1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
Commission File Number 0-5641
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CleveTrust Realty Investors
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(Exact name of Registrant as specified in its charter)
Massachusetts 34-1085584
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 Crocker Road, Suite 400, Westlake, Ohio 44145
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 899-0909
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest, $1 Par Value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X .
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At December 1, 1995, 5,217,143 Shares of Beneficial Interest, par value $1.00
per Share, were outstanding, and the aggregate market value of the Shares of
the Registrant held by non-affiliates (based upon the closing price of the
Registrant's Shares on December 1, 1995, which was $4.625) was approximately
$6,744,000. For purposes of this information, the outstanding Shares
beneficially owned by all Trustees and Officers of the Registrant, were deemed
to be the shares held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CleveTrust Realty Investors Proxy Statement for the 1995 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated by reference
into Part III of this report. With the exception of those portions which are
expressly incorporated by reference into this annual report on Form 10-K, the
documents incorporated by reference are not deemed filed as part of this
report.
The sequential page in this Report where the Exhibit Index is located is Page
51.
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PART I
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Item 1. Business.
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General:
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CleveTrust Realty Investors (the "Trust") is a business trust organized in
Massachusetts which commenced operations in 1971. The Trust's assets are
composed principally of equity investments in real estate and two real estate
mortgage loans. The Trust intends to acquire additional ownership interests in
suburban office buildings located in the Midwest and/or Southwest Continental
United States. The form of the Trust's investments in real estate can vary.
Alternatives can include improved property, or through investments in joint
ventures and/or other legal entities. The Trust directly manages all of its
improved properties. Additionally, the Trust recently has made investments in
real estate companies' securities primarily real estate investment trusts
("REITs") and is considering additional such investments. At September 30,
1995 the Trust had 21 full-time employees.
On August 21, 1995 the Trust mailed an Offer to purchase for cash an aggregate
of up to 500,000 Shares of Beneficial Interest for a price of $4.00 per Share
to each shareholder of the Trust. The Offer ended September 22, 1995 and at
its conclusion 239,553 Shares were purchased and retired by the Trust.
On November 23 , 1993, the Trust mailed a prospectus and certificates of rights
to all shareholders of record as of November 12, 1993. The certificates
entitled the shareholder to the right to purchase one Share of Beneficial
Interest of the Trust for every two Shares the shareholder owned, at a price of
$3.25 per Share. Additionally, this offering provided for an oversubscription
privilege which entitled each holder of a right to subscribe for Shares not
purchases by other holders of rights. Oversubscriptions were allocated prorata
based on the number of Shares owned. The offering expired on January 28, 1994.
All 1,857,969 Shares available were sold. The net proceeds to the Trust
totaled $5,929,000.
On November 17, 1992 the Trust mailed a prospectus and certificates of rights
to all shareholders of record as of November 12, 1992. The certificates
entitled shareholders to the right to purchase one Share of Beneficial Interest
of the Trust for each Share that the shareholder owned at a price of $2.50 per
Share. Additionally, this offering provided for an oversubscription privilege
which entitled each holder of a right to subscribe for Shares not purchased by
other holders of rights. The offering also provided that if any Shares were
not purchased by shareholders could be sold to third-party investors. The
offering expired on December 28, 1992. The Trust sold 1,759,165 Shares of the
1, 956,772 Shares available in the offering. The net proceeds to the Trust
totaled $4,231,000.
Portfolio:
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At September 30, 1995, the Trust's investment portfolio consisted primarily of
ownership interests in seven multi-tenanted office buildings, four
multi-tenanted shopping centers, and two retail centers (collectively, the
"Properties"). See Item 2 of Part I below. The significant investment
portfolio activity of the last three fiscal years is discussed under Item 7 of
Part II below. Information pertaining to the operating revenues, operating
income or loss and total assets of the Trust for each of the last three fiscal
years is provided under Item 6 of Part II below.
The Trust's primary business objectives are to increase distributions per share
and to increase the value of the Trust's Properties. The Trust's operating
strategy is intended to achieve these objectives. One focus of this operating
strategy is to maximize funds from operations from the Trust's Properties,
thereby enhancing their value, through (i) rental rate increases, to the
extent that competitive conditions permit; (ii) improve-
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PART I
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Item: 1. Business (continued):
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ments in tenant retention; (iii) emphasis on expense controls consistent with
the proper maintenance of the Properties; and (iv) strategic capital
investments in order to increase the competitive position of the Properties.
The Trust also believes that funds from operations from its investments may
increase as a result of cyclical market recoveries and growth. The Trust
strives to maintain operating expenses at its Properties at the lowest
practical levels given the need to adequately operate and maintain its
Properties, the majority of which were constructed in the mid-1970's to
mid-1980's. Maintenance is emphasized because it is considered critical to the
long-term appreciation of the Properties.
The second focus of the Trust's operating strategy is to pursue the acquisition
of suburban office building properties which Management believes present
opportunities for creating value. The Trust will seek to invest in those
Properties that Management believes are available at prices below estimated
replacement cost, have strong potential for growth in funds from operations,
attractive rates of return relative to the associated risk, and are capable of
growth in investment value through application of the Trust's management
ability and strategic capital improvements. The Trust expects to be able to
achieve this objective due to inefficiencies which presently exist in the
suburban office building market, although there can be no assurance that such
objective will be achieved. These inefficiencies have been created in certain
markets due to an oversupply of properties. In addition, Management believes
that ineffective property and asset management by under-capitalized ownership
and the scarcity of financing for real estate transactions have contributed to
a systematic under-valuation of certain real estate assets which the Trust will
attempt to capitalize upon. Since January, 1994 the Trust has evaluated
numerous possible acquisitions of suburban office building properties and has
made bids on several properties, but the competition for such properties has
increased dramatically. As a result, the Trust has been out-bid on several of
the properties it has attempted to buy. Notwithstanding the increased
competition, the Trust will continue its efforts to find such properties that
satisfy the Trust's investment criteria.
The third and newest focus of the Trust's operating strategy is to pursue the
investment in securities of real estate companies whose stock is valued at less
than the value of the assets owned by the company. The Trust believes that its
Management should be able to evaluate the real estate assets of real estate
companies (primarily REITs) in substantially the same manner as if they were
purchasing the assets, although the information available with respect to
specific properties in a real estate company's portfolio generally is not as
detailed or current as would be available in negotiation of a direct property
purchase. By investing in securities, the Trust believes that it will be able
to take advantage of the returns provided by companies with high quality real
estate assets and will allow the Trust to share in the ownership in more
markets. Since investments in real estate equities tends to be long term in
nature (see "Real Estate Market Conditions", below), by investing in securities
the Trust believes that its portfolio will be more balanced, as securities tend
to be more liquid in nature and can be disposed of more quickly than directly
owned investments in real estate. These investments are expected to give the
Trust immediate returns in the form of dividends, plus the ability in to
realize a future return should the market value of the stock increase and the
Trust decide to dispose of the securities.
Since fiscal 1989, the Trust's portfolio of Properties has generated sufficient
revenue to cover all operating expenses (excluding depreciation, a non-cash
expense), amortization of mortgage notes payable, required amortization of bank
notes payable, and capital improvements to existing properties. The Trust
believes that sufficient revenues will also be available to cover anticipated
distributions.
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PART I
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Item 1. Business (continued):
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Financing and Leverage:
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The Trust believes that the use of borrowed funds in purchasing properties can
help to maximize the Trust's investments. As of September 30, 1995 two of the
Trust's investments were leveraged with long-term non-recourse individual
mortgage financing and one property was leveraged with a $2,146,000 loan of
which the first $750,000 is recourse and the balance is non-recourse. As of
September 30, 1995 six of the Trust's remaining improved properties served as
collateral for the Trust's bank notes payable. See Note E of the Notes to the
Financial Statements presented in Part II, Item 8 of this report.
Effective November 30, 1994 the Trust and two banks, National City Bank of
Cleveland ("NCB") and Manufacturer's and Traders Trust Company of Buffalo ("M &
T") signed a revolving line of credit agreement 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 at the
Trust's discretion upon payment of an activation fee of 3/4 of 1% on the
$10,000,000. This loan is for an initial term of three years. The banks will
review the loan annually, and if satisfied, they will extend the loan for an
additional year at that time. Therefore, the Trust will have an annually
renewed three year loan or two years in which to replace the loan. At the
Trust's option interest on any loan will be at any of the following rates (i)
the prime lending rate plus 1/4 of 1%; (ii) 250 basis points over the LIBOR
rate; or (iii) NCB's fixed rate of interest in effect from time to time. It
is the Trust's present intention to use this revolving line to finance the
purchase of suburban office buildings and invest in real estate companies'
securities.
Real Estate Market Conditions:
- ------------------------------
Investments in real estate equities tend to be long term investments, and
accordingly, tend to limit the ability of the Trust to vary its portfolio of
real estate owned promptly in response to changing economic, financial and
investment conditions, such as overbuilding in certain markets and the
resulting intense competition for tenants. Although the Trust requires leases
from all tenants occupying space in its properties, in the event of a default
by a tenant, the Trust may modify the lease terms or evict the tenant. Tenant
evictions result in increased expenses and the possibility of lost rents until
the space is re-leased.
It should be noted that the largest tenant occupying space in any of the
Trust's Properties currently pays rent totaling $974,000 or 9.5% of the Trust's
1995 revenues. This tenant has a lease which matures September 30, 2005 but
the lease contains six 10-year option provisions at the tenant's discretion
which, if exercised, would extend the maturity date to September 30, 2065. The
rent paid by this tenant is subject to an annual adjustment based on the
increase or decrease in operating expenses of the property.
The Trust, in order to remain competitive, leases space at its properties at
rates which are dictated by the market in which the property exists. The
market rates, which are quoted to both new tenants and tenants who are renewing
their leases, were at their highest levels in the early 1980's. These rates
began to decline at most of the properties in 1984 and continued to decline
through 1988. At that time, the market rates at all of the Trust's properties
were at their lowest levels. Since 1989, the market rates have tended to
increase. In 1995 the market rates at the majority of the properties were
higher than those in 1988 but have not returned to the high rates that existed
in 1983. The Trust is encouraged by the current trends in rates.
Additionally, the majority of leases at the Properties include provisions for
the tenant to pay additional rent if operating expenses of the property
increase.
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PART I
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Item 1. Business (continued):
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Taxation:
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Through fiscal 1992 the Trust operated so as to qualify as a real estate
investment trust (a "REIT") as defined by Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"). Effective April 1,
1993 the Trust automatically failed to qualify as a REIT under the Code as on
such date more than 50% in value of the Trust's shares (after the application
of certain constructive ownership rules) were owned by five or fewer
individuals.
Although the Trustees had the right pursuant to Section 8.5 of the Declaration
of Trust to prevent the transfer, and/or call for the redemption of, securities
of the Trust sufficient in the opinion of the Trustees to meet requirements for
REIT status, the Trustees in their discretion determined that maximizing
proceeds from the December 1992 rights offering (the "1992 Rights Offering")
outweighed the benefits of REIT status. The primary impact on the Trust as a
result of the failure to qualify as a REIT is that the Trust is now required to
file its federal and state income tax returns as a corporation and is subject
to taxation as a corporation. As a result, distributions to shareholders will
be subject to double taxation to the extent of current and accumulated earnings
and profits of the Trust. Additionally, the Trust will not be able to
re-qualify as a REIT until fiscal year 1998. Loss of REIT status should not
have a materially adverse tax effect on the shareholders because as of
September 30, 1995 the Trust has net operating loss carry forwards (NOL's) of
approximately $6.4 million available to offset taxable income. As the Trust
has failed to qualify as a REIT as a result of five or fewer individuals
acquiring 50% or more in value of the Trust's Shares, the Trust is also subject
to Section 382 of the Code which limits the amount of NOL's available to the
Trust on an annual basis. In future years, the Trust can use approximately
$298,000 per year of NOL's plus any prior year's unused portion (limited by
carryforward periods) for NOL's generated prior to December, 28, 1992. The
Trust can also use NOL carryforwards generated after December 28, 1992. These
carryforwards of approximately $5.4 million expire through 2009. The remaining
carryforwards of $1.0 million may be recognized for a period through fiscal
1998 against gains on sales of properties, if any, to the extent that fair
market values of these properties exceeded their tax bases as of December 28,
1992.
Competition and Limited Resources:
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The Trust's Properties will be subject to competition from similar types of
properties in the vicinities in which they are located. The areas in which the
Trust intends to acquire properties have experienced a softening of their real
estate markets. This is due in part to overbuilding, slower growth in certain
local economics, and a decline in the energy industry which causes increased
competition for tenants. Such increased competition is continuing and may
adversely affect the ability of the Trust to renew existing leases as they
expire or to attract new tenants for vacant space. Such competition will have
an adverse effect on the levels of rents which the Trust will be able to
realize on new leases and has had an adverse effect on property values in the
markets being targeted by the Trust.
The Trust is relatively small in comparison to many of its competitors. This
size limits the Trust's resources and may limit its ability to compete
effectively in the geographic markets in which it focuses. Also, the Trust's
relative size limits its ability to diversify its portfolio selections, which
may also limit its ability to compete effectively.
