<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
X
For the quarterly period ended July 31, 1996
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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
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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
----------------------------
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
------ ------ -------
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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UNAUDITED
---------
BALANCE SHEETS
--------------
JULY 31, AND JANUARY 31, 1996
-----------------------------
ASSETS
------
<TABLE>
<CAPTION>
July 31, January 31,
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS:
Loan receivable $ 9,845,444 $ 12,915,955
Loan receivable from related party, net of valuation
allowance of $5,000,000 at July 31 and January 31, 1996
4,151,893 4,506,055
REAL ESTATE HELD FOR SALE, net of a $3,000,000 valuation
allowance at July 31 and January 31, 1996 6,680,666 6,396,364
CASH 64,789 16,285
INTEREST RECEIVABLE AND OTHER ASSETS 757,945 720,671
------------- -------------
$ 21,500,737 $ 24,555,330
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Loan payable underlying wrap-around mortgage $ 1,556,235 $ 4,577,187
Loan payable underlying wrap-around mortgage to related
party 2,801,102 3,155,263
Note payable to bank 6,870,000 6,295,000
Note payable to related party 4,250,000 4,500,000
Deposits and accrued expenses 1,479,459 1,480,061
------------- -------------
Total liabilities 16,956,796 20,007,511
------------- -------------
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value;
unlimited authorization; 1,020,586 shares outstanding
at July 31 and January 31, 1996 4,543,941 4,547,819
------------- -------------
$ 21,500,737 $ 24,555,330
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE> 4
REALTY ReFUND TRUST
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UNAUDITED
---------
STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
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<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
REVENUES:
Interest income from loans receivable $ 331,189 $ 638,410
Interest income from loan receivable from related party
205,561 237,784
Rental revenue from real estate held for sale 570,656 574,401
------------- --------------
1,107,406 1,450,595
------------- --------------
EXPENSES:
Provision for writedown of loan receivable from related
party - 5,000,000
Interest on loans underlying wrap-around mortgages 50,830 170,577
Interest on loan underlying wrap-around mortgage to
related party 43,269 53,770
Interest on note payable to bank 122,343 232,152
Interest on note payable to related party 91,380 110,431
Fee to related party investment advisor 37,005 47,320
Operating expenses of real estate held for sale 556,718 577,419
Depreciation of building held for sale - 64,066
Amortization of tenant improvements and deferred leasing
commissions 10,784 52,505
Other operating expenses 96,613 41,810
------------- --------------
1,008,942 6,350,050
------------- --------------
NET INCOME (LOSS) $ 98,464 $ (4,899,455)
============= ==============
NET INCOME (LOSS) PER SHARE $ .10 $ (4.80)
======== ========
CASH DIVIDENDS PER SHARE DECLARED $ .10 $ .10
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
REALTY ReFUND TRUST
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UNAUDITED
---------
STATEMENTS OF INCOME
--------------------
FOR THE SIX MONTHS ENDED JULY 31, 1996 AND 1995
-----------------------------------------------
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
REVENUES:
Interest income from loans receivable $ 685,104 $ 1,289,327
Interest income from loan receivable from related party
408,514 472,095
Rental revenue from real estate held for sale 1,096,122 1,104,235
------------- -------------
2,189,740 2,865,657
------------- -------------
EXPENSES:
Provision for writedown of loan receivable from related
party - 5,000,000
Interest on loans underlying wrap-around mortgages 131,118 366,125
Interest on loan underlying wrap-around mortgage loan to
related party 89,223 110,069
Interest on note payable to bank 236,008 454,816
Interest on note payable to related party 183,391 220,868
Fee to related party investment advisor 71,180 121,152
Operating expenses of real estate held for sale 1,093,747 1,082,143
Depreciation of building held for sale - 126,349
Amortization of tenant improvements and deferred leasing
commissions 21,390 93,867
Other operating expenses 163,444 48,584
------------- -------------
1,989,501 7,623,973
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NET INCOME (LOSS) $ 200,239 $ (4,758,316)
============= ============
NET INCOME (LOSS) PER SHARE $ $ (4.66)
.20
======== ===========
CASH DIVIDENDS PER SHARE DECLARED $ $ .30
.20
======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
REALTY ReFUND TRUST
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UNAUDITED
---------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1996 AND 1995
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<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 1,090,813 $ 1,758,397
Interest paid (648,102) (1,160,454)
Cash payments to investment advisor and other suppliers
(253,286) (340,888)
Rental revenue received from real estate held for sale 1,207,317 1,084,028
Cash payments for operating costs of real estate held for
sale (1,234,379) (703,508)
------------- -------------
Net cash provided by operating activities 162,363 637,575
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable 3,424,673 3,229,943
Principal payments on mortgage loans payable (3,375,113) (3,119,673)
Purchase of fee interest in land (284,302) -
Payments for tenant improvements - (337,025)
------------- -------------
Net cash used for investing activities (234,742) (226,755)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to related party (250,000) (250,000)
Net bank borrowings 575,000 225,000
Payment of cash dividends (204,117) (408,254)
------------- -------------
Net cash provided by (used for) financing
activities 120,883 (433,254)
------------- -------------
NET INCREASE (DECREASE) IN CASH 48,504 (22,434)
CASH BALANCE AT BEGINNING OF PERIOD 16,285 39,073
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CASH BALANCE AT END OF PERIOD $ 64,789 $ 16,639
============= =============
</TABLE>
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<PAGE> 7
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<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $ 200,239 $ (4,758,316)
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
Amortization of tenant improvements and deferred
leasing commissions 21,390 93,867
Amortization of deferred loan fees (9,000) (9,000)
Decrease (increase) in interest receivable and
other assets (58,664) 187,213
Increase (decrease) in deposits and accrued expenses
8,398 (2,538)
============= =============
$ 162,363 $ 637,575
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 8
REALTY ReFUND TRUST
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
JULY 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 July 31, 1996, and the results of its
operations and cash flows for the six-month periods ended July 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 August 15, 1996, the Trustees declared a distribution, payable on September
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 six
months ended July 31, 1996 and 1995, was based upon 1,020,586 shares. During
these periods, the Trust had no potentially dilutive securities outstanding. At
July 31, 1996 and 1995, there were 1,020,586 shares of beneficial interest
outstanding.
4. 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
six-month periods ended July 31,1996.
5. SUBSEQUENT EVENT:
-----------------
In August 1996, the expiration date of the Trust's bank credit agreement was
extended to October 31, 1996. No other provisions of the credit agreement were
modified.
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<PAGE> 9
Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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Interest income on mortgage loans receivable decreased during the three- and
six-month periods ended July 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.
Interest expense on mortgage loans payable decreased due to the normal
amortization of mortgage loan balances.
During the three- and six-months ended July 31, 1996, the Chicago property
incurred net operating losses of approximately $3,000 and $19,000, inclusive of
amortization charges for deferred leasing commissions totaling $11,000 and
$21,000, respectively. For the prior year three- and six-month periods, the
Chicago property incurred net operating losses of approximately $120,000 and
$198,000, inclusive of depreciation and amortization charges for building,
building improvements, tenant improvements and deferred leasing commissions of
approximately $117,000 and $220,000. 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 six-month period ended July 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 the prior year and lower prime
lending rates in the current year.
The fee to investment advisor decreased in the current year periods due to the
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.
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<PAGE> 10
Liquidity
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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 six months ended July 31, 1996 as compared to the prior year period, net
cash provided by operating activities decreased due to a higher level of net
cash payments for operating costs of the Chicago property. The prior year period
included the receipt of $300,000 for reimbursement of building repairs and
maintenance expenses.
Cash used for investing activities remained relatively unchanged from the prior
year period. 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 provided by financing activities increased as the Trust increased bank
borrowings in order to fund the operating and investing activities discussed
above, the principal payment on the related party note payable and the payment
of dividends. Also, dividends paid decreased as the Trustees declared and paid a
lower dividend for the period ended July 31, 1996 than in the prior year.
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
$7,000,000 and repayments of mortgage loans receivable. The credit agreement is
used to fund any operating deficits of the Chicago building and for working
capital. As of July 31, 1996, the Trust had available $130,000 under the credit
agreement. In August 1996, the expiration date of the credit agreement was
extended to October 31, 1996. The Trust anticipates that all bank borrowings
will be retired with the net proceeds received from the repayment of the Fort
Worth, Texas wrap-around mortgage loan at its scheduled maturity date in October
1996.
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> 11
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.
<TABLE>
<CAPTION>
ITEM 6: Exhibits and Reports on Form 8-K
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<S> <C> <C>
(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.
<FN>
(1) Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
</TABLE>
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<PAGE> 12
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 12, 1996. 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
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF JULY 31, 1996 AND JANUARY 31, 1996 AND STATEMENTS OF OPERATIONS FOR
THE SIX MONTHS ENDED JULY 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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 64,789
<SECURITIES> 0
<RECEIVABLES> 18,997,337
<ALLOWANCES> 5,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 6,680,666
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,500,737
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 15,477,337
<COMMON> 4,543,941
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,500,737
<SALES> 0
<TOTAL-REVENUES> 2,189,740
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,349,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 639,740
<INCOME-PRETAX> 200,239
<INCOME-TAX> 0
<INCOME-CONTINUING> 200,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,239
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>The Registrant utilizes an unclassified balance sheet. Therefore, the
captions "Total Current Assets" and "Total Current Liabilities" are not
applicable.
</FN>
</TABLE>
