<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 MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21670
CARDINAL REALTY SERVICES, INC.
(Exact name of registrant as specified in its charter)
OHIO 31-4427382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6954 AMERICANA PARKWAY, REYNOLDSBURG, OHIO 43068
(Address of principal executive offices) (Zip Code)
(614) 759-1566
(Registrant's telephone number, including area code)
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
--- ---
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 X No
--- ---
As of May 3, 1996 there were 3,839,019 shares of common stock outstanding, of
which 207,435 shares were treasury shares.
Exhibit Index on page 22.
<PAGE> 2
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 (Audited) 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 31, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 (Unaudited) 6-7
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Operating Real Estate (Note 2):
Land $ 23,756,734 $ 24,082,635
Building and Improvements 141,082,390 143,193,921
------------ ------------
164,839,124 167,276,556
Accumulated Depreciation (1,143,825) 0
------------ ------------
163,695,299 167,276,556
Interests in and Receivables from Syndicated Properties (Notes 1 and 4) 51,590,021 52,591,444
Cash (Note 1) 3,696,881 2,751,986
Accounts Receivable, Affiliates (less an allowance
of $2,416,167 at March 31, 1996 and $2,468,845 at
December 31, 1995), Residents and Officers (Note 4) 3,444,211 5,088,478
Furniture, Fixtures and Other, Net 1,261,879 1,312,228
Funds Held in Escrow 10,271,007 9,390,610
Prepaids and Other 3,640,880 3,930,099
------------ ------------
$237,600,178 $242,341,401
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages, Term Debt and Other Notes Payable:
Mortgages on Operating Real Estate (Notes 2 & 3) $148,859,445 $151,130,612
Term Debt 20,444,603 20,470,205
Other Notes Payable 124,532 1,453,553
------------ ------------
169,428,580 173,054,370
Accounts Payable 1,338,696 1,350,641
Accrued Interest, Real Estate and Other Taxes (Notes 2 & 3) 4,232,923 4,532,148
Other Accrued Expenses 6,996,900 9,716,866
Other Liabilities 2,689,458 2,441,282
------------ ------------
Total Liabilities 184,686,557 191,095,307
------------ ------------
Shareholders' Equity (Note 1):
Preferred Stock, 1,500,000 shares authorized, unissued
Common Stock 13,500,000 shares authorized with no stated value,
3,625,595 and 3,603,160 shares issued and outstanding
at March 31, 1996 and December 31, 1995, respectively 29,122,547 29,122,547
Additional Paid-in Capital 9,037,393 8,461,216
Retained Earnings 14,753,681 13,662,331
------------ ------------
52,913,621 51,246,094
------------ ------------
$237,600,178 $242,341,401
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
Revenues: (Restated -
Notes 1 and 5)
<S> <C> <C>
Rental and Other Operating Real Estate Revenues - Net $10,190,141 $ 0
Fee Based 2,821,035 3,610,099
Interest, Principally from Syndicated Properties 1,436,333 955,170
Income from Disposal or Recovery of Non-Core Assets 168,889 808,524
Other 72,613 167,221
----------- ----------
14,689,011 5,541,014
----------- ----------
Expenses:
Rental Operating 5,251,290 0
Fee Based 1,488,552 2,113,170
Administration 971,946 1,125,619
Interest 3,863,369 367,767
Depreciation 1,327,904 123,653
----------- ----------
12,903,061 3,730,209
----------- ----------
Income before Income Taxes 1,785,950 1,810,805
Provision for Income Taxes (Note 1) 694,600 702,000
----------- ----------
Income before Extraordinary Gain 1,091,350 1,108,805
Extraordinary Gain, net of Income Taxes of $167,000 (Note 3) 0 263,952
----------- ----------
Net Income $ 1,091,350 $1,372,757
=========== ==========
Net Income per Common Share:
Income before Extraordinary Gain $ 0.28 $ 0.29
Extraordinary Gain 0.00 0.07
----------- ----------
Net Income $ 0.28 $ 0.36
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Retained
Shares Amount Paid-in Capital Earnings Total
--------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,603,160 $29,122,547 $8,461,216 $13,662,331 $51,246,094
Shares issued, in connection with
the claims resolution process (Note 1) 1,886
Exercise of options under non-qualified
stock option plan 22,240 35,307 35,307
Less: Treasury shares from the redemption
of stock held by Syndicated Properties (1,691) (31,330) (31,330)
Credit from utilization of pre-confirmation
tax benefits (Note 1) 572,200 572,200
Net Income for the period 1,091,350 1,091,350
--------- ----------- ---------- ----------- -----------
Balance, March 31, 1996 (Note 1) 3,625,595 $29,122,547 $9,037,393 $14,753,681 $52,913,621
========= =========== ========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash Flows provided by Operating activities:
Management and Advisory Service activities:
Cash received from Fee Based activities $ 5,755,567 $ 5,367,940
Cash received from Interests in and Receivables from Syndicated Properties 1,329,164 724,582
Cash Receipts -- other 553,976 1,036,479
Cash paid to Vendors, Suppliers and Employees (6,191,138) (5,444,968)
Interest paid on Term Debt and Other Notes Payable (327,198) (359,081)
Income Taxes paid - City and State (77,038) (61,178)
Taxes paid, other than Income Taxes (38,650) (100,184)
Payments related to non-recurring items (402,124) (335,399)
Real Estate Asset activities:
Cash received from Rental activities 10,213,940 0
Payments on Rental activities (5,572,884) 0
Interest paid on Mortgages (3,326,627) 0
----------- ------------
Net Cash provided by Operating activities 1,916,988 828,191
----------- ------------
Cash flows provided by/(used in) Investing activities:
Management and Advisory Service activities:
Proceeds from sale of Non-Core Assets and Other 47,564 248,521
Capital Expenditures (71,021) (170,240)
Repayment from/(Advances to) Syndicated Properties 1,027,298 (1,989,462)
Acquisition of Real Estate Assets 0 (425,812)
Real Estate Assets activities:
Net cash flow provided by Rental activities during period
Held for Sale (net of Interest paid of $3,042,538) 0 1,289,511
Funding of Escrows (43,214) 0
Capital Expenditures (62,017) 0
----------- ------------
Net Cash provided by/(used in) Investing activities 898,610 (1,047,482)
----------- ------------
Cash Flows (used in)/provided by Financing activities:
Management and Advisory Service activities:
Proceeds from the exercise of Stock Options 35,307 0
Redemption of Stock held by Syndicated Properties (31,330) 0
Net Proceeds from/(Principal Payments) on Term Debt and Other (1,436,304) 841,479
Real Estate Asset activities:
Proceeds from Mortgage Debt 2,260,000 0
Payments on Mortgages - principal amortization (553,593) (462,044)
Payments on Mortgages - lump sum (2,144,783) 0
----------- ------------
Net Cash (used in)/provided by Financing Activities (1,870,703) 379,435
----------- ------------
Increase in Cash 944,895 160,144
Cash at Beginning of Year 2,751,986 4,639,643
----------- ------------
Cash at End of Period $ 3,696,881 $ 4,799,787
=========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Reconciliation of Net Income to
Net Cash provided by Operating activities:
Net Income $ 1,091,350 $ 1,372,757
Adjustments to reconcile Net Income to Net Cash
provided by Operating activities:
Depreciation 1,327,904 123,653
Provision for losses on Accounts Receivable 26,364 340,119
Income from Disposal or Recovery of Non-Core Assets (168,889) (808,524)
Gain on Debt Restructuring 0 (430,952)
Provision for Income Taxes not payable in Cash 572,200 869,000
Changes in Operating Assets and Liabilities:
Interests in and Receivables from Syndicated Properties (25,925) (398,849)
Accounts Receivable and Other Assets 3,451,520 1,365,364
Accounts Payable and Other Liabilities (4,357,536) (1,604,377)
----------- -----------
Net Cash provided by Operating activities $ 1,916,988 $ 828,191
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first quarter of 1996, the Company granted deeds in lieu of foreclosure
two Wholly Owned Properties to the mortgagee of such Properties. The Properties
had an aggregate carrying value of $2.5 million. No gain or loss was recognized
on this transaction because the assets and the non-recourse mortgages on the
Properties had been recorded in equal amounts.
In the first quarter of 1995 the Company acquired an apartment property financed
in part with a $920,000 first mortgage on the property.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE> 8
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying consolidated financial statements, except for the
Consolidated Balance Sheet at December 31, 1995, are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The consolidated financial statements, the
notes hereto and the capitalized terms included herein should be read in
conjunction with the Company's Form 10-K.
The interim consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
The consolidated financial statements include the accounts of Cardinal
Realty Services, Inc. and its wholly owned subsidiaries, including wholly owned
properties (collectively the "Company"). The wholly owned properties are
apartment complexes owned by the Company or limited partnerships in which the
Company owns both the general and limited partnership interests (the "Wholly
Owned Properties"). All significant intercompany balances and transactions have
been eliminated in this consolidation. The Company adopted a method of
accounting referred to as fresh start ("Fresh Start") reporting as of September
11, 1992 (the "Effective Date"), the effective date of the Company's Third
Amended Plan of Reorganization (the "Plan of Reorganization") filed on June 22,
1992 with the United States Bankruptcy Court for the Southern District of Ohio,
Eastern Division.
Operating Real Estate Assets (previously Held for Sale)
In December 1995, management changed its intention with respect to the
Wholly Owned Properties, formerly classified as Assets Held for Sale, and made a
decision to retain the Wholly Owned Properties for investment. During 1995 and
prior years, the Company had attempted to market and sell the Wholly Owned
Properties on terms that were beneficial to the Company and its shareholders.
However, based upon mortgage debt that has since been restructured with
significant debt discounts and favorable amortization terms, combined with
improved net operating income and cash flow performance, management believes
that any sale would be less beneficial than retaining the Wholly Owned
Properties for investment. Commencing January 1, 1996, the operations, including
a provision for depreciation, of the Wholly Owned Properties have been fully
consolidated in the Company's Statements of Income. Further, the cash flows of
the Wholly Owned Properties have been reclassified as Cash Flows Provided by
Operating Activities. While the Wholly Owned Properties were held for sale, the
results of operations since the Effective Date (the "Cumulative Income") from
the Wholly Owned Properties were credited to the carrying value of the real
estate and no revenues, operating expenses or depreciation were included in the
Consolidated Statements of Income (See Note 5).
The operating cash balance as of March 31, 1996 of approximately $3.7
million is comprised of approximately $3.4 million related to Wholly Owned
Properties which is held in separate property bank accounts and approximately
$330,000 in corporate funds.
8
<PAGE> 9
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Funds Held in Escrow represents cash balances restricted for specific
uses. As of March 31, 1996, Funds Held in Escrow of $10.3 million is comprised
of $7.1 million of restricted cash related to the Wholly Owned Properties and
$3.2 million in corporate funds. The Wholly Owned Properties Funds Held in
Escrow relate to security deposit escrows, real estate tax escrows and
maintenance and replacement escrows established with refinancing transactions.