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PART I
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Item 2 . Properties.
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General:
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At September 30, 1995 the Trust had a total invested assets of $41,245,000.
The invested assets included $40,942,000 of investments in real estate and
$303,000 of real estate mortgage loans.
The Trust's $40,942,000 of investments in real estate as of September 30, 1995
included the following: seven office buildings with a carrying value of
$20,751,000; six commercial properties with a carrying value of $19,941,000;
three single family units with a carrying value of $47,000; and one investment
in land with a carrying value of $203,000. Carrying value represents amounts
included in the Trust's Statement of Financial Condition as of September 30,
1995 after depreciation. Although Management will from time to time undertake
a major renovation of a Property in order to keep it competitive within its
market, at this time Management has no plans for a major renovation of any of
its Properties. During fiscal 1994 and 1995, the Petroleum Club Building
located in Tulsa, Oklahoma underwent major reconstruction and repair work as a
result of a fire which occurred in January, 1994. The Trust and its insurance
company agreed to a settlement for the repair of the property in July, 1994.
All repairs and building improvements were paid for from the insurance
proceeds.
In the opinion of Management, all Properties in the Trust's portfolio are
adequately covered by insurance. Additionally, all properties are suitable and
adequate for their intended use.
The amount of leverage varies among the Properties which the Trust presently
owns. At September 30, 1995 two of the Trust's Properties were leveraged with
long-term non-recourse individual mortgage financing and one property is
leveraged with a $2,146,000 loan of which the first $750,000 is recourse and
the balance is non-recourse. Additionally, as of September 30, 1995 six of the
Trust's remaining investments serve as collateral for the Trust's bank notes
payable.
At September 30, 1995 the Trust owned two real estate mortgage loans with a
total balance of $303,000. Both loans are purchase money mortgages received by
the Trust in connection with sales of vacant land in Akron, Ohio. The first
was a $290,000 loan received in connection with the $834,000 March, 1994 sale
of 70 acres. The second was a $212,000 loan received in connection with the
$212,000 May, 1994 sale of 17.7697 acres.
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PART I
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Item 2. Properties (Continued):
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Investments in Real Estate:
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The following table analyzes the investments in real estate as of September
30, 1995 by type of property.
Square
Percentage Footage or
Year Leased Rentable Trust Accumulated Mortgage
Description Acquired (A) (B) Units Investments Depreciation Debt
- ----------------- -------- ------------ -------------- ----------- -------------- ----------
(--------in thousands--------)
OFFICE BUILDINGS:
Dallas, Texas:
Walnut Stemmons
Office Park 1975 79% 88,000sf $ 3,149 $ 2,093 $ ----
Office Alpha (F) 1983 91 103,000 10,925 3,197 ----
14800 Quorum 1994 90 104,000 4,095 119 2,146
Denver, Colorado:
Englewood Bank
Building (G) 1971 97 129,000(C) 4,833(D) 2,949 ----
Executive Club
Building (H) 1972 93 96,000 4,442 2,793 ----
Littleton Bank
Building 1973 100 58,000(C) 3,122(E) 1,321 1,268
Tulsa, Oklahoma:
Petroleum Club
Building 1972 81 115,000 6,842 4,185 ----
-- -------- -------- ------- --------
TOTAL OFFICE BUILDINGS: 90 693,000 37,408 16,657 3,414
SHOPPING CENTERS:
Austin, Texas :
Cannon West (I) 1987 82 123,000 8,172 1,973 5,852
Davenport, Iowa:
Spring Village (J) 1987 100 103,000 5,527 953 ----
Dubuque, Iowa
Warren Plaza (K) 1987 100 90,000 5,364 1,040 ----
Ardmore, Oklahoma:
Tiffany Plaza 1989 95 147,000 3,940 812 ----
-- -------- -------- ------- --------
TOTAL SHOPPING CENTERS: 94 463,000 23,003 4,778 5,852
RETAIL CENTERS:
Dallas, Texas:
European Crossroads 1988 19 187,000 868 0 ----
Hilton Head, SC :
Triangle Square 1976 89 93,000 1,897 1,049
-- -------- -------- ------- --------
TOTAL RETAIL CENTER: 43 280,000 2,765 1,049
OTHER: 309 59 ----
---- -- -------- -------- ------- --------
$63,485 $22,543 $9,266
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PART I
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Item 2. Properties (Continued):
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Investments in Real Estate: (Continued):
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(A) At September 30, 1995 the Trust had 512 tenants under lease in its office
buildings, shopping centers and retail centers (excluding the mini
warehouses at Triangle Square). These tenants are under leases of one
year or more. Additionally, the Trust had 168 month-to-month leases for
mini-warehouse spaces at Triangle Square.
(B) The following lists individually those tenants who occupy 10,000 square
feet or more, and whose original lease terms expire five years or more from
September 30, 1995. Eleven (11) other tenants who occupy less than 10,000
square feet and have leases which expire five years or more from September
30, 1995 are grouped together and shown as Others on the table below:
Expiration Square Annual
Property Tenant Date Footage Base Rent
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Englewood Bank Bank One, Denver 9/30/2005 108,000 $ 974,000
Petroleum Club Petroleum Club 4/30/2003 25,000 157,000
Littleton Bank Norwest Bank 1/14/2008 35,000 315,000
Cannon West H. E. Butt 10/05/2001 50,000 250,000*
Spring Village Eagle Foods 6/30/2005 46,000 204,000*
Spring Village Bombay Rest. 1/31/2011 10,000 98,000*
Spring Village Walgreen's 11/30/2010 11,000 67,000*
Spring Village I. H. Miss 11/30/2001 10,000 34,000
Warren Plaza HY-VEE 9/08/2013 52,000 259,000*
14800 Quorum Preston 3/21/2002 13,000 130,000
Various Others Various 26,000 359,000*
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386,000 $2,847,000
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* Leases marked with an asterisk have additional rent provisions
to be paid based on a percentage of the gross sales over a
base sales figure.
All leases listed on the table are subject to an annual adjustment in
rent based on the increase or decrease in the operating expenses of
the Property.
The annual base rents of the tenants listed in the table equal 28% of
the total 1995 rental income, and these tenants occupy 386,000 square
feet (33%) of the total 1,178,000 square feet currently occupied. The
remaining 792,000 square feet are occupied by 491 tenants. These
tenants' leases expire during the next five years. The loss of
rentals from any one of these leases, which the Trust would not be
able to renew or replace, would not have a significant effect on the
Trust's operations.
(C) The following is a list of those tenants who occupy 50% or more of a
Property:
Englewood Bank Building -- Bank One, Denver -- 108,000 sq. ft. (83%)
Littleton Bank Building -- Norwest -- 35,000 sq. ft. (61%)
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PART I
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Item 2. Properties (Continued):
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Investments in Real Estate: (Continued):
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(D) The Trust owns the improvements subject to a ground lease which expires
January 31, 2024. The Trust has four, eleven year options to extend the
ground lease. The current lease rent is $105,545 per year. The rent
can be increased to 7 1/2 % of the land value, not to exceed 110% of the
previous year's rent. This increase is allowed every ten years. The
next time an increase could be made is 2002. At the end of the lease
and any extension exercised, the improvements become the property of the
land owner, Bank One, Denver, which is a tenant in the building. In
September, 1995 the Trust and Bank One executed an Option Purchase
Agreement. The Trust has paid Bank One an Option Deposit of
$40,000 which gives the Trust the option to purchase the land under
lease for a purchase price of $1,260,000. The Trust currently
anticipate that the closing of the purchase will take place around
February 1, 1996.
(E) The Trust owns the improvements subject to a ground lease which expires
December 31, 2026. The lease rent is $10 per year through 2006, $26,000
per year for the years 2007 through 2016 and $30,000 per year for the
years 2017 through 2026. At the end of the lease, the improvements
become the property of the land owner, Norwest, which is a tenant in the
building.
(F) Office Alpha. Office Alpha is located in the North-Dallas LBJ-East
office market of Dallas, Texas. Office Alpha contains five stories and
is suitable and adequate for its use as an office building.
Space in the building is leased to service and professional
organizations for use as general offices. The Trust's policy is to
sign leases with new and renewal tenants for periods of three to five
years in order to take advantage of changes in the market.
Presently, the Trust has no plans for any significant renovations of
the Property beyond normal maintenance and repairs and tenant
improvements done in conjunction with the leasing of space within the
Property.
There are numerous office buildings in the direct vicinity, some of
higher quality, and numerous projects of similar age, style, condition
and quality that directly compete with Office Alpha. Leasing proposals
for both new and renewal tenants in this submarket are highly
competitive. Many of the Trust's competitors in this submarket have
substantially greater capital and resources than the Trust.
Occupancy for the fiscal years ended September 30, 1991 through 1995 was
as follows: 91% for 1991, 73% for 1992, 84% for 1993, 83% for 1994 and
91% for 1995. The Property's average rental rates per occupied
square foot for the same period were: $9.95 in 1991, $9.61 in 1992,
$8.91 in 1993, $9.00 in 1994 and $9.52 in 1995.
At September 30, 1995 Jewish Family Services of Dallas, Inc., a
non-profit organization which performs social services primarily for the
Jewish community in Dallas, was the only tenant occupying 10% or more of
the space in Office Alpha. This tenant's annual rent is $96,000. Its
lease expires September 30, 1996.
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PART I
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Item 2. Properties (Continued):
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Investments in Real Estate: (Continued)
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Based upon leases in place at September 30, 1995 lease expirations for
the next ten fiscal years ended September 30, 2005 are as follows:
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/95
---- -------- -------- -------------- ----------------
1996 24 45,114 $ 422,112 46%
1997 5 6,775 65,160 7
1998 12 21,861 214,704 24
1999 4 13,646 123,579 14
2000 4 8,300 85,080 9
2001-2005 NONE
Office Alpha is depreciated for tax purposes using the straight line
basis with the building and improvements having a 15 year life. The
depreciable tax basis was $2,261,000 at September 30, 1995. The 1994
real estate taxes for the Property were $94,960 based on a millage rate
of $2.70 per $1,000 of assessed value. The 1995 real estate taxes
are not yet known.
(G) Englewood Bank Building. The Englewood Bank Building is located in
Englewood, Colorado. The building contains 10 stories and is suitable
and adequate for its use as a bank and office building.
The main tenant is Bank One, Denver which occupies 83% of the building.
The balance of the building is primarily leased to small service or
professional organizations for use as general offices. The Trust's policy
is to sign leases of three to five years in order to take advantage of
changes in the market.
The Trust has no plans for any significant renovations of the Property
other than normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
The Englewood Bank Building is subject to limited direct competition from
comparable office projects in the general vicinity. There is only one
competing high-rise office building in the area of similar size, quality,
condition and location to the Englewood Bank Building. Other competing
projects consist of low-rise office buildings and converted retail space
generally considered to be of lesser quality.
The occupancy rates for the fiscal years ended September 30, 1991 through
1995 were as follows: 97% in 1991, 89% in 1992, 91% in 1993, 98% in 1994
and 97% in 1995. The Property's average rental rate per occupied square
foot for the same period was $6.55 in 1991, $6.65 in 1992, $6.69 in
1993, $6.80 in 1994 and $6.63 in 1995.
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PART I
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Item 2. Properties (Continued):
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Investments in Real Estate: (Continued)
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Bank One, Denver is the only tenant occupying over 10% of the rentable
space. Its annual rent is currently $974,000 but is subject to an
annual adjustment based on increases or decreases in property expenses.
This lease expires September 30, 2005 and has six, ten year renewal
options available.
Lease expirations based upon base rents of leases in place at September
30, 1995 for the ten years ended September 30, 2005 are as follows:
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base Rents
Year Expiring Expiring Rents Expiring at 9/30/95
---- -------- -------- -------------- -------------
1996 6 5,426 $ 52,968 4%
1997 4 7,171 67,320 6
1998 1 580 6,120 1
1999 2 6,430 56,148 5
2000 - 2004 NONE
2005 1 107,663 973,690 84
The Englewood Bank Building is depreciated for tax purposes using the
straight line method over 40 years for the building and improvements.
The depreciable tax basis was $2,018,000 at September 30, 1995. The
1994 real estate taxes for the Property were $101,857 based on a millage
rate of $8.1046 per $1,000 of assessed value. The 1995 real estate
taxes are not yet known.
(H) EXECUTIVE CLUB BUILDING. The Executive Club Building is located in
Denver, Colorado. The building contains eleven floors and has a health
club, which includes a swimming pool, located in the basement. The
building is suitable and adequate for its use as an office
building.
Space in the building is leased to service and professional organizations
for use as general offices. The Trust's policy is to sign new leases
with new and renewal tenants for periods of three to five years in
order to take advantage of changes in the market.
Presently, the Trust has no plans for any significant renovations of the
property beyond normal maintenance and repairs and tenant improvements
done in conjunction with the leasing of space within the Property.
There are numerous office buildings in the direct vicinity, some of
higher quality, and numerous projects of similar age, condition
and quality that directly compete with the Executive Club Building.
The Trust believes that the advantage that this building has is that the
building caters to small tenant users, while the majority of the
properties in the area prefer larger tenants.
