<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1995
/ / Transition pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 1-7062
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REALTY ReFUND TRUST
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(Exact name of registrant as specified in its chart)
Ohio 34-6647590
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1385 Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 771-7663
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N/A
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Former name, former address and former fiscal year, if changed since last
report.
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
N/A ------- ------
-------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No N/A X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
1,020,586
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<PAGE> 2
REALTY ReFUND TRUST
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PART I. FINANCIAL INFORMATION
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<PAGE> 3
REALTY ReFUND TRUST
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BALANCE SHEETS
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OCTOBER 31 AND JANUARY 31, 1995
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<TABLE>
<CAPTION>
ASSETS
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October 31, January 31,
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(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS:
Loans receivable $14,392,584 $24,476,670
Loan receivable from related party, net of valuation allowance of
$5,000,000 at October 31, 1995 5,529,168 11,033,109
CASH 48,421 39,073
INTEREST RECEIVABLE AND OTHER ASSETS 698,434 966,247
REAL ESTATE HELD FOR SALE, net of accumulated depreciation and
amortization of $678,000 and $360,000 at October 31, and
January 31, 1995, respectively
9,051,597 8,650,257
----------- -----------
$29,720,204 $45,165,356
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Loans payable underlying wrap-around mortgages $ 6,042,466 $10,264,669
Loan payable underlying wrap-around mortgage to related party
3,328,376 3,832,317
Note payable to bank 6,895,000 11,810,000
Note payable to related party 4,625,000 5,000,000
Deposits and accrued expenses 1,251,823 1,543,828
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Total liabilities 22,142,665 32,450,814
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SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value, unlimited
authorization, 1,020,586 shares outstanding at October 31, and
January 31, 1995 7,577,539 12,714,542
----------- -----------
$29,720,204 $45,165,356
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
REALTY ReFUND TRUST
UNAUDITED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
REVENUES:
Interest income from loans receivable $ 509,180 $ 689,008
Interest income from loan receivable from related party
235,218 266,976
Rental revenue from real estate held for sale 609,142 595,268
----------- -----------
1,353,540 1,551,252
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EXPENSES:
Interest on loans underlying wrap-around mortgages 140,183 265,106
Interest on loan underlying wrap-around mortgage loan to related
party 51,204 61,241
Interest on note payable to bank 136,371 193,641
Interest on note payable to related party 105,365 97,987
Fee to related party investment advisor 73,441 74,951
Operating expenses of real estate held for sale 523,994 605,303
Depreciation of building held for sale 69,601 60,500
Amortization of tenant improvements and deferred leasing
commissions 49,348 27,146
Other operating expenses, net 72,407 21,895
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1,221,914 1,407,770
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NET INCOME $ 131,626 $ 143,482
=========== ===========
NET INCOME PER SHARE $ .13 $ .14
======= ======
CASH DIVIDENDS PER SHARE DECLARED $ .10 $ .20
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
REALTY ReFUND TRUST
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UNAUDITED
---------
STATEMENTS OF OPERATIONS
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FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
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<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
REVENUES:
Interest income from loans receivable $1,798,507 $2,474,127
Interest income from loan receivable from related party 707,313 862,549
Rental revenue from real estate held for sale 1,713,377 1,726,290
----------- -----------
4,219,197 5,062,966
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EXPENSES:
Provision for writedown of loan receivable from related party 5,000,000 -
Interest on loans underlying wrap-around mortgages 506,308 986,780
Interest on loan underlying wrap-around mortgage loan to related
party 161,273 190,934
Interest on note payable to bank 591,187 575,613
Interest on note payable to related party 326,232 265,834
Fee to related party investment advisor 194,594 219,616
Operating expenses of real estate held for sale 1,606,137 1,672,952
Depreciation of building held for sale 195,950 181,500
Amortization of tenant improvements and deferred leasing
commissions 143,215 50,880
Other operating expenses, net 120,991 401,385
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8,845,887 4,545,494
