 between the
Registrant and Alan M. Krause (incorporated by reference to Exhibit
10.1 of the Registrant's Current Report on Form 8-K dated March 16,
1993 and filed with the Securities and Exchange Commission on March
24, 1993).
10(s)* Employment Agreement dated January 22, 1990 between the Registrant and
Alan M. Krause (incorporated by reference to Exhibit 10(i) of the
Registrant's Form 10-K for the fiscal year ended January 31, 1992).
10(t)* Amendment No. 1 dated June 1, 1990 to Employment Agreement between the
Registrant and Alan M. Krause (incorporated by reference to Exhibit
10(j) of the Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(u)* Amendment No. 2 dated June 1, 1991 to Employment Agreement between the
Registrant and Alan M. Krause (incorporated by reference to Exhibit
10(k) of the Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(v)* Amendment No. 3 dated June 1, 1992 to Employment Agreement between the
Registrant and Alan M. Krause (incorporated by reference to Exhibit
10(s) of the Registrant's Form 10-K for the fiscal year ended January
31, 1993).
10(w)* Amendment No. 4 dated June 1, 1993 to Employment Agreement between the
Registrant and Alan M. Krause (incorporated by reference to Exhibit
10(u) of the Registrant's Form 10-K for the fiscal year ended January
31, 1994).
10(x)* Amendment No. 5 dated June 1, 1994 to Employment Agreement between the
Registrant and Alan M. Krause.
10(y)* Employment Agreement dated January 22, 1990 between the Registrant and
James H. Berick (incorporated by reference to Exhibit 10(l) of the
Registrant's Form 10-K for the fiscal year ended January 31, 1992).
10(z)* Amendment No. 1 dated June 1, 1990 to Employment Agreement between the
Registrant and James H. Berick (incorporated by reference to Exhibit
10(m) of the Registrant's Form 10-K for the fiscal year ended January
-19-
<PAGE> 20
31, 1992).
10(aa)* Amendment No. 2 dated June 1, 1991 to Employment Agreement between the
Registrant and James H. Berick (incorporated by reference to Exhibit
10(n) of the Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(bb)* Amendment No. 3 dated June 1, 1992 to Employment Agreement between the
Registrant and James H. Berick (incorporated by reference to Exhibit
10(w) of the Registrant's Form 10-K for the fiscal year ended January
31, 1993).
10(cc)* Amendment No. 4 dated June 1, 1993 to Employment Agreement between the
Registrant and James H. Berick (incorporated by reference to Exhibit
10 (z) of the Registrant's Form 10-K for the fiscal year ended January
31, 1994).
10(dd)* Amendment No. 5 dated June 1, 1994 to Employment Agreement between the
Registrant and James H. Berick.
13 The Registrant's 1995 Annual Report.
24 Powers of Attorney.
27 Financial Data Schedule
99(a) Notice of Annual Meeting and Proxy Statement dated April 7, 1995.
99(b) Financial Statements of Riverview Tower Limited Partnership as at
December 31, 1995 and 1994.
99(c) Financial Statements of Pacific Place Partners, Ltd. as at December
31, 1993 and 1994.
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit hereto.
-20-
<PAGE> 21
REALTY ReFUND TRUST
-------------------
LIST OF FINANCIAL STATEMENTS AND SCHEDULE
-----------------------------------------
The following finacial statements of Realty ReFund Trust are included in Item
8:
Report of Independent Public Accountants
Balance Sheets -- January 31, 1995 and 1994
Statements of Income - For the Years Ended January 31, 1995, 1994
and 1993
Statements of Shareholders' Equity -- For the Years Ended
January 31, 1995, 1994 and 1993
Statements of Cash Flows -- For the Years Ended January 31, 1995,
1994 and 1993
Notes to Financial Statements -- January 31, 1995, 1994 and 1993
The following financial statement schedule of Realty ReFund Trust is included
in Item 14(a)1.:
Schedule III -- Real Estate and Accumulated Depreciation
All other schedules are omitted, as the information is not required
or is otherwise furnished.
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees,
Realty ReFund Trust:
We have audited the accompanying balance sheets of Realty ReFund Trust (an Ohio
unincorporated business trust) as of January 31, 1995 and 1994, and the
related statements of income, shareholders' equity and cash flows for each of
the three years in the period ended January 31, 1995. These financial
statements and the schedule referred to below are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. The summarized financial
data contained in Note 11 are based on the financial statements of Riverview
Tower Limited Partnership and Pacific Place Partners, LTD. which were audited by
other auditors. Their reports have been furnished to us and our opinion,
insofar as it relates to the data in Note 11, is based solely on the reports of
the other auditors.
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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Realty ReFund Trust as of January 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended January 31, 1995 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)1. of
this Form 10-K is the responsibility of the Trust's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Cleveland, Ohio,
February 22, 1995.
/s/ Arthur Andersen LLP
<PAGE> 23
<TABLE>
SCHEDULE III
REALTY ReFUND TRUST
-------------------
REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------
AS OF JANUARY 31, 1995
----------------------
<CAPTION>
Cost Capitalized Gross Amount at
Initial Cost Subsequent to Which Carried at
to Trust Acquisition Close of Period
------------------- ------------------------- -------------------------------
Building and Carrying Building and Total
Encumbrances Land Improvements Improvements Costs Land Improvements (A) (B)
------------ -------- --------- -------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Building--
Chicago, Illinois $ - $897,436 $7,260,000 $852,260 $ - $897,436 $8,112,260 $9,009,696
============ ======== ========== ======== ======== ========= ========== ==========
<CAPTION>
Accumulated Year
Depreciation Construction Date
(A) Completed Acquired Life
------------ ------------ -------- ----
<S> <C> <C> <C> <C>
Office Building--
Chicago, Illinois $359,439 $ - (C) (D)
============ ============ ======== ====
<FN>
(A) Reconciliations of total cost and accumulated depreciation.
</TABLE>
<TABLE>
<CAPTION>
Total Accumulated
Cost Depreciation
--------- -------------
<S> <C> <C>
BALANCE, JANUARY 31, 1994 $8,387,719 $ 29,256
ADDITIONS DURING PERIOD:
Building improvements 107,000 -
Tenant improvements 514,977 -
Depreciation expense - 330,183
---------- --------
BALANCE, JANUARY 31, 1995 $9,009,696 $359,439
========== ========
<FN>
Note that the January 31, 1994 balances shown above reflect the reclassification of
tenant improvement costs and related accumulated depreciation to conform with
the January 31, 1995 balance sheet presentation.
(B) For federal income tax purposes, the aggregate cost is $8,843,000.
(C) Building title was accepted in July 1992. Land was acquired in March and
April 1993.
(D) Commencing February 1, 1994, building and building improvements are
being depreciated on a straight-line basis over 30 years. Tenant
improvements are depreciated on a straight-line basis over the related lease
terms, which are generally five years.
</TABLE>
<PAGE> 1
Exhibit 10(c)
Amendment Dated June 1, 1988 to Advisory Agreement
Between the Registrant and the Advisor
<PAGE> 2
[REAFUND CORPORATION LOGO]
June 1, 1988
ReaFund Advisors, Inc.
1385 Eaton Center
Cleveland, Ohio 44114
Attention: Alfred Lerner, President
Dear Al:
Please be advised that the Trustees of Realty ReFund
Trust (the "Trust") have agreed to extend the Advisory Agreement
between ReaFund Advisors, Inc. (the "Adviser") and the Trust, for
an additional term of one (1) year expiring June, 1989, on the
same terms, conditions and provisions contained in the original
Agreement as extended from time to time.
If this Agreement to extend meets with the approval of
the Adviser, please acknowledge the same on the copy of this
letter enclosed for that purpose.
Very truly yours,
Realty ReFund Trust
By /s/ James H. Berick
James H. Berick
Vice-Chairman and Secretary
JHB/ctw
The foregoing extension is hereby accepted.
ReaFund Advisors, Inc.
By /s/ Alfred Lerner
Alfred Lerner, President
<PAGE> 1
Exhibit 10(i)
Amendment Dated June 1, 1994
to Advisory Agreement Between the
Registrant and the Advisor.
<PAGE> 2
Exhibit 10(i)
June 1, 1994
Mid-America ReaFund Advisors, Inc.
1385 Eaton Center
Cleveland, Ohio 44114
Attention: James H. Berick, President
Dear Jim:
Please be advised that the Trustees of Realty ReFund Trust (the "Trust")
have agreed to extend the Advisory Agreement between Mid-America ReaFund
Advisors, Inc. (the "Adviser") and the Trust, for an additional term of one (1)
year expiring June, 1995, on the same terms, conditions and provisions
contained in the original Agreement as extended from time to time.
If this Agreement to extend meets with the approval of the Adviser, please
acknowledge the same on the copy of this letter enclosed for that purpose.
Very truly yours,
Realty ReFund Trust
By /s/ Alan M. Krause
Alan M. Krause
Chairman
And
Christine Turk
Secretary
/ct
Enclosure
The foregoing extension is hereby accepted.
Mid-America ReaFund Advisors, Inc.
By /s/ James H. Berick
James H. Berick, President
<PAGE> 1
Exhibit 10(o)
Third Amendment dated as of July 28,
1994 between the Registrant and the Bank
<PAGE> 2
THIRD AMENDMENT
---------------
This Third Amendment (this "Amendment") is executed in Cleveland, Ohio
on July 28, 1994, by and between REALTY REFUND TRUST ("Borrower") and NATIONAL
CITY BANK ("Bank").
PRELIMINARY STATEMENTS
A. Borrower and Bank entered into a Credit Agreement dated as of
July 18, 1990, wherein Bank established a contingent revolving credit facility
for Borrower in a principal amount not to exceed Thirty Million Dollars
($30,000,000), which Credit Agreement was amended pursuant to the Amendment and
Waiver dated as of July 7, 1992 and the Second Amendment dated as of March 16,
1993, respectively (the Credit Agreement, as amended, the "Agreement").
B. Borrower and Bank wish to further amend the Agreement on the
terms and conditions set forth hereinafter.
AGREEMENT
For valuable consideration as hereinafter granted each to the other and
intending to be legally bound hereby, the parties acknowledge the preliminary
statements and, effective as of the date hereof, amend the terms, conditions,
and provisions of the Agreement as follows:
1. Effective as of the date hereof, the amount of the "subject
commitment" (as defined in the Agreement) shall be reduced to Twenty-two
Million Dollars ($22,000,000). Effective as of August 1, 1995, the amount of
the "subject commitment" shall be reduced to Ten Million Dollars ($10,000,000).
2. The "expiration date" (as defined in the Agreement) shall be
extended until July 31, 1996.
3. Subsection 2B. 17 of the Agreement (captioned "BORROWING BASE") is
hereby rewritten in its entirety to read as follows:
2B.17 BORROWING BASE -- The BORROWING BASE at any given time shall be an
amount equal to the eighty-three and 33/100ths percent (83.33%) of the net
value of the eligible investments, as reasonably determined by Bank from
time to time.
4. Subsection 2B.06 (captioned "AMOUNT") is hereby rewritten in its
entirety to read as follows:
2B.06 AMOUNT -- No subject loan shall be made if, after giving effect
thereto, the aggregate unpaid principal balance of the subject loans would
exceed the lesser of the amount of the subject commitment then in effect
or the borrowing base then in effect; provided, however, that the
proceeds of any subject loans made on or after July 28, 1994, may be used
only (a) to purchase eligible investments not owned by the Borrower on
such date, and (b) to provide the Borrower with working capital up to the
amount of Three Million Dollars ($3,000,000) at any time outstanding.
5. A new Subsection 2B.13(e) is hereby added to, and made a part of,
the Agreement:
-1-
<PAGE> 3
(e) Each prepayment shall be applied first to reduce the then
outstanding amount of the subject indebtedness that is allocable to the
purchase of eligible investments, and then to reduce the then outstanding
amount of the subject indebtedness that is allocable to working capital.
6. A new Subsection 5A.07 is hereby added to, and made a part of, the
Agreement:
5A.07 JULY 31, 1995 BALANCE -- If, on August 1, 1995, the then
outstanding balance of the subject indebtedness exceeds Ten Million
Dollars ($10,000,000).
IN WITNESS WHEREOF, Borrower and Bank have executed this Amendment at
the time and place first above mentioned.
Address: REALTY REFUND TRUST
1385 Eaton Center By: /s/ James H. Berick
1111 Superior Avenue ---------------------
Cleveland, Ohio 44114 Name: James H. Berick
-------------------
Title: President
------------------
Address: NATIONAL CITY BANK
1900 East Ninth Street By: /s/ John R. Franzen
Attn: Real Estate Industries Division ---------------------
Cleveland, Ohio 44114-3484 Name: John R. Franzen
-------------------
Title: Vice President
------------------
-2-
<PAGE> 1
Exhibit 10(x)
Amendment No. 5 Dated June 1, 1994 to Employment
Agreement Between the Registrant and Alan M. Krause.
<PAGE> 2
AMENDMENT NO. 5 TO
------------------
EMPLOYMENT AGREEMENT
--------------------
This Amendment No. 5 to Employment Agreement made as of June 1, 1994 between
REALTY ReFUND TRUST, an unincorporated association in the form of a business
trust organized under the laws of the State of Ohio having its principal
business address at 1385 Eaton Center, Cleveland, Ohio 44114 (the "Trust") and
ALAN M. KRAUSE ("Employee").
R E C I T A L S
---------------
The Trust and Employee entered into an Employment Agreement dated as of
January 22, 1990. As of June 1, 1993, the Employment Agreement was amended to
extend its term to January 21, 2004 (subject to the provisions for earlier
termination contained at Section 5 of the Employment Agreement). The January
22, 1990 Employment Agreement, as amended, is herein referred to as the
"Employment Agreement".
The parties desire to extend the term of the Employment Agreement by
re-establishing the expiration date thereof.
A G R E E M E N T S
-------------------
NOW, THEREFORE, in consideration of the foregoing, and their mutual
covenants and agreements herein contained, the parties hereto do hereby agree
as follows:
<PAGE> 3
1. The Trust and Employee agree to and do hereby amend the Employment
Agreement so that:
(a) Section 2 on page 3 of the Employment Agreement stating:
"2. TERM
. . . this Agreement shall commence upon the execution hereof and shall
continue through and including the 21st day of January, 2004."
is replaced in its entirety as though originally set forth therein with:
"2. TERM
. . . this Agreement shall commence upon the execution hereof and shall
continue through and including the 21st day of January, 2005."
and,
(b) Section 6 on page 5 of the Employment Agreement stating:
"6. COVENANT AGAINST COMPETITION
(A) During the period commencing with the date hereof and continuing until
the latter of the expiration of the term of this Agreement or until January
21, 2004 if this Agreement shall be terminated for the reasons specified in
Section 5(a)(i) hereof . . . ."
is replaced in its entirety as though originally set forth therein with:
"6. COVENANT AGAINST COMPETITION
(A) During the period commencing with the date hereof and continuing until
the latter of the expiration of the term of this Agreement or until January
21, 2005 if this Agreement shall be terminated for the reasons specified in
Section 5(A)(i) hereof . . ."
