<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, 1996
----------------
[X] Transition pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________________ to ________________
Commission File Number 1-7062
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REALTY ReFUND TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-6647590
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1385 Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114
- --------------------------------------------------------------------------------
(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 X
----- ----- -----
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
-------------------
PART I. FINANCIAL INFORMATION
-----------------------------
<PAGE> 3
<TABLE>
<CAPTION>
REALTY ReFUND TRUST
-------------------
BALANCE SHEETS
--------------
OCTOBER 31, AND JANUARY 31, 1996
--------------------------------
ASSETS
------
October 31, January 31,
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS:
Loan receivable $ 8,266,189 $12,915,955
Loan receivable from related party, net of valuation
allowance of $5,000,000 at October 31, and January 31,
1996 111,498 4,506,055
REAL ESTATE HELD FOR SALE, net of $3,000,000 valuation
allowance at October 31, and January 31, 1996
6,684,122 6,396,364
CASH 307,071 16,285
INTEREST RECEIVABLE AND OTHER ASSETS 341,993 720,671
============== ==============
$15,710,873 $24,555,330
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Loan payable underlying wrap-around mortgage $ - $ 4,577,187
Loan payable underlying wrap-around mortgage to
related party - 3,155,263
Note payable to bank 6,070,000 6,295,000
Note payable to related party 4,125,000 4,500,000
Deposits and accrued expenses 971,733 1,480,061
-------------- --------------
Total liabilities 11,166,733 20,007,511
-------------- --------------
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value, unlimited
authorization, 1,020,586 shares outstanding at
October 31, and January 31, 1996 4,544,140 4,547,819
-------------- --------------
$15,710,873 $24,555,330
============== ==============
</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, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Interest income from loan receivable $ 298,671 $ 509,180
Interest income from loan receivable from related party
151,625 235,218
Rental revenue from real estate held for sale 614,231 609,142
----------- -----------
1,064,527 1,353,540
----------- -----------
EXPENSES:
Interest on loan underlying wrap-around mortgage 19,066 140,183
Interest on loan underlying wrap-around mortgage loan to
related party - 51,204
Interest on note payable to bank 116,380 136,371
Interest on note payable to related party 88,773 105,365
Fee to related party investment advisor 87,684 73,441
Operating expenses of real estate held for sale 505,354 523,994
Depreciation of building held for sale - 69,601
Amortization of tenant improvements and deferred leasing
commissions 10,829 49,348
Other operating expenses, net 134,183 72,407
----------- -----------
962,269 1,221,914
----------- -----------
NET INCOME $ 102,258 $ 131,626
=========== ===========
NET INCOME PER SHARE $ .10 $ .13
======== ======
CASH DIVIDENDS PER SHARE DECLARED $ .10 $ .10
======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
<TABLE>
<CAPTION>
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF OPERATIONS
------------------------
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
---------------------------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
REVENUES:
Interest income from loan receivable $ 983,775 $ 1,798,507
Interest income from loan receivable from related party 560,139 707,313
Rental revenue from real estate held for sale 1,710,353 1,713,377
------------ -----------
3,254,267 4,219,197
------------ -----------
EXPENSES:
Provision for writedown of loan receivable from related
party - 5,000,000
Interest on loans underlying wrap-around mortgages 150,184 506,308
Interest on loan underlying wrap-around mortgage loan to
related party 89,223 161,273
Interest on note payable to bank 352,388 591,187
Interest on note payable to related party 272,164 326,232
Fee to related party investment advisor 158,864 194,594
Operating expenses of real estate held for sale 1,599,099 1,606,137
Depreciation of building held for sale - 195,950
Amortization of tenant improvements and deferred leasing
commissions 32,220 143,215
Other operating expenses, net 297,627 120,991
------------ -----------
2,951,769 8,845,887
------------ -----------
NET INCOME (LOSS) $ 302,498 $(4,626,690)
============ ===========
NET INCOME (LOSS) PER SHARE $ .30 $(4.53)
========= ========
CASH DIVIDENDS PER SHARE DECLARED $ .30 $ .40
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
---------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 1,563,483 $ 2,557,754
Interest paid (890,995) (1,617,170)
Cash payments to investment advisor and other suppliers
(608,233) (721,290)
Rental revenue received from real estate held for sale 1,762,044 1,675,507
Cash payments for operating expenses of real estate held
for sale (1,653,451) (1,227,416)
-------------
Net cash provided by operating activities 172,848 667,385
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable 6,303,293 10,588,027
Principal payments on mortgage loans payable (4,991,421) (4,726,144)
Payments for tenant and building improvements - (719,607)
Purchase of fee interest in land (287,758) -
------------- -------------
