<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 July 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
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its chart)
Ohio 34-6647590
--------------------------------------------------------------------------------
(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
-----------------------
N/A
--------------------------------------------------------------------------------
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
--- --- ---
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
----------------------------
<PAGE> 2
REALTY ReFUND TRUST
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PART I. FINANCIAL INFORMATION
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<PAGE> 3
<TABLE>
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
BALANCE SHEETS
--------------
JULY 31 AND TANUARY 31, 1995
----------------------------
ASSETS
------
<CAPTION>
July 31, January 31,
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS:
Loans receivable $21,580,147 $24,476,670
Loan receivable from related party, net of valuation
allowance of $5,000,000 at July 31, 1995 5,699,689 11,033,109
CASH 16,639 39,073
INTEREST RECEIVABLE AND OTHER ASSETS 767,702 966,247
REAL ESTATE HELD FOR SALE, net of accumulated
depreciation and amortization of $569,000 and
$360,000 at July 31, 1995 and January 31, 1995,
respectively 8,778,397 8,650,257
----------- -----------
$36,842,574 $45,165,356
=========== ===========
LIABILITIES AND SHAREHOLDERS' EOUITY
------------------------------------
LIABILITIES:
Loan payable underlying wrap-around mortgage $ 7,478,416 $10,264,669
Loan payable underlying wrap-around mortgage to
related party 3,498,897 3,832,317
Note payable to bank 12,035,000 11,810,000
Note payable to related party 4,750,000 5,000,000
Deposits and accrued expenses 1,532,289 1,543,828
----------- -----------
Total liabilities 29,294,602 32,450,814
----------- -----------
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value;
unlimited authorization; 1,020,586 shares
outstanding at July 31 and January 31, 1995 7,547,972 12,714,542
----------- -----------
$36,842,574 $45,165,356
=========== ===========
<FN>
The accompanying notes are an integral part of these balance sheets.
</TABLE>
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<PAGE> 4
<TABLE>
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF INCOME
--------------------
FOR THE THREE MONTHS ENDED JULY 31, 1995 AND 1994
-------------------------------------------------
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
REVENUES:
Interest income from loans receivable $ 638,410 $ 716,496
Interest income from loan receivable from related
party 237,784 291,528
Rental revenue from real estate held for sale 574,401 574,825
----------- ----------
1,450,595 1,582,849
----------- ----------
EXPENSES:
Provision for writedown of loan receivable from
related party 5,000,000 -
Interest on loans underlying wrap-around mortgages 170,577 289,712
Interest on loan underlying wrap-around mortgage to
related party 53,770 63,656
Interest on note payable to bank 232,152 148,548
Interest on note payable to related party 110,431 91,528
Fee to related party investment advisor 47,320 52,450
Operating expenses of real estate held for sale 577,419 584,345
Depreciation of building held for sale 64,066 60,500
Amortization of tenant improvements and deferred
leasing commissions 52,505 12,255
Other operating expenses 41,810 132,026
----------- ----------
6,350,050 1,435,020
----------- ----------
NET INCOME (LOSS) $(4,899,455) $ 147,829
=========== ==========
NET INCOME (LOSS) PER SHARE $(4.80) $.14
====== =====
CASH DIVIDENDS PER SHARE DECLARED $ .10 $.20
====== =====
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE> 5
<TABLE>
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF INCOME
--------------------
FOR THE SIX MONTHS ENDED JULY 31, 1995 AND 1994
-----------------------------------------------
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
REVENUES:
Interest income from loans receivable $ 1,289,327 $1,785,119
Interest income from loan receivable from related
party 472,095 595,573
Rental revenue from real estate held for sale 1,104,235 1,131,022
----------- ----------
2,865,657 3,511,714
----------- ----------
EXPENSES:
Provision for writedown of loan receivable from
related party 5,000,000 -
Interest on loans underlying wrap-around mortgages 366,125 721,674
Interest on loan underlying wrap-around mortgage
loan to related party 110,069 129,693
Interest on note payable to bank 454,816 381,972
Interest on note payable to related party 220,868 167,847
Fee to related party investment advisor 121,152 144,665
Operating expenses of real estate held for sale 1,082,143 1,091,383
Depreciation of building held for sale 126,349 121,000
Amortization of tenant improvement and deferred
leasing commissions 93,867 23,734
