1
Exhibit 13
The Registrant's 1996 Annual Report
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EXHIBIT 13
1996
REALTY REFUND TRUST
[PHOTO 1: Photo of ten-key tape and a pencil tip superimposed on two buildings]
REALTY REFUND TRUST
Annual Report for
the year ended
January 31, 1996
[STYLIZED REALTY REFUND
TRUST LOGO]
[OUTSIDE FRONT COVER]
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[Photo 2: Circular photo of a portion of a ten-key tape and pencil tip]
Realty ReFund Trust
About Realty ReFund Trust
Realty ReFund Trust has specialized in the refinancing of existing
income producing commercial, industrial and multi-unit residential property by
supplementing or replacing existing financing.
The Trust's primary refinancing tool has been the "wrap-around"
mortgage loan. The wrap-around refinancing technique enables both the Trust and
its borrower to utilize the leverage available in the existing first mortgage
on the borrower's property. The Trust offers a borrower a new mortgage loan (a
wrap-around loan) on that property, the principal amount of which equals the
balance outstanding on that property's existing mortgage loan plus an
additional amount supplied by the Trust.
With its current cycle of investments winding down, Realty ReFund is
reviewing all of its options as to how to proceed, including: merger; sale;
restructuring; new financing sources, both public and private; and liquidation
of the Trust.
Established in 1971, Realty ReFund Trust has elected to be taxed as a
real estate investment trust as that term is used in Sections 856-860 of the
Internal Revenue Code of 1954, as amended.
Contents
Letter to Shareholders................................................ 1-3
Selected Financial Data............................................... 4
MD&A.................................................................. 5-8
Balance Sheets........................................................ 9
Statements of Operations.............................................. 10
Statements of Shareholders' Equity.................................... 11
Statements of Cash Flows.............................................. 12
Notes................................................................. 13-18
Report of Independent Public Accountants.............................. 19
Trustees and Officers................................................. 20
[INSIDE FRONT COVER]
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To Our Shareholders
SHAREHOLDERS
For the year ended January 31, 1996, Realty ReFund Trust reported a loss of
$(7.40) per share on a net loss of $(7,554,351) compared to prior year's
earnings of $0.66 per share on net income of $670,945. Revenues for the year
were $5,430,006 versus $6,692,051 in 1995.
For the fourth quarter ended January 31, 1996, the Trust reported a loss of
$(2.87) per share on a net loss of $(2,927,661), compared to prior year's
earnings of $0.15 per share on net income of $153,473.
The year-to-date and fourth quarter losses reported in the current year
resulted from the valuation allowances, totaling $8 million, established during
the year on two properties. Later in this letter, we will detail our decisions
to establish these allowances.
As you know, Realty ReFund Trust includes Funds From Operations ("FFO") in
its financial reports to account for the depreciation taken on its equity
investment in Chicago. Essentially, FFO is the sum of the net income plus
depreciation and valuation allowances less capital gains. Like many other REITs
which have equity investments in real estate, we use FFO to provide you with a
more accurate measurement of our year-to-year performance.
Year ended January 31, 1996 1995
- --------------------------------------------------------------------------------
Net income (loss) $(7,554,351) $670,945
Funds From Operations 710,522 914,728
Income (loss) per share (7.40) .66
Funds From Operations per share .70 .90
Dividend per share .50 .80
Three months ended January 31, 1996 1995
- --------------------------------------------------------------------------------
Net income (loss) $(2,927,661) $153,473
Funds From Operations 141,262 215,756
Income (loss) per share (2.87) .15
Funds From Operations per share .14 .21
Dividend per share .10 .20
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During the calendar year of 1995, the Trust paid dividends of $.60, of which
97.4 percent was taxable and 2.6 percent was non-taxable as a return of capital.
Toledo Property
In the second quarter of 1995, Realty ReFund Trust established a valuation
allowance of $5 million in respect of its mortgage loan on the Riverview Tower.
Riverview Tower Limited Partnership, the owner of this property and a borrower
from the Trust, is seeking to sell this property. In view of the fact that our
loan was made on a non-recourse basis, we have written down the value of the
loan to reflect our current estimate of its market value.
The current book value of the Trust's investment on this property is
approximately $1.4 million.
Chicago Property
Our property enhancement program for the Carbide and Carbon Building in Chicago
continued to produce positive results last year. For the year ended January 31,
1996, the Trust maintained operating profits, before the deductions for
depreciation and amortization of tenant improvements and leasing commissions,
for the second consecutive year. As you will recall, this property was running
at a substantial loss when Realty ReFund took title to it in mid-1992.
Unfortunately, Chicago's office building market has not improved as quickly
as was projected earlier. Accordingly, the Trust established a valuation
allowance of $3 million in the fourth quarter to reflect our current estimate of
the market value of this property should it become necessary to sell it
prematurely.
Loans Paid Off During The Year
As previously announced, the mortgage loan to American Motor Inns in Sarasota
and Orlando, Florida was paid in full at its maturity in August 1995. The net
proceeds of approximately $3.5 million were used to reduce bank debt. The
mortgage loan on the shopping center in Saginaw, Michigan was prepaid in full in
September 1995. The net proceeds of approximately $2.0 million also were
applied to reduce bank debt.
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BOARD RE-ELECTED
The Trust held its 24th annual meeting on May 15, 1995. At the meeting, the
shareholders re-elected Realty ReFund's Board of Trustees. Management and the
Trustees appreciate this vote of confidence.
98TH CONSECUTIVE DIVIDEND PAID
The Board of Trustees declared a cash dividend of $.10 per share for the quarter
ended January 31, 1996 which was paid on March 15, 1996 to shareholders of
record on March 8, 1996. The Trustees will continue to review future dividend
payments on a quarter-to-quarter basis.
INVESTMENT BANK RETAINED -- OUTLOOK
At the recommendation of its Board of Trustees, Realty ReFund retained the
investment banking firm of Brown, Gibbons, Lang & Company, L.P., in August 1995
to review the future direction of the Trust. With our current cycle of
investments winding down, the Trust has come to a crossroads. Brown, Gibbons has
been asked to review all of the Trust's options as how to proceed, including:
merger; sale; restructuring; new financing sources, both public and private; and
liquidation of the Trust.
Since that time, we have received well over 100 inquiries and have had
numerous plans suggested involving Realty ReFund. We currently are investigating
each proposal and will make our final recommendations to the Board. The Trust
plans to act swiftly should we find a plan that will enhance shareholder value.
If no such plan should become available in the reasonably near future, the Trust
will determine which of its available options to pursue, including the
possibility of an orderly liquidation. We will keep you abreast of our findings
and thank you for your continued loyalty and support.
/s/Alan M. Krause
Alan M. Krause
Chairman and Co-Chief Executive Officer
/s/James H. Berick
James H. Berick
President and Co-Chief Executive Officer
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Selected Financial Data
The following selected financial data of Realty ReFund Trust for the five years
ended January 31, 1996, have been derived from the audited financial statements
of the Trust, which have been audited by Arthur Andersen LLP, independent public
accountants. All of the data should be read in conjunction with the respective
financial statements and related notes included herein.