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NET INCOME (LOSS) $(4,626,690) $ 517,472
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NET INCOME (LOSS) PER SHARE $(4.53) $.51
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CASH DIVIDENDS PER SHARE DECLARED $ .40 $.60
======= =====
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
REALTY ReFUND TRUST
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UNAUDITED
---------
STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
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<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received on mortgage loans receivable $ 2,557,754 $ 3,307,532
Interest paid (1,617,170) (2,080,106)
Cash payments to investment advisor and other suppliers (721,290) (647,346)
Rental revenue received from real estate held for sale 1,675,507 1,703,442
Cash payments for operating expenses of real estate held for sale
(1,227,416) (1,574,227)
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Net cash provided by operating activities 667,385 709,295
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CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable 10,588,027 20,732,213
Principal payments on mortgage loans payable (4,726,144) (10,425,257)
Payments for tenant and building improvements (719,607) (544,997)
Investment in mortgage loan receivable - (2,050,000)
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Net cash provided by investing activities 5,142,276 7,711,959
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to related party (375,000) -
Net bank repayments (4,915,000) (7,690,000)
Payment of cash dividends (510,313) (591,940)
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Net cash used for financing activities (5,800,313) (8,281,940)
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NET INCREASE IN CASH 9,348 139,314
CASH AT BEGINNING OF PERIOD 39,073 50,474
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CASH AT END OF PERIOD $ 48,421 $ 189,788
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</TABLE>
<PAGE> 7
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<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $(4,626,690) $ 517,472
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Provision for writedown of loan receivable from related party 5,000,000 -
Depreciation of building held for sale 195,950 181,500
Amortization of deferred financing, leasing commission and tenant
improvement costs 143,215 89,829
Amortization of deferred loan fees (13,500) (22,734)
Deferral of interest income - (137,651)
Decrease in interest receivable and other assets 246,915 67,111
(Decrease) increase in deposits and accrued expenses
(278,505) 13,768
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$ 667,385 $ 709,295
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</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
REALTY ReFUND TRUST
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
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OCTOBER 31, 1995 AND 1994
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1. BASIS OF PRESENTATION:
---------------------
The accompanying unaudited financial statements contain all adjustments which
are, in the opinion of the Trust's management, necessary to present fairly the
financial position of the Trust as of October 31, 1995, and the results of its
operations and cash flows for the nine-month periods ended October 31, 1995 and
1994. Such adjustments are of a normal recurring nature.
The financial statements included herein have been prepared by the Trust,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Trust's latest annual report on Form 10-K.
2. DIVIDEND DECLARATION:
--------------------
On November 15, 1995, the Trustees declared a distribution, payable on December
15, 1995, in the amount of .10 cents per share of beneficial interest.
3. NET INCOME (LOSS) PER SHARE:
---------------------------
Net income (loss) per share has been computed based on the weighted average
number of shares outstanding. Net income (loss) per share for the three and
nine months ended October 31, 1995 and 1994, was based upon 1,020,586 shares.
During these periods, the Trust had no potentially dilutive securities
outstanding. At October 31, 1995 and 1994, there were 1,020,586 shares of
beneficial interest outstanding.
4. PRIOR YEAR RECLASSIFICATION:
---------------------------
Certain prior year amounts have been reclassified to conform with current year
presentation.
5. TOLEDO, OHIO INVESTMENT:
-----------------------
In July 1995, the Trust recorded a $5,000,000 loss provision on its investment
in the Toledo, Ohio wrap-around mortgage loan. The commercial building
securing the loan is owned by a partnership of which a corporation owned by the
Chairman of the Trust is the general partner. The owner of the property is
negotiating to sell the property to an unrelated third-party. As the Trust's
loan was made on a nonrecourse basis, the Trust has written down its investment
to reflect the estimated sale price of the property and the estimated net
proceeds to be received by the Trust as repayment of its loan. As the Trust
continues to receive, on a timely basis, all required monthly payments of
principal and interest on the mortgage loan, interest income continues to be
recognized based on the contractual terms of the mortgage loan.
