-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XYDaATGeEaXUW5qpEWt8RG24D3Z+A1SOWfe6IkYw0rk1TDRl+OoBASwJMwgbXWTH eEHu9ISilH8IZntlIYV+rw== 0000950152-95-000790.txt : 19950501 0000950152-95-000790.hdr.sgml : 19950501 ACCESSION NUMBER: 0000950152-95-000790 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950131 FILED AS OF DATE: 19950428 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REALTY REFUND TRUST CENTRAL INDEX KEY: 0000082473 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346647590 STATE OF INCORPORATION: OH FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07062 FILM NUMBER: 95532699 BUSINESS ADDRESS: STREET 1: 1385 EATON CENTER STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2167717663 MAIL ADDRESS: STREET 1: 1385 EATON CENTER STREET 2: 1111 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 10-K405 1 REALTY REFUND TRUST 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended January 31, 1995 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to . ------- ------- Commission File No. 1-7062 REALTY REFUND TRUST - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) OHIO 34-6647590 - --------------------------------- ---------------------------------------- (State or Other Jurisdiction (I.R.S. Employer Identification of Incorporation or Organization) Number) 1385 Eaton Center Cleveland, Ohio 44114 - --------------------------------- ---------------------------------------- (Address of Principal Executive Office) (ZIP Code) (216) 771-7663 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered - -------------------- ------------------------------------ Shares of Beneficial Interest New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- [Cover Continued on Following Page] 2 [Cover Continued From Previous Page] 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] Aggregate market value of voting stock held by non-affiliates of the Registrant as of March 17, 1995: $6,560,440 Portions of Registrant's Notice of Annual Meeting and Proxy Statement Dated April 7, 1995--Part III. The Trust Performance Graph contained in the Registrant's Notice of Annual Meeting and Proxy Statement dated April 7, 1995 shall not be deemed incorporated by reference herein. Portions of the Registrant's 1995 Annual Report--Parts I and II. -2- 3 PART I Item 1. BUSINESS. Introduction. The Registrant is an unincorporated Ohio real estate investment trust under a Declaration of Trust dated April 28, 1971 and has elected to be taxed as a real estate investment trust, as that term is used in Sections 856-860 of the Internal Revenue Code. Although the Registrant's Declaration of Trust permits it to make a broad range of mortgage loans and other real estate investments, the Registrant historically has specialized in mortgage financing as its investment vehicle. In particular, such mortgage financing has taken the form of refinancing existing income-producing commercial, industrial and multi-unit residential real property by supplementing or replacing existing financing. The primary refinancing technique which the Registrant in the past has employed is wrap-around mortgage lending, whereby the borrower is offered a total mortgage loan (the wrap-around loan), the principal amount of which loan equals the balance outstanding on an existing prior mortgage loan on the borrower's property, plus an additional amount supplied by the Registrant. The Registrant also pursues other refinancing techniques, including, but not limited to, first or junior mortgages which may be short-term, intermediate-term or long-term and which may or may not be self-liquidating. Refinancing can occur at various stages in the life of an eligible property, beginning with the achievement of acceptable occupancy and cash flow and recurring as existing mortgage balances are reduced or income or other positive factors have increased the property value. The Registrant made one mortgage loan during the fiscal year ended January 31, 1995. In addition to mortgage investments, the Trustees in 1990 authorized the Registrant to pursue equity investments in shopping center, multi-family residential, office building, industrial and warehouse properties. Accordingly, the Registrant's investment advisor, at the direction of the Trustees, is pursuing alternative avenues of investment. Wrap-Around Financing and Other Mortgage Loans. In wrap-around financing, the borrower is offered a new total mortgage loan (the wrap-around loan), the principal amount of which equals the balance outstanding on an existing prior mortgage loan on the borrower's property plus an additional amount supplied by the Registrant. Typically, a wrap-around loan -3- 4 made by the Registrant is subordinate to the lien of the existing prior mortgage loan that remains on the property. The Registrant agrees with the borrower to make the principal and interest payments to the holder of the existing prior mortgage, but only to the extent payments are received from the borrower and no other default exists. This method of mortgage financing is desirable for a borrower in those cases in which an existing mortgage has an interest rate below presently prevailing interest rates or in which replacing an existing mortgage is either prohibited entirely or involves a pre-payment penalty. The decline in recent years in prevailing interest rates coupled with the low cost of traditional refinancing has decreased significantly the desirability of wrap-around financing as a form of refinancing. In certain cases, the Registrant has provided refinancing in the form of junior mortgage loans. Such mortgages are substantially similar to the Registrant's wrap-around mortgages except that the stated principal amount of the mortgage is only the amount advanced by the Registrant. The Registrant still requires the borrower to remit to the Registrant an amount equal to the principal and interest payments due on the prior mortgage loan in addition to the payments required on the junior mortgage. In general, the income-producing properties which secure the Registrant's loans tend to be relatively large. As of January 31, 1995, the Registrant had investments in two wrap-around loans, one first mortgage loan and one junior mortgage loan. The Registrant's original cash investments in these loans ranged from $2,050,000 to approximately $9,000,000, with the average being approximately $5,280,000. The following table sets forth the geographic distribution of the Registrant's loans as of January 31, 1995:
State Number of Loans -------- --------------- Florida 1 Michigan 1 Ohio 1 Texas 1
The Florida loan is secured by a mortgage on two properties located in Florida. A partnership in which an affiliate of Alan M. Krause, a Trustee and the Chairman and Co-Chief Executive Officer of the Registrant, is general partner accounted for 31.1% of the Registrant's investment portfolio as of January 31, 1995. See "Properties - Toledo, Ohio". In general, the Registrant is not dependent upon a single borrower or a very few borrowers for making future loans. -4- 5 As of January 31, 1995, the Registrant's loans receivable totalled $35,509,779, of which $29,677,194 represented loans secured by wrap-around mortgages. Loans payable underlying these wrap-around mortgages totalled $14,096,986. The Registrant's net investment in its loans receivable at January 31, 1995 totalled $21,412,793. Assuming that all of the other mortgages remain in existence until their respective scheduled maturity dates, a total of $23,940,000 of these loans receivable would be payable to the Registrant in lump sum "balloon" payments at such maturities. The ability of a borrower to satisfy the obligation to pay the lump sum at maturity applicable to its property may be dependent upon the borrower's ability to obtain refinancing. For a detailed analysis of these totals and a description of the periodic payment terms and maturity dates of the Registrant's loans receivable as of January 31, 1995, see Note 9 of Notes to Financial Statements set forth on page 16 of the Registrant's 1995 Annual Report (Exhibit 13), which information is incorporated herein by reference. Equity Investments. In July 1992, the Registrant, through a wholly-owned corporate subsidiary, took title in lieu of foreclosure to the leasehold estate in the Chicago office building upon which the Registrant previously had mortgage loans. At January 31, 1992, the Registrant's net investment in the Chicago office building was approximately $11,261,900, net of senior mortgage loans of approximately $942,000. The Registrant's investment was written down to $7,260,000, based upon the report of an independent real estate appraisal firm, with a corresponding charge to the Registrant's operations in the third quarter of fiscal 1993. In the first quarter of fiscal year 1994, the Registrant, through a wholly-owned corporate subsidiary, consummated the purchase of an 83% interest in the underlying fee simple estate in the property for approximately $897,000. Net book value for the Chicago office building, improvements and land as of January 31, 1995, was $8,650,257. While the Registrant presently is operating the office building, its present intention is to seek a purchaser and not to hold the building as a long-term investment. The Registrant currently has no other equity investments in real estate. The Board of Trustees has authorized, and the Registrant's investment advisor is exploring opportunities for, equity investments by the Registrant, as well as mortgage loan opportunities, in shopping centers, multi-family residential, hospitality and other types of properties. Competition and Inflation. In connection with its investments, the Registrant competes against banks, insurance companies, savings and loan associations, mortgage bankers, pension funds and other lenders -5- 6 and investors, including a number of other real estate investment trusts, many of which are larger and have substantially greater financial resources than the Registrant. The Registrant's primary competition in refinancing existing income-producing properties is with the holder or holders of a property's existing financing. The principal elements of competition include the amount, maturity, interest rate, debt service charged and other terms of a refinancing, and whether the personal liability of a borrower is required in addition to the mortgage lien on the refinanced property. Wrap-around mortgage financing in certain instances provides a lender with competitive advantages over the more traditional refinancing techniques of a new first mortgage at prevailing interest rates or a second mortgage. As compared with the more traditional refinancing technique of replacing an existing mortgage with a new first mortgage in a larger amount at the then-current interest rate, a property owner can sometimes save by refinancing with a wrap-around mortgage where the interest rate of the existing first mortgage falls substantially below presently prevailing interest rates. This savings occurs when the stated rate of interest for the Registrant's wrap-around mortgage is below the then-prevailing rate of interest for a first mortgage on the same property. In recent years wrap-around mortgages have become a less feasible method of refinancing in the face of lower prevailing interest rates and the low cost of traditional refinancing. Second mortgages, another more traditional refinancing technique, are generally for shorter periods than the Registrant's wrap-around mortgages, which are usually coterminous with the senior financing. In addition, lenders secured by second mortgages often require the personal liability of the borrower in addition to the security of the mortgaged property, whereas generally the Registrant looks solely to the mortgaged property. Additionally, existing mortgage loans increasingly have prohibited any junior financing, thereby precluding not only wrap-around mortgage loans, but all types of secondary financing. In respect of equity investments, the Registrant will compete against insurance companies, pension funds, other real estate investment trusts, limited partnerships, private investors, owner-operators and numerous other potential investors, many of which may have greater financial resources and more experience than the Registrant. The Registrant's Chicago property has, and it is expected that any additional rental properties acquired by the Registrant will have, substantial competition from similar properties in the vicinity. To the extent the Registrant has acquired or acquires commercial properties, the success of the Registrant will depend, in part, upon the ability of its tenants in competing with businesses similar to those conducted by the tenants and upon other factors -6- 7 which may affect the economic viability of the tenants. Generally, inflation affects the Registrant as it affects its borrowers and the underlying real estate collateral. Although this type of collateral traditionally has been able to sustain itself during periods of inflation, there has been a significant down-turn in market values of real property in the United States over the past few years. The Registrant is unable to predict future real estate market conditions. Advisory Agreement And Advisor. The Registrant has an Advisory Agreement with Mid-America ReaFund Advisors, Inc. (the "Advisor") which provides for the Advisor's services as the investment advisor and administrator of the day-to-day investment operations of the Registrant and pursuant to which the Advisor is responsible for providing the Registrant with a continuing and suitable investment program. Therefore, the Registrant employs no persons on a full-time basis. The Registrant's Chairman and President are the sole shareholders of the Advisor. The Advisory Agreement is renewable annually and can be terminated upon 60 days' notice by the Registrant and 120 days' notice by the Advisor. The Advisor receives, subject to certain limitations, an annual fee equal to 1% of the average invested assets for the year (as defined in the Advisory Agreement) and an annual incentive fee equal to 10% of the amount by which the net profits (as defined in the Advisory Agreement) of the Registrant exceeds 8% of the average net worth for the year, and 10% of any realized net capital gains of the Registrant. Lines Of Credit. The Registrant has an agreement with National City Bank (the "Bank") providing for a secured revolving line of credit. The loan agreement provides for borrowings at either the Bank's prime lending rate or a fixed rate equal to 1.5% over the LIBOR then in effect throughout the term of the loan agreement, which expires on July 31, 1996. Availability under the line of credit will be $22,000,000 until August 1, 1995, and $10,000,000 thereafter. Among other provisions, the loan agreement provides for a borrowing base equal to 83.3% of the Registrant's investments (as defined) and $3,000,000 of availability for working capital, with the remainder available for new investments. The loan agreement also provides that the Registrant cannot permit its net worth (including subordinated debt) to be less than $17,000,000 or its total debt (excluding wrap-around mortgages) and senior indebtedness to exceed 300% and 225%, respectively, of its net worth. At January 31, 1995, the Registrant had borrowed $11,810,000 under this line of credit. -7- 8 On March 16, 1993, the Registrant sold a $5,000,000 secured note (the "Note") to Mr. Krause at par. The Note bears interest at the prime lending rate of the Bank, and will mature on August 31, 1995, subject to extension for up to one additional year in certain circumstances. The Note is secured by a lien on the assets of the Registrant, which lien is subordinate to the prior lien of the Bank. In connection with the closing of the sale of the Note, the Registrant's Trustees received the written opinion of an independent investment banking firm that the terms of such sale were fair, from a financial point of view, to the other Shareholders of the Registrant. The proceeds of the sale of the Note were used to reduce the outstanding indebtedness of the Registrant to the Bank under its secured revolving line of credit. Item 2. PROPERTIES. The Registrant maintains its headquarters in leased facilities in Cleveland, Ohio which it shares with the Advisor. The Registrant owns no real property other than the Chicago office building. See "Business-Equity Investments". The following is a detailed description of the property owned by the Registrant as well as the properties underlying each of the Registrant's material mortgage loans. All of the information set forth below in respect of the Registrant's mortgage loans has been furnished by the respective borrowers. Financial information concerning the Chicago office building as well as the Registrant's mortgages, including any mortgage loans underlying the Registrant's wrap-around mortgages, is outlined in Notes 2, 8 and 9, respectively, to Notes to Financial Statements set forth on Pages 13, 15 and 16, respectively, of the Registrant's 1995 Annual Report (Exhibit 13), which information hereby is incorporated by reference. 1. CHICAGO, ILLINOIS - OFFICE BUILDING. This office building, known as The Carbon and Carbide Building, is located at 230 North Michigan Avenue in downtown Chicago, and is a thirty-eight story steel frame, concrete and stone structure situated on a long-term leasehold estate. The building has a total rentable floor area of approximately 192,000 square feet and is approximately 63 years old. In the opinion of the Registrant's management, the building is covered adequately by insurance. The general market for office leasing in downtown Chicago is very competitive. According to the fourth quarter 1994 Building Owners and Managers Association of Chicago -8- 9 occupancy survey, the overall occupancy in the area where this building is located, the Central Business District/East Loop, was 78.42%, a decrease of .45% since the fourth quarter of 1993 and 1.18% since the fourth quarter of 1992. Occupancy for Class C Buildings has increased to approximately 87.9%. A Class C Building generally is described as an older building in need of some repair and/or renovation. The following table sets forth the average occupancy rate and average rent per square foot for this building as of December 31 for the years indicated:
1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Average Occupancy 61.0% 57.0% 55.0% 63.6% 81.8% Rate Average Rent Per $16.19 $15.99 $16.15 $16.35 $15.50 Square Foot
No tenant occupies 10% or more of the rentable square footage of the building. The following table sets forth further information concerning the office building leases:
Year of Number Net Percentage Lease of Square Annual of Gross Expiration Tenants Feet Rent Annual Rent - ---------- ------- ------ ----------- ----------- 1995 20 21,327 $327,988.68 9.4% 1996 12 12,857 200,917.68 7.3% 1997 8 9,516 155,426.28 7.4% 1998 16 38,605 557,024.28 28.9% 1999 8 13,671 244,174.56 19.0% 2000 1 1,410 21,502.56 2.1% 2001 1 3,300 62,000.00 1.4% 2002 1 1,265 29,325.96 3.4% 2003 1 1,059 18,691.32 0.9% 2004 0 0 0 0