Corporate Funds Held in Escrow principally relate to funds held to be used for
payment of insurance premiums which are collected on behalf of the Syndicated
Properties (defined below) and the Wholly Owned Properties.
The Company owns general partner and/or limited partner interests in,
and holds second mortgage loans and other receivables from, syndicated limited
partnerships which own apartment complexes (the "Syndicated Properties") .
Interests in and receivables from Syndicated Properties represent an allocation
of estimated fair value for these assets as of the Effective Date. Interest is
accrued on the recorded Fresh Start values of second mortgages and certain other
receivables based upon contractual interest rates. Allowances are provided for
estimated uncollectible interest based upon the underlying properties' net cash
flow. In certain instances, cash flow received from individual Syndicated
Properties in excess of carrying amounts of accrued interest on the recorded
values of second mortgages is recorded as income. The Company is also entitled
to receive incentive management fees and supplemental second mortgage interest
based upon levels of cash flow for certain of the underlying properties. Also,
in the event the underlying properties are sold or refinanced, the Company is
generally entitled to a participation interest in the net proceeds, if
available, as a second mortgage holder. The Company accounts for its general
partner interests by the cost method; no significant recorded value has been
ascribed to these interests. The realization of the interests in and receivables
from Syndicated Properties is dependent on the future operating performance of
the Syndicated Properties generating sufficient cash flow and equity value.
The Company also has interests in motel properties, investor notes
receivable and certain other assets (collectively the "Non-Core Assets"). The
Company valued these Non-Core Assets as of the Effective Date based on previous
and current purchase offers, previous sales activity and independent appraisals.
In 1994, the Company recovered the remaining recorded value of Non-Core Assets
from the collection of receivables and proceeds from disposals of such assets.
The Company began recognizing income from sale proceeds and collections, net of
collection and closing costs, once the carrying value was fully recovered.
Net income per share is computed based on the total number of shares of
the Company's Common Stock, without par value ("Common Stock"), outstanding and
those contingent shares estimated to be issued to officers, employees and
directors in accordance with the Company's 1992 Incentive Equity Plan, as
amended (the "Incentive Equity Plan"). At March 31, 1996, the total weighted
average shares outstanding was approximately 4,073,000, including the Company's
estimate of approximately 236,000 shares to be issued pursuant to the Incentive
Equity Plan and approximately 211,000 treasury shares. Earnings per share at
March 31, 1996 is based upon the weighted average shares outstanding less
treasury shares, or approximately 3,862,000 shares, as compared to 3,850,000 at
March 31, 1995. In November 1995, the shareholders of the Company approved an
increase in the number of authorized shares of Common Stock of the Company from
4,500,000 to 13,500,000 and also authorized 1,500,000 shares of "Blank Check"
Preferred Stock. The Company currently has no binding commitments or
arrangements which would require the issuance of such additional shares.
9
<PAGE> 10
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Restatement
The net income previously reported in the March 31, 1995 Consolidated
Statement of Income has been adjusted in order to comply with Statement of
Position ("SOP") 90-7 "Reorganization Under the Bankruptcy Code" pertaining to
accounting for deferred income taxes. SOP 90-7 requires that benefits realized
from pre-confirmation net operating loss carryforwards be reported as an
increase to Additional Paid-in Capital. For the period ending March 31, 1995 the
Company reported net income, but was not required to pay taxes on such income,
as the result of having the benefit of net operating loss carryforwards to
offset the income. The financial statements as adjusted, reflect a non-cash
charge in the form of a tax provision in the Consolidated Statements of Income.
Net deferred tax assets have been reduced by an amount equivalent to the
non-cash charge with a corresponding increase being made to Additional Paid-in
Capital. The adjustment does not affect the Company's cash flows or total
Shareholders' Equity. The effect of the adjustment is as follows:
<TABLE>
<CAPTION>
Adjustment
As Previously for Tax As
Reported Provision Adjusted
------------- ----------- ----------
<S> <C> <C> <C>
Three Months Ended March 31, 1995
Income before Extraordinary Gain $1,810,805 $(702,000) $1,108,805
Extraordinary Gain 430,952 (167,000) 263,952
---------- --------- ----------
Net Income $2,241,757 $(869,000) $1,372,757
========== ========= ==========
Per Share of Common Stock:
Income before Extraordinary $ 0.47 $ (0.18) $ 0.29
Extraordinary Gain 0.11 (0.04) 0.07
---------- --------- ----------
Net Income $ 0.58 $ (0.22) $ 0.36
========== ========= ==========
</TABLE>
RECLASSIFICATION
The Statement of Income and the Statement of Cash Flows for the period
ended March 31, 1995 have been reclassified to conform to the 1996 presentation.
10
<PAGE> 11
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 OPERATING REAL ESTATE ASSETS
Operating Real Estate Assets consist of the Wholly Owned Properties. In
the first quarter of 1996 a lender accepted the deeds in lieu of foreclosure on
two Wholly Owned Properties with mortgages and related interest having a
carrying value of $2.5 million. The deeds were granted pursuant to an overall
agreement with the lender to restructure certain mortgages in 1995. No gain or
loss was recognized on these transactions. At March 31, 1996 there were 114
Wholly Owned Properties as compared to 117 at March 31, 1995.
