-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JU+c44qMDpCFqKUwjh224/ppgon1NJ4lrhhBEBNElkXHC2Jz3LBgIScspcPNPCvr vIXpgKgw6AYwkQQ75pMtqQ== 0000950152-97-008704.txt : 19971219 0000950152-97-008704.hdr.sgml : 19971219 ACCESSION NUMBER: 0000950152-97-008704 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVETRUST REALTY INVESTORS CENTRAL INDEX KEY: 0000020975 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341085584 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-05641 FILM NUMBER: 97740443 BUSINESS ADDRESS: STREET 1: 2001 CROCKER RD STE 400 CITY: WESTLAKE STATE: OH ZIP: 44145 BUSINESS PHONE: 2168990909 MAIL ADDRESS: STREET 1: 2001 CROCKER ROAD STREET 2: STE 400 CITY: WESTLAKE STATE: OH ZIP: 44145 10-K405 1 CLEVETRUST REALTY INVESTORS FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 0-5641 CLEVETRUST REALTY INVESTORS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 34-1085584 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 2001 CROCKER ROAD, SUITE 400, 44145 WESTLAKE, OHIO (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (440) 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, $1.00 PAR VALUE (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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark 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]. At December 2, 1997, 5,136,616 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 2, 1997, which was $1.25) was approximately $2,274,000. 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. ================================================================================ 2 PART I ITEM 1. BUSINESS. GENERAL 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 investments in real estate. The Trust directly manages all of its improved properties. At September 30, 1997 the Trust had 9 full-time employees. On September 24, 1996 the Board of Trustees of the Trust unanimously voted to recommend a Plan for the Orderly Liquidation of the Trust (the "Plan"). Effective April 29, 1997 the shareholders approved the Plan. The Plan calls for the sale of the Trust's properties during a period of approximately three years. PORTFOLIO At September 30, 1997, the Trust's investment portfolio consisted primarily of ownership interests in one multi-tenanted office building, two multi-tenanted shopping centers, and one vacant restaurant (collectively, the "Properties"). Based on the announcement of the Plan, the Trust classified all of its Properties as "Properties held for sale" at September 30, 1996, in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS No. 121"). The Trust reviewed the carrying value of all the Properties at September 30, 1997 and determined that two of the Trust's Properties had a carrying value higher than the estimated fair value, less cost to sell. Therefore a valuation reserve of $260,000 has been established. All of the Properties owned by the Trust at September 30, 1997 were under contracts of sale, and the contract prices were used in determining the estimated net sales prices. One such contract was canceled effective December 1, 1997. See Item 2 of Part I for allocation of the valuation reserve. 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 objective is to sell the Trust's assets for the highest practical price. The proceeds from these sales will be distributed to the Shareholders after establishment of reserves, believed by Management of the Trust to be adequate to satisfy outstanding obligations of the Trust. In order to sell the properties for the highest prices, the Trust reviewed its operating strategy and implemented one intended to achieve the Trust's business objective. The focus of this operating strategy has been to maximize funds from operations from each of the Trust's Properties, thereby enhancing their value, through (i) rental rate increases, to the extent that competitive conditions permit; (ii) improvements 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 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 has been emphasized because it is considered critical to the appreciation of the Properties. Now that all of the Properties are under contracts of sale, except the one on which the contract was terminated, the Trust will focus its attention on finding a buyer for the property and consummating the sales of the Properties. During the year ended September 30, 1997 the Trust completed the sale of eleven of its Properties as follows: (i) $2,450,000 sale on October 7, 1996 of the Littleton Bank Building, Littleton, Colorado, resulting in a gain of $563,000; (ii) $20,000 sale on December 30, 1996 of a .23 acre land parcel located in Dubuque, Iowa, resulting in a gain of $13,000; (iii) $5,950,000 sale on January 21, 1997 of the Warren Plaza Shopping Center, Dubuque, Iowa, resulting in a gain of $1,727,000; (iv) $3,475,000 sale on February 28, 1997 of Triangle Square, Hilton Head, South Carolina, resulting in a gain of $2,650,000; (v) $5,350,000 sale on March 12, 1997 of the Englewood Bank Building, Englewood, Colorado, resulting in a gain of $2,317,000; (vi) $4,450,000 sale on April 28, 1997 of the Spring Village Shopping Center, Davenport, Iowa, resulting in a gain of $679,000; (vii) $5,300,000 sale on June 2, 1997 of the Executive Club Building, Denver, Colorado, 1 3 resulting in a gain of $3,463,000; (viii) $17,860,000 sale on August 1, 1997 of Office Alpha and 14800 Quorum, both located in Dallas, Texas and Brookside Office Building, Arlington, Texas, resulting in a gain of $5,175,000; and (ix) $1,100,000 sale on September 5, 1997 of the Walnut Stemmons Office Park, Dallas, Texas, resulting in a gain of $335,000. The remaining assets of the Trust were all under contracts of sale at September 30, 1997. On December 8, 1997 the Trust completed a $3,150,000 sale of the Petroleum Club Building, Tulsa, Oklahoma, which resulted in an estimated gain of approximately $330,000 to be reported in the first quarter of fiscal year 1998. The other contracts executed by the Trust are as follows: The vacant restaurant located in Davenport, Iowa is under contract of sale for $642,500. The Cannon West Shopping Center, Austin, Texas is under contract of sale for $7,400,000. Tiffany Plaza, Ardmore, Oklahoma was under contract of sale for $3,500,000, however, this contract was canceled by the buyer effective December 1, 1997. All of the existing contracts provide for due diligence periods, during which time the buyer could cancel the contract at its option, as was done with Tiffany Plaza. Additionally, after the completion of the due diligence period the buyer will either place a non-refundable deposit with the Trust or cancel the contract. Thereafter, should the buyer fail to complete the sale, these deposits would be forfeited and retained by the Trust. Therefore, there is no guarantee that these properties will actually be sold at the prices stated. FINANCING AND LEVERAGE The Trust used borrowed funds in purchasing certain properties which the Trust believes has helped to improve the Trust's return on investment in these properties. At September 30, 1997 Cannon West Shopping Center was the only Trust investment leveraged with long-term non-recourse individual mortgage financing. The balance at September 30, 1997 of this debt was $5,561,000. It is currently anticipated that this loan will be repaid through the funds generated in the sale of this property. TAXES Through fiscal 1992, the Trust qualified 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. For the year ended September 30, 1997 the Trust recorded Federal income taxes of $2,400,000 ($2,531,000 of current taxes, net of a deferred tax asset of $131,000) and state income taxes of $314,000. In determining the federal income taxes for the year ended September 30, 1997 the Trust utilized its total $10.2 million of net operating and capital loss carryforwards. As of September 30, 1997 the Trust has distributed $5.70 per share to shareholders under the Plan. Under the Plan all distributions made to shareholders are considered liquidating distributions and reported as return of capital to shareholders to the extent of the individual shareholders' basis in their shares. Shareholders are encouraged to consult their tax advisors for information concerning the tax consequences of these distributions. ITEM 2. PROPERTIES. GENERAL At September 30, 1997 the Trust had total invested assets of $12,658,000. This total was all properties held for sale which included the following: one office building with a carrying value of $2,579,000; three commercial properties with a carrying value of $10,039,000; and one investment in land with a carrying value of $40,000. Carrying value represents amounts included in the Trust's Statement of Financial Condition at September 30, 1997 after depreciation and the valuation reserve. Effective September 30, 1996 the Trust classified all real estate owned as "Properties held for sale." Based on its review of the properties at September 30, 1997 the Trust determined that two properties required a valuation reserve, as the market 2 4 values, less cost to sell, of these properties were less than their carrying value. Therefore a valuation reserve of $260,000 was established. All of the properties owned by the Trust at September 30, 1997 were under contracts of sale, and the contract prices were used in determining the estimated net sales prices. The contract for Tiffany Plaza, Ardmore, Oklahoma was canceled by the buyer effective December 1, 1997. See Part I, Item 1. Business -- Portfolio. On December 8, 1997 the Trust completed the $3,150,000 sale of the Petroleum Club Building located in Tulsa, Oklahoma. This sale resulted in a gain of approximately $330,000 which will be reported in the first quarter of fiscal 1998. Management has from time to time undertaken a major renovation of a Property in order to keep it competitive within its market. Since all properties, except Tiffany Plaza, are currently under contracts of sale, there are no major renovation projects currently under consideration. In the opinion of Management, all Properties in the Trust's portfolio are adequately covered by insurance. Additionally, Management believes all properties are suitable and adequate for their intended use. At September 30, 1997 only one of the Trust's properties was leveraged with long-term non-recourse individual mortgage financing. The Cannon West Shopping Center, Austin, Texas secures a $5,561,000 first mortgage loan. PROPERTIES HELD FOR SALE The following table analyzes the properties held for sale at September 30, 1997 by type of property.