For federal income tax purposes, the Registrant's tax basis in the building, improvements and land is $8,843,000 less accumulated depreciation on the building and improvements as of January 31, 1995 of $483,000. For federal income tax purposes, the Registrant depreciates the building using the straight line method over a life of 40 years. The real estate tax rate is $205.22 per $1,000 of assessed valuation. The current annual real estate taxes are $494,980.18. 2. TOLEDO, OHIO - OFFICE BUILDING. This office building, known as The Fiberglas Tower, is located at 319 Madison Avenue, Toledo, Ohio, and is a thirty-story structure having a total -9- 10 rentable floor area of approximately 332,570 square feet. The building is owned by Riverview Tower Limited Partnership, a limited partnership of which an affiliate of Mr. Krause is a general partner. The building is 23 years old and was acquired by the borrower on July 31, 1985. In the opinion of the Registrant's management, the building is covered adequately by insurance. At January 31, 1995, the outstanding principal balance of the Registrant's loan was $11,033,109 and interest accrued thereon at 8.60%. This loan is payable in monthly installments of approximately $128,000 until maturity thereof on December 31, 1996, at which time the entire principal sum including unpaid interest will be due. In connection with the extension of such loan maturity to December 31, 1996, the Borrower was required to make principal payments of $1,350,000 and $850,000 in June 1994 and January 1995, respectively; an additional principal prepayment of $850,000 is due in January 1996. The Owens-Corning Corporation ("Owens"), a manufacturer of fiberglass products, occupies 100% of the building's office space under leases dated May 1, 1967 and April 30, 1981, respectively and a lease amendment and extension agreement dated June 4, 1994 (collectively, the "Owens Lease"). Pursuant to the Owens Lease and two additional agreements for basement storage space, Owens leases the entire rentable floor area of the building at an annual base rent of $2,261,000. The initial term of the Owens Lease expired on December 31, 1994; however, Owens and the borrower have negotiated an extension of such lease until December 31, 1996 with two six-month renewal options. In October 1993, Owens announced that it would be relocating from the building to an as-yet unbuilt facility. Such relocation, when it occurs, will impact directly the borrower's ability to meet timely its loan obligations to the Registrant. In the event that the borrower defaults in its obligations to the Registrant, the Registrant may be faced with a write-down of this investment. The borrower is unable to determine competitive conditions affecting office space which might exist at the time Owens relocates from this building. The following table sets forth the average occupancy rate and average rent per square foot as of December 31 for the years indicated:
1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Average Occupancy 100% 99% 99% 99% 99% Rate Average Rent Per $22.43 $11.81 $12.07 $11.62 $12.03 Square Foot
-10- 11 For federal income tax purposes, the borrower's tax basis in the property is $16,705,077, less accumulated depreciation as of December 31, 1994 equal to $4,102,470. The borrower depreciates the building using the straight-line method over a life of 19 years. The borrower also depreciates various building improvements using the straight line method over lives of 10 years. The effective real estate tax rate is $62.44 per $1,000 of assessed valuation. The current annual real estate taxes are $271,360. 3. FORT WORTH, TEXAS - OFFICE BUILDING. This facility is located on a portion of the General Dynamics West Campus, Fort Worth, Texas, and consists of a 44.3 acre site on which is located three buildings having a total rentable floor area of approximately 550,500 square feet. The facility is owned by Pacific Place Partners, LTD., a Texas limited partnership. The facility is approximately five years old and was acquired by the borrower in November 1991. At January 31, 1995, the outstanding principal balance of the Registrant's loan was $18,644,085 and interest accrued thereon at 10.4%. This loan is payable in monthly installments of principal and interest of approximately $625,000 until maturity thereof on October 31, 1996, at which time the entire principal sum remaining unpaid will be due. General Dynamics Corporation ("General Dynamics"), a defense contractor, leased the entire facility until March 1, 1993, at which time General Dynamics assigned all of its right, title and interest in, to and under the lease to Lockheed Corporation. However, General Dynamics remains liable for all promises, covenants, conditions and agreements to be kept, made or performed by Lockheed Corporation under the lease. The lease permits Lockheed Corporation to use the facility for general business office purposes, including engineering facilities, computer software development facilities and storage facilities incidental to such uses. However, the property may not be used for chemical laboratories. The term of the lease expires in November 1996. Annual rent for the first lease year was approximately $11,500,000 and for each lease year thereafter is approximately $7,500,000. The borrower is unable to determine competitive conditions which might exist at the time the lease expires. For federal income tax purposes, the borrower's tax basis in the property, which was acquired in a Section 1031 exchange, is $48,404,030, less accumulated depreciation and amortization of deferred charges as of December 31, 1994 equal to $8,543,039. The borrower depreciates the three buildings using the straight line method over lives of 15 years. Personal -11- 12 property is depreciated using the declining balance method over lives of five years. The effective real estate tax rate is $30.72 per $1,000 of assessed valuation. The current annual real estate taxes are $507,784. Item 3. LEGAL PROCEEDINGS. The Registrant is not a party to any material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT The age (as of March 18, 1995), business experience during the past five years and offices presently held by each of the Registrant's executive officers are reported below. The Registrant's By-Laws provide that officers shall hold office until their successors are duly elected and qualified and that any officer may be removed from office at any time by the Registrant's Trustees. Alan M. Krause: Age 65; Chairman of the Board of Trustees and Co-Chief Executive Officer of the Registrant since 1990 and prior thereto Vice Chairman of the Board of Trustees of the Registrant since 1971. Chairman of the Board and Co-Chief Executive Officer of Mid-America ReaFund Advisors, Inc. (Advisor to the Registrant) since 1990. Principal, The Mid-America Companies (real estate ownership) since prior to 1983 and President, The Mid-America Management Corporation (real estate management) since 1983. James H. Berick: Age 61; President, Treasurer and Co-Chief Executive Officer of the Registrant since 1990 and prior thereto Vice Chairman of the Board of Trustees and Secretary of the Registrant since 1971. President, Co-Chief Executive Officer and Treasurer of Mid-America ReaFund Advisors, Inc. (Advisor to the Registrant) since 1990. Chairman, Berick, Pearlman & Mills Co., L.P.A. (attorneys) since 1986. -12- 13 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Registrant's shares of beneficial interest are traded on the New York Stock Exchange under the symbol "RRF". As of March 17, 1995, the Registrant had approximately 789 shareholders. The following table sets forth the high and low sales prices of the Registrant's shares of beneficial interest, as well as dividends declared thereon, for the last two fiscal years:
Price Range ----------- Fiscal Year 1994 High Low Dividends - ---------------- ------ ----- --------- First Quarter 10 3/8 9 5/8 .25 Second Quarter 10 1/4 9 5/8 .25 Third Quarter 10 3/4 9 3/4 .18 Fourth Quarter 10 6 7/8 .18 Fiscal Year 1995 High Low Dividends - ---------------- ------ ----- --------- First Quarter 7 5/8 7 .20 Second Quarter 8 1/4 7 1/8 .20 Third Quarter 8 3/8 8 1/4 .20 Fourth Quarter 8 1/2 7 3/4 .20
Item 6. SELECTED FINANCIAL DATA. Information in response to this item is set forth on page 4 of the Registrant's 1995 Annual Report (Exhibit 13), which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION. Information in response to this Item is set forth on pages 5 through 8 of the Registrant's 1995 Annual Report (Exhibit 13), which information is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the Registrant and the notes thereto appear on pages 9 through 18 of the Registrant's 1995 Annual Report, which information is incorporated herein by reference. The other financial statements and schedules required -13- 14 herein are filed as "Financial Statement Schedules" pursuant to Item 14 of this Report. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information in response to this Item is set forth under the caption "Election of Trustees" in the Registrant's proxy statement dated April 7, 1995 (Exhibit 99(a)), which information is incorporated herein by reference. The information required by this Item in respect of Executive Officers is set forth on Page 13 of this Form 10-K and is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. Information in response to this Item is set forth under the caption "Compensation of Trustees and Executive Officers" in the Registrant's proxy statement dated April 7, 1995 (Exhibit 99(a)), which information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information in response to this Item is set forth under the caption "Ownership of Shares of Beneficial Interest" in the Registrant's proxy statement dated April 7, 1995 (Exhibit 99(a)), which information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information in response to this Item is set forth under the caption "Certain Transactions" in the Registrant's proxy statement dated April 7, 1995 (Exhibit 99(a)), which information is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. See the Index to Financial Statements set forth on page 21 hereof for a list of financial statements and financial schedules -14- 15 included or incorporated herein by reference. 2.1 The Financial Statements of Riverview Tower Limited Partnership, a borrower of the Registrant (which financial statements were audited by such borrower's auditors), are set forth as Exhibit 99(b). 2.2 The Financial Statements of Pacific Place Partners, LTD., a borrower of the Registrant (which financial statements were audited by such borrower's auditors), are set forth as Exhibit 99(c). 3. The exhibits filed as part of this report are set forth on the Exhibit Index on pages 17 through 20 hereof and each management contract or compensatory plan or arrangement required to be filed as an exhibit hereto has been marked with an asterisk on the Exhibit Index. (b) No current reports on Form 8-K were filed during the last quarter of fiscal year 1995. -15- 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REALTY REFUND TRUST Dated: April 28, 1995 By: /s/ Alan M. Krause -------------------------- Alan M. Krause, Chairman By: /s/ James H. Berick -------------------------- James H. Berick, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: April 28, 1995 /s/ James H. Berick -------------------------------- James H. Berick, Trustee, Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer Dated: April 28, 1995 /s/ Alan M. Krause -------------------------------- Alan M. Krause, Trustee and Principal Executive Officer Frank L. Kennard, Trustee Alvin M. Kendis, Trustee Samuel S. Pearlman, Trustee Dated: April 28, 1995 By: /s/ Alan M. Krause --------------------------- Alan M. Krause, Attorney-In-Fact Powers of attorney authorizing Alan M. Krause to sign this Form 10-K on behalf of Trustees of the Registrant are being filed with the Securities and Exchange Commission herewith (Exhibit 24). 17 Index of Exhibits Exhibit Number - ------- 3(a) First Amended and Restated Declaration of Trust (incorporated by reference to Exhibit 3.1 of Registration Statement No. 2-40238 effective June 17, 1971). 3(b) By-Laws (incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K dated February 12, 1985 and filed with the Securities and Exchange Commission on February 13, 1985). 10(a)* Form of Advisory Agreement between the Registrant and the Advisor (incorporated by reference to Exhibit 12.1 of Registration Statement No. 2-40238 effective June 17, 1971). 10(b)* Amendment dated June 1, 1987 to Advisory Agreement between Registrant and the Advisor (incorporated by reference to Exhibit 10(b) of the Registrant's Form 10-K for the fiscal year ended January 31, 1994). 10(c)* Amendment dated June 1, 1988 to Advisory Agreement between the Registrant and the Advisor. 10(d)* Amendment dated June 1, 1989 to Advisory Agreement between the Registrant and the Advisor (incorporated by reference to Exhibit 10(d) of the Registrant's Form 10-K for the fiscal year ended January 31, 1990). 10(e)* Amendment dated June 1, 1990 to Advisory Agreement between the Registrant and the Advisor (incorporated by reference to Exhibit 10(e) of the Registrant's Form 10-K for the fiscal year ended January 31, 1991). 10(f)* Amendment dated June 1, 1991 to Advisory Agreement between the Registrant and the Advisor (incorporated by reference to Exhibit 10(f) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(g)* Amendment dated June 1, 1992 to Advisory Agreement between the Registrant and the Advisor (incorporated by reference to Exhibit 10(g) of the Registrant's Form 10-K for the fiscal year ended January 31, 1993). 10(h)* Amendment dated June 1, 1993 to Advisory Agreement -17- 18 between the Registrant and the Advisor (incorporated by reference to Exhibit 10(h) of the Registrant's Form 10-K for the fiscal year ended January 31, 1994). 10(i) Amendment dated June 1, 1994 to Advisory Agreement between the Registrant and the Advisor. 10(j) Credit Agreement dated July 18, 1990 between the Registrant and the Bank (incorporated by reference to Exhibit 10(f) of the Registrant's Form 10-K for the fiscal year ended January 31, 1991). 10(k) Extension Agreement dated June 27, 1991 to Credit Agreement between the Registrant and the Bank (incorporated by reference to Exhibit 10(g) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(l) Amendment and Waiver Agreement dated as of July 7, 1992 to Credit Agreement between the Registrant and the Bank (incorporated by reference to Exhibit 10.5 of the Registrant's Current Report on Form 8-K dated March 16, 1993 and filed with the Securities and Exchange Commission on March 24, 1993). 10(m) Security Agreement (Promissory Notes) dated as of July 7, 1992 between Registrant and the Bank (incorporated by reference to Exhibit 10.6 of the Registrant's Current Report on Form 8-K dated March 16, 1993 and filed with the Securities and Exchange Commission on March 24, 1993). 10(n) Second Amendment dated March 16, 1993 to Credit Agreement between the Registrant and the Bank (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K dated March 16, 1993 and filed with the Securities and Exchange Commission on March 24, 1993). 10(o) Third Amendment dated as of July 28, 1994 between the Registrant and the Bank. 10(p) Security Agreement (Promissory Notes) dated as of March 16, 1993 between Registrant and the Bank (incorporated by reference to Exhibit 10.4 of the Registrant's Current Report on Form 8-K dated March 16, 1993 and filed with the Securities and Exchange Commission on March 24, 1993). 10(q) Security Agreement (Inventory, Receivables and Equipment) dated as of March 16, 1993 between Registrant and Bank (incorporated by reference to Exhibit 10.3 of -18- 19 the Registrant's Current Report on Form 8-K dated March 16, 1993 and filed with the Securities and Exchange Commission on March 24, 1993). 10(r) Secured Note Purchase Agreement dated March 16, 1993 between the Registrant and Alan M. Krause (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K dated March 16, 1993 and filed with the Securities and Exchange Commission on March 24, 1993). 10(s)* Employment Agreement dated January 22, 1990 between the Registrant and Alan M. Krause (incorporated by reference to Exhibit 10(i) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(t)* Amendment No. 1 dated June 1, 1990 to Employment Agreement between the Registrant and Alan M. Krause (incorporated by reference to Exhibit 10(j) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(u)* Amendment No. 2 dated June 1, 1991 to Employment Agreement between the Registrant and Alan M. Krause (incorporated by reference to Exhibit 10(k) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(v)* Amendment No. 3 dated June 1, 1992 to Employment Agreement between the Registrant and Alan M. Krause (incorporated by reference to Exhibit 10(s) of the Registrant's Form 10-K for the fiscal year ended January 31, 1993). 10(w)* Amendment No. 4 dated June 1, 1993 to Employment Agreement between the Registrant and Alan M. Krause (incorporated by reference to Exhibit 10(u) of the Registrant's Form 10-K for the fiscal year ended January 31, 1994). 10(x)* Amendment No. 5 dated June 1, 1994 to Employment Agreement between the Registrant and Alan M. Krause. 10(y)* Employment Agreement dated January 22, 1990 between the Registrant and James H. Berick (incorporated by reference to Exhibit 10(l) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(z)* Amendment No. 1 dated June 1, 1990 to Employment Agreement between the Registrant and James H. Berick (incorporated by reference to Exhibit 10(m) of the Registrant's Form 10-K for the fiscal year ended January -19- 20 31, 1992). 10(aa)* Amendment No. 2 dated June 1, 1991 to Employment Agreement between the Registrant and James H. Berick (incorporated by reference to Exhibit 10(n) of the Registrant's Form 10-K for the fiscal year ended January 31, 1992). 10(bb)* Amendment No. 3 dated June 1, 1992 to Employment Agreement between the Registrant and James H. Berick (incorporated by reference to Exhibit 10(w) of the Registrant's Form 10-K for the fiscal year ended January 31, 1993). 10(cc)* Amendment No. 4 dated June 1, 1993 to Employment Agreement between the Registrant and James H. Berick (incorporated by reference to Exhibit 10 (z) of the Registrant's Form 10-K for the fiscal year ended January 31, 1994). 10(dd)* Amendment No. 5 dated June 1, 1994 to Employment Agreement between the Registrant and James H. Berick. 13 The Registrant's 1995 Annual Report. 24 Powers of Attorney. 27 Financial Data Schedule 99(a) Notice of Annual Meeting and Proxy Statement dated April 7, 1995. 99(b) Financial Statements of Riverview Tower Limited Partnership as at December 31, 1995 and 1994. 99(c) Financial Statements of Pacific Place Partners, Ltd. as at December 31, 1993 and 1994. *Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. -20- 21 REALTY ReFUND TRUST ------------------- LIST OF FINANCIAL STATEMENTS AND SCHEDULE ----------------------------------------- The following finacial statements of Realty ReFund Trust are included in Item 8: Report of Independent Public Accountants Balance Sheets -- January 31, 1995 and 1994 Statements of Income - For the Years Ended January 31, 1995, 1994 and 1993 Statements of Shareholders' Equity -- For the Years Ended January 31, 1995, 1994 and 1993 Statements of Cash Flows -- For the Years Ended January 31, 1995, 1994 and 1993 Notes to Financial Statements -- January 31, 1995, 1994 and 1993 The following financial statement schedule of Realty ReFund Trust is included in Item 14(a)1.: Schedule III -- Real Estate and Accumulated Depreciation All other schedules are omitted, as the information is not required or is otherwise furnished. 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Trustees, Realty ReFund Trust: We have audited the accompanying balance sheets of Realty ReFund Trust (an Ohio unincorporated business trust) as of January 31, 1995 and 1994, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The summarized financial data contained in Note 11 are based on the financial statements of Riverview Tower Limited Partnership and Pacific Place Partners, LTD. which were audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the data in Note 11, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Realty ReFund Trust as of January 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 1995 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)1. of this Form 10-K is the responsibility of the Trust's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Cleveland, Ohio, February 22, 1995. /s/ Arthur Andersen LLP 23 SCHEDULE III REALTY ReFUND TRUST ------------------- REAL ESTATE AND ACCUMULATED DEPRECIATION ---------------------------------------- AS OF JANUARY 31, 1995 ----------------------
Cost Capitalized Gross Amount at Initial Cost Subsequent to Which Carried at to Trust Acquisition Close of Period ------------------- ------------------------- ------------------------------- Building and Carrying Building and Total Encumbrances Land Improvements Improvements Costs Land Improvements (A) (B) ------------ -------- --------- -------- -------- --------- ---------- ---------- Office Building-- Chicago, Illinois $ - $897,436 $7,260,000 $852,260 $ - $897,436 $8,112,260 $9,009,696 ============ ======== ========== ======== ======== ========= ========== ========== Accumulated Year Depreciation Construction Date (A) Completed Acquired Life ------------ ------------ -------- ---- Office Building-- Chicago, Illinois $359,439 $ - (C) (D) ============ ============ ======== ==== (A) Reconciliations of total cost and accumulated depreciation.