<PAGE> 9
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6. NOTE PAYABLE TO BANK:
--------------------
In light of the repayments of the Sarasota and Orlando, Florida mortgage loan
and the Saginaw, Michigan loan in August 1995 and the loss incurred on the
Toledo, Ohio investment discussed in Note 5, the Trust's lending bank has
indicated its agreement to reduce the Trust's minimum required net worth, as
defined in the credit agreement, to $12,000,000 and to make up to $1,500,000
available to the Trust for working capital upon satisfaction of certain
specified conditions.
<PAGE> 10
Management's Discussion and Analysis of Financial
Condition and Results of Operation
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In July 1995, the Trust recorded a loss provision of $5,000,000 on its
investment in the Toledo, Ohio wrap-around mortgage loan. The owner of the
property and borrower from the Trust, Riverview Tower Limited Partnership, a
related party, is negotiating to sell the property to an unrelated third party.
As the Trust's loan was made on a nonrecourse basis, the Trust has written down
its investment to reflect the estimated sales price of the property and the
estimated net proceeds to be received by the Trust on its investment.
Interest income on mortgage loans receivable decreased during the three- and
nine-month periods ended October 31, 1995, as compared to the corresponding
periods of 1994 due to the prepayments of the Akron, Ohio and Dallas, Texas
wrap-around mortgage loans in April and May 1994, respectively, principal
prepayments of $2,200,000 received on the Toledo, Ohio wrap-around mortgage
loan in fiscal 1995, principal prepayment of $2,000,000 received on the
Saginaw, Michigan loan in the current year, the maturity of the Sarasota and
Orlando, Florida loan in August 1995 and the normal amortization of mortgage
loan balances. In addition, the prior year three- and nine-month periods
included prepayment and other income of $147,000 and $43,000, respectively, as
compared to $59,000 for both corresponding periods of the current fiscal year.
Interest expense on mortgage loans payable decreased in the current year
periods as compared to prior year periods due to the prepayments of the loans
underlying the Akron, Ohio and Dallas, Texas wrap-around loan investments and
the normal amortization of mortgage loan balances.
During the three- and nine-month periods ended October 31, 1995, the Chicago
property incurred net operating losses of approximately $34,000 and $232,000,
inclusive of depreciation and amortization charges totaling $119,000 and
$339,000, respectively. For the prior year three- and nine-month periods, the
Chicago property incurred net operating losses of approximately $98,000 and
$179,000 inclusive of depreciation and amortization charges totaling $88,000
and $232,000, respectively. Rental revenue decreased approximately $13,000 for
the nine months ended October 31, 1995, as compared to the prior year period
due to lease expirations. The impact of prior lease expirations has been
offset in the third quarter of the current year by new lease agreements entered
into by new or existing tenants resulting in an increase in rental revenue for
the three months ended October 31, 1995, as compared to the prior year period.
Operating expenses of the Chicago property decreased between periods due to a
reduction in repairs and maintenance expense. Amortization of tenant
improvements and deferred leasing commissions increased due to increased
investments in tenant improvements and higher levels of leasing commissions
paid. These expenditures have increased in connection with both the obtaining
of new tenants and the renewal of leases with existing tenants.
Average bank borrowing levels were considerably lower in the current year
periods as the proceeds received in the current and prior year in connection
with various loan prepayments were used to reduce bank borrowings. As a
result, interest expense on the note payable to bank decreased in the
three-month period ended October 31, 1995 as compared to the prior year period.
However, due to the timing of the various loan prepayments, the effect of
reduced borrowing levels was more than offset by the effect of higher bank
interest rates in the nine-month period ended October 31, 1995 as compared to
the corresponding prior year period.
Interest expense on the notes payable to related party increased due to higher
prime lending rates in the current year period.
The fee to investment advisor decreased in the current year periods due to the
reduction in the Trust's investment in mortgage loans.
<PAGE> 11
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Other operating expenses decreased in the nine-month period ended October 31,
1995 as compared to the prior year due to lower levels of legal and
professional expense. Such expenses were greater than normal in the prior year
period due to a higher level of legal activity.