SELECTED FINANCIAL DATA
For the fiscal years ended January 31, 1996 1995 1994 1993 1992
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Total revenues $ 5,430,006 $ 6,592,051 $ 7,645,790 $ 6,979,119 $ 4,525,660
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Income (loss) before unusual item $(7,554,351) $ 670,945 $ 955,121 $(3,535,366) $ 1,755,862
Unusual item -- write-off of deferred
costs associated with failed mergers -- -- -- 1,007,609 --
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Net income (loss) $(7,554,351) $ 670,945 $ 955,121 $(4,542,975) $ 1,755,862
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Earnings per share $ (7.40) $ .66 $ .94 $ (4.45) $ 1.72
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Cash dividends paid
and declared per share $ .50 $ .80 $ .86 $ 1.09 $ 1.72
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Total assets $24,555,330 $45,165,356 $65,264,638 $70,428,842 $78,638,206
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Bank and other borrowings $10,795,000 $16,810,000 $24,575,000 $23,525,000 $21,050,000
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Management's Discussion and Analysis of Operating Results and Financial Position
All references are to the Trust's fiscal year
ended January 31, 1996, as compared to
1995 or the fiscal year ended January 31,
1995, as compared to 1994.
Results of Operations and Financial Position
Following is an analysis of the net interest
income earned on each loan in the Trust's
portfolio during 1996, 1995 and 1994:
OPERATIONS AND FINANCIAL POSITION
ANALYSIS OF NET INTEREST INCOME BY LOAN
AVERAGE LOANS AVERAGE LOANS AVERAGE NET INTEREST INTEREST NET INTEREST AVERAGE
DESCRIPTION RECEIVABLE(a) PAYABLE(a) INVESTMENT(b) INCOME EXPENSE INCOME YIELD (c)
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1996
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Wrap-Around mortgage loans:
Fort Worth, Texas $15,814,885 $ 7,456,734 $8,358,151 $1,766,385 $ 617,123 $1,149,262 13.8%(d)
Toledo, Ohio 10,624,356 3,496,911 7,127,445 932,605 209,872 722,733 10.1
Other mortgage loans:
Saginaw, Michigan 2,015,912 -- 2,015,912 149,299 -- 149,399 14.8(e)
Sarasota/Orlando, Florida 3,771,941 -- 3,771,941 207,167 -- 207,167 11.0(f)
Loan prepayment fees
and other income N/A N/A N/A 76,749 N/A 76,749 N/A
----------------------
Totals $3,132,205 $ 826,995
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1995
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Wrap-Around mortgage loans:
Fort Worth, Texas $21,361,623 $12,920,553 $8,441,070 $2,107,216 $1,061,892 $1,045,324 12.4%(d)
Dallas, Texas 5,459,109 4,059,109 1,400,000 131,102 90,276 40,826 11.7(d)(g)
Toledo, Ohio 12,727,848 4,153,957 8,573,891 1,120,698 249,722 870,976 10.2
Akron, Ohio 9,261,264 1,880,494 7,380,770 143,469 27,032 116,437 7.1(g)
Other mortgage loans:
Saginaw, Michigan 2,041,089 -- 2,041,089 128,074 -- 128,074 12.5(e)
Sarasota/Orlando, Florida 3,863,138 -- 3,863,138 424,417 -- 424,417 11.0
Loan prepayment fees
and other income N/A N/A N/A 217,620 N/A 217,620 N/A
----------------------
Totals (h) $4,272,596 $1,428,922
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1994
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Wrap-Around mortgage loans:
Fort Worth, Texas $26,623,341 $17,952,191 $8,671,150 $2,431,184 $1,463,929 $ 967,255 11.1%(d)
Dallas, Texas 5,477,869 4,077,869 1,400,000 522,617 377,099 145,518 10.4(d)
Toledo, Ohio 13,894,571 4,772,525 9,122,046 1,213,338 287,239 926,099 10.2
Akron, Ohio 9,602,352 2,427,999 7,174,353 700,502 139,626 560,876 7.8
Other mortgage loans:
Sarasota/Orlando, Florida 3,974,234 - 3,974,234 436,692 - 436,692 11.0
Other income N/A N/A N/A 28,764 N/A 28,764 N/A
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Totals (h) $5,333,097 $2,267,893
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(a) Based upon average month-end balances outstanding during each fiscal year.
(b) Average loans receivable less average loans payable.
(c) Net interest income divided by average net investment.
(d) The Trust's net investment in these loans bears interest at variable rates
based on specified increments over the prime lending rate. As the prime
lending rate increased in fiscal 1996 and 1995, the average yield on these
loans fluctuated accordingly. Reference should be made to the schedule of
investments in loans receivable included in Note 10 to the financial
statements.
(e) This loan was outstanding for approximately six months in 1996 and 1995.
The average yield represents an annualized yield.
(f) This loan was outstanding for approximately six months in 1996. The average
yield represents an annualized yield.
(g) These loans were outstanding for approximately three months in 1995. The
average yield represents an annualized yield.
(h) Mortgage interest expense related to the Chicago, Illinois real estate held
for sale has been excluded from the above analysis.
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Management's Discussion and Analysis of Operating Results and Financial Position
MANAGEMENT'S DISCUSSION AND ANALYSIS
In July 1995, the Trust established a valuation allowance of $5,000,000 on its
investment in the Toledo, Ohio wrap-around mortgage loan. The owner of the
property and borrower from the Trust, Riverview Tower Limited Partnership, a
related party, is pursuing, among other things, any possible opportunities for a
sale of the property. As the Trust's loan was made on a nonrecourse basis, the
Trust has written down its investment to reflect the estimated sales price of
the property and the estimated net proceeds which would be received by the Trust
on its investment. As the Trust continues to receive, on a timely basis, all
required monthly payments of principal and interest on the mortgage loan,
interest income continues to be recognized based upon the contractual terms of
the mortgage loan. This wrap-around mortgage loan matures in December 1996.
In July 1992, the Trust accepted title in lieu of foreclosure on a commercial
building in Chicago, Illinois. At the time of title acceptance, the Trust
recorded a provision to write down its investment to estimated net realizable
value as it was the Trust's intention to sell the real estate. Since that time,
the carrying value of the investment has increased as a result of considerable
investment in building and tenant improvements. To date, the Trust has not
received a firm offer for the sale of the property. Based on both current market
conditions for similar commercial property in Chicago and the current operating
performance of the property, the Trust recorded a $3,000,000 valuation allowance
in the fourth quarter of fiscal 1996 to reduce the carrying value of the
property to its current estimated net realizable value. The amount of the
writedown is based upon the Trust's best estimate of the amount of net proceeds
which would be realized upon sale of the real estate in the near term future.