Total Accumulated Cost Depreciation --------- ------------- BALANCE, JANUARY 31, 1994 $8,387,719 $ 29,256 ADDITIONS DURING PERIOD: Building improvements 107,000 - Tenant improvements 514,977 - Depreciation expense - 330,183 ---------- -------- BALANCE, JANUARY 31, 1995 $9,009,696 $359,439 ========== ======== Note that the January 31, 1994 balances shown above reflect the reclassification of tenant improvement costs and related accumulated depreciation to conform with the January 31, 1995 balance sheet presentation. (B) For federal income tax purposes, the aggregate cost is $8,843,000. (C) Building title was accepted in July 1992. Land was acquired in March and April 1993. (D) Commencing February 1, 1994, building and building improvements are being depreciated on a straight-line basis over 30 years. Tenant improvements are depreciated on a straight-line basis over the related lease terms, which are generally five years.
EX-10.C 2 REALTY REFUND 10-K405 EX-10(C) 1 Exhibit 10(c) Amendment Dated June 1, 1988 to Advisory Agreement Between the Registrant and the Advisor 2 [REAFUND CORPORATION LOGO] June 1, 1988 ReaFund Advisors, Inc. 1385 Eaton Center Cleveland, Ohio 44114 Attention: Alfred Lerner, President Dear Al: Please be advised that the Trustees of Realty ReFund Trust (the "Trust") have agreed to extend the Advisory Agreement between ReaFund Advisors, Inc. (the "Adviser") and the Trust, for an additional term of one (1) year expiring June, 1989, on the same terms, conditions and provisions contained in the original Agreement as extended from time to time. If this Agreement to extend meets with the approval of the Adviser, please acknowledge the same on the copy of this letter enclosed for that purpose. Very truly yours, Realty ReFund Trust By /s/ James H. Berick James H. Berick Vice-Chairman and Secretary JHB/ctw The foregoing extension is hereby accepted. ReaFund Advisors, Inc. By /s/ Alfred Lerner Alfred Lerner, President EX-10.I 3 RREALTY REFUND 10-K405 EX-10(I) 1 Exhibit 10(i) Amendment Dated June 1, 1994 to Advisory Agreement Between the Registrant and the Advisor. 2 Exhibit 10(i) June 1, 1994 Mid-America ReaFund Advisors, Inc. 1385 Eaton Center Cleveland, Ohio 44114 Attention: James H. Berick, President Dear Jim: Please be advised that the Trustees of Realty ReFund Trust (the "Trust") have agreed to extend the Advisory Agreement between Mid-America ReaFund Advisors, Inc. (the "Adviser") and the Trust, for an additional term of one (1) year expiring June, 1995, on the same terms, conditions and provisions contained in the original Agreement as extended from time to time. If this Agreement to extend meets with the approval of the Adviser, please acknowledge the same on the copy of this letter enclosed for that purpose. Very truly yours, Realty ReFund Trust By /s/ Alan M. Krause Alan M. Krause Chairman And Christine Turk Secretary /ct Enclosure The foregoing extension is hereby accepted. Mid-America ReaFund Advisors, Inc. By /s/ James H. Berick James H. Berick, President EX-10.O 4 RREALTY REFUND 10-K405 EX-10(O) 1 Exhibit 10(o) Third Amendment dated as of July 28, 1994 between the Registrant and the Bank 2 THIRD AMENDMENT --------------- This Third Amendment (this "Amendment") is executed in Cleveland, Ohio on July 28, 1994, by and between REALTY REFUND TRUST ("Borrower") and NATIONAL CITY BANK ("Bank"). PRELIMINARY STATEMENTS A. Borrower and Bank entered into a Credit Agreement dated as of July 18, 1990, wherein Bank established a contingent revolving credit facility for Borrower in a principal amount not to exceed Thirty Million Dollars ($30,000,000), which Credit Agreement was amended pursuant to the Amendment and Waiver dated as of July 7, 1992 and the Second Amendment dated as of March 16, 1993, respectively (the Credit Agreement, as amended, the "Agreement"). B. Borrower and Bank wish to further amend the Agreement on the terms and conditions set forth hereinafter. AGREEMENT For valuable consideration as hereinafter granted each to the other and intending to be legally bound hereby, the parties acknowledge the preliminary statements and, effective as of the date hereof, amend the terms, conditions, and provisions of the Agreement as follows: 1. Effective as of the date hereof, the amount of the "subject commitment" (as defined in the Agreement) shall be reduced to Twenty-two Million Dollars ($22,000,000). Effective as of August 1, 1995, the amount of the "subject commitment" shall be reduced to Ten Million Dollars ($10,000,000). 2. The "expiration date" (as defined in the Agreement) shall be extended until July 31, 1996. 3. Subsection 2B. 17 of the Agreement (captioned "BORROWING BASE") is hereby rewritten in its entirety to read as follows: 2B.17 BORROWING BASE -- The BORROWING BASE at any given time shall be an amount equal to the eighty-three and 33/100ths percent (83.33%) of the net value of the eligible investments, as reasonably determined by Bank from time to time. 4. Subsection 2B.06 (captioned "AMOUNT") is hereby rewritten in its entirety to read as follows: 2B.06 AMOUNT -- No subject loan shall be made if, after giving effect thereto, the aggregate unpaid principal balance of the subject loans would exceed the lesser of the amount of the subject commitment then in effect or the borrowing base then in effect; provided, however, that the proceeds of any subject loans made on or after July 28, 1994, may be used only (a) to purchase eligible investments not owned by the Borrower on such date, and (b) to provide the Borrower with working capital up to the amount of Three Million Dollars ($3,000,000) at any time outstanding. 5. A new Subsection 2B.13(e) is hereby added to, and made a part of, the Agreement: -1- 3 (e) Each prepayment shall be applied first to reduce the then outstanding amount of the subject indebtedness that is allocable to the purchase of eligible investments, and then to reduce the then outstanding amount of the subject indebtedness that is allocable to working capital. 6. A new Subsection 5A.07 is hereby added to, and made a part of, the Agreement: 5A.07 JULY 31, 1995 BALANCE -- If, on August 1, 1995, the then outstanding balance of the subject indebtedness exceeds Ten Million Dollars ($10,000,000). IN WITNESS WHEREOF, Borrower and Bank have executed this Amendment at the time and place first above mentioned. Address: REALTY REFUND TRUST 1385 Eaton Center By: /s/ James H. Berick 1111 Superior Avenue --------------------- Cleveland, Ohio 44114 Name: James H. Berick ------------------- Title: President ------------------ Address: NATIONAL CITY BANK 1900 East Ninth Street By: /s/ John R. Franzen Attn: Real Estate Industries Division --------------------- Cleveland, Ohio 44114-3484 Name: John R. Franzen ------------------- Title: Vice President ------------------ -2- EX-10.X 5 REALTY REFUND 10-K405 EX-10(X) 1 Exhibit 10(x) Amendment No. 5 Dated June 1, 1994 to Employment Agreement Between the Registrant and Alan M. Krause. 2 AMENDMENT NO. 5 TO ------------------ EMPLOYMENT AGREEMENT -------------------- This Amendment No. 5 to Employment Agreement made as of June 1, 1994 between REALTY ReFUND TRUST, an unincorporated association in the form of a business trust organized under the laws of the State of Ohio having its principal business address at 1385 Eaton Center, Cleveland, Ohio 44114 (the "Trust") and ALAN M. KRAUSE ("Employee"). R E C I T A L S --------------- The Trust and Employee entered into an Employment Agreement dated as of January 22, 1990. As of June 1, 1993, the Employment Agreement was amended to extend its term to January 21, 2004 (subject to the provisions for earlier termination contained at Section 5 of the Employment Agreement). The January 22, 1990 Employment Agreement, as amended, is herein referred to as the "Employment Agreement". The parties desire to extend the term of the Employment Agreement by re-establishing the expiration date thereof. A G R E E M E N T S ------------------- NOW, THEREFORE, in consideration of the foregoing, and their mutual covenants and agreements herein contained, the parties hereto do hereby agree as follows: 3 1. The Trust and Employee agree to and do hereby amend the Employment Agreement so that: (a) Section 2 on page 3 of the Employment Agreement stating: "2. TERM . . . this Agreement shall commence upon the execution hereof and shall continue through and including the 21st day of January, 2004." is replaced in its entirety as though originally set forth therein with: "2. TERM . . . this Agreement shall commence upon the execution hereof and shall continue through and including the 21st day of January, 2005." and, (b) Section 6 on page 5 of the Employment Agreement stating: "6. COVENANT AGAINST COMPETITION (A) During the period commencing with the date hereof and continuing until the latter of the expiration of the term of this Agreement or until January 21, 2004 if this Agreement shall be terminated for the reasons specified in Section 5(a)(i) hereof . . . ." is replaced in its entirety as though originally set forth therein with: "6. COVENANT AGAINST COMPETITION (A) During the period commencing with the date hereof and continuing until the latter of the expiration of the term of this Agreement or until January 21, 2005 if this Agreement shall be terminated for the reasons specified in Section 5(A)(i) hereof . . ." 4 2. Except as herein specifically amended, all of the terms and conditions of the Employment Agreement are hereby ratified and confirmed and the Employment Agreement is hereby incorporated to the same extent as if fully rewritten herein. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to Employment Agreement to be duly executed as of June 1, 1994. REALTY ReFUND TRUST By: /s/ James H. Berick ---------------------------- James H. Berick, President And: /s/ Christine Turk ------------------------------ Christine Turk, Secretary THE TRUST /s/ Alan M. Krause ------------------------------ ALAN M. KRAUSE EMPLOYEE -3- EX-10.DD 6 REALTY REFUND 10-K405 EX-10(DD) 1 Exhibit 10(dd) Amendment No. 5 Dated June 1, 1994 to Employment Agreement Between the Registrant and James H. Berick 2 AMENDMENT NO. 5 TO ------------------ EMPLOYMENT AGREEMENT -------------------- This Amendment No. 5 to Employment Agreement made as of June 1, 1994 between REALTY ReFUND TRUST, an unincorporated association in the form of a business trust organized under the laws of the State of Ohio having its principal business address at 1385 Eaton Center, Cleveland, Ohio 44114 (the "Trust") and JAMES H. BERICK ("Employee"). R E C I T A L S --------------- The Trust and Employee entered into an Employment Agreement dated as of January 22, 1990. As of June 1, 1993, the Employment Agreement was amended to extend its term to January 21, 2004 (subject to the provisions for earlier termination contained at Section 5 of the Employment Agreement). The January 22, 1990 Employment Agreement, as amended, is herein referred to as the "Employment Agreement". The parties desire to extend the term of the Employment Agreement by re-establishing the expiration date thereof. A G R E E M E N T S ------------------- NOW, THEREFORE, in consideration of the foregoing, and their mutual covenants and agreements herein contained, the parties hereto do hereby agree as follows: 1. The Trust and Employee agree to and do hereby amend the Employment Agreement so that: 3 (a) Section 2 on page 3 of the Employment Agreement stating: "2. TERM . . . this Agreement shall commence upon the execution hereof and shall continue through and including the 21st day of January, 2004." is replaced in its entirety as though originally set forth therein with: "2. TERM . . . this Agreement shall commence upon the execution hereof and shall continue through and including the 21st day of January, 2005." and, (b) Section 6 on page 5 of the Employment Agreement stating: "6. COVENANT AGAINST COMPETITION (A) During the period commencing with the date hereof and continuing until the latter of the expiration of the term of this Agreement or until January 21, 2004 if this Agreement shall be terminated for the reasons specified in Section 5(a)(i) hereof . . . ." is replaced in its entirety as though originally set forth therein with: "6. COVENANT AGAINST COMPETITION (A) During the period commencing with the date hereof and continuing until the latter of the expiration of the term of this Agreement or until January 21, 2005 if this Agreement shall be terminated for the reasons specified in Section 5(A)(i) hereof . . ." 2. Except as herein specifically amended, all of the terms and conditions of the Employment Agreement are hereby -2- 4 ratified and confirmed and the Employment Agreement is hereby incorporated to the same extent as if fully rewritten herein. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to Employment Agreement to be duly executed as of June 1, 1994. REALTY ReFUND TRUST By:_____________________________ Alan M. Krause, Chairman And:____________________________ Christine Turk, Secretary THE TRUST _______________________________ JAMES H. BERICK EMPLOYEE -3- EX-13 7 REALTY REFUND 10-K405 EX-13 1 Exhibit 13 The Registrant's 1995 Annual Report 2 [FRONT COVER PAGE OF ANNUAL REPORT] Realty ReFund Trust [logo] Annual Report for the year ended January 31, 1995 [watermark of amortization table in background] 3 [INSIDE FRONT COVER PAGE OF ANNUAL REPORT] Table of Contents About Realty ReFund Trust ............................ 1 Letter to Shareholders ............................... 2-3 MD&A ................................................. 5-8 Balance Sheets ....................................... 9 Statement of Income .................................. 10 Statements of Shareholder Equity ..................... 11 Statements of Cash Flow .............................. 12 Notes ................................................ 13-18 Report of Independent Public Accountants ............. 19 Trustees and Officers ................................ 20
[Watermark of amortization table in background] 4 ABOUT REALTY REFUND TRUST Realty ReFund Trust specializes in the refinancing of existing income producing commercial, industrial and multi-unit residential property by supplementing or replacing existing financing. The Trust's primary refinancing tool is the "wrap-around" mortgage loan. The wrap-around refinancing technique enables both the Trust and its borrower to utilize the leverage available in the existing first mortgage on the borrower's property. The Trust offers a borrower a new mortgage loan (a wrap-around loan) on that property, the principal amount of which equals the balance outstanding on that property's existing mortgage loan plus an additional amount supplied by the Trust. Established in 1971, Realty ReFund Trust has elected to be taxed as a real estate investment trust as that term is used in Sections 856-860 of the Internal Revenue Code of 1954, as amended. 1 5 TO OUR SHAREHOLDERS We are pleased to report another successful year in 1995. For the year ended January 31, 1995, Realty ReFund Trust reported earnings of $0.66 per share on net income of $670,945, compared to prior year's earnings of $0.94 per share on net income of $955,121. Revenues for the year were $6,592,051 versus $7,645,790 in 1994. For the fourth quarter ended January 31, 1995, the Trust reported earnings of $0.15 per share on net income of $153,473, compared to prior year's earnings of $0.18 per share on net income of $183,027. This year's fiscal results are more comparable with the prior year's results after accounting for depreciation. In 1994, no depreciation was recorded. Because of our equity investment in the Chicago property, we now must recognize depreciation on our financial reports. Thus, we include Funds From Operations ("FFO") to provide you with a more accurate measurement of our year-to-year performance. The National Association of Real Estate Investment Trusts defines FFO essentially as the sum of the net income plus depreciation less capital gains. FFO is commonly used by REITs which have equity investments in real estate.
