<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
- -------
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
X
For the quarterly period ended April 30, 1996
- -------
- -------
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
------------------------------------
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
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
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
REALTY ReFUND TRUST
-------------------
BALANCE SHEETS
--------------
APRIL 30 AND JANUARY 31, 1996
-----------------------------
ASSETS
------
<TABLE>
<CAPTION>
April 30, January 31,
--------- -----------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS:
Loans receivable $11,395,779 $12,915,955
Loan receivable from related party, net of valuation
allowance of $5,000,000 at April 30 and January 31, 1996 4,330,310 4,506,055
CASH 85,132 16,285
INTEREST RECEIVABLE AND OTHER ASSETS 824,196 720,671
REAL ESTATE HELD FOR SALE, net of a $3,000,000 valuation
allowance at April 30, and January 31, 1996 6,674,502 6,396,364
============== ==============
$23,309,919 $24,555,330
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Loans payable underlying wrap-around mortgages $ 3,081,980 $ 4,577,187
Loan payable underlying wrap-around mortgage to related
party 2,979,518 3,155,263
Note payable to bank 6,920,000 6,295,000
Note payable to related party 4,375,000 4,500,000
Deposits and accrued expenses 1,405,886 1,480,061
-------------- --------------
Total liabilities 18,762,384 20,007,511
-------------- --------------
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par value; unlimited
authorization; 1,020,586 shares outstanding at April 30
and January 31, 1996 4,547,535 4,547,819
============== ==============
$23,309,919 $24,555,330
============== ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-2-
<PAGE> 4
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF INCOME
--------------------
FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND 1995
--------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
REVENUES:
Interest income from loans receivable $ 349,415 $ 650,917
Interest income from loan receivable from related party 207,453 234,311
Rental revenue from real estate held for sale 525,466 529,834
------------- -------------
1,082,334 1,415,062
------------- -------------
EXPENSES:
Interest on loans underlying wrap-around mortgages 80,288 195,549
Interest on loan underlying wrap-around mortgage to
related party 45,954 56,298
Interest on note payable to bank 113,664 222,664
Interest on note payable to related party 92,010 110,438
Fee to related party investment advisor 34,175 73,832
Operating expenses of real estate held for sale 537,031 504,724
Depreciation of building held for sale - 62,283
Amortization of tenant improvements and deferred leasing
commissions 10,606 41,362
Other operating expenses 66,831 6,774
------------- -------------
980,559 1,273,924
------------- -------------
NET INCOME $ 101,775 $ 141,138
============= =============
NET INCOME PER SHARE $.10 $.14
===== ======
CASH DIVIDENDS PER SHARE DECLARED $.10 $.20
===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 5
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND 1995
--------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 560,939 $ 890,744
Interest paid (338,730) (591,188)
Cash payments to investment advisor and other suppliers
(220,587) (291,761)
Rental revenue received from real estate held for sale 634,914 535,780
Cash payments for operating costs of real estate held for
sale (712,461) (270,973)
--------------- ---------------
Net cash provided by (used for) operating activities
(75,925) 272,602
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable 1,695,921 1,602,229
Principal payments on mortgage loans payable (1,670,952) (1,544,675)
Payments for tenant improvements - (124,985)
Purchase of fee interest in land (278,138) -
--------------- ---------------
Net cash used for investing activities (253,169) (67,431)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on note payable to related party (125,000) (125,000)
Net bank borrowings 625,000 100,000
Payment of cash dividends (102,059) (204,117)
--------------- ---------------
Net cash provided by (used for) financing activities
397,941 (229,117)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 68,847 (23,946)
CASH AT BEGINNING OF PERIOD 16,285 39,073
--------------- ---------------
CASH AT END OF PERIOD $ 85,132 $ 15,127
=============== ===============
</TABLE>
-4-
<PAGE> 6
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH (USED FOR) PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 101,775 $ 141,138
Adjustments to reconcile net income to net cash
provided by (used for) operating activities-
Depreciation - 62,283
Amortization of tenant improvements and deferred
leasing commissions 10,606 41,362
Amortization of deferred loan fees (4,500) (4,500)
Decrease (increase) in interest receivable and
other assets (114,131) 291,352
Decrease in deposits and accrued expenses (69,675) (259,033)
=============== ===============
$ (75,925) $ 272,602
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE> 7
REALTY ReFUND TRUST
-------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
APRIL 30, 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 April 30, 1996, and the results of its
operations and cash flows for the three-month periods ended April 30, 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 May 15, 1996, the Trustees declared a distribution, payable on June 17, 1996
in the amount of 10 cents per share of beneficial interest.