-10-
12
PART I
-------
Item 2. Properties (Continued):
- -------- ----------------------
Investments in Real Estate: (Continued)
- ----------------------------------------
Occupancy for the fiscal years ended September 30, 1991 through 1995 was
as follows: 88% in 1991; 92% in 1992; 97% in 1993 and 1994 and
93% in 1995. The Property's average rental rates per occupied
square foot for the same periods were: $9.45 in 1991; $9.69 in 1992;
$9.55 in 1993; $10.15 in 1994 and $11.63 in 1995.
There are no tenants in this property occupying 10% or more of the
space.
Based upon leases in place as of September 30, 1995 lease expirations
for the next ten fiscal years ended September 30, 2005 are as
follows:
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/95
---- -------- -------- -------------- ----------------
1996 17 31,739 $414,216 40%
1997 25 29,123 316,060 30
1998 19 21,117 230,916 22
1999 3 6,613 78,264 8
2000 - 2005 NONE
The Executive Club Building is depreciated for tax purposes using the
straight line method with the building and improvements having a
40 year life. The depreciable tax basis was $1,827,000 at
September 30, 1995. The 1994 real estate taxes for the Property
were $75,396 based on a millage rate of $8.0741 per $1,000 of assessed
value. The 1995 real estate taxes are not yet known.
(I) CANNON WEST SHOPPING CENTER. The Cannon West Shopping Center is a
grocery-anchored neighborhood strip center located in Austin, Texas.
Cannon West's main tenants operate retail businesses. The Property is
suitable and adequate for its use as a strip shopping center.
The Trust has no plans for significant renovations of the Property
beyond normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
The Trust owns this Property in fee simple, subject to a first mortgage
loan, at a rate of 9.5%, which matures May 1, 1997. At September 30,
1995 the balance of this loan was $5,852,000. By maturity $181,000 of
scheduled amortization payments are required and therefore a balance of
$5,671,000 will be due at maturity. There is a prepayment penalty of
4.5% effective May 28, 1995 which decreases 1/2 of 1% per year to a
minimum of 4% until maturity.
The Cannon West Shopping Center is subject to a limited amount of direct
competition in its immediate trade area. Although there are a number of
grocery anchored shopping centers located in South Austin serving
the south-side communities that are located along William Cannon Drive--
a major East-West highway serving the South Austin area -- Cannon West
Shopping Center is the only retail shopping center located at the
intersection of William Cannon Drive and Westgate Boulevard that serves
the immediate surrounding neighborhoods.
-11-
13
PART I
-------
Item 2. Properties (Continued):
- -------- ----------------------
Investments in Real Estate: (Continued)
- ----------------------------------------
Occupancy for the fiscal years ended September 30, 1991 through 1995 was
as follows: 84% in 1991; 88% in 1992; 93% in 1993; 75% in 1994; and
82% in 1995. The average rental rate, including percentage rents,
per occupied square foot during the same period was $6.28 in 1991;
$7.44 in 1992; $7.05 in 1993; $8.38 in 1994; and $9.01 in 1995.
Cannon West has one tenant that occupies more than 10% of the Property,
H.E. Butt Grocery Store ("HEB"). Their annual base rent is
$250,000. The lease also calls for tax, insurance and maintenance
escalations and has a percentage rent clause. For 1995 the percentage
rent paid was $104,000. This lease expires October 5, 2001 and has
four, five year renewal options. In September, 1995 the Trust was
notified by HEB that they had purchased a parcel of land approximately
one mile from Cannon West. Should HEB build a store and/or a
shopping center on this parcel of land, it could effect Cannon
West.
Lease expirations based on leases in place at September 30, 1995 for the
ten years ended September 30, 2005 are as follows:
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/95
---- -------- -------- -------------- ----------------
1996 12 20,147 $235,600 30%
1997 3 3,604 48,276 6
1998 5 9,199 109,414 14
1999 2 2,760 27,600 3
2000 1 2,295 29,376 4
2001 3 4,968 56,891 7
2002 1 49,585 250,000 31
2003 1 2,373 39,214 5
2004 - 2005 NONE
The building and improvements are depreciated for tax purposes using
the straight line method over 18 years. The depreciable tax basis was
$3,949,000 at September 30, 1995. The 1994 real estate taxes were
$160,468 based on a millage rate of $2.51 per $1,000 of assessed
value. The 1995 real estate taxes are not yet known.
(J) SPRING VILLAGE SHOPPING CENTER. The Spring Village Shopping Center is a
grocery-anchored neighborhood strip center located in Davenport,
Iowa. Spring Village's main tenants operate retail businesses. The
Property is suitable and adequate for its use as a strip shopping
center.
The Trust has no plans for significant renovations of the Property
beyond normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
-12-
14
PART I
-------
Item 2. Properties (Continued):
- -------- ----------------------
Investments in Real Estate: (Continued)
- ----------------------------------------
The Spring Village Shopping Center is subject to direct competition in
its immediate trade area. There are several grocery anchored shopping
centers located on Kimberly Road, the major retail East-West
road servicing Davenport. At September 30, 1995 Spring Village was 100%
occupied primarily due to the attractiveness of the center's
grocery store which was recently remodeled and expanded at the cost of
the Store.
Occupancy for the fiscal years ended September 30, 1991 through 1995 was
as follows: 97% in 1991; 98% in 1992; 99% in 1993; 98% in 1994; and
100% in 1995. The average rental rate, including percentage rents,
per occupied square foot during the same period was $7.60 in 1991;
$8.00 in 1992; $8.00 in 1993; $8.26 in 1994; and $7.89 in 1995.
Spring Village has two tenants that occupy more than 10% of the
Property. The first is Eagle Food Centers, whose annual base rent
is $204,000. Their lease also calls for tax, insurance and maintenance
escalations and has a percentage rent clause. There was no percentage
rent due for 1995. This lease expires June 30, 2005. The second is the
Walgreen Company, which operates a drug store, and pays annual base rent
of $67,000. Its lease also calls for tax, insurance and maintenance
escalations. This lease expires November 30, 2010.
Lease expirations based on leases in place at September 30, 1995 for the
ten years ended September 30, 2005 are as follows:
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/95
---- -------- -------- -------------- ----------------
1996 3 5,425 $ 52,236 8%
1997 NONE
1998 2 4,200 40,800 6
1999 2 2,400 21,900 3
2000 4 12,625 142,644 22
2001 NONE
2002 1 10,000 34,000 5
2003 - 2004 NONE
2005 1 45,763 204,000 31
The building and improvements are depreciated for tax purposes using
the straight line method over 31-1/2 years. The depreciable tax basis
was $3,383,000 at September 30, 1995. The 1995 real estate taxes are
$137,668 based on a millage rate of $3.59 per $1,000 of assessed
value.
(K) WARREN PLAZA SHOPPING CENTER. The Warren Plaza Shopping Center is a
grocery-anchored neighborhood strip center located in Dubuque,
Iowa. Warren Plaza's main tenants operate retail businesses.
The Property is suitable and adequate for its use as a strip shopping
center.
The Trust has no plans for significant renovations of the Property
beyond normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
-13-
15
PART I
-------
Item 2. Properties (Continued):
- -------- ----------------------
Investments in Real Estate: (Continued)
- ----------------------------------------
In addition to the 90,000 square feet owned by the Trust, there is a
97,000 square foot Target discountstore attached to the property,
which is not owned by the Trust. The Property is subject to direct
competition in its immediate trade area. There are several grocery
anchored shopping centers located on both Dodge Street and John F.
Kennedy Blvd. (this Property is located on the corner of these two
streets). Across the street from the Property is a mall, which the
Trust does not consider competition. Additionally, there is both a
K-Mart and Wal-mart in the area which compete with the Target
store. For both 1994 and 1995 this Property has been 100%
occupied. The Trust attributes this to both the grocery store and the
Target Store. Both of these stores have been recently remodeled and
expanded at the cost of the stores.
Occupancy for the fiscal years ended September 30, 1991 through 1995 was
as follows: 92% in 1991; 92% in 1992; 99% in 1993; 100% in
1994; and 100% in 1995. The average rental rate, including
percentage rent, per occupied square foot during the same period was
$8.83 in 1991; $8.86 in 1992; $8.60 in 1993; $9.67 in 1994; and
$9.24 in 1995.
Warren Plaza has one tenant that occupies more than 10% of the Property,
HY-VEE Food Store. Its annual base rent is $259,000. The lease
also calls for tax, insurance and maintenance escalations and
has a percentage rent clause. There was no percentage rent due for
1995. The lease expires June 30, 2013.
Lease expirations based on leases in place at September 30, 1995 for the
ten years ended September 30, 2005 are as follows:
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/95
---- -------- -------- -------------- ----------------
1996 2 6,500 $ 69,288 11%
1997 2 3,900 38,580 6
1998 1 1,050 9,972 2
1999 3 4,200 43,788 7
2000 3 11,160 160,054 25
2001 1 7,200 41,400 6
2002 1 3,200 33,600 5
2003 NONE
2004 1 1,400 14,004 2
2005 NONE
The building and improvements are depreciated for tax purposes using
the straight line method over 31-1/2 years. The depreciable tax basis
was $3,721,000 at September 30, 1995. The 1995 real estate taxes are
$102,102 based on a millage rate of $3.29 per $1,000 of assessed
value.
-14-
16
PART I
-------
Item 2. Properties (Continued):
- ------- -----------------------
Geographic Distribution:
- ------------------------
The Trust's properties are located in seven states. The table below
demonstrates the geographic distribution of the Trust's properties at September
30, 1995:
Percentage of
Number of Percentage of Assets Based
Investments Rental Income on Cost
----------- ------------- ----------
Texas:
Dallas 4 26% 30%
Austin 1 11 13
Colorado:
Denver 3 28 20
Oklahoma:
Tulsa 1 8 11
Ardmore 1 5 6
Iowa:
Davenport 1 8 8
Dubuque 1 9 8
South Carolina:
Hilton Head 1 5 3
Ohio:
Akron 1 -- 1
Florida:
Davie 1 -- --
----- ----- -----
15 100% 100%
===== ===== =====
-15-
17
PART I
-------
Item 3. Legal Proceedings
- -------- -----------------
The Trust is involved in a number of legal proceedings arising in the usual
course of its business activities, none of which in the opinion of the
management, is expected to have a material adverse effect on the Trust.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No matters were submitted to a vote of the Trust's Shareholders during the
fourth quarter of the fiscal year covered by this report.
Executive Officers of the Registrant
- ------------------------------------
The following information regarding executive officers of the Trust is provided
pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Position(s) with the Trust,
Principal Occupation,
Business, Experience,
Name (age) and Other Directorships
----------- -----------------------
John C. Kikol (51) Chairman; Chairman of the Board of Trustees since 1995;
Trustee of the Trust since 1982; President of the Trust
since
1974.
Michael R. Thoms (47) Vice President and Treasurer of the Trust since 1987.
Raymond C. Novinc (46) Vice President, Secretary and Counsel of the Trust since
1986.
Brian D. Griesinger (34) Vice President -- Management and Acquisitions of the
Trust since February, 1989; Assistant Vice President-
Acquisitions of the Trust from 1986 to 1989,
-16-
18
PART II
--------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------
Matters
-------
Market Price Range:
- -------------------
The shares of the Trust are traded in the Over-the-Counter market, NASDAQ
National Market System, (symbol CTRIS). The table below contains the quarterly
high and low closing bid prices for such Shares.
Fiscal 1995 Fiscal 1994
- ------------------------------------------------- --------------------------------------------------
Quarter Ended High Low Quarter Ended High Low
- ---------------------- ------ ------- ---------------------- ------ -------
December 31, 1994 3 - 3/8 2 - 7/8 December 31, 1993 4 - 1/8 2 - 1/2
March 31, 1995 3 - 5/16 2 - 5/8 March 31, 1994 3 - 1/2 2 - 7/8
June 30, 1995 3 - 3/4 3 - 1/4 June 30, 1994 3 - 1/2 2 - 3/4
September 30, 1995 4 - 1/8 3 - 3/8 September 30, 1994 3 2 - 5/8
The bid prices for the Trust's Shares shown in the table above are interdealer
prices and do not reflect retail mark ups, mark downs, or commissions and may
not be representative of actual transactions. As of December 1, 1995, there
were approximately 1,225 record holders of the Shares.
Distributions to Shareholders:
- ------------------------------
Fiscal 1995 Amount Fiscal 1994 Amount
Payment Date Per Share Payment Date Per Share
- ------------ --------- ------------ ---------
October 21, 1994 $ .04 October 22, 1993 $ .03
January 20, 1995 .04 January 28, 1994 .04
April 21, 1995 .04 April 22, 1994 .04
July 21, 1995 .04 July 22, 1994 .04
------- -------
$ .16 $ .15
======= =======
At their July 25, 1995 meeting, the Trustees declared a quarterly cash
distribution of $.04 per Share of Beneficial Interest payable October 20, 1995
to shareholders of record as of October 6, 1995. At their October 24, 1995
meeting, the Trustees declared a quarterly cash distribution of $.04 per Share
payable January 19, 1996 to shareholders of record as of January 5, 1996.