YEAR ENDED JANUARY 31, 1995 1994 Net Income $670,945 $955,121 Funds From Operations 914,728 955,121 Net Income per share .66 .94 Funds From Operations per share .90 .94 Dividend per share .80 .86
3 MONTHS ENDED JANUARY 31, 1995 1994 Net Income $153,473 $183,027 Funds From Operations 215,756 183,027 Net Income per share .15 .18 Funds From Operations per share .21 .18 Dividend per share .20 .18
During the calendar year of 1994, the Trust paid dividends of $0.78, of which 67.35% was taxable and 32.65% was non-taxable as a return of capital. CHICAGO PROPERTY Our property enhancement program in Chicago produced positive results this past year. For the year ended January 31, 1995, the Trust achieved operating profits before the deductions for depreciation and amortization for the first time since taking title to the property in mid-1992. We are pleased with the efforts made by our property manager in stabilizing the property's tenant base, as well as renewing leases on favorable terms. The Trust will continue to make investments to improve and upgrade this building and seek new opportunities to attract and retain tenants. 2 6 In January 1995, we paid off the remaining mortgage loan on this building held by an unaffiliated third party. TOLEDO PROPERTY In June 1994, Owens-Corning Corporation entered into an extension of its lease with our borrower, Riverview Tower Limited Partnership ("RTLP"). The lease, which had been scheduled to expire in December 1994, was extended to December 1996. With this extension, the Trust was able to extend its loan to RTLP to December 1996. Since June 1994, the Trust has received principal prepayments totaling $2,200,000 from RTLP in addition to the scheduled mortgage payments. RTLP continues to explore various alternatives for the building after the expiration of the extended Owens-Corning lease. The Trust intends to cooperate with RTLP in regard to its future plans for the property. LOAN PORTFOLIO In July 1994, the Trust made a mortgage loan of $2,050,000 on a shopping center in Saginaw, Michigan. During the first half of the year, two loans, aggregating a net investment of $8,800,000, were prepaid. 94TH CONSECUTIVE DIVIDEND PAID The Board of Trustees declared a cash dividend of $0.20 per share for the quarter ended January 31, 1995 which was paid on March 15, 1995 to shareholders of record on March 6, 1995. We are proud of our 24-year history of dividend payments. Few REITs can boast of 94 consecutive quarterly dividend payments. The Trustees will continue to review future dividend payments on a quarter-to-quarter basis. OUTLOOK We have worked tirelessly to overcome the enormous obstacles that stood between the Trust and profitability in 1993. Two profitable years later, our work is yet to be finished. Much remains to be done to seek new opportunities for our shareholders and to preserve the value of your investment. In 1995 and beyond, this continues to be our mission. We thank you for your continued loyalty and support. /s/ Alan M. Krause /s/ James H. Berick Alan M. Krause James H. Berick Chairman and President and Co-Chief Executive Officer Co-Chief Executive Officer 3 7 SELECTED FINANCIAL DATA The following selected financial data of Realty ReFund Trust for each of the five years in the period ended January 31, 1995, have been derived from the audited financial statements of the Trust, which have been audited by Arthur Andersen LLP, independent public accountants. The data presented should be read in conjunction with the respective financial statements and related notes included herein.
- -------------------------------------------------------------------------------------------------------------------------- For the fiscal years ended January 31, 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------- Total revenues $ 6,592,051 $ 7,645,790 $ 6,979,119 $ 4,525,660 $ 3,985,547 ========================================================================== Income (loss) before unusual item $ 670,945 $ 955,121 $ (3,535,366) $ 1,755,862 $ 1,756,401 Unusual item--write-off of deferred costs associated with failed mergers - - 1,007,609 - - -------------------------------------------------------------------------- Net income (loss) $ 670,945 $ 955,121 $ (4,542,975) $ 1,755,862 $ 1,756,401 ========================================================================== Earnings per share $.66 $.94 $(4.45) $1.72 $1.72 ========================================================================== Cash dividends paid and declared per share $.80 $.86 $ 1.09 $1.72 $1.72 ========================================================================== Total assets $ 45,165,356 $65,264,638 $ 70,428,842 $78,638,206 $41,493,234 ========================================================================== Bank and other borrowings $ 16,810,000 $24,575,000 $ 23,525,000 $21,050,000 $10,425,000 ==========================================================================
4 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION All references are to the Trust's fiscal year ended January 31, 1995 as compared to 1994 or the fiscal year ended January 31, 1994, as compared to 1993. RESULTS OF OPERATIONS AND FINANCIAL CONDITION Following is an analysis of the net interest income earned on each loan in the Trust's portfolio during 1995, 1994 and 1993:
ANALYSIS OF NET INTEREST INCOME BY LOAN 1995 AVERAGE AVERAGE NET LOANS LOANS AVERAGE NET INTEREST INTEREST INTEREST AVERAGE DESCRIPTION RECEIVABLE (A) PAYABLE (A) INVESTMENT (B ) INCOME EXPENSE INCOME YIELD (C) - ------------------------------------------------------------------------------------------------------------------------------------ Wrap-Around Mortgage Loans: Fort Worth, Texas $21,361,623 $12,920,553 $8,441,070 $2,107,216 $1,061,892 $1,045,324 12.4% (f) Dallas, Texas 5,459,109 4,059,109 1,400,000 131,102 90,276 40,826 11.7(d)(f) Toledo, Ohio 12,727,848 4,153,957 8,573,891 1,120,698 249,722 870,976 10.2 (d) Akron, Ohio 9,261,264 1,880,494 7,380,770 143,469 27,032 116,437 7.1 (d) Other Mortgage Loans: Saginaw, Michigan 2,041,089 - 2,041,089 128,074 - 128,074 12.5 (e) Sarasota/Orlando, Florida 3,863,138 - 3,863,138 424,417 - 424,417 11.0 Loan Prepayment Fees and Other Income N/A N/A N/A 217,620 N/A 217,620 N/A -------------------------- Totals (g) $4,272,596 $1,428,922 ========================== 1994 Wrap-Around Mortgage Loans: Fort Worth, Texas $26,623,341 $17,952,191 $8,671,150 $2,431,184 $1,463,929 $ 967,255 11.1 (f) Dallas, Texas 5,477,869 4,077,869 1,400,000 522,617 377,099 145,518 10.4 (f) Toledo, Ohio 13,894,571 4,772,525 9,122,046 1,213,338 287,239 926,099 10.2 (f) Akron, Ohio 9,602,352 2,427,999 7,174,353 700,502 139,626 560,876 7.8 Other Mortgage Loans: Sarasota/Orlando, Florida 3,974,234 - 3,974,234 436,692 - 436,692 11.0 Other Income N/A N/A N/A 28,764 N/A 28,764 N/A -------------------------- Totals (g) $5,333,097 $2,267,893 ========================== 1993 Wrap-Around Mortgage Loans: Fort Worth, Texas $32,663,441 $23,732,933 $8,930,508 $2,949,838 $1,938,807 $1,011,031 11.3% (f) Dallas, Texas 5,495,716 4,095,716 1,400,000 212,794 157,856 54,938 11.8(f)(h) Toledo, Ohio 14,208,370 5,354,852 8,853,518 1,246,149 322,558 923,591 10.4 (f) Akron, Ohio 10,158,862 3,246,889 6,911,973 717,070 187,997 529,073 7.7 Other Mortgage Loans: Sarasota/Orlando, Florida 4,073,808 - 4,073,808 447,748 - 447,748 11.0 -------------------------- Totals (g) $5,573,599 $2,607,218 ========================== (a) Based upon average month-end balances outstanding during each fiscal year. (b) Average loans receivable less average loans payable. (c) Net interest income divided by average net investment. (d) These loans were outstanding for approximately three months in 1995. The average yield represents an annualized yield. (e) This loan was outstanding for approximately six months in 1995. The average yield represents an annualized yield. (f) The Trust's net investment in these loans bears interest at variable rates based on specified increments over the prime lending rate. As the prime lending rate increased in fiscal 1995 and decreased in fiscal 1994 and 1993, the average yield on these loans fluctuated accordingly. Reference should be made to the schedule of investments in loans receivable included in Note 9 to the financial statements. (g) Interest income in 1993 and mortgage interest expense in all years presented related to the Chicago, Illinois loans have been excluded from the above analysis as the Trust accepted title to the property in fiscal 1993. (h) This loan was outstanding for four months in 1993. The average yield represents an annualized yield.
5 9 Interest income on mortgage loans receivable decreased in 1995 as compared to 1994 due to the prepayment of the Akron, Ohio and Dallas, Texas wrap-around mortgage loans in April and May 1994, respectively, and the normal amortization of mortgage loan balances. This decrease was partially offset by the effect of higher prime lending rates on variable rate mortgage loans, prepayment fees and other income related to the previously mentioned loan prepayments aggregating approximately $190,000 and interest income on the Saginaw, Michigan loan made in July 1994. Interest expense on mortgage loans payable decreased in 1995 as compared to 1994, due to the prepayments of the loans underlying the Akron, Ohio and Dallas, Texas wrap-around loan investments and the normal amortization of the fixed rate mortgage loan balances. Interest expense on bank borrowing decreased in 1995 as compared to 1994 due to lower average borrowing levels. The proceeds from the Akron, Ohio and Dallas, Texas loan prepayments were utilized to reduce bank borrowings. The effect of lower average borrowing levels more than offset the effect of higher bank interest rates. Interest expense on the note payable to related party increased due to higher interest rates. Commencing February 1, 1994, the Trust began providing depreciation on the Chicago building held for sale. For 1995, the building incurred an operating loss of $175,000, inclusive of depreciation and amortization charges of $336,000. These results compare favorably with the 1994 building operating loss of $108,000, which included amortization charges of $27,000, when the effects of depreciation and amortization are removed. The improvement in building operating results is attributable primarily to lower levels of repair and maintenance expenditures in 1995. Other operating expenses increased in both 1995 and 1994 due to higher levels of legal and professional fees. In 1994, interest income on mortgage loans decreased as compared to 1993 due to the normal amortization of mortgage loan balances, the effect of lower average prime lending rates on variable rate loans receivable in 1994 and the inclusion of $95,000 of interest income on the Chicago property in 1993. Interest expense on mortgage loans payable decreased in 1994 as compared to 1993 due to the normal amortization of the fixed rate mortgage loan balances. Interest expense on loans from bank and related parties increased approximately $50,000 in the aggregate in 1994 as compared to 1993. The increase was due to the effect of higher average borrowing levels being partially offset by lower average interest rates in 1994. Average borrowing levels were higher in 1994 as compared to 1993 due to the funding of the purchase of a substantial fee interest in the land on which the Chicago building is located. Also, borrowings related to the Dallas, Texas investment and failed merger costs in 1993 were outstanding for a full year in 1994. The fee to the Advisor increased in 1994, as compared to 1993 as the relationship between Trust income and expenses more closely approximated the thresholds established in the advisory agreement. In 1993, the Advisor was required to forego approximately $188,000 of fees due to the Trust's operating expenses exceeding thresholds specified in the advisory agreement. In 1994, the amount of advisory fees so foregone was approximately $22,000. The 1994 results of the Trust include the operating results of the Chicago property for a full year as compared to approximately five months in 1993. During 1994 and 1993, the Chicago property incurred operating losses of approximately $108,000 and $182,000, respectively. Rental revenues for 1994 as compared to annualized 1993 revenues decreased due to decreased occupancy. Property operating expenses were considerable in fiscal 1994 as the Trust incurred substantial costs in rehabilitating the building. In May 1992, the borrower under the Trust's Chicago office building loans notified the Trust that it would cease making scheduled mortgage payments after the May 1992 payment. In late July 1992, the Trust took title to the property in lieu of foreclosure on the building. Prior thereto, the Trust had mortgage loans receivable on the building of approximately $12,000,000 and an underlying loan obligation of approxi- 6 10 mately $832,000. An independent appraisal of the building was completed in October 1992 which indicated a net realizable value of $7,260,000. Accordingly, the Trust recorded a $4,740,343 write-down of its investment in the Chicago building, with a corresponding charge against 1993 operations. The Trust intends to sell the building, but the timing and terms of any such sale cannot be predicted. The Trust ceased accruing interest on the mortgage loans when payments ceased in May 1992. The operating loss of the property has been included in the Trust's operating results since the Trust took title to the building. The Trust historically has specialized in mortgage financing as its investment vehicle. In 1990, the Trustees authorized the Advisor to search for, and submit to the Trustees for approval, equity investments as well as mortgage investments. On December 27, 1991, the Trust entered into an Omnibus Acquisition Agreement (the Omnibus Agreement) which provided for the contemporaneous consummation of two mergers, whereby newly formed, wholly owned subsidiaries of the Trust would be merged with and into two limited partnerships. The Omnibus Agreement was terminated in May 1992 following (i) the institution of a class action lawsuit against such partnerships and their general partners by certain limited partners of such partnerships and (ii) the default of the borrower under the Chicago office building loans. Accordingly, previously deferred merger costs incurred in connection with the proposed mergers of $1,007,609 have been charged against income and have been reflected as an unusual item in the statements of income for 1993. In October 1993, the tenant which occupies 99% of the Toledo, Ohio office building announced that it would be relocating from the Toledo building to an as-yet unbuilt facility. In June 1994, the maturity date of the Trust's wraparound mortgage loan on the property was extended to December 1996 and certain terms of the loan were modified. The loan extension and modification required the borrower to make prepayments of loan principal aggregating $2,200,000 during fiscal 1995. An additional prepayment of principal in the amount of $850,000 is due to the Trust in January 1996. The interest rate on the Trust's net investment, previously 4% above the prime rate, was fixed at 10%. The Trust intends to cooperate with the building owner in considering its possible alternative responses to the tenant's decision and in formulating plans for the future use of the building. A corporation owned by the Chairman of the Trust is the general partner in the partnership which owns the Toledo building. The partnership owning the building has no substantial assets or sources of revenue other than the building. As such, if the partnership is unable to obtain a replacement tenant(s) or otherwise generate sufficient cash flow to meet its obligations under the wrap-around mortgage loan, the operating results, financial position and cash flow of the Trust could be adversely affected. Due to the preliminary status of planning for future uses of the building and the receipt of substantial principal prepayments in fiscal 1995, the Trust concluded that no writedown of its investment in the building was required at January 31, 1995. LIQUIDITY To maintain tax-exempt status, the Trust is required to distribute at least 95% of its taxable income to its shareholders. It is currently the policy of the Trust to distribute sufficient dividends to maintain its tax-exempt status. As a result of the substantial loss in 1993, the Trust has available approximately $4.6 million of net operating loss carryforwards for income tax purposes. The loss carryforwards can be used to reduce future dividend payment requirements and still allow the Trust to maintain its tax-exempt status. The Trustees will assess the level of dividends to be declared on a quarterly basis. For 1995 as compared to 1994, net cash provided by operating activities decreased due to the reduction in the Trust's loan investment portfolio and the higher levels of payments to the Advisor and other suppliers more than offset the improved operating performance of the Chicago building and the receipt of prepayment and other fees on the Akron, Ohio and Dallas, Texas loan prepayments. Cash from investing activities increased considerably in 1995 due to the Akron, Ohio ($7,400,000 net investment) and Dallas, Texas ($1,400,000 net investment) loan prepayments, additional principal amortization ($2,200,000) received on the Toledo, Ohio loan pursuant to the previously 7 11 discussed loan extension agreement, the normal amortization of mortgage loan balances and a lower level of expenditures for land and building and tenant improvements at the Chicago property. A partially offsetting factor was the use of $2,050,000 of funds in 1995 for a new loan on a shopping center in Saginaw, Michigan. Cash from financing activities decreased in 1995 as compared to 1994 as the proceeds from the Akron, Ohio and Dallas, Texas loan prepayments and the additional principal amortization received on the Toledo, Ohio loan were utilized to reduce bank borrowings. In 1994, the Trust obtained $5,000,000 of borrowings from a related party. For 1994, as compared to 1993, net cash provided by operating activities increased due to a lower level of cash payments to the Advisor and suppliers. A primary cause of the decrease in such payments was the refund of 1993 fees from the Advisor of $188,000 being received in 1994. Net cash used for investing activities decreased in 1994 as compared to 1993 as the impact of the investments in the land and tenant improvements at the Chicago property in 1994 was more than offset by the payments of failed merger costs in 1993 and the investment in the Dallas, Texas loan in 1993. There were no new loan investments in 1994. Principal collected on mortgage loans receivable and principal payments on mortgage loans payable decreased in 1994 due to the normal amortization of mortgage loan balances. Net cash from financing activities in 1994 decreased considerably from 1993 as less bank borrowings were required to fund investing activities. In connection with the Trust's wrap-around loans, while the entire debt service is received in cash, the Trust is obligated to the borrower to make debt service payments on the underlying indebtedness. Additionally, the Trust will be funding any operating deficits of the Chicago building until such time as it is sold. However, management believes that rental revenues of the property will be sufficient to fund property operating expenses. The Trust's primary sources of funds are a bank line of credit in the amount of $22,000,000 and repayments of mortgage loans receivable. The line of credit is used to provide the Trust with a source of funds when payments due on loans underlying the Trust's wrap-around loans are in excess of the payments due the Trust or to fund losses such as experienced in 1993. In July 1994, the bank extended the line of credit to July 1996. Availability under the line of credit is $22,000,000 until August 1, 1995, at which time availability will be reduced to $10,000,000. The agreement provides for a borrowing base equal to 83.3% of the Trust's investments, as defined, and $3,000,000 for working capital with any remainder being available for new investments. No other significant changes were incorporated into the line of credit agreement. As of January 31, 1995, the Trust had available approximately $10,190,000 under the line of credit. In August 1994, the Trust exercised its right to extend the maturity date of the note payable to related party to August 1995. INFLATION Generally, inflation affects the Trust as it affects its borrowers and the underlying real estate collateral. This type of collateral traditionally has been able to sustain itself during periods of inflation. OTHER In December 1991, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." As the Trust has less than $150 million of total assets, the standard will not be effective until the fiscal year ended January 31, 1996. The standard will require the Trust to disclose in its financial statements or notes thereto, the fair value of assets and liabilities which meet the standard's definition of financial instruments. The primary assets and liabilities of the Trust which qualify as financial instruments are mortgage loans receivable and payable and notes payable. 8 12
BALANCE SHEETS AS OF JANUARY 31, 1995 1994 ASSETS INVESTMENTS: Loans receivable $24,476,670 $42,748,226 Loan receivable from related party 11,033,109 13,732,592 35,509,779 56,480,818 REAL ESTATE HELD FOR SALE, net of accumulated depreciation and amortization of $360,000 and $29,000 at January 31, 1995 and 1994, respectively 8,650,257 8,358,463 OTHER ASSETS: Cash 39,073 50,474 Interest receivable and other assets 966,247 374,883 $45,165,356 $65,264,638 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Loans payable underlying wrap-around mortgages $10,264,669 $21,566,937 Loan payable underlying wrap-around mortgage to related party 3,832,317 4,469,721 Mortgage loan payable on real estate held for sale - 500,000 Note payable to bank 11,810,000 19,575,000 Note payable to related party 5,000,000 5,000,000 Deposits and accrued expenses 1,543,828 1,313,326 32,450,814 52,424,984 SHAREHOLDERS' EQUITY: Shares of beneficial interest without par value; unlimited authorization; 1,020,586 shares outstanding in 1995 and 1994 12,714,542 12,833,678 Undistributed net income - 5,976 12,714,542 12,839,654 $45,165,356 $65,264,638 =========================== The accompanying notes to financial statements are an integral part of these balance sheets.