3. NET INCOME PER SHARE:
---------------------
Net income per share has been computed based on the weighted average number of
shares outstanding. Net income per share for the three months ended April 30,
1996 and 1995, was based upon 1,020,586 shares. During these periods, the Trust
had no potentially dilutive securities outstanding. At April 30, 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 in the
quarter ended April 30, 1996.
-6-
<PAGE> 8
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Interest income on mortgage loans receivable decreased during the quarter ended
April 30, 1996 as compared to the corresponding period of 1995 due to the
Sarasota and Orlando, Florida and Saginaw, Michigan loan repayments and the
principal prepayments received on the Toledo, Oho wrap-around mortgage loan, all
of which occurred in 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 months ended April 30, 1996, the Chicago property incurred a
net operating loss of approximately $22,000, inclusive of amortization charges
for deferred leasing commissions totaling approximately $11,000. For the prior
year quarter, the Chicago property incurred a net operating loss of
approximately $79,000, inclusive of depreciation and amortization charges for
building, building improvements, tenant improvements and deferred leasing
commissions of approximately $104,000. Rental revenue was comparable between
periods. Operating expenses of the Chicago property increased between periods
due to an increase in repair and maintenance expense. Amortization and
depreciation expense decreased between periods due to the adoption of FAS No.
121 discussed below.
In the first quarter of fiscal 1997, the Trust adopted 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 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 in the quarter ended April 30, 1996. As a result, the Trust
did not provide depreciation on the real estate held for sale.
Average bank borrowing levels were considerably lower in the current year
quarter 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 quarter 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 period.
The fee to investment advisor decreased in the current year due to the lower
level of net investment in mortgage loans.
Other operating expenses increased in the current period due to higher levels of
legal and professional expense.
-7-
<PAGE> 9
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 three months ended April 30, 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 increased primarily from the purchase of the
remaining fee interest in the land related to the real estate held for sale. In
addition, the Trust capitalized no expenditures for tenant improvements of the
Chicago property in the current year quarter.
Cash provided by financing activities increased as the Trust increased bank
borrowings as compared to the prior year quarter 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 in the quarter ended April
30, 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. The credit agreement expires in July 1996. As of April 30, 1996, the
Trust had available $80,000 under the credit agreement.
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.
-8-
<PAGE> 10
FORM 10-Q -- PART II: OTHER INFORMATION
---------------------------------------
Items 1 through 3 and 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 4: Submission of Matters to a Vote of Security Holders
- ----------- -------------------------------------------------------------------
(a) The Trust's Annual Meeting of Shareholders was held May 15, 1996.
(b) The following Trustees were elected at such annual meeting, each
for a one-year term expiring in 1997:
James H. Berick
Alan M. Krause
Alvin M. Kendis
Frank L. Kennard
Samuel S. Pearlman
(c) The Election of Trustees was the only matter voted on at the annual
meeting of shareholders:
Trustee Name Votes For Abstentions
------------------------ ------------ --------------
James H. Berick 697,583 33,136
Alan M. Krause 697,483 33,236
Alvin M. Kendis 692,583 38,136
Frank L. Kennard 692,583 38,136
Samuel S. Pearlman 692,483 38,236
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 601(b)(27) of Regulation
S-K.
-9-
<PAGE> 11
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.
June 13, 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
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF APRIL 30, 1996 AND JANUARY 31, 1996 AND STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 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> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 85,132
<SECURITIES> 0
<RECEIVABLES> 20,726,089
<ALLOWANCES> 5,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 6,674,502
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,309,919
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 17,356,498
<COMMON> 4,547,535
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,309,919
<SALES> 0
<TOTAL-REVENUES> 1,082,334
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 648,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 331,916
<INCOME-PRETAX> 101,775
<INCOME-TAX> 0
<INCOME-CONTINUING> 101,775
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,775
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET. THEREFORE, THE CAPTIONS
"TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITIES" ARE NOT APPLICABLE.
</FN>
</TABLE>