Other operating expenses 48,584 355,756
----------- ----------
7,623,973 3,137,724
----------- ----------
NET INCOME (LOSS) $(4,758,316) $ 373,990
=========== ==========
NET INCOME (LOSS) PER SHARE $(4.66) $.37
====== ======
CASH DIVIDENDS PER SHARE DECLARED $.30 $.40
====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
-4-
<PAGE> 6
<TABLE>
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1995 AND 1994
-----------------------------------------------
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 1,758,397 $ 2,375,580
Interest paid (1,160,454) (1,461,980)
Cash payments to investment advisor and other
suppliers (340,888) (432,496)
Rental revenue received from real estate held for sale 1,084,028 1,113,031
Cash payments for operating costs of real estate held
for sale (703,508) (1,075,373)
----------- -----------
Net cash provided by operating activities 637,575 518,762
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable 3,229,943 19,177,410
Principal payments on mortgage loans payable (3,119,673) (8,940,332)
Investment in mortgage loan receivable - (2,050,000)
Payments for tenant improvements (337,025) (54,929)
----------- -----------
Net cash (used for) provided by investing
activities (226,755) 8,132,149
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on note payable to related party (250,000) -
Net bank borrowings (repayments) 225,000 (8,065,000)
Payment of cash dividends (408,254) (387,823)
----------- -----------
Net cash used for financing activities (433,254) (8,452,823)
----------- -----------
NET (DECREASE) INCREASE IN CASH (22,434) 198,088
CASH BALANCE AT BEGINNING OF PERIOD 39,073 50,474
----------- -----------
CASH BALANCE AT END OF PERIOD $ 16,639 $ 248,562
=========== ===========
</TABLE>
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<PAGE> 7
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<TABLE>
1995 1994
----------- ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $(4,758,316) $ 373,990
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 126,349 121,000
Amortization of tenant improvements, deferred
leasing commissions and deferred financing
costs 93,867 62,683
Amortization of deferred loan fees (9,000) (18,234)
Deferral of interest income - (137,651)
Decrease in interest receivable and other assets 187,213 143,184
Decrease in deposits and accrued expenses (2,538) (26,210)
----------- ------------
$ 637,575 $ 518,762
=========== ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE> 8
REALTY ReFUND TRUST
-------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
JULY 31, 1995 AND 1994
----------------------
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 July 31, 1995, and the results of its
operations and cash flows for the six-month periods ended July 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 August 15, 1995, the Trustees declared a distribution, payable on September
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
six months ended July 31, 1995 and 1994, was based upon 1,020,586 shares.
During these periods, the Trust had no potentially dilutive securities
outstanding. At July 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 for approximately
$6,000,000. As the Trust's loan was made on a nonrecourse basis, the Trust has
written down its investment to reflect the proposed sale price of the property
and the estimated net proceeds to be received by the Trust as repayment of its
loan.
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<PAGE> 9
6. SUBSEOUENT EVENT:
-----------------
In August 1995, the Sarasota and Orlando, Florida mortgage loan was retired at
its maturity date and the Saginaw, Michigan loan was prepaid. The Trust's
aggregate investment in these loans was $5,742,000 at July 31, 1995. The
proceeds received by the Trust on these loan repayments were utilized to reduce
outstanding bank borrowings.
7. NOTE PAYABLE TO BANK:
---------------------
In light of the repayments of mortgage loans receivable discussed in Note 6 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.
-8-
<PAGE> 10
Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
And Results of Operations
-------------------------
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 party for
approximately $6,000,000. As the Trust's loan was made on a nonrecourse basis,
the Trust has written down its investment to reflect the proposed sales price
to 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
six-month periods ended July 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, prepayments and other
income of $147,000 and $43,000 earned in the prior year periods, respectively;
principal prepayments of $2,200,000 received on the Toledo, Ohio wrap-around
mortgage loan in fiscal 1995 and the normal amortization of mortgage loan
balances. Interest expense on mortgage loans payable decreased in the 1995
periods 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 mortgage loan balances.