9 13
STATEMENTS OF INCOME FOR THE YEARS ENDED JANUARY 31, 1995 1994 1993 REVENUES: Interest income from loans receivable $3,151,628 $4,119,759 $ 4,422,972 Interest income from loan receivable from related party 1,120,968 1,213,338 1,246,149 Rental revenue from real estate held for sale 2,319,455 2,312,693 1,309,998 6,592,051 7,645,790 6,979,119 EXPENSES: Interest on loans underlying wrap- around mortgages and other mortgage loans 1,218,159 2,029,240 2,348,470 Interest on loan underlying wrap- around mortgage to related party 249,722 287,239 322,559 Interest on loans from bank 793,731 964,910 1,114,089 Interest on loans from related parties 411,944 338,077 71,881 Fee to related party investment advisor 294,115 279,938 201,217 Legal expense to related party 41,000 54,000 - Operating expenses of real estate held for sale 2,157,957 2,394,279 1,489,624 Depreciation of building held for sale 243,783 - - Amortization of tenant improvements and deferred leasing commissions 92,309 26,510 2,747 Provision for write-down of real estate held for sale - - 4,740,343 Other operating expenses 418,386 316,476 223,555 5,921,106 6,690,669 10,514,485 INCOME (LOSS) BEFORE UNUSUAL ITEM 670,945 955,121 (3,535,366) UNUSUAL ITEM--WRITE-OFF OF DEFERRED COSTS ASSOCIATED WITH FAILED MERGERS - - 1,007,609 NET INCOME (LOSS) $ 670,945 $ 955,121 $(4,542,975) ========================================== INCOME (LOSS) PER SHARE $ .66 $ .94 $ (4.45) ========================================== CASH DIVIDENDS PER SHARE: Paid $ .60 $ .68 $ .84 Declared .20 .18 .25 $ .80 $ .86 $ 1.09 ========================================== The accompanying notes to financial statements are an integral part of these statements.
10 14
STATEMENTS OF SHAREHOLDERS' EQUITY Shares of Total Beneficial Undistributed Shareholders' FOR THE YEARS ENDED JANUARY 31, 1995, 1994, AND 1993 Interest Net Income Equity BALANCE, JANUARY 31, 1992 $18,660,926 $ 11,871 $18,672,797 Net loss (4,531,104) (11,871) (4,542,975) Cash dividends paid (1,296,144) - (1,296,144) BALANCE, JANUARY 31, 1993 12,833,678 - 12,833,678 Net income - 955,121 955,121 Cash dividends paid - (949,145) (949,145) BALANCE, JANUARY 31, 1994 12,833,678 5,976 12,839,654 Net Income - 670,945 670,945 Cash dividends paid (119,136) (676,921) (796,057) BALANCE, JANUARY 31, 1995 $12,714,542 $ - $12,714,542 =========================================== The accompanying notes to financial statements are an integral part of these statements.
11 15
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31, 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 3,946,514 $ 4,999,019 $ 5,376,682 Interest paid (2,709,753) (3,552,499) (3,884,027) Cash payments to investment advisor and other suppliers (784,514) (184,830) (651,814) Rental revenue received from real estate held for sale 2,319,157 2,306,103 1,388,572 Cash payments for operating costs of real estate held for sale (2,268,734) (2,413,637) (1,429,950) Net cash provided by operating activities 502,670 1,154,156 799,463 CASH FLOWS FROM INVESTING ACTIVITIES: Principal collected on mortgage loans receivable 23,158,635 6,391,543 9,043,637 Principal payments on mortgage loans payable (12,439,672) (6,547,638) (8,974,421) Payments for land and building and tenant improvements (621,977) (985,856) (83,333) Investments in mortgage loans receivable (2,050,000) - (1,400,000) Payment of failed merger costs - - (536,174) Loan fees received - - 14,000 Net cash provided by (used for) investing activities 8,046,986 (1,141,951) (1,936,291) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments) (7,765,000) (3,950,000) 7,875,000 Cash dividends paid (796,057) (949,145) (1,296,144) Net borrowings from (repayments to) related parties - 5,000,000 (3,500,000) Net repayments of borrowings from others - - (1,900,000) Payment of financing fees - (109,526) - Net cash provided by (used for) financing activities (8,561,057) (8,671) 1,178,856 NET INCREASE (DECREASE) IN CASH $ (11,401) $ 3,534 $ 42,028 CASH AT BEGINNING OF YEAR 50,474 46,940 4,912 CASH AT END OF YEAR $ 39,073 $ 50,474 $ 46,940 ============================================ RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income (loss) $ 670,945 $ 955,121 $ (4,542,975) Adjustments to reconcile net income (loss) to net cash provided by operating activities- Depreciation of building held for sale 243,783 - - Amortization of deferred financing costs, deferred leasing commissions and tenant improvements 131,257 97,087 3,629 Amortization of deferred loan fees (27,234) (71,640) (26,691) Provision for write-down of real estate held for sale - - 4,740,343 Write-off of deferred costs associated with failed mergers - - 1,007,609 Deferral of interest income (137,596) (273,735) (353,810) (Increase) decrease in interest receivable and other assets (636,221) 78,250 (60,865) Increase in deposits and accrued expenses 257,736 369,073 32,223 $ 502,670 $ 1,154,156 $ 799,463 ============================================ The accompanying notes to financial statements are an integral part of these statements.
12 16 NOTES TO FINANCIAL STATEMENTS January 31, 1995, 1994 and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The financial statements include the accounts of Realty ReFund Trust and its wholly owned subsidiaries RRF LP I, Inc. and RRF LP II, Inc. (collectively, the Trust). All significant intercompany transactions and balances have been eliminated in the accompanying finacial statements. Investments in Wrap-Around Mortgages and Related Underlying Loans In a wrap-around mortgage structure, the principal amount secured by the mortgage note held by the Trust is equal to the outstanding balance under the prior mortgage loan plus the amount of funds advanced by the Trust. The notes held by the Trust are subordinate to the underlying prior indebtedness. The Trust agrees with the borrower to make principal and interest payments to the holder of the existing prior mortgage, but only to the extent scheduled payments are received from the borrower and no other default exists. Generally, the Trust has the right to pay off the prior indebtedness and succeed to its priority. The mortgage notes held by the Trust generally are coterminous with the underlying prior indebtedness and provide for lump-sum payments by the borrower upon maturity. Scheduled minimum payments during the five years ending January 31, 2000 and, thereafter, are approximately as follows:
PRINCIPAL PAYMENTS DUE TO DUE FROM TRUST ON TRUST ON YEAR ENDING LOANS LOANS JANUARY 31, RECEIVABLE PAYABLE 1996 $11,142,000 $6,364,000 1997 22,455,000 5,297,000 1998 69,000 764,000 1999 78,000 811,000 2000 1,765,000 861,000 Thereafter - - ==========================
Depreciation and Amortization Commencing February 1, 1994, the Trust began recording depreciation on the Chicago building held for sale. Depreciation is being provided on a straight-line basis over the 30-year estimated economic life of the building. Accumulated depreciation of the building and building improvements at January 31, 1995 was $244,000. Included in real estate held for sale at January 31, 1995 and 1994 are tenant improvement costs of $672,000 and $230,000, respectively, which are being amortized on a straight-line basis over the related lease terms, which are generally five years. Accumulated amortization of such costs was $116,000 and $29,000 at January 31, 1995 and 1994, respectively. Included in interest receivable and other assets at January 31, 1995 are deferred leasing commissions of $162,000 which are being amortized on a straight-line basis over the related lease terms. Accumulated amortization of such deferred costs at January 31, 1995 is $6,000. Included in interest receivable and other assets are legal costs incurred in selling the secured note payable to related party discussed in Note 5. These deferred costs are fully amortized as of January 31, 1995. Accumulated amortization at January 31, 1995 and 1994 was $110,000 and $71,000, respectively. Amortization expense of $39,000 and $71,000 is included in interest expense on loans from related parties in the accompanying statements of income for 1995 and 1994, respectively. Earnings Per Share Earnings per share has been computed based on the weighted average number of shares outstanding during the periods. Earnings per share for 1995, 1994 and 1993 was based upon 1,020,586 shares. During these periods the Trust had no potentially dilutive securities outstanding. Statements of Cash Flows The Trust considers all highly liquid short-term investments with the original maturities of three months or less to be cash equivalents. In July 1992, in a noncash transaction, the Trust accepted title in lieu of foreclosure on a Chicago office building. See Note 2 for further discussion. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. New Accounting Principles In December 1991, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." The Trust is not required to adopt the standard until the fiscal year ended January 31, 1996. The standard will require the Trust to disclose in its financial statements or notes thereto, the fair value of assets and liabilities which meet the standard's definition of financial instruments. The primary assets and liabilities of the Trust which qualify as financial instruments are mortgage loans receivable and payable and notes payable. 2. REAL ESTATE HELD FOR SALE: In May 1992, the borrower under the Trust's Chicago office building loans notified the Trust that it would cease making scheduled mortgage payments after the May 1992 payment. In late July 1992, the Trust accepted title in lieu of foreclosure on the building. Prior thereto, the Trust had mortgage loans receivable on the building of approximately $12,000,000 and an underlying loan obligation of approximately $832,000. An appraisal was completed in October 1992 indicating a building net realizable value of $7,260,000. 13 17 Accordingly, the Trust recorded a $4,740,000 write-down of its investment in the Chicago building with a corresponding charge against fiscal 1993 operations. During the year ended January 31, 1994, the Trust purchased an 83% interest in the land underlying the building for approximately $897,000. The Trust intends to sell the building, but the timing and terms of any such sale cannot be predicted. The Trust ceased accruing interest on the mortgage loans when payments ceased in May 1992. Interest income recorded by the Trust on this investment was approximately $95,000 in 1993. The operating results of the property have been included in the accompanying statements of income since the date of the title acceptance. 3. UNUSUAL ITEM: In December 1991, the Trust entered into an Omnibus Acquisition Agreement (the Omnibus Agreement) which provided for the contemporaneous consummation of two mergers, whereby newly formed, wholly owned subsidiaries of the Trust would be merged with and into two Delaware limited partnerships, Lepercq Corporate Income Fund L.P. (LCIF I) and Lepercq Corporate Income Fund II L.P. (LCIF II). The Omnibus Agreement was terminated in May 1992 due to a combination of the Chicago office building loans default and a class action lawsuit instituted against LCIF I, LCIF II and their general partners by limited partners of LCIF I and LCIF II. Accordingly, $1,008,000 of previously deferred costs incurred in connection with the proposed mergers were charged against income and have been reflected as an unusual item in the accompanying statement of operations for 1993. 4. NOTE PAYABLE TO BANK: The Trust has a revolving credit agreement with a bank. At the option of the Trust, borrowings against the line of credit bear interest at either the bank's prime lending rate or a fixed rate equal to 1.5% over LIBOR. A commitment fee of 3/8% is payable on the unused portion of the line of credit. Among other provisions, the agreement provides that the Trust cannot permit its net worth, including subordinated debt, to be less than $17 million and that total debt, excluding wrap-around mortgages, and senior indebtedness are limited to 300% and 225%, respectively, of the Trust's net worth. In July 1994, the bank extended the Trust's revolving credit agreement to July 31, 1996. Availability under the agreement is $22,000,000 until August 1, 1995 at which time availability will be reduced to $10,000,000. The agreement provides for a borrowing base equal to 83.3% of the Trust's investments, as defined, and $3,000,000 for working capital, with any remainder being available for new investments. As of January 31, 1995, the Trust had borrowed $11,810,000 under this agreement. At January 31, 1995, the Trust had available approximately $10,190,000 under the amended terms of the agreement. For the years ended January 31, 1995, 1994 and 1993, the average daily bank borrowings were $12,427,000, $20,075,000 and $19,394,000, respectively, with a weighted average interest rate (actual interest expense divided by average daily borrowings) of 6.40%, 4.81% and 5.46%, respectively. The weighted average interest rates on bank borrowings outstanding at January 31, 1995, and 1994 were 7.34% and 4.76%, respectively. As of January 31, 1995, the prime rate was 8.5%. 5. NOTE PAYABLE TO RELATED PARTY: In March 1993, the Trust sold a $5,000,000 secured note to the Chairman of the Trust, at par. The note bears interest at the prime lending rate and had a stated maturity date of August 1994. As the Trust's revolving credit agreement was extended to July 1996, the Trust exercised its option to extend the maturity of the note to August 1995. The note is subordinate to the Trust's bank line of credit. Until May 1992, the Trust had outstanding borrowings from the former Chairman of the Trust and from The Mid-America Management Corporation, an entity owned by the present Chairman of the Trust. Borrowings under such notes were payable upon demand and accrued interest at 1/2% below the lowest rate then available to the Trust under the bank revolving credit agreement at the time such loan was made. These notes were subordinate to the Trust's bank borrowings. Total related party interest expense on these borrowings was approximately $72,000 in 1993. 6. Federal Income Taxes: No provision for current or deferred income taxes has been made by the Trust on the basis that it qualifies under Sections 856-860 of the Internal Revenue Code as a real estate investment trust and has distributed or will distribute all of its taxable income for the year ended January 31, 1995 to shareholders. On February 22, 1995, the Trustees declared a dividend, payable on March 15, 1995, in the amount of $.20 per share of beneficial interest, totaling $204,000. The total dividends per share applicable to operating results for the year ended January 31, 1995, including the declaration on February 22, 1995, amount to $.80. An income tax net operating loss of approximately $4,600,000 was incurred in fiscal 1993 and is available for carryforward until fiscal 2008. A portion of the dividends paid in the calendar years 1992-1994 represents a return of capital primarily as a result of the net operating loss for fiscal 1993 and for fiscal 1994 and 1995, depreciation deductions for tax reporting purposes relative to the building held for sale. The quarterly allocation of cash dividends paid per share for individual shareholders' income tax purposes was as follows: 14 18
CALENDAR 1994 CALENDAR 1993 CALENDAR 1992 Return Return Return Month Ordinary of Total Ordinary of Total Ordinary of Total Paid Income Capital Paid Income Capital Paid Income Capital Paid March $.121 $.059 $.18 $.148 $.102 $.25 $.07 $ .36 $ .43 June .135 .065 .20 .148 .102 .25 - .34 .34 September .135 .065 .20 .148 .102 .25 - .25 .25 December .135 .065 .20 .106 .074 .18 - .25 .25 $.526 $.254 $.78 $.550 $.380 $.93 $.07 $1.20 $1.27 =====================================================================
A portion of the dividend paid in March 1992 was ordinary income, as for income tax purposes such amount represented a distribution of earnings applicable to the fiscal year ended January 31, 1992. The tax status of distributions to shareholders in fiscal 1996 will be dependent on the level of the Trust's earnings in that year. If fiscal 1996 taxable income of the Trust exceeds dividends paid in that year, such dividends will represent ordinary income to the recipients irrespective of the net operating loss carryforward. 7. ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS: The Trust has an Advisory Agreement with Mid-America ReaFund Advisors, Inc. (the Advisor) which provides for the administration of the day-to-day investment operations of the Trust. The Advisor is an entity which is jointly owned by the present Chairman and President of the Trust. Under the terms of this agreement, the Advisor is to receive, subject to certain limitations, a monthly fee equal to 1/12 of 1% of invested assets, as defined in the agreement, and an annual incentive fee equal to (a) 10% of the amount by which the net income of the Trust exceeds 8% of the average net worth for the year and (b) 10% of the difference between net realized capital gains less accumulated net realized capital losses, as defined. For any fiscal year in which operating expenses of the Trust exceed certain thresholds specified in the agreement, the Advisor is required to refund to the Trust the amount of such excess. There was no refund requirement with respect to fiscal 1995. For fiscal 1994 and 1993, operating expenses exceeded the specified thresholds by $22,000 and $188,000, respectively. The Chairman and President of the Trust have employment agreements with the Trust, expiring in 2005, each of which have been extended in the past and are expected to be extended in the future. The employment agreements provide that these individuals will receive no compensation from the Trust as long as the Advisory Agreement is in effect. However, should the Advisor no longer provide services to the Trust, these individuals will then be compensated, collectively, upon the same annual basis as the Advisor would have been compensated under the current terms of the Advisory Agreement had it remained in effect. 8. LOANS PAYABLE: As of January 31, 1995, the Trust had outstanding the following mortgage loans payable:
Principal Total Balance Installments as of of Principal January 31, and Interest Interest Maturity Location 1995 Per Year Rate Date Office Buildings- Fort Worth, Texas $10,264,669 $6,312,048 8.11% October 1996 Toledo, Ohio 3,832,317 890,340 6.05% December 1999 $14,096,986 $7,202,388 ==============================================================================
15 19 9. INVESTMENTS IN LOANS RECEIVABLE: As of January 31, 1995, the Trust had outstanding the following loans receivable. The Trust's net investment in each of the wrap-around mortgages is subordinate to underlying prior indebtedness.