<PAGE> 4
2. Except as herein specifically amended, all of the terms and conditions
of the Employment Agreement are hereby ratified and confirmed and the
Employment Agreement is hereby incorporated to the same extent as if fully
rewritten herein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to
Employment Agreement to be duly executed as of June 1, 1994.
REALTY ReFUND TRUST
By: /s/ James H. Berick
----------------------------
James H. Berick,
President
And: /s/ Christine Turk
------------------------------
Christine Turk,
Secretary
THE TRUST
/s/ Alan M. Krause
------------------------------
ALAN M. KRAUSE
EMPLOYEE
-3-
<PAGE> 1
Exhibit 10(dd)
Amendment No. 5 Dated June 1, 1994
to Employment Agreement Between the
Registrant and James H. Berick
<PAGE> 2
AMENDMENT NO. 5 TO
------------------
EMPLOYMENT AGREEMENT
--------------------
This Amendment No. 5 to Employment Agreement made as of June 1, 1994 between
REALTY ReFUND TRUST, an unincorporated association in the form of a business
trust organized under the laws of the State of Ohio having its principal
business address at 1385 Eaton Center, Cleveland, Ohio 44114 (the "Trust") and
JAMES H. BERICK ("Employee").
R E C I T A L S
---------------
The Trust and Employee entered into an Employment Agreement dated as of
January 22, 1990. As of June 1, 1993, the Employment Agreement was amended to
extend its term to January 21, 2004 (subject to the provisions for earlier
termination contained at Section 5 of the Employment Agreement). The January
22, 1990 Employment Agreement, as amended, is herein referred to as the
"Employment Agreement".
The parties desire to extend the term of the Employment Agreement by
re-establishing the expiration date thereof.
A G R E E M E N T S
-------------------
NOW, THEREFORE, in consideration of the foregoing, and their mutual
covenants and agreements herein contained, the parties hereto do hereby agree
as follows:
1. The Trust and Employee agree to and do hereby amend the Employment
Agreement so that:
<PAGE> 3
(a) Section 2 on page 3 of the Employment Agreement stating:
"2. TERM
. . . this Agreement shall commence upon the execution hereof and shall
continue through and including the 21st day of January, 2004."
is replaced in its entirety as though originally set forth therein with:
"2. TERM
. . . this Agreement shall commence upon the execution hereof and shall
continue through and including the 21st day of January, 2005."
and,
(b) Section 6 on page 5 of the Employment Agreement stating:
"6. COVENANT AGAINST COMPETITION
(A) During the period commencing with the date hereof and continuing until
the latter of the expiration of the term of this Agreement or until January
21, 2004 if this Agreement shall be terminated for the reasons specified in
Section 5(a)(i) hereof . . . ."
is replaced in its entirety as though originally set forth therein with:
"6. COVENANT AGAINST COMPETITION
(A) During the period commencing with the date hereof and continuing until
the latter of the expiration of the term of this Agreement or until January
21, 2005 if this Agreement shall be terminated for the reasons specified in
Section 5(A)(i) hereof . . ."
2. Except as herein specifically amended, all of the terms and conditions
of the Employment Agreement are hereby
-2-
<PAGE> 4
ratified and confirmed and the Employment Agreement is hereby incorporated to
the same extent as if fully rewritten herein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to
Employment Agreement to be duly executed as of June 1, 1994.
REALTY ReFUND TRUST
By:_____________________________
Alan M. Krause,
Chairman
And:____________________________
Christine Turk,
Secretary
THE TRUST
_______________________________
JAMES H. BERICK
EMPLOYEE
-3-
<PAGE> 1
Exhibit 13
The Registrant's 1995 Annual Report
<PAGE> 2
[FRONT COVER PAGE OF ANNUAL REPORT]
Realty ReFund Trust
[logo]
Annual Report for the year ended January 31, 1995
[watermark of amortization table in background]
<PAGE> 3
[INSIDE FRONT COVER PAGE OF ANNUAL REPORT]
Table of Contents
<TABLE>
<S> <C>
About Realty ReFund Trust ............................ 1
Letter to Shareholders ............................... 2-3
MD&A ................................................. 5-8
Balance Sheets ....................................... 9
Statement of Income .................................. 10
Statements of Shareholder Equity ..................... 11
Statements of Cash Flow .............................. 12
Notes ................................................ 13-18
Report of Independent Public Accountants ............. 19
Trustees and Officers ................................ 20
</TABLE>
[Watermark of amortization table in background]
<PAGE> 4
ABOUT REALTY REFUND TRUST
Realty ReFund Trust specializes in the refinancing of existing income
producing commercial, industrial and multi-unit residential property by
supplementing or replacing existing financing.
The Trust's primary refinancing tool is the "wrap-around" mortgage loan. The
wrap-around refinancing technique enables both the Trust and its borrower to
utilize the leverage available in the existing first mortgage on the borrower's
property. The Trust offers a borrower a new mortgage loan (a wrap-around loan)
on that property, the principal amount of which equals the balance outstanding
on that property's existing mortgage loan plus an additional amount supplied by
the Trust.
Established in 1971, Realty ReFund Trust has elected to be taxed as a real
estate investment trust as that term is used in Sections 856-860 of the Internal
Revenue Code of 1954, as amended.
1
<PAGE> 5
TO OUR SHAREHOLDERS
We are pleased to report another successful year in 1995.
For the year ended January 31, 1995, Realty ReFund Trust reported earnings of
$0.66 per share on net income of $670,945, compared to prior year's earnings of
$0.94 per share on net income of $955,121. Revenues for the year were $6,592,051
versus $7,645,790 in 1994.
For the fourth quarter ended January 31, 1995, the Trust reported earnings of
$0.15 per share on net income of $153,473, compared to prior year's earnings of
$0.18 per share on net income of $183,027.
This year's fiscal results are more comparable with the prior year's results
after accounting for depreciation. In 1994, no depreciation was recorded.
Because of our equity investment in the Chicago property, we now must
recognize depreciation on our financial reports. Thus, we include Funds From
Operations ("FFO") to provide you with a more accurate measurement of our
year-to-year performance. The National Association of Real Estate Investment
Trusts defines FFO essentially as the sum of the net income plus depreciation
less capital gains. FFO is commonly used by REITs which have equity investments
in real estate.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1995 1994
<S> <C> <C>
Net Income $670,945 $955,121
Funds From Operations 914,728 955,121
Net Income per share .66 .94
Funds From Operations
per share .90 .94
Dividend per share .80 .86
</TABLE>
<TABLE>
<CAPTION>
3 MONTHS ENDED JANUARY 31, 1995 1994
<S> <C> <C>
Net Income $153,473 $183,027
Funds From Operations 215,756 183,027
Net Income per share .15 .18
Funds From Operations
per share .21 .18
Dividend per share .20 .18
</TABLE>
During the calendar year of 1994, the Trust paid dividends of $0.78, of which
67.35% was taxable and 32.65% was non-taxable as a return of capital.
CHICAGO PROPERTY
Our property enhancement program in Chicago produced positive results this
past year. For the year ended January 31, 1995, the Trust achieved operating
profits before the deductions for depreciation and amortization for the first
time since taking title to the property in mid-1992. We are pleased with the
efforts made by our property manager in stabilizing the property's tenant base,
as well as renewing leases on favorable terms. The Trust will continue to make
investments to improve and upgrade this building and seek new opportunities to
attract and retain tenants.
2
<PAGE> 6
In January 1995, we paid off the remaining mortgage loan on this building
held by an unaffiliated third party.
TOLEDO PROPERTY
In June 1994, Owens-Corning Corporation entered into an extension of its
lease with our borrower, Riverview Tower Limited Partnership ("RTLP"). The
lease, which had been scheduled to expire in December 1994, was extended to
December 1996. With this extension, the Trust was able to extend its loan to
RTLP to December 1996.
Since June 1994, the Trust has received principal prepayments totaling
$2,200,000 from RTLP in addition to the scheduled mortgage payments.
RTLP continues to explore various alternatives for the building after the
expiration of the extended Owens-Corning lease. The Trust intends to cooperate
with RTLP in regard to its future plans for the property.
LOAN PORTFOLIO
In July 1994, the Trust made a mortgage loan of $2,050,000 on a shopping
center in Saginaw, Michigan. During the first half of the year, two loans,
aggregating a net investment of $8,800,000, were prepaid.
94TH CONSECUTIVE DIVIDEND PAID
The Board of Trustees declared a cash dividend of $0.20 per share for the
quarter ended January 31, 1995 which was paid on March 15, 1995 to shareholders
of record on March 6, 1995. We are proud of our 24-year history of dividend
payments. Few REITs can boast of 94 consecutive quarterly dividend payments. The
Trustees will continue to review future dividend payments on a
quarter-to-quarter basis.
OUTLOOK
We have worked tirelessly to overcome the enormous obstacles that stood
between the Trust and profitability in 1993. Two profitable years later, our
work is yet to be finished. Much remains to be done to seek new opportunities
for our shareholders and to preserve the value of your investment. In 1995 and
beyond, this continues to be our mission. We thank you for your continued
loyalty and support.
/s/ Alan M. Krause /s/ James H. Berick
Alan M. Krause James H. Berick
Chairman and President and
Co-Chief Executive Officer Co-Chief Executive Officer
3
<PAGE> 7
SELECTED FINANCIAL DATA
The following selected financial data of Realty ReFund Trust for each of the
five years in the period ended January 31, 1995, have been derived from the
audited financial statements of the Trust, which have been audited by Arthur
Andersen LLP, independent public accountants. The data presented should be read
in conjunction with the respective financial statements and related notes
included herein.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For the fiscal years ended January 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 6,592,051 $ 7,645,790 $ 6,979,119 $ 4,525,660 $ 3,985,547
==========================================================================
Income (loss) before unusual item $ 670,945 $ 955,121 $ (3,535,366) $ 1,755,862 $ 1,756,401
Unusual item--write-off of deferred
costs associated with failed mergers - - 1,007,609 - -
--------------------------------------------------------------------------
Net income (loss) $ 670,945 $ 955,121 $ (4,542,975) $ 1,755,862 $ 1,756,401
==========================================================================
Earnings per share $.66 $.94 $(4.45) $1.72 $1.72
==========================================================================
Cash dividends paid and declared
per share $.80 $.86 $ 1.09 $1.72 $1.72
==========================================================================
Total assets $ 45,165,356 $65,264,638 $ 70,428,842 $78,638,206 $41,493,234
==========================================================================
Bank and other borrowings $ 16,810,000 $24,575,000 $ 23,525,000 $21,050,000 $10,425,000
==========================================================================
</TABLE>
4
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL POSITION
All references are to the Trust's fiscal year ended January 31, 1995 as
compared to 1994 or the fiscal year ended January 31, 1994, as compared to
1993.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Following is an analysis of the net interest income earned on each loan in
the Trust's portfolio during 1995, 1994 and 1993:
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST INCOME BY LOAN
1995
AVERAGE AVERAGE NET
LOANS LOANS AVERAGE NET INTEREST INTEREST INTEREST AVERAGE
DESCRIPTION RECEIVABLE (A) PAYABLE (A) INVESTMENT (B ) INCOME EXPENSE INCOME YIELD (C)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wrap-Around Mortgage Loans:
Fort Worth, Texas $21,361,623 $12,920,553 $8,441,070 $2,107,216 $1,061,892 $1,045,324 12.4% (f)
Dallas, Texas 5,459,109 4,059,109 1,400,000 131,102 90,276 40,826 11.7(d)(f)
Toledo, Ohio 12,727,848 4,153,957 8,573,891 1,120,698 249,722 870,976 10.2 (d)
Akron, Ohio 9,261,264 1,880,494 7,380,770 143,469 27,032 116,437 7.1 (d)
Other Mortgage Loans:
Saginaw, Michigan 2,041,089 - 2,041,089 128,074 - 128,074 12.5 (e)
Sarasota/Orlando, Florida 3,863,138 - 3,863,138 424,417 - 424,417 11.0
Loan Prepayment Fees and
Other Income N/A N/A N/A 217,620 N/A 217,620 N/A
--------------------------
Totals (g) $4,272,596 $1,428,922
==========================
1994
Wrap-Around Mortgage Loans:
Fort Worth, Texas $26,623,341 $17,952,191 $8,671,150 $2,431,184 $1,463,929 $ 967,255 11.1 (f)
Dallas, Texas 5,477,869 4,077,869 1,400,000 522,617 377,099 145,518 10.4 (f)
Toledo, Ohio 13,894,571 4,772,525 9,122,046 1,213,338 287,239 926,099 10.2 (f)
Akron, Ohio 9,602,352 2,427,999 7,174,353 700,502 139,626 560,876 7.8
Other Mortgage Loans:
Sarasota/Orlando, Florida 3,974,234 - 3,974,234 436,692 - 436,692 11.0
Other Income N/A N/A N/A 28,764 N/A 28,764 N/A
--------------------------
Totals (g) $5,333,097 $2,267,893
==========================
1993
Wrap-Around Mortgage Loans:
Fort Worth, Texas $32,663,441 $23,732,933 $8,930,508 $2,949,838 $1,938,807 $1,011,031 11.3% (f)
Dallas, Texas 5,495,716 4,095,716 1,400,000 212,794 157,856 54,938 11.8(f)(h)
Toledo, Ohio 14,208,370 5,354,852 8,853,518 1,246,149 322,558 923,591 10.4 (f)
Akron, Ohio 10,158,862 3,246,889 6,911,973 717,070 187,997 529,073 7.7
Other Mortgage Loans:
Sarasota/Orlando, Florida 4,073,808 - 4,073,808 447,748 - 447,748 11.0
--------------------------
Totals (g) $5,573,599 $2,607,218
==========================
<FN>
(a) Based upon average month-end balances outstanding during each fiscal year.
(b) Average loans receivable less average loans payable.
(c) Net interest income divided by average net investment.
(d) These loans were outstanding for approximately three months in 1995. The
average yield represents an annualized yield.
(e) This loan was outstanding for approximately six months in 1995. The average
yield represents an annualized yield.
(f) The Trust's net investment in these loans bears interest at variable rates
based on specified increments over the prime lending rate. As the prime lending
rate increased in fiscal 1995 and decreased in fiscal 1994 and 1993, the
average yield on these loans fluctuated accordingly. Reference should be made
to the schedule of investments in loans receivable included in Note 9 to the
financial statements.
(g) Interest income in 1993 and mortgage interest expense in all years presented
related to the Chicago, Illinois loans have been excluded from the above
analysis as the Trust accepted title to the property in fiscal 1993.
(h) This loan was outstanding for four months in 1993. The average yield
represents an annualized yield.
</TABLE>
5
<PAGE> 9
Interest income on mortgage loans receivable decreased in 1995 as
compared to 1994 due to the prepayment of the Akron, Ohio and Dallas, Texas
wrap-around mortgage loans in April and May 1994, respectively, and the normal
amortization of mortgage loan balances. This decrease was partially offset by
the effect of higher prime lending rates on variable rate mortgage loans,
prepayment fees and other income related to the previously mentioned loan
prepayments aggregating approximately $190,000 and interest income on the
Saginaw, Michigan loan made in July 1994. Interest expense on mortgage loans
payable decreased in 1995 as compared to 1994, due to the prepayments of the
loans underlying the Akron, Ohio and Dallas, Texas wrap-around loan investments
and the normal amortization of the fixed rate mortgage loan balances.
Interest expense on bank borrowing decreased in 1995 as compared to
1994 due to lower average borrowing levels. The proceeds from the Akron, Ohio
and Dallas, Texas loan prepayments were utilized to reduce bank borrowings.
The effect of lower average borrowing levels more than offset the effect of
higher bank interest rates. Interest expense on the note payable to related
party increased due to higher interest rates.
Commencing February 1, 1994, the Trust began providing depreciation on
the Chicago building held for sale. For 1995, the building incurred an operating
loss of $175,000, inclusive of depreciation and amortization charges of
$336,000. These results compare favorably with the 1994 building operating loss
of $108,000, which included amortization charges of $27,000, when the effects of
depreciation and amortization are removed. The improvement in building operating
results is attributable primarily to lower levels of repair and maintenance
expenditures in 1995.
Other operating expenses increased in both 1995 and 1994 due to higher
levels of legal and professional fees.
In 1994, interest income on mortgage loans decreased as compared to 1993
due to the normal amortization of mortgage loan balances, the effect of lower
average prime lending rates on variable rate loans receivable in 1994 and the
inclusion of $95,000 of interest income on the Chicago property in 1993.
Interest expense on mortgage loans payable decreased in 1994 as compared to
1993 due to the normal amortization of the fixed rate mortgage loan balances.
Interest expense on loans from bank and related parties increased
approximately $50,000 in the aggregate in 1994 as compared to 1993. The increase
was due to the effect of higher average borrowing levels being partially offset
by lower average interest rates in 1994. Average borrowing levels were higher in
1994 as compared to 1993 due to the funding of the purchase of a substantial fee
interest in the land on which the Chicago building is located. Also, borrowings
related to the Dallas, Texas investment and failed merger costs in 1993 were
outstanding for a full year in 1994.
The fee to the Advisor increased in 1994, as compared to 1993
as the relationship between Trust income and expenses more closely approximated
the thresholds established in the advisory agreement. In 1993, the Advisor was
required to forego approximately $188,000 of fees due to the Trust's operating
expenses exceeding thresholds specified in the advisory agreement. In 1994, the
amount of advisory fees so foregone was approximately $22,000.
The 1994 results of the Trust include the operating results of the
Chicago property for a full year as compared to approximately five months in
1993. During 1994 and 1993, the Chicago property incurred operating losses of
approximately $108,000 and $182,000, respectively. Rental revenues for 1994 as
compared to annualized 1993 revenues decreased due to decreased occupancy.
Property operating expenses were considerable in fiscal 1994 as the Trust
incurred substantial costs in rehabilitating the building.
In May 1992, the borrower under the Trust's Chicago office building
loans notified the Trust that it would cease making scheduled mortgage payments
after the May 1992 payment. In late July 1992, the Trust took title to the
property in lieu of foreclosure on the building. Prior thereto, the Trust had
mortgage loans receivable on the building of approximately $12,000,000 and an
underlying loan obligation of approxi-
6
<PAGE> 10
mately $832,000. An independent appraisal of the building was completed in
October 1992 which indicated a net realizable value of $7,260,000. Accordingly,
the Trust recorded a $4,740,343 write-down of its investment in the
Chicago building, with a corresponding charge against 1993 operations. The Trust
intends to sell the building, but the timing and terms of any such sale cannot
be predicted. The Trust ceased accruing interest on the mortgage loans when
payments ceased in May 1992. The operating loss of the property has been
included in the Trust's operating results since the Trust took title to the
building.
The Trust historically has specialized in mortgage financing as its
investment vehicle. In 1990, the Trustees authorized the Advisor to search for,
and submit to the Trustees for approval, equity investments as well as mortgage
investments. On December 27, 1991, the Trust entered into an Omnibus Acquisition
Agreement (the Omnibus Agreement) which provided for the contemporaneous
consummation of two mergers, whereby newly formed, wholly owned subsidiaries of
the Trust would be merged with and into two limited partnerships. The Omnibus
Agreement was terminated in May 1992 following (i) the institution of a class
action lawsuit against such partnerships and their general partners by certain
limited partners of such partnerships and (ii) the default of the borrower under
the Chicago office building loans. Accordingly, previously deferred merger costs
incurred in connection with the proposed mergers of $1,007,609 have been charged
against income and have been reflected as an unusual item in the statements of
income for 1993.
In October 1993, the tenant which occupies 99% of the Toledo, Ohio
office building announced that it would be relocating from the Toledo building
to an as-yet unbuilt facility. In June 1994, the maturity date of the Trust's
wraparound mortgage loan on the property was extended to December 1996 and
certain terms of the loan were modified. The loan extension and modification
required the borrower to make prepayments of loan principal aggregating
$2,200,000 during fiscal 1995. An additional prepayment of principal in the
amount of $850,000 is due to the Trust in January 1996. The interest rate on the
Trust's net investment, previously 4% above the prime rate, was fixed at 10%.
The Trust intends to cooperate with the building owner in considering its
possible alternative responses to the tenant's decision and in formulating plans
for the future use of the building. A corporation owned by the Chairman of the
Trust is the general partner in the partnership which owns the Toledo building.
The partnership owning the building has no substantial assets or sources of
revenue other than the building. As such, if the partnership is unable to obtain
a replacement tenant(s) or otherwise generate sufficient cash flow to meet its
obligations under the wrap-around mortgage loan, the operating results,
financial position and cash flow of the Trust could be adversely affected. Due
to the preliminary status of planning for future uses of the building and the
receipt of substantial principal prepayments in fiscal 1995, the Trust concluded
that no writedown of its investment in the building was required at January 31,
1995.
LIQUIDITY
To maintain tax-exempt status, the Trust is required to distribute at
least 95% of its taxable income to its shareholders. It is currently the policy
of the Trust to distribute sufficient dividends to maintain its tax-exempt
status. As a result of the substantial loss in 1993, the Trust has available
approximately $4.6 million of net operating loss carryforwards for income tax
purposes. The loss carryforwards can be used to reduce future dividend payment
requirements and still allow the Trust to maintain its tax-exempt status. The
Trustees will assess the level of dividends to be declared on a quarterly basis.
For 1995 as compared to 1994, net cash provided by operating activities
decreased due to the reduction in the Trust's loan investment portfolio and the
higher levels of payments to the Advisor and other suppliers more than offset
the improved operating performance of the Chicago building and the receipt
of prepayment and other fees on the Akron, Ohio and Dallas, Texas loan
prepayments.
Cash from investing activities increased considerably in 1995 due to the
Akron, Ohio ($7,400,000 net investment) and Dallas, Texas ($1,400,000 net
investment) loan prepayments, additional principal amortization ($2,200,000)
received on the Toledo, Ohio loan pursuant to the previously
7
<PAGE> 11
discussed loan extension agreement, the normal amortization of mortgage loan
balances and a lower level of expenditures for land and building and tenant
improvements at the Chicago property. A partially offsetting factor was the use
of $2,050,000 of funds in 1995 for a new loan on a shopping center in Saginaw,
Michigan.
Cash from financing activities decreased in 1995 as compared to 1994 as
the proceeds from the Akron, Ohio and Dallas, Texas loan prepayments and the
additional principal amortization received on the Toledo, Ohio loan were
utilized to reduce bank borrowings. In 1994, the Trust obtained $5,000,000 of
borrowings from a related party.
For 1994, as compared to 1993, net cash provided by operating activities
increased due to a lower level of cash payments to the Advisor and suppliers.
A primary cause of the decrease in such payments was the refund of 1993 fees
from the Advisor of $188,000 being received in 1994.
Net cash used for investing activities decreased in 1994 as compared to
1993 as the impact of the investments in the land and tenant improvements at the
Chicago property in 1994 was more than offset by the payments of failed merger
costs in 1993 and the investment in the Dallas, Texas loan in 1993. There were
no new loan investments in 1994. Principal collected on mortgage loans
receivable and principal payments on mortgage loans payable decreased in 1994
due to the normal amortization of mortgage loan balances.
Net cash from financing activities in 1994 decreased considerably from
1993 as less bank borrowings were required to fund investing activities.
In connection with the Trust's wrap-around loans, while the entire debt
service is received in cash, the Trust is obligated to the borrower to make
debt service payments on the underlying indebtedness. Additionally, the Trust
will be funding any operating deficits of the Chicago building until such time
as it is sold. However, management believes that rental revenues of the property
will be sufficient to fund property operating expenses. The Trust's primary
sources of funds are a bank line of credit in the amount of $22,000,000 and
repayments of mortgage loans receivable. The line of credit is used to provide
the Trust with a source of funds when payments due on loans underlying the
Trust's wrap-around loans are in excess of the payments due the Trust or to fund
losses such as experienced in 1993. In July 1994, the bank extended the line of
credit to July 1996. Availability under the line of credit is $22,000,000 until
August 1, 1995, at which time availability will be reduced to $10,000,000. The
agreement provides for a borrowing base equal to 83.3% of the Trust's
investments, as defined, and $3,000,000 for working capital with any remainder
being available for new investments. No other significant changes were
incorporated into the line of credit agreement. As of January 31, 1995, the
Trust had available approximately $10,190,000 under the line of credit.
In August 1994, the Trust exercised its right to extend the maturity
date of the note payable to related party to August 1995.
INFLATION
Generally, inflation affects the Trust as it affects its borrowers and
the underlying real estate collateral. This type of collateral traditionally has
been able to sustain itself during periods of inflation.
OTHER
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments." As the Trust has less than $150 million of
total assets, the standard will not be effective until the fiscal year ended
January 31, 1996. The standard will require the Trust to disclose in its
financial statements or notes thereto, the fair value of assets and liabilities
which meet the standard's definition of financial instruments. The primary
assets and liabilities of the Trust which qualify as financial instruments are
mortgage loans receivable and payable and notes payable.
8
<PAGE> 12
<TABLE>
<CAPTION>
BALANCE SHEETS
AS OF JANUARY 31, 1995 1994
<S> <C> <C>
ASSETS
INVESTMENTS:
Loans receivable $24,476,670 $42,748,226
Loan receivable from related party 11,033,109 13,732,592
35,509,779 56,480,818
REAL ESTATE HELD FOR SALE, net of accumulated
depreciation and amortization of $360,000 and $29,000
at January 31, 1995 and 1994, respectively 8,650,257 8,358,463
OTHER ASSETS:
Cash 39,073 50,474
Interest receivable and other assets 966,247 374,883
$45,165,356 $65,264,638
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Loans payable underlying wrap-around mortgages $10,264,669 $21,566,937
Loan payable underlying wrap-around mortgage to
related party 3,832,317 4,469,721
Mortgage loan payable on real estate held for sale - 500,000
Note payable to bank 11,810,000 19,575,000
Note payable to related party 5,000,000 5,000,000
Deposits and accrued expenses 1,543,828 1,313,326
32,450,814 52,424,984
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value;
unlimited authorization; 1,020,586 shares
outstanding in 1995 and 1994 12,714,542 12,833,678
Undistributed net income - 5,976
12,714,542 12,839,654
$45,165,356 $65,264,638
===========================
The accompanying notes to financial statements are an integral part of these balance
sheets.
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31,
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Interest income from loans receivable $3,151,628 $4,119,759 $ 4,422,972
Interest income from loan receivable
from related party 1,120,968 1,213,338 1,246,149
Rental revenue from real estate held
for sale 2,319,455 2,312,693 1,309,998
6,592,051 7,645,790 6,979,119
EXPENSES:
Interest on loans underlying wrap-
around mortgages and other
mortgage loans 1,218,159 2,029,240 2,348,470
Interest on loan underlying wrap-
around mortgage to related party 249,722 287,239 322,559
Interest on loans from bank 793,731 964,910 1,114,089
Interest on loans from related parties 411,944 338,077 71,881
Fee to related party investment advisor 294,115 279,938 201,217
Legal expense to related party 41,000 54,000 -
Operating expenses of real estate held
for sale 2,157,957 2,394,279 1,489,624
Depreciation of building held for sale 243,783 - -
Amortization of tenant improvements
and deferred leasing commissions 92,309 26,510 2,747
Provision for write-down of real
estate held for sale - - 4,740,343
Other operating expenses 418,386 316,476 223,555
5,921,106 6,690,669 10,514,485
INCOME (LOSS) BEFORE UNUSUAL ITEM 670,945 955,121 (3,535,366)
UNUSUAL ITEM--WRITE-OFF OF
DEFERRED COSTS ASSOCIATED
WITH FAILED MERGERS - - 1,007,609
NET INCOME (LOSS) $ 670,945 $ 955,121 $(4,542,975)
==========================================
INCOME (LOSS) PER SHARE $ .66 $ .94 $ (4.45)
==========================================
CASH DIVIDENDS PER SHARE:
Paid $ .60 $ .68 $ .84
Declared .20 .18 .25
$ .80 $ .86 $ 1.09
==========================================
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Shares of Total
Beneficial Undistributed Shareholders'
FOR THE YEARS ENDED JANUARY 31, 1995, 1994, AND 1993 Interest Net Income Equity
<S> <C> <C> <C>
BALANCE, JANUARY 31, 1992 $18,660,926 $ 11,871 $18,672,797
Net loss (4,531,104) (11,871) (4,542,975)
Cash dividends paid (1,296,144) - (1,296,144)
BALANCE, JANUARY 31, 1993 12,833,678 - 12,833,678
Net income - 955,121 955,121
Cash dividends paid - (949,145) (949,145)
BALANCE, JANUARY 31, 1994 12,833,678 5,976 12,839,654
Net Income - 670,945 670,945
Cash dividends paid (119,136) (676,921) (796,057)
BALANCE, JANUARY 31, 1995 $12,714,542 $ - $12,714,542
===========================================
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 3,946,514 $ 4,999,019 $ 5,376,682
Interest paid (2,709,753) (3,552,499) (3,884,027)
Cash payments to investment advisor and other suppliers (784,514) (184,830) (651,814)
Rental revenue received from real estate held for sale 2,319,157 2,306,103 1,388,572
Cash payments for operating costs of real estate held for sale (2,268,734) (2,413,637) (1,429,950)
Net cash provided by operating activities 502,670 1,154,156 799,463
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable 23,158,635 6,391,543 9,043,637
Principal payments on mortgage loans payable (12,439,672) (6,547,638) (8,974,421)
Payments for land and building and tenant improvements (621,977) (985,856) (83,333)
Investments in mortgage loans receivable (2,050,000) - (1,400,000)
Payment of failed merger costs - - (536,174)
Loan fees received - - 14,000
Net cash provided by (used for) investing activities 8,046,986 (1,141,951) (1,936,291)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings (repayments) (7,765,000) (3,950,000) 7,875,000
Cash dividends paid (796,057) (949,145) (1,296,144)
Net borrowings from (repayments to) related parties - 5,000,000 (3,500,000)
Net repayments of borrowings from others - - (1,900,000)
Payment of financing fees - (109,526) -
Net cash provided by (used for) financing activities (8,561,057) (8,671) 1,178,856
NET INCREASE (DECREASE) IN CASH $ (11,401) $ 3,534 $ 42,028
CASH AT BEGINNING OF YEAR 50,474 46,940 4,912
CASH AT END OF YEAR $ 39,073 $ 50,474 $ 46,940
============================================
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 670,945 $ 955,121 $ (4,542,975)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation of building held for sale 243,783 - -
Amortization of deferred financing costs, deferred leasing
commissions and tenant improvements 131,257 97,087 3,629
Amortization of deferred loan fees (27,234) (71,640) (26,691)
Provision for write-down of real estate held for sale - - 4,740,343
Write-off of deferred costs associated with failed mergers - - 1,007,609
Deferral of interest income (137,596) (273,735) (353,810)
(Increase) decrease in interest receivable and other assets (636,221) 78,250 (60,865)
Increase in deposits and accrued expenses 257,736 369,073 32,223
$ 502,670 $ 1,154,156 $ 799,463
============================================
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
12
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
January 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The financial statements include the accounts of Realty ReFund Trust
and its wholly owned subsidiaries RRF LP I, Inc. and RRF LP II, Inc.
(collectively, the Trust). All significant intercompany transactions and
balances have been eliminated in the accompanying finacial statements.
Investments in Wrap-Around Mortgages and Related Underlying Loans
In a wrap-around mortgage structure, the principal amount secured by the
mortgage note held by the Trust is equal to the outstanding balance under the
prior mortgage loan plus the amount of funds advanced by the Trust. The notes
held by the Trust are subordinate to the underlying prior indebtedness. The
Trust agrees with the borrower to make principal and interest payments to the
holder of the existing prior mortgage, but only to the extent scheduled payments
are received from the borrower and no other default exists. Generally, the Trust
has the right to pay off the prior indebtedness and succeed to its priority.
The mortgage notes held by the Trust generally are coterminous with the
underlying prior indebtedness and provide for lump-sum payments by the borrower
upon maturity.
Scheduled minimum payments during the five years ending January 31, 2000
and, thereafter, are approximately as follows:
<TABLE>
<CAPTION>
PRINCIPAL PAYMENTS
DUE TO DUE FROM
TRUST ON TRUST ON
YEAR ENDING LOANS LOANS
JANUARY 31, RECEIVABLE PAYABLE
<S> <C> <C>
1996 $11,142,000 $6,364,000
1997 22,455,000 5,297,000
1998 69,000 764,000
1999 78,000 811,000
2000 1,765,000 861,000
Thereafter - -
==========================
</TABLE>
Depreciation and Amortization
Commencing February 1, 1994, the Trust began recording depreciation on
the Chicago building held for sale. Depreciation is being provided on a
straight-line basis over the 30-year estimated economic life of the building.
Accumulated depreciation of the building and building improvements at January
31, 1995 was $244,000.
Included in real estate held for sale at January 31, 1995 and 1994 are
tenant improvement costs of $672,000 and $230,000, respectively, which are being
amortized on a straight-line basis over the related lease terms, which are
generally five years. Accumulated amortization of such costs was $116,000 and
$29,000 at January 31, 1995 and 1994, respectively.
Included in interest receivable and other assets at January 31, 1995 are
deferred leasing commissions of $162,000 which are being amortized on a
straight-line basis over the related lease terms. Accumulated amortization of
such deferred costs at January 31, 1995 is $6,000.
Included in interest receivable and other assets are legal costs
incurred in selling the secured note payable to related party discussed in Note
5. These deferred costs are fully amortized as of January 31, 1995. Accumulated
amortization at January 31, 1995 and 1994 was $110,000 and $71,000,
respectively. Amortization expense of $39,000 and $71,000 is included in
interest expense on loans from related parties in the accompanying statements
of income for 1995 and 1994, respectively.
Earnings Per Share
Earnings per share has been computed based on the weighted average
number of shares outstanding during the periods. Earnings per share for 1995,
1994 and 1993 was based upon 1,020,586 shares. During these periods the Trust
had no potentially dilutive securities outstanding.
Statements of Cash Flows
The Trust considers all highly liquid short-term investments with the
original maturities of three months or less to be cash equivalents.
In July 1992, in a noncash transaction, the Trust accepted title in lieu
of foreclosure on a Chicago office building. See Note 2 for further discussion.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
New Accounting Principles
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments." The Trust is not required to adopt the standard
until the fiscal year ended January 31, 1996. The standard will require the
Trust to disclose in its financial statements or notes thereto, the fair value
of assets and liabilities which meet the standard's definition of financial
instruments. The primary assets and liabilities of the Trust which qualify as
financial instruments are mortgage loans receivable and payable and notes
payable.
2. REAL ESTATE HELD FOR SALE:
In May 1992, the borrower under the Trust's Chicago office building
loans notified the Trust that it would cease making scheduled mortgage payments
after the May 1992 payment. In late July 1992, the Trust accepted title in
lieu of foreclosure on the building. Prior thereto, the Trust had mortgage loans
receivable on the building of approximately $12,000,000 and an underlying loan
obligation of approximately $832,000. An appraisal was completed in October 1992
indicating a building net realizable value of $7,260,000.
13
<PAGE> 17
Accordingly, the Trust recorded a $4,740,000 write-down of its
investment in the Chicago building with a corresponding charge against fiscal
1993 operations. During the year ended January 31, 1994, the Trust purchased an
83% interest in the land underlying the building for approximately $897,000. The
Trust intends to sell the building, but the timing and terms of any such sale
cannot be predicted. The Trust ceased accruing interest on the mortgage loans
when payments ceased in May 1992. Interest income recorded by the Trust on this
investment was approximately $95,000 in 1993. The operating results of the
property have been included in the accompanying statements of income since the
date of the title acceptance.
3. UNUSUAL ITEM:
In December 1991, the Trust entered into an Omnibus Acquisition
Agreement (the Omnibus Agreement) which provided for the contemporaneous
consummation of two mergers, whereby newly formed, wholly owned subsidiaries of
the Trust would be merged with and into two Delaware limited partnerships,
Lepercq Corporate Income Fund L.P. (LCIF I) and Lepercq Corporate Income Fund II
L.P. (LCIF II). The Omnibus Agreement was terminated in May 1992 due to a
combination of the Chicago office building loans default and a class action
lawsuit instituted against LCIF I, LCIF II and their general partners by limited
partners of LCIF I and LCIF II. Accordingly, $1,008,000 of previously deferred
costs incurred in connection with the proposed mergers were charged against
income and have been reflected as an unusual item in the accompanying statement
of operations for 1993.
4. NOTE PAYABLE TO BANK:
The Trust has a revolving credit agreement with a bank. At the option
of the Trust, borrowings against the line of credit bear interest at either the
bank's prime lending rate or a fixed rate equal to 1.5% over LIBOR. A commitment
fee of 3/8% is payable on the unused portion of the line of credit. Among other
provisions, the agreement provides that the Trust cannot permit its net worth,
including subordinated debt, to be less than $17 million and that total debt,
excluding wrap-around mortgages, and senior indebtedness are limited to 300% and
225%, respectively, of the Trust's net worth.
In July 1994, the bank extended the Trust's revolving credit agreement
to July 31, 1996. Availability under the agreement is $22,000,000 until August
1, 1995 at which time availability will be reduced to $10,000,000. The agreement
provides for a borrowing base equal to 83.3% of the Trust's investments, as
defined, and $3,000,000 for working capital, with any remainder being available
for new investments. As of January 31, 1995, the Trust had borrowed $11,810,000
under this agreement. At January 31, 1995, the Trust had available approximately
$10,190,000 under the amended terms of the agreement.
For the years ended January 31, 1995, 1994 and 1993, the average daily
bank borrowings were $12,427,000, $20,075,000 and $19,394,000, respectively,
with a weighted average interest rate (actual interest expense divided by
average daily borrowings) of 6.40%, 4.81% and 5.46%, respectively. The weighted
average interest rates on bank borrowings outstanding at January 31, 1995, and
1994 were 7.34% and 4.76%, respectively. As of January 31, 1995, the prime rate
was 8.5%.
5. NOTE PAYABLE TO RELATED PARTY:
In March 1993, the Trust sold a $5,000,000 secured note to the Chairman
of the Trust, at par. The note bears interest at the prime lending rate and had
a stated maturity date of August 1994. As the Trust's revolving credit
agreement was extended to July 1996, the Trust exercised its option to extend
the maturity of the note to August 1995. The note is subordinate to the Trust's
bank line of credit.
Until May 1992, the Trust had outstanding borrowings from the former
Chairman of the Trust and from The Mid-America Management Corporation, an
entity owned by the present Chairman of the Trust. Borrowings under such notes
were payable upon demand and accrued interest at 1/2% below the lowest rate
then available to the Trust under the bank revolving credit agreement at the
time such loan was made. These notes were subordinate to the Trust's bank
borrowings. Total related party interest expense on these borrowings was
approximately $72,000 in 1993.
6. Federal Income Taxes:
No provision for current or deferred income taxes has been made by the
Trust on the basis that it qualifies under Sections 856-860 of the Internal
Revenue Code as a real estate investment trust and has distributed or will
distribute all of its taxable income for the year ended January 31, 1995 to
shareholders. On February 22, 1995, the Trustees declared a dividend, payable on
March 15, 1995, in the amount of $.20 per share of beneficial interest, totaling
$204,000. The total dividends per share applicable to operating results for the
year ended January 31, 1995, including the declaration on February 22, 1995,
amount to $.80.
An income tax net operating loss of approximately $4,600,000 was
incurred in fiscal 1993 and is available for carryforward until fiscal 2008. A
portion of the dividends paid in the calendar years 1992-1994 represents a
return of capital primarily as a result of the net operating loss for fiscal
1993 and for fiscal 1994 and 1995, depreciation deductions for tax reporting
purposes relative to the building held for sale. The quarterly allocation of
cash dividends paid per share for individual shareholders' income tax purposes
was as follows:
14
<PAGE> 18
<TABLE>
<CAPTION>
CALENDAR 1994 CALENDAR 1993 CALENDAR 1992
Return Return Return
Month Ordinary of Total Ordinary of Total Ordinary of Total
Paid Income Capital Paid Income Capital Paid Income Capital Paid
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March $.121 $.059 $.18 $.148 $.102 $.25 $.07 $ .36 $ .43
June .135 .065 .20 .148 .102 .25 - .34 .34
September .135 .065 .20 .148 .102 .25 - .25 .25
December .135 .065 .20 .106 .074 .18 - .25 .25
$.526 $.254 $.78 $.550 $.380 $.93 $.07 $1.20 $1.27
=====================================================================
</TABLE>
A portion of the dividend paid in March 1992 was ordinary income, as for
income tax purposes such amount represented a distribution of earnings
applicable to the fiscal year ended January 31, 1992.
The tax status of distributions to shareholders in fiscal 1996 will be
dependent on the level of the Trust's earnings in that year. If fiscal 1996
taxable income of the Trust exceeds dividends paid in that year, such dividends
will represent ordinary income to the recipients irrespective of the net
operating loss carryforward.
7. ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS:
The Trust has an Advisory Agreement with Mid-America ReaFund Advisors,
Inc. (the Advisor) which provides for the administration of the day-to-day
investment operations of the Trust. The Advisor is an entity which is jointly
owned by the present Chairman and President of the Trust. Under the terms of
this agreement, the Advisor is to receive, subject to certain limitations, a
monthly fee equal to 1/12 of 1% of invested assets, as defined in the agreement,
and an annual incentive fee equal to (a) 10% of the amount by which the net
income of the Trust exceeds 8% of the average net worth for the year and (b) 10%
of the difference between net realized capital gains less accumulated net
realized capital losses, as defined. For any fiscal year in which operating
expenses of the Trust exceed certain thresholds specified in the agreement, the
Advisor is required to refund to the Trust the amount of such excess. There was
no refund requirement with respect to fiscal 1995. For fiscal 1994 and 1993,
operating expenses exceeded the specified thresholds by $22,000
and $188,000, respectively.
The Chairman and President of the Trust have employment agreements with
the Trust, expiring in 2005, each of which have been extended in the past and
are expected to be extended in the future. The employment agreements provide
that these individuals will receive no compensation from the Trust as long as
the Advisory Agreement is in effect. However, should the Advisor no longer
provide services to the Trust, these individuals will then be compensated,
collectively, upon the same annual basis as the Advisor would have been
compensated under the current terms of the Advisory Agreement had it remained
in effect.
8. LOANS PAYABLE:
As of January 31, 1995, the Trust had outstanding the following
mortgage loans payable:
<TABLE>
<CAPTION>
Principal Total
Balance Installments
as of of Principal
January 31, and Interest Interest Maturity
Location 1995 Per Year Rate Date
<S> <C> <C> <C> <C>
Office Buildings-
Fort Worth, Texas $10,264,669 $6,312,048 8.11% October 1996
Toledo, Ohio 3,832,317 890,340 6.05% December 1999
$14,096,986 $7,202,388
==============================================================================
</TABLE>
15
<PAGE> 19
9. INVESTMENTS IN LOANS RECEIVABLE:
As of January 31, 1995, the Trust had outstanding the following loans
receivable. The Trust's net investment in each of the wrap-around mortgages is
subordinate to underlying prior indebtedness.
<TABLE>
<CAPTION>
Lump-Sum Amounts
Balance, January 31, 1995 At Maturity
Loans Year-End Due From
Underlying Trust's Interest Due to Trust on
Loans Wrap- Trust's Original Rate Final Trust on Underlying
Receivable Around Net Net on Loans Maturity Loans Loans
Description (a) Mortgages Investment Investment Receivable Date Receivable Payable
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WRAP-AROUND MORTGAGES:
Office Buildings-
Fort Worth, Texas $18,644,085 $10,264,669 $ 8,379,416 $ 9,000,000 10.4% October 1996 $ 8,780,000 $ -
Toledo, Ohio (b) 11,033,109 3,832,317 7,200,792 6,500,000 8.6% December 1996 9,698,000 -
Total wrap-around mortgages 29,677,194 14,096,986 15,580,208 15,500,000 18,478,000 -
OTHER MORTGAGE LOANS:
Motels-Sarasota, Florida;
Orlando, Florida 3,803,517 - 3,803,517 3,500,000 11.0% August 1995 3,740,000 -
Shopping Center
Saginaw, Michigan 2,029,068 - 2,029,068 2,050,000 12.5% August 1999 1,722,000 -
$35,509,779 $14,096,986 $21,412,793 $21,050,000 $23,940,000 $ -
=========== =========== =========== =========== =========== ===
Periodic Payment Terms (d)
WRAP-AROUND MORTGAGES:
Office Buildings--
Fort Worth, Texas Principal and interest payable in monthly installments of approximately $625,000 through October
1996; remaining principal payable at maturity; prepayment privilege with a penalty, as defined,
until maturity.
Toledo, Ohio Payable in monthly instalments of approximately $128,000 inclusive of interest at 10% on the Trust's
net investment through December 1996; required borrower to make principal prepayments of $1,350,000
and $850,000 in June 1994 and January 1995, respectively; requires an additional principal
prepayment of $850,000 in January 1996; remaining principal due at maturity; prepayment penalty of
1% until maturity. Thirty days' prior written notice must be given to the Trust by mortgagor of
intention to prepay mortgage loan.
OTHER MORTGAGE LOANS:
Motels
Sarasota, Florida; Principal and interest payable in equal monthly installments of approximately $45,000 with remaining
Orlando, Florida principal due at maturity; prepayment privilege with a penalty , as defined, until maturity.
Shopping Center--
Saginaw, Michigan Principal and interest payable in monthly installments of approximately $24,000 through June 1999,
with remaining principal due at maturity; prepayment privilege with a penalty , as defined, until
maturity. Thirty days' prior written notice must be given to the Trust by mortgagor of intention
to prepay mortgage loan.
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF MORTGAGE LOANS RECEIVABLE
1995 1994 1993
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $56,480,818 $62,598,626 $77,788,796
ADDITIONS:
Office buildings (c) 137,596 273,735 353,810
Apartments - - 5,500,000
Shopping center 2,050,000 - -
2,187,596 273,735 5,853,810
COLLECTIONS OF PRINCIPAL:
Office buildings 8,245,258 5,682,838 8,403,526
Shopping centers 9,332,144 576,142 537,296
Motels 117,280 105,115 94,214
Apartments 5,463,953 27,448 8,601
23,158,635 6,391,543 9,043,637
ACCEPTANCE OF TITLE (NOTE 2) - - 12,000,343
BALANCE, END OF PERIOD $35,509,779 $56,480,818 $62,598,626
=========== =========== ===========
<FN>
(a) Represents investment for both financial reporting and federal income tax
purposes.
(b) In June 1994, the maturity date of the Toledo, Ohio loan was extended to
December 31, 1996. In connection therewith, certain terms of the loan were
modified. See "Periodic Payment Terms" above.
(c) Represents deferred interest applicable to existing loans.
(d) Unless otherwise stated, ninety days prior written notice must be given to
the Trust by mortgagor of intention to prepay a mortgage loan.
</TABLE>
16
<PAGE> 20
10. RELATED PARTY TRANSACTIONS:
The Trust recorded provisions of approximately $41,000 and $54,000 in
fiscal years 1995 and 1994, respectively, for legal services provided by a law
firm of which the President of the Trust and another Trustee are principals. In
1993, included in the writeoff of deferred costs associated with the failed
mergers was approximately $158,000 of legal fees paid to the related party.
The Trust has an investment in a wrap-around mortgage loan on a
commercial building located in Toledo, Ohio owned by a partnership of which a
corporation owned by the present Chairman of the Trust is the general partner.
As of January 31, 1995, the related party loan receivable and underlying loan
payable were approximately $11,033,000 and $3,832,000, respectively, while at
January 31, 1994, the related party loan receivable and underlying loan payable
were approximately $13,733,000 and $4,470,000, respectively. In the years ended
January 31, 1995, 1994 and 1993, the Trust earned approximately $1,121,000,
$1,213,000 and $1,246,000 of interest income on this loan, respectively, of
which payment of approximately $138,000 and $274,000 and $275,000 was deferred
and added to the principal balance of the mortgage loan receivable. The Trust
incurred interest expense of approximately $250,000, $287,000 and $323,000
in connection with the related underlying loan payable for the years ended
January 31, 1995, 1994 and 1993, respectively. As discussed in Note 9, this
loan was modified and extended in fiscal 1995.
11. SUMMARIZED FINANCIAL INFORMATION-RIVERVIEW TOWER LIMITED PARTNERSHIP AND
PACIFIC PLACE PARTNERS, LTD.:
As required by the Securities and Exchange Commission, the following is
summarized financial information for Riverview Tower Limited Partnership, the
borrower under the Toledo, Ohio wrap-around mortgage loan and Pacific Place
Partners, LTD., the borrower under the Fort Worth, Texas, wrap-around mortgage
loan. Both Riverview Tower Limited Partnership and Pacific Place Partners, LTD.
were audited by other auditors. (000's omitted)
<TABLE>
<CAPTION>
RIVERVIEW TOWER LIMITED PARTNERSHIP
DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Escrow receivable $ 163 $ 160 Accounts payable and accrued ecpenses $ 684 $ 2,498
Land, building, improvements Mortgage payable to Reality ReFund Trust 11,937 13,759
and equipment, net 12,603 13,041 12,621 16,257
Other assets 25 33 Partners' equity (deficit) 170 (3,023)
Total assets $12,791 $13,234 Total liabilities and partners' equity $12,791 $13,234
================ ================
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
Gross revenues $7,497 $3,792 $3,957
Operating expenses 2,724 2,549 2,532
Income before depreciation,amortization and
interest expense 4,773 1,243 1,452
Depreciation and amortization 438 438 438
Interest expense 1,141 1,214 1,250
Net income (loss) $3,194 $ (409) $ (263)
======================
PACIFIC PLACE PARTNERS LTD.
DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Land, building and equipment, net $41,369 $44,067 Accrued expenses $ 80 $ 86
Other assets 259 306 Deffered rent 1,466 2,264
Total assets $41,628 $44,373 Mortgage payable 36,975 39,490
=============== 38,521 41,840
Partners' equity 3,107 2,533
Total liabilities and partners' equity $41,628 $44,373
=================
YEAR ENDED
DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
Gross revenues $8,302 $8,327 $8,308
General and administrative expenses 1 24 4
Depreciation and amortization expense 2,744 2,744 2,744
Interest expense 4,982 5,303 5,826
Net income (loss) $ 575 $ 256 $ (266)
======================
Summarized financial information for borrowers is not included with
respect to any other loans of the Trust as the loans do not otherwise meet the
criteria of the Securities and Exchange Commission for such disclosure.
</TABLE>
17
<PAGE> 21
12. QUARTERLY RESULTS (UNAUDITED):
The following is an unaudited summary of the results of operations, by
quarter, for the fiscal years ended January 31, 1995 and 1994. Management
believes that all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of such interim results have been included.
The results of operations for any interim period are not necessarily indicative
of those for the entire fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL 1995 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
Total revenues $1,928,865 $1,582,849 $1,551252 $1,529,085
===================================================================================================================================
<S> <C> <C> <C> <C>
Total revenues less interest expense on mortgage loans and operating
expenses, depreciation and amortization expenses of building
held for sale $ 863,328 $ 584,636 $ 531,956 $ 650,201
===================================================================================================================================
Net income $ 226,161 $ 147,829 $ 143,482 $ 153,473
===================================================================================================================================
Earnings per share $ .22 $ .14 $ .14 $ .15
===================================================================================================================================
Dividends declared per share $ .20 $ .20 $ .20 $ .20
===================================================================================================================================
QUARTER ENDED
FISCAL 1994 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
Total revenues $1,935,140 $1,936,439 $1,907,988 $1,866,213
===================================================================================================================================
Total revenues less interest expense on mortgage loans and operating
expenses, depreciation and amortization expenses of building
held for sale $ 783,212 $ 713,949 $ 702,212 $ 709,149
===================================================================================================================================
Net income $ 335,551 $ 250,736 $ 185,807 $ 183,027
===================================================================================================================================
Earnings per share $ .33 $ .25 $ .18 $ .18
===================================================================================================================================
Dividends declared per share $ .25 $ .25 $ .18 $ .18
===================================================================================================================================
</TABLE>
18
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees,
Realty ReFund Trust:
We have audited the accompanying balance sheets of Realty ReFund Trust (an
Ohio unincorporated business trust) as of January 31, 1995 and 1994, and the
related statements of income, shareholders' equity and cash flows for each of
the three years in the period ended January 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. The
summarized financial data contained in Note 11 are based on the financial
statements of Riverview Tower Limited Partnership and Pacific Place Partners,
LTD. which were audited by other auditors. Their reports have been furnished to
us and our opinion, insofar as it relates to the data in Note 11, is based
solely on the reports of the other auditors.
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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Realty ReFund Trust as of January 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the three years
in the period ended January 31, 1995 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
February 22, 1995.
19
<PAGE> 23
TRUSTEES AND OFFICERS
ALAN M. KRAUSE
Chairman and Co-Chief Executive Officer of the Trust and Mid-America ReaFund
Advisors, Inc. (advisor to Trust); Principal, The Mid-America Companies (real
estate ownership); President, The Mid-America Management Corporation (real
estate management)
JAMES H. BERICK
President, Co-Chief Executive Officer and Treasurer of the Trust and Mid-America
ReaFund Advisors, Inc. (advisor to Trust); Chairman, Berick, Pearlman & Mills
Co., L.P.A. (attorneys)
ALVIN M. KENDIS
Retired; formerly Of Counsel, McDonald, Hopkins, Burke & Haber Co. L.P.A.
(attorneys)
FRANK L. KENNARD
Retired; formerly Senior Vice President, The Huntington National Bank
SAMUEL S. PEARLMAN
Principal, Berick, Pearlman & Mills Co., L.P.A. (attorneys)
MARK S. MISENCIK
Vice President of the Trust
CHRISTINE TURK
Secretary of the Trust
TIMOTHY M. BAIRD
Controller of the Trust
CORPORATE DATA
CORPORATE HEADQUARTERS
1385 Eaton Center
Cleveland, Ohio 44114
(216) 771-7663
INVESTMENT ADVISOR
Mid-America ReaFund Advisors, Inc.
1385 Eaton Center
Cleveland, Ohio 44114
(216) 771-7663
TRANSFER AGENTS AND REGISTRARS OF SHARES
The Huntington National Bank
Columbus, Ohio
Chemical Mellon Shareholder Services
New York, New York
Telecommunications Devices for the Deaf can be reached at (800) 231-5469
STOCK LISTING
New York Stock Exchange
Symbol: RRF
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
GENERAL COUNSEL
Berick, Pearlman & Mills Co., L.P.A.
Cleveland, Ohio
Shareholders who would like to receive, without charge, the Trust's annual
report on Form 10-K filed with the Securities and Exchange Commission should
write to:
Realty ReFund Trust
1385 Eaton Center
Cleveland, Ohio 44114
Attn.: Timothy M. Baird
Printed on recycled paper
20
<PAGE> 24
[BACK COVER PAGE OF ANNUAL REPORT]
Realty ReFund Trust
1385 Eaton Center Cleveland, Ohio 44114
[watermark of amortization table in background]
<PAGE> 1
Exhibit 24
Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
-----------------
The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated
association in the form of a business trust ("Trust"), which Trust anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for its year ended January 31, 1995, hereby constitutes and
appoints JAMES H. BERICK and ALAN M. KRAUSE, and each of them, with full power
of substitution and resubstitution, as attorneys or attorney to sign for the
undersigned and in my name, place and stead, as Trustee of said Trust, said
Annual Report and any and all amendments and exhibits thereto, and any and all
applications and documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report, with full power and authority to
do and perform any and all acts and things whatsoever requisite, necessary or
advisable to be done in the premises, as fully and for all intents and purposes
as the undersigned could do if personally present, hereby approving the acts of
said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of
February, 1995.
/s/ Samuel S. Pearlman
--------------------------
Samuel S. Pearlman
<PAGE> 3
POWER OF ATTORNEY
-----------------
The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated
association in the form of a business trust ("Trust"), which Trust anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for its year ended January 31, 1995, hereby constitutes and
appoints JAMES H. BERICK, ALAN M. KRAUSE and SAMUEL S. PEARLMAN, and each of
them, with full power of substitution and resubstitution, as attorneys or
attorney to sign for the undersigned and in my name, place and stead, as
Trustee of said Trust, said Annual Report and any and all amendments and
exhibits thereto, and any and all applications and documents to be filed with
the Securities and Exchange Commission pertaining to such Annual Report, with
full power and authority to do and perform any and all acts and things
whatsoever requisite, necessary or advisable to be done in the premises, as
fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of
them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of
February, 1995.
/s/ Frank L. Kennard
-------------------------------
Frank L. Kennard
<PAGE> 4
POWER OF ATTORNEY
-----------------
The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated
association in the form of a business trust ("Trust"), which Trust anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for its year ended January 31, 1995, hereby constitutes and
appoints JAMES H. BERICK, ALAN M. KRAUSE and SAMUEL S. PEARLMAN, and each of
them, with full power of substitution and resubstitution, as attorneys or
attorney to sign for the undersigned and in my name, place and stead, as
Trustee of said Trust, said Annual Report and any and all amendments and
exhibits thereto, and any and all applications and documents to be filed with
the Securities and Exchange Commission pertaining to such Annual Report, with
full power and authority to do and perform any and all acts and things
whatsoever requisite, necessary or advisable to be done in the premises, as
fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of
them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of
February, 1995.
/s/ Alvin M. Kendis
------------------------------
Alvin M. Kendis
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF JANUARY 31, 1995 AND 1994 AND STATEMENTS OF INCOME FOR THE YEARS
ENDED JANUARY 31, 1995, 1994 AND 1993 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000082473
<NAME>REALTY REFUND TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-1-1994
<PERIOD-END> JAN-31-1995
<CASH> 39,073
<SECURITIES> 0
<RECEIVABLES> 35,509,779
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,010,257
<DEPRECIATION> 360,000
<TOTAL-ASSETS> 45,165,356
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 30,906,986
<COMMON> 12,714,542
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,165,356
<SALES> 0
<TOTAL-REVENUES> 6,592,051
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,247,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,673,556
<INCOME-PRETAX> 670,945
<INCOME-TAX> 0
<INCOME-CONTINUING> 670,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 670,945
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<FN>
<F1> The Registrant utilizes an unclassified balance sheet. Therefore, the
captions "Total Current Assets" and "Total Current Liabilities" are not
applicable.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99(a)
Notice of Annual Meeting and Proxy Statement
Dated April 7, 1995
<PAGE> 2
[Realty Refund Trust logo] REALTY REFUND TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of Realty
ReFund Trust will be held at the Sheraton Cleveland City Centre, 777 St. Clair
Ave., N.E., Cleveland, Ohio on Monday, May 15, 1995 at 11:30 A.M., local time,
for the purpose of considering and acting upon:
1. The election of five (5) Trustees, each to hold office until the next
Annual Meeting of Shareholders and until his successor shall be elected
and qualified; and
2. The transaction of any other business which properly may come before the
meeting and any adjournments thereof.
Shareholders of Realty ReFund Trust of record at the close of business on
March 17, 1995 are entitled to vote at the Annual Meeting and any adjournments
thereof.
By order of the Board of Trustees
CHRISTINE TURK
Secretary
Cleveland, Ohio
April 7, 1995
- --------------------------------------------------------------------------------
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
- --------------------------------------------------------------------------------
<PAGE> 3
April 7, 1995
[Realty Refund Trust logo] REALTY REFUND TRUST
1385 Eaton Center
Cleveland, Ohio 44114
PROXY STATEMENT
The accompanying proxy is solicited by the Trustees of Realty ReFund Trust
(the "Trust") for use at the Annual Meeting of Shareholders to be held on May
15, 1995 and any adjournments thereof.
Shareholders of record at the close of business on March 17, 1995 (the
record date) will be entitled to vote at the Annual Meeting and at any
adjournments thereof. At that date the Trust had issued and outstanding
1,020,586 Shares of Beneficial Interest. Each such Share is entitled to one vote
on all matters properly coming before the Annual Meeting. At least 510,294
Shares of Beneficial Interest of the Trust must be represented at the Annual
Meeting in person or by proxy in order to constitute a quorum for the
transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to Shareholders on April 7, 1995.
ELECTION OF TRUSTEES
At this Annual Meeting, five Trustees are to be elected for a term expiring
at the 1996 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified. Unless a Shareholder requests that voting of the
proxy be withheld for any one or more of the nominees for Trustee in accordance
with the instructions set forth on the proxy, it presently is intended that
Shares of Beneficial Interest represented by proxies solicited hereby will be
voted for the election as Trustees of the five nominees named in the table
below. All nominees have consented to being named in this Proxy Statement and to
serve if elected. Should any nominee subsequently decline or be unable to accept
such nomination or to serve as a Trustee, an event which the Trustees do not now
expect, the persons voting the Shares of Beneficial Interest represented by
proxies solicited hereby may either vote such Shares for a slate of five persons
which includes a substitute nominee or for a reduced number of nominees, as they
may deem advisable.
1
<PAGE> 4
The information concerning the nominees set forth in the following table is
based in part on information received from the respective nominees and in part
on the Trust's records.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST FIVE YEARS, FIRST
AGE AS OF MARCH 17, 1995 BECAME
NAME OF NOMINEE AND DIRECTORSHIPS HELD TRUSTEE
- ------------------------- --------------------------------------------- ---------
<S> <C> <C>
Alan M. Krause Chairman and Co-Chief Executive Officer of 1971
the Trust since 1990 and, prior thereto, Vice
Chairman of the Trust; Chairman of Mid-
America ReaFund Advisors, Inc. since 1990
(investment advisor to the Trust); Principal,
The Mid-America Companies (real estate
ownership); President, The Mid-America
Management Corporation (real estate man-
agement). Age 65.
James H. Berick President and Treasurer of the Trust since 1971
1990 and, prior thereto, Vice Chairman and
Secretary of the Trust; President and Trea-
surer of Mid-America ReaFund Advisors, Inc.
since 1990 (investment advisor to the Trust);
Chairman, Berick, Pearlman & Mills Co.,
L.P.A. (attorneys). Mr. Berick is a Director
or Trustee of MBNA Corporation, A. Schulman,
Inc., The Tranzonic Companies, and The Town
and Country Trust. Age 61.
Alvin M. Kendis* Retired. Formerly, of Counsel, McDonald, 1971
Hopkins, Burke & Haber Co., L.P.A. (attor-
neys). Age 76.
Frank L. Kennard* Retired. Formerly, Senior Vice President, The 1971
Huntington National Bank. Age 72.
Samuel S. Pearlman* Principal, Berick, Pearlman & Mills Co., 1990
L.P.A. (attorneys). Age 52.
<FN>
- ---------------
*Member of the Audit Committee.
</TABLE>
The Trustees held five meetings during the year ended January 31, 1995. The
Trustees do not have a standing nominating or compensation committee. All incum-
2
<PAGE> 5
bent Trustees attended all of such meetings and all meetings of committees of
the Trustees on which they served during the year, except Mr. Kendis, who did
not attend one Trustee and one committee meeting.
The Audit Committee has the responsibility of recommending to the Trustees
the selection of the Trust's independent auditors, reviewing the scope and
results of audit and non-audit services, and reviewing internal accounting
controls. The Audit Committee met twice during the fiscal year.
James H. Berick and Samuel S. Pearlman are the Chairman and a principal,
respectively, of the law firm of Berick, Pearlman & Mills Co., L.P.A., general
counsel to the Trust, which received legal fees from the Trust during the year
ended January 31, 1995.
COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS
The aggregate compensation, consisting exclusively of Trustees' fees, paid
by the Trust to all Trustees as a group (five persons) for the year ended
January 31, 1995 was $16,000.
The Trust pays Trustees' fees to each Trustee, other than Messrs. Krause
and Berick, in the amount of $250 per month plus $500 for each month in which a
Trustee attends a Board meeting.
TRUST PERFORMANCE GRAPH
The following graph compares total Shareholder returns over the last five
fiscal years to the Standard & Poor's 500 Stock Index ("S&P 500") and the
National Association of Real Estate Investment Trusts, Inc.'s Total Return
Indexes for mortgage real estate investment trusts ("NAREIT"). Total return
values for the S&P 500, NAREIT and the Trust were calculated based upon market
weighting at the beginning of the period and include reinvestment of dividends.
The Shareholder return shown on the following graph is not necessarily
indicative of future performance.
3
<PAGE> 6
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Trust specifically incorporates this information
by reference and otherwise shall not be deemed filed under such Acts.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) TRUST S&P 500 NAREIT
- --------------------- ------- ------- --------
<S> <C> <C> <C>
1/31/90 100.00 100.00 100.00
1/31/91 104.55 108.38 87.07
1/31/92 165.81 132.98 113.92
1/31/93 97.38 146.96 116.35
1/31/94 82.08 165.84 129.78
1/31/95 99.00 166.78 100.79
</TABLE>
CERTAIN TRANSACTIONS
The Trust is a party to an Advisory Agreement under which the Trust
receives certain services from Mid-America ReaFund Advisors, Inc. ("MARA"), a
corporation owned by Alan M. Krause and James H. Berick. The Advisory Agreement
provides that MARA, under the supervision of the Trustees, serves as investment
adviser and consultant in connection with the policy decisions to be made by the
Trustees of the Trust and as administrator of the day-to-day investment
operations of the Trust. In return for MARA's services, the Advisory Agreement
provides, in part, that MARA is to receive (a) a monthly fee of 1/12th of 1% of
the average book value of the invested assets of the Trust during the next
preceding month; (b) 15% of the commitment fees
4
<PAGE> 7
received by the Trust for any stand-by or gap commitment relating to a mortgage
loan which is not closed; and (c) an incentive fee equal to 10% of the amount,
if any, by which the net profits of the Trust exceed 8% of the average monthly
net worth of the Trust for the year. MARA will refund to the Trust the amount,
if any, by which the operating expenses of the Trust in any fiscal year exceed
the lesser of (x) 1 1/2% of the invested assets of the Trust for such fiscal
year or (y) the greater of (i) 1 1/2% of the average month-end net assets of the
Trust for such fiscal year or (ii) 25% of the net income of the Trust for such
fiscal year. The Trust paid an aggregate amount of $294,115 to MARA for services
rendered under the Advisory Agreement during the year ended January 31, 1995.
Each of Messrs. Krause and Berick has an employment agreement with the
Trust, expiring in 2005, which provides that he will receive no compensation
from the Trust as long as the Advisory Agreement is in effect. Should MARA no
longer provide such services, Messrs. Krause and Berick will then be
compensated, collectively, upon the same annual basis as is MARA with each to
receive, as long as he continues to be employed pursuant to his employment
agreement, an amount equal to (a) if both of Messrs. Krause and Berick continue
their employment with the Trust, one-half of the compensation that would have
been paid to MARA or (b) if only one of Messrs. Krause and Berick continues his
employment with the Trust, the full amount of the compensation that would have
been paid to MARA.
The Trust has a wrap-around mortgage loan on an office building in Toledo,
Ohio owned by Riverview Tower Limited Partnership, a limited partnership of
which an affiliate of Mr. Krause is a general partner. The loan bears interest
at a rate per annum equal to 10%. The maturity date of this loan has been
extended to December 31, 1996. During the year ended January 31, 1995, the
largest principal balance of the loan was $13,706,529 and the largest amount of
the Trust's net investment in the loan was $9,288,468. As of March 31, 1995, the
outstanding principal balance of the loan was $10,922,815 and the Trust's net
investment in the loan was $7,200,521.
On March 16, 1993, the Trust borrowed $5,000,000 from Mr. Krause by selling
to him the Trust's $5,000,000 note (the "Note") at par. The Note will bear
interest at the base lending rate of National City Bank, Cleveland, Ohio ("NCB")
and will mature on August 31, 1995, subject to extension for up to one
additional year in certain circumstances. The Note is secured by a lien on the
assets of the Trust, which lien is subordinate to the prior lien of NCB. In
connection with the closing of such financing, the Trustees received the written
opinion of an independent investment banking firm that the terms of such
financing were fair, from a financial point of view, to the other Shareholders
of the Trust. The proceeds of the sale of the Note were used to reduce the
Trust's outstanding indebtedness to NCB under its revolving line of credit.
5
<PAGE> 8
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Krause has been both an owner and an investor in a significant number
of real estate projects and, directly or through affiliates, is a general
partner in numerous real estate partnerships. A property owned by one of such
real estate partnerships was sold in 1994 through foreclosure.
OWNERSHIP OF SHARES OF BENEFICIAL INTEREST
The following table sets forth information as of March 17, 1995 in respect
of any persons known to the Trustees to be the "beneficial" owner of more than
5% of the Trust's Shares and the number of the Trust's Shares owned
"beneficially" by each Trustee and nominee, and the Trustees, nominees and
executive officers as a group.
<TABLE>
FIVE PERCENT BENEFICIAL OWNER; AND
BENEFICIAL OWNERSHIP OF TRUSTEES, NOMINEES AND EXECUTIVE OFFICERS
<CAPTION>
SHARES % OF
BENEFICIALLY OUTSTANDING
NAME OWNED SHARES
- ----------------------------------- ---------- ----------
<S> <C> <C>
Alan M. Krause(1) 183,001 17.9%
James H. Berick 14,780(2) 1.4%
Alvin M. Kendis 1,000 (3)
Frank L. Kennard 1,000 (3)
Samuel S. Pearlman 750 (3)
Trustees, Nominees and Executive
Officers as a group (five
persons) 200,531(2) 19.6%
<FN>
- ---------------
(1) Mr. Krause is the only person known to the Trust who beneficially owns more
than 5% of the Trust's outstanding Shares. Mr. Krause's address is 600 Eaton
Center, Cleveland, Ohio 44114.
(2) Includes 100 Shares owned by Mr. Berick's wife, 80 Shares owned by Mr.
Berick's adult children and 14,000 Shares owned by a partnership of which
Mr. Berick's adult children are partners, as to all of which Mr. Berick
disclaims beneficial ownership.
(3) Less than 1%.
</TABLE>
6
<PAGE> 9
SELECTION OF ACCOUNTANTS
The Trustees have selected Arthur Andersen LLP as independent auditors to
examine the books, records and accounts of the Trust for the fiscal year ending
January 31, 1996. Arthur Andersen LLP was the independent auditors of the Trust
for the fiscal year ended January 31, 1995 and is considered by the Trustees to
be well qualified.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
OTHER MATTERS
The Trustees know of no matters to be presented for action at the Annual
Meeting other than those described in this Proxy Statement. Should other matters
come before the meeting, the Shares represented by proxies solicited hereby will
be voted with respect thereto in accordance with the best judgment of the proxy
holders.
SHAREHOLDER PROPOSALS
If a Shareholder intends to present a proposal at the next Annual Meeting
of Shareholders, presently scheduled for May 15, 1996, it must be received by
the Trust for consideration for inclusion in the Trust's Proxy Statement and
form of proxy relating to that meeting on or before December 8, 1995.
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation may be accomplished by the execution
of a later proxy with regard to the same shares or by giving notice in writing
or in open meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Trust. The Trust does
not expect to pay any compensation for the solicitation of proxies but may pay
brokers, nominees, fiduciaries and custodians their reasonable expenses for
sending proxy material to principals and obtaining their instructions. In
addition to solicitation by mail, proxies may be solicited in person, by
telephone or telegraph, or by Trustees and officers of the Trust.
By order of the Board of Trustees
CHRISTINE TURK
Secretary
April 7, 1995
7
<PAGE> 1
Exhibit 99(b)
Financial Statements of Riverview Tower
Limited Partnership as at December 31, 1993 and 1994
<PAGE> 2
RIVERVIEW TOWER LIMITED PARTNERSHIP
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
As At December 31, 1994
<PAGE> 3
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
December 31, 1994
INDEX
<TABLE>
AUDITORS' REPORT
<S> <C>
BALANCE SHEET EXHIBIT A
As At December 31, 1994
ANALYSIS OF PARTNERS' EQUITY SCHEDULE A-1
For The Year Ended December 31, 1994
STATEMENT OF OPERATIONS EXHIBIT B
For The Year Ended December 31, 1994
STATEMENT OF CHANGES IN CASH POSITION EXHIBIT C
For The Year Ended December 31, 1994
NOTES TO FINANCIAL STATEMENTS EXHIBIT D
SCHEDULE OF PROPERTY AND EQUIPMENT EXHIBIT E
For The Years Ended December 31, 1992, 1993 and 1994
SCHEDULE OF ACCUMULATED DEPRECIATION AND AMORTIZATION EXHIBIT F
OF PROPERTY AND EQUIPMENT
For The Years Ended December 31, 1992, 1993 and 1994
</TABLE>
<PAGE> 4
February 24, 1995
INDEPENDENT AUDITOR'S REPORT
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
We have audited the accompanying balance sheet of Riverview Tower Limited
Partnership, A Limited Partnership, as of December 31, 1994, and the related
statements of partners' equity, operations and changes in cash position for the
year then ended. These financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audit.
We conducted our audit 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 overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Riverview Tower Limited Part-
nership, A Limited Partnership, as at December 31, 1994, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The information contained in Exhibits E and F is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. This information has been subjected to the audit-
ing procedures applied in our audit of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
<PAGE> 5
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
BALANCE SHEET Exhibit A
As At December 31, 1994
<TABLE>
<CAPTION>
ASSETS
-------
<S> <C>
Cash $ 150.
Accounts Receivable 183.
Escrow Receivable 163,377.
Prepaid Expenses 24,248.
Property and Equipment 16,705,077.
Less: Accumulated Depreciation and
Amortization (4,102,470.)
-------------
TOTAL ASSETS $ 12,790,565.
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
<S> <C>
LIABILITIES
Accounts Payable $ 320,001.
Accrued Interest and Real Estate Taxes 360,280.
Security Deposits 2,482.
Mortgage Payable 11,937,438.
-------------
Total Liabilities $ 12,620,201.
-------------
PARTNERS' EQUITY - SCHEDULE A-1 170,364.
-------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 12,790,565.
</TABLE>
<PAGE> 6
<TABLE>
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
ANALYSIS OF PARTNERS' EQUITY Schedule A-1
For The Year Ended December 31, 1994
<CAPTION>
BALANCE NET BALANCE
BEGINNING INCOME ENDING
----------- ----------- ------------
<S> <C> <C> <C>
GENERAL PARTNERS $ (403,183.) $ 283,918. $ (119,265.)
LIMITED PARTNERS (2,620,485.) 2,910,114. 289,629.
TOTALS $(3,023,668.) $ 3,194,032. $ 170,364.
</TABLE>
<PAGE> 7
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS Exhibit B
For The Year Ended December 31, 1994
<TABLE>
<S> <C>
INCOME
Rentals $ 4,314,541.
Excess Operating and Tax Charges 2,656,961.
Garage 382,448.
Antenna 142,841.
Total Income $ 7,496,791.
OPERATING EXPENSES
Custodial and Manager $ 302,628.