For a discussion of the tax classification of cash distributions see
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Dividends.
Distributions are subject to a bank convenant which require a minimum
Shareholders' Equity. At September 30, 1995 the amount of required
Shareholders' Equity was $20,000,000 and the amount free from this restriction
was approximately $5,126,000.
-17-
19
PART II
--------
Item 6. Selected Financial Data
- ---------------------------------
Year Ended September 30, 1995 1994 1993 1992 1991
- ----------------------------------------- ------- ------- ------- ------- -------
(in thousands, except per share data)
OPERATIONS:
Rental income $10,145 $ 9,650 $ 9,348 $ 9,400 $ 9,375
Interest income 56 76 263 325 359
Other income 26 29 41 60 40
------- ------- ------- ------- -------
Operating revenues 10,227 9,755 9,652 9,785 9,774
Operating expenses 9,631 9,870 10,384 11,125 11,336
Operating income (loss) 596 (115) (732) (1,340) (1,562)
Gains on sales of real estate 2,499 445 563 51 129
Extraordinary items 790 253 286 0 393
Net income (loss) 3,885 583 117 (1,289) (1,040)
Cash distributions to shareholders 874 735 393 117 0
Per Share of Beneficial Interest:
Operating income (loss) $ 0.11 ($0.02) ($0.22) ($0.68) ($0.80)
Gains on sales of real estate 0.46 0.09 0.17 0.02 0.07
Extraordinary items 0.14 0.05 0.09 0.00 0.20
------- ------- ------- ------- -------
Net income (loss) $ 0.71 $ 0.12 $ 0.04 ($0.66) ($0.53)
======= ======= ======= ======= =======
Cash distributions $ 0.16 $ 0.15 $ 0.12 $ 0.06 $ 0.00
Weighted average number of Shares of
Beneficial Interest outstanding 5,459 4,959 3,292 1,957 1,961
At September 30, 1995 1994 1993 1992 1991
- ----------------------------------------- ------- ------- ------- ------- -------
(in thousands)
FINANCIAL CONDITION:
Investments in real estate $40,942 $45,380 $49,394 $51,510 $54,113
Real estate mortgage loans 303 236 150 1,986 1,970
Allowance for possible investment losses 0 0 (6,089) (6,089) (6,233)
Investments in securities 267 0 0 0 0
Cash and cash equivalents 188 251 315 721 119
Certificates of deposit 0 500 500 500 500
Insurance settlement proceeds 0 3,341 0 0 0
Total assets 43,076 51,004 45,499 50,249 52,039
Mortgage notes payable 9,266 11,111 17,126 18,807 19,294
Bank notes payable 6,600 11,180 8,800 15,626 15,743
Shareholders' equity 25,126 23,150 17,669 13,714 15,120
Number of Shares of Beneficial Interest
outstanding at September 30 5,217 5,471 3,716 1,957 1,957
-18-
20
PART II
---------
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------- ---------------------------------------------------------------
Results of Operations.
----------------------
Financial Condition
- -------------------
During the three-year period ended September 30, 1995 the Trust's total assets
decreased 14% to $43,076,000. In 1994 the Trust applied the allowance for
possible investment losses to three previously foreclosed properties for which
it had been previously provided. This application was done in connection with
the Trust's regular evaluation of its portfolio of properties. The evaluation
concluded that it was unlikely that these properties would recover in value
and, therefore, they were written down to their net realizable value. During
this three-year period the carrying value of the Trust's invested assets after
the allowance for possible investment losses decreased 13% or $6,162,000 to
$41,245,000. In fiscal 1995 the Trust sold three improved properties. The
first was the sale of the 197 room Quality Hotel in St. Louis, Missouri for
$2,650,000 which resulted in a gain of $452,000. The second was the sale of
the 124 unit Parkwood Place Apartments in Greeley, Colorado for $2,595,000
which resulted in a gain of $1,859,000. The third was the sale of the 51,000
square foot Walnut Hill West office building in Dallas, Texas for $800,000
which resulted in a gain of $97,000. In fiscal 1994 the Trust purchased a
104,000 square foot office building located in Dallas, Texas for $3,918,000.
Of this amount, $2,170,000 was provided by a first mortgage loan on the
property which the Trust obtained at the time of the purchase. In fiscal year
1993 the Trust sold four single-story, office-warehouse buildings containing
42,162 square feet on 2.68 acres of land within the Walnut Stemmons Office Park
in Dallas, Texas for $950,000 which resulted in a gain of $337,000.
Additionally, the Trust sold four vacant land parcels during this three-year
period. The result of all the sales during this three year period was a
decrease of approximately $4,174,000 to the carrying value of the Trust's
portfolio of invested assets. Additionally, the recording of $5,967,000 of
depreciation, a non-cash adjustment, reduced the carrying value during this
three-year period. Also, during this three-year period, the Trust made
improvements to its existing properties of $2,176,000 and received payments on
real estate mortgage loan totaling $2,349,000.
During the three-year period ended September 30, 1995 the Trust's mortgage
notes payable decreased 51% or $9,541,000 to $9,266,000. This resulted from
amortization payments of $1,280,000, the repayment of a $7,689,000 maturing
loan, and additional repayments/paydowns which reduced the mortgage notes
payable $2,404,000. Of this $2,404,000, the actual cash outlay by the Trust
was $2,066,000 with $338,000 representing discounts obtained by the Trust.
Additionally, the Trust obtained a $2,170,000 first mortgage loan in connection
with its purchase of a 104,000 square foot office building, as referenced
above. The Trust's bank notes payable were reduced $9,026,000 during the
three-year period ended September 30, 1995 to $6,600,000. The Trust borrowed
$7,689,000 to repay the above referenced maturing mortgage loan and made
principal amortization and repayments of $16,715,000.
During the three-year period ended September 30, 1995 the Trust's shareholders'
equity increased 83% or $11,412,000 to $25,126,000. This increase was
primarily the result of the Trust receiving $4,231,000 from its 1992 rights
offering, which expired December 28, 1992, $5,929,000 from its 1993 rights
offering, which expired January 28, 1994, net of $1,358,000 to repurchase
253,553 of the Trust's Shares in fiscal 1995 and 103,210 of the Trust's Shares
in fiscal 1994, $4,585,000 of net income and $2,002,000 of distributions to
shareholders during this three-year period. As a result of the Trust's total
debt being reduced approximately $18,567,000 and total shareholders' equity
increasing $11,412,000, the Trust's debt to shareholders' equity ratio has
decreased to .63-to-1.00 at September 30, 1995 from 2.51-to-1.00 at September
30, 1992.
-19-
21
PART II
---------
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations - (Continued)
---------------------
Liquidity and Capital Resources
- -------------------------------
For each of the fiscal years ended September 30, 1995, 1994 and 1993, the
Trust's portfolio of invested assets generated sufficient revenues to cover all
operating expenses (excluding depreciation, a non-cash expense), required
mortgage notes amortization payments, required bank amortization payments,
capital improvements to existing properties, and distributions to shareholders.
During this three-year period the year end occupancy of the Trust's portfolio
has been 80% at September 30, 1993, 79% at September 30, 1994, and 81% at
September 30, 1995, while the average rental rates per square foot have
increased from $8.22 for the year ended September 30, 1993 to $8.47 for the
year ended September 30, 1994 to $8.61 for the year ended September 30, 1995.
The Trust's estimate for the fiscal year 1996 is that operating revenues should
be sufficient to cover all operating expenses (excluding depreciation, a
non-cash expense), required monthly mortgage amortization payments,
anticipated improvements (primarily tenant improvements estimated at
approximately $500,000), and distributions to shareholders.
Management has from time to time undertaken a major renovation of a property in
order to keep it competitive within its market. During fiscal 1994 and 1995
the Petroleum Club Building located in Tulsa, Oklahoma underwent major
reconstruction and repair as a result of a fire which occurred in January,
1994. The cost of the work was covered by insurance settlement proceeds. In
July, 1994 the Trust and its insurance company arrived at a settlement for the
repair of this property. Included in the work that was done was $253,000 for
building improvements made as part of the building restoration. The Trust has
capitalized these as building improvements. No other major renovation projects
are currently contemplated or in process.
The Trust's cash flow from operating activities increased $116,000 (6%) when
comparing 1995 to 1994. This increase was primarily due to the net activity of
the following items:
* In 1995 the Trust had an operating income of $596,000 compared to an
operating loss of $115,000 in 1994, or an improvement of $711,000.
The improvement was largely the result of income from real estate
operations being $357,000 higher in 1995 than in 1994, primarily due to
the Trust's purchase in August, 1994 of a 104,000 square foot office
building in Dallas, Texas. Also the Trust's interest expense was
$343,000 less in 1995 than 1994 primarily as a result of the Trust
reducing its outstanding debt by $6,425,000 during 1995.
* In 1995 the Trust's accrued expenses and other liabilities decreased
$134,000. In 1994 the accrued expenses and other liabilities
increased $351,000 due primarily to an increase in the accrual
for operating payables. Therefore there was a decrease of
$485,000 for 1995 compared to 1994.
* In 1995 the Trust's depreciation expense was $126,000 less than in
1994 because of property sales in 1995.
For 1995 the net cash from investing activities totaled $5,522,000. As
previously discussed, in 1995 the Trust sold three improved properties and a
vacant land parcel. The proceeds from these sales totaled $5,545,000.
Additionally, at the completion of the renovation and repair project on the
Tulsa, Oklahoma Petroleum Club Building the insurance settlement proceeds
exceeded the expenditures for the work by $738,000. The Trust also received
$145,000 in real estate loan repayments. The only net cash outflow was
-20-
22
PART II
--------
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations - (Continued)
---------------------
Liquidity and Capital Resources - (Continued)
- -------------------------------
the $666,000 (primarily tenant improvements) spent on improvements to existing
properties and the $240,000 which the Trust invested in the purchase of 14,000
shares in a real estate company. During 1994 the Trust used $3,435,000 in
investing activities. As previously discussed above, in 1994 the Trust
purchased a 104,000 square foot office building in Dallas, Texas for
$3,918,000. This purchase plus the $853,000 (primarily tenant improvements, in
addition to the previously discussed $253,000 for items capitalized in
connection with the restoration work at the Petroleum Club Building in Tulsa,
Oklahoma) spent on improvements to existing properties exceeded the proceeds of
$879,000 from sales of properties, the net insurance proceeds of $253,000 and
$204,000 of repayments on real estate mortgage loans.
In 1995 net cash used in financing activities totaled $7,809,000, while in 1994
net cash from financing activities was $1,263,000, a variance of $9,072,000.
Mortgage notes payable amortization payments were $330,000 in 1995 and $496,000
in 1994. Principal prepayments were $1,463,000 in 1995, as the Trust repaid a
$498,000 first mortgage loan and settled a $1,017,000 first mortgage loan for
$965,000 (the settlement resulted in a $52,000 extraordinary income item). In
1994 the repayments were $7,689,000 as the Trust paid off a maturing first
mortgage loan on September 30, 1994. Bank notes payable principal payments
totaled $4,549,000 in 1995 and $5,162,000 in 1994. In 1995 the Trust paid off
its $3,460,000 1986 loan and paid down the 1994 Credit (defined below)
$1,089,000. In 1994 the Trust made a $666,000 principal payment on its 1986
loan. Also, in 1994 the Trust repaid the $4,496,000 balance on its 1990 Credit
which was subsequently canceled December 31, 1994. In 1995 the Trust
repurchased and retired 14,000 of its shares for a cost of $48,000 and through
a tender offer made to all shareholders of the Trust repurchased and retired
239,553 of its shares for a cost of $1,014,000. In 1994 the Trust repurchased
and retired 103,210 of its shares at a cost of $296,000. In 1994 the Trust
received $5,929,000 as a result of the sale of shares in the 1993 rights
offering. In 1995 the Trust cashed in a $500,000 certificate of deposit. In
1995 the Trust made four distributions of $.04 per share to shareholders of the
Trust for a total of $874,000. In 1994 the Trust made four distributions (one
for $.03 per share and three for $.04 per share) for a total of $735,000.
On November 30, 1994 the Trust and National City Bank of Cleveland, Ohio and
Manufacturer's and Traders Trust Company of Buffalo, New York executed a
revolving line of credit agreement for a maximum of $25,000,000 (limited by the
value of the collateral provided) ("1994 Credit"). The 1994 Credit is for an
initial term of three years. Each year the lenders will review the 1994 Credit
with the option of extending the credit for one additional year. If the
lenders do not extend the credit then the Trust will have two years in which to
repay all borrowings outstanding under the 1994 Credit. The loans will bear
interest at the Trust's option at any of the following rates: (i) 1/4 of 1%
over the prime lending rate; (ii) 250 basis points over the LIBOR rate; or
(iii) NCB's fixed interest rate available from time to time. The primary
reason the Trust obtained the 1994 Credit was to aid in the purchase of
improved real estate, primarily suburban office buildings. The Trust now also
contemplates using the 1994 Credit to purchase real estate companies'
securities, although the 1994 Credit currently limits investments of this type
to a maximum of $2,000,000.