Net cash provided by investing activities 1,024,114 5,142,276
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to related party (375,000) (375,000)
Net bank repayments (225,000) (4,915,000)
Payment of cash dividends (306,176) (510,313)
------------- -------------
Net cash used for financing activities (906,176) (5,800,313)
------------- -------------
NET INCREASE IN CASH 290,786 9,348
CASH AT BEGINNING OF PERIOD 16,285 39,073
------------- -------------
CASH AT END OF PERIOD $ 307,071 $ 48,421
============= =============
</TABLE>
<PAGE> 7
-2-
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $ 302,498 $ (4,626,690)
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
Amortization of tenant improvements and deferred
leasing commissions 32,220 143,215
Amortization of deferred loan fees (13,500) (13,500)
Decrease in interest receivable and other assets 346,459 246,915
Decrease in deposits and accrued expenses (494,829) (278,505)
-------------- --------------
$ 172,848 $ 667,385
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
REALTY ReFUND TRUST
-------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
OCTOBER 31, 1996 AND 1995
-------------------------
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, 1996, and the results of its
operations and cash flows for the nine-month periods ended October 31, 1996 and
1995. 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, 1996, the Trustees declared a distribution, payable on December
16, 1996, 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-month periods ended October 31, 1996 and 1995, was based upon 1,020,586
shares. During these periods, the Trust had no potentially dilutive securities
outstanding. At October 31, 1996 and 1995, there were 1,020,586 shares of
beneficial interest outstanding.
4. LOAN TO RELATED PARTY:
----------------------
In September 1996, the Toledo, Ohio loan investment was converted from a
wrap-around mortgage loan to a junior mortgage loan. Accordingly, the Trust's
loan receivable from related party and loan payable underlying mortgage to
related party was reduced by approximately $2,700,000, representing the
underlying mortgage loan at the time the status of the Toledo loan was changed.
In addition, a principal prepayment of $600,000 was received and approximately
$401,000 of escrow funds held by the Trust was applied towards the mortgage loan
receivable balance.
<PAGE> 9
-2-
5. NEW ACCOUNTING PRINCIPLE:
-------------------------
In the first quarter of fiscal 1997, the Trust adopted Statement of Financial
Accounting Standards (FAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." Pursuant to this standard,
long-lived assets to be disposed of are to be reported at the lower of carrying
amount or fair value less incremental direct costs to sell. Long-lived assets to
be disposed of shall not be depreciated while being held for disposal. The
Trust's real estate held for sale is within the scope of FAS No. 121. As the
Trust established a $3,000,000 valuation allowance at January 31, 1996 to reduce
the carrying value of the real estate held for sale to its estimated net
realizable value, adoption of FAS No. 121 did not have a material impact on the
Trust's financial position or results of operations except that no depreciation
expense was recorded on the real estate held for sale during the three- and
nine-month periods ended October 31, 1996.
6. SUBSEQUENT EVENT:
-----------------
The mortgage loan to Pacific Place Partners, LTD. in Fort Worth, Texas, which
was scheduled to mature in October 1996, was paid in full in November 1996.
The Trust's bank credit agreement, originally scheduled to expire in October
1996, was extended to November 1996 to correspond with the extended maturity
date of the Fort Worth, Texas loan receivable. The proceeds from the repayment
of the Fort Worth, Texas loan were utilized, in part, to retire all outstanding
borrowings under the Trust's bank credit agreement and to reduce the note
payable to related party by $1,700,000. Upon retirement of all outstanding
borrowings thereunder, the Trust's bank credit agreement expired.
<PAGE> 10
Management's Discussion and Analysis of Financial
Condition and Results of Operation
- -------------------------------------------------
In September 1996, the Toledo, Ohio loan investment was converted from a
wrap-around mortgage loan to a junior mortgage loan. Accordingly, the Trust's
loan receivable from related party and loan payable underlying mortgage to
related party was reduced by approximately $2,700,000, representing the
underlying mortgage loan at the time the status of the Toledo loan was changed.
In addition, a principal prepayment of $600,000 was received and approximately
$401,000 of escrow funds held by the Trust was applied towards the mortgage loan
receivable balance.
Interest income on mortgage loans receivable decreased during the three- and
nine-month periods ended October 31, 1996 as compared to the corresponding
periods of 1995 due to the Sarasota and Orlando, Florida and Saginaw, Michigan
loan repayments and the principal prepayments received on the Toledo, Ohio
wrap-around mortgage loan, all of which occurred during the fiscal year ended
January 31, 1996, and the normal amortization of mortgage loan balances and the
conversion of the Toledo, Ohio loan from a wrap-around to a junior mortgage loan
in September 1996. Interest expense on mortgage loans payable decreased due to
the normal amortization of mortgage loan balances.