Lump-Sum Amounts Balance, January 31, 1995 At Maturity Loans Year-End Due From Underlying Trust's Interest Due to Trust on Loans Wrap- Trust's Original Rate Final Trust on Underlying Receivable Around Net Net on Loans Maturity Loans Loans Description (a) Mortgages Investment Investment Receivable Date Receivable Payable WRAP-AROUND MORTGAGES: Office Buildings- Fort Worth, Texas $18,644,085 $10,264,669 $ 8,379,416 $ 9,000,000 10.4% October 1996 $ 8,780,000 $ - Toledo, Ohio (b) 11,033,109 3,832,317 7,200,792 6,500,000 8.6% December 1996 9,698,000 - Total wrap-around mortgages 29,677,194 14,096,986 15,580,208 15,500,000 18,478,000 - OTHER MORTGAGE LOANS: Motels-Sarasota, Florida; Orlando, Florida 3,803,517 - 3,803,517 3,500,000 11.0% August 1995 3,740,000 - Shopping Center Saginaw, Michigan 2,029,068 - 2,029,068 2,050,000 12.5% August 1999 1,722,000 - $35,509,779 $14,096,986 $21,412,793 $21,050,000 $23,940,000 $ - =========== =========== =========== =========== =========== === Periodic Payment Terms (d) WRAP-AROUND MORTGAGES: Office Buildings-- Fort Worth, Texas Principal and interest payable in monthly installments of approximately $625,000 through October 1996; remaining principal payable at maturity; prepayment privilege with a penalty, as defined, until maturity. Toledo, Ohio Payable in monthly instalments of approximately $128,000 inclusive of interest at 10% on the Trust's net investment through December 1996; required borrower to make principal prepayments of $1,350,000 and $850,000 in June 1994 and January 1995, respectively; requires an additional principal prepayment of $850,000 in January 1996; remaining principal due at maturity; prepayment penalty of 1% until maturity. Thirty days' prior written notice must be given to the Trust by mortgagor of intention to prepay mortgage loan. OTHER MORTGAGE LOANS: Motels Sarasota, Florida; Principal and interest payable in equal monthly installments of approximately $45,000 with remaining Orlando, Florida principal due at maturity; prepayment privilege with a penalty , as defined, until maturity. Shopping Center-- Saginaw, Michigan Principal and interest payable in monthly installments of approximately $24,000 through June 1999, with remaining principal due at maturity; prepayment privilege with a penalty , as defined, until maturity. Thirty days' prior written notice must be given to the Trust by mortgagor of intention to prepay mortgage loan.
RECONCILIATION OF MORTGAGE LOANS RECEIVABLE 1995 1994 1993 BALANCE, BEGINNING OF PERIOD $56,480,818 $62,598,626 $77,788,796 ADDITIONS: Office buildings (c) 137,596 273,735 353,810 Apartments - - 5,500,000 Shopping center 2,050,000 - - 2,187,596 273,735 5,853,810 COLLECTIONS OF PRINCIPAL: Office buildings 8,245,258 5,682,838 8,403,526 Shopping centers 9,332,144 576,142 537,296 Motels 117,280 105,115 94,214 Apartments 5,463,953 27,448 8,601 23,158,635 6,391,543 9,043,637 ACCEPTANCE OF TITLE (NOTE 2) - - 12,000,343 BALANCE, END OF PERIOD $35,509,779 $56,480,818 $62,598,626 =========== =========== =========== (a) Represents investment for both financial reporting and federal income tax purposes. (b) In June 1994, the maturity date of the Toledo, Ohio loan was extended to December 31, 1996. In connection therewith, certain terms of the loan were modified. See "Periodic Payment Terms" above. (c) Represents deferred interest applicable to existing loans. (d) Unless otherwise stated, ninety days prior written notice must be given to the Trust by mortgagor of intention to prepay a mortgage loan.
16 20 10. RELATED PARTY TRANSACTIONS: The Trust recorded provisions of approximately $41,000 and $54,000 in fiscal years 1995 and 1994, respectively, for legal services provided by a law firm of which the President of the Trust and another Trustee are principals. In 1993, included in the writeoff of deferred costs associated with the failed mergers was approximately $158,000 of legal fees paid to the related party. The Trust has an investment in a wrap-around mortgage loan on a commercial building located in Toledo, Ohio owned by a partnership of which a corporation owned by the present Chairman of the Trust is the general partner. As of January 31, 1995, the related party loan receivable and underlying loan payable were approximately $11,033,000 and $3,832,000, respectively, while at January 31, 1994, the related party loan receivable and underlying loan payable were approximately $13,733,000 and $4,470,000, respectively. In the years ended January 31, 1995, 1994 and 1993, the Trust earned approximately $1,121,000, $1,213,000 and $1,246,000 of interest income on this loan, respectively, of which payment of approximately $138,000 and $274,000 and $275,000 was deferred and added to the principal balance of the mortgage loan receivable. The Trust incurred interest expense of approximately $250,000, $287,000 and $323,000 in connection with the related underlying loan payable for the years ended January 31, 1995, 1994 and 1993, respectively. As discussed in Note 9, this loan was modified and extended in fiscal 1995. 11. SUMMARIZED FINANCIAL INFORMATION-RIVERVIEW TOWER LIMITED PARTNERSHIP AND PACIFIC PLACE PARTNERS, LTD.: As required by the Securities and Exchange Commission, the following is summarized financial information for Riverview Tower Limited Partnership, the borrower under the Toledo, Ohio wrap-around mortgage loan and Pacific Place Partners, LTD., the borrower under the Fort Worth, Texas, wrap-around mortgage loan. Both Riverview Tower Limited Partnership and Pacific Place Partners, LTD. were audited by other auditors. (000's omitted)
RIVERVIEW TOWER LIMITED PARTNERSHIP DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 Escrow receivable $ 163 $ 160 Accounts payable and accrued ecpenses $ 684 $ 2,498 Land, building, improvements Mortgage payable to Reality ReFund Trust 11,937 13,759 and equipment, net 12,603 13,041 12,621 16,257 Other assets 25 33 Partners' equity (deficit) 170 (3,023) Total assets $12,791 $13,234 Total liabilities and partners' equity $12,791 $13,234 ================ ================ YEAR ENDED DECEMBER 31, 1994 1993 1992 Gross revenues $7,497 $3,792 $3,957 Operating expenses 2,724 2,549 2,532 Income before depreciation,amortization and interest expense 4,773 1,243 1,452 Depreciation and amortization 438 438 438 Interest expense 1,141 1,214 1,250 Net income (loss) $3,194 $ (409) $ (263) ====================== PACIFIC PLACE PARTNERS LTD. DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 Land, building and equipment, net $41,369 $44,067 Accrued expenses $ 80 $ 86 Other assets 259 306 Deffered rent 1,466 2,264 Total assets $41,628 $44,373 Mortgage payable 36,975 39,490 =============== 38,521 41,840 Partners' equity 3,107 2,533 Total liabilities and partners' equity $41,628 $44,373 ================= YEAR ENDED DECEMBER 31, 1994 1993 1992 Gross revenues $8,302 $8,327 $8,308 General and administrative expenses 1 24 4 Depreciation and amortization expense 2,744 2,744 2,744 Interest expense 4,982 5,303 5,826 Net income (loss) $ 575 $ 256 $ (266) ====================== Summarized financial information for borrowers is not included with respect to any other loans of the Trust as the loans do not otherwise meet the criteria of the Securities and Exchange Commission for such disclosure.
17 21 12. QUARTERLY RESULTS (UNAUDITED): The following is an unaudited summary of the results of operations, by quarter, for the fiscal years ended January 31, 1995 and 1994. Management believes that all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of such interim results have been included. The results of operations for any interim period are not necessarily indicative of those for the entire fiscal year.
QUARTER ENDED FISCAL 1995 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 Total revenues $1,928,865 $1,582,849 $1,551252 $1,529,085 =================================================================================================================================== Total revenues less interest expense on mortgage loans and operating expenses, depreciation and amortization expenses of building held for sale $ 863,328 $ 584,636 $ 531,956 $ 650,201 =================================================================================================================================== Net income $ 226,161 $ 147,829 $ 143,482 $ 153,473 =================================================================================================================================== Earnings per share $ .22 $ .14 $ .14 $ .15 =================================================================================================================================== Dividends declared per share $ .20 $ .20 $ .20 $ .20 =================================================================================================================================== QUARTER ENDED FISCAL 1994 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 Total revenues $1,935,140 $1,936,439 $1,907,988 $1,866,213 =================================================================================================================================== Total revenues less interest expense on mortgage loans and operating expenses, depreciation and amortization expenses of building held for sale $ 783,212 $ 713,949 $ 702,212 $ 709,149 =================================================================================================================================== Net income $ 335,551 $ 250,736 $ 185,807 $ 183,027 =================================================================================================================================== Earnings per share $ .33 $ .25 $ .18 $ .18 =================================================================================================================================== Dividends declared per share $ .25 $ .25 $ .18 $ .18 ===================================================================================================================================
18 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Trustees, Realty ReFund Trust: We have audited the accompanying balance sheets of Realty ReFund Trust (an Ohio unincorporated business trust) as of January 31, 1995 and 1994, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1995. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. The summarized financial data contained in Note 11 are based on the financial statements of Riverview Tower Limited Partnership and Pacific Place Partners, LTD. which were audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the data in Note 11, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Realty ReFund Trust as of January 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 1995 in conformity with generally accepted accounting principles. Arthur Andersen LLP Cleveland, Ohio, February 22, 1995. 19 23 TRUSTEES AND OFFICERS ALAN M. KRAUSE Chairman and Co-Chief Executive Officer of the Trust and Mid-America ReaFund Advisors, Inc. (advisor to Trust); Principal, The Mid-America Companies (real estate ownership); President, The Mid-America Management Corporation (real estate management) JAMES H. BERICK President, Co-Chief Executive Officer and Treasurer of the Trust and Mid-America ReaFund Advisors, Inc. (advisor to Trust); Chairman, Berick, Pearlman & Mills Co., L.P.A. (attorneys) ALVIN M. KENDIS Retired; formerly Of Counsel, McDonald, Hopkins, Burke & Haber Co. L.P.A. (attorneys) FRANK L. KENNARD Retired; formerly Senior Vice President, The Huntington National Bank SAMUEL S. PEARLMAN Principal, Berick, Pearlman & Mills Co., L.P.A. (attorneys) MARK S. MISENCIK Vice President of the Trust CHRISTINE TURK Secretary of the Trust TIMOTHY M. BAIRD Controller of the Trust CORPORATE DATA CORPORATE HEADQUARTERS 1385 Eaton Center Cleveland, Ohio 44114 (216) 771-7663 INVESTMENT ADVISOR Mid-America ReaFund Advisors, Inc. 1385 Eaton Center Cleveland, Ohio 44114 (216) 771-7663 TRANSFER AGENTS AND REGISTRARS OF SHARES The Huntington National Bank Columbus, Ohio Chemical Mellon Shareholder Services New York, New York Telecommunications Devices for the Deaf can be reached at (800) 231-5469 STOCK LISTING New York Stock Exchange Symbol: RRF INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP GENERAL COUNSEL Berick, Pearlman & Mills Co., L.P.A. Cleveland, Ohio Shareholders who would like to receive, without charge, the Trust's annual report on Form 10-K filed with the Securities and Exchange Commission should write to: Realty ReFund Trust 1385 Eaton Center Cleveland, Ohio 44114 Attn.: Timothy M. Baird Printed on recycled paper 20 24 [BACK COVER PAGE OF ANNUAL REPORT] Realty ReFund Trust 1385 Eaton Center Cleveland, Ohio 44114 [watermark of amortization table in background] EX-24 8 REALTY REFUND 10-K405 EX-24 1 Exhibit 24 Powers of Attorney 2 POWER OF ATTORNEY ----------------- The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated association in the form of a business trust ("Trust"), which Trust anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for its year ended January 31, 1995, hereby constitutes and appoints JAMES H. BERICK and ALAN M. KRAUSE, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned and in my name, place and stead, as Trustee of said Trust, said Annual Report and any and all amendments and exhibits thereto, and any and all applications and documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report, with full power and authority to do and perform any and all acts and things whatsoever requisite, necessary or advisable to be done in the premises, as fully and for all intents and purposes as the undersigned could do if personally present, hereby approving the acts of said attorneys, and any of them and any such substitute. IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of February, 1995. /s/ Samuel S. Pearlman -------------------------- Samuel S. Pearlman 3 POWER OF ATTORNEY ----------------- The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated association in the form of a business trust ("Trust"), which Trust anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for its year ended January 31, 1995, hereby constitutes and appoints JAMES H. BERICK, ALAN M. KRAUSE and SAMUEL S. PEARLMAN, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned and in my name, place and stead, as Trustee of said Trust, said Annual Report and any and all amendments and exhibits thereto, and any and all applications and documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report, with full power and authority to do and perform any and all acts and things whatsoever requisite, necessary or advisable to be done in the premises, as fully and for all intents and purposes as the undersigned could do if personally present, hereby approving the acts of said attorneys, and any of them and any such substitute. IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of February, 1995. /s/ Frank L. Kennard ------------------------------- Frank L. Kennard 4 POWER OF ATTORNEY ----------------- The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated association in the form of a business trust ("Trust"), which Trust anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for its year ended January 31, 1995, hereby constitutes and appoints JAMES H. BERICK, ALAN M. KRAUSE and SAMUEL S. PEARLMAN, and each of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned and in my name, place and stead, as Trustee of said Trust, said Annual Report and any and all amendments and exhibits thereto, and any and all applications and documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report, with full power and authority to do and perform any and all acts and things whatsoever requisite, necessary or advisable to be done in the premises, as fully and for all intents and purposes as the undersigned could do if personally present, hereby approving the acts of said attorneys, and any of them and any such substitute. IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of February, 1995. /s/ Alvin M. Kendis ------------------------------ Alvin M. Kendis EX-27 9 REALTY REFUND 10-K405 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEETS AS OF JANUARY 31, 1995 AND 1994 AND STATEMENTS OF INCOME FOR THE YEARS ENDED JANUARY 31, 1995, 1994 AND 1993 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000082473 REALTY REFUND TRUST YEAR JAN-31-1995 FEB-1-1994 JAN-31-1995 39,073 0 35,509,779 0 0 0 9,010,257 360,000 45,165,356 0 30,906,986 12,714,542 0 0 0 45,165,356 0 6,592,051 0 0 3,247,550 0 2,673,556 670,945 0 670,945 0 0 0 670,945 .66 .66 The Registrant utilizes an unclassified balance sheet. Therefore, the captions "Total Current Assets" and "Total Current Liabilities" are not applicable.