In addition to the required monthly amortization payments under the terms of
the three first mortgage loans the Trust currently has (see Note D to the
financial statements), during the next five fiscal years the Trust's major debt
maturities are (i) in fiscal 1998 the 1994 Credit, which currently has a
balance of $6,600,000
-21-
23
PART II
--------
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations - (Continued)
---------------------
Liquidity and Capital Resources - (Continued)
- -------------------------------
outstanding; (ii) on May 7, 1997 a $5,852,000 first mortgage loan; and (iii) on
August 19, 2000 a $2,146,000 first mortgage loan.
Although the 1994 Credit is for an initial term of three years, it is the
Trust's belief that the credit will be extended for an additional year each
year on its anniversary by the lenders. Therefore, at this time the Trust does
not anticipate the necessity of looking for a replacement loan for the
$6,600,000 of bank borrowings which currently would be due in fiscal 1998,
since the 1994 Credit has not reached its first anniversary. Currently, it is
Management's intention to repay the $5,852,000 first mortgage loan which
matures May 7, 1997 with funds from the 1994 Credit and also to repay the
$2,146,000 first mortgage loan which matures August 19, 2000 with funds from
the 1994 Credit.
Results of Operations
- ---------------------
FISCAL YEAR COMPARISON:
Income from real estate operations in 1995 increased $357,000 (13%) and
$652,000 (27%) as compared to 1994 and 1993, respectively. The increases
related primarily to higher rental income in 1995 compared to both 1994 and
1993 and lower depreciation expense in 1995 compared to both 1994 and 1993.
Rental income was $495,000 (5%) higher in 1995 than 1994, and $797,000 (8%)
higher in 1995 than 1993. Depreciation expense in 1995 was $126,000 (6%) and
$303,000 (14%) lower than in 1994 and 1993, respectively. However, real estate
operating expenses were $264,000 (5%) higher in 1995 than 1994, and $448,000
(9%) higher in 1995 than 1993. The reasons for these variances in rental
income, real estate operating expenses and depreciation expense are described
below.
The Trust considers the cyclical nature of real estate markets a normal part of
portfolio risk. The performance of the various real estate markets and
economies of the Southwest remains mixed. Improvement in the Trust's operations
will depend partially upon further economic recovery of the Southwest and, in
specific, local markets and properties, especially Dallas, Texas.
1995 - 1994
Income from real estate operations increased $357,000 (13%) from 1994 to 1995.
Rental income increased $495,000 (5%) from 1994 to 1995. Real estate operating
expenses were $264,000 (5%) higher in 1995 compared to 1994. The increase in
rental income and real estate operating expenses were primarily due to the
Trust's purchase in August, 1994 of a 104,000 square foot office building
located in Dallas, Texas. Additionally, depreciation expense was $126,000 (6%)
lower in 1995 than 1994. The $343,000 (16%) decrease in interest expense was
primarily due to lower outstanding balances. In March, 1995 the Trust repaid a
$498,000 first mortgage loan on its shopping center located in Ardmore,
Oklahoma. In May, 1995 the Trust settled at a discount a $1,017,000 first
mortgage loan on its office building located in Englewood, Colorado. In
February and March, 1995 the Trust repaid the $3,460,000 1986 loan it had with
a bank. Additionally, the Trust reduced the 1994 Credit balance from
$7,689,000 to $6,600,000 (a reduction of $1,089,000) during 1995.
In 1995 the Trust recorded gains totaling $2,499,000 as the result of four
property sales. The sales and gains were as follows: (i) February, 1995
$2,650,000 sale of the 197 room Quality Hotel located in St.
-22-
24
PART II
--------
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations - (Continued)
---------------------
Results of Operations - (Continued)
- ---------------------
Louis, Missouri, which resulted in a gain of $452,000; (ii) March, 1995
$2,595,000 sale of the 124 unit Parkwood Place Apartments located in Greeley,
Colorado which resulted in a gain of $1,859,000; (iii) March, 1995 $800,000
sale of the 51,000 square foot Walnut Hill West office building located in
Dallas, Texas which resulted in a gain of $97,000; and (iv) May, 1995 $212,000
sale of 17.7697 acres of vacant land located in Akron, Ohio which resulted in a
gain of $91,000. In 1994 the Trust recorded gains on the sales of both a 69
acre and a 17 acre vacant land parcel located in Akron, Ohio which resulted in
total gains of $445,000.
In 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 income item of $52,000. In January 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 of $6,025,000. The
Trust has completed all necessary repairs and building improvements. Upon
completion of the work there was $738,000 of the settlement which had not been
expended. The Trust has recorded this $738,000 as an extraordinary income item
in fiscal 1995. In addition $253,000 was the cost of building improvements
made as part of the building restoration. This $253,000 was capitalized as
building improvements and also was recorded as an extraordinary income item in
fiscal 1994.
1994 - 1993
Income from real estate operations increased $295,000 (12%) from 1993 to 1994.
Rental income increased $302,000 (3%) from 1993 to 1994 primarily due to the
average rents per occupied square foot being $.25 per square foot higher in
1994 compared to 1993. Real estate operating expenses were $184,000 (4%)
higher in 1994 compared to 1993. Additionally, depreciation expense was
$177,000 (8%) lower in 1994 than 1993.
The $187,000 (71%) decrease in interest income was primarily the result of the
Trust's sale of a $2,000,000 real estate mortgage loan in July, 1993.
The $474,000 (52%) decrease in interest on bank notes payable for 1994 compared
to 1993 was primarily due to reduced principal balances. In January and
February, 1994 the Trust repaid the $4,508,000 balance of the 1990 Credit.
Additionally, in March, 1994 the Trust made a $666,000 payment on its 1986
loan. Also, the Trust made $147,000 of amortization payments on its loans.
The September 30, 1994 funding by National City Bank did not effect the
interest expense for 1994.
In 1994 the Trust recorded gains on the sales of real estate of $445,000 on the
sales of a 69 acre and a 17 acre vacant land parcel. In 1993, as previously
discussed, the Trust recorded a $337,000 gain on the sale of four single-story
office-warehouse buildings in Dallas, Texas. Also in 1993, the Trust
recorded a $226,000 gain on the sale of a 46 acre vacant land parcel.
-23-
25
PART II
---------
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations - (Continued)
---------------------
Results of Operations - (Continued)
- ---------------------
As previously discussed, in January, 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 of $6,025,000. In connection with
the restoration $253,000 was the cost of building improvements which were
capitalized and also was recorded as an extraordinary income item. In 1993 the
Trust settled a second mortgage on one of its properties at a discount. Also,
the Trust settled a first mortgage on the same property, at a discount. These
settlements resulted in the cancellation of the mortgages and extraordinary
gains totaling $286,000.
Dividends:
- ----------
For 1993 the Trust paid distributions to its shareholders totaling $393,000 or
$.12 per share. For the shareholders $.06 per share of these distributions
were classified for tax purposes as dividends and $.06 per share were
classified as return of capital.
For 1994 the Trust paid distributions to its shareholders' totaling $735,000 or
$.15 per share. For the shareholders $.07 per share of these distributions
were classified for tax purposes as dividends and $.08 per share were
classified as return of capital.
For 1995 the Trust paid distributions to its shareholders of $874,000 or $.16
per share. For the shareholders preliminary analysis indicates that all of
these distributions will be classified for tax purposes as dividends.
Income Taxes:
- -------------
Commencing with fiscal 1993 the Trust no longer qualified as a REIT. With the
change in status to a taxable entity the Trust adopted the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" the
effect of adoption of this statement had no cumulative effect on the Trust's
operations. At September 30, 1995 the Trust had net deferred tax assets of
approximately $2,567,000. As was the case at both September 30, 1993 and 1994
the Trust has established a valuation allowance equal to its net tax assets as
there is doubt as to whether the net deferred tax asset will be realized.
Other:
- ------
Inflation, which has been at relatively low rates for the past three years, has
had an immaterial impact on the Trust's operations during the three-year period
ended September 30, 1995.
-24-
26
PART II
--------
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The response to this Item is submitted in a separate section of this report.
See Item 14 of this report for information concerning financial statements and
schedules filed with this report. The quarterly financial data required by
this item is included as Note L of the Notes to Financial Statements filed in
Part IV, Item 14 (a) (1) and (2).
Item 9. Disagreement on Accounting and Financial Disclosure.
- ------- ----------------------------------------------------
There has not been any change in the Trust's independent auditors, nor have
there been any disagreements concerning accounting principles, auditing
procedures, or financial statement disclosure within the twenty four (24)
months prior to the date of the most recent financial statements presented in
this report.
-25-
27
PART III
---------
Item 10. Directors and Executive Officers of the Registrant.
- --------- ---------------------------------------------------
Except as set forth under "Executive Officers of the Registrant" following
Item 4 of Part I, which is incorporated by reference, all information required
by this Item is incorporated by reference to the material under the caption
"Election of Trustees" to be contained in the definitive Proxy Statement to be
filed with the Commission not later than 120 days after the end of the fiscal
year covered by this report.
Item 11. Executive Compensation.
- --------- -----------------------
All information required by this Item is incorporated by reference to the
material under the caption "Executive Compensation" to be contained in the
definitive Proxy Statement to be filed with the Commission not later than 120
days after the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- --------- ---------------------------------------------------------------
All information required by this Item is incorporated by reference to the
material under the caption "Beneficial Ownership of Principal Holders and
Management" of the definitive Proxy Statement to be filed with the Commission
not later than 120 days after the end of the fiscal year covered by this
report.
Item 13. Certain Relationships and Related Transactions.
- --------- -----------------------------------------------
Information required by this Item with respect to certain relationships and
related transactions is incorporated by reference to the material under the
caption "Certain Transactions" to be contained in the definitive Proxy
Statement to be filed with the Commission not later than 120 days after the end
of the fiscal year covered by this report.
-26-
28
PART IV
--------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------- ------------------------------------------------------------------
(a) The following documents are filed as a part of this Report:
(1) The Financial Statements listed on the List of Financial
Statements and Financial Statement Schedules are filed
as a separate section of this Report.
(2) The Financial Statement Schedules listed on the
List of the Financial Statements and Financial Statement
Schedules are filed as a separate section of this Report.
(3) The exhibits required by Item 601 of Regulation S-K and
identified on the Exhibit Index at sequential Page 51 of
this Report.
(b) No Reports on Form 8-K were filed during the last quarter of
the period covered by this Report.
(c) The exhibits being filed with this Report are identified on
the Exhibit Index at sequential Page 51 of this Report.
(d) The Financial Statement Schedules are filed as a separate
section of this Report.
-27-
29
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: December 13, 1995
By: /s/ Michael R. Thoms
----------------------------
Michael R. Thoms
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Signature Title Date
--------- ----- ----
*/s/ John C. Kikol Chairman of the Board of December 13, 1995
- --------------------------------- Trustees, President and
John C. Kikol Principal Executive Officer
/s/ Michael R. Thoms Vice President, Treasurer December 13, 1995
- --------------------------------- Principal Financial Officer
Michael R. Thoms and Principal Accounting
Officer
*/s/ Howard Amster Trustee December 13, 1995
- ---------------------------------
Howard Amster
*/s/ Robert H. Kanner Trustee December 13, 1995
- ---------------------------------
Robert H. Kanner
*/s/ Leighton A. Rosenthal Trustee December 13, 1995
- ---------------------------------
Leighton A. Rosenthal
*/s/ Ludwig Seuffert Trustee December 13, 1995
- ---------------------------------
Ludwig Seuffert
*/s/ John D. Weil Trustee December 13, 1995
- ---------------------------------
John D. Weil
*/s/ By: Michael R. Thoms December 13, 1995
- ---------------------------------
Michael R. Thoms
Attorney-in-Fact
-28-
30
ANNUAL REPORT ON FORM 10-K
PART IV, ITEM 14(a)(1) and (2) and ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED SEPTEMBER 30, 1995
CLEVETRUST REALTY INVESTORS
WESTLAKE, OHIO
31
Form 10-K --Part IV, Item 14(a)(1) and (2)
CLEVETRUST REALTY INVESTORS
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements:
The following financial statements of CleveTrust Realty Investors are included
in Part II, Item 8:
Statement of Financial Condition -- September 30, 1995 and 1994
Statement of Operations -- Years ended September 30, 1995, 1994 and 1993
Statement of Cash Flows -- Years ended September 30, 1995, 1994 and 1993
Statement of Changes in Shareholders' Equity -- Years ended September 30,
1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedules:
The following financial statement schedules of CleveTrust Realty Investors are
included in Part IV, Item 14(d):
Schedule XI -- Real Estate and Accumulated Depreciation.
Schedule XII -- Mortgage Loans on Real Estate.