Elevator Maintenance 114,630.
Insurance 71,410.
Management Fees 120,000.
Office Expense 67,249.
Professional Fees 43,406.
Repairs and Maintenance 900,374.
Supplies (29,272.)
Taxes - Real Estate 271,360.
Taxes - Other 2,659.
Travel 155.
Utilities 854,087.
General Expenses 4,891.
Total Operating Expenses 2,723,577.
INCOME BEFORE INTEREST EXPENSE, DEPRECIATION
AND AMORTIZATION $ 4,773,214.
LESS: Interest Expense 1,140,730.
INCOME BEFORE DEPRECIATION AND AMORTIZATION 3,632,484.
LESS: Depreciation and Amortization 438,452.
NET INCOME FOR THE YEAR $ 3,194,032.
</TABLE>
<PAGE> 8
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN CASH POSITION Exhibit C
For The Year Ended December 31, 1994
<TABLE>
<S> <C>
CASH GENERATED BY OPERATIONS:
Net Income $ 3,194,032.
Depreciation Amortization 438,452.
--------------
Total 3,632,484.
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Current Assets - Increase (Decrease)
Receivables $ 323.
Prepaids and Escrows (4,987.)
Current Liabilities - Increase (Decrease)
Accounts Payable (1,772,043.)
Security Deposits 2,482.
Accrued Expenses and Taxes (46,094.)
--------------
Total (1,820,319.)
NET CASH PROVIDED BY OPERATIONS 1,812,165.
INVESTING ACTIVITIES -0-
FINANCING ACTIVITIES
Decrease In Debt (1,821,177.)
INCREASE (DECREASE) IN CASH $ (9,012.)
CASH BALANCE - BEGINNING 9,162.
CASH BALANCE - ENDING $ 150.
SUPPLEMENTAL DISCLOSURE
Cash Paid During The Year For Interest 1,112,312.
</TABLE>
<PAGE> 9
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS Exhibit D
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Accounting Method
-----------------
The Partnership keeps its records and prepares its financial statements on
the accrual basis.
Property and Equipment
----------------------
The fixed assets are recorded at cost and are being depreciated as follows:
<TABLE>
<S> <C> <C>
Buildings 40 Years Straight-Line
Building Improvements 40 Years Straight-Line
Equipment and Improvements 10 Years Straight-Line
</TABLE>
NOTE 2 - TRANSACTIONS WITH RELATED PARTY
- ----------------------------------------
The property, which is located in Toledo, Ohio is managed by the Mid America
Management Corporation.
Accounts Payable in the amount of $137,244. are due to the management
company.
<PAGE> 10
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS Exhibit D
(Continued)
NOTE 3 - MORTGAGE PAYABLE
The land and buildings owned by the Company are encumbered by mortgages
securing two notes; one to New York Life Insurance (due in 1999) and the
other to Realty Refund Trust (due in 1996). One of the limited partners of
the partnership is also Chairman of the Board of Realty Refund Trust.
The Company has a fixed monthly principal and interest payment of $74,195.
on the first mortgage plus an interest only payment on the Realty Refund
note at 10% per annum. In addition, the Company has agreed to pay $850,000.
against the outstanding amount due on January 1, 1995 and January 1, 1996.
The Company has also agreed to deposit with Realty Refund Trust in escrow
all excess cash flow. The funds will be made available for tenant improve-
ments or third party leasing commissions. The amount due for 1994 is
$304,291.
NOTE 4 - LEASE AMENDMENT AND EXTENSION
- --------------------------------------
On June 2, 1994, the Company modified its lease with Owens-Corning
Fiberglass Corporation as follows:
The tenant has extended its lease to December 31, 1996 and agreed to a lease
extension fee of $5,000,000. payable June, 1994, January, 1995 and January,
1996. There were also modifications of lease and operating expense payment
terms.
<PAGE> 11
<TABLE>
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
SCHEDULE OF PROPERTY AND EQUIPMENT Exhibit E
For The Years Ended December 31, 1992, 1993 and 1994
<CAPTION>
1992
----
BALANCE
AT BEGINNING ADDITIONS BALANCE AT END
OF PERIOD AT COST RETIREMENTS OF PERIOD
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Building $13,771,320. $13,771,320.
Building Improvements 1,473,220. 1,473,220.
Equipment 551,143. 551,143.
Land 887,000. 887,000.
------------ ------------ ------------ ------------
Total $16,682,683. $ -0-. $ -0-. $16,682,683.
============ ============ ============ ============
1993
----
Building $13,771,320. $13,771,320.
Building Improvements 1,473,220. 1,473,220.
Equipment 551,143. $ 22,394. 573,537.
Land 887,000. 887,000.
------------ ------------ ------------ ------------
Total $16,682,683. $ 22,394. $ -0-. $16,705,077.
============ ============ ============ ============
1994
----
Building $13,771,320. $13,771,320.
Building Improvements 1,473,220. 1,473,220.
Equipment 573,537. 573,537.
Land 887,000. 887,000.
------------ ------------ ------------ ------------
Total $16,705,077. $ -0-. $ -0-. $16,705,077.
============ ============ ============ ============
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 12
<TABLE>
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
SCHEDULE OF ACCUMULATED DEPRECIATION AND AMORTIZATION Exhibit F
OF PROPERTY AND EQUIPMENT
For The Years Ended December 31, 1992, 1993 and 1994
<CAPTION>
1992
----
BALANCE ADDITIONS
AT BEGINNING CHARGED TO BALANCE AT END
PERIOD COSTS & EXPENSES RETIREMENTS OF PERIOD
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Building $2,233,494. $344,283. $2,567,777.
Building Improvements 231,217. 36,816. 268,033.
Equipment 333,522. 56,234. 389,756.
----------- --------- ---------- -----------
Total $2,798,233. $437,333. $ -0- $3,225,566.
=========== ========= ========== ===========
<CAPTION>
1993
----
Building $2,567,777. $344,283. $2,912,060.
Building Improvements 268,033. 36,816. 304,849.
Equipment 389,756. 57,353. 447,109.
----------- --------- ---------- -----------
Total $3,225,566. $438,452. $ -0- $3,664,018.
=========== ========= ========== ===========
<CAPTION>
1994
----
Building $2,912,060. $344,283. $3,256,343.
Building Improvements 304,849. 36,816. 341,665.
Equipment 447,109. 57,353. 504,462.
----------- --------- ---------- -----------
Total $3,664,018. $438,452. $ -0- $4,102,470.
=========== ========= ========== ===========
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 13
MALITZ, WEINSTEIN & RUBIN CO.
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
December 31, 1993
INDEX
-----
AUDITORS' REPORT
STATEMENT OF ASSETS, LIABILITIES AND EQUITY EXHIBIT A
- INCOME TAX BASIS
As At December 31, 1993
ANALYSIS OF PARTNERS' EQUITY - INCOME TAX BASIS SCHEDULE A-1
For The Year Ended December 31, 1993
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS EXHIBIT B
For The Year Ended December 31, 1993
STATEMENT OF CASH FLOWS - INCOME TAX BASIS EXHIBIT C
For The Year Ended December 31, 1993
NOTES TO FINANCIAL STATEMENTS EXHIBIT D
- INCOME TAX BASIS
<PAGE> 14
Malitz Weinstein & Rubin Co.
CERTIFIED PUBLIC ACCOUNTANTS
3690 ORANGE PLACE - SUITE 250
CLEVELAND, OHIO 44122-4422
-----
TELEPHONE (216) 464-9560
-----
TELECOPIER (216) 464-2887
CHARLES P. MALITZ, CPA ROBERT W. BIATS
MILTON J. WEINSTEIN, CPA JENNIFER L. GARRIS
KIMBALL E. RUBIN, CPA KAREN M. CAROSCIO
JONATHAN P. ROGEN, CPA JUDITH R. BARTELL
SCOTT R. SWERESS, CPA February 18, 1994 GARY A. FERBER, CPA
STEVEN MARTON, CPA (1937-1990)
STEPHEN L. WOLF, CPA
INDEPENDENT AUDITOR'S REPORT
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
We have audited the accompanying statement of assets, liabilities and equity -
income tax basis of Riverview Tower Limited Partnership, A Limited Partnership,
as of December 31, 1993, and the related statements of revenues and
expenses - income tax basis, partners' equity - income tax basis and cash
flows - income tax basis for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Riverview Tower Limited
Partnership, A Limited Partnership as of December 31, 1993, and the results of
its operations and its cash flows for the year then ended in conformity with
the income tax basis of accounting, as described in Note 1.
Malitz, Weinstein, & Rubin Co.
<PAGE> 15
<TABLE>
MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS, CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES AND EQUITY Exhibit A
- INCOME TAX BASIS
As At December 31, 1993
ASSETS
------
<S> <C>
Cash $9,162.
Accounts Receivable 506.
Escrow Receivable 159,722.
Prepaid Expenses 22,916.
Property and Equipment 16,705,077.
Less: Accumulated Depreciation
and Amortization (8,042,295.)
-----------
TOTAL ASSETS $8,855,088.
===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES
Accounts Payable $2,092,044.
Accrued Interest and Real Estate Taxes 406,374.
Mortgage Payable 13,758,615.
-----------
Total Liabilities $16,257,O33.
PARTNERS' EQUITY - SCHEDULE A-1 (7,401,945.)
------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 8,855,088.
============
<FN>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 16
<TABLE>
MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
ANALYSIS OF PARTNERS' EQUITY Schedule A-1
- INCOME TAX BASIS
For The Year Ended December 31, 1993
<CAPTION>
TRANSFERS
BALANCE TO LIMITED NET BALANCE
BEGINNING UNITS INCOME ENDING
------------- ---------- ----------- -------------
<S> <C>
GENERAL PARTNERS $ (887,151.) $ 7O9,653. $ (19,984.) $ (197,482.)
LIMITED PARTNERS (5,765,442.) (709,653.) (729,368.) (7,204,463.)
------------- ---------- ----------- -------------
TOTALS $ (6,652,593.) $ -0- $ (749,352.) $ (7,401,945.)
============= ========== =========== =============
<FN>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 17
<TABLE>
MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCDUNTANTS. CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF REVENUES AND EXPENSES Exhibit B
- INCOME TAX BASIS
For The Year Ended December 31, 1993
<S> <C> <C>
INCOME
Rentals $2,177,816.
Excess Operating Charges 1,164,161.
Garage 321,682.
Antenna 128,301.
-----------
Total Income $3,791,960.
OPERATING EXPENSES
Custodial and Manager $264,383.
Elevator Maintenance 112,372.
Insurance 70,304.
Management Fees 230,689.
Office Expense 66,011.
Professional Fees 42,472.
Repairs and Maintenance 630,005.
Supplies (17,382.)
Taxes - Real Estate 258,343.
Taxes - Other 3,430.
Travel 570.
Utilities 881,481.
General Expenses 6,765.
-----------
Total Operating Expenses 2,549,443.
-----------
INCOME BEFORE INTEREST EXPENSE, DEPRECIATION
AND AMORTIZATION $1,242,517.
LESS: Interest Expense 1,214,005.
-----------
INCOME BEFORE DEPRECIATION AND AMORTIZATION $28,512.
LESS: Depreciation And Amortization 777,864.
-----------
NET INCOME FOR THE YEAR $(749,352.)
===========
<FN>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 18
<TABLE>
MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS Exhibit C
- INCOME TAX BASIS
For The Year Ended December 31, 1993
<S> <C> <C>
CASH GENERATED BY OPERATIONS:
Net Income $(749,352.)
Depreciation and Amortization 777,864.
-----------
Total $ 28,512.
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Current Assets - (Increase) Decrease
Receivables $(8,132.)
Prepaids (1,601.)
Current Liabilities - Increase (Decrease)
Accounts Payable 349,747.
Accrued Expenses and Taxes (42,860.)
-----------
Total 297,154.
-----------
NET CASH PROVIDED BY OPERATIONS $ 325,666.
INVESTING ACTIVITIES -0-
FINANCING ACTIVITIES
Decrease In Debt (325,666.)
-----------
INCREASE (DECREASE) IN CASH $ -0-
CASH BALANCE - BEGINNING 9,162.
-----------
CASH BALANCE - ENDING $ 9,162.
===========
SUPPLEMENTAL DISCLOSURE
Cash Paid During The Year For Interest $1,214,005.
===========
<FN>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 19
MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS Exhibit D
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------
Basis of Accounting
-------------------
The accompanying financial statements have been prepared on the accrual
method of accounting used for federal income tax purposes. Consequently,
certain revenues and expenses are recognized in the determination of income
in different reporting periods than they would be if the financial
statements were prepared in conformity with generally accepted accounting
principles. Although income tax rules are used to determine the timing of
the reporting of revenues and expenses, nontaxable revenues and
nondeductible expenses are included in the determination of net income.
Net Income - Income Tax Basis
-----------------------------
In accordance with the Company's policy, net income - income tax basis
includes nontaxable revenue and nondeductible expenses in addition to taxable
revenue and deductible expenses.
Property and Equipment
----------------------
If an expenditure results in an asset having an estimated useful life that
extends beyond the year of acquisition, the expenditure is capitalized and
depreciated over the estimated useful life of the asset. Building,
improvements, and equipment are recorded at cost and are depreciated using
Straight-Line or Accelerated Cost Recovery Methods as follows:
<TABLE>
<S> <C> <C>
Buildings 19 Years ACRS - Straight-Line
Building Improvements 10 Years ACRS - Straight-Line
Equipment & Improvements 5 Years ACRS
</TABLE>
Accordingly, the depreciation and amortization recorded is not purported to
be an accurate reflection of economic depreciation and amortization.
Adjustments Necessary To Conform With Generally Accepted Accounting
-------------------------------------------------------------------
Principles (GAAP)
-----------------
As stated in the accountants report and previously in Note 1 of the Notes To
Financial Statements, the Company has used various depreciation and
amortization methods which do not conform to generally accepted accounting
principles (GAAP). Had the Company conformed to GAAP the accumulated
depreciation and amortization and partners' Capital accounts would be
adjusted as follows:
<TABLE>
<CAPTION>
BEGINNING ENDING
--------- ------
<S> <C> <C>
BALANCE SHEET
Accumulated Depreciation
and Amortization $(3,225,566.) $(3,664,018.)
============= =============
Partners' Capital $(2,613,052.) $(3,023,668.)
============= =============
STATEMENT OF OPERATIONS
Net Income For The Year $(409,940.)
===========
<FN>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 20
MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS Exhibit D
(Continued)
NOTE 2 - TRANSACTIONS WITH RELATED PARTY
- -----------------------------------------
The property, which is located in Toledo, Ohio is managed by the Mid-America
Management Corporation.
Accounts Payable in the amount of $1,890,218. are due to the management
company.
NOTE 3 - MORTGAGE PAYABLE
- --------------------------
The land and buildings owned by the Company are encumbered by mortgages
securing two notes; one to New York Life Insurance (due in 1999) and the
other to Realty Refund Trust (due in 1994). One of the limited partners of
the partnership is also Chairman of the Board of Realty Refund Trust.
The Company has a fixed monthly payment of $128,362. To the extent that
this amount will not satisfy the New York Life monthly payment and interest
on the Realty Refund Note, the shortfall will be added to the Realty Refund
note.