EX-99.A 10 REALTY REFUND 10-K405 EX-99(A) 1 Exhibit 99(a) Notice of Annual Meeting and Proxy Statement Dated April 7, 1995 2 [Realty Refund Trust logo] REALTY REFUND TRUST NOTICE OF ANNUAL MEETING OF SHAREHOLDERS Notice is hereby given that the Annual Meeting of Shareholders of Realty ReFund Trust will be held at the Sheraton Cleveland City Centre, 777 St. Clair Ave., N.E., Cleveland, Ohio on Monday, May 15, 1995 at 11:30 A.M., local time, for the purpose of considering and acting upon: 1. The election of five (5) Trustees, each to hold office until the next Annual Meeting of Shareholders and until his successor shall be elected and qualified; and 2. The transaction of any other business which properly may come before the meeting and any adjournments thereof. Shareholders of Realty ReFund Trust of record at the close of business on March 17, 1995 are entitled to vote at the Annual Meeting and any adjournments thereof. By order of the Board of Trustees CHRISTINE TURK Secretary Cleveland, Ohio April 7, 1995 - -------------------------------------------------------------------------------- SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. - -------------------------------------------------------------------------------- 3 April 7, 1995 [Realty Refund Trust logo] REALTY REFUND TRUST 1385 Eaton Center Cleveland, Ohio 44114 PROXY STATEMENT The accompanying proxy is solicited by the Trustees of Realty ReFund Trust (the "Trust") for use at the Annual Meeting of Shareholders to be held on May 15, 1995 and any adjournments thereof. Shareholders of record at the close of business on March 17, 1995 (the record date) will be entitled to vote at the Annual Meeting and at any adjournments thereof. At that date the Trust had issued and outstanding 1,020,586 Shares of Beneficial Interest. Each such Share is entitled to one vote on all matters properly coming before the Annual Meeting. At least 510,294 Shares of Beneficial Interest of the Trust must be represented at the Annual Meeting in person or by proxy in order to constitute a quorum for the transaction of business. This Proxy Statement and the accompanying form of proxy were first mailed to Shareholders on April 7, 1995. ELECTION OF TRUSTEES At this Annual Meeting, five Trustees are to be elected for a term expiring at the 1996 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified. Unless a Shareholder requests that voting of the proxy be withheld for any one or more of the nominees for Trustee in accordance with the instructions set forth on the proxy, it presently is intended that Shares of Beneficial Interest represented by proxies solicited hereby will be voted for the election as Trustees of the five nominees named in the table below. All nominees have consented to being named in this Proxy Statement and to serve if elected. Should any nominee subsequently decline or be unable to accept such nomination or to serve as a Trustee, an event which the Trustees do not now expect, the persons voting the Shares of Beneficial Interest represented by proxies solicited hereby may either vote such Shares for a slate of five persons which includes a substitute nominee or for a reduced number of nominees, as they may deem advisable. 1 4 The information concerning the nominees set forth in the following table is based in part on information received from the respective nominees and in part on the Trust's records.
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS, FIRST AGE AS OF MARCH 17, 1995 BECAME NAME OF NOMINEE AND DIRECTORSHIPS HELD TRUSTEE - ------------------------- --------------------------------------------- --------- Alan M. Krause Chairman and Co-Chief Executive Officer of 1971 the Trust since 1990 and, prior thereto, Vice Chairman of the Trust; Chairman of Mid- America ReaFund Advisors, Inc. since 1990 (investment advisor to the Trust); Principal, The Mid-America Companies (real estate ownership); President, The Mid-America Management Corporation (real estate man- agement). Age 65. James H. Berick President and Treasurer of the Trust since 1971 1990 and, prior thereto, Vice Chairman and Secretary of the Trust; President and Trea- surer of Mid-America ReaFund Advisors, Inc. since 1990 (investment advisor to the Trust); Chairman, Berick, Pearlman & Mills Co., L.P.A. (attorneys). Mr. Berick is a Director or Trustee of MBNA Corporation, A. Schulman, Inc., The Tranzonic Companies, and The Town and Country Trust. Age 61. Alvin M. Kendis* Retired. Formerly, of Counsel, McDonald, 1971 Hopkins, Burke & Haber Co., L.P.A. (attor- neys). Age 76. Frank L. Kennard* Retired. Formerly, Senior Vice President, The 1971 Huntington National Bank. Age 72. Samuel S. Pearlman* Principal, Berick, Pearlman & Mills Co., 1990 L.P.A. (attorneys). Age 52. - --------------- *Member of the Audit Committee.
The Trustees held five meetings during the year ended January 31, 1995. The Trustees do not have a standing nominating or compensation committee. All incum- 2 5 bent Trustees attended all of such meetings and all meetings of committees of the Trustees on which they served during the year, except Mr. Kendis, who did not attend one Trustee and one committee meeting. The Audit Committee has the responsibility of recommending to the Trustees the selection of the Trust's independent auditors, reviewing the scope and results of audit and non-audit services, and reviewing internal accounting controls. The Audit Committee met twice during the fiscal year. James H. Berick and Samuel S. Pearlman are the Chairman and a principal, respectively, of the law firm of Berick, Pearlman & Mills Co., L.P.A., general counsel to the Trust, which received legal fees from the Trust during the year ended January 31, 1995. COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS The aggregate compensation, consisting exclusively of Trustees' fees, paid by the Trust to all Trustees as a group (five persons) for the year ended January 31, 1995 was $16,000. The Trust pays Trustees' fees to each Trustee, other than Messrs. Krause and Berick, in the amount of $250 per month plus $500 for each month in which a Trustee attends a Board meeting. TRUST PERFORMANCE GRAPH The following graph compares total Shareholder returns over the last five fiscal years to the Standard & Poor's 500 Stock Index ("S&P 500") and the National Association of Real Estate Investment Trusts, Inc.'s Total Return Indexes for mortgage real estate investment trusts ("NAREIT"). Total return values for the S&P 500, NAREIT and the Trust were calculated based upon market weighting at the beginning of the period and include reinvestment of dividends. The Shareholder return shown on the following graph is not necessarily indicative of future performance. 3 6 The following graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent the Trust specifically incorporates this information by reference and otherwise shall not be deemed filed under such Acts.
Measurement Period (Fiscal Year Covered) TRUST S&P 500 NAREIT - --------------------- ------- ------- -------- 1/31/90 100.00 100.00 100.00 1/31/91 104.55 108.38 87.07 1/31/92 165.81 132.98 113.92 1/31/93 97.38 146.96 116.35 1/31/94 82.08 165.84 129.78 1/31/95 99.00 166.78 100.79
CERTAIN TRANSACTIONS The Trust is a party to an Advisory Agreement under which the Trust receives certain services from Mid-America ReaFund Advisors, Inc. ("MARA"), a corporation owned by Alan M. Krause and James H. Berick. The Advisory Agreement provides that MARA, under the supervision of the Trustees, serves as investment adviser and consultant in connection with the policy decisions to be made by the Trustees of the Trust and as administrator of the day-to-day investment operations of the Trust. In return for MARA's services, the Advisory Agreement provides, in part, that MARA is to receive (a) a monthly fee of 1/12th of 1% of the average book value of the invested assets of the Trust during the next preceding month; (b) 15% of the commitment fees 4 7 received by the Trust for any stand-by or gap commitment relating to a mortgage loan which is not closed; and (c) an incentive fee equal to 10% of the amount, if any, by which the net profits of the Trust exceed 8% of the average monthly net worth of the Trust for the year. MARA will refund to the Trust the amount, if any, by which the operating expenses of the Trust in any fiscal year exceed the lesser of (x) 1 1/2% of the invested assets of the Trust for such fiscal year or (y) the greater of (i) 1 1/2% of the average month-end net assets of the Trust for such fiscal year or (ii) 25% of the net income of the Trust for such fiscal year. The Trust paid an aggregate amount of $294,115 to MARA for services rendered under the Advisory Agreement during the year ended January 31, 1995. Each of Messrs. Krause and Berick has an employment agreement with the Trust, expiring in 2005, which provides that he will receive no compensation from the Trust as long as the Advisory Agreement is in effect. Should MARA no longer provide such services, Messrs. Krause and Berick will then be compensated, collectively, upon the same annual basis as is MARA with each to receive, as long as he continues to be employed pursuant to his employment agreement, an amount equal to (a) if both of Messrs. Krause and Berick continue their employment with the Trust, one-half of the compensation that would have been paid to MARA or (b) if only one of Messrs. Krause and Berick continues his employment with the Trust, the full amount of the compensation that would have been paid to MARA. The Trust has a wrap-around mortgage loan on an office building in Toledo, Ohio owned by Riverview Tower Limited Partnership, a limited partnership of which an affiliate of Mr. Krause is a general partner. The loan bears interest at a rate per annum equal to 10%. The maturity date of this loan has been extended to December 31, 1996. During the year ended January 31, 1995, the largest principal balance of the loan was $13,706,529 and the largest amount of the Trust's net investment in the loan was $9,288,468. As of March 31, 1995, the outstanding principal balance of the loan was $10,922,815 and the Trust's net investment in the loan was $7,200,521. On March 16, 1993, the Trust borrowed $5,000,000 from Mr. Krause by selling to him the Trust's $5,000,000 note (the "Note") at par. The Note will bear interest at the base lending rate of National City Bank, Cleveland, Ohio ("NCB") and will mature on August 31, 1995, subject to extension for up to one additional year in certain circumstances. The Note is secured by a lien on the assets of the Trust, which lien is subordinate to the prior lien of NCB. In connection with the closing of such financing, the Trustees received the written opinion of an independent investment banking firm that the terms of such financing were fair, from a financial point of view, to the other Shareholders of the Trust. The proceeds of the sale of the Note were used to reduce the Trust's outstanding indebtedness to NCB under its revolving line of credit. 5 8 INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS Mr. Krause has been both an owner and an investor in a significant number of real estate projects and, directly or through affiliates, is a general partner in numerous real estate partnerships. A property owned by one of such real estate partnerships was sold in 1994 through foreclosure. OWNERSHIP OF SHARES OF BENEFICIAL INTEREST The following table sets forth information as of March 17, 1995 in respect of any persons known to the Trustees to be the "beneficial" owner of more than 5% of the Trust's Shares and the number of the Trust's Shares owned "beneficially" by each Trustee and nominee, and the Trustees, nominees and executive officers as a group. FIVE PERCENT BENEFICIAL OWNER; AND BENEFICIAL OWNERSHIP OF TRUSTEES, NOMINEES AND EXECUTIVE OFFICERS
SHARES % OF BENEFICIALLY OUTSTANDING NAME OWNED SHARES - ----------------------------------- ---------- ---------- Alan M. Krause(1) 183,001 17.9% James H. Berick 14,780(2) 1.4% Alvin M. Kendis 1,000 (3) Frank L. Kennard 1,000 (3) Samuel S. Pearlman 750 (3) Trustees, Nominees and Executive Officers as a group (five persons) 200,531(2) 19.6% - --------------- (1) Mr. Krause is the only person known to the Trust who beneficially owns more than 5% of the Trust's outstanding Shares. Mr. Krause's address is 600 Eaton Center, Cleveland, Ohio 44114. (2) Includes 100 Shares owned by Mr. Berick's wife, 80 Shares owned by Mr. Berick's adult children and 14,000 Shares owned by a partnership of which Mr. Berick's adult children are partners, as to all of which Mr. Berick disclaims beneficial ownership. (3) Less than 1%.
6 9 SELECTION OF ACCOUNTANTS The Trustees have selected Arthur Andersen LLP as independent auditors to examine the books, records and accounts of the Trust for the fiscal year ending January 31, 1996. Arthur Andersen LLP was the independent auditors of the Trust for the fiscal year ended January 31, 1995 and is considered by the Trustees to be well qualified. Representatives of Arthur Andersen LLP are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. OTHER MATTERS The Trustees know of no matters to be presented for action at the Annual Meeting other than those described in this Proxy Statement. Should other matters come before the meeting, the Shares represented by proxies solicited hereby will be voted with respect thereto in accordance with the best judgment of the proxy holders. SHAREHOLDER PROPOSALS If a Shareholder intends to present a proposal at the next Annual Meeting of Shareholders, presently scheduled for May 15, 1996, it must be received by the Trust for consideration for inclusion in the Trust's Proxy Statement and form of proxy relating to that meeting on or before December 8, 1995. REVOCATION OF PROXIES A proxy may be revoked at any time before a vote is taken or the authority granted is otherwise exercised. Revocation may be accomplished by the execution of a later proxy with regard to the same shares or by giving notice in writing or in open meeting. SOLICITATION OF PROXIES The cost of soliciting proxies will be borne by the Trust. The Trust does not expect to pay any compensation for the solicitation of proxies but may pay brokers, nominees, fiduciaries and custodians their reasonable expenses for sending proxy material to principals and obtaining their instructions. In addition to solicitation by mail, proxies may be solicited in person, by telephone or telegraph, or by Trustees and officers of the Trust. By order of the Board of Trustees CHRISTINE TURK Secretary April 7, 1995 7 EX-99.B 11 REALTY REFUND 10-K405 EX-99(B) 1 Exhibit 99(b) Financial Statements of Riverview Tower Limited Partnership as at December 31, 1993 and 1994 2 RIVERVIEW TOWER LIMITED PARTNERSHIP LIMITED PARTNERSHIP FINANCIAL STATEMENTS As At December 31, 1994 3 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP December 31, 1994 INDEX AUDITORS' REPORT BALANCE SHEET EXHIBIT A As At December 31, 1994 ANALYSIS OF PARTNERS' EQUITY SCHEDULE A-1 For The Year Ended December 31, 1994 STATEMENT OF OPERATIONS EXHIBIT B For The Year Ended December 31, 1994 STATEMENT OF CHANGES IN CASH POSITION EXHIBIT C For The Year Ended December 31, 1994 NOTES TO FINANCIAL STATEMENTS EXHIBIT D SCHEDULE OF PROPERTY AND EQUIPMENT EXHIBIT E For The Years Ended December 31, 1992, 1993 and 1994 SCHEDULE OF ACCUMULATED DEPRECIATION AND AMORTIZATION EXHIBIT F OF PROPERTY AND EQUIPMENT For The Years Ended December 31, 1992, 1993 and 1994
4 February 24, 1995 INDEPENDENT AUDITOR'S REPORT RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP We have audited the accompanying balance sheet of Riverview Tower Limited Partnership, A Limited Partnership, as of December 31, 1994, and the related statements of partners' equity, operations and changes in cash position for the year then ended. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audit. We conducted our audit 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 overall financial statement presentation. We believe that our audit provides 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 Riverview Tower Limited Part- nership, A Limited Partnership, as at December 31, 1994, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The information contained in Exhibits E and F is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the audit- ing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. 5 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP BALANCE SHEET Exhibit A As At December 31, 1994
ASSETS ------- Cash $ 150. Accounts Receivable 183. Escrow Receivable 163,377. Prepaid Expenses 24,248. Property and Equipment 16,705,077. Less: Accumulated Depreciation and Amortization (4,102,470.) ------------- TOTAL ASSETS $ 12,790,565.
LIABILITIES AND PARTNERS' EQUITY -------------------------------- LIABILITIES Accounts Payable $ 320,001. Accrued Interest and Real Estate Taxes 360,280. Security Deposits 2,482. Mortgage Payable 11,937,438. ------------- Total Liabilities $ 12,620,201. ------------- PARTNERS' EQUITY - SCHEDULE A-1 170,364. ------------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 12,790,565.
6 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP ANALYSIS OF PARTNERS' EQUITY Schedule A-1 For The Year Ended December 31, 1994
BALANCE NET BALANCE BEGINNING INCOME ENDING ----------- ----------- ------------ GENERAL PARTNERS $ (403,183.) $ 283,918. $ (119,265.) LIMITED PARTNERS (2,620,485.) 2,910,114. 289,629. TOTALS $(3,023,668.) $ 3,194,032. $ 170,364.