Condensed combined balance sheets, with intercompany payables and
receivables eliminated, of the Wholly Owned Properties portion of the Company's
assets as of March 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Operating Real Estate Assets, net of $7.5 million Cumulative
Income related to Wholly Owned Properties from
the Effective Date to December 31, 1995 $164,839,124 $167,276,556
Accumulated Depreciation (1,143,825) 0
------------ ------------
Net Operating Real Estate Assets 163,695,299 167,276,556
Cash 3,366,599 2,699,924
Accounts Receivable 1,048,660 1,043,069
Funds Held in Escrow 7,140,376 7,097,162
Prepaids and Other 2,041,511 2,487,494
------------ ------------
$177,292,445 $180,604,205
============ ============
Liabilities and Equity
Mortgage Payable $148,859,445 $151,130,612
Other Liabilities 6,740,432 6,940,555
------------ ------------
155,599,877 158,071,167
Equity 21,692,568 22,533,038
------------ ------------
$177,292,445 $180,604,205
============ ============
</TABLE>
11
<PAGE> 12
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
At the time of the Company's adoption of Fresh Start reporting, the
mortgages on the Wholly Owned Properties were restated to estimate fair value
(the "Carrying Value") if the value of the assets was less than the face value
of the mortgages. The mortgages on the Wholly Owned Properties had contractual
principal balances of approximately $157.0 million and $163.8 million at March
31, 1996 and December 31, 1995, respectively. Interest expense is recorded based
on the Carrying Value unless the contractual balance is being paid, in which
case, the amount paid is expensed. Substantially all the mortgage loans secured
by the Wholly Owned Properties are non-recourse in nature.
NOTE 3 DEBT RESTRUCTURINGS
In the first quarter of 1996, the Company completed the refinancing of
the mortgage and related interest debt on two Wholly Owned Properties. Mortgage
and related interest debt with a contractual and Carrying Value of $2.2 million
was refinanced with mortgages bearing interest of approximately 8.0%, with a 25
year amortization and a 10 year maturity. These transactions funded improvement
and deferred maintenance, tax and working capital escrows of approximately
$51,000.
In the first three months of 1995, the Company completed modification
or refinancing transactions involving 33 Wholly Owned Properties and Syndicated
Properties. These transactions resulted in the modification of mortgage loans on
12 Wholly Owned Properties and the modification or refinancing of mortgage loans
on 21 Syndicated Properties. These transactions resulted in an extraordinary
gain on discharge of indebtedness on the Wholly Owned Properties, net of closing
costs, reserves and taxes, of approximately $264,000.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company manages almost all the Wholly Owned Properties and the
Syndicated Properties and also provides various ancillary services, including
the sale of maintenance supplies and replacement parts to the properties and
furniture rentals and insurance to residents. The Company's fee based revenues
of approximately $2.8 million for Syndicated Properties for both of the three
months ended March 31, 1996 and 1995, and interest income result primarily from
properties affiliated with the Company. Approximately $2.4 million and $3.9
million of the Accounts Receivable were due from the Syndicated Properties as of
March 31, 1996 and December 31, 1995, respectively. Fee Based revenues and
Accounts Receivable related to the Wholly Owned Properties are eliminated in
consolidation.
The Company received repayment of advances of approximately $1.0
million from the Syndicated Properties in the first three months of 1996 as
compared to making net advances of $1.9 million in the first three months of
1995 principally related to refinancing of mortgages. These advances are
included in Interests in and Receivables from Syndicated Properties. The
advances provided supplemental financing to facilitate satisfaction of
indebtedness owed to former lenders and/or fund transaction costs and escrows.
These advances bear interest at one percent over the prime rate of interest of
The Provident Bank (the "Bank").
12
<PAGE> 13
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 COMPARATIVE INCOME STATEMENTS
Prior to 1996 the operations of the Wholly Owned Properties were
excluded from the Company's Statements of Income (See Note 1). In order to
facilitate the comparison of operations in 1996 to 1995, the following
"proforma" Income Statement (the "Proforma Income Statement") has been prepared
for the three months ended March 31, 1995 as if the Wholly Owned Properties were
previously consolidated. All intercompany transactions have been eliminated.
Depreciation expense for the Operating Real Estate Assets has been estimated for
1995.
<TABLE>
<CAPTION>
Proforma
3 Months Ended 3 Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Rental and Other Operating Real Estate $10,190,141 $ 9,694,951
Fee Based 2,821,035 2,778,963
Interest, principally from Syndicated Properties 1,436,333 955,170
Income from Disposal or Recovery of Non-Core Assets 168,889 808,524
Other 72,613 167,221
----------- -----------
14,689,011 14,404,829
----------- -----------
Expenses:
Rental Operating 5,251,290 5,017,829
Fee Based 1,488,552 1,572,548
Administration 971,946 1,114,901
Interest 3,863,369 3,902,570
Depreciation 1,327,904 1,267,478
----------- -----------
12,903,061 12,875,326
----------- -----------
Income before Income Taxes 1,785,950 1,529,503
Provision for Income Taxes (Note 1) 694,600 593,000
----------- -----------
Income before Extraordinary Gain 1,091,350 936,503
Extraordinary Gain, net of Income Taxes of $167,000 0 263,952
----------- -----------
Net Income $ 1,091,350 $ 1,200,455
=========== ===========
Net Income per Common Share:
Income before Extraordinary Gain $ 0.28 $ 0.24
Extraordinary Gain 0.00 0.07
----------- -----------
Net Income $ 0.28 $ 0.31
=========== ===========
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion explains material changes in the Company's
results of operations, comparing the three months ended March 31, 1996 and 1995
and significant developments affecting financial conditions since the end of
1995. The following discussion should be read in conjunction with the historical
financial statements of the Company.