All other schedules for which provision is made in the applicable regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
F-1
32
LOGO ERNST & YOUNG LLP 1300 Huntington Building Phone: 216 861 5000
925 Euclid Avenue
Cleveland, Ohio 44115-1405
Report of Independent Auditors
Trustees and Shareholders
CleveTrust Realty Investors
Westlake, Ohio
We have audited the accompanying statement of financial condition of CleveTrust
Realty Investors as of September 30, 1995 and 1994, and the related statements
of operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended September 30, 1995. Our audits also included
the financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CleveTrust Realty Investors at
September 30, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995 in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Ernst & Young LLP
November 14, 1995
F-2
33
STATEMENT OF FINANCIAL CONDITION
CLEVETRUST REALTY INVESTORS
September 30,
----------------------------------
1995 1994
------- -------
(in thousands)
ASSETS
Invested assets - - NOTE A:
Investments in real estate - -NOTES C and G:
Improved properties $63,282 $70,715
Less: Accumulated depreciation 22,543 25,648
------- -------
40,739 45,067
Land held for sale or development 203 313
------- -------
40,942 45,380
Real estate mortgage loans - -NOTE G 303 236
------- -------
41,245 45,616
Cash and cash equivalents - - NOTE A 188 251
Investments in securities - - NOTE A 267 0
Certificate of deposit 0 500
Insurance settlement proceeds - - NOTE C 0 3,341
Other assets 1,376 1,296
------- -------
TOTAL ASSETS $43,076 $51,004
======= =======
LIABILITIES
Mortgage notes payable - NOTE D $9,266 $11,111
Bank notes payable - NOTE E 6,600 11,180
Accrued interest on notes payable - NOTE E 23 27
Accrued fire repairs - - NOTE C 0 3,341
Accrued expenses and other liabilities 2,061 2,195
------- -------
TOTAL LIABILITIES 17,950 27,854
SHAREHOLDERS' EQUITY
Shares of Beneficial Interest, par value
$1 per Share - - NOTE F:
Authorized - - Unlimited
Issued and outstanding shares
(9/30/95 - 5,217,143; 9/30/94 - 5,470,696) 5,217 5,471
Additional paid-in capital 38,986 39,794
Accumulated deficit (19,104) (22,115)
------- -------
25,099 23,150
Unrealized gains on securities 27 0
------- -------
TOTAL SHAREHOLDERS' EQUITY 25,126 23,150
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,076 $51,004
======= =======
See notes to financial statements.
F-3
34
STATEMENT OF OPERATIONS
CLEVETRUST REALTY INVESTORS
Year ended September 30,
---------------------------------------
1995 1994 1993
------- ------ ------
(in thousands, except per share data)
INCOME
Real estate operations:
Rental income $10,145 $9,650 $9,348
Less:
Real estate operating expenses 5,245 4,981 4,797
Depreciation expenses 1,846 1,972 2,149
------- ------ ------
7,091 6,953 6,946
------- ------ ------
Income from real estate operations 3,054 2,697 2,402
Interest income 56 76 263
Other 26 29 41
------- ------ ------
3,136 2,802 2,706
EXPENSES
Interest:
Mortgage notes payable - - NOTE D 988 1,678 1,734
Bank notes payable - - NOTE E 789 442 916
------- ------ ------
1,777 2,120 2,650
General and Administrative 763 797 788
------- ------ ------
2,540 2,917 3,438
------- ------ ------
OPERATING INCOME (LOSS) 596 (115) (732)
Gains on sales of real estate - -NOTE G 2,499 445 563
------- ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 3,095 330 (169)
Extraordinary items - - NOTES C and D 790 253 286
------- ------ ------
NET INCOME $3,885 $ 583 $ 117
====== ====== ======
Per Share of Beneficial Interest- - NOTE A:
Operating income (loss) $0.11 ($0.02) ($0.22)
Gains on sales of real estate 0.46 0.09 0.17
------- ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 0.57 0.07 (0.05)
Extraordinary items 0.14 0.05 0.09
------- ------ ------
NET INCOME PER SHARE $ 0.71 $ 0.12 $ 0.04
====== ====== ======
Weighted average number of Shares of
Beneficial Interest outstanding 5,459 4,959 3,292
====== ====== ======
See notes to financial statements.
F-4
35
STATEMENT OF CASH FLOWS
CLEVETRUST REALTY INVESTORS
Year ended September 30,
-----------------------------------------
1995 1994 1993
------- ------ ------
(in thousands)
Cash flow from operating activities:
Net income $3,885 $ 583 $ 117
Non-cash revenues and expenses included in income:
Depreciation 1,846 1,972 2,149
(Decrease) in accrued interest on notes payable (4) (33) (26)
(Decrease) increase in accrued expenses and
other liabilities (134) 351 (172)
(Increase) decrease in other assets (80) (67) 392
Reconciliation to net cash flow from operating activities:
Gains on sales of real estate (2,499) (445) (563)
Extraordinary items (790) (253) (286)
Amortization of purchase money mortgage discounts 0 0 (14)
------ ------ ------
CASH FLOW FROM OPERATING ACTIVITIES 2,224 2,108 1,597
Cash flow from investing activities:
Equity investments:
Improvements to existing properties (666) (853) (657)
Purchase of property 0 (3,918) (220)
Proceeds from properties sold 5,545 879 1,257
Net insurance proceeds 738 253 0
Real estate mortgage loans:
Repayments 145 204 2,000
(Increase) in investments in securities (240) 0 0
------ ------ ------
NET CASH FROM (USED IN ) INVESTING ACTIVITIES 5,522 (3,435) 2,380
Cash flow from financing activities:
Mortgage notes payable:
Principal amortization payments (330) (496) (454)
Principal repayments (1,463) (7,689) (941)
Principal borrowings 0 2,170 0
Bank notes payable:
Principal amortization payments (31) (147) (228)
Principal repayments (4,549) (5,162) (6,598)
Principal borrowings 0 7,689 0
Certificate of Deposit 500 0 0
Distributions to shareholders (874) (735) (393)
Shares issued pursuant to rights offerings 0 5,929 4,231
Shares repurchased and subsequently retired (1,062) (296) 0
------ ------ ------
NET CASH (USED IN) FROM FINANCING ACTIVITIES (7,809) 1,263 (4,383)
------ ------ ------
(Decrease) in cash and cash equivalents (63) (64) (406)
Balance at beginning of year 251 315 721
------ ------ ------
Balance at end of year $ 188 $ 251 $ 315
====== ====== ======
See notes to financial statements.
F-5
36
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CLEVETRUST REALTY INVESTORS
Years Ended September 30, 1995, 1994, and 1993
Shares Of Additional Unrealized Total
Beneficial Paid-In Accumulated Gains On Shareholders'
Interest Capital Deficit Securities Equity
---------- --------- ----------- ---------- -------------
(in thousands)
Balance October 1, 1992 $1,957 $33,444 ($21,687) $ 0 $13,714
Net income for the year ended
September 30, 1993 117 117
Cash distributions declared
and paid -- $.12 per share (393) (393)
Shares issued pursuant to
rights offering -- NOTE F 1,759 2,472 4,231
------ ------- -------- --- -------
Balance September 30, 1993 3,716 35,916 (21,963) 0 17,669
Net income for the year ended
September 30, 1994 583 583
Cash distributions declared
and paid -- $.15 per share (735) (735)
Shares issued pursuant to
rights offering -- NOTE F 1,858 4,071 5,929
Shares repurchased and
subsequently retired -- NOTE F (103) (193) (296)
------ ------- -------- --- -------
Balance September 30, 1994 5,471 39,794 (22,115) 0 23,150
Net income for the year ended
September 30, 1995 3,885 3,885
Cash distributions declared
and paid -- $.16 per share (874) (874)
Shares repurchased and
subsequently retired -- NOTE F (254) (808) (1,062)
Change in unrealized gains
on securities 27 27
------ ------- -------- --- -------
Balance September 30, 1995 $5,217 $38,986 ($19,104) $27 $25,126
====== ======= ======== === =======
F-6
37
NOTES TO FINANCIAL STATEMENTS
CLEVETRUST REALTY INVESTORS
Years Ended September 30, 1995, 1994 and 1993
NOTE A - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME RECOGNITION: Rental income from improved properties is generally
recorded as it accrues. Interest on mortgage loans is recognized as income as
it accrues during the period the loans are outstanding except where collection
of interest is considered doubtful. Contingent rents and interest are
recognized as income when determinable. Accrual of income is suspended on any
investment when the collection of rent, principal, or interest is doubtful.
INVESTMENTS IN REAL ESTATE: Real estate acquired by the Trust for investment
purposes pursuant to normal real estate purchase transactions is recorded at
cost. Real estate acquired by foreclosure, deed in lieu of foreclosure, or
cancellation of land leases is recorded at estimated fair value at the date of
acquisition, but not in excess of the unpaid balance of the related loan or
land lease plus costs of securing title to and possession of the property.
The Trust has adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". SFAS No. 121 requires a review of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If, based on this review, the sum of
expected future cash flows from an asset is less than the carrying amount, an
impairment loss is recognized to the extent that the carrying amount exceeds
the asset's fair value. Based on an evaluation of the Trust's assets in
accordance with SFAS No. 121, no adjustment for impairment of assets is
required at September 30, 1995.
Prior to adoption of SFAS No. 121, the Trust regularly evaluated the
recoverability of each investment in the portfolio. When appropriate, an
allowance for possible investment losses was provided for properties acquired
through foreclosure or deed in lieu of foreclosure. In fiscal 1994 the Trust
applied the allowance for possible investment losses to three previously
foreclosed properties for which it had been provided. The Trust concluded that
it was unlikely that the value of these properties would recover. Therefore,
they were written down to their net realizable value through application of the
allowance.
DEPRECIATION: Depreciation on equity investments is computed by the
straight-line method at rates based upon the expected economic lives of the
assets which range from 31 to 40 years for buildings, 5 to 40 years for other
property and the specific length of the tenant lease for tenant improvements.
Additionally, one building and its permanent improvements are depreciated over
a life of 55 years.
REPAIRS AND CAPITAL IMPROVEMENTS: Expenditures for repairs and maintenance
which do not add to the value or prolong the useful life of property owned are
charged to expense as incurred; those expenditures for improvements which do
add to the value or extend the useful life are capitalized.
CASH AND CASH EQUIVALENTS : The Trust defines cash and cash equivalents as
cash in bank accounts and investments in marketable securities, primarily
short-term commercial paper with original maturities of three months or less.
F-7
38
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE A - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES - - CONTINUED
INVESTMENTS IN SECURITIES: The Trust has adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities". The Trust has classified its investments in equity
securities as available for sale and as a result these are stated at fair value
at September 30, 1995. The effect of the unrealized gains (losses) are
included as a component of Shareholders' Equity. There was no cumulative
effect adjustment as a result of adoption.
INCOME TAXES: Commencing with fiscal 1993 the Trust no longer qualified as
a REIT. Therefore, with the change in status to a taxable entity for fiscal
1993, the Trust adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes".
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 year.
RECLASSIFICATION: Certain items in previously issued financial statements have
been reclassified to conform to 1995 presentations.
NOTE B - - INCOME TAXES
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's deferred tax assets and liabilities under SFAS 109 at September 30,
1995 and 1994 are as follows:
1995 1994
-------- -------
(in thousands)
Deferred tax assets:
Investments in real estate - write-downs $ 1,752 $ 2,070
Net operating loss carryforwards 2,167 2,953
Other 489 503
Deferred tax liabilities:
Depreciation (1,841) (1,460)
-------- -------
2,567 4,066
Valuation allowance (2,567) (4,066)
-------- -------
Net deferred tax asset/(liability) $ -0- $ -0-
======== =======
The Trust maintains a valuation reserve equal to its net deferred tax asset as
there is doubt as to whether the net deferred tax asset will be realized.
F-8
39
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE B - - INCOME TAXES - - CONTINUED
The Trust had no income tax expense for the fiscal years ended September 30,
1995 or 1994. A reconciliation between these results and the amount of income
tax expense that would result from applying Federal statutory rates to pretax
income is as follows:
9/30/95 9/30/94
------ ------
(in thousands)
Expected income tax expense at
Federal statutory tax rate $1,321 $ 198
Increase (decrease) in taxes resulting from:
Effect of temporary differences (535) (310)
(Recognized) unrecognized net operating
loss carryforward (786) 107
Other 0 5
------ ------
Income Tax Expense $ -0- $ -0-
====== ======
At September 30, 1995 the Trust had, for federal tax purposes, a net operating
loss carryforward of approximately $6.4 million. The use of net operating loss
carryforwards is limited by Section 382 of the Internal Revenue Code with
effect for losses associated with years prior to December 28, 1992. The Trust
can use approximately $ 298,000 per year of net operating loss carryforwards,
plus any prior years' unused portion (limited by carryforward periods) for
losses generated prior to December 28, 1992. The Trust can also use
carryforwards generated post December 28, 1992. These carryforwards of
approximately $5.4 million expire through 2009. The remaining carryforwards of
$1.0 million may be recognized for a period through fiscal 1998 against gains
on sales of properties, if any , to the extent that fair market values of these
properties exceeded their tax bases as of December 28, 1992.
