<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
[X] Act of 1934
For the quarterly period ended July 31, 1997
-------------
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 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, 1997
-----------------------------
ASSETS
------
<TABLE>
<CAPTION>
July 31, January 31,
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
CASH $ 456,711 $ 531,997
INTEREST RECEIVABLE AND OTHER ASSETS 289,480 285,004
REAL ESTATE HELD FOR SALE, net of a $4,085,000
valuation allowance at July 31 and January 31, 1997 5,599,122 5,599,122
---------- ----------
$6,345,313 $6,416,123
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Note payable to related party $2,300,000 $2,300,000
Deposits and accrued expenses 1,087,042 864,903
---------- ----------
Total liabilities 3,387,042 3,164,903
---------- ----------
SHAREHOLDERS' EQUITY:
Shares of beneficial interest without par
value; unlimited authorization; 1,020,586
shares outstanding at July 31 and January 31, 1997 2,958,271 3,251,220
---------- ----------
$6,345,313 $6,416,123
========== ==========
</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
--------------------
FOR THE THREE MONTHS ENDED JULY 31, 1997 AND 1996
-------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Interest income from loans receivable $ -- $ 331,189
Interest income from loan receivable from related
party -- 205,561
Rental revenue from real estate held for sale 545,926 570,656
----------- -----------
545,926 1,107,406
----------- -----------
EXPENSES:
Interest on loans underlying wrap-around mortgages -- 50,830
Interest on loan underlying wrap-around mortgage to
related party -- 43,269
Interest on note payable to bank -- 122,343
Interest on note payable to related party 49,961 91,380
Fee to related party investment advisor -- 37,005
Operating expenses of real estate held for sale 480,027 556,718
Amortization of deferred leasing commissions 10,863 10,784
Other operating expenses, net 53,964 96,613
----------- -----------
594,815 1,008,942
----------- -----------
NET INCOME (LOSS) $ (48,889) $ 98,464
=========== ===========
NET INCOME (LOSS) PER SHARE $ (.05) $ .10
=========== ===========
CASH DIVIDENDS PER SHARE DECLARED $ .00 $ .10
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF INCOME
--------------------
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
-----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Interest income from loans receivable $ -- $ 685,104
Interest income from loan receivable from related
party -- 408,514
Rental revenue from real estate held for 1,104,859 1,096,122
----------- -----------
sale
1,104,859 2,189,740
----------- -----------
EXPENSES:
Interest on loans underlying wrap-around mortgages -- 131,118
Interest on loan underlying wrap-around mortgage
loan to related party -- 89,223
Interest on note payable to bank -- 236,008
Interest on note payable to related party 97,446 183,391
Fee to related party investment advisor -- 71,180
Operating expenses of real estate held for sale 1,013,676 1,093,747
Amortization of deferred leasing commissions 21,724 21,390
Other operating expenses, net 111,875 163,444
----------- -----------
1,244,721 1,989,501
----------- -----------
NET INCOME (LOSS) $ (139,862) $ 200,239
=========== ===========
NET INCOME (LOSS) PER SHARE $ (.14) $ .20
=========== ===========
CASH DIVIDENDS PER SHARE DECLARED $ .05 $ .20
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
REALTY ReFUND TRUST
-------------------
UNAUDITED
---------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
-----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ -- $ 1,090,813
Interest paid (97,122) (648,102)
Cash payments to investment advisor and other
suppliers (218,246) (253,286)
Rental revenue received from real estate held 1,072,406 1,207,317
for sale
Cash payments for operating costs of real estate held
for sale (679,236) (1,234,379)
----------- -----------
Net cash provided by operating activities 77,802 162,363
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on mortgage loans receivable -- 3,424,673
Principal payments on mortgage loans payable -- (3,375,113)
Purchase of fee interest in land -- (284,302)
----------- -----------
Net cash used for investing activities -- (234,742)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to related party -- (250,000)
Net bank borrowings -- 575,000
Payment of cash dividends (153,088) (204,117)
----------- -----------
Net cash provided by (used for) financing
activities (153,088) 120,883
----------- -----------
NET INCREASE (DECREASE) IN CASH (75,286) 48,504
CASH BALANCE AT BEGINNING OF PERIOD 531,997 16,285
----------- -----------
CASH BALANCE AT END OF PERIOD $ 456,711 $ 64,789
=========== ===========
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $(139,862) $ 200,239
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Amortization of tenant improvements and
deferred leasing commissions 21,724 21,390
Amortization of deferred loan fees -- (9,000)
Increase in interest receivable and other assets (26,200) (58,664)
Increase in deposits and accrued expenses 222,140 8,398
--------- ---------
$ 77,802 $ 162,363
========= =========
</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, 1997 AND 1996
----------------------
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, 1997, and the results of its
operations and cash flows for the six-month periods ended July 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 August 15, 1997, the Trustees decided not to declare a dividend for the
quarter ended July 31, 1997.
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, 1997 and 1996, was based upon 1,020,586 shares. During
these periods, the Trust had no potentially dilutive securities outstanding. At
July 31, 1997 and 1996, there were 1,020,586 shares of beneficial interest
outstanding.
4. SUBSEQUENT EVENTS:
------------------
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. No material gain or loss
resulted from the sale of the Chicago building.
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.
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<PAGE> 9
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Interest income on mortgage loans receivable decreased during the three- and
six-month periods ended July 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
six-month period ended July 31, 1997.
During the three- and six-months ended July 31, 1997, the Chicago property
earned net operating income of approximately $55,000 and $69,000, inclusive of
amortization charges for deferred leasing commissions totaling $11,000 and
$22,000, respectively. For the prior year three- and six-month periods, the
Chicago property earned net operating income and incurred net operating losses
of approximately $3,000 and $19,000, respectively, inclusive of amortization of
deferred leasing commissions of approximately $11,000 and $21,000. Rental
revenue and other operating expenses decreased during the three-months ended
July 31, 1997 as compared to the corresponding period due to a decrease in lease
renewals.
The Trust's real estate held for sale is 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 the three- and six-months ended July
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. No material gain or loss resulted from the sale.
There was no interest expense on bank borrowings during the six- months ended
April 30, 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.
There was no fee to investment advisor during the three- and six- months ended
July 31, 1997 due to the reduction in the Trust's investments in mortgage loans.
Other operating expenses decreased during the three- and six-months ended July
31, 1997 due to lower levels of legal and professional expense.
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<PAGE> 10
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 $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 six-months ended April 30, 1997 as compared to the prior year period,
net cash provided by operating activities decreased due to the Trust having no
mortgage loan investments the effects of which more than offset a lower level of
net cash payments for operating costs of the Chicago property.
The Trust had no cash flows from investing activities as there was no mortgage
investment activity during the six-months ended July 31, 1997.
Cash used for financing activities increased as the Trust did not require bank
borrowings to fund investing or other financing activities in the six-months
ended July 31, 1997.
The Trust's primary source of funds is cash flow generated from selling the
Chicago property. In the opinion of management, this cash flow will be
sufficient to fund cash requirements.
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
- ---------
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
---------------------------------------------------------------------------
<S> <C> <C>
(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.
</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, 1997. 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
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF JULY 31, AND JANUARY 31, 1997 STATEMENTS OF INCOME FOR THE SIX
MONTHS ENDED JULY 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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 456,711
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,599,122
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,345,313
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,300,000
<COMMON> 2,958,271
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,345,313
<SALES> 0
<TOTAL-REVENUES> 1,104,859
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,147,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,446
<INCOME-PRETAX> (139,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,862)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE THE CAPTIONS
"TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITES" ARE NOT APPLICABLE.
</FN>
</TABLE>