Interest income on mortgage loans receivable decreased in 1996 as compared to
1995 due to the prepayment of the Akron, Ohio and Dallas, Texas wrap-around
mortgage loans in April and May 1994, respectively, principal prepayments
aggregating $3,050,000 received on the Toledo, Ohio wrap-around mortgage loan in
fiscal years 1996 and 1995, principal repayment of $2,000,000 received on the
Saginaw, Michigan loan, the maturity of the Sarasota and Orlando, Florida loan
in August 1995 and the normal amortization of mortgage loan balances. In
addition, fiscal 1995 included loan prepayment income of $190,000 as compared to
$59,000 for fiscal 1996. Interest expense on mortgage loans payable decreased in
1996 as compared to 1995, due to the prepayments of the loans underlying the
Akron, Ohio and Dallas, Texas wrap-around loan investments and the normal
amortization of mortgage loan balances.
Interest expense on bank borrowings decreased in 1996 as compared to 1995 due
to lower average borrowing levels. The proceeds received in 1996 and 1995 in
connection with various loan principal repayments were utilized to reduce bank
borrowings. The effect of lower average borrowing levels more than offset the
effect of higher bank interest rates. Interest expense on the note payable to
related party increased due to higher interest rates.
For 1996, the real estate held for sale incurred an operating loss of
$304,000, excluding the $3,000,000 provision to write down the asset carrying
value, but including depreciation and amortization charges of $458,000. These
results compare unfavorably with the 1995 building operating loss of $175,000,
which included depreciation and amortization charges of $336,000. When the
effects of depreciation and amortization charges are removed, operating results
are very comparable. Depreciation and amortization charges increased
considerably in 1996 due to the high level of investment in building and tenant
improvements.
The fee to the investment advisor decreased in 1996 as compared to 1995 due
to the reduction in the Trust's investment in mortgage loans.
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Other operating expenses decreased in 1996 as compared to 1995 due to lower
levels of legal and professional fees. Such expenses were greater than normal in
1995 due to a higher level of legal activity.
Interest income on mortgage loans receivable decreased in 1995 as compared to
1994 due to the prepayment of the Akron, Ohio and Dallas, Texas wrap-around
mortgage loans in April and May 1994, respectively, and the normal amortization
of mortgage loan balances. The decrease was offset partially by the effect of
higher prime lending rates on variable rate mortgage loans, prepayment fees and
other income aggregating approximately $190,000 related to the previously
mentioned loan prepayments and interest income on the Saginaw, Michigan loan
made in July 1994. Interest expense on mortgage loans payable decreased in 1995
as compared to 1994, due to the prepayments of the loans underlying the Akron,
Ohio and Dallas, Texas wrap-around loan investments and the normal amortization
of mortgage loan balances.
Interest expense on bank borrowings decreased in 1995 as compared to 1994 due
to lower average borrowing levels. The proceeds from the Akron, Ohio and Dallas,
Texas loan prepayments were utilized to reduce bank borrowings. The effect of
lower average borrowing levels more than offset the effect of higher bank
interest rates. Interest expense on the note payable to related party increased
due to higher interest rates.
Commencing February 1, 1994, the Trust began providing for depreciation on
the Chicago building held for sale. For 1995, the building incurred an operating
loss of $175,000, including depreciation and amortization charges of $336,000.
These results compared favorably with the 1994 building operating loss of
$108,000, which included amortization charges of $27,000, when the effect of
depreciation and amortization was removed. The improvement in building operating
results was attributable primarily to lower levels of repair and maintenance
expenditures in 1995.
Other operating expenses increased in 1995 due to higher levels of legal and
professional fees.
LIQUIDITY
To maintain its tax-exempt status, the Trust is required to distribute at least
95% of its taxable income to its shareholders. It is currently the policy of the
Trust to distribute sufficient dividends to maintain its tax-exempt status. As a
result of the substantial loss in 1993, the Trust has available approximately
$4.6 million of net operating loss carryforwards for income tax purposes. The
loss carryforwards can be used to reduce future dividend payment requirements
and still allow the Trust to maintain its tax-exempt status. The Trustees will
assess the level of dividends to be declared on a quarterly basis.
For 1996 as compared to 1995, net cash provided by operating activities
increased due to the receipt of $300,000 in February 1995 for the reimbursement
of building repairs and maintenance expenses and decreased levels of payments to
the investment advisor and other suppliers. These factors more than offset the
effects of greater amounts of prepayment and other income recognized in 1995 on
the Akron, Ohio and Dallas, Texas loan prepayments and the reduction in net
interest received in 1996.
Cash flows from investing activities decreased considerably in 1996 due to
the Akron, Ohio and Dallas, Texas wrap-around mortgage loan prepayments in 1995.
The Trust's aggregate net investment in these loans was approximately
$8,800,000. In 1996, the Sarasota and Orlando, Florida mortgage loan was retired
at its maturity and the Saginaw, Michigan loan was prepaid in full. The Trust's
aggregate investment in these loans was approximately $5,700,000. In addition,
the Trust increased expenditures for tenant and building improvements at the
Chicago property in 1996.
Cash used for financing activities decreased in 1996 as compared to 1995 due
to the lower level of net proceeds received from the loan repayments being
available to pay down bank borrowings and a decrease in dividends paid. The
Trust made principal payments of $500,000 on the note payable to related party
in 1996, pursuant to the terms thereof.
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For 1995 as compared to 1994, net cash provided by operating activities
decreased as higher levels of payments to the investment advisor and other
suppliers more than offset the improved operating performance of the Chicago
building and the receipt of prepayment and other fees on the Akron, Ohio and
Dallas, Texas loan prepayments.
Cash from investing activities increased considerably in 1995 due to the
Akron, Ohio ($7,400,000 net investment) and Dallas, Texas ($1,400,000 net
investment) loan prepayments, additional principal amortization ($2,200,000)
received on the Toledo, Ohio loan pursuant to a loan extension agreement, the
normal amortization of mortgage loan balances and a lower level of expenditures
for land and building and tenant improvements at the Chicago property. A
partially offsetting factor was the use of $2,050,000 of funds in 1995 for a new
loan on a shopping center in Saginaw, Michigan.
Cash from financing activities decreased in 1995 as compared to 1994 as the
proceeds from the Akron, Ohio and Dallas, Texas loan prepayments and the
additional principal amortization received on the Toledo, Ohio loan were
utilized to reduce bank borrowings. In 1994, the Trust obtained $5,000,000 of
borrowings from a related party.
In connection with the Trust's wrap-around loans, while the entire debt
service is received in cash, the Trust is obligated to the borrower to make debt
service payments on the underlying indebtedness. Additionally, the Trust will be
funding any operating deficits of the Chicago building until such time as it is
sold. The Trust's primary sources of funds are a bank line of credit in the
amount of $7,000,000 and repayments of mortgage loans receivable. The credit
agreement is used to fund any operating deficits of the Chicago building and for
working capital. The credit agreement expires in July 1996. The Trust is
discussing with the lending bank the extension of the expiration date of the
credit agreement. In light of the repayments of mortgage loans receivable, the
accrued loss on the Toledo, Ohio investment and the writedown of the carrying
value of the real estate held for sale, the Trust's lending bank has agreed to
reduce the Trust's minimum required net worth requirement (as defined in the
credit agreement) to $8,500,000. As of January 31, 1996, the Trust had available
$705,000 under the bank credit agreement.
INFLATION
Generally, inflation affects the Trust as it affects its borrowers and the
underlying real estate collateral. This type of collateral traditionally has
been able to sustain itself during periods of inflation.
OTHER
In March 1995, FAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. The Trust will be
required to adopt this standard in the first quarter of fiscal 1997. Pursuant to
this standard, long-lived assets to be disposed of are to be reported at the
lower of carrying amount or fair value less incremental direct costs to sell.
Long-lived assets to be disposed of shall not be depreciated while being held
for disposal. The Trust's real estate held for sale is within the scope of FAS
No. 121. As a result of the writedown recorded by the Trust on the real estate
held for sale in the fourth quarter of fiscal 1996, adoption of FAS No. 121
should not have a material impact on the Trust's financial condition and results
of operations except that beginning in the first quarter of fiscal year 1997,
the Trust will no longer provide depreciation on the real estate held for sale.
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Balance Sheets
The accompanying notes
to financial statements are
an integral part of these
balance sheets.
BALANCE SHEETS
As of January 31, 1996 1995
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ASSETS
Investments:
Loans receivable $12,915,955 $24,476,670
Loan receivable from related party, net of valuation
allowance of $5,000,000 at January 31, 1996 4,506,055 11,033,109
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17,422,010 35,509,779
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Real estate held for sale, net of accumulated
depreciation and amortization of $793,000 and $360,000
at January 31, 1996 and 1995, respectively, and a $3,000,000
valuation allowance at January 31, 1996 6,396,364 8,650,257
- ---------------------------------------------------------------------------------------------------------
Other assets:
Cash 16,285 39,073
Interest receivable and other assets 720,671 966,247
- ---------------------------------------------------------------------------------------------------------
$24,555,330 $45,165,356
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loans payable underlying wrap-around mortgages $4,577,187 $10,264,669
Loan payable underlying wrap-around mortgage to related party 3,155,263 3,832,317
Note payable to bank 6,295,000 11,810,000
Note payable to related party 4,500,000 5,000,000
Deposits and accrued expenses 1,480,061 1,543,828
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20,007,511 32,450,814
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Shareholders' Equity:
Shares of beneficial interest without par value;
unlimited authorization; 1,020,586 shares
outstanding in 1996 and 1995 4,547,819 12,714,542
- ---------------------------------------------------------------------------------------------------------
$24,555,330 $45,165,356
=============================
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Statements of Operations
The accompanying notes
to financial statements are
an integral part of
these statements.
STATEMENTS OF OPERATIONS
For the years ended January 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
Revenue:
Interest income from loans receivable $ 2,199,600 $ 3,151,628 $ 4,119,759
Interest income from loan receivable from related party 932,605 1,120,968 1,213,338
Rental revenue from real estate held for sale 2,297,801 2,319,455 2,312,693
- --------------------------------------------------------------------------------------------------------------
5,430,006 6,592,051 7,645,790
- --------------------------------------------------------------------------------------------------------------
Expenses:
Provision for writedown of loan receivable from related party 5,000,000 -- --
Provision for writedown of real estate held for sale 3,000,000 -- --
Interest on loans underlying wrap-around mortgages 617,123 1,218,159 2,029,240
Interest on loan underlying wrap-around
mortgage to related party 209,872 249,722 287,239
Interest on note payable to bank 717,550 793,731 964,910
Interest on note payable to related party 427,445 411,944 338,077
Fee to related party investment advisor 223,278 294,115 279,938
Legal expense to related party 20,000 41,000 54,000
Operating expenses of real estate held for sale 2,144,150 2,157,957 2,394,279
Depreciation of building held for sale 264,873 243,783 --
Amortization of tenant improvements
and deferred leasing commissions 192,719 92,309 26,510
Other operating expenses 167,347 418,386 316,476
- --------------------------------------------------------------------------------------------------------------
12,984,357 5,921,106 6,690,669
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (7,554,351) $ 670,945 $ 955,121
===========================================
Earnings per share $ (7.40) $ .66 $ .94
===========================================
Cash dividends per share:
Paid $ .40 $ .60 $ .68
Declared .10 .20 .18
- --------------------------------------------------------------------------------------------------------------
$ .50 $ .80 $ .86
===========================================
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Statements of Shareholders' Equity
The accompanying notes
to financial statements
are an integral part of
these statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
Shares of Total
Beneficial Undistributed Shareholders'
For the years ended January 31, 1996, 1995 and 1994 Interest Net Income Equity
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1993 $ 12,833,678 $ -- $ 12,833,678
Net income -- 955,121 955,121
Cash dividends paid -- (949,145) (949,145)
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1994 12,833,678 5,976 12,839,654
Net income -- 670,945 670,945
Cash dividends paid (119,136) (676,921) (796,057)
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1995 12,714,542 -- 12,714,542
Net loss (7,554,351) -- (7,554,351)
Cash dividends paid (612,372) -- (612,372)
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996 $ 4,547,819 $ -- $ 4,547,819
============================================
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Statements of Cash Flows
The accompanying notes
to financial statements
are an integral part of
these statements.
STATEMENTS OF CASH FLOWS
For the years ended January 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Interest received $ 3,190,122 $ 3,946,514 $ 4,999,019
Interest paid (2,018,092) (2,709,753) (3,552,499)
Cash payments to investment advisor and other suppliers (626,188) (784,514) (184,830)
Rental revenue received from real estate held for sale 2,240,784 2,319,157 2,306,103
Cash payments for operating costs of real estate held for sale (1,726,371) (2,268,734) (2,413,637)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,060,255 502,670 1,154,156
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Cash flows from investing activities:
Principal collected on mortgage loans receivable 13,087,769 23,158,635 6,391,543
Principal payments on mortgage loans payable (6,364,536) (12,439,672) (6,547,638)
Payments for tenant and building improvements (1,178,904) (621,977) (985,856)
Investments in mortgage loans receivable -- (2,050,000) --
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 5,544,329 8,046,986 (1,141,951)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net bank repayments (5,515,000) (7,765,000) (3,950,000)
Payment of cash dividends (612,372) (796,057) (949,145)
Net borrowings from (repayments to) related party (500,000) -- 5,000,000
Payment of financing fees -- -- (109,526)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (6,627,372) (8,561,057) (8,671)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (22,788) (11,401) 3,534
Cash at beginning of year 39,073 50,474 46,940
- -----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 16,285 $ 39,073 $ 50,474
===========================================
Reconciliation of net income (loss) to net cash
provided by operating activities:
Net income (loss) $ (7,554,351) $ 670,945 $ 955,121
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for writedown of loan receivable from related party 5,000,000 -- --
Provision for writedown of real estate held for sale 3,000,000 -- --
Depreciation of building held for sale 264,873 243,783 --
Amortization of deferred financing costs, leasing
commissions and tenant improvement costs 192,719 131,257 97,087
Amortization of deferred loan fees (18,000) (27,234) (71,640)
Deferral of interest income -- (137,596) (273,735)
Decrease (increase) in interest receivable and other assets 220,781 (636,221) 78,250
Increase (decrease) in deposits and accrued expenses (45,767) 257,736 369,073
- -----------------------------------------------------------------------------------------------------------------------
$ 1,060,255 $ 502,670 $ 1,154,156
============================================
12
16
Notes to Financial Statements
January 31, 1996, 1995 and 1994
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Realty ReFund Trust (the Trust) historically has specialized in mortgage
financing as its investment vehicle, refinancing existing income-producing
commercial, industrial and multi-unit residential real property by supplementing
or replacing existing financing. The primary refinancing technique which the
Trust has employed is wrap-around mortgage lending, which is discussed in Note
2. The Trust has pursued other refinancing techniques, including, but not
limited to, first or junior mortgages which have various durations and may or
may not be self-liquidating.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Investments in Wrap-Around Mortgages
and Related Underlying Loans
In a wrap-around mortgage structure, the principal amount secured by the
mortgage note held by the Trust is equal to the outstanding balance under the
prior mortgage loan plus the amount of funds advanced by the Trust. The notes
held by the Trust are subordinate to the underlying prior indebtedness. The
Trust agrees with the borrower to make principal and interest payments to the
holder of the existing prior mortgage, but only to the extent scheduled payments
are received from the borrower and no other default exists. Generally, the Trust
has the right to pay off the prior indebtedness and succeed to its priority.
The mortgage notes held by the Trust generally are coterminous with the
underlying prior indebtedness and provide for lump-sum payments by the borrower
upon maturity.
Scheduled minimum payments during the five years ending January 31, 2001 are
approximately as follows:
Principal Payments
-------------------------------------
Year Ending Due to Trust on Due from Trust
January 31, Loan Receivable on Loans Payable
- -------------------------------------------------------
1997 $22,422,000 $5,297,000
1998 -- 764,000
1999 -- 811,000
2000 -- 861,000
2001 -- --
----------- ----------
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 114, "Accounting by Creditors for
Impairment of a Loan." This standard allows a creditor to measure the impairment
of a loan based on the fair value of the collateral if a loan is collateral
dependent. FAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," issued in October 1994, amends FAS No. 114
to allow a creditor to use existing methods for recognizing interest income on
impaired loans. The Trust adopted the provisions of FAS Nos. 114 and 118 in
fiscal 1996. See Note 3 for a discussion of the impairment of the Trust's loan
on the Toledo, Ohio property.
Principles of Consolidation
The financial statements include the accounts of the Trust and its wholly owned
subsidiaries RRF LP I, Inc. and RRF LP II, Inc. All significant intercompany
transactions and balances have been eliminated in the accompanying financial
statements.
Depreciation and Amortization
Commencing February 1, 1994, the Trust began recording depreciation on the
Chicago building held for sale. Depreciation is being provided on a
straight-line basis over the 30-year estimated economic life of the building.
Accumulated depreciation of the building and building improvements at January
31, 1996 and 1995 was $509,000 and $244,000, respectively.
Included in real estate held for sale at January 31, 1996 and 1995 are tenant
improvement costs of $1,360,000 and $672,000, respectively, which are being
amortized on a straight-line basis over the related lease terms, which range
from five to fifteen years. Accumulated amortization of such costs was $284,000
and $116,000 at January 31, 1996 and 1995, respectively.
Included in interest receivable and other assets at January 31, 1996 and 1995
are deferred leasing commissions of $307,000 and $162,000, respectively, which
are being amortized on a straight-line basis over the related lease terms.
Accumulated amortization of such deferred costs at January 31, 1996 and 1995 is
$31,000 and $6,000, respectively.
Earnings Per Share
Earnings per share have been computed based on the weighted average number of
shares outstanding during the periods. Earnings per share for 1996, 1995 and
1994 were based upon 1,020,586 shares. During these periods the Trust had no
potentially dilutive securities outstanding.
13
17
Statements of Cash Flows
The Trust considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Trust was required to adopt the provisions of FAS No. 107, "Disclosures
about Fair Value of Financial Instruments" in fiscal 1996. The standard requires
the Trust to disclose in its financial statements or notes thereto, the fair
value of assets and liabilities which meet the standard's definition of
financial instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Loans receivable -- fair value is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Mortgage loans payable, notes payable to bank and related party -- fair value
is estimated by discounting the future cash flows using the current rates which
would be available to the Trust for similar loans having the same remaining
maturities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In July 1995, the Trust established a valuation allowance of $5,000,000 on
its investment in the Toledo, Ohio wrap-around mortgage loan. At January 31,
1996, the Trust's net investment in the wrap-around loan (amount of mortgage
loan receivable less (i) the recorded loan loss reserve and (ii) the underlying
mortgage loan payable balance) is approximately $1,351,000. As discussed further
in Note 3, the amount which the Trust will ultimately realize on the loan
investment could differ materially in the near term from the amount assumed in
arriving at the provision for writedown of the loan investment.
As discussed further in Note 4, in the fourth quarter of fiscal 1996, the
Trust established a valuation allowance of $3,000,000 to write down the Chicago
real estate held for sale to its estimated net realizable value. Although the
amount of the provision recorded was based upon market information currently
available to the Trust, if the real estate is sold, actual net sales proceeds
could differ materially from the amounts used by the Trust in determining the
amount of the provision recorded in fiscal 1996.
New Accounting Principles
In March 1995, FAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. The Trust will be
required to adopt this standard in the first quarter of fiscal 1997. Pursuant to
this standard, long-lived assets to be disposed of are to be reported at the
lower of carrying amount or fair value less incremental direct costs to sell.
Long-lived assets to be disposed of shall not be depreciated while being held
for disposal. The Trust's real estate held for sale (discussed in Note 4) is
within the scope of FAS No. 121. As a result of the writedown recorded by the
Trust in the fourth quarter of fiscal 1996, adoption of FAS No. 121 should not
have a material impact on the Trust's financial condition and results of
operations except that beginning in the first quarter of fiscal year 1997, the
Trust will no longer provide depreciation on the real estate held for sale.
3. LOAN IMPAIRMENT:
In July 1995, the Trust established a valuation allowance of $5,000,000 on its
investment in the Toledo, Ohio wrap-around mortgage loan. The commercial
building securing the loan is owned by a partnership of which a corporation
owned by the chairman of the Trust is the general partner. The loan is scheduled
to mature in December 1996. The owner of the property is pursuing, among other
things, the sale of the property. As the Trust's loan was made on a nonrecourse
basis, the Trust has written down its investment to reflect the estimated sale
price of the property, and the estimated net proceeds which would be received by
the Trust as repayment of its loan. As the Trust continues to receive, on a
timely basis, all required monthly payments of principal and interest on the
mortgage loan, interest income continues to be recognized based on the
contractual terms of the mortgage loan.
4. REAL ESTATE HELD FOR SALE:
In July 1992, the Trust accepted title in lieu of foreclosure on a commercial
building in Chicago, Illinois. At the time of title acceptance, the Trust
recorded a provision to write down its investment to estimated net realizable
value as it was the Trust's intention to sell the real estate. Since that time,
the carrying value of the investment increased as a result of considerable
investment in building and tenant improvements.
To date, the Trust has not received a firm offer for the sale of the real
estate. Based on both current market conditions for similar commercial property
in Chicago and the current operating performance of the property, the Trust
established a valuation allowance of $3,000,000 in the fourth quarter of fiscal
1996 to reduce the carrying value of the property to its current estimated net
realizable value. The amount of the writedown is based upon the Trust's best
estimate of the amount of net proceeds which would be realized upon sale of the
real estate in the near term future.
14
18
5. NOTE PAYABLE TO BANK:
The Trust has a revolving credit agreement with a bank. At the option of the
Trust, borrowings against the credit agreement bear interest at either the
bank's prime lending rate or a fixed rate equal to 1.5% over LIBOR. A commitment
fee of 3/8% is payable on the unused portion of the credit agreement. Among
other provisions, the credit agreement provides that the Trust cannot permit its
net worth, including subordinated debt, to be less than $12 million and that
total debt, excluding wrap-around mortgages, and senior indebtedness are limited
to 300% and 225%, respectively, of the Trust's net worth.
As a result of the writedown provisions recorded in fiscal 1996 with respect
to the Toledo, Ohio loan investment and the Chicago, Illinois real estate held
for sale, certain provisions of the credit agreement were modified.
Specifically, the minimum net worth requirement was reduced from $12 million to
$8.5 million.
As amended, the credit agreement provides for borrowings of up to $7 million.
As of January 31, 1996, the Trust had borrowed $6,295,000 under this agreement.
At January 31, 1996, the Trust had available $705,000 under the amended terms of
the agreement.
The Trust's credit agreement expires on July 31, 1996. The Trust is
discussing with the lending bank the extension of the expiration date of the
credit agreement.
For the years ended January 31, 1996, 1995 and 1994, the average daily bank
borrowings were $9,431,000, $12,427,000 and $20,075,000, respectively, with a
weighted average interest rate (actual interest expense divided by average daily
borrowings) of 7.6%, 6.4% and 4.8%, respectively. The weighted average interest
rates on bank borrowings outstanding at January 31, 1996 and 1995 were 7.1% and
7.3%, respectively. As of January 31, 1996, the prime rate was 8.5%.
6. NOTE PAYABLE TO RELATED PARTY:
In March 1993, the Trust sold a $5,000,000 secured note to the Chairman of the
Trust, at par. The note bears interest at the prime lending rate and had a
stated maturity date of August 1994. As the Trust's bank credit agreement was
extended to July 1996, the Trust exercised its option to extend the maturity of
the note. Pursuant to the terms of the note, the Trust made principal payments
of $500,000 for the year ended January 31, 1996. The note is subordinate to the
Trust's bank line of credit.
7. FEDERAL INCOME TAXES:
No provision for current or deferred income taxes has been made by the Trust on
the basis that it qualifies under Sections 856-860 of the Internal Revenue Code
as a real estate investment trust and has distributed or will distribute all of
its taxable income for the year ended January 31, 1996 to shareholders.
The primary differences between the income tax and financial reporting bases
of the Trust's assets and liabilities relate the Toledo, Ohio loan investment
and the Chicago, Illinois real estate held for sale. The aggregate $8,000,000
valuation allowances recorded on these assets in fiscal 1996 will not be
deductible for income tax purposes until such time as actually realized by the
Trust.
On February 26, 1996, the Trustees declared a dividend, payable on March 15,
1996, in the amount of $.10 per share of beneficial interest, totaling $102,000.
The total dividends per share applicable to operating results for the year ended
January 31, 1996, including the declaration on February 26, 1996, amount to $.50
per share.
An income tax net operating loss of approximately $4,600,000 was incurred in
fiscal 1993 and is available for carryforward until fiscal 2008. A portion of
the dividends paid in the calendar period 1993-1995 represents a return of
capital primarily as a result of the net operating loss in 1993, and for 1994
and 1995, depreciation deductions for tax reporting purposes on the building
held for sale. The quarterly allocation of cash dividends paid per share for
individual shareholders' income tax purposes was as follows:
Calendar 1995 Calendar 1994 Calendar 1993
------------------------------------------------------------------------------------------------
Month Ordinary Return of Total Ordinary Return of Total Ordinary Return of Total
Paid Income Capital Paid Income Capital Paid Income Capital Paid
- -----------------------------------------------------------------------------------------------------------
March $.195 $.005 $.20 $.121 $.059 $.18 $.148 $.102 $.25
June .195 .005 .20 .135 .065 .20 .148 .102 .25
September .097 .003 .10 .135 .065 .20 .148 .102 .25
December .097 .003 .10 .135 .065 .20 .106 .074 .18
- -----------------------------------------------------------------------------------------------------------
$.584 $.016 $.60 $.526 $.254 $.78 $.550 $.380 $.93
------------------------------------------------------------------------------------------------
The tax status of distributions to shareholders in calendar 1996 will be
dependent on the level of the Trust's earnings in that year. If taxable income
of the Trust exceeds dividends paid in calendar 1996, such dividends will
represent ordinary income to the recipients irrespective of the net operating
loss carryforward.
15
19
8. ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS:
The Trust has an Advisory Agreement with Mid-America ReaFund Advisors, Inc. (the
Advisor) which provides for the administration of the day-to-day investment
operations of the Trust. The Advisor is an entity which is jointly owned by the
present Chairman and President of the Trust. Under the terms of this agreement,
the Advisor is to receive, subject to certain limitations, a monthly fee equal
to 1/12 of 1% of invested assets, as defined in the agreement, and an annual
incentive fee equal to (a) 10% of the amount by which the net income of the
Trust exceeds 8% of the average net worth for the year and (b) 10% of the
difference between net realized capital gains less accumulated net realized
capital losses, as defined. For any fiscal year in which operating expenses of
the Trust exceed certain thresholds specified in the agreement, the Advisor is
required to refund to the Trust the amount of such excess. For fiscal years 1996
and 1994, operating expenses exceeded the specified thresholds by approximately
$18,000 and $22,000, respectively. There was no refund requirement with
respect to fiscal 1995.