F-9
40
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE C - - INVESTMENTS IN REAL ESTATE
The following is a summary of the Trust's investments in real estate and
accumulated depreciation and related indebtedness at September 30, 1995:
Income from
Amount of Initial Cost of Total Accumulated Carrying Real Estate
Classification Indebtedness Cost Improvements Cost Depreciation Value Operations
---------------- ------------ -------- ------------ ------- ------------ ---------- ------------
Office Buildings $3,414 $30,083 $7,325 $37,408 $16,657 $20,751 $1,091
Commercial Properties 5,852 23,698 2,070 25,768 5,827 19,941 1,976
Rental Units 0 96 10 106 59 47 5
Land held for sale
or development 0 203 0 203 0 203 (6)
------ ------- ------ ------- ------- ------- -------
$9,266 $54,080 $9,405 $63,485 $22,543 $40,942 $3,066
====== ======= ====== ======= ======= ======= =======
F-10
41
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTES C - - INVESTMENTS IN REAL ESTATE - - CONTINUED
Following is a summary of activity in investments in real estate for the three
years ended September 30, 1995:
1995 1994 1993
---- ---- ----
(in thousands)
Balance, beginning of year $ 45,380 $ 49,394 $ 51,510
Capitalized improvements 666 853 657
Purchase of property -0- 3,918 220
Sales of real estate - NOTE G (3,258) (724) (844)
Application of allowance for investment
losses - NOTE A -0- (6,089) -0-
Depreciation (1,846) (1,972) (2,149)
---------- --------- ---------
Balance, end of year $ 40,942 $ 45,380 $ 49,394
========== ========= =========
In September, 1995 the Trust and Bank One Colorado, N. A. executed an Option
Purchase Agreement. The Trust has paid Bank One an Option Deposit of $40,000
which gives the Trust the option to purchase the land under the Trust's
Englewood Bank Building located in Englewood, Colorado. The purchase price for
the land is $1,260,000, towards which the $40,000 Option Deposit will be
applied. The Trust anticipates that the closing of the purchase will take
place around February 1, 1996. The Trust currently leases this land from Bank
One under the terms of a land lease which expires January 31, 2024.
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 of $6,025,000. The Trust has completed all
necessary repairs and building improvements for an amount less than the
settlement. The Trust has recorded $738,000 as an extraordinary income item in
fiscal 1995. The cost of building improvements made as part of the building
restoration was $253,000 which has been capitalized and was recorded as an
extraordinary income item in fiscal 1994.
On August 26, 1994 the Trust purchased a 104,000 square foot office building
located in Dallas, Texas for $3,918,000. Of this amount $2,170,000 was
provided by a first mortgage loan on the property, which the Trust obtained at
the time of the purchase.
NOTE D - - MORTGAGE NOTES PAYABLE
At September 30, 1995 the mortgage notes payable of the Trust are non-recourse
mortgages except the first $750,000 of the $2,146,000 loan maturing August 19,
2000 which is recourse to the Trust. The following data pertains to the
mortgage notes payable as of September 30, 1995.
F-11
42
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE D - - MORTGAGE NOTES PAYABLE - - CONTINUED
Book Value
Of The
Investment
Mortgage Securing Base Interest
Notes Payable The Debt Maturity Rate
------------- -------- -------- ----
(in thousands)
$ 5,852 $ 6,199 May 7, 1997 9.500%
2,146 3,976 Aug. 19, 2000 9.500
1,268 1,802 July 1, 2003 8.125
-------- ----------
$ 9,266 $ 11,977
======== =========
Required payments on the Trust's mortgage notes payable for the succeeding five
years are as follows:
Year Ending
September 30, Principal Interest Total
------------- --------- -------- -----
(in thousands)
1996 $ 189 $ 855 $ 1,044
1997 5,840 657 6,497
1998 100 288 388
1999 109 279 388
2000 2,121 247 2,368
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 income item of $52,000. On September 30, 1994 the Trust repaid a
$7,689,000 first mortgage loan on its two shopping centers located in Iowa.
This loan had a maturity date of October 1, 1994. On January 28, 1993 the
Trust settled a $240,000 second mortgage on one of its properties at a
discount. This settlement resulted in the cancellation of the second mortgage
and an extraordinary income item of $24,000. On February 10, 1993 the Trust
settled a $987,000 first mortgage on the same property at a discount. This
settlement resulted in the cancellation of the first mortgage and an
extraordinary income item of $262,000.
Total interest expense on mortgage notes payable did not differ materially from
interest paid.
NOTE E - - BANK NOTES PAYABLE
At September 30, 1995 the bank notes payable included $6,600,000 of borrowings
under the 1994 Credit Agreement. At September 30, 1994 the bank notes payable
included $7,689,000 of borrowings under a demand note and $3,491,000 of
borrowings under a 1986 bank loan.
On September 30, 1994 the Trust borrowed $7,689,000 under the terms of a demand
note from a new lender. The funds were used to repay a mortgage loan. (See
Note D) This demand note, which had an interest rate of prime, was converted
to a revolving line of credit ("1994 Credit") issued by National City
F-12
43
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE E - - BANK NOTES PAYABLE - - CONTINUED
Bank of Cleveland, Ohio ("NCB") and Manufacturer's and Traders Trust Company of
Buffalo, New York ("M&T"), which was signed effective November 30, 1994. With
the execution of the 1994 Credit the Trust canceled the 1990 Credit the Trust
had with its previous lender (see below). 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 at the Trust's discretion upon payment of an activation fee of 3/4 of
1% on the $10,000,000. The initial term of the 1994 Credit is three years.
Each year the lenders will review the 1994 Credit with the right to extend it
for one additional year. Interest only payments, 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. The 1994 Credit is secured by certain of the
Trust's real estate investments and contains certain covenants including a
covenant for a minimum shareholders' equity. At September 30, 1995 the amount
of shareholders' equity free from such restriction was approximately
$5,126,000.
Effective January 1, 1994 the Trust and its former lender executed a third
amendment to the December 31, 1990 Credit Agreement ("1990 Credit"). The third
amendment converted the then existing five year 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. At September 30, 1994 there were no borrowings
outstanding under the 1990 Credit. This loan was canceled December 31, 1994.
The Trust also had a loan with another bank which was scheduled to mature
December 25, 1993 but, had been extended to 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. On January 5, 1993 the Trust made a principal payment of $722,000.
This payment satisfied the required principal payments of $341,000 due December
1, 1993 and $381,000 due December 1, 1994. On March 8, 1994 the Trust made the
third required payment of $666,000 which was due by December 1, 1995. On
February 28, 1995 the Trust made a principal payment of $2,200,000 and on March
15, 1995 paid off the remaining balance of $1,260,000.
Total interest expense on bank notes payable did not differ materially from
interest paid.
NOTE F - - SHARES OF BENEFICIAL INTEREST
On August 21, 1995 the Trust mailed an Offer to purchase for cash an aggregate
of 500,000 Shares of Beneficial Interest for a price of $4.00 per share to each
shareholder of the Trust. The Offer ended September 22, 1995 and at its
conclusion 239,553 shares were purchased and retired by the Trust. In addition
to the $4.00 per share the Trust incurred costs of $56,000 in connection with
the Offer.
On April 17, 1995 the Trust repurchased 14,000 of its Shares of Beneficial
Interest for $48,000 in an open market purchase. These shares were retired by
the Trust.
On June 26, 1994 the Trust repurchased 103,210 of its Shares of Beneficial
Interest for $296,000 in an open market purchase. These shares were retired by
the Trust.
On November 23, 1993 the Trust mailed a prospectus and certificate of rights to
all shareholders of record as of November 12, 1993. The certificates entitled
the shareholder to the right to purchase one Share of
F-13
44
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE F - - SHARES OF BENEFICIAL INTEREST - - CONTINUED
Beneficial Interest of the Trust for every two Shares owned at a price of $3.25
per Share. Additionally, this offering also provided for an oversubscription
privilege which entitled each holder of a right to subscribe for Shares not
purchased by other holders of rights. Oversubscriptions were allocated prorata
based on the number of Shares owned. The offering expired on January 28, 1994.
All 1,857,969 Shares available were sold. The net proceeds to the Trust
totaled $5,929,000.
On November 17, 1992 the Trust mailed a prospectus and certificate of rights to
all shareholders of record as of November 12, 1992. The certificates entitled
the shareholder to the right to purchase one Share of Beneficial Interest of
the Trust for each Share owned at a price of $ 2.50 per Share. Additionally,
the offering provided for an oversubscription privilege which entitled each
holder of a right to subscribe for Shares not purchased by other holders of
rights. The offering also provided that shares not purchased by shareholders
could be sold to third-party investors. The offering expired on December 28,
1992. The Trust sold 1,759,165 shares of the 1,956,772 shares available in the
offering. The net proceeds to the Trust totaled $4,231,000.
On February 21, 1992 the shareholders of the Trust approved the amended and
extended 1983 Incentive Stock Option Plan, now titled the 1992 Stock Option
Plan ("1992 Plan"). Under the 1992 Plan, an additional 200,000 Shares of
Beneficial Interest of the Trust are reserved and made available for issuance
of options to officers and employees of the Trust at the discretion of the
Board of Trustees. The original plan had reserved 100,000 Shares. The 1992
Plan is extended to October 21, 2011. The option price is the fair market
value on the date of the grant and no option shall be exercisable for less than
100% of this value. Under the 1992 Plan, the share appreciation rights granted
previously will be unaffected; however, no share appreciation rights will be
issued with grants of the 200,000 new Shares or the 17,500 Shares remaining
from the original 100,000 Shares. Share appreciation rights entitle the holder
to receive the difference between the market value on the date of exercise and
the option price in Shares, cash or a combination thereof, at the discretion of
the Board of Trustees.
As of September 30, 1995 options and share appreciation rights granted and
remaining exercisable are as follows: January 20, 1986 - 21,750 Shares at
$17.88 per Share granted, 13,250 Shares exercisable; January 16, 1989 - 44,250
Shares at $5.13 per Share granted, 30,400 Shares exercisable; January 1, 1993 -
125,000 Shares at $2.625 per Share granted, 125,000 Shares exercisable; January
1, 1994 - 37,500 Shares at $3.0625 per Share granted, 37,500 Shares
exercisable; and January 1, 1995 - 6,000 Shares at $3.00 per Share granted,
6,000 Shares exercisable.
NOTE G - - REAL ESTATE SALES
The fiscal 1995 gains on sales of real estate totaling $2,499,000 include the
following: (i) $452,000 which represents the gain the Trust realized on its
February, 1995 $2,650,000 sale of the 197 room Quality Hotel located at the
airport in St. Louis, Missouri; (ii) $1,859,000 represents the gain the Trust
realized on its March, 1995 $2,595,000 sale of the 124 unit Parkwood Place
Apartments located in Greeley, Colorado; (iii) $97,000 represents the gain the
Trust realized on its March, 1995 $800,000 sale of the 51,000 square foot
Walnut Hill West office building located in Dallas, Texas; and (iv) $91,000
represents the gain the Trust realized on its May, 1995 $212,000 sale of
17.7697 acres of vacant land located in Akron, Ohio. The Trust received a
purchase money mortgage for the total $212,000 purchase price in connection
with the sale.
The fiscal 1994 gains on sales of real estate totaling $445,000 include the
following: (i) $361,000 which represents the gain the Trust realized on its
March, 1994 $834,000 sale of 70 acres of vacant land located in Akron, Ohio.
The Trust received a purchase money mortgage for $290,000 of the purchase price
in
F-14
45
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE G - - REAL ESTATE SALES - - CONTINUED
connection with the sale; and (ii) $84,000 which represents the gain the Trust
realized on its August, 1994 $198,000 sale of 16.6 acres of vacant land located
in Akron, Ohio.
The fiscal 1993 gains on sales of real estate totaling $563,000 include the
following: (i) $337,000 which represents the gain the Trust realized on its
November, 1992 $950,000 sale of four single-story office-warehouse buildings
containing 42,162 square feet on 2.68 acres of land within the Walnut Stemmons
Office Park, Dallas, Texas; and (ii) $226,000 which represents the gain the
Trust realized on its April, 1993 $541,000 sale of 46.4 acres of vacant land
located in Akron, Ohio. The Trust received a purchase money mortgage note for
$150,000 of the purchase price in connection with the sale.
NOTE H - - LITIGATION
The Trust is involved in a number of legal proceedings arising in the usual
course of its business activities, none of which in the opinion of Management,
is expected to have a material adverse effect on the financial statements.
NOTE I - - PENSION PLAN
The Trust has a defined contribution pension plan covering all full-time
employees of the Trust. Contributions are determined as a set percentage of
each covered employee's annual cash compensation. Contributions by the Trust
are accrued during the year and paid prior to the filing of the Trust's federal
income tax return for said year. For fiscal 1995 the Trust accrued $24,000 for
contributions to the pension plan (for fiscal 1994 - $31,000 and fiscal 1993 -
$29,000).
NOTE J - - OPERATING LEASES
Minimum future rentals due the Trust on noncancelable leases for the succeeding
five fiscal years and thereafter are as follows: 1996, $7,162,000; 1997,
$5,471,000; 1998, $4,391,000; 1999, $3,340,000; 2000, $2,662,000; and
$11,576,000 thereafter. Certain leases provide for contingent rentals. The
Trust received $123,000 of contingent rentals for 1995 ($131,000 for 1994 and
$202,000 for 1993). The Trust's carrying amount at September 30, 1995 of these
real estate investments consists of land of $6,974,000 and improvements of
$56,201,000, less accumulated depreciation of $22,483,000.