The financial statements for the three months ended March 31, 1995 do
not include the results of operations (revenues, expenses or depreciation)
attributable to the Operating Real Estate Assets, formerly classified as Real
Estate Assets Held for Sale. Commencing January 1, 1996 the results of
operations, including depreciation of the Real Estate Assets, have been included
in the Consolidated Statements of Income (SEE ITEM 1 - NOTE 1 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS). Therefore, the Consolidated Statement of
Income for the three months ended March 31, 1996 is not comparable to the three
months ended March 31, 1995. In order to facilitate the comparison of
operations, the notes to the financial statements include a "proforma"
consolidated income statement for the three months ended March 31, 1995,
prepared as if the Wholly Owned Properties were previously consolidated (SEE
ITEM 1 - NOTE 5 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). The following
discussion of results of operations is based upon the Proforma Income Statement
included in the Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
Rental Revenues and Other Operating Real Estate Revenues - Net are
derived from the Wholly Owned Properties which operate apartment communities
that comprise the Company's Operating Real Estate Assets. Revenues increased
approximately $495,000, or 5.1%, for the three months ended March 31, 1996, as
compared to the same period in 1995. The increase was primarily due to the
increase in average rent per unit from $363 in 1995 to $378 in 1996. At March
31, 1996 the average economic occupancy of Wholly Owned Properties was 89.7% of
the property potential as compared to 91.6% at March 31, 1995. Economic
occupancy is defined as the amount of revenue collected from residents as a
percentage of the revenue a property could generate if all units were rented
(SEE ITEM 1 - NOTES 1 AND 5 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
Fee Based Revenues are comprised of Management Services and Advisory
Services revenues generated from services provided to Syndicated Properties and
residents at the Wholly Owned and Syndicated Properties (collectively the
"Properties"). Management Services revenues principally relate to property
management and accounting services provided to the Syndicated Properties.
Ancillary Services (a department of Management Services) revenues consist
principally of revenue generated from the sale of replacement and maintenance
material to the Syndicated Properties. In addition, Ancillary Services revenues
include revenue generated from furniture leasing and renter's insurance products
provided to residents of the Properties. Advisory Services revenues consist of
partnership administration fees as well as fees generated from loan refinancing
and restructuring.
14
<PAGE> 15
The following are the major components of Management Services Revenues
and Advisory Services Revenues for the three months ended March 31, 1996 as
compared to the same period in 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Management Services:
Property Management Services:
Property Management and Accounting Services $1,929,276 $1,808,412
Other Management Service Fee Revenues 362,337 372,723
Ancillary Services:
Furniture Leasing and Renters Insurance 93,531 124,036
Replacement and Maintenance Material Revenues-net 116,568 81,173
---------- ----------
Total Management Services Revenues 2,501,712 2,386,344
---------- ----------
Advisory Services:
Partnership Administration & Other Fees 292,756 285,049
Loan Refinancing and Restructuring Fees 26,567 107,570
---------- ----------
Total Advisory Services Revenues 319,323 392,619
---------- ----------
Total Fee Based Revenues $2,821,035 $2,778,963
========== ==========
</TABLE>
Fee Based Revenues increased approximately $42,000 in the first three
months of 1996 as compared to the same period in 1995. The increase was due to
an approximately $115,000 increase in Management Services revenues offset by an
approximately $73,000 decrease in Advisory Services revenue. The decline in
Advisory Services revenues was principally due to a decrease of approximately
$81,000 in loan refinancing and restructuring fees in the first three months of
1996 as compared to the same period in 1995. Loan refinancing and restructuring
fees are subject to significant fluctuation from period to period based upon the
volume of loans maturing in a given year, a property owner's ability to
refinance based on the current interest rate environment and the Properties'
ability to pay the fee. The increase in Management Services revenues was due to
an increase in management and accounting services fees of approximately
$120,800. The increase was due to the management of six Properties returned to
the Company due to the cancellation of a third party management contract in the
third quarter of 1995 and a 5.6% increase in rental revenues on the Syndicated
Properties. Ancillary Services revenues related to replacement and maintenance
material sales to properties increased by approximately $35,000. The increased
sales were attributable to the deferred maintenance escrow funds established
with the refinancing and restructuring of mortgage debt on a significant number
of the Syndicated Properties in prior years. The decrease in furniture leasing
and renter's insurance of approximately $30,500 was principally due to a
decrease in the annual rebate on renter's insurance received in the first
quarter of 1995 as compared to the first three months of 1996. The rebate is
based upon the residents' insurance claims experience factor for the previous
year.
Interest Income increased approximately $481,000 in the first three
months of 1996 as compared to the same period in 1995. Interest Income is
primarily derived from the interest collected or accrued on the recorded value
of interests in, and receivables from, Syndicated Properties (SEE NOTE 1 TO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The increase in Interest Income
was primarily due to improved cash flow on the Syndicated Properties as a result
of lower debt service requirements. Although there can be no assurances,
Interest Income should continue to be favorably impacted in the future from the
improved cash flow on the Syndicated Properties.
Income from Disposal or Recovery of Non-Core Assets decreased
approximately $640,000 in the first three months of 1996 as compared to the same
period in 1995. This income is derived from the net
15
<PAGE> 16
disposition proceeds of Non-Core Assets in excess of the aggregate recorded
value of these assets. During 1994 the Company recovered the entire recorded
value of these assets and, as a result, began recognizing the proceeds, net of
collection and closing costs, as income. Additional income from the disposal of
Non-Core Assets and recovery of investor notes receivable may be recognized in
the future, although at significantly lower levels than recognized in 1995.
Income from Disposal of Non-Core Assets is not a recurring, long term source of
revenue.
Other Revenues decreased approximately $95,000 in the first three
months of 1996 as compared to the same period in 1995. The decrease was
principally due to the collections of fully reserved receivables due from
Syndicated Properties in 1995.