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 1
Exhibit 99(C)
Financial Statements of
Pacific Place Partners, Ltd.
as at December 31, 1993 and 1994
<PAGE> 2
REPORT OF
---------
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
DECEMBER 31, 1994
-----------------
<PAGE> 3
KONOWITZ, KAHN & COMPANY, P.C
- -------------------------------------------------------------------------------
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
Pacific Place Partners, LTD.
We have audited the accompanying balance sheet of Pacific Place
Partners, LTD. (A Texas Limited Partnership) as of December 31, 1994
and 1993, and the related statements of income, partners capital, and
cash flows for the years then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
The 1992 financial statements of Pacific Place Partners, LTD were
audited by other accountants, whose report dated February 19, 1993
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perfom 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 audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pacific
Place Partners, LTD., as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KONOWITZ, KAHN & COMPANY, P.C,
February 11, 1995
- -------------------------------------------------------------------------------
<PAGE> 4
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
As At As At As At
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 3,883 $ 4,593 $ 3,089
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Land 5,000,000 5,000,000 5,000,000
Building 35,912,072 35,912,072 35,912,072
Equipment 9,000,000 9,000,000 9,000,000
------------ ------------ ------------
Total 49,912,072 49,912,072 49,912,072
Less: Accumulated depreciation 8,543,039 5,845,237 3,147,435
------------ ------------ ------------
Net Book Value of Property
and Equipment 41,369,033 44,066,835 46,764,637
------------ ------------ ------------
OTHER ASSETS:
Financing fees (net of
accumulated amortization
of $129,333, $87,833
and $46,333) 78,167 119,667 161,167
Acquisition fees (net of
accumulated amortization
of $15,203, $10,390
and $5,577) 177,297 182,110 186,923
------------ ------------ ------------
Total Other Assets 255,464 301,777 348,090
------------ ------------ ------------
TOTAL ASSETS $ 41,628,380 $ 44,373,205 $ 47,115,816
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 5
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
As At As At As At
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Current portion of long-term
debt $ 2,861,851 $ 2,514,736 $ 2,209,722
Accrued interest 80,112 85,561 75,291
Deferred rent 799,590 799,590 766,268
------------ ------------ ------------
Total Current Liabilities 3,741,553 3,399,887 3,051,281
------------ ------------ ------------
LONG-TERM LIABILITIES:
Mortgage payable 36,974,896 39,489,632 41,699,354
Less: Current portion 2,861,851 2,514,736 2,209,722
------------ ------------ ------------
34,113,045 36,974,896 39,489,632
Deferred rent 1,465,916 2,265,506 3,065,072
Less: Current portion 799,590 799,590 766,268
------------ ------------ ------------
666,326 1,465,916 2,298,804
------------ ------------ ------------
Total Long-Term Liabilities 34,779,371 38,440,812 41,788,436
------------ ------------ ------------
Total Liabilities 38,520,924 41,840,699 44,839,717
PARTNERS' CAPITAL 3,107,456 2,532,506 2,276,099
------------ ------------ ------------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 41,628,380 $ 44,373,205 $ 47,115,816
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 6
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
INCOME:
Rental income $ 8,301,639 $ 8,301,614 $ 8,301,663
Miscellaneous - 25,000 6,050
----------- ----------- -----------
Total Income 8,301,639 8,326,614 8,307,713
----------- ----------- -----------
EXPENSES:
Interest 4,981,864 5,302,597 5,825,836
Amortization 46,313 46,313 46,313
Depreciation 2,697,802 2,697,802 2,697,802
Legal - 20,992 3,892
Miscellaneous expenses 710 2,503 -
----------- ----------- -----------
Total Expenses 7,726,689 8,070,207 8,573,843
----------- ----------- -----------
NET INCOME (LOSS) $ 574,950 $ 256,407 $ (266,130)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 7
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
-----------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C>
PARTNERS' CAPITAL -
Beginning of Year $ 2,532,506 $2,276,099 $2,542,229
NET INCOME (LOSS) 574,950 256,407 (266,130)
----------------- ----------------- -----------------
PARTNERS' CAPITAL -
End of Year $ 3,107,456 $ 2,532,506 $ 2,276,099
================= ================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 8
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 574,950 $ 256,407 $ (266,130)
----------- ----------- -----------
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 2,697,802 2,697,802 2,697,802
Amortization 46,313 46,313 46,313
Increase (Decrease) in
Liabilities:
Accrued expenses (5,449) 10,270 75,291
Deferred rent (799,590) (799,566) 2,532,012
----------- ----------- -----------
Total Adjustments 1,939,076 1,954,819 5,351,418
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,514,026 2,211,226 5,085,288
CASH FLOWS USED IN FINANCING
ACTIVITIES:
Principal payments on
long-term debt (2,514,736) (2,209,722) (5,083,129)
----------- ----------- -----------
NET (DECREASE) INCREASE
IN CASH (710) 1,504 2,159
CASH AT THE BEGINING
OF THE YEAR 4,593 3,089 930
----------- ----------- -----------
CASH AT THE END OF THE YEAR $ 3,883 $ 4,593 $ 3,089
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
interest $ 4,987,313 $ 5,292,326 $ 5,750,545
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 9
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994
-----------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
----------------------
The partnership is computing depreciation using the straight-line method
over the estimated useful lives of the assets over a period of 5-40
years. Expenditures of maintenance, repairs and improvements which do not
materially extend the useful lives of the property are charged to
earnings.
Income Taxes
------------
No provision for income taxes is made in the financial statements of the
partnership because, as a partnership, it is not subject to income tax, as
the tax effect of its activities accrue to the partners.
Amortization
------------
Fees and expenses incurred in connection with placing the underlying
financing in the amount of $207,500 are being amortized over five years
on a straight-line basis.
Expenses incurred in acquiring the property in the amount of $192,500 are
being amortized over forty years on a straight-line basis.
Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, cash consists of
unrestricted cash in a checking account.
Credit Risk-Economic Dependency
-------------------------------
On March 1, 1993, Lockheed Corporation purchased the Fort Worth Division
of General Dynamics (the sole tenant). Lockheed purchased all of the
assets held by the division and assumed all of the liabilities, including
those under the lease with the Partnership.
In the process of Lockheed's assumption of the General Dynamics Lease,
the Partnership was able to negotiate a Consent Agreement which granted
Lockheed the right to assume the Lease so long as General Dynamics
remains jointly liable under the lease. As of December 31, 1994, two
years remain on the lease. There are no renewal options in the lease
agreement.
<PAGE> 10
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994
-----------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Partnership Income
------------------
The income of the partnership differs from the taxable ordinary income
of the partnership on the federal income tax return due to tax laws
regarding deferred expenses and depreciation.
<TABLE>
<S> <C>
Income Reported on Tax Return $ 679,185
Items (Non-Deductible) Deductible
on Tax Return:
Deferred Rent 799,590
Depreciation (903,825)
---------
Income Per Financial Statements $ 574,950
=========
</TABLE>
NOTE 2 - THE PARTNERSHIP
The partnership was formed on April 1, 1983 under the laws of the State
of Texas for the purpose of acquiring, owning, and operating a
twenty-story office building located in Dallas, Texas. On November
25, 1991, the partnership conveyed its land, building and personal
property to 1910 Associates, LTD. (1910) in exchange for land, buildings
and personal property located in Fort Worth, Texas. That transaction was
reported as qualifying for nonrecognition of gain for income tax
purposes.
ICA Pacific Place, Inc., is the general partner of the partnership.
NOTE 3 - MORTGAGE PAYABLE
The partnership is indebted to 1910 Associates, LTD. under a wrap-around
mortgage agreement in the initial amount of $48,187,500. The loan bears
interest at 13% per annum during the initial five year term. Payment
terms call for monthly payments in the amount of $958,333.33 for the
first twelve months and $625,170.70 for the succeeding forty-eight months.
During the initial term of the loan, the debt service payments are equal
to the rental payments. The note is secured by the partnership's land,
buildings, and equipment under a Deed of Trust. The tenant is making
payments directly to the mortgagees. The underlying mortgagees,
Principal Mutual Life Insurance Company, Realty Refund Trust and
Prentiss/Copley Investment Group are secured by liens, security interests
and collateral assignments of rents and leases. The initial term of the
wrap loan is five years but may be extended under certain conditions.
The two extension periods are for five and fifteen years, respectively.
<PAGE> 11
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994
-----------------
NOTE 3 - MORTGAGE PAYABLE (Continued)
Maturities of long-term debt are as follows:
Year Ending December 31,
------------------------
<TABLE>
<S> <C>
1995 $ 2,861,851
1996 34,113,045
-----------
$36,974,896
===========
</TABLE>
<PAGE> 12
REPORT OF
---------
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
DECEMBER 31, 1993
-----------------
<PAGE> 13
KONOWITZ, KAHN & COMPANY, P.C.
- -------------------------------------------------------------------------------
Certified Public Accountants
INEPENDENT AUDITORS' REPORT
To the Partners of
Pacific Place Partners, LTD.
We have audited the accompanying balance sheet of Pacific Place
Partners, LTD. (A Texas Limited Partnership) as of December 31, 1993, and
the related statement of income, partners capital, and cash flows for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pacific Place
Partners, LTD., as of December 31, 1993, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Konowitz, Kahn & Company, P.C.
February 12, 1994
<PAGE> 14
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1993
-----------------------
<TABLE>
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 4,593
PROPERTY AND EQUIPMENT:
Land $ 5,000,000
Building 35,912,072
Equipment 9,000,000
------------
Total 49,912,072
Less: Accumulated depreciation 5,845,237
------------
Net Book Value of Property
and Equipment 44,066,835
OTHER ASSETS:
Financing fees (net of accumulated
amortization of $87,833) 119,667
Acquisition fees (net of accumulated
amortization of $10,390) 182,110
------------
Total Other Assets 301,777
-----------
TOTAL ASSETS $44,373,205
===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 15
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1993
-----------------------
<TABLE>
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Current portion of long-term
debt $ 2,514,736
Accrued interest 85,561
Deferred rent 799,590
-----------
Total Current Liabilities $ 3,399,887
LONG-TERM LIABILITIES:
Mortgage payable 39,489,632
Less: Current portion 2,514,736
-----------
36,974,896
-----------
Deferred rent 2,265,506
Less: Current portion 799,590
-----------
1,465,916
-----------
Total Long-Term Liabilities 38,440,812
-----------
Total Liabilities 41,840,699
PARTNERS' CAPITAL 2,532,506
-----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $44,373,205
===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 16
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF INCOME
-------------------
FOR THE YEAR ENDED DECEMBER 31, 1993
------------------------------------
<TABLE>
<S> <C> <C>
INCOME:
Rental income $ 8,301,614
Miscellaneous 25,000
-----------
Total Income $ 8,326,614
EXPENSES:
Interest 5,302,597
Amortization 46,313
Depreciation 2,697,802
Legal 20,992
Miscellaneous expenses 2,503
-----------
Total expenses 8,070,207
-----------
NET INCOME $ 256,407
===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 17
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
-----------------------------------------
AS OF DECEMBER 31, 1993
-----------------------
<TABLE>
<S> <C>
PARTNERS' CAPITAL - January 1, 1993 $2,276,099
NET INCOME 256,407
----------
PARTNERS' CAPITAL - December 31, 1993 $2,532,506
==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 18
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1993
------------------------------------
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 256,407
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation $ 2,697,802
Amortization 46,313
Increase (Decrease) in Liabilities:
Accrued expenses 10,270
Deferred rent (799,566)
-----------
Total Adjustments 1,954,819
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,211,226
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (2,209,722)
-----------
NET CASH USED IN FINANCING ACTIVITIES (2,209,722)
-----------
NET INCREASE IN CASH 1,504
CASH AT THE BEGINING OF THE YEAR 3,089
-----------
CASH AT THE END OF THE YEAR $ 4,593
===========
Interest in the amount of $5,292,326 was paid in 1993.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 19
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AS OF DECEMBER 31, 1993
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
----------------------
The partnership is computing depreciation using the straight-line method over
the estimated useful lives of the assets over a period of 5-40 years.
Expenditures of maintenance, repairs and improvements which do not materially
extend the useful lives of the property are charged to earnings.
Income Taxes
------------
No provision for income taxes is made in the financial statements of the
partnership because, as a partnership, it is not subject to income tax, as the
tax effect of its activities accrue to the partners.
Amortization
------------
Fees and expenses incurred in connection with placing the underlying
financing in the amount of $207,500 are being amortized over five years on a
straight-line basis.
Expenses incurred in acquiring the property in the amount of $192,500 are
being amortized over forty years on a straight-line basis.
Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, cash consists of unrestricted
cash.
Credit Risk-Economic Dependency
-------------------------------
On March 1, 1993, Lockheed Corporation purchased the Fort Worth Division of
General Dynamics (the sole tenant). Lockheed purchased all of the assets held
by the division and assumed all of the liabilities, including those under the
lease with the Partnership.
In the process of Lockheed's assumption of the General Dynamics Lease, the
Partnership was able to negotiate a Consent Agreement which granted Lockheed
the right to assume the Lease so long as General Dynamics remains jointly
liable under the lease. As of December 31, 1993, three years remain on the
lease. There are no renewal options in the lease agreement.
<PAGE> 20
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AS OF DECEMBER 31, 1993
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Partnership Income
------------------
The income of the partnership differs from the taxable ordinary income of
the partnership on the federal income tax return due to tax laws regarding
deferred expenses and depreciation.
<TABLE>
<S> <C>
Loss Reported on Tax Return $(489,802)
Items (Non-Deductible) Deductible
on Tax Return:
Deferred Rent 799,566
Depreciation (53,357)
---------
Income Per Financial Statements $ 256,407
=========
</TABLE>
NOTE 2 THE PARTNERSHIP
The partnership was formed on April 1, 1983 under the laws of the State of
Texas for the purpose of acquiring, owning, and operating a twenty-story
office building located in Dallas, Texas. On November 25, 1991, the
partnership conveyed its land, building and personal property to 1910
Associates, LTD. (1910) in exchange for land, buildings and personal
property located in Forth Worth, Texas. That transaction was reported as
qualifying for nonrecognition of gain for income tax purposes.
ICA Pacific Place, Inc., is the general partner of the partnership.
NOTE 3 MORTGAGE PAYABLE
The partnership is indebted to 1910 Associates, LTD. under a wrap-around
mortgage agreement in the initial amount of $48,187,500. The loan bears
interest at 13% per annum during the initial five year term. Payment terms
call for monthly payments in the amount of $958,333.33 for the first twelve
months and $625,170.70 for the succeeding forty-eight months. During the
initial term of the loan, the debt service payments are equal to the rental
payments. The note is secured by the partnership's land, buildings, and
equipment under a Deed of Trust. The tenant is making payments directly to
the mortgagees. The underlying mortgagees, Principal Mutual Life Insurance
Company, Realty Refund Trust and Prentiss/Copley Investment Group are
secured by liens, security interests and collateral assignments of rents
and leases. The initial term of the wrap loan is five years but may be
extended under certain conditions. The two extension periods are for five
and fifteen years, respectively.