NOTE K - - SUBSEQUENT EVENTS
The Trustees, at their July 25, 1995 meeting, declared a quarterly cash
distribution of $.04 per Share of Beneficial Interest payable October 20, 1995
to shareholders of record as of October 6, 1995. At their October 24, 1995
meeting, the Trustees declared a quarterly cash distribution of $ .04 per Share
payable January 19, 1996 to shareholders of record as of January 5, 1996.
F-15
46
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE L - - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended September 30, 1995 and
1994 is as follows:
Quarter Ended Dec. 31 Mar. 31 June 30 Sept. 30
- ------------- ------- ------- ------- --------
(in thousands, except per share data)
1995
- ----
Operating revenues $ 2,666 $ 2,614 $ 2,486 $ 2,379
Operating income before
extraordinary item 67 94 255 180
Extraordinary item 0 0 52 738
Net Income 67 2,502 398 918
Operating income per share before
extraordinary item (1) .01 .02 .05 .03
Extraordinary item per share (1) .00 .00 .02 .12
Net Income per share (1) .01 .46 .08 .16
1994
- ----
Operating revenues $ 2,409 $ 2,440 $ 2,432 $ 2,474
Operating income (loss) before
extraordinary item (111) (106) 20 82
Extraordinary item 0 0 0 253
Net income (loss) (111) 255 20 419
Operating income (loss) per share before
extraordinary item (1) (.03) (.02) .00 .01
Extraordinary item per share (1) .00 .00 .00 .05
Net income (loss) per share (1) (.03) .05 .00 .08
<FN>
(1) Per Share calculations for each of the quarters is based on a weighted
average number of shares outstanding for each period and, therefore, the
sum of the quarters may not necessarily equal full-year amounts.
F-16
47
SCHEDULE XI -- REAL ESTATE AND ACCUMULATED DEPRECIATION
CLEVETRUST REALTY INVESTORS
As of September 30, 1995
Amount At
Which
Carried At
Initial Close of
Amount Of Cost to Cost Of Period Accumulated Construction Depreciation
Classification Encumbrances Trust(1) Improvements (1) (3) Depreciation(2) Completed Acquired Lives(4)
- -------------- ------------ -------- ------------ --------- --------------- --------- -------- --------
(in thousands)
Office Buildings:
Englewood, Colorado:
Building (5) $ 4,328 $ 505 $ 4,833 $ 2,949
------- ------ ------- ------- Various, ranging
$ -0- 4,328 505 4,833 2,949 1970 1971 from
5 to 40 years.
Tulsa, Oklahoma:
Land 648 648
Building 3,306 2,888 6,194 4,185 Various, ranging
------- ------ ------- ------- from
-0- 3,954 2,888 6,842 4,185 1963 1972 5 to 40 years.
Denver, Colorado:
Land 165 165
Building 2,834 1,443 4,277 2,793 Various, ranging
------- ------ ------- ------- from
-0- 2,999 1,443 4,442 2,793 1971 1972 5 to 40 years.
Dallas, Texas:
Land 1,500 1,500
Building 8,439 986 9,425 3,197 1981 1983 Various, ranging
------- ------ ------- ------- from
-0- 9,939 986 10,925 3,197 5 to 40 years.
Dallas, Texas:
Land 335 335
Building 3,583 177 3,760 119 1980 1994 Various, ranging
------- ------ ------- ------- from
2,146 3,918 177 4,095 119 5 to 40 years.
Commercial:
Austin, Texas:
Land 874 874
Building 6,758 540 7,298 1,973 1981 1987 Various, ranging
------- ------ ------- ------- from
5,852 7,632 540 8,172 1,973 5 to 40 years.
Davenport, Iowa:
Land 1,013 1,013
Building 4,373 141 4,514 953 Various, ranging
------- ------ ------- ------- from
-0- 5,386 141 5,527 953 1980 1987 5 to 40 years.
Dubuque, Iowa:
Land 401 401
Building 4,800 163 4,963 1,040 Various, ranging
------- ------ ------- ------- from
-0- 5,201 163 5,364 1,040 1980 1987 5 to 40 years.
Ardmore, Oklahoma:
Land 684 684
Building 2,847 409 3,256 812 Various ranging
------- ------ ------- ------- from
-0- 3,531 409 3,940 812 1975 1989 10 to 31 years.
Miscellaneous
Investments:
Land 1,556 1,556
Building 5,848 1,941 7,789 4,522
------- ------ ------- -------
1,268 7,404 1,941 9,345 4,522
----- ------- ------ ------- -------
TOTALS $9,266 $54,292 $9,193 $63,485 $22,543
====== ======= ====== ======= =======
Summary:
Land $ 7,176
Buildings 56,309
-------
$63,485
=======
F-17
48
SCHEDULE XI - - REAL ESTATE AND ACCUMULATED DEPRECIATION - - CONTINUED
CLEVETRUST REALTY INVESTORS
Year Ended September 30,
-----------------------------------------------
1995 1994 1993
-------- --------- ---------
(in thousands)
(1) Reconciliation of real estate:
Balance of real estate at October 1, 1994,
1993 and 1992, respectively $ 71,028 $ 73,296 $ 73,689
Additions during period:
Other capital improvements 666 853 657
Purchase of Property -0- 3,918 220
-------- --------- ---------
Total Additions 666 4,771 877
-------- --------- ---------
71,694 78,067 74,566
Application of allowance for investment
losses -0- 6,089 -0-
Less carrying amount of real estate sold
or disposed 8,209 950 1,270
-------- --------- ---------
Balance of real estate at September 30,
1995, 1994 and 1993, respectively $ 63,485 $ 71,028 $ 73,296
======== ========= =========
(2) Reconciliation of allowances for depreciation:
Balance of allowance for depreciation at
October 1, 1994, 1993 and 1992,
respectively $ 25,648 $ 23,902 $ 22,179
Provisions for depreciation for
the period 1,846 1,972 2,149
-------- --------- ---------
27,494 25,874 24,328
Less allowance for depreciation on
real estate sold or disposed 4,951 226 426
-------- --------- ---------
Balance of allowance for depreciation
at September 30, 1995, 1994, and
1993, respectively $ 22,543 $ 25,648 $ 23,902
======== ========= =========
(3) The Trust's aggregate cost for federal income tax purposes as of September
30, 1995 was $70,268,000. The Trust's federal income tax return for the
year ended September 30, 1995 has not yet been filed.
(4) Depreciation lives exclude tenant improvements which are depreciated over
the specific lease term involved.
(5) The Trust owns the building improvements subject to a long term ground
lease.
F-18
49
SCHEDULE XII - - MORTGAGE LOANS ON REAL ESTATE
CLEVETRUST REALTY INVESTORS
September 30, 1995
Carrying
Amount Of
Mortgages Final
As Of Maturity
September Date/Range
30, Final Periodic Amount Of Face
1995 Rate/Range Maturity Payment Prior Amount Of
Classification (1) (2) Of Rates Dates Terms Liens Mortgages
- -------------- ------------- ------------ ----- ----- ----- ---------
(in (in thousands)
thousands)
Second
mortgage
loan on
vacant land
in Akron,
Ohio $ 91 10.00% August, 1996 (3) $ 1,180 $ 290
Second
mortgage
loan on
vacant land
in Akron,
Ohio 212 9.00% May, 1997 (4) 1,180 212
Accrued
interest 7
-------
TOTAL $ 310
=======
F-19
50
SCHEDULE XII - - MORTGAGE LOANS ON REAL ESTATE - - CONTINUED
CLEVETRUST REALTY INVESTORS
(1) Reconciliation of carrying amount of mortgage loans:
Year Ended September 30,
--------------------------------------------------
1995 1994 1993
---- ---- ----
(in thousands)
Balance as of October 1, 1994, 1993 and
1992, respectively $ 236 $ 155 $ 2,291
Additions during the year:
Mortgage received in connection
with sale of property 212 290 150
Amortization of purchase money
mortgage discounts --- --- 14
Increase in accrued interest 7 290 62
------- --------- --------
TOTAL ADDITIONS 219 290 226
------- --------- --------
455 455 2,517
Less Deductions during the year:
Mortgage loan principal repayments 145 204 2,000
Accrued Interest --- 5 362
------- --------- --------
TOTAL DEDUCTIONS 145 209 2,362
------- --------- --------
Balance as of September 30, 1995, 1994
and 1993, respectively $ 310 $ 236 $ 155
======= ========= ========
(2) The carrying amount at September 30, 1995 of the mortgage loans for
federal income tax purposes was $303,000.
(3) Interest only payments are due quarterly in the arrears on the 1st day of
each March, June, September and December for all interest accrued to
such date. Principal payments of $5,375.00 per lot are to be made from
the proceeds of the sale of each lot of the vacant land securing this
loan until all principal is paid or August, 1996 at which time all
unpaid principal is due. Notwithstanding anything to the contrary,
provided Borrower is not otherwise in default, this loan shall be
interest free until September 1, 1995.
(4) Interest only payments are due quarterly in the arrears on the 1st day of
each June, September, December, and March for all interest accrued to such
date. Principal payments of $16,303.00 per lot are to be made frrom the
proceeds of the sale of each lot of the vacant land securing this loan
until all principal is paid or May, 1997 at which time all unpaid principal
is due.
F-20
51
CLEVETRUST REALTY INVESTORS
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1995
EXHIBIT INDEX
"Assigned" "Sequential"
Exhibit No. * Description Page No.
------------- ----------- --------
(3) (A) Second Amended and Restated Declaration Incorporated by
of Trust. reference to Exhibit
(3) to Registration
Statement on
Form S-2, File
Number, 33-46552.
(3) (B) By-Laws Incorporated by
reference to Exhibit
(3) to Report on
Form 10-K for the
fiscal year ended
September 30, 1986.
(File No. 0-5641)
(4) (1) Credit Agreement By and Amoung CleveTrust Realty Incorporated by
Investors, Borrower, National City Bank, as reference to Exhibit (4)
Agent, and The Banks Identified Herein dated as to Form 10-K for the
of November 30, 1994. fiscal year ended
September 30, 1994.
(4) (2) Amendment to Credit Agreement dated as of April 53
28, 1995 to the Credit Agreement By and Amoung
CleveTrust Realty Investors, Borrower, National
City Bank, as Agent, and The Banks Identified
Herein dated as of November 30, 1994.
(4) (3) Deed of Trust and Security Agreement made as of Incorporated by
May 28, 1987 between CleveTrust Realty Investors reference to Exhibit (4)
and The Northwestern Mutual Life Insurance to Report on Form 10-K
Company. for the fiscal year
ended September 30,
1987.
(File No. 0-5641)
(4) (4) Promissory Note dated May 28, 1987 in the amount Incorporated by
of $6,500,000 with respect to the Deed of Trust reference to Exhibit (4)
and Security Agreement made as of May 28, 1987 to Report on Form 10-K
between CleveTrust Realty Investors and the for the fiscal year
Northwestern Mutual Life Insurance Company. ended September 30,
1987.
(File No. 0-5641)
Certain of the Registrant's assets are subject
to long-term mortgage obligations each of which
individually relates to indebtedness totaling
less than 10% of the total assets of the
Registrant. The Registrant hereby agrees to
furnish a copy of such agreements to the
Commission upon its request.
52
CLEVETRUST REALTY INVESTORS
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1995
EXHIBIT INDEX
--(CONTINUED)--
"Assigned" "Sequential"
Exhibit No. * Description Page No.
------------- ----------- ----------
Exhibits (10) (1) through (10) (5) represent Management contracts or compensation plans or arrangements.
(10) (1) Amended and Restated Employment Agreement Incorporated by
dated as of January 1, 1993 between CleveTrust reference to Exhibit
Realty Investors and John C. Kikol. (10) to Report on Form
10-K for the fiscal year
ended September 30,
1993.
(10) (2) Amended and Restated Employment Agreement dated Incorporated by
as of January 1, 1993 between CleveTrust Realty reference to Exhibit
Investors and Raymond C. Novinc. (10) to Report on Form
10-K for the fiscal year
ended September 30,
1993.
(10) (3) Amended and Restated Employment Agreement dated Incorporated by
as of January 1, 1993 between CleveTrust Realty reference to Exhibit
Investors and Michael R. Thoms. (10) to Report on Form
10-K for the fiscal year
ended September 30,
1993.
(10) (4) Employment Agreement dated as of January 1, Incorporated by
1993 between CleveTrust Realty Investors and reference to Exhibit
Brian D. Griesinger. (10) to Report on Form
10-K for the fiscal year
ended September 30,
1993.
(10) (5) CleveTrust Realty Investors 1992 Incorporated by
Incentive Stock Option Plan. reference to Exhibit
(10) to Registration
Statement on Form S-2,
File Number, 33-46552.
(11) Computation of net income (loss) per share of 55
beneficial interest.
(23) Consent of Independent Auditors. 56
(24) Power of Attorney. 57
(27) Financial Data Schedule. 58
<FN>
* Exhibits 2, 9, 12, 13, 16, 18, 19, 21, 22, and 28 are either inapplicable to the Trust or require no answer.