Rental Operating Expense increased approximately $233,000 for the three
months ended March 31, 1996 as compared to the same period in 1995. Improvements
and replacement expenses, in the aggregate, increased approximately $117,000,
principally due to expenditures of escrow funds established in connection with
refinancing transactions. The majority of the remaining increase in expenses in
1996 as compared to 1995 relates to exterior grounds maintenance and repairs.
The seasonal costs associated with the spring grounds maintenance and repairs
were incurred earlier in 1996 versus 1995.
Fee Based Expenses decreased approximately $84,000 in the first three
months of 1996 as compared to the same period in 1995. The decrease in Fee Based
Expenses reflects the ongoing staff reductions and realignments implemented by
the Company.
Administration Expenses decreased approximately $143,000 in the first
three months of 1996 as compared to the same period in 1995. The decrease in
administrative expenses also was due to staff reductions and realignments.
Interest Expense decreased approximately $39,000 in the first three
months of 1996 as compared to the same period in 1995. Interest Expense on the
corporate debt decreased approximately $68,000. This decrease is due primarily
to the Company's refinancing of its corporate credit facility with the Bank, at
the Bank's prime rate of interest minus 1.0%, as compared to an interest rate of
prime plus 0.5% with the Company's previous lender. Interest Expense related to
mortgages on Operating Real Estate Assets increased approximately $29,000.
Depreciation Expense increased approximately $60,000 in the first three
months of 1996 as compared to the same period in 1995. The increase primarily is
due to the amortization of loan costs capitalized in connection with the
refinancing of corporate debt and real estate mortgages.
Income before Extraordinary Gain amounted to $1.1 million, or $.28 per
share, for the three months ended March 31, 1996 as compared to approximately
$936,000, or $.24 per share, for the same period in 1995. The extraordinary
gain, net of taxes, of approximately $264,000 in 1995 was due to debt
forgiveness related to debt restructuring on certain Wholly Owned Properties.
Net income was $1.1 million, or $.28 per share, in 1996, as compared to $1.2
million, or $.31 per share, for the same period in 1995.
Earnings before Interest, Taxes, Depreciation and Amortization
The Company believes that earnings before interest, income taxes,
depreciation, amortization and extraordinary items ("EBITDA") is a significant
indicator of the strength of its results. EBITDA is a measure of a company's
ability to generate cash to service its obligations, including debt service
obligations, and to finance capital and other expenditures, including
expenditures for acquisitions. EBITDA does not represent cash flow as defined by
generally accepted accounting principles and does not necessarily represent
amounts of cash available to fund the Company's cash requirements. EBITDA
increased 4.1% from $6.7 million for the three months ended March 31, 1995 to
$7.0 million for the same period in 1996. EBITDA, excluding the non-recurring
item, Income from Disposal or Recovery of Non-Core Assets, increased 15.6% from
$5.9 million for the three months ended March 31, 1995 to $6.8 million for the
same period in 1996.
16
<PAGE> 17
Funds from Operations of Wholly Owned Properties
Funds from Operations ("FFO") is a financial statistic used to measure
real estate operating results. FFO, as defined by the Company, represents income
from the Wholly Owned Properties excluding depreciation, extraordinary gains and
funding from escrows for deferred maintenance. FFO for the three months ended
March 31, 1996, as compared to the same period in 1995 without intercompany
eliminations of approximately $846,000 and $831,000 of Fee Based Revenues for
the first quarter of 1996 and 1995, respectively, is as follows:
<TABLE>
<CAPTION>
Proforma
3 Months Ended 3 Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Rental Revenues $10,190,141 $9,694,951
Operating Expenses 4,644,628 4,244,389
----------- ----------
Net Operating Income 5,545,513 5,450,562
Improvement and Replacement Expense 653,603 536,150
Interest Expense 3,563,509 3,534,803
Other 311,602 517,086
Depreciation 1,200,135 1,143,825
----------- ----------
Loss before Income Taxes (183,336) (281,302)
----------- ----------
Add: Improvements and Replacements funded 198,722 330,722
from Deferred Escrows
Depreciation 1,200,135 1,143,825
----------- ----------
Funds from Operations $ 1,215,521 $1,193,245
=========== ==========
</TABLE>
The 1.9% increase in FFO is reflective of the factors that determined
rental revenues and rental operating expenses as discussed in "RESULTS OF
OPERATIONS".
Net Operating Income of Syndicated Properties
The following table summarizes unaudited comparable revenues, operating
expenses and net operating income ("NOI") for the 414 Syndicated Properties in
operation for both the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
3 Months Ended 3 Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Rental Revenues $30,139,815 $28,532,966
Operating Expenses 14,128,569 12,641,976
----------- -----------
Net Operating Income $16,011,246 $15,890,990
=========== ===========
</TABLE>
17
<PAGE> 18
NOI increased approximately $120,000, or 1.0%, for the three months
ended March 31, 1996 as compared to 1995. The Syndicated Property performance
for the first quarter of 1996, as compared to 1995, is comparable to the Wholly
Owned Properties, and the items that influenced their performance in 1996 as
compared to 1995.
Net Income, Excluding Non-Recurring Items
The Company generated non-recurring revenues for the period ended March
31, 1996 and 1995, that obscure the recurring earnings performance of the
Company. The recurring earnings from operations are derived from the Company's
investments of equity in real property as well as a provider of services to
Properties and residents.
Net Income, Excluding Non-Recurring Items reflects net income as
adjusted to eliminate revenues, expenses and extraordinary gains which occur on
a one-time basis or are not forecast as long term sources of income to the
Company. The following reflects the revenue and expenses eliminated in
determining Net Income, Excluding Non-Recurring Items.
<TABLE>
<CAPTION>
Proforma
1996 1995
---------- ----------
<S> <C> <C>
Net Income $1,091,350 $1,200,455
---------- ----------
Non-Recurring Items:
Extraordinary Gain, net of Income Taxes (263,952)
Income from Disposal or Recovery of Non-Core Assets (168,889) (808,524)
Income Taxes related to Non-Recurring Items 65,700 313,400
---------- ----------
Total Non-Recurring Items (103,189) (759,076)
---------- ----------
Net Income, Excluding Non-Recurring Items $ 988,161 $ 441,379
========== ==========
</TABLE>
Net Income, Excluding Non-Recurring Items increased approximately
124.0%, or $547,000, in 1996 as compared to 1995. The significant factors
contributing to this increase, as adjusted for non-recurring items, are as
follows:
<TABLE>
<CAPTION>
Increases/(Decrease)
in Net Income--
Excluding Non-
Recurring Items
--------------------
<S> <C>
Increase in Rental Revenues $ 495,190
Increase in Interest Income 481,163
Increase in Fee Based Revenues 42,072
(Decrease) in Other Income (94,608)
(Increase) in Rental Operating Expenses (233,461)
Decreases in Fee Based and Administration Expenses 226,951
(Increase) in Interest and Depreciation Expense (21,225)
Income Tax Effect (349,300)
---------
$ 546,782
=========
</TABLE>
18
<PAGE> 19
See "RESULTS OF OPERATIONS" for specific discussion of non-recurring
items as well as the explanations for the changes in recurring revenues and
expenses which generated the increase in Net Income, Excluding Non-Recurring
Items. Although there can be no assurance, management believes that Net Income,
Excluding Non-Recurring Items will continue to be favorably impacted by (i)
continued increases in Interest Income resulting from improved cash flow as
first mortgage loans on certain of the Properties are refinanced and (ii)
overall operating performance increases at the Properties.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company anticipates that cash flow from its operations and
borrowings available under the Company's credit facility should be adequate to
meet the foreseeable capital and liquidity needs of the Company. The Company is
exploring alternative financing sources to provide bridge or supplemental
funding for the refinancing of mortgages on certain properties. If the Company
is successful in implementing potential future growth plans, it may be necessary
to seek alternative sources of debt or equity capital.
In August 1995, The Bank and The Company entered into on a new credit
facility that retired the Company's credit facility with The Huntington
National Bank ("HNB") as well as provided additional borrowing capacity with
more flexible terms. The new credit facility has lower interest rates than the
previous facility with HNB and also reduced or eliminated certain restrictive
covenants. On March 31, 1996, the Company had unrestricted credit
availability of approximately $10.7 million.
The new credit facility provides credit up to $32.0 million, and is
comprised of: a $3.0 million revolving line of credit for operating needs
subject to annual review and extension by the Bank; a $7.0 million line of
credit for acquisitions and Property debt restructuring (the "Acquisition Line")
due in six years with interest only, payable in the first year; and a $22.0
million reducing balance line of credit (the "Reducing Line") due in six years
with interest, only, payable during the first year (collectively, the "Loans").
The Reducing Line was used to retire the HNB credit facility. The credit
facility provided that the interest rate on the Loans would be the Bank's prime
rate of interest minus 1%, however, in February 1996, the Company entered into
an agreement with the Bank to fix the interest rate on the Acquisition Line at
7.25% with principal amortization in 60 equal monthly installments beginning in
March 1996. Excess corporate cash is applied to pay down the Reducing Line and
may be reborrowed as needed. The Bank's prime rate of interest averaged 8.25%
during the first quarter of 1996 as compared to an average HNB prime rate of
interest of 9.0% in the first quarter of 1995.
The following discussion regarding liquidity and capital resources
should be read in conjunction with the Company's Consolidated Balance Sheets as
of March 31, 1996 and December 31, 1995 and the Consolidated Statements of Cash
Flows for the three months ended March 31, 1996 and 1995.
The principal sources of liquidity for the Company are cash flow from
its operations and borrowing available under the Company's credit facility. The
Company's Net Cash Provided by Operating Activities increased $1.1 million for
the three months ended March 31, 1996 as compared to the same period in 1995.
The increase was due primarily to $1.3 million of operating cash flow from Real
Estate Assets as reclassified from Investing Activities (SEE NOTE 1 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS). Payments related to non-recurring items
included in operating activities reflects payments related to the Company's Plan
of Reorganization, the 1996 corporate restructuring and tender offer costs
incurred in 1995. These costs increased, primarily due to corporate
restructuring costs paid in 1996.
19
<PAGE> 20
Net Cash Provided by Investing Activities was approximately $899,000
for the three months ended March 31, 1996, as compared to net cash used in
Investing Activities of $1.0 million for the same period in 1995. The change was
due to $1.3 million of net cash flow provided by operations of the Real Estate
Assets being reclassified to operating cash flow in 1996 based on the change in
presentation of the Wholly Owned Properties from held for sale to operating
assets. This decline in investing cash flow was more than offset by
approximately $2.4 million of funds used in 1995 for advances to certain
Syndicated Properties and the acquisition of Real Estate Assets versus the net
repayment of advances of $1.0 million in 1996 (See "Financing and Debt
Restructuring").
The Company's capital expenditures for the first quarter of 1996
amounted to approximately $71,000, funded from cash flow and the Company's
credit facility. The Company anticipates that its capital needs in the future
can be satisfied out of cash flow from operations or the Company's credit
facility. The Company is currently evaluating all of its software systems in
order to obtain optimal efficiencies from technology. The outcome of this review
has not been finalized and the additional capital expenditures for new
technology has not been determined. The Company currently forecasts normal
recurring capital expenditures of approximately $400,000 in 1996 as compared to
actual annual expenditures in 1995 of approximately $398,000.
Capital Expenditures, combined with Improvement and Replacement Expense
for the Operating Real Estate Assets, were approximately $716,000 during the
first three months of 1996. These costs are funded from Wholly Owned Properties
cash flow, maintenance escrow funds or by the mortgage lender to the applicable
Property. The 1996 budget for capital expenditures, improvement and replacement
expense for the Operating Real Estate Assets is $4.3 million, or $489 per unit,
as compared to annual actual expenditures in 1995 of $4.0 million, or $454 per
unit. Approximately $2.5 million, or $284 per unit, of the $4.3 million relates
to non-recurring deferred maintenance which principally will be funded from
escrows established by the mortgage refinancing and restructuring transactions
completed in prior years.
Financing And Debt Restructuring of the Properties
During the first three months of 1996, the Company refinanced mortgage
debt and related interest on two Wholly Owned Properties (SEE NOTE 3 TO NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS) and three Syndicated Properties. The new
mortgages on these five Properties were obtained through Donaldson, Lufkin &
Jenrette Securities Corporation. The new mortgages bear a fixed rate of interest
ranging from 7.87% to 8.03% with 25 year amortization and 10 year maturity.
Aggregate mortgage debt and related interest on the three Syndicated
Properties of approximately $3.2 million was refinanced with debt discounts
obtained of approximately $214,000. The refinancing funded improvement and
replacement, tax and working capital escrows of approximately $65,000. Although
there can be no assurance, management expects that cash flow will increase from
these Syndicated Properties due to lower debt service requirements achieved with
the reduction in debt. Increased cash flow at the Syndicated Properties, if any,
may enhance recovery of Interests in and Receivables from Syndicated Properties,
including Interest Income, to the Company in the future.
In June 1995, the Company purchased from a mortgage lender the
mortgages on one Syndicated Property and four Wholly Owned Properties, financed
with a $7.8 million note payable. In the first quarter 1996, the Company
obtained permanent mortgages on the Syndicated Property and one Wholly Owned
Property. The proceeds of the refinancing on the Syndicated Property of $1.2
million were applied to the Company's note payable.
20
<PAGE> 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has reached a tentative settlement in The Estate of
Harold Murphy, et al v. Cardinal Realty Services, Inc. Et al.,
pending in the United States District Court for the Southern District
of Indiana. Once consummated, the settlement would result in the
judgment entered against the Company being vacated, a withdrawal of
the pending action and a release of all claims against the Company in
consideration of the Company's payment of $370,000 to the Plaintiffs.
Pursuant to the terms of the proposed settlement, there will be no
admission of liability.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company, in its capacity as general partner of, and as agent for,
the limited partnerships which own the Company's Properties, has
engaged Paine Webber Incorporated ("Paine Webber") as its financial
advisor and investment banker in connection with the potential
refinancing of a significant number of the mortgage loans outstanding
to the limited partnerships. Subject to, among other things,
movements in interest rates and the satisfactory completion of due
diligence, the Company and Paine Webber intend to identify those
existing mortgage loans which are susceptible to prepayment and which
may be refinanced upon generally favorable terms in order to
facilitate the reduction of the debt service constants applicable
thereto, thereby directly improving the cash flow of the limited
partnerships, and indirectly improving the Company's cash flow,
EBITDA and FFO. If such opportunities are identified, the Company
would utilize Paine Webber's services in the arrangement or
origination of the refinancing mortgage loans. It is anticipated
that, if such refinancings can be successfully arranged, the Company
would be called upon to advance funds to limited partnerships which
might be necessary to achieve closings of many of the mortgage loans.
It is the Company's intention that any such refinanced mortgage loans
will bear interest at a fixed rate of interest and require principal
amortization upon terms at least commensurate with prevailing
commercial multifamily mortgage loan market terms generally.
In the Company's normal course of arranging for financing
necessitated by the maturity of outstanding partnership mortgage
loans or otherwise, the Company has retained First Union Capital
Markets Group ("First Union") to provide mortgage loans for
approximately 25-30 partnerships. Although there can presently be no
assurance that any of such loans will be consummated with First
Union, the Company anticipates that these loans, to the extent
consummated, will be on terms at least commensurate with prevailing
commercial multifamily mortgage loan market terms generally.
21
<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit No. Description Sequential Page
----------- ---------------------------- ----------------------
11.1 Statement re: computation of See Note 1 of Notes to
Per Share Earnings Consolidated Financial
Statements
b) Reports on Form 8-K
Not Applicable.
22
<PAGE> 23
SIGNATURES
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.
CARDINAL REALTY SERVICES, INC.
(Registrant)
Dated: May 13, 1996 By: /s/ John B. Bartling, Jr.
----------------------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated: May 13, 1996 By: /s/ David P. Blackmore
----------------------------------------------------
David P. Blackmore
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,697
<SECURITIES> 0
<RECEIVABLES> 5,860
<ALLOWANCES> 2,416
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 166,101
<DEPRECIATION> 1,144
<TOTAL-ASSETS> 237,600
<CURRENT-LIABILITIES> 0
<BONDS> 169,429
0
0
<COMMON> 29,122
<OTHER-SE> 23,791
<TOTAL-LIABILITY-AND-EQUITY> 237,600
<SALES> 0
<TOTAL-REVENUES> 14,689
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,863
<INCOME-PRETAX> 1,786
<INCOME-TAX> 695
<INCOME-CONTINUING> 1,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,091
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