During the three months ended October 31, 1996, the Chicago property realized
net operating income of approximately $98,000 and for the nine-month period
ended October 31, 1996, incurred a net operating loss of $79,000. Both periods
are inclusive of amortization charges for deferred leasing commissions totaling
$11,000 and $32,000, respectively. For the prior year three- and nine-month
periods, the Chicago property incurred net operating losses of approximately
$34,000 and $232,000, inclusive of depreciation and amortization charges for
building, building improvements, tenant improvements and deferred leasing
commissions of approximately $119,000 and $339,000. Amortization and
depreciation expense decreased between periods due to the adoption of FAS No.
121 discussed below. Rental revenue and other operating expenses were comparable
between periods.
In the first quarter of fiscal 1997, the Trust adopted FAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of." Pursuant to this standard, long-lived assets to be disposed of are to be
reported at the lower of carrying amount or fair value less incremental direct
costs to sell. Long-lived assets to be disposed of shall not be depreciated
while being held for disposal. The Trust's real estate held for sale is within
the scope of FAS No. 121. As the Trust established a $3,000,000 valuation
allowance at January 31, 1996 to reduce the carrying value of the Chicago real
estate held for sale to its estimated net realizable value, adoption of FAS No.
121 did not have a material impact on the Trust's financial position or results
of operations except that no depreciation expense was recorded on the real
estate held for sale for the nine-month period ended October 31, 1996.
Average bank borrowing levels were considerably lower in the current year as the
proceeds received in the prior year in connection with the Sarasota and Orlando,
Florida and Saginaw, Michigan loan repayments and the principal prepayments
received on the Toledo, Ohio loan were used to reduce bank borrowings. In
addition, the effect of lower bank lending rates in the current year resulted in
a decrease in interest expense on the note payable to the bank.
Interest expense on the note payable to related party decreased due to quarterly
principal payments of $125,000 which began in prior year and lower prime lending
rates in the current year.
<PAGE> 11
-2-
The fee to investment advisor increased during the three-month period ended
October 31, 1996, due to a charge from the advisor for services and decreased,
overall, for the nine-month period ended due to lower level of net investment in
mortgage loans.
Other operating expenses increased in the current year periods due to higher
levels of legal and professional expense.
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 income tax reporting 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 months ended October 31, 1996 as compared to the prior year period,
net cash provided by operating activities decreased due to decreased interest
income from mortgage loan investments and the prior year period including the
receipt of $300,000 for reimbursement of building repairs and maintenance
expenses.
Cash flows from investing activities decreased due to the Sarasota and Orlando,
Florida mortgage loan being retired at maturity and the prepayment in full of
the Saginaw, Michigan loan in the prior year period. The Trust's aggregate
investment in these loans was approximately $5,700,000. In the current year, the
Trust purchased the remaining fee interest in the land related to the real
estate held for sale. The Trust capitalized no expenditures for tenant or
building improvements 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 loan repayments being available to
pay down bank borrowings and a decrease in dividends paid.
The Trust's primary sources of funds are the repayment of mortgage loans
receivable and cash flow, if any, generated by the Chicago property. If the
Chicago property generates cash flow deficits, the Trust must fund such
deficits. Additionally, the Trust's bank credit agreement was retired with the
net proceeds received from the repayment of the Fort Worth, Texas wrap-around
mortgage loan in November 1996 and expired. In the opinion of management,
available cash and cash flow from operations will be significant to fund cash
requirement.
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> 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.
<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.
December 13, 1996 REALTY ReFUND TRUST
-----------------------------------
(Registrant)
By /s/ Alan M. Krause
---------------------------------
Alan M. Krause
Chairman
By /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, 1996 AND JANUARY 31, 1996 AND STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995 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-31-1997
<PERIOD-START> FEB-1-1996
<PERIOD-END> OCT-31-1996
<CASH> 307,071
<SECURITIES> 0
<RECEIVABLES> 13,377,687
<ALLOWANCES> 5,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 6,684,122
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,710,873
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,195,000
<COMMON> 4,544,140
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,710,873
<SALES> 0
<TOTAL-REVENUES> 3,254,267
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,087,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 863,959
<INCOME-PRETAX> 302,498
<INCOME-TAX> 0
<INCOME-CONTINUING> 302,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302,498
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE, THE CAPTIONS
"TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITIES" ARE NOT APPLICABLE
</FN>
</TABLE>