During the three- and six-months ended July 31, 1995, the Chicago property
incurred net operating losses of approximately $120,000 and $198,000,
inclusive of depreciation and amortization charges totaling $117,000 and
$220,000, respectively. For the prior year three- and six-month periods, the
Chicago property incurred net operating losses of approximately $82,000 and
$105,000 inclusive of depreciation and amortization charges totaling $73,000
and $145,000, respectively. Rental revenue decreased approximately $27,000
for the six-months ended July 31, 1995 as compared to the prior year period
due to lease expirations. The impact of prior lease expirations has been
offset in the second quarter of the current year by new lease agreements
entered into by new or existing tenants resulting in rental revenue being
comparable between periods for the three months ended July 31. Operating
expenses of the Chicago property remained relatively constant between periods.
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 prior year in connection with the
Akron, Ohio and Dallas, Texas loan prepayments and the principal prepayments
received on the Toledo, Ohio loan in the prior fiscal year were used to reduce
bank borrowings. However, the effect of reduced borrowing levels was more than
the offset by the effect of higher bank interest rates in the current year
periods.
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.
Other operating expenses decreased in the current year periods due to lower
levels of legal and professional expense. Such expenses were greater than
normal in the prior year periods due to a higher level of legal activity.
-9-
<PAGE> 11
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 six months ended July 31, 1995 as compared to the prior year period,
net cash provided by operating activities increased due to a lower level of cash
payments for operating costs of the Chicago property resulting from the receipt
of $300,000 for reimbursement of building repairs and maintenance expenses.
The reimbursement was accrued at January 31, 1995 but not received until
February. These factors more than offset the effect of prepayment and other
income recognized in the prior year on the Akron, Ohio and Dallas, Texas loan
prepayments and the current year reduction in interest income.
Cash 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. The Trust made no new loan investments in
the six-month period ended July 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 as the proceeds received from the
Akron, Ohio and Dallas, Texas wrap-around mortgage loan prepayments were
utilized to reduce bank borrowings in the prior year period. Pursuant to the
terms of the note, the Trust made principal payments of $250,000 on the note
payable to related party during the six-month period ended July 31, 1995.
In August 1995, 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 $5,742,000 at July 31, 1995. The proceeds
received by the Trust on these loan repayments were utilized to reduce bank
borrowings. Upon the application of such loan repayments, the Trust had bank
borrowings of $6,670,000 outstanding at August 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 $22,000,000 until September 1, 1995, at which time availability will
be reduced to $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 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.
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.
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<PAGE> 12
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
------- ------------------------------------------------------------
(a) Exhibit
Number Exhibit
------ -------
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 60(b)(27) of
Regulation S-K.
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<PAGE> 13
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.
September 13, 1995. REALTY ReFUND TRUST
-----------------------------
(Registrant)
By
/s/ Alan M. Krause
-----------------------------
Alan M. Krause
Chairman
/s/ James H. Berick
-----------------------------
James H. Berick
President
and Principal
Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF JULY 31, 1995 AND JANUARY 31, 1995 AND STATEMENTS OF INCOME FOR THE
THREE MONTHS ENDED, JULY 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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-1-1995
<PERIOD-END> JUL-31-1995
<CASH> 16,639
<SECURITIES> 0
<RECEIVABLES> 32,279,836
<ALLOWANCES> 5,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,347,397
<DEPRECIATION> 569,000
<TOTAL-ASSETS> 36,842,574
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 27,762,313
<COMMON> 7,547,972
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,842,574
<SALES> 0
<TOTAL-REVENUES> 2,865,657
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,472,095
<LOSS-PROVISION> 5,000,000
<INTEREST-EXPENSE> 1,151,878
<INCOME-PRETAX> (4,758,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,758,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,758,316)
<EPS-PRIMARY> (4.66)
<EPS-DILUTED> (4.66)
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE, THE
CAPTIONS "TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITIES" ARE NOT
APPLICABLE.
</FN>
</TABLE>
