<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
<TABLE>
<CAPTION>
<S> <C>
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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 OCTOBER 31, 1997
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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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</TABLE>
Commission File Number 1-7062
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REALTY ReFUND TRUST
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(Exact name of registrant as specified in its charter)
Ohio 34-6647590
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(State or 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, 1997
--------------------------------
<TABLE>
<CAPTION>
ASSETS
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October 31, January 31,
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(Unaudited) (Audited)
<S> <C> <C>
CASH $2,682,947 $ 531,997
INTEREST RECEIVABLE AND OTHER ASSETS 46,934 285,004
REAL ESTATE HELD FOR SALE, net of $4,085,000 valuation
allowance at January 31, 1997 -- 5,599,122
========== ==========
$2,729,881 $6,416,123
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Note payable to related party $ -- $2,300,000
Deposits and accrued expenses 17,810 864,903
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Total liabilities 17,810 3,164,903
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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, 1997 2,712,071 3,251,220
---------- ----------
$2,729,881 $6,416,123
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
REALTY ReFUND TRUST
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UNAUDITED
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STATEMENTS OF OPERATIONS
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FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
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<TABLE>
<CAPTION>
1997 1996
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REVENUES:
<S> <C> <C>
Interest income from loan receivable $ -- $ 298,671
Interest income from loan receivable from related party
-- 151,625
Rental revenue from real estate held for sale 262,507 614,231
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262,507 1,064,527
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EXPENSES:
Loss on sale of real estate 35,620 --
Interest on loan underlying wrap-around mortgage -- 19,066
Interest on note payable to bank -- 116,380
Interest on note payable to related party 20,636 88,773
Fee to related party investment advisor -- 87,684
Operating expenses of real estate held for sale 389,886 505,354
Amortization of deferred leasing commissions -- 10,829
Other operating expenses, net 62,565 134,183
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508,707 962,269
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NET INCOME (LOSS) $ (246,200) $ 102,258
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NET INCOME (LOSS) PER SHARE $ (.24) $ .10
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CASH DIVIDENDS PER SHARE DECLARED $ .00 $ .10
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</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
REALTY ReFUND TRUST
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UNAUDITED
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STATEMENTS OF OPERATIONS
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FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
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<TABLE>
<CAPTION>
1997 1996
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REVENUES:
<S> <C> <C>
Interest income from loans receivable $ -- $ 983,775
Interest income from loan receivable from related party
-- 560,139
Rental revenue from real estate held for sale 1,367,366 1,710,353
----------- -----------
1,367,366 3,254,267
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EXPENSES:
Loss on sale of real estate 35,620 --
Interest on loans underlying wrap-around mortgages -- 150,184
Interest on loan underlying wrap-around mortgage loan to
related party -- 89,223
Interest on note payable to bank -- 352,388
Interest on note payable to related party 118,082 272,164
Fee to related party investment advisor -- 158,864
Operating expenses of real estate held for sale 1,403,562 1,599,099
Amortization of deferred leasing commissions
21,724 32,220
Other operating expenses, net 174,440 297,627
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1,753,427 2,951,769
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NET INCOME (LOSS) $ (386,062) $ 302,498
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NET INCOME (LOSS) PER SHARE $ (.38) $ .30
=========== ===========
CASH DIVIDENDS PER SHARE DECLARED $ .05 $ .30
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
REALTY ReFUND TRUST
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UNAUDITED
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STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
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<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ -- $ 1,563,483
Interest paid (134,593) (890,995)
Cash payments to investment advisor and other suppliers
(104,274) (608,233)
Rental revenue received from real estate held for sale 1,357,294 1,762,044
Cash payments for operating expenses of real estate held
for sale (2,113,511) (1,653,451)
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Net cash (used for) provided by operating
activities (995,084) 172,848
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CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable -- 6,303,293
Principal payments on mortgage loans payable -- (4,991,421)
Proceeds from sale of real estate, net 5,599,122 --
Purchase of fee interest in land -- (287,758)
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Net cash provided by investing activities 5,599,122 1,024,114
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to related party (2,300,000) (375,000)
Net bank repayments -- (225,000)
Payment of cash dividends (153,088) (306,176)
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Net cash used for financing activities (2,453,088) (906,176)
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NET INCREASE IN CASH 2,150,950 290,786
CASH AT BEGINNING OF PERIOD 531,997 16,285
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CASH AT END OF PERIOD $ 2,682,947 $ 307,071
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</TABLE>
<PAGE> 7
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<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $(386,062) $ 302,498
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Amortization of tenant improvements and deferred
leasing commissions 21,724 32,220
Amortization of deferred loan fees -- (13,500)
Decrease in interest receivable and other assets 216,346 346,459
Decrease in deposits and accrued expenses (847,092) (494,829)
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$(995,084) $ 172,848
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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, 1997 AND 1996
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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, 1997, and the results of its
operations and cash flows for the nine-month periods ended October 31, 1997 and
1996. 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 17, 1997, the Trustees decided not to declare a dividend for the
quarter ended October 31, 1997.
3. NET INCOME (LOSS) PER SHARE:
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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, 1997 and 1996, was based upon 1,020,586
shares. During these periods, the Trust had no potentially dilutive securities
outstanding. At October 31, 1997 and 1996, there were 1,020,586 shares of
beneficial interest outstanding.
4. REAL ESTATE HELD FOR SALE:
--------------------------
The Trust's real estate held for sale was sold in September 1997. The Trust
received approximately $6,000,000 for the Chicago building before consideration
of closing and other costs related to the sale. A loss of approximately $36,000
resulted from the sale of the Chicago building.
<PAGE> 9
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5. LITIGATION:
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The Trust and its officers and Trustees have been sued by a shareholder. The
Trust intends to pursue all of the remedies available to it against this
shareholder. In the opinion of management, the amount of any ultimate liability
with respect to this action will not materially affect the Trust's financial
position.
<PAGE> 10
Management's Discussion and Analysis of Financial
Condition and Results of Operation
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Interest income on mortgage loans receivable decreased during the three- and
nine-month periods ended October 31, 1997 as compared to the corresponding
periods of 1996 due to the maturity of the Fort Worth, Texas loan in November
1996 and the retirement of the Toledo, Ohio loan, both of which occurred during
the fiscal year ended January 31, 1997. Interest expense on mortgage loans
payable decreased as the Trust had no mortgage loans payable outstanding during
the nine-month period ended October 31, 1997.
During three- and nine-month periods ended October 31, 1997 the Chicago property
incurred net operating losses of approximately $127,000 and $58,000, inclusive
of amortization charges for deferred leasing commissions totaling $0 and
$22,000, respectively. For the prior year three- and nine-month periods, the
Chicago property earned net operating income of approximately $98,000 and
$79,000, respectively, inclusive of amortization of deferred leasing commissions
of approximately $11,000 and $32,000. Rental revenue and other operating
expenses decreased during the three months ended October 31, 1997 as compared to
the corresponding period of the prior year due to a decrease in lease renewals.
The Trust's real estate held for sale was within the scope of 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. As such, no depreciation expense
was recorded on the real estate held for sale for the three- and nine-month
periods ended October 31, 1997 and 1996. The Chicago building was sold in
September 1997 for approximately $6,000,000 before consideration of closing and
other costs related to the sale. A loss of approximately $36,000 resulted from
the sale.
There was no interest expense on bank borrowings during the nine months ended
October 31, 1997 as the proceeds received in the fiscal year ended January 31,
1997 in connection with the maturity of the Fort Worth, Texas loan in November
1996 and the retirement of the Toledo, Ohio loan were used to retire all
outstanding bank borrowings.
Interest expense on the note payable to a related party decreased due to
quarterly principal payments of $125,000 and a $1,700,000 payment from a portion
of the proceeds from the repayment of the Fort Worth, Texas loan, both of which
occurred during the fiscal year ended January 31, 1997. In addition, the
remaining $2,300,000 of the note payable to a related party was retired with
proceeds from the sale of the Chicago property.
There was no fee to investment advisor during the three and nine months ended
October 31, 1997 due to the reduction in the Trust's investments in mortgage
loans.
Other operating expenses decreased during the three- and nine- month periods
ended October 31, 1997 as compared to the corresponding periods of the prior
year due to lower levels of legal and professional expense.
<PAGE> 11
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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. The
Trust has available approximately $9.5 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, 1997 as compared to the prior year period,
net cash provided by operating activities decreased due to the Trust having no
mortgage loan investments and having a higher level of net cash payments for
operating costs of the Chicago property.
Cash flows from investing activities increased due to the receipt of $5.6
million of net proceeds from the sale of the Chicago property in September 1997.
Cash used for financing activities increased as the Trust used proceeds from the
sale of the Chicago property to retire the note payable to related party. In
addition, the Trust did not require bank borrowings to fund investing or other
financing activities in the nine months ended October 31, 1997.
In the opinion of management, cash flow from short term investments, in addition
to, the existing cash is sufficient to meet cash requirements for the near-term
future.
In February 1997, the Trust signed an agreement to form a limited partnership
with Hospitality Corporation International ("HCI") of Phoenix, Arizona. Under
the terms of the agreement, this newly-formed partnership will acquire six of
HCI's seven all-suite hotel properties in Arizona and California, as well as
certain assets of the Trust. The remaining HCI hotel property will be acquired
by the Trust in exchange for newly-issued Realty Refund Trust shares. These
seven HCI properties contain 1,036 suites.
These transactions will be subject to approval by the shareholders of the Trust
and the investors in HCI's hotels. There can be no assurance that the necessary
approvals will be obtained. Should the approvals not be obtained, this agreement
will be terminated. At such time, the Trust would review its options, which may
include merger or alternative acquisition possibilities, if any, or liquidation.
The Trust and its officers and Trustees have been sued by a shareholder. The
Trust intends to pursue all of the remedies available to it against this
shareholder. In the opinion of management, the amount of any ultimate liability
with respect to this action will not materially affect the Trust's financial
position.
Inflation
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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
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(a) Exhibit
Number Exhibit
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10.1 Real Estate Sale Contract by and between Realty ReFund Trust
and Mark IV Realty Group, Inc., or its nominee, a to be
formed venture, as agent for the purchaser (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K dated
September 4, 1997).
10.2 First Amendment to Real Estate Sale Contract dated as of May
30, 1997 by and between Realty ReFund Trust and Mark IV
Realty Group, Inc., or its nominee, a to be formed venture,
as agent for the purchaser (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 8-K dated September 4,
1997).
27 Financial Data Schedule(1)
Reports on Form 8-K.
-------------------
(b)
On September 17, 1997, the Registrant filed a report on Form 8-K dated
September 4, 1997. The filing was made under Item 2 of Form 8-K, in
conjunction with the Registrant's sale, through wholly-owned corporate
subsidiaries, of an office building located in Chicago, Illinois for a total
consideration of Six Million Dollars ($6,000,000.00) The following financial
statements were filed as a part of the Form 8-K: Realty ReFund Trust
Unaudited Pro Forma Balance Statements of Operations for the Year Ended
January 31, 1997 and for the Six Months Ended July 31, 1997.
- ---
(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 12, 1997 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
SHEET AS OF OCTOBER 31 AND JANUARY 31, 1997, STATEMENTS OF OPERATIONS FOR THE
NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996 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-31-1998
<PERIOD-START> FEB-1-1997
<PERIOD-END> OCT-31-1997
<CASH> 2,682,947
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,729,881
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 2,712,071
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,729,881
<SALES> 0
<TOTAL-REVENUES> 1,367,366
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,635,345
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,082
<INCOME-PRETAX> (386,062)
<INCOME-TAX> 0
<INCOME-CONTINUING> (386,062)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386,062)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET. THEREFORE, THE
CAPTIONS "TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITIES" ARE NOT
APPLICABLE.
</FN>
</TABLE>