The Chairman and President of the Trust have employment agreements with the
Trust, expiring in 2006, each of which have been extended in the past and are
expected to be extended in the future. The employment agreements provide that
these individuals will receive no compensation from the Trust as long as the
Advisory Agreement is in effect. However, should the Advisor no longer provide
services to the Trust, these individuals will then be compensated, collectively,
upon the same annual basis as the Advisor would have been compensated under the
current terms of the Advisory Agreement had it remained in effect.
9. LOANS PAYABLE:
As of January 31, 1996, the Trust had outstanding the following mortgage loans
payable:
Principal Balance as of Total Installments of Principal
Location January 31, 1996 and Interest Per Year Interest Rate Maturity Date
- -------------------------------------------------------------------------------------------------------------------------------
Office buildings -
Fort Worth, Texas $4,577,187 $4,577,187 8.11% October 1996
Toledo, Ohio 3,155,263 890,340 6.05% December 1999
- -------------------------------------------------------------------------------------------------------------------------------
$7,732,450 $5,467,527
===============================================================================================================================
10. INVESTMENTS IN LOANS RECEIVABLE:
As of January 31, 1996, the Trust had outstanding the following loans
receivable. The Trust's net investment in each of the wrap-around mortgages is
subordinate to underlying prior indebtedness.
Balance, January 31, 1996
--------------------------------------------------------------------
Underlying Trust's
Loans Wrap-Around Trust's Net Original Net
Description Receivable (a) Mortgages Investment Investment
- ----------------------------------------------------------------------------------------------
Wrap-Around mortgages:
Office buildings -
Fort Worth, Texas $12,915,955 $4,577,187 $8,338,768 $ 9,000,000
Toledo, Ohio 4,506,055 3,155,263 1,350,792 6,500,000
--------------------------------------------------------------------
$17,422,010 $7,732,450 $9,689,560 $15,500,000
====================================================================
Lump-Sum Amounts
At Maturity
------------------------------
Year-End Due to Due From Trust
Interest Rate Final Trust on Underlying
on Loans Maturity Loans Loans
Description Receivable Date Receivable Payable
- ---------------------------------------------------------------------------------------
Wrap-Around mortgages:
Office buildings -
Fort Worth, Texas 11.4% October 1996 $ 8,268,000 $ --
Toledo, Ohio 8.7% December 1996 8,848,000 --
----------------------------
$17,116,000 $ --
============================
Description Periodic Payment Terms (b)
- ----------------------------------------------------------------------------------------------------
Wrap-Around mortgages:
Office buildings -
Fort Worth, Texas Principal and interest payable in monthly installments of approximately
$625,000 through October 1996; remaining principal payable at maturity;
prepayment privilege with a penalty, as defined, until maturity.
Toledo, Ohio Payable in monthly installments of approximately $128,000 inclusive of
interest at 10% on the Trust's net investment through December 1996;
required borrower to make principal prepayments of $1,350,000 and
$850,000 in June 1994 and January 1995, respectively, and $850,000 in
January 1996; remaining principal due at maturity; prepayment penalty
of 1% until maturity. Thirty days' prior written notice must be given
to the Trust by mortgagor of intention to prepay mortgage loan.
16
20
10. INVESTMENTS IN LOANS RECEIVABLE (continued):
Reconciliation of Mortgage Loans Receivable 1996 1995 1994
- ---------------------------------------------------------------------------------------------
Balance, beginning of period $35,509,779 $56,480,818 $62,598,626
-------------------------------------------
Additions:
Office buildings (c) -- 137,596 273,735
Shopping center -- 2,050,000 --
-------------------------------------------
-- 2,187,596 273,735
-------------------------------------------
Collections of principal:
Office buildings 7,255,186 8,245,258 5,682,838
Shopping centers 2,029,068 9,332,144 576,142
Motels 3,803,515 117,280 105,115
Apartments -- 5,463,953 27,448
-------------------------------------------
13,087,769 23,158,635 6,391,543
-------------------------------------------
Valuation allowance on loan receivable
from related party (Note 3) 5,000,000 -- --
-------------------------------------------
Balance, end of period $17,422,010 $35,509,779 $56,480,818
===========================================
(a) For the Fort Worth, Texas loan receivable, represents investment for both
financial reporting and federal income tax purposes. The federal income tax
basis of the Toledo, Ohio loan investment is $9,506,055 (Note 7).
(b) Unless otherwise stated, ninety days prior written notice must be given to
the Trust by mortgagor of intention to prepay a mortgage loan.
(c) Represents deferred interest applicable to existing loans.
11. RELATED PARTY TRANSACTIONS:
The Trust recorded provisions of $20,000, $41,000 and $54,000 in fiscal years
1996, 1995 and 1994, respectively, for legal services provided by a law firm of
which the President of the Trust and another Trustee are principals.
The Trust has an investment in a wrap-around mortgage loan on a commercial
building located in Toledo, Ohio owned by a partnership of which the present
Chairman of the Trust is the general partner. As of January 31, 1996, the
related party loan receivable and underlying loan payable were approximately
$4,506,000 (net of a $5,000,000 valuation allowance discussed in Note 3) and
$3,155,000, respectively, while at January 31, 1995, the related party loan
receivable and underlying loan payable were approximately $11,033,000 and
$3,832,000, respectively. In the years ended January 31, 1996, 1995 and 1994,
the Trust earned approximately $933,000, $1,121,000 and $1,213,000 of interest
income on this loan, respectively, of which payment of approximately $138,000
and $274,000 was deferred and added to the principal balance of the mortgage
loan receivable for the years ended 1995 and 1994, respectively. The Trust
incurred interest expense of approximately $210,000, $250,000 and $287,000 in
connection with the related underlying loan payable for the years ended January
31, 1996, 1995 and 1994, respectively.
12. SUMMARIZED FINANCIAL INFORMATION -
RIVERVIEW TOWER LIMITED PARTNERSHIP AND PACIFIC PLACE PARTNERS, LTD.:
As required by the Securities and Exchange Commission, the following is
summarized financial information for Riverview Tower Limited Partnership, the
borrower under the Toledo, Ohio wrap-around mortgage loan and Pacific Place
Partners, Ltd., the borrower under the Fort Worth, Texas, wrap-around mortgage
loan. Both Riverview Tower Limited Partnership and Pacific Place Partners, Ltd.
were audited by other auditors. (000's omitted)
Riverview Tower Limited Partnership
December 31,
--------------------
1995 1994
- ----------------------------------------------------------
Escrow receivable $ 149 $ 163
Land, building, improvements
and equipment, net 12,231 12,603
Other assets 283 25
- ----------------------------------------------------------
Total assets $12,663 $12,791
==========================================================
December 31,
-----------------------
1995 1994
- ---------------------------------------------------------------------------
Accounts payable and accrued expenses $ 516 $ 684
Mortgage payable to Realty ReFund Trust 10,414 11,937
- ---------------------------------------------------------------------------
10,930 12,621
Partners' equity (deficit) 1,733 170
- ---------------------------------------------------------------------------
Total liabilities and partners equity $12,663 $12,791
===========================================================================
Year Ended December 31,
-----------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
Gross revenues $ 6,102 $ 7,497 $ 3,792
Operating expenses 3,179 2,724 2,549
Depreciation and amortization 416 438 438
Interest expense 944 1,141 1,214
- ------------------------------------------------------------------------
Net income (loss) $ 1,563 $ 3,194 $ (409)
========================================================================
17
21
12. SUMMARIZED FINANCIAL INFORMATION (continued):
PACIFIC PLACE PARTNERS, LTD.
December 31,
------------------
1995 1994
- -------------------------------------------------------------
Land, building and equipment, net $38,671 $41,369
Other assets 210 259
- -------------------------------------------------------------
Total assets $38,881 $41,628
=============================================================
December 31,
-----------------------
1995 1994
- ---------------------------------------------------------------------
Accrued expenses $ 91 $ 80
Deferred rent 666 1,466
Mortgage payable 34,113 36,975
- ---------------------------------------------------------------------
34,870 38,521
Partners' capital 4,011 3,107
- ---------------------------------------------------------------------
Total liabilities and partners equity $38,881 $41,628
=====================================================================
Year ended December 31,
------------------------
1995 1994 1993
- ----------------------------------------------------------------
Gross revenues $8,302 $8,302 $8,327
General and administrative expenses 20 1 24
Depreciation and amortization expense 2,744 2,744 2,744
Interest expense 4,634 4,982 5,303
- ----------------------------------------------------------------
Net income (loss) $ 904 $ 575 $ 256
================================================================
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of the Trust's significant financial
instruments at January 31, 1996 are as follows:
Carrying Amount Fair Value
=============================================================================
Loans receivable $17,422,010 $17,319,000
Mortgage loans payable 7,732,450 7,630,000
Notes payable to bank 6,295,000 6,295,000
Notes payable to related party 4,500,000 4,500,000
14. QUARTERLY RESULTS (UNAUDITED):
The following is an unaudited summary of the results of operations, by quarter,
for the fiscal years ended January 31, 1996 and 1995. Management believes that
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such interim results have been included. The results of
operations for any interim period are not necessarily indicative of those for
the entire fiscal year.
Quarter ended
------------------------------------------------------
Fiscal 1996 April 30 July 31 October 31 January 31
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,415,062 $ 1,450,595 $ 1,353,540 $ 1,210,809
======================================================================================================================
Total revenues less interest expense on mortgage loans and
operating expenses, depreciation and amortization expenses
of real estate held for sale 554,846 532,258 519,210 394,955
======================================================================================================================
Provision for writedown of loan receivable from related party -- (5,000,000) -- --
======================================================================================================================
Provision for writedown of real estate held for sale -- -- -- (3,000,000)
======================================================================================================================
Net income (loss) $ 141,138 $(4,899,455) $ 131,626 $(2,927,661)
======================================================================================================================
Earnings per share $ .14 $ (4.80) $ .13 $ (2.87)
======================================================================================================================
Dividends declared per share $ .20 $ .10 $ .10 $ .10
======================================================================================================================
Quarter ended
-------------------------------------------------
Fiscal 1995 April 30 July 31 October 31 January 31
- -----------------------------------------------------------------------------------------------------------------
Total revenues $1,928,865 $1,582,849 $1,551,252 $1,529,085
=================================================================================================================
Total revenues less interest expense on mortgage loans and
operating expenses, depreciation and amortization expenses
of real estate held for sale 863,328 584,636 531,956 650,201
=================================================================================================================
Net income $ 226,161 $ 147,829 $ 143,482 $ 153,473
=================================================================================================================
Earnings per share $ .22 $ .14 $ .14 $ .15
=================================================================================================================
Dividends declared per share $ .20 $ .20 $ .20 $ .20
=================================================================================================================
18
22
Report of Independent Public Accountants
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES,REALTY REFUND TRUST:
We have audited the accompanying balance sheets of Realty ReFund Trust (an Ohio
unincorporated business trust) as of January 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended January 31, 1996. These financial statements are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The summarized
financial data contained in Note 12 are based on the financial statements of
Riverview Tower Limited Partnership and Pacific Place Partners, Ltd. which were
audited by other auditors. Their reports have been furnished to us and our
opinion, insofar as it relates to the data in Note 12, is based solely on the
reports of the other auditors.
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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Realty ReFund Trust as of January 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended January 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
February 26, 1996.
19
23
Trustees and Officers, Corporate Data
TRUSTEES AND OFFICERS
ALAN M. KRAUSE
Chairman and Co-Chief Executive Officer of the Trust and Mid-America ReaFund
Advisors, Inc. (advisor to Trust); Principal, The Mid-America Companies (real
estate ownership); President, The Mid-America Management Corporation (real
estate management)
JAMES H. BERICK
President, Co-Chief Executive Officer and Treasurer of the Trust and Mid-America
ReaFund Advisors, Inc. (advisor to Trust); Chairman, Berick, Pearlman & Mills
Co., L.P.A. (attorneys)
ALVIN M. KENDIS
Retired; formerly Of Counsel, McDonald, Hopkins, Burke & Haber, Co., L.P.A.
(attorneys)
FRANK L. KENNARD
Retired; formerly Senior Vice President, The Huntington National Bank
SAMUEL S. PEARLMAN
Principal, Berick, Pearlman & Mills Co., L.P.A. (attorneys)
MARK S. MISENCIK
Vice President of the Trust
CHRISTINE TURK
Secretary of the Trust
TIMOTHY M. BAIRD
Controller of the Trust
CORPORATE DATA
CORPORATE HEADQUARTERS
1385 Eaton Center
Cleveland, Ohio 44114
216.771.7663
INVESTMENT ADVISOR
Mid-America ReaFund Advisors, Inc.
1385 Eaton Center
Cleveland, Ohio 44114
216.771.7663
TRANSFER AGENTS & REGISTRARS OF SHARES
The Huntington National Bank
Columbus, Ohio
Chemical Mellon Shareholder Services
New York, New York
Telecommunications Devices for the
Deaf can be reached at 800.231.5469
STOCK LISTING
New York Stock Exchange
Symbol: RRF
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
GENERAL COUNSEL
Berick, Pearlman & Mills Co., L.P.A.
Cleveland, Ohio
Shareholders who would like to receive, without charge, the Trust's annual
report on Form 10-K filed with the Securities and Exchange Commission should
write to:
Realty ReFund Trust
1385 Eaton Center
Cleveland, Ohio 44114
Attn.: Timothy M. Baird
20
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Realty ReFund Trust
Realty ReFund Trust
1385 Eaton Center
Cleveland, Ohio 44114
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