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 net loss in fiscal 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 the nine-month period ended October 31, 1995, net cash provided by
operating activities decreased as compared to the corresponding period of the
prior year. The primary causes of the decrease were the reduction in interest
collected on the Trust's investments in loans receivable and a decrease in the
amount of prepayment and other income earned in the current year. As the
Trust's loan investment portfolio was reduced considerably through loan
principal repayments in the current and prior year, a much lower level of
interest income was earned and collected in the current year. Partially
offsetting factors were the reduced amount of interest paid on loans underlying
wrap-around mortgage loan investments, reduced interest paid on bank borrowings
due to lower levels of average borrowings, and the receipt of $300,000 for
reimbursement of building repairs and maintenance expenses.
Cash flows from investing activities decreased considerably in the current year
period due to the Akron, Ohio and Dallas, Texas wrap-around mortgage loan
prepayments in the prior year. The Trust's aggregate net investment in these
loans was approximately $8,800,000. In the current year period, the Sarasota
and Orlando, Florida mortgage loan was retired at its maturity and the Saginaw,
Michigan loan was prepaid. The Trust's aggregate investment in these loans was
approximately $5,700,000. The Trust made no new loan investments in the
nine-month period ended October 31, 1995. In addition, the Trust increased
expenditures for tenant improvements at the Chicago property in the current
year.
Cash used for financing activities decreased in the current year period due to
the lower level of net proceeds received from the loan repayments being
available to pay down bank borrowings. Pursuant to the terms of the note, the
Trust made principal payments of $375,000 on the note payable to related party
during the nine-month period ended October 31, 1995.
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 must
fund any operating deficits of the Chicago property until such time as it is
sold. The Trust's primary sources of funds are a bank credit agreement in the
amount of $10,000,000, repayments of mortgage loans receivable and rental
revenue from the Chicago property. The credit agreement is used to fund any
operating deficits of the Chicago property and for working capital. The credit
agreement expires in July 1996. In light of the repayments of mortgage loans
receivable and the accrued loss on the Toledo, Ohio investment, the Trust's
lending bank has indicated its agreement to reduce the Trust's minimum required
net worth (as defined in the credit agreement) to $12,000,000 and to make up to
$1,500,000 available to the Trust for working capital upon satisfaction of
certain specified conditions.
<PAGE> 12
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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.
<PAGE> 13
FORM 10-Q -- PART II: OTHER INFORMATION
----------------------------------------
Items 1 through 5 are not applicable or the answer to such items is negative;
therefore, the items have been omitted and no reference is required in this
report.
ITEM 6: Exhibits and Reports on Form 8-K
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(a) Exhibit
Number Exhibit
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27 Financial Data Schedule (1)
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
- ------------------------
(1) Filed only in electronic format pursuant to Item 601 (b) (27) of
Regulation S-K.
<PAGE> 14
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
December 14, 1995 REALITY ReFUND TRUST
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(Registrant)
By /s/ Alan M. Krause
-------------------------------
Alan M. Krause
Chairman
/s/ James H. Berick
-------------------------------
James H. Berick
President
and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
Balance sheets as of October 31, 1995, and January 31, 1995 and Statements of
Income for the three and nine months ended October 31, 1995 and 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000082473
<NAME> REALTY REFUND TRUST
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 48,421
<SECURITIES> 0
<RECEIVABLES> 24,921,752
<ALLOWANCES> 5,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,729,597
<DEPRECIATION> 678,000
<TOTAL-ASSETS> 29,720,204
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 20,890,842
<COMMON> 7,577,539
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,720,204
<SALES> 0
<TOTAL-REVENUES> 4,219,197
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,260,887
<LOSS-PROVISION> 5,000,000
<INTEREST-EXPENSE> 1,585,000
<INCOME-PRETAX> (4,626,690)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,626,690)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,626,690)
<EPS-PRIMARY> (4.53)
<EPS-DILUTED> (4.53)
<FN>
<F1>The registrant utilizes an unclassified balance sheet. Therefore, the captions
"Total Current Assets" and "Total Current Liabilities" are not applicable.
</FN>
</TABLE>