PERCENTAGE GROSS SALES YEAR LEASED SQUARE TOTAL ACCUMULATED VALUATION MORTGAGE PRICE UNDER DESCRIPTION ACQUIRED (A)(B) FOOTAGE COST DEPRECIATION RESERVE DEBT CONTRACT - -------------------------------- -------- ---------- ------- ------- ----------- --------- -------- ----------- Office buildings Oklahoma: Petroleum Club Bldg. -- Tulsa (C)................. 1972 75% 115,000 $ 6,987 $ 4,408 $ 0 $ 0 $ 3,150 --- ------- ------ ------ ----- ---- Total office buildings:........... 75 115,000 6,987 4,408 0 0 Commercial properties: Texas: Cannon West -- Austin (D)... 1987 95 123,000 8,510 2,174 0 5,561 7,400 Iowa: Spring Village -- Davenport (E)....................... 1987 0 9,500 916 167 183 0 643 Oklahoma: Tiffany Plaza -- Ardmore (F)....................... 1989 96 147,000 4,085 948 0 0 N/A --- ------- ------ ------ ----- ---- Total commercial properties:.... 92 279,500 13,511 3,289 183 5,561 Land: Ohio: Vacant land -- Akron........ 1975 N/A N/A 117 N/A 77 0 50 ------ ------ ----- ---- Total properties held for sale.......................... $20,615 $ 7,697 260 $5,561 ====== ====== ===== ====
- --------------- (A) At September 30, 1997 the Trust had 73 tenants under lease in its office building and its commercial properties. (B) The following lists individually those tenants who occupy 10,000 square feet or more at September 30, 1997: 3 5
EXPIRATION SQUARE ANNUAL PROPERTY TENANT DATE FOOTAGE BASE RENT - --------------- -------------------------- ---------- ------- --------- Petroleum Club Petroleum Club 4/30/2003 25,000 $ 157,000 Cannon West Premiere Lady's Fitness 9/30/2001 15,000 100,000 Cannon West H. E. Butt 10/05/2001 50,000 250,000* Tiffany Plaza Orscheln Farm 8/31/2001 30,000 102,000 Tiffany Plaza Fleming Companies 3/20/2001 42,000 87,000* Tiffany Plaza C. R. Anthony 3/07/2001 24,000 69,000* ------- -------- 186,000 $ 765,000 ======= ========
* 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 34% of the current annual rental income of the properties owned by the Trust at September 30, 1997, and these tenants occupy 186,000 square feet (54%) of the total 344,000 square feet currently occupied. The remaining 158,000 square feet are occupied by 67 tenants. The loss of rentals from any one of these leases, if the Trust was not be able to renew or replace it, would not have a significant effect on the Trust's operations. (C) Petroleum Club Building. The Petroleum Club Building located in Tulsa, Oklahoma was sold on December 8, 1997. The $3,150,000 sale resulted in a gain of approximately $330,000 which will be reported in the first quarter of fiscal year 1998. (D) 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. 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. The Trust owns this Property in fee simple, subject to a first mortgage loan, at a rate of 8.3%, which matures May 1, 2002. At September 30, 1997 the balance of this loan was $5,561,000. By maturity $1,050,000 of scheduled amortization payments are required and therefore a balance of $4,511,000 will be due at 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. Occupancy for the fiscal years ended September 30, 1993 through 1997 was as follows: 93% in 1993; 75% in 1994; 82% in 1995; and 95% in 1996 and 1997. The average rental rate, including percentage rents, per occupied square foot during the same period was $7.05 in 1993; $8.38 in 1994; $9.01 in 1995; $9.39 in 1996; and $10.51 in 1997. Cannon West has two tenants that occupy more than 10% of the Property. The first is 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 1997 the percentage rent paid was $114,000. This lease expires October 5, 2001 and has four five-year renewal options. In September, 1995 4 6 the Trust was notified by HEB that they had purchased a parcel of land approximately one mile from Cannon West. As of September 30, 1997 the construction of a store had not yet begun. Should HEB complete construction and move it could affect Cannon West. The second tenant is Premiere Lady's Fitness Center, a health club and fitness center for women only. Their annual rent is $100,000. Their lease also calls for an annual adjustment based on increases or decreases in tax, insurance and maintenance expenses. This lease expires August 31, 2001. Based upon leases in place at September 30, 1997 lease expirations for the ten fiscal years ended September 30, 2007 are as follows:
ANNUAL PERCENT OF NUMBER TOTAL BASE GROSS ANNUAL OF LEASES SQ. FT. RENTS BASE RENTS YEAR EXPIRING EXPIRING EXPIRING AT 9/30/97 ------------------------------ --------- -------- -------- ------------ 1998.......................... 7 9,878 $141,204 13% 1999.......................... 7 11,292 143,038 13 2000.......................... 5 13,399 200,016 19 2001.......................... 5 20,810 180,948 17 2002.......................... 4 62,225 342,334 32 2003.......................... 1 2,373 54,620 6 2004 -- 2007.................. NONE
The building and improvements are depreciated for tax purposes using the straight line method over 18 years. The depreciable tax basis was $3,524,000 at September 30, 1997. The 1996 real estate taxes were $152,150 based on a millage rate of $2.379 per $100 of assessed value. The 1997 real estate taxes are not yet known. (E) Spring Village Shopping Center. On April 28, 1997 the Trust closed the sale of the Spring Village Shopping Center. The sales price was $4,450,000 and the Trust realized a gain of $679,000 on the sale. A 9,500 square foot restaurant parcel which was considered part of this property by the Trust was not sold. At September 30, 1997 this restaurant parcel was vacant. The Trust has executed a contract of sale for this parcel. The contract provides for "due diligence" during which time the buyer could cancel the contract at his option. After the completion of the due diligence period the buyer will either place a non-refundable deposit with the Trust or cancel the contract. Thereafter, should the buyer fail to complete the sale this deposit would be forfeited and retained by the Trust. However, no assurance may be given that this property will actually be sold at the contract price. The restaurant building and improvements are depreciated for tax purposes using the straight line method over 31-1/2 years. The depreciable tax basis was $507,000 at September 30, 1997. The 1997 real estate taxes are $34,540 based on a millage rate of $34.536 per $1,000 of assessed value. (F) Tiffany Plaza Shopping Center. The Tiffany Plaza Shopping Center is a grocery-anchored neighborhood strip center located in Ardmore, Oklahoma. Tiffany 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. The main competition for this center is a mall and a Wal-Mart center, both of which are located more than a mile from Tiffany Plaza. Occupancy for the fiscal years ended September 30, 1993 through 1997 was as follows: 92% in 1993; 97% in 1994; 95% in 1995; 98% in 1996; and 96% in 1997. The average rental rate, including percentage rent, per occupied square foot during the same period was: $4.05 in 1993; $3.59 in 1994; $3.66 in 1995; $3.93 in 1996; and $3.98 in 1997. Tiffany plaza has three tenants who occupy more than 10% of the Property. The first is Flemming Companies who operate a Buy-For-Less grocery store. The annual rent is $87,000. The lease also calls for 5 7 tax, insurance and maintenance escalations and has a percentage rent clause. There was no percentage rent due for 1997. The lease expires March 20, 2001. The second tenant is Orscheln Farm and Home Supply, Inc., who sell farm equipment and supplies. The annual rent is $102,000. The lease also calls for tax, insurance and maintenance escalations. The lease expires August 31, 2001. The third tenant is CR Anthony Company, a family clothing store. The annual rent is $69,000. The lease also calls for tax, insurance and maintenance escalations and has a percentage rent clause. There was $3,120 of percentage rent paid in 1997. The lease expires March 7, 2001. Based upon leases in place at September 30, 1997 lease expirations for the ten fiscal years ended September 30, 2007 are as follows:
NUMBER TOTAL PERCENT OF GROSS OF LEASES SQ. FT. ANNUAL BASE ANNUAL BASE YEAR EXPIRING EXPIRING RENTS EXPIRING RENTS AT 9/30/97 ---------------------------------------- --------- -------- -------------- ------------------ 1998.................................... 4 8,108 $ 37,140 7% 1999.................................... 5 13,972 69,852 13 2000.................................... 2 9,192 48,588 9 2001.................................... 4 100,551 291,705 56 2002.................................... 2 4,000 61,236 12 2003.................................... NONE 2004.................................... 1 5,108 14,928 3 2005 -- 2007............................ 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 $2,506,000 at September 30, 1997. The 1996 real estate taxes were $32,242 based on a millage rate of $8.28 per $1000 of assessed value. The 1997 real estate taxes are not yet known. GEOGRAPHIC DISTRIBUTION The table below demonstrates the geographic distribution of the Trust's properties and the percentages based on the properties owned by the Trust at September 30, 1997:
PERCENTAGE OF NUMBER OF PERCENTAGE OF ASSETS BASED INVESTMENTS RENTAL INCOME ON COST ----------- ------------- ------------- Oklahoma: Tulsa................................... 1 34% 34% Ardmore................................. 1 21 20 Iowa: Davenport............................... 1 -- 4 Texas: Austin.................................. 1 45 41 Ohio: Akron................................... 1 -- 1 --- ---- ---- 5 100% 100% === ==== ====
ITEM 3. LEGAL PROCEEDINGS The Trust is involved in a number of legal proceedings arising in the normal course of its business activities, none of which, in the opinion of the Management, is expected to have a material adverse effect on the financial position or liquidity of the Trust. 6 8 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. 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 Nasdaq National Market (symbol CTRIS). The table below contains the quarterly high and low closing bid prices for such Shares.
FISCAL 1997 - -------------------------------------------------- QUARTER ENDED HIGH LOW - ----------------------------- ------ ------ December 31, 1996............ 5-1/2 4-5/8 March 31, 1997............... 6-3/16 5-1/8 June 30, 1997................ 6-1/2 2-3/4 September 30, 1997........... 3-7/8 1-1/8
FISCAL 1996 - -------------------------------------------------- QUARTER ENDED HIGH LOW - ----------------------------- ------ ------ December 31, 1995............ 5-1/8 3-7/8 March 31, 1996............... 5-1/8 4-7/8 June 30, 1996................ 5 4-1/2 September 30, 1996........... 5- 4-1/4
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 2, 1997, there were approximately 1,125 record holders of the Shares. DISTRIBUTIONS TO SHAREHOLDERS
FISCAL 1997 AMOUNT PAYMENT DATE PER SHARE - ---------------------------------- ------------ May 16, 1997...................... $ 2.50 June 19, 1997..................... 1.10 August 19, 1997................... 2.10 ----- $ 5.70 -----
FISCAL 1997 AMOUNT PAYMENT DATE PER SHARE - ---------------------------------- ----- October 20, 1995.................. $ .04 January 19, 1996.................. .04 April 19, 1996.................... .04 July 19, 1996..................... .04 September 20, 1996................ .04 ----- $ .20 -----
For a discussion of the tax classification of cash distributions see Management's Discussion and Analysis of Financial Condition and Results of Operations -- Distributions. 7 9 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED SEPTEMBER 30, 1997 1996 1995 1994 1993 - ------------------------------------------------- ------- ------- ------- ------- ------- (in thousands, except per share data) OPERATIONS: Rental income.................................. $ 7,485 $10,368 $10,145 $ 9,650 $ 9,348 Interest income................................ 225 40 56 76 263 Dividend income................................ 0 225 0 0 0 Other income................................ 294 12 26 29 41 ------- ------- ------- ------- ------- Operating revenues............................... 8,004 10,645 10,227 9,755 9,652 Provision for valuation reserve.................. (1,348) 3,307 0 0 0 Operating expenses other than provision for valuation reserve.............................. 9,772 9,398 9,631 9,870 10,384 Income (loss) before gains and taxes............. (420) (2,060) 596 (115) (732) Gains on sales of real estate.................... 16,922 40 2,499 445 563 Gains on sales of securities..................... 0 632 0 0 0 Federal and state income taxes................... 2,714 0 0 0 0 Extraordinary items.............................. 0 0 790 253 286 Net income (loss)................................ 13,788 (1,388) 3,885 583 117 Cash distributions to shareholders............... 29,279 1,037 874 735 393 Per Share of Beneficial Interest: Income (loss) before gains and taxes........... $ (0.08) $ (0.40) $ 0.11 $ (0.02) $ (0.22) Gains on sales of real estate.................. 3.29 0.01 0.46 0.09 0.17 Gains on sales of securities................... 0.00 0.12 0.00 0.00 0.00 Federal and state income taxes................. (0.53) 0.00 0.00 0.00 0.00 Extraordinary items............................ 0.00 0.00 0.14 0.05 0.09 ------- ------- ------- ------- ------- Net income (loss)........................... $ 2.68 $ (0.27) $ 0.71 $ 0.12 $ 0.04 ======= ======= ======= ======= ======= Cash distributions............................. $ 5.70 $ 0.20 $ 0.16 $ 0.15 $ 0.12 Weighted average number of Shares of Beneficial Interest outstanding........................... 5,138 5,186 5,459 4,959 3,292
AT SEPTEMBER 30, 1997 1996 1995 1994 1993 - ------------------------------------------------- ------- ------- ------- ------- ------- (in thousands) FINANCIAL CONDITION: Properties held for sale......................... $12,918 $42,203 $ 203 $ 0 $ 0 Valuation reserve................................ (260) (3,307) 0 0 0 Investments in real estate....................... 0 0 40,739 45,380 49,394 Real estate mortgage loans....................... 0 119 303 236 150 Allowance for possible investment losses......... 0 0 0 0 (6,089) Investments in securities........................ 0 0 267 0 0 Cash and cash equivalents........................ 4,612 1,490 188 251 315 Certificates of deposit.......................... 0 0 0 500 500 Insurance settlement proceeds.................... 0 0 0 3,341 0 Total assets..................................... 17,638 43,852 43,076 51,004 45,499 Mortgage notes payable........................... 5,561 9,563 9,266 11,111 17,126 Bank notes payable............................... 0 9,800 6,600 11,180 8,800 Shareholders' equity............................. 6,808 22,500 25,126 23,150 17,669 Number of Shares of Beneficial Interest outstanding at September 30.................... 5,137 5,179 5,217 5,471 3,716
8 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION Effective April 29, 1997 the shareholders of the Trust approved the Plan for the Orderly Liquidation of the Trust. On September 24, 1996 the Board of Trustees of the Trust had announced that they unanimously voted to recommend the Plan to a vote of the shareholders. The Plan calls for the sale of the Trust's properties during a period of approximately three years. Based on the Trustees' action the Trust reclassified all of its properties to properties held for sale at September 30, 1996, in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of " ("SFAS No. 121"). The Trust reviewed the carrying value of all the properties at September 30, 1996 and determined that four of the Trust's properties had a carrying value higher than the estimated fair value, less cost to sell. The Trust, therefore, established a valuation reserve for these four properties which totaled $3,307,000. During the year ended September 30, 1997, based on the sale prices offered and/or received for the properties, the Trust reversed $1,348,000 of the valuation reserve established at September 30, 1996. At September 30, 1997 the Trust determined that two properties had a carrying value higher than the estimated fair value, less cost to sell. Therefore, the valuation reserve was set at $260,000. During the three-year period ended September 30, 1997 the Trust's total assets decreased 65% to $17,638,000. During this three-year period the carrying value of the Trust's invested assets decreased 72% or $32,958,000 to $12,658,000. During fiscal 1997 the Trust sold eleven properties which resulted in gains totaling $16,922,000. (See PART I, Item 1 of this Form 10-K for details of the individual sales.) In fiscal 1996 the Trust purchased the land on which its Englewood Bank Building, located in Englewood, Colorado, was located. This land, which was previously leased by the Trust, was purchased for a price of $1,263,000. Also, the Trust purchased the 52,554 square foot Brookside Office Building located in Arlington, Texas, for a purchase price of $2,202,000. Additionally, during 1996 the Trust sold three improved properties. The first was the sale during January and February of three condominium units located in Davie, Florida, for a combined sales price of $138,000 which resulted in a gain of $69,000. The second was the $600,000 sale of European Crossroads in Dallas, Texas, which resulted in a loss of $313,000. The third was a $615,000 sale of two of the five buildings comprising the Walnut Stemmons Office Park located in Dallas, Texas, which resulted in a gain of $261,000. 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. The result of the two purchases during this three-year period was an increase of approximately $3,465,000 to the carrying value of the Trust's portfolio of invested assets. The result of all the sales during this three year period was a decrease of approximately $34,377,000 to the carrying value of the Trust's portfolio of invested assets. Additionally, the recording of $3,676,000 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 $2,338,000 and received payments totaling $448,000 on real estate mortgage loans. During the three-year period ended September 30, 1997 the Trust's mortgage notes payable decreased 50% or $5,550,000 to $5,561,000. This resulted from additional borrowings of $500,000 under one of the then existing mortgage loans, amortization payments of $745,000, and repayments and paydowns $5,305,000. Of this $5,305,000, the actual cash outlay by the Trust was $5,253,000 with $52,000 representing discounts obtained by the Trust. The Trust's bank notes payable decreased $11,180,000 during the three-year period ended September 30, 1997, as the Trust repaid in full the 1994 Credit Agreement. Effective February 6, 1997 the Trust terminated the 1994 Credit Agreement. The repayment in full and the termination of the 1994 Credit Agreement were done in connection with the Plan. During the three-year period ended September 30, 1997 the Trust's shareholders' equity decreased 71% or $16,342,000 to $6,808,000. This decrease was primarily the result of the Trust spending $1,437,000 to repurchase 42,000 of the Trust's Shares in fiscal 1997, 38,000 of the Trust's Shares in fiscal 1996, and 253,553 of the Trust's Shares in fiscal 1995, and recording $16,285,000 of net income and $31,190,000 of distributions 9 11 to shareholders during this three-year period. As a result of the Trust's total debt being reduced approximately $16,730,000 and total shareholders' equity decreasing $16,342,000, the Trust's debt to shareholders' equity ratio has decreased to .82-to-1.00 at September 30, 1997 from .96-to-1.00 at September 30, 1994. LIQUIDITY AND CAPITAL RESOURCES The Plan calls for the Trust to sell all of its assets, relieve all liabilities, and distribute the remaining funds to the shareholders. In accordance with the Plan the Trust successfully completed the sale of eleven of its improved properties during the year ended September 30, 1997 (see PART I, Item 1 of this Form 10-K for details on individual sales) and a vacant land parcel. On December 8, 1997 the Trust completed a $3,150,000 sale of the Petroleum Club Building which resulted in an estimated gain of approximately $330,000 which will be reported in the first quarter of fiscal year 1998. Additionally, the Trust had executed contracts of sale on the remaining three improved properties. A vacant restaurant located in Davenport, Iowa is under contract of sale for $642,500. The Cannon West Shopping Center located in Austin, Texas is under contract of sale for $7,400,000. Tiffany Plaza located in Ardmore, Oklahoma was under contract of sale for $3,500,000; however, the buyer canceled the contract effective December 1, 1997. All of these contracts provide for due diligence periods, during which time the buyer could cancel the contract at his option, as was done with Tiffany Plaza. Additionally, after the completion of the due diligence period the buyer will either place a non-refundable deposit with the Trust or cancel the contract. Thereafter, should the buyer fail to complete the sale, these deposits would be forfeited and retained by the Trust. Therefore, there is no guarantee that these properties will actually be sold at the prices stated. As a result of the sales during fiscal 1997, the Trust reduced its liabilities by $10,522,000 and distributed $29,279,000 ($5.70 per share) to the shareholders. The Trust estimates that it should distribute between $6.50 and $7.00 per share when the liquidation has been completed. Management has from time to time undertaken a major renovation of a Property in order to keep it competitive within its market. Currently, no renovation projects are contemplated or in process. The Trust's cash flow from operations increased $766,000 (76%) when comparing 1997 to 1996. The increase was primarily due to the net activity of the following items: - In 1997 the Trust had a loss before gains and taxes of $420,000 for 1997 compared to a loss before gains and taxes of $2,060,000 for 1996. There was no depreciation in 1997 while $1,830,000 was recorded in 1996. 1997 included $4,064,000 of expenses related to compensation for officers in connection with the liquidation, while there were no such expenses in 1996. Also, 1997 included the reversal of $1,348,000 of valuation reserve, while 1996 included the recording of a valuation reserve of $3,307,000. - Accrued expenses and other liabilities increased $1,209,000 in 1997 compared to 1996 primarily as a result of the accrual of compensation due officers in connection with the liquidation. - Accrued federal and state income taxes increased $2,085,000 in 1997 compared to 1996 primarily as a result of the substantial gains realized from the sales of real estate. The Trust previously had operating loss and capital loss carryforwards to offset taxable income, however; because of the liquidation the loss carryforwards were totally utilized and the Trust recorded both federal and state income tax liability. - Other assets decreased $2,979,000 from 1996 to 1997. Of this amount $1,918,000 represents the amount due the Trust on its sale of securities, which amount was received by the Trust on October 1, 1996. The balance of the reduction is primarily related to the reduction in prepaid expenses at September 30, 1996 at properties that were sold during 1997. For 1997 the net cash from investing activities was $44,627,000. As previously discussed, the Trust sold eleven improved properties and a small land parcel for total proceeds of $45,208,000. Additionally, the Trust expended $700,000 for improvements to existing properties. For 1996 the net cash used in investing activities was $1,995,000. As previously discussed, the Trust purchased land and a suburban office building for a total of $3,465,000. The Trust also purchased securities for 10 12 $2,057,000. Additionally, the Trust expended $972,000 for improvements to existing properties. Cash inflows included proceeds from the sale of three condominiums, two small office buildings and a retail center totaling $1,386,000, $2,929,000 from the sale of securities and $184,000 in real estate mortgage loan repayments. In 1997 net cash used in financing activities totaled $43,282,000. The Trust repaid $3,790,000 of first mortgage loans on properties sold and made amortization payments on first mortgages of $212,000. Additionally, the Trust repaid in full the 1994 Credit in the amount of $9,800,000. Also, the Trust made distributions to shareholders of $29,279,000 ($5.70 per share) and repurchased 42,000 of its shares for $201,000. In 1996 net cash from financing activities totaled $2,286,000. Mortgage notes payable amortization payments were $203,000 and the Trust borrowed an additional $500,000 on one of its existing mortgage loans. Additionally, the Trust borrowed $3,200,000 which was used in the purchase of property. Finally, in 1996 the Trust made five distributions of $.04 per share to shareholders of the Trust for a total of $1,037,000. At September 30, 1997 the Trust's last remaining debt obligation is the $5,561,000 first mortgage loan on the Cannon West Shopping Center. This loan is scheduled to mature May 7, 2002. However, it is currently anticipated that the loan will be paid in full at the time of the sale of the Cannon West Shopping Center, which is currently under a contract of sale for $7,400,000, although as stated previously, there can be no guarantees that the sale will actually close. RESULTS OF OPERATIONS Fiscal Year Comparison Income from real estate operations in 1997 increased $494,000 (14%) and $918,000 (30%) as compared to 1996 and 1995, respectively. The increases were primarily the net result of lower rental income in 1997 compared to both 1996 and 1995, lower real estate operating expenses in 1997 compared to both 1996 and 1995, and the fact that in 1997 there was no depreciation expense recorded while depreciation expense was recorded for both 1996 and 1995. Rental income was $2,883,000 (28%) lower in 1997 than 1996, and $2,660,000 (26%) lower in 1997 than 1995. Real estate operating expenses were $1,547,000 (31%) lower in 1997 than 1996, and $1,732,000 (33%) lower in 1997 than 1995. Depreciation expense in 1996 was $1,830,000 and $1,846,000 in 1995. The reasons for these variances in rental income, real estate operating expenses and depreciation expense are described below. 1997 -- 1996 Income from real estate operations increased $494,000 (14%) from 1996 to 1997. Rental income decreased $2,883,000 (28%) from 1996 to 1997. Real estate operating expenses were $1,547,000 (31%) lower in 1997 than 1996. The decrease in rental income and the decrease in real estate operating expense both were primarily due to the sale of properties throughout 1997, as described previously. The Trust recorded no depreciation in 1997 because all properties were reclassified to properties held for sale at September 30, 1996. Interest expense was $807,000 (45%) lower in 1997 compared to 1996, as a result of the repayment of two first mortgage loans on properties sold and the $9,800,000 1994 Credit Agreement, which was terminated February 6, 1997. General and administrative expenses were $4,558,000 (621%) higher in 1997 than 1996, primarily as a result of the Trust recording $198,000 of expenses related to the Plan, and $4,064,000 of accrued compensation for the officers of the Trust (See NOTE G to the Notes to Financial Statements included in this Form 10-K). In 1997 the Trust reversed $1,348,000 of the valuation reserve of $3,307,00 provided in 1996. In 1997 the Trust recorded gains on the sales of real estate totaling $16,922,000 as a result of the sale of eleven properties. (See PART I, Item 1 of this Form 10-K for details of the individual sales.) In 1996 the Trust reported net gains on the sales of real estate totaling $40,000 on the sale of four properties. These sales are described in detail under the 1996 -- 1995 analysis below. 11 13 In 1996 the Trust recorded gains on the sales of securities of $632,000. There were no gains on the sales of securities for 1997. For 1997 the Trust recorder $2,714,000 of federal and state income tax expense. There was no federal or state income tax expense for 1996. 1996 -- 1995 Income from real estate operations increased $424,000 (14%) from 1995 to 1996. Rental income increased $223,000 (2%) from 1995 to 1996. Real estate operating expenses were $185,000 lower in 1996 than 1995. The increase in rental income was primarily due to an increase in occupancy (91% at September 30, 1996 versus 81.5% at September 30, 1995) and an increase in average rental rates ($9.14 per occupied square foot at September 30, 1996 versus $8.61 per occupied square foot at September 30, 1995). The decrease in real estate operating expenses was primarily due to the sales during 1995 of the 124 unit Parkwood Place Apartments located in Greeley, Colorado and the 51,000 square foot Walnut Hill West office building located in Dallas, Texas, as well as the March, 1996 sale of the European Crossroads, an office/retail complex located in Dallas, Texas. During 1996 the Trust received $225,000 of dividend income on securities owned. There was no dividend income reported in 1995. At September 30, 1996, in accordance with the Plan, the Trust made a provision for valuation reserve of $3,307,000. There was no provision made in 1995. In 1996 the Trust recorded net gains on the sales of real estate totaling $40,000 as the result of four sales. The sales were as follows: (i) In January and February, 1996 the sale of three condominium units located in Davie, Florida for a combined sale of $138,000, resulting in a total gain of $69,000; (ii) March, 1996 $600,000 sale of the European Crossroads located in Dallas, Texas, which resulted in a loss of $313,000; (iii) April, 1996 $115,000 sale of 7.42 acres of vacant land located in Akron, Ohio, which resulted in a gain of $23,000; and (iv) September, 1996 $615,000 sale of two of the five buildings of the Walnut Stemmons Office Park located in Dallas, Texas, which resulted in a gain of $261,000. In 1995 the Trust reported gains on the sales of real estate totaling $2,499,000 on the sales of four properties. In 1996 the Trust recorded gains on the sales of securities of $632,000. There were no gains on the sales of securities for 1995. For 1996 there were no extraordinary items. 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 recorded this $738,000 as an extraordinary income item in fiscal 1995. DISTRIBUTIONS For 1995 the Trust paid distributions to its shareholders of $874,000 or $.16 per share. For the shareholders these distributions were classified for tax purposes as dividends. For 1996 the Trust paid distributions to its shareholders of $1,037,000 or $.20 per share. For the shareholders the $.04 per share paid in October, 1995 was classified for tax purposes as dividends. The $.04 ($.16 total) per share paid in January, April, July, and September, 1996 was classified for tax purposes as return of capital. For 1997 the Trust paid liquidating distributions to its shareholders of $29,279,000 or $5.70 per share. For the shareholders the $5.70 per share paid will be considered return of capital up to the shareholder's individual basis in the Trust's shares and then capital gains thereafter. INCOME TAXES For the year ended September 30, 1997 the Trust recorded Federal income taxes of $2,400,000 ($2,531,000 of current taxes, net of a deferred tax asset of $131,000) and state income taxes of $314,000. In determining the federal income taxes the Trust utilized the total $10.2 million of net operating and capital loss 12 14 carryforwards. There were no federal or state income taxes recorded for either the year ended September 30, 1996 or 1995. At September 30, 1996 the Trust had net deferred tax assets of approximately $3,048,000. As was the case at September 30, 1995 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, 1997. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 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 K of the Notes to Financial Statements. 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. 13 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. TRUSTEES OF THE REGISTRANT Based upon information received from the respective Trustees as of November 15, 1997, the following information with respect to each person is furnished:
POSITION(S) WITH THE TRUST, PRINCIPAL OCCUPATION, NAME (AGE) OF TRUSTEE BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS - ----------------------------------- -------------------------------------------------------- Howard Amster (50)(a)............................ Trustee of the Trust since December, 1992; Investment Consultant with Everen Securities, Inc. (securities, investments), Director of Astrex, Inc. (distributor of electronic components). Robert H. Kanner (50)(b)............................ Trustee of the Trust since December, 1992; President, Chairman and a Director of Pubco Corporation (computer printer supplies, manufacturing, and specialty construction products). Until June 27, 1996, President, Chairman and a Director of Bobbie Brooks, Incorporated and Chairman and a Director of Aspen Imaging International, Inc., which companies were merged into Pubco Corporation on that date. Director of Riser Foods, Inc. (food distribution). John C. Kikol (53)............................... Trustee of the Trust since 1982; President of the Trust since 1974; Chairman of the Trust since February, 1995. Leighton A. Rosenthal (82)(c)............................ Trustee of the Trust since October, 1991; President LARS Aviation, Inc. (private aircraft charters), Cleveland, Ohio. John C. Weil (57)(d)............................ Trustee of the Trust since June, 1991; President Clayton Management Co. (bookkeeping and investment management services), St. Louis, Missouri. Director of Cliffs Drilling (oil service), Oglebay Norton Company (lake shipping, mining and manufacturing), Physicians Insurance Company of Ohio (medical malpractice insurance) and Todd Shipyards, Inc. (ship building and repair company).
- --------------- (a) Chairman of the Audit Committee (b) Chairman of the Investment Committee (c) Chairman of the Nominating Committee (d) Chairman of Compensation Committee Each Trustee is a member of all of the Committees of the Trust, except that Mr. Kikol does not serve on the Compensation Committee. Except as otherwise indicated in the above table, each Trustee has had the principal occupation or former occupation indicated for more than five years. 14 16 EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION(S) WITH THE TRUST, PRINCIPAL OCCUPATION, NAME (AGE) BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS - ----------------------------------- -------------------------------------------------------- John C. Kikol (53)................. Chairman; Chairman of the Board of Trustees since 1995; Trustee of the Trust since 1982; President of the Trust since 1974; Secretary since 1997 Michael R. Thoms (49).............. Vice President and Treasurer of the Trust since 1987 Brian D. Griesinger (36)........... Vice President -- Management of the Trust since 1989
ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the compensation awarded to, earned by or paid to the four executive officers of the Trust at September 30, 1997 whose total salary and bonus exceeded $100,000 for the year ended September 30, 1997.
LONG-TERM COMPENSATION FISCAL PAYMENTS ------------ NAME AND PRINCIPAL YEAR BASE BONUSES IN LIEU OF INCENTIVE OPTIONS ALL OTHER POSITION ENDED SALARY (1) OPTIONS (2) BONUS (3) GRANTED (4) COMPENSATION - --------------------------- -------- -------- ------- ----------- --------- ------------ ------------ John C. Kikol.............. 9/30/97 $170,250 $64,990 $ 384,250 $ 413,470 -- $ 9,516 Chairman, President 9/30/96 135,000 47,000 -- -- -- 15,151 & Chief Executive Officer 9/30/95 135,000 47,000 -- -- 3,000 13,197 Michael R. Thoms........... 9/30/97 88,000 27,050 124,660 -- -- 7,119 Vice President, Treasurer 9/30/96 76,000 16,000 -- -- -- 6,517 & Chief Financial Officer 9/30/95 76,000 16,000 -- -- 1,000 6,330 Brian D. Griesinger........ 9/30/97 92,750 28,420 123,270 103,370 -- 7,119 Vice President -- 9/30/96 80,000 17,000 -- -- -- 7,024 Management 9/30/95 78,750 20,000 -- -- 1,000 6,628 Raymond C. Novinc (6)...... 9/30/97 96,080 23,340 124,660 -- -- 7,119 Vice President, Secretary, 9/30/96 80,000 12,000 -- -- -- 6,456 and Counsel 9/30/95 80,000 10,000 -- -- 1,000 6,271
- --------------- (1) As a result of the adoption of the Plan, the supplemental pension plan for the four officers listed, was terminated. The 1996 & 1997 contributions were distributed directly to the officers as a bonus in the year ended September 30, 1997 as follows: Mr. Kikol -- $17,990; Mr. Thoms -- $11,050; Mr. Griesinger -- $11,420; and Mr. Novinc -- $11,340. (2) Under the employment agreements, each of the four officers listed waived all rights to unexercised stock options. In lieu of the options the officers will receive payments based upon liquidating distributions to the Trust's shareholders, including a gross up amount (See Employment Agreements -- Salary, Bonus and Other Compensation for further details of these payments). The amounts shown represents the payments made during 1997. (3) Mr. Kikol's Employment Agreement provides for participation in an incentive compensation program for officers of the Trust (See Employment Agreement -- Incentive Compensation Program, for details of these payments). The amounts shown represent payments made in 1997 under this program. (4) All four officers waived all rights with respect to options granted under the Trust's 1992 Stock Option Plan in their Amended and Restated Employment Agreements, effective September 1, 1996, between the Trust and the individual officer. See Employment Agreements. 15 17 (5) For fiscal 1997, for Mr. Kikol the amount represents the premium paid ($2,400) by the Trust for a "key man" insurance policy for the benefit of the Chief Executive Officer and his designated heirs and pension plan contributions ($7,119). For the other three officers the amount shown represents only pension plan contributions. (6) Effective October 31, 1997 Mr. Novinc's employment by the Trust ended. Mr. Novinc and the Trust entered into a consulting agreement. Under the consulting agreement Mr. Novinc will supply legal services in connection with the sale of the remaining properties of the Trust upon the request of Mr. Kikol. EMPLOYMENT AGREEMENTS In connection with the adoption of the Plan by the Trustees, the Compensation Committee of the Board of Trustees approved the Amended and Restated Employment Agreements, effective as of September 1, 1996, between the Trust and the four executive officers of the Trust, Mr. Kikol, Chairman and President, Mr. Thoms, Vice President and Treasurer, Mr. Griesinger, Vice President -- Management, and Mr. Novinc, Vice President, Secretary and Counsel. Mr. Kikol's Agreement was subject to shareholder approval, which such approval was granted by the shareholders effective April 29, 1997. Purpose. The Trust entered into the Employment Agreements in order to induce the officers to remain in their positions throughout the liquidation process in order to provide continuity and to maximize the liquidating distributions to the shareholders. In Mr. Kikol's case the agreement provides incentives by tying his compensation to the aggregate amount of distributions to shareholders. Salary, Bonus and Other Compensation. The Employment Agreements provide that commencing January 1, 1997 the Trust will pay base salaries to the officers as follows: Mr. Kikol -- $182,000 per year in semi-monthly installments; Mr. Thoms -- $92,000 per year in semi-monthly installments; Mr. Griesinger -- $97,000 per year in semi-monthly installments; and Mr. Novinc -- $92,000 in semi-monthly installments. Under the Employment Agreements, the officers waived all rights to unexercised stock options to purchase Shares of Beneficial Interest of the Trust granted to them under the Trust's 1992 Incentive Stock Option Plan. In lieu of such options, the Trust will pay to the officers amounts based upon the liquidating distributions to the Trust's shareholders from time to time (the "Payments'), including a gross up amount (the "Gross Up Amount") that, when added to the Payments, will allow the officers to retain a net amount after payment of all federal, state and local income taxes equal to the net amount of the Payments. The Payments and Gross Up Amount are paid to the officers at the same time as liquidating distributions are made to shareholders. The Payments are designed to compensate the officers in amounts similar to the liquidating distributions that they would receive if they exercised the options prior to such distributions. The Payments are net of the exercise price of the respective options, and the Gross Up Amount is paid in recognition of the fact that the officers would have been able to apply capital loss carryforwards to any capital gains they would have recognized on the sale of Shares of Beneficial Interest acquired through exercise of the incentive stock options. The Trust believes that it will not be economically disadvantaged by payment of the Gross Up Amount because the Trust expects to be able to deduct for federal income tax purposes the full amount of Payments and the Gross Up Amount, whereas it would not be entitled to any deduction upon exercise of incentive stock options. INCENTIVE COMPENSATION PROGRAM Mr. Kikol's Employment Agreement also provides for participation in an incentive compensation program for officers of the Trust (the "Incentive Compensation Program"). Under the Incentive Compensation Program, an incentive compensation pool is created for distribution to certain key employees. The amount to be allocated to the pool is calculated based on amounts otherwise available to be paid by the Trust as liquidating distributions to its shareholders. The amount allocated to the pool will be the sum of: (a) 10% of all amounts otherwise available for distribution between $4.75 and $5.50 per share; and (b) 15% of all amounts otherwise available for distribution in excess of $5.50 per Share. For purposes of computing the amount payable to the pool, liquidating distributions when made are reduced to their present value as of 16 18 January 1, 1997 using a discount rate of 10%. The amounts will be allocable to the pool and available for distribution to the key employees at the same time, and from time to time , as liquidating distributions are made to shareholders. Mr. Kikol is entitled to receive not less than 80% of amounts distributed from the pool. If the Trust continues to hold properties at the end of the Liquidation Period, the value of such properties will be considered a deemed distribution to shareholders as of the end of the Liquidation Period in order to complete the determination of all present valued liquidating distributions made during the liquidation process. The Trust will then have the option of (i) allocating to the pool an amount based on the deemed distribution of unsold properties (reduced to a present value number and based on the 10%/15% formula described above) or (ii) making an in kind allocation to the pool of an ownership interest in the remaining unsold properties equal in value to the amount described in (i). If Mr. Kikol is terminated by the Trust (a) during 1998 and he has failed to sell at least three Trust properties before the end of calendar year 1997 or (b) during 1999 or thereafter and he has failed to sell at least three Trust properties during calendar year 1998, Mr. Kikol is entitled to an immediate cash payment of $250,000 in lieu of any participation in the pool. If Mr. Kikol's employment is terminated during 1997 or during the periods indicated above and he has not failed to sell the required number of Trust properties as described above, Mr. Kikol will be entitled to payments from the pool when pool distributions are made, as if his employment had not been terminated. It should be noted that the property sale requirements listed have all been met. If Mr. Kikol's employment is terminated because of his death or disability he or his personal representative, as the case may be, will be entitled to receive distributions from the pool to the extent that prior pool distributions have not taken into account such present valued liquidating distributions. If Mr. Kikol is terminated for misappropriation of Trust funds or property in the amount of $25,000 or more, or if he voluntarily terminates his employment with the Trust other than because of a material change in his duties, he forfeits any right to payment from the pool. Certain Benefits. The Employment Agreements provide for the continuation of certain plan benefits currently provided to the officers, including health and accident insurance, retirement, group life insurance and similar plan benefits. The officers are also entitled to payment or reimbursement of business expenses. Mr. Kikol is also entitled to the use of an automobile, the payment of club dues and the payment of premiums on an insurance policy on his life. Termination of Agreements. The Employment Agreements may be terminated by either the Trust or the officers at any time and for any reason without prior notice to the other. If terminated (i) by the Trust (except on the grounds of the officers' misappropriation of Trust funds or property) or (ii) by the death or disability of the officer or (iii) by the officer because of a material change in his duties, the Employment Agreement provides for a severance payment to the officers as follows: Mr. Kikol -- $546,000; Mr. Thoms -- $184,000; Mr. Griesinger -- $136,406 plus $1,010 per month for each month of employment starting October 1, 1997 until his termination up to a maximum payment of $194,000; and Mr. Novinc -- $184,000. Such severance payments will be paid only if the officer delivers to the Trust prior to such payment, a release of all claims against the Trust. The Employment Agreement automatically terminates upon the death or disability of the officer. This severance payment is in addition to any payment to which the officers may be entitled under the Incentive Compensation Program described previously. On October 24, 1997 the Trustees prepaid the severance payments to each of these four officers, after obtaining the required releases. By prepaying the severance, the payments will be shown as an expense on the Trust's 1997 tax return thus reducing the 1997 federal income tax obligations, which the Trustees deemed was in the best interest of all the shareholders. Payment of Legal Fees. The Employment Agreements provide for the payment of the officers' legal fees and expenses under certain circumstances, including the failure of the Trust to comply with its obligations under the Employment Agreements or in the event the Trust or any other person takes action to declare the Employment Agreements void and unenforceable or institutes litigation to deny or recover form the officers the benefits intended to be provided under the Employment Agreements. Excise Tax Gross Up Payment. If amounts payable to Mr. Kikol under his Employment Agreement become subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, he is entitled to a 17 19 gross up payment such that, after the payment of the excise tax and any federal, state or local income taxes on such gross up payment, he retains a net amount equal to the amount he would if retained from payments under the Employment Agreement had the excise tax not been applicable. Management Agreement. Mr. Kikol's Employment Agreement provides that, if so requested by the Trust by means of 90 days advance written notice, Mr. Kikol will manage the remaining unsold properties of the Trust, if any, upon completion of the liquidation process, for an annual management fee equal to five percent of the "gross property income" of such properties (i.e. gross rental receipts without reduction for customary on-site expenses or reasonable travel expenses related to such property) pursuant to a separate management agreement. Mr. Kikol's duties under such an agreement would be, among others, to attend to routine operational obligations associated with property management, administrative matters, investor relations and public company duties. All salary and benefits payable to Mr. Kikol under the Employment Agreement (other than those which become payable prior to its termination) will cease at the commencement of the term of the management agreement. Either party may terminate such management services upon 90 days advance written notice to the other. The Trust compensated all Trustees (other than Mr. Kikol, who does not receive fees for services as a Trustee) at a rate of $8,000 per annum which was paid in quarterly installments of $2,000, said sum being in lieu of all meeting and other fees. Effective October 1, 1997 the Trustees agreed to waive the $8,000 annual fee. However, all Trustees will continue to be reimbursed for actual expenses incurred in connection with meetings attended or extended services provided. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of November 15, 1997, information furnished to the Trust with respect to the beneficial ownership of the Trust's Shares of Beneficial Interest by each shareholder or group of shareholders known to the Trust to be the beneficial owner of more than five (5%) percent of the Trust's outstanding Shares of Beneficial Interest, each present Trustee, each executive officer of the Trust, and all present Trustees and executive officers of the Trust as a group. 18 20
BENEFICIAL OWNER, TRUSTEE, OFFICER NUMBER OF SHARES PERCENT OR NUMBER OF PERSONS IN GROUP BENEFICIALLY OWNED(A) OF CLASS - ------------------------------------------------------------------ ---------------------- -------- Howard Amster (Beneficial owner and Trustee)(b)................... 788,868 15.4% 23811 Chagrin Blvd., Chagrin Plaza East Suite 200 Beachwood, Ohio 44122 Robert H. Kanner (Beneficial owner and Trustee)(c)................ 1,300,000 25.3 3830 Kelley Avenue Cleveland, Ohio 44114 John C. Kikol (Trustee and officer)(d)............................ 70,479 1.4 2001 Crocker Road, Suite 400 Westlake, Ohio 44145 Leighton A. Rosenthal (Beneficial owner and Trustee).............. 393,000 7.7 The Halle Building, Suite 310 1228 Euclid Avenue Cleveland, Ohio 44115 John D. Weil (Beneficial owner and Trustee)(e).................... 745,000 14.5 200 North Broadway, Suite 825 St. Louis, Missouri 63102-2573 Brian D. Griesinger (Officer)..................................... 7,000 * 2001 Crocker Road, Suite 400 Westlake, Ohio 44145 Michael R. Thoms (Officer)(d)..................................... 28,055 * 2001 Crocker Road, Suite 400 Westlake, Ohio 44145 7 present Trustees and officers listed above...................... 3,317,468 64.6
- --------------- * Less than one percent. (a) Except as noted, in each case the beneficial owner has sole voting and sole investment power. (b) Includes 400 Shares of Beneficial Interest held by Tamra F. Gould (Mr. Amster's wife) in which Mr. Amster disclaims any beneficial interest. Excludes 27,600 Shares of Beneficial Inter held by Sonia Amster (Mr. Amster's mother) in which Mr. Amster disclaims any beneficial interest. (c) The shares shown as being held by Robert H. Kanner are owned by a trust of which Mr. Kanner is the sole beneficiary. Mr. Kanner is not a trustee of such trust and has neither investment not voting power in such shares. Trustees of such trust are Stephen R. Kalette and Eleonora Grmek who have an address of 3830 Kelly Avenue, Cleveland, Ohio 44114. Excludes 5,000 Shares of Beneficial Interest held by Buckeye Business Products Bargaining Unit Pension Trust of which Mr. Kanner is a trustee but not a participant. (d) Includes 14,934 Shares of Beneficial Interest held in a trust in which Messrs. Kikol and Thoms are Trustees with all voting and investment power and have an interest as beneficiaries (with respect to a portion of the trust's assets). The Shares of Beneficial Interest held by all Trustees and officers as a group in the table have been adjusted to eliminate the duplication of beneficial ownership. (e) Includes 25,000 Shares of Beneficial Interest held in the name of a family trust of which Mr. Weil is the trustee. Also includes 100,000 Shares of Beneficial Interest held in the name of Richard K. Weil (the father of Mr. Weil), 25,000 Shares of Beneficial Interest held in the name of Victoria L. Weil (the daughter of Mr. Weil) and 225,000 Shares of Beneficial Interest in the aggregate held by Richard K. Weil Jr., Mark S. Weil and Paula K. Weil (siblings of Mr. Weil), the beneficial ownership of which he disclaims. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 19 21 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 contained in 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 contained in this Report. (d) The Financial Statement Schedules are filed as a separate section of this Report. 20 22 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. Dated: December 16, 1997 CLEVETRUST REALTY INVESTORS 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 Trustees, December 16, 1997 - ------------------------------------ President and Principal Executive John C. Kikol Officer /s/ MICHAEL R. THOMS Vice President, Treasurer December 16, 1997 - ------------------------------------ Principal Financial Officer and Michael R. Thoms Principal Accounting Officer * /s/ HOWARD AMSTER Trustee December 16, 1997 - ------------------------------------ Howard Amster * /s/ ROBERT H. KANNER Trustee December 16, 1997 - ------------------------------------ Robert H. Kanner * /s/ LEIGHTON A. ROSENTHAL Trustee December 16, 1997 - ------------------------------------ Leighton A. Rosenthal * /s/ JOHN D. WEIL Trustee December 16, 1997 - ------------------------------------ John D. Weil * /s/ BY: MICHAEL R. THOMS December 16, 1997 - ------------------------------------ Michael R. Thoms Attorney-in-Fact
21 23 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, 1997 CLEVETRUST REALTY INVESTORS WESTLAKE, OHIO 24 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, 1997 and 1996 Statement of Operations -- Years ended September 30, 1997, 1996 and 1995 Statement of Cash Flows -- Years ended September 30, 1997, 1996 and 1995 Statement of Changes in Shareholders' Equity -- Years ended September 30, 1997, 1996 and 1995 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 III -- Real Estate and Accumulated Depreciation. 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 25 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, 1997 and 1996, 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, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). 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. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP November 21, 1997 Cleveland, Ohio F-2 26 STATEMENTS OF FINANCIAL CONDITION CLEVETRUST REALTY INVESTORS
SEPTEMBER 30, -------------------- 1997 1996 ------- -------- (in thousands) ASSETS Invested assets -- Notes A, C and D: Properties held for sale............................................ $12,918 $ 42,203 Less: Valuation reserve............................................. 260 3,307 ------- ------- 12,658 38,896 Real estate mortgage loans.......................................... 0 119 ------- ------- 12,658 39,015 Cash and cash equivalents -- Note A................................... 4,612 1,490 Other assets.......................................................... 368 3,347 ------- ------- $17,638 $ 43,852 ======= ======= LIABILITIES Mortgage notes payable -- Note E...................................... $ 5,561 $ 9,563 Bank notes payable -- Note F.......................................... 0 9,800 Accrued interest on notes payable -- Note F........................... 0 14 Accrued federal and state income taxes -- Note B...................... 2,085 0 Accrued expenses and other liabilities -- Note G...................... 3,184 1,975 ------- ------- 10,830 21,352 SHAREHOLDERS' EQUITY Shares of Beneficial Interest, par value $1 per Share -- Note H: Authorized -- Unlimited Issued and outstanding shares (9/30/97 -- 5,136,616; 9/30/96 -- 5,179,143)..................... 5,137 5,179 Additional paid-in capital............................................ 9,412 38,850 Accumulated deficit................................................... (7,741) (21,529) ------- ------- 6,808 22,500 ------- ------- $17,638 $ 43,852 ======= =======
See notes to financial statements. F-3 27 STATEMENTS OF OPERATIONS CLEVETRUST REALTY INVESTORS
YEARS ENDED SEPTEMBER 30, ------------------------------- 1997 1996 1995 ------- ------- ------- (in thousands, except per share data) Income Real estate operations: Rental income............................................. $ 7,485 $10,368 $10,145 Less: Real estate operating expenses......................... 3,513 5,060 5,245 Depreciation expenses.................................. 0 1,830 1,846 ------- ------- ------- 3,513 6,890 7,091 ------- ------- ------- Income from real estate operations.......................... 3,972 3,478 3,054 Interest income............................................. 225 40 56 Dividend income............................................. 0 225 0 Other....................................................... 294 12 26 ------- ------- ------- 4,491 3,755 3,136 Expenses Interest: Mortgage notes payable -- Note E.......................... 673 888 988 Bank notes payable........................................ 294 886 789 ------- ------- ------- 967 1,774 1,777 General and Administrative -- Note G........................ 5,292 734 763 Provision for valuation reserve -- Note A................... (1,348) 3,307 0 ------- ------- ------- 4,911 5,815 2,540 ------- ------- ------- Income (loss) before net gains on sales of real estate, gains on sales of securities, income taxes and extraordinary items....................................... (420) (2,060) 596 Net gains on sales of real estate -- Note D................. 16,922 40 2,499 Gains on sales of securities................................ 0 632 0 Federal and state income taxes -- Note B.................... (2,714) 0 0 ------- ------- ------- Income (loss) before extraordinary items.................... 13,788 (1,388) 3,095 Extraordinary items......................................... 0 0 790 ------- ------- ------- Net income (loss)................................. $13,788 $(1,388) $ 3,885 ======= ======= ======= Per share of beneficial interest -- Note A: Income (loss) before net gains on sales of real estate, gains on sales of securities, income taxes and extraordinary items....................................... $ (0.08) $ (0.40) $ 0.11 Net gains on sales of real estate........................... 3.29 0.01 0.46 Gains on sales of securities................................ 0.00 0.12 0.00 Federal and state income taxes.............................. (0.53) 0.00 0.00 ------- ------- ------- Income (loss) before extraordinary items.................... 2.68 (0.27) 0.57 Extraordinary items......................................... 0.00 0.00 0.14 ------- ------- ------- Net income (loss) per share....................... $ 2.68 $ (0.27) $ 0.71 ======= ======= ======= Weighted average number of Shares of Beneficial Interest outstanding........................... 5,138 5,186 5,459 ======= ======= =======
See notes to financial statements. F-4 28 STATEMENTS OF CASH FLOWS CLEVETRUST REALTY INVESTORS
YEARS ENDED SEPTEMBER 30, -------------------------------- 1997 1996 1995 -------- ------- ------- (in thousands) Cash flow from operating activities: Net income (loss).......................................... $ 13,788 $(1,388) $ 3,885 Non-cash revenues and expenses included in income: Depreciation............................................. 0 1,830 1,846 Provision for (reverse) valuation reserve................ (1,348) 3,307 0 Decrease in accrued interest on notes payable............ (14) (9) (4) Increase (decrease) in accrued expenses and other liabilities........................................... 1,209 (86) (134) Increase in accrued federal and state income taxes....... 2,085 0 0 Decrease (increase) in other assets...................... 2,979 (1,971) (80) Reconciliation to net cash flow from operating activities: Net gains on sales of real estate........................ (16,922) (40) (2,499) Gains on sales of securities............................. 0 (632) 0 Extraordinary items...................................... 0 0 (790) ------ ------ ------ Cash flow from operating activities.............. 1,777 1,011 2,224 Cash flow from investing activities Equity investments: Improvements to existing properties...................... (700) (972) (666) Purchase of property..................................... 0 (3,465) 0 Proceeds from properties sold............................ 45,208 1,386 5,545 Net insurance proceeds................................... 0 0 738 Real estate mortgage loans: Repayments............................................... 119 184 145 Investments in securities: Securities purchased..................................... 0 (2,057) (240) Proceeds from sales of securities........................ 0 2,929 0 ------ ------ ------ Net cash from (used in) investing activities............. 44,627 (1,995) 5,522 Cash flow from financing activities: Mortgage notes payable: Principal amortization payments.......................... (212) (203) (330) Principal repayments..................................... (3,790) 0 (1,463) Principal borrowings..................................... 0 500 0 Bank notes payable: Principal amortization payments.......................... 0 0 (31) Principal repayments..................................... (9,800) 0 (4,549) Principal borrowings..................................... 0 3,200 0 Certificate of Deposit..................................... 0 0 500 Distributions to shareholders.............................. (29,279) (1,037) (874) Shares repurchased and subsequently retired................ (201) (174) (1,062) ------ ------ ------ Net cash (used in) from financing activities............. (43,282) 2,286 (7,809) ------ ------ ------ Increase (decrease) in cash and cash equivalents........... 3,122 1,302 (63) Balance at beginning of year............................... 1,490 188 251 ------ ------ ------ Balance at end of year..................................... $ 4,612 $ 1,490 $ 188 ====== ====== ======
See notes to financial statements. F-5 29 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CLEVETRUST REALTY INVESTORS YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
SHARES OF ADDITIONAL UNREALIZED TOTAL BENEFICIAL PAID-IN ACCUMULATED GAINS ON SHAREHOLDERS' INTEREST CAPITAL DEFICIT SECURITIES EQUITY --------- ---------- ----------- ---------- ------------- (in thousands) Balance October 1, 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 H............................... (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 Net (loss) for the year ended September 30, 1996................................ (1,388) (1,388) Cash distributions declared and paid -- $.20 per share....................... (1,037) (1,037) Shares repurchased and subsequently retired -- Note H............................... (38) (136) (174) Change in unrealized gains on securities.............................. (27) (27) ------- -------- --------- ---- ------- Balance September 30, 1996................ 5,179 38,850 (21,529) 0 22,500 Net income for the year ended September 30, 1997................................ 13,788 13,788 Cash liquidating distributions declared and paid -- $5.70 per share............. (29,279) (29,279) Shares repurchased and subsequently retired -- Note H............................... (42) (159) (201) ------- -------- --------- ---- ------- Balance September 30, 1997................ $ 5,137 $ 9,412 $ (7,741) $ 0 $ 6,808 ======= ======== ========= ==== =======
F-6 30 NOTES TO FINANCIAL STATEMENTS CLEVETRUST REALTY INVESTORS YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CleveTrust Realty Investors is a business trust organized in the State of Massachusetts, headquartered in Ohio. The Trust's primary business objective was the ownership and operation of improved real estate. On September 24, 1996 the Trustees of the Trust unanimously voted to recommend a Plan for the Orderly Liquidation of the Trust (the "Plan"). Effective April 29, 1997 the shareholders of the Trust approved the Plan. Accordingly, the Trust's primary business objective is to sell all of its assets, discharge all of its liabilities, and distribute the balance of the funds to the shareholders. The Trust anticipates completing the sale of its four properties in 1998 and will then complete the Plan. Use of Estimates: The preparation of financial statements requires Management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could affect the amounts reported and disclosed herein. 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. Real Estate: In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," the Trust's properties held for sale are reported in the Trust's financial statements at the lower of carrying value or estimated fair value, less cost to sell. A valuation reserve, of $260,000 and $3,307,000, was established at September 30, 1997 and 1996, respectively, for certain properties to reduce the carrying value to their estimated fair value, less cost to sell. Depreciation: In accordance with the Plan, properties held for sale were not depreciated in fiscal year 1997. Previously, depreciation on equity investments was 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 were 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 government securities, with original maturities of three months or less. Income Taxes: Deferred income taxes are recognized for temporary differences between the financial reporting basis of assets and liabilities and their respective tax basis and for operating and capital loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence including tax planning strategies and other factors. The effects of changes in tax laws or rates on deferred tax assets and liabilities are recognized in the period that includes the enactment date. 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 the 1997 method of presentation. F-7 31 NOTE B -- INCOME TAXES For the fiscal year ended September 30, 1997 the Trust recorded Federal income taxes of $2,400,000 ($2,531,000 of current taxes, of which $400,000 has been paid at September 30, 1997, net of a deferred tax asset of $131,000) and state income taxes of $314,000. The Trust had no income tax expense for either of the years ended September 30, 1996 or 1995. No taxes were paid during the year ended September 30, 1996. The Trust's deferred tax assets and liabilities at September 30, 1997 and 1996 are as follows:
1997 1996 ----- ------ (in thousands) Deferred tax assets: Properties held for sale -- valuation reserve............. $ 88 $1,124 Net operating and capital loss carryforwards.............. -0- 3,456 Other..................................................... 546 -0- Deferred tax liabilities: Depreciation.............................................. (503) (1,489) Other..................................................... -0- (43) ----- ------- 131 3,048 Valuation allowance......................................... -0- (3,048) ----- ------- Net deferred tax asset............................ $ 131 $ -0- ===== =======
For the fiscal year ended September 30, 1996 the Trust maintained a valuation reserve equal to its net deferred tax asset as there was doubt as to whether the net deferred tax asset will be realized. The $546,000 other deferred asset represents expenses totaling $1,607,000 which were accrued and expensed in the financial statements for the year ended September 30, 1997, but will not be deducted in determining the taxable income for tax year 1997. These expenses were $1,576,000 of severance pay, incentive bonus pool and payments in lieu of options (see NOTE -- G for further information concerning these expenses) and $31,000 of state taxes. A reconciliation between the income tax expense that would have resulted from applying federal statutory rates to pretax income and federal income taxes recorded is as follows:
9/30/97 9/30/96 9/30/95 ------- ------- ------- (in thousands) Expected income tax expense at Federal statutory tax rate..................... $5,611 $(472) $1,321 State income taxes (net of federal benefit)...... 207 -- -- Increase (decrease) in taxes resulting from: Effect of temporary differences................ 352 (853) (535) (Recognized) unrecognized net operating loss carryforward................................ (3,456) 1,325 (786) ------- ------ ------ Income Tax Expense..................... $2,714 $ -0- $ -0- ======= ====== ======
In determining the federal income taxes for the fiscal year ended September 30, 1997 the Trust utilized the total $10.2 million of net operating and capital loss carryforwards. F-8 32 NOTE C -- PROPERTIES The following is a summary of the Trust's properties held for sale and related indebtedness at September 30, 1997:
VALUATION RESERVE INCOME FROM TOTAL ACCUMULATED ---------------- CARRYING REAL ESTATE AMOUNT OF CLASSIFICATION COST DEPRECIATION VALUE OPERATIONS INDEBTEDNESS -------------------- ------- ----------- (in thousands $) -------- ----------- ------------ Office Bldg.: Tulsa, OK......... $ 6,987 $ 4,408 $-0- $ 2,579 $ 232 $ -0- Commercial Austin, TX........ 8,510 2,174 -0- 6,336 885 5,561 Davenport, IA..... 916 167 183 566 (36) -0- Ardmore, OK....... 4,085 948 -0- 3,137 458 -0- Land................ 117 -0- 77 40 (2) -0- ------- ------ ---- ------- ------ ------ Total............... $20,615 $ 7,697 $260 $ 12,658 $ 1,537 $5,561 ======= ====== ==== ======= ====== ======
Following is a summary of activity with regards to the properties for the three years ended September 30, 1997:
1996 1997 ---------------- 1995 ------- (in thousands $) ------- Balance, beginning of year................... $38,896 $ 40,942 $45,380 Improvements to existing properties.......... 700 972 666 Purchase of properties....................... -0- 3,465 -0- Sales of properties -- Note D................ (29,985) (1,346) (3,258) Valuation reserve............................ 3,047 (3,307) -0- Depreciation................................. -0- (1,830) (1,846) ------- ------- ------- Balance, end of year......................... $12,658 $ 38,896 $40,942 ======= ======= =======
On February 20, 1996 the Trust completed the purchase of the land on which its Englewood Bank Building was located. This land, which was previously leased by the Trust, was purchased for a price of $1,263,000. On March 28, 1996 the Trust purchased a 52,554 square foot suburban office building located in Arlington, Texas for a purchase price of $2,202,000. NOTE D -- REAL ESTATE SALES The fiscal 1997 gains on sales of real estate totaling $16,922,000 include the following: (i) $563,000 which represents the gain on the October 7, 1996, $2,450,000 sale of the Littleton Bank Building, Littleton, Colorado; (ii) $13,000 which represents the gain on the December 30, 1996, $20,000 sale of a .23 acre land parcel located in Dubuque, Iowa; (iii) $1,727,000 which represents the gain on the January 21, 1997, $5,950,000 sale of the Warren Plaza Shopping Center, Dubuque, Iowa; (iv) $2,650,000 which represents the gain on the February 28, 1997, $3,475,000 sale of Triangle Square, Hilton Head, South Carolina; (v) $2,317,000 which represents the gain on the March 12, 1997, $5,350,000 sale of the Englewood Bank Building, Englewood, Colorado; (vi) $679,000 which represents the gain on the April 28, 1997, $4,450,000 sale of the Spring Village Shopping Center, Davenport, Iowa; (vii) $3,463,000 which represents the gain on the June 2, 1997, $5,300,000 sale of the Executive Club Building, Denver, Colorado; (viii) $5,175,000 which represents the gain on the August 1, 1997, $17,860,000 sale of Office Alpha, 14800 Quorum, both of which are located in Dallas, Texas, and the Brookside Office Building, Arlington, Texas: and (ix) $335,000 which represents the gain on the September 5, 1997, $1,100,000 sale of the Walnut Stemmons Office Park, Dallas, Texas. The fiscal 1996 net gains on sales of real estate totaling $40,000 include the following: (i) $69,000 which represents the gain the Trust realized on its January and February, 1996 sales of three condominium units located in Davie, Florida for a combined sales price of $138,000; (ii) a loss of $313,000 the Trust realized on F-9 33 its March, 1996 $600,000 sale of the European Crossroads office/retail complex on 11.5 acres of land located in Dallas, Texas; (iii) $23,000 represents the gain the Trust realized on its April, 1996 $115,000 sale of 7.42 acres of vacant land located in Akron, Ohio; and (iv) $261,000 represents the gain the Trust realized on its September, 1996 $615,000 sale of two of the five buildings comprising the Walnut Stemmons Office Park located in Dallas, Texas. 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. NOTE E -- MORTGAGE NOTE PAYABLE At September 30, 1997 the one mortgage note payable of the Trust is a non-recourse mortgage. The following data pertains to the mortgage note payable as of September 30, 1997.
BOOK VALUE OF THE INVESTMENT MORTGAGE SECURING BASE INTEREST NOTE PAYABLE THE DEBT MATURITY RATE -------------- ---------- ----------- ------------- (in thousands) $5,561 $6,336 May 7, 2002 8.300%
Required payments on the Trust's remaining mortgage note payable for the succeeding five years are as follows:
YEAR ENDING SEPTEMBER 30, PRINCIPAL INTEREST TOTAL ------------- --------- -------------- ------ (in thousands) 1998..... $ 197 $451 $ 648 1999..... 213 435 648 2000..... 231 417 648 2001..... 252 396 648 2002..... 4,668 222 4,890
In connection with the October 7, 1996 sale of the Littleton Bank Building, the Trust repaid in full the $1,208,000 first mortgage loan, which was secured by the Littleton Bank Building. In connection with the August 2, 1997 sale of the 14800 Quorum Building, the Trust repaid in full the $2,582,000 first mortgage loan, which was secured by the 14800 Quorum Building. Total interest expense on mortgage notes payable did not differ materially from interest paid. NOTE F -- BANK NOTES PAYABLE On January 21, 1997 the Trust repaid in full the revolving line of credit ("1994 Credit") issued by National City Bank of Cleveland ("NCB") and Manufacturer's and Traders Trust Company of Buffalo, New York ("M&T"). Effective February 6, 1997 the Trust terminated the 1994 Credit. Total interest expense on bank notes payable did not differ materially from interest paid. NOTE G -- GENERAL AND ADMINISTRATIVE EXPENSES Included in the general and administrative expenses for the year ended September 30, 1997 was $198,000 of expense related to the Plan for the Orderly Liquidation of the Trust. Additionally, in connection with the Plan, the Trust will make severance payments to the officers and employees of the Trust upon their termination. The defined obligations total $1,250,000, which was accrued and expensed. Of this amount $90,000 was paid during the year and $1,160,000 was accrued at September 30, 1997 Certain other payments, including the additional compensation to be paid the officers as a result of their waiving all rights to unexercised options (See NOTE H), will be made depending on the Trust's ability to achieve defined distributions to shareholders. Based on the Trust's estimate that total distributions will be between $6.50 and F-10 34 $7.00 per share, the Trust accrued and expensed $2,814,000 for these payments. Of this amount $1,274,000 was paid during the year and $1,540,000 was accrued at September 30, 1997. NOTE H -- SHARES OF BENEFICIAL INTEREST On October 9, 1996 the Trust repurchased 42,527 of its Shares of Beneficial Interest for $201,000 in an open market purchase. These shares were retired by the Trust. On December 7, 1995 the Trust repurchased 38,000 of its Shares of Beneficial Interest for $174,000 in an open market purchase. These shares were retired by the Trust. 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. In connection with the Plan, the four primary officers of the Trust executed new employment contracts effective September 1, 1996. As part of these contracts the officers waived all rights with respect to unexercised options. In return, additional compensation will be paid to the officers, based on a calculation of a minimum threshold of the distributions to the Shareholders during the liquidation period. (See NOTE G) 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 1997 the Trust accrued $42,000 for contributions to the pension plan (for fiscal 1996 -- $30,000 and fiscal 1995 -- $24,000). NOTE J -- SUBSEQUENT EVENT (UNAUDITED) On December 8, 1997 the Trust completed a $3,150,000 sale of the Petroleum Club Building located in Tulsa, Oklahoma. This sale resulted in a gain of approximately $330,000 which will be reported in the first quarter of fiscal year 1998. NOTE K -- QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the years ended September 30, 1997 and 1996 is as follows:
QUARTER ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30 ------------------------------------------------ -------- -------- -------- --------- (in thousands, except per share data) 1997 Operating revenues............................ $2,514 $2,412 $1,815 $ 1,263 Income (loss) before gains and taxes.......... 520 382 1,201 (2,523) Net Income.................................... 1,096 6,976 3,890 1,826 Income (loss) before gains and taxes per share(1)................................... .10 .07 .23 (.48) Net income per share(1)....................... .21 1.35 .76 .36 1996 Operating revenues............................ $2,638 $2,657 $2,693 $ 2,657 Operating income (loss)....................... 331 316 258 (2,965) Net Income (loss)............................. 331 72 281 (2,072) Operating income (loss) per share(1).......... .06 .06 .05 (.57) Net Income (Loss) per share(1)................ .06 .01 .06 (.40)
- --------------- (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-11 35 SCHEULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION CLEVETRUST REALTY INVESTORS AS OF SEPTEMBER 30, 1997 (IN THOUSANDS)
INITIAL COST TO AMOUNT AT WHICH CARRIED AT TRUST SEPTEMBER 30, 1997 -------------------- COST OF --------------------------------- DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL(1)(4) - ----------------------------------------- ------------ ------ ------------ ------------ ------ ------------ ----------- Office Buildings: Petroleum Club Bldg Tulsa, OK........... $0 $ 648 $ 3,306 $3,033 $ 648 $ 6,339 $ 6,987 Commercial Properties: Cannon West Austin, TX.................. 5,561 874 6,758 878 874 7,636 8,510 Spring Village Davenport, IA............ 0 172 744 0 172 744 916(3) Tiffany Plaza Ardmore, OK............... 0 684 2,847 554 684 3,401 4,085 Vacant Land Akron, OH................... 0 117 0 0 117 0 117(3) ----- ----- ------ ----- ----- ----- ------ Totals............................ $5,561 $2,495 $ 13,655 $4,465 $2,495 $ 18,120 $20,615 ===== ===== ====== ===== ===== ===== ====== ACCUMULATED CONSTRUCTION DATE DEPRECIATION DESCRIPTION DEPRECIATION(2) COMPLETED ACQUIRED LIVES(5) - ----------------------------------------- --------------- ------------ -------- ------------ Office Buildings: Petroleum Club Bldg Tulsa, OK........... $ 4,408 1963 1972 Commercial Properties: Cannon West Austin, TX.................. 2,174 1981 1987 Spring Village Davenport, IA............ 167 1980 1987 Tiffany Plaza Ardmore, OK............... 948 1975 1989 Vacant Land Akron, OH................... 0 N/A 1975 ------ Totals............................ $ 7,697 ======
F-12 36
YEARS ENDED SEPTEMBER 30, -------------------------------- 1997 1996 1995 -------- ------- ------- (in thousands) (1) Reconciliation of real estate: Balance of real estate at October 1, 1996, 1995 and 1994, respectively.................................. $ 66,151 $63,485 $71,028 Additions during period: Cost of Improvements................................ 700 972 666 Purchase of Property................................ 0 3,465 0 -------- ------- ------- Total Additions....................................... 700 4,437 666 -------- ------- ------- 66,851 67,922 71,694 Less carrying amount of real estate sold or disposed.............................................. 46,236 1,771 8,209 -------- ------- ------- Balance of real estate at September 30, 1996, 1995 and 1994, respectively.................................. $ 20,615 $66,151 $63,485 ======== ======= ======= (2) Reconciliation of accumulated depreciation: Balance of accumulated depreciation at October 1, 1995, 1994 and 1993, respectively................... $ 23,948 $22,543 $25,648 Additions charged to expenses......................... 0 1,830 1,846 -------- ------- ------- 23,948 24,373 27,494 Accumulated depreciation on real estate sold or disposed............................................ 16,251 425 4,951 -------- ------- ------- Balance of accumulated depreciation at September 30, 1996, 1995 and 1994, respectively................... $ 7,697 $23,948 $22,543 ======== ======= =======
(3) On September 24, 1996 the Trustees of the Trust unanimously voted to recommend a Plan for the Orderly Liquidation of the Trust (the "Plan"). Since the Trust had previously adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS No. 121") the Trust, effective September 30, 1996, classified all real estate owned as Property held for sale. In accordance with this classification the Trust reviewed the fair value of all of its property. The Trust has established a valuation reserve against two of its properties as follows: Vacant restaurant parcel, Davenport, IA............ $183,000 Vacant Land -- Akron, OH........................... 77,000 -------- Total Valuation reserve....................... $260,000 ========
(4) The Trust's aggregate cost for federal income tax purposes at September 30, 1997 was $20,096,000. The Trust's federal income tax return for the year ended September 30, 1997 has not yet been filed. (5) For 1997 the Properties were classified as properties held for sale. As such, there was no depreciation recorded for 1997. F-13 37 CLEVETRUST REALTY INVESTORS ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1997 EXHIBIT INDEX
"ASSIGNED" EXHIBIT NO* DESCRIPTION LOCATION OF EXHIBIT - ------------ ------------------------------------- --------------------------------------- (2) Plan of Liquidation (Resolution Incorporated by reference to Exhibit adopted by the Board of Trustees, (2) to Form 10-Q for the quarter ended September 24, 1996 June 30, 1997 (3)(A) Second Amended and Restated Incorporated by reference to Exhibit Declaration of Trust. (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) Deed of Trust and Security Agreement Incorporated by reference to Exhibit made as of May 28, 1987 between (4) to Report on Form 10-K for the CleveTrust Realty Investors and The fiscal year ended September 30, 1987. Northwestern Mutual Life Insurance (File No. 0-5641) Company. (4)(2) Promissory Note dated May 28, 1987 in Incorporated by reference to Exhibit the amount of $6,500,000 with respect (4) to Report on Form 10-K for the to the Deed of Trust and Security fiscal year ended September 30, 1987. Agreement made as of May 28, 1987 (File No. 0-5641) between CleveTrust Realty Investors and the Northwestern Mutual Life Insurance Company Exhibits (10)(1) through (10)(3) represent Management contracts (10)(1) Amended and Restated Employment Incorporated by reference to Exhibit Agreement effective as of September (10) to Form 10-K/A for the fiscal year 1, 1996 between CleveTrust Realty ended September 30, 1996 Investors and John C. Kikol. (10)(2) Amended and Restated Employment Incorporated by reference to Exhibit Agreement effective as of September (10) to Form 10-K/A for the fiscal year 1, 1996 between CleveTrust Realty ended September 30, 1996 Investors and Michael R. Thoms. (10)(3) Amended and Restated Employment Incorporated by reference to Exhibit Agreement effective as of September (10) to Form 10-K/A for the fiscal year 1, 1996 between CleveTrust Realty ended September 30, 1996 Investors and Brian D. Griesinger. (11) Computation of net income (loss) per Filed herewith electronically share of beneficial interest. (24) Power of Attorney. Filed herewith electronically (27) Financial Data Schedule. Filed herewith electronically
* Exhibits 9, 12, 13, 16, 18, 19, 21, 22, 23, and 28 are either inapplicable to the Trust or require no answer. F-14 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 EXHIBIT COMPUTATION OF NET INCOME (LOSS) PER SHARE OF BENEFICIAL INTEREST CLEVETRUST REALTY INVESTORS PRIMARY NET INCOME (LOSS) PER SHARE (1)
Year Ended September 30, ------------------------------------------------ 1997 1996 1995 ----------- ----------- ---------- (in thousands, except shares and per share data) Income (loss) before net gains on sales of real estate gains on sales of securities, income taxes and extraordinary items $ (420) $ (2,060) $ 596 Net gains on sales of real estate 16,922 40 2,499 Gains on sales of securities 0 632 0 Federal and state income taxes (2,714) 0 0 ----------- ----------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 13,788 (1,388) 3,095 Extraordinary items 0 0 790 ----------- ----------- ---------- NET INCOME (LOSS) $ 13,788 $ (1,388) $ 3,885 =========== =========== ========== Weighted average number of Shares of Beneficial Interest outstanding 5,138,247 5,186,099 5,459,377 =========== =========== ========== Primary net income (loss) per Share: Income (loss) before net gains on sales of real estate, gains on sales of securities, income taxes and extraordinary items $ (0.08) $ (0.40) $ 0.11 Net gains on sales of real estate 3.29 0.01 0.46 Gains on sales of securities 0.00 0.12 0.00 Federal and state income taxes (0.53) 0.00 0.00 ----------- ----------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 2.68 (0.27) 0.57 Extraordinary items 0.00 0.00 0.14 ----------- ----------- ---------- NET INCOME (LOSS) PER SHARE $ 2.68 $ (0.27) $ 0.71 =========== =========== ==========
(1) Per share data is computed using the weighted average number of shares of Beneficial Interest outstanding. For 1995, the exercise of the outstanding stock options would have a dilutive effect of less than 3%. EX-24 3 EXHIBIT 24 1 EXHIBIT 24 TRUSTEE AND OFFICER POWER OF ATTORNEY FORM 10-K CLEVETRUST REALTY INVESTORS KNOW ALL MEN BY THESE PRESENTS: That each person whose name is signed below has made, constituted and appointed, and by this instrument does make, constitute and appoint John C. Kikol and Michael R. Thoms and each of them his true and lawful attorney, with full power of substitution and resubstitution to affix for him and in his name, place and stead, as attorney-in-fact, his signature as a trustee or officer, or both, of CleveTrust Realty Investors, a Massachusetts business trust (the "Company"), to the Company's Annual Report on Form 10-K for the year ending September 30, 1997, pursuant to the Securities Exchange Act of 1934, and to any and all amendments and exhibits to that Form 10-K, and to any and all applications and other documents pertaining thereto, giving and granting to each such attorney-in-fact full power and authority to do and perform every act and thing whatsoever necessary to be done in the premises, as fully as they might or could do if personally present, and hereby ratifying and confirming all that each of such attorneys-in-fact or any such substitute shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed at Westlake, Ohio as of the date indicated. /s/ Howard Amster December 9, 1997 - -------------------------------------- ------------------------------ Howard Amster, Trustee Date /s/ Robert H. Kanner December 9, 1997 - -------------------------------------- ------------------------------ Robert H. Kanner, Trustee Date /s/ John C. Kikol December 3, 1997 - -------------------------------------- ------------------------------ John C. Kikol, Trustee Date /s/ Leighton A. Rosenthal December 4, 1997 - -------------------------------------- ------------------------------ Leighton A. Rosenthal, Trustee Date /s/ John D. Weil December 2, 1997 - -------------------------------------- ------------------------------ John D. Weil, Trustee Date EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 1,000 YEAR SEP-30-1997 OCT-01-1997 SEP-30-1997 4,612 0 116 260 0 252 12,918 0 17,638 5,269 5,561 0 0 5,137 1,671 17,638 0 8,004 0 3,513 5,292 (1,348) 967 (420) 2,714 (3,134) 0 16,922 0 13,788 2.68 2.68
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