7 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP STATEMENT OF OPERATIONS Exhibit B For The Year Ended December 31, 1994 INCOME Rentals $ 4,314,541. Excess Operating and Tax Charges 2,656,961. Garage 382,448. Antenna 142,841. Total Income $ 7,496,791. OPERATING EXPENSES Custodial and Manager $ 302,628. Elevator Maintenance 114,630. Insurance 71,410. Management Fees 120,000. Office Expense 67,249. Professional Fees 43,406. Repairs and Maintenance 900,374. Supplies (29,272.) Taxes - Real Estate 271,360. Taxes - Other 2,659. Travel 155. Utilities 854,087. General Expenses 4,891. Total Operating Expenses 2,723,577. INCOME BEFORE INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION $ 4,773,214. LESS: Interest Expense 1,140,730. INCOME BEFORE DEPRECIATION AND AMORTIZATION 3,632,484. LESS: Depreciation and Amortization 438,452. NET INCOME FOR THE YEAR $ 3,194,032.
8 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP STATEMENT OF CHANGES IN CASH POSITION Exhibit C For The Year Ended December 31, 1994 CASH GENERATED BY OPERATIONS: Net Income $ 3,194,032. Depreciation Amortization 438,452. -------------- Total 3,632,484. CHANGES IN OPERATING ASSETS AND LIABILITIES: Current Assets - Increase (Decrease) Receivables $ 323. Prepaids and Escrows (4,987.) Current Liabilities - Increase (Decrease) Accounts Payable (1,772,043.) Security Deposits 2,482. Accrued Expenses and Taxes (46,094.) -------------- Total (1,820,319.) NET CASH PROVIDED BY OPERATIONS 1,812,165. INVESTING ACTIVITIES -0- FINANCING ACTIVITIES Decrease In Debt (1,821,177.) INCREASE (DECREASE) IN CASH $ (9,012.) CASH BALANCE - BEGINNING 9,162. CASH BALANCE - ENDING $ 150. SUPPLEMENTAL DISCLOSURE Cash Paid During The Year For Interest 1,112,312.
9 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Exhibit D NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------- Accounting Method ----------------- The Partnership keeps its records and prepares its financial statements on the accrual basis. Property and Equipment ---------------------- The fixed assets are recorded at cost and are being depreciated as follows: Buildings 40 Years Straight-Line Building Improvements 40 Years Straight-Line Equipment and Improvements 10 Years Straight-Line
NOTE 2 - TRANSACTIONS WITH RELATED PARTY - ---------------------------------------- The property, which is located in Toledo, Ohio is managed by the Mid America Management Corporation. Accounts Payable in the amount of $137,244. are due to the management company. 10 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Exhibit D (Continued) NOTE 3 - MORTGAGE PAYABLE The land and buildings owned by the Company are encumbered by mortgages securing two notes; one to New York Life Insurance (due in 1999) and the other to Realty Refund Trust (due in 1996). One of the limited partners of the partnership is also Chairman of the Board of Realty Refund Trust. The Company has a fixed monthly principal and interest payment of $74,195. on the first mortgage plus an interest only payment on the Realty Refund note at 10% per annum. In addition, the Company has agreed to pay $850,000. against the outstanding amount due on January 1, 1995 and January 1, 1996. The Company has also agreed to deposit with Realty Refund Trust in escrow all excess cash flow. The funds will be made available for tenant improve- ments or third party leasing commissions. The amount due for 1994 is $304,291. NOTE 4 - LEASE AMENDMENT AND EXTENSION - -------------------------------------- On June 2, 1994, the Company modified its lease with Owens-Corning Fiberglass Corporation as follows: The tenant has extended its lease to December 31, 1996 and agreed to a lease extension fee of $5,000,000. payable June, 1994, January, 1995 and January, 1996. There were also modifications of lease and operating expense payment terms. 11 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP SCHEDULE OF PROPERTY AND EQUIPMENT Exhibit E For The Years Ended December 31, 1992, 1993 and 1994
1992 ---- BALANCE AT BEGINNING ADDITIONS BALANCE AT END OF PERIOD AT COST RETIREMENTS OF PERIOD ------------ ------------ ------------ ------------ Building $13,771,320. $13,771,320. Building Improvements 1,473,220. 1,473,220. Equipment 551,143. 551,143. Land 887,000. 887,000. ------------ ------------ ------------ ------------ Total $16,682,683. $ -0-. $ -0-. $16,682,683. ============ ============ ============ ============ 1993 ---- Building $13,771,320. $13,771,320. Building Improvements 1,473,220. 1,473,220. Equipment 551,143. $ 22,394. 573,537. Land 887,000. 887,000. ------------ ------------ ------------ ------------ Total $16,682,683. $ 22,394. $ -0-. $16,705,077. ============ ============ ============ ============ 1994 ---- Building $13,771,320. $13,771,320. Building Improvements 1,473,220. 1,473,220. Equipment 573,537. 573,537. Land 887,000. 887,000. ------------ ------------ ------------ ------------ Total $16,705,077. $ -0-. $ -0-. $16,705,077. ============ ============ ============ ============ SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
12 RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP SCHEDULE OF ACCUMULATED DEPRECIATION AND AMORTIZATION Exhibit F OF PROPERTY AND EQUIPMENT For The Years Ended December 31, 1992, 1993 and 1994
1992 ---- BALANCE ADDITIONS AT BEGINNING CHARGED TO BALANCE AT END PERIOD COSTS & EXPENSES RETIREMENTS OF PERIOD ------------ ---------------- ------------ -------------- Building $2,233,494. $344,283. $2,567,777. Building Improvements 231,217. 36,816. 268,033. Equipment 333,522. 56,234. 389,756. ----------- --------- ---------- ----------- Total $2,798,233. $437,333. $ -0- $3,225,566. =========== ========= ========== =========== 1993 ---- Building $2,567,777. $344,283. $2,912,060. Building Improvements 268,033. 36,816. 304,849. Equipment 389,756. 57,353. 447,109. ----------- --------- ---------- ----------- Total $3,225,566. $438,452. $ -0- $3,664,018. =========== ========= ========== =========== 1994 ---- Building $2,912,060. $344,283. $3,256,343. Building Improvements 304,849. 36,816. 341,665. Equipment 447,109. 57,353. 504,462. ----------- --------- ---------- ----------- Total $3,664,018. $438,452. $ -0- $4,102,470. =========== ========= ========== =========== SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
13 MALITZ, WEINSTEIN & RUBIN CO. RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP December 31, 1993 INDEX ----- AUDITORS' REPORT STATEMENT OF ASSETS, LIABILITIES AND EQUITY EXHIBIT A - INCOME TAX BASIS As At December 31, 1993 ANALYSIS OF PARTNERS' EQUITY - INCOME TAX BASIS SCHEDULE A-1 For The Year Ended December 31, 1993 STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS EXHIBIT B For The Year Ended December 31, 1993 STATEMENT OF CASH FLOWS - INCOME TAX BASIS EXHIBIT C For The Year Ended December 31, 1993 NOTES TO FINANCIAL STATEMENTS EXHIBIT D - INCOME TAX BASIS 14 Malitz Weinstein & Rubin Co. CERTIFIED PUBLIC ACCOUNTANTS 3690 ORANGE PLACE - SUITE 250 CLEVELAND, OHIO 44122-4422 ----- TELEPHONE (216) 464-9560 ----- TELECOPIER (216) 464-2887 CHARLES P. MALITZ, CPA ROBERT W. BIATS MILTON J. WEINSTEIN, CPA JENNIFER L. GARRIS KIMBALL E. RUBIN, CPA KAREN M. CAROSCIO JONATHAN P. ROGEN, CPA JUDITH R. BARTELL SCOTT R. SWERESS, CPA February 18, 1994 GARY A. FERBER, CPA STEVEN MARTON, CPA (1937-1990) STEPHEN L. WOLF, CPA INDEPENDENT AUDITOR'S REPORT RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP We have audited the accompanying statement of assets, liabilities and equity - income tax basis of Riverview Tower Limited Partnership, A Limited Partnership, as of December 31, 1993, and the related statements of revenues and expenses - income tax basis, partners' equity - income tax basis and cash flows - income tax basis for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 overall financial statement presentation. We believe that our audit provides 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 Riverview Tower Limited Partnership, A Limited Partnership as of December 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with the income tax basis of accounting, as described in Note 1. Malitz, Weinstein, & Rubin Co. 15 MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS, CLEVELAND, OHIO RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND EQUITY Exhibit A - INCOME TAX BASIS As At December 31, 1993 ASSETS ------ Cash $9,162. Accounts Receivable 506. Escrow Receivable 159,722. Prepaid Expenses 22,916. Property and Equipment 16,705,077. Less: Accumulated Depreciation and Amortization (8,042,295.) ----------- TOTAL ASSETS $8,855,088. =========== LIABILITIES AND PARTNERS' EQUITY -------------------------------- LIABILITIES Accounts Payable $2,092,044. Accrued Interest and Real Estate Taxes 406,374. Mortgage Payable 13,758,615. ----------- Total Liabilities $16,257,O33. PARTNERS' EQUITY - SCHEDULE A-1 (7,401,945.) ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 8,855,088. ============ SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
16 MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP ANALYSIS OF PARTNERS' EQUITY Schedule A-1 - INCOME TAX BASIS For The Year Ended December 31, 1993
TRANSFERS BALANCE TO LIMITED NET BALANCE BEGINNING UNITS INCOME ENDING ------------- ---------- ----------- ------------- GENERAL PARTNERS $ (887,151.) $ 7O9,653. $ (19,984.) $ (197,482.) LIMITED PARTNERS (5,765,442.) (709,653.) (729,368.) (7,204,463.) ------------- ---------- ----------- ------------- TOTALS $ (6,652,593.) $ -0- $ (749,352.) $ (7,401,945.) ============= ========== =========== ============= SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
17 MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCDUNTANTS. CLEVELAND, OHIO RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP STATEMENT OF REVENUES AND EXPENSES Exhibit B - INCOME TAX BASIS For The Year Ended December 31, 1993 INCOME Rentals $2,177,816. Excess Operating Charges 1,164,161. Garage 321,682. Antenna 128,301. ----------- Total Income $3,791,960. OPERATING EXPENSES Custodial and Manager $264,383. Elevator Maintenance 112,372. Insurance 70,304. Management Fees 230,689. Office Expense 66,011. Professional Fees 42,472. Repairs and Maintenance 630,005. Supplies (17,382.) Taxes - Real Estate 258,343. Taxes - Other 3,430. Travel 570. Utilities 881,481. General Expenses 6,765. ----------- Total Operating Expenses 2,549,443. ----------- INCOME BEFORE INTEREST EXPENSE, DEPRECIATION AND AMORTIZATION $1,242,517. LESS: Interest Expense 1,214,005. ----------- INCOME BEFORE DEPRECIATION AND AMORTIZATION $28,512. LESS: Depreciation And Amortization 777,864. ----------- NET INCOME FOR THE YEAR $(749,352.) =========== SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
18 MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS Exhibit C - INCOME TAX BASIS For The Year Ended December 31, 1993 CASH GENERATED BY OPERATIONS: Net Income $(749,352.) Depreciation and Amortization 777,864. ----------- Total $ 28,512. CHANGES IN OPERATING ASSETS AND LIABILITIES: Current Assets - (Increase) Decrease Receivables $(8,132.) Prepaids (1,601.) Current Liabilities - Increase (Decrease) Accounts Payable 349,747. Accrued Expenses and Taxes (42,860.) ----------- Total 297,154. ----------- NET CASH PROVIDED BY OPERATIONS $ 325,666. INVESTING ACTIVITIES -0- FINANCING ACTIVITIES Decrease In Debt (325,666.) ----------- INCREASE (DECREASE) IN CASH $ -0- CASH BALANCE - BEGINNING 9,162. ----------- CASH BALANCE - ENDING $ 9,162. =========== SUPPLEMENTAL DISCLOSURE Cash Paid During The Year For Interest $1,214,005. =========== SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
19 MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Exhibit D NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - ----------------------------------------- Basis of Accounting ------------------- The accompanying financial statements have been prepared on the accrual method of accounting used for federal income tax purposes. Consequently, certain revenues and expenses are recognized in the determination of income in different reporting periods than they would be if the financial statements were prepared in conformity with generally accepted accounting principles. Although income tax rules are used to determine the timing of the reporting of revenues and expenses, nontaxable revenues and nondeductible expenses are included in the determination of net income. Net Income - Income Tax Basis ----------------------------- In accordance with the Company's policy, net income - income tax basis includes nontaxable revenue and nondeductible expenses in addition to taxable revenue and deductible expenses. Property and Equipment ---------------------- If an expenditure results in an asset having an estimated useful life that extends beyond the year of acquisition, the expenditure is capitalized and depreciated over the estimated useful life of the asset. Building, improvements, and equipment are recorded at cost and are depreciated using Straight-Line or Accelerated Cost Recovery Methods as follows: Buildings 19 Years ACRS - Straight-Line Building Improvements 10 Years ACRS - Straight-Line Equipment & Improvements 5 Years ACRS
Accordingly, the depreciation and amortization recorded is not purported to be an accurate reflection of economic depreciation and amortization. Adjustments Necessary To Conform With Generally Accepted Accounting ------------------------------------------------------------------- Principles (GAAP) ----------------- As stated in the accountants report and previously in Note 1 of the Notes To Financial Statements, the Company has used various depreciation and amortization methods which do not conform to generally accepted accounting principles (GAAP). Had the Company conformed to GAAP the accumulated depreciation and amortization and partners' Capital accounts would be adjusted as follows:
BEGINNING ENDING --------- ------ BALANCE SHEET Accumulated Depreciation and Amortization $(3,225,566.) $(3,664,018.) ============= ============= Partners' Capital $(2,613,052.) $(3,023,668.) ============= ============= STATEMENT OF OPERATIONS Net Income For The Year $(409,940.) =========== SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
20 MALITZ, WEINSTEIN & RUBIN CO. CERTIFIED PUBLIC ACCOUNTANTS. CLEVELAND, OHIO RIVERVIEW TOWER LIMITED PARTNERSHIP A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Exhibit D (Continued) NOTE 2 - TRANSACTIONS WITH RELATED PARTY - ----------------------------------------- The property, which is located in Toledo, Ohio is managed by the Mid-America Management Corporation. Accounts Payable in the amount of $1,890,218. are due to the management company. NOTE 3 - MORTGAGE PAYABLE - -------------------------- The land and buildings owned by the Company are encumbered by mortgages securing two notes; one to New York Life Insurance (due in 1999) and the other to Realty Refund Trust (due in 1994). One of the limited partners of the partnership is also Chairman of the Board of Realty Refund Trust. The Company has a fixed monthly payment of $128,362. To the extent that this amount will not satisfy the New York Life monthly payment and interest on the Realty Refund Note, the shortfall will be added to the Realty Refund note. SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS EX-99.C 12 REALTY REFUND 10-K405 EX-99(C) 1 Exhibit 99(C) Financial Statements of Pacific Place Partners, Ltd. as at December 31, 1993 and 1994 2 REPORT OF --------- PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- DECEMBER 31, 1994 ----------------- 3 KONOWITZ, KAHN & COMPANY, P.C - ------------------------------------------------------------------------------- Certified Public Accountants INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners of Pacific Place Partners, LTD. We have audited the accompanying balance sheet of Pacific Place Partners, LTD. (A Texas Limited Partnership) as of December 31, 1994 and 1993, and the related statements of income, partners capital, and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 1992 financial statements of Pacific Place Partners, LTD were audited by other accountants, whose report dated February 19, 1993 expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perfom 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 audit provides 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 Pacific Place Partners, LTD., as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KONOWITZ, KAHN & COMPANY, P.C, February 11, 1995 - ------------------------------------------------------------------------------- 4 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- BALANCE SHEET -------------
As At As At As At December 31, 1994 December 31, 1993 December 31, 1992 ----------------- ----------------- ----------------- ASSETS ------ CURRENT ASSETS: Cash $ 3,883 $ 4,593 $ 3,089 ------------ ------------ ------------ PROPERTY AND EQUIPMENT: Land 5,000,000 5,000,000 5,000,000 Building 35,912,072 35,912,072 35,912,072 Equipment 9,000,000 9,000,000 9,000,000 ------------ ------------ ------------ Total 49,912,072 49,912,072 49,912,072 Less: Accumulated depreciation 8,543,039 5,845,237 3,147,435 ------------ ------------ ------------ Net Book Value of Property and Equipment 41,369,033 44,066,835 46,764,637 ------------ ