1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 For the transition period from to
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Commission File Number 0-5641
CLEVETRUST REALTY INVESTORS
(Exact name of registrant as specified in its charter)
Massachusetts 34-1085584
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2001 Crocker Road, Suite 400
Westlake, Ohio 44145
(Address of Principal Executive Offices) (Zip Code)
(216) 899-0909
(Registrant's telephone number, including area code)
Not Applicable
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
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Shares of Beneficial Interest Outstanding at August 1, 1995: 5,456,696
The sequential page in this report where the Exhibit Index is located is
page 14.
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CLEVETRUST REALTY INVESTORS
INDEX
Sequential
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Condition
-- June 30, 1995 and September 30, 1994 3
Statement of Operations
-- Three Months and Nine Months ended June 30, 1995 and 1994 4
Statement of Cash Flows
-- Nine Months ended June 30, 1995 and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
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CLEVETRUST REALTY INVESTORS
STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1995 SEPTEMBER 30, 1994
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(in thousands)
ASSETS
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Invested assets - NOTE B:
Investments in real estate:
Improved properties $63,018 $70,715
Less: Accumulated Depreciation 22,087 25,648
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40,931 45,067
Land held for sale or development 202 313
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41,133 45,380
Real estate mortgage loans 325 236
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41,458 45,616
Cash and cash equivalents 421 251
Certificates of deposit 0 500
Insurance settlement proceeds - NOTE B 0 3,341
Other assets 1,242 1,296
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TOTAL ASSETS $43,121 $51,004
======== ========
LIABILITIES
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Mortgage notes payable - NOTE C $9,309 $11,111
Bank notes payable - NOTE D 5,600 11,180
Accrued interest on notes payable 22 27
Accrued fire repairs - NOTE B 1,006 3,341
Accrued expenses and other liabilities 1,770 2,195
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TOTAL LIABILITIES 17,707 27,854
SHAREHOLDERS' EQUITY
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Shares of Beneficial Interest, par value
$1 per Share - NOTE E:
Authorized - - Unlimited
Issued and outstanding shares
(6/30/95 - 5,456,696; 9/30/94 - 5,470,696) 5,457 5,471
Additional paid-in capital 39,760 39,794
Accumulated deficit (19,803) (22,115)
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TOTAL SHAREHOLDERS' EQUITY 25,414 23,150
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,121 $51,004
======== ========
See notes to financial statements.
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CLEVETRUST REALTY INVESTORS
STATEMENT OF OPERATIONS
The following statement of operations of CleveTrust Realty Investors for
the three-month and nine-month periods ended June 30, 1995 and 1994,
respectively, are unaudited, but in the opinion of management include all
adjustments necessary to present fairly the results of operations. All such
adjustments were of a normal recurring nature. The results of operations of the
three-month and nine-month periods ended June 30, 1995 are not necessarily
indicative of the results of operations for succeeding periods.
Three Months Ended Nine Months Ended
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06/30/95 06/30/94 06/30/95 06/30/94
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(in thousands, except per share data)
INCOME
Real estate operations:
Rental Income $2,477 $2,412 $7,698 $7,217
Less: Real estate operating expenses 1,232 1,253 3,956 3,752
Less: Depreciation expense 432 498 1,389 1,482
------- ------- ------- -------
1,664 1,751 5,345 5,234
------- ------- ------- -------
Income from real estate operations 813 661 2,353 1,983
Interest income 7 18 47 44
Other 2 2 21 19
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822 681 2,421 2,046
EXPENSES
Interest:
Mortgage notes payable - NOTE C 231 412 766 1,245
Bank notes payable - NOTE D 150 73 626 368
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381 485 1,392 1,613
General and administrative 186 176 613 630
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567 661 2,005 2,243
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OPERATING INCOME (LOSS) 255 20 416 (197)
Gains on sales of real estate - NOTE B 91 0 2,499 361
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 346 20 2,915 164
Extraordinary item - NOTE C 52 0 52 0
------- ------- ------- -------
NET INCOME $398 $20 $2,967 $164
======= ======= ======= =======
Per Share of Beneficial Interest - NOTE G:
Operating income (loss) $0.05 $0.00 $0.08 ($0.04)
Gains on sales of real estate 0.02 0.00 0.46 0.08
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 0.07 0.00 0.54 0.04
Extraordinary item 0.01 0.00 0.01 0.00
------- ------- ------- -------
NET INCOME PER SHARE $0.08 $0.00 $0.55 $0.04
======= ======== ========= =======
Weighted Average Number of Shares of
Beneficial Interest Outstanding 5,462 5,573 5,468 4,787
======== ======= ======== =======
See notes to financial statements.
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CLEVETRUST REALTY INVESTORS
STATEMENT OF CASH FLOWS
Nine Months Ended
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06/30/95 06/30/94
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(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $2,967 $ 164
Non-cash revenues and expenses included in income:
Depreciation expense 1,389 1,482
Decrease in other assets 54 114
Decrease in accrued interest on notes payable (5) (33)
(Decrease) increase in accrued expenses and other liabilities (425) 98
Reconciliation to net cash flow from operating activities:
Gains on sales of real estate (2,499) (361)
Extraordinary item (52) 0
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Cash Flow From Operating Activities 1,429 1,464
CASH FLOW FROM INVESTING ACTIVITIES:
Equity investments:
Improvements to existing properties (401) (496)
Proceeds from properties sold 5,546 507
Net insurance proceeds 1,006 1,000
Real estate mortgage loan repayments 123 156
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Cash Flow From Investing Activities 6,274 1,167
CASH FLOW FROM FINANCING ACTIVITIES:
Mortgage notes payable:
Principal amortization payments (287) (371)
Principal prepayments (1,463) 0
Bank notes payable:
Repayments (5,549) (5,174)
Principal amortization payments (31) (115)
Certificates of deposit 500 0
Shares of beneficial interest:
Shares issued pursuant to rights offering 0 5,905
Shares purchased and subsequently retired (48) (297)
Distributions to shareholders (655) (515)
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Cash Flow Used In Financing Activities (7,533) (567)
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Increase in cash and short-term investments 170 2,064
Balance at beginning of year 251 315
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Balance at end of period $421 $2,379
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See notes to financial statements.
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CLEVETRUST REALTY INVESTORS
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
NOTE A - INCOME TAXES
Commencing with fiscal 1993 the Trust no longer qualified as a REIT with the
change in status to a taxable entity retroactive to October 1, 1992. As of
October 1, 1992 the Trust adopted, Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). The adoption of SFAS 109
had no effect on net income.
The Trust had no income tax expense for the nine-month periods ended June 30,
1994 and 1995 or for the fiscal year ended September 30, 1994, and it expects
to have no income tax expense for the fiscal year ended September 30, 1995.
The Trust had a net deferred tax asset position at June 30, 1995 and September
30, 1994 of approximately $3,057,000 and $4,066,000, respectively. The Trust
maintains a valuation reserve equal to its net deferred tax asset as there is
doubt as to whether the net deferred tax will be realized.
NOTE B - INVESTED ASSETS
On February 28, 1995 the Trust completed a $2,650,000 sale of the 197 room
Quality Hotel located at the airport in St. Louis, Missouri. This sale
resulted in a gain of $452,000.
On March 15, 1995 the Trust completed a $2,595, 000 sale of the 224 unit
Parkwood Place Apartments located in Greeley, Colorado. This sale resulted in
a gain of $1,859,000.
On March 20, 1995 the Trust completed a $800,000 sale of the 51,000 square foot
Walnut Hill West office building located in Dallas, Texas. This sale resulted
in a gain of $97,000.
On May 31, 1995 the Trust completed a $212,000 sale of 17.7697 cares of vacant
land located in Akron, Ohio. This sale resulted in a gain of $91,000. The
Trust received a purchase money mortgage for the total $212,000 purchase price
in connection with the sale.
On March 7, 1994 the Trust completed a $834,000 sale of 69.96 acres of vacant
land located in Akron, Ohio. This sale resulted in a gain of $361,000. The
Trust received a purchase money mortgage for $290,000 of the purchase price in
connection with the sale.
On January 18, 1994 the Trust's Petroleum Club Building, located in Tulsa,
Oklahoma, sustained a major fire. In July, 1994 the Trust and its insurance
company agreed on a settlement. The total settlement of $6,025,000 has been
remitted to the Trust by the insurance company. Building repairs and other
costs associated with the fire are currently estimated to be adequately covered
by the settlement. At June 30, 1995 the Trust had $1,006,000 accrued for
repairs and other costs related to the fire. The Trust used $1,006,000 of the
settlement proceeds to make a paydown on its 1994 Credit (see Note D). The
Trust has the ability, subject to the conditions of the loan agreement, to
borrow these funds back, when needed, to make payments for the fire repair work
and other costs associated with the fire.
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CLEVETRUST REALTY INVESTORS
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE C - MORTGAGE NOTES PAYABLE
On March 16, 1995 the Trust repaid a $498,000 first mortgage loan on its
shopping center located in Ardmore, Oklahoma. This loan had a maturity date of
June 16, 1996.
On May 1, 1995 the Trust settled at a discount, a $1,017,000 first mortgage
loan on its office building located in Englewood, Colorado, which had a
maturity date of February 1, 1999. This settlement resulted in an
extraordinary gain of $52,000.
NOTE D - BANK NOTES PAYABLE
On September 30, 1994 the Trust borrowed $7,689,000 under the terms of a demand
note from National City Bank of Cleveland, Ohio ("NCB"). The funds were used
to repay a maturing mortgage loan. This demand note had an interest rate of
prime. This demand note was converted to a revolving line of credit ("1994
Credit") issued by NCB and M & T Bank of Buffalo, New York ("M&T"), which was
signed effective November 30, 1994. The 1994 Credit is for up to $25,000,000
(but is limited by the value of the collateral provided). Of this amount a
maximum of $15,000,000 is currently available and $10,000,000 will be available
upon payment of an activation fee of 3/4 of 1% on the $10,000,000. Interest,
which is at the option of the Trust, will be at either i) 1/4 of 1% over the
prime rate; ii) 250 basis points over the LIBOR rate; or iii) NCB's fixed
interest rate available from time to time. Additionally, a commitment fee of
3/8 of 1% is due on any funds available but not borrowed. Each year the
lenders will review the 1994 Credit with the right to extend it for one
additional year. At June 30, 1995 the outstanding balance was $5,600,000.
The 1994 Credit is secured by certain of the Trust's real estate and contains
certain covenants including a covenant for a minimum shareholders' equity. At
June 30, 1995 the amount of shareholders' equity free from such restrictions
was approximately $5,414,000.
On February 28, 1995 with the proceeds from the sale of the hotel located in
St. Louis, Missouri (see Note B) the Trust made a $2,200,000 paydown on a loan
it had with another bank. On March 15, 1995 with a portion of the proceeds
from the sale of the apartments located in Greeley, Colorado (see Note B) the
Trust paid off the $1,260,000 balance on this loan. This loan had a maturity
date of December 25, 1997. The interest rate was prime plus 1% with a minimum
rate of 7.5%. The Trust was required to make monthly amortization payments
based on a twenty year amortization schedule.
Effective December 31, 1994 the Trust terminated the December 31, 1990 Credit
Agreement ("1990 Credit") it had with Society National Bank. Effective January
1, 1994 the Trust and the lender had amended the 1990 Credit by converting the
loan to a revolving line of credit. During January and February, 1994 the
Trust paid down the $4,508,000 balance of the 1990 Credit. There were no
borrowings outstanding when the 1990 Credit was terminated.
NOTE E - SHARES OF BENEFICIAL INTEREST
On November 23, 1993 the Trust mailed a prospectus and certificate of rights to
all shareholders of record as of November 12, 1993. The certificate entitled
the shareholder the right to purchase one share of beneficial interest of the
Trust for every two shares that the shareholder owned at a price of $3.25 per
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CLEVETRUST REALTY INVESTORS
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE E - SHARES OF BENEFICIAL INTEREST (Continued)
share. Additionally, this offering also provided for an oversubscription
privilege that entitled each holder of a right to subscribe for shares not
purchased by other holders of rights. Oversubscription was to be allocated
prorata based on the number of shares owned should oversubscription requests
exceed the number of shares available. The offering expired January 28, 1994.
All 1,857,969 shares available in the offering were sold. The Trust received
$6,038,000 less estimated expenses of $133,000 or net proceeds of $5,905,000.
On June 24, 1994 the Trust purchased 103,210 of its Shares of Beneficial
Interest at a price of $2.875 per share. All 103,210 shares were retired by
the Trust.
On April 17, 1995 the Trust purchased 14,000 of its Shares of Beneficial
Interest at a price of $3.40 per share. All 14,000 shares were retired by the
Trust.
NOTE F - DISTRIBUTIONS
The Trustees at their April 25, 1995 meeting declared a quarterly cash
distribution of $.04 per share payable July 21, 1995 to shareholders of record
as of July 7, 1995. The Trustees at their July 25, 1995 meeting declared a
quarterly cash distribution of $.04 per share payable on October 20, 1995 to
shareholders of record as of October 6, 1995.
NOTE G - NET INCOME PER SHARE
Net income per Share of Beneficial Interest has been computed using the
weighted average number of Shares of Beneficial Interest outstanding each
period.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FINANCIAL CONDITION
At June 30, 1995 the Trust owned $63,220,000 in real estate investments at cost
and had two real estate mortgage loans with a combined balance of $325,000.
These investments, net of accumulated depreciation, totaled $41,458,000. This
compares to total real estate investments at cost of $71,028,000, one real
estate mortgage loan with a balance of $236,000 and a carrying value after
accumulated depreciation of $45,616,000 at September 30, 1994. The $4,158,000
reduction since year end was the net result of the following: (i) the February
28, 1995 sale of the St. Louis hotel, book value $1,875,000; (ii) the March
15, 1995 sale of the apartments located in Greeley, Colorado, book value
$636,000; (iii) the March 20, 1995 sale of a 51,000 square foot office
building located in Dallas, Texas, book value $637,000; (iv) the May 31, 1995
sale of 17.7697 acres of vacant land located in Akron, Ohio, book value
$111,000; (v) the recording of a purchase money mortgage in the amount of
$212,000 in connection with aforementioned sale of the Akron vacant land; (vi)
receiving $123,000 in real estate loan repayments; (vii) spending $401,000 on
improvements to existing properties; and (viii) recording depreciation expense
of $1,389,000.
With a portion of the proceeds from the sales of the hotel and the apartments,
the Trust repaid in full the $3,460,000 balance of the loan it had with Ohio
Savings Bank. Additionally, with $1,006,000 of the Insurance Settlement
Proceeds which the Trust had received as a part of the settlement between the
Trust and its insurance company in connection with the January 18, 1994 fire at
the Petroleum Club Building located in Tulsa, Oklahoma (see Note B to the
Financial Statements) and the balance of the proceeds from the sales of the
above referenced properties, the Trust repaid in full two mortgage notes ( a
$498,000 first mortgage on a shopping center in Ardmore, Oklahoma and a
$1,017,000 first mortgage on an office building in Englewood, Colorado) and
made a paydown on the 1994 Credit of $2,098,000.
The $2,264,000 increase in shareholders' equity at June 30, 1995 from September
30, 1994 was the net effect of the Trust's recording net income of $2,967,000,
making distributions to shareholders of $655,000 during the nine month period
ended June 30, 1995 and repurchasing and retiring 14,000 of the Trust's shares.
At June 30, 1995 the Trust's debt to equity ratio was .59 to 1.00 compared to
.96 to 1.00 at September 30, 1994.
RESULTS OF OPERATIONS
Quarter ended June 30, 1995 versus June 30, 1994
Income from real estate operations during the quarter ended June 30, 1995
increased $152,000 (23%) when compared to the quarter ended June 30, 1994.
Rental income for the quarter ended June 30, 1995 increased $65,000 (2.7%)
compared to the quarter ended June 30, 1994. Real estate operating expenses
decreased $21,000 (1.7%) while depreciation expense declined $66,000 (13.3%) in
the three months ended June 30, 1995 versus 1994. The primary reason for the
increase in income from real estate operations and rental income was due to the
Trust's purchase in August, 1994 of a 104,000 square foot office building
located in Dallas, Texas. The rental income increase would have been much
higher but
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS - (Continued)
was reduced by the loss of the rents from the properties which were sold, as
described above. The sale of these properties was also the primary reason for
the lower real estate operating expenses when comparing 1995 to 1994.
The $104,000 (21.4%) decrease in interest expense for the three month period
ended June 30, 1995 when compared to the same period one year ago was primarily
due to the Trust paying interest on significantly lower borrowings outstanding.
During the current three month period the average monthly debt outstanding was
approximately $15.1 million compared to an average monthly debt outstanding of
approximately $20.3 million for the three month period one year ago. The
average interest rate for the current quarter was approximately 10.1% compared
to approximately 9.5% one year ago.
On May 31, 1995 the Trust completed a $212,000 sale of 17.7697 acres of vacant
land located in Akron, Ohio. This sale resulted in a gain of $91,000.
On May 1, 1995 the Trust settled, at a discount, a $1,017,000 first mortgage
loan on its office building located in Englewood, Colorado. This settlement
resulted in an extraordinary gain of $52,000. There was no comparable activity
during the three months ended June 30, 1994.
Nine Months ended June 30, 1995 versus June 30, 1994:
Income from real estate operations during the nine months ended June 30, 1995
increased $370,000 (18.7%) compared to the nine months ended June 30, 1994.
Rental income for the nine months ended June 30,1995 increased $481,000 (6.7%)
when compared to the nine months ended June 30, 1994. Real estate operating
expenses during the current nine months increased $204,000 (5.4%) when compared
to the same period one year ago. These increases were primarily due to the
Trust's purchase in August, 1994 of a 104,000 square foot office building
located in Dallas, Texas. Depreciation expense declined $93,000 (7.6%) when
comparing the two periods.
The $221,000 (13.7%) decrease in interest expense for the nine month period
ended June 30, 1995 when compared to the same period one year ago was primarily
due to less borrowings outstanding. During the current nine month period the
monthly average debt outstanding was approximately $18.4 million compared to an
average monthly debt outstanding of approximately $22.6 million for the
comparable period one year ago. The average interest rate during the current
nine month period was 10.1% compared to an average interest rate of 9.5% for
the same period one year ago.
On February 28, 1995 the Trust complete a $2,650,000 sale of the 197 room
Quality Hotel located at the St. Louis, Missouri airport. This sale resulted
in a gain of $452,000. On March 15, 1995 the Trust completed a $2,595,000 sale
of the 224 unit Parkwood Place Apartments located in Greeley, Colorado. This
sale resulted in a gain of $1,859,000. On March 20, 1995 the Trust completed a
$800,000 sale of the 51,000 square foot Walnut Hill West office building
located in Dallas, Texas. This sale resulted in a gain of $97,000. The
$91,000 balance of the gains for the nine months ended June 30, 1995 was from
the Akron land sale discussed previously. On March 7, 1994 the Trust completed
a $834,000 sale of 69.96 acres of vacant land located
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS - (CONTINUED)
in Akron, Ohio. This sale resulted in a gain of $361,000.
The $52,000 extraordinary income item for the nine months ended June 30, 1995
was discussed above.
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P A R T I I
Item 1. Legal Proceedings
There are no items or events requiring reporting with respect to this item.
Item 2. Changes in Securities
There are no items or events requiring reporting with respect to this item.
Item 3. Defaults upon Senior Securities
There are no items or events requiring reporting with respect to this item.
Item 4. Submission of Matters to a Vote of Security Holders
There are no items or events requiring reporting with respect to this item.
Item 5. Other Information
There are no items or events requiring reporting with respect to this item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(Filing for SEC only)
(b) Reports on Form 8-K
There are no items or events requiring reporting with respect to this item.
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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.
CLEVETRUST REALTY INVESTORS
(Registrant)
Date: August 2, 1995
By: /s/ John C. Kikol
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John C. Kikol, President
Date: August 2, 1995
By: /s/ Michael R. Thoms
------------------------------
Michael R. Thoms, Vice President
and Treasurer
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CLEVETRUST REALTY INVESTORS
QUARTERLY REPORT ON FORM 10-Q FOR QUARTER ENDED JUNE 30, 1995
EXHIBIT INDEX
"Assigned" "Sequential"
Exhibit No. Description Page No.
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(27) Financial Data Schedule. 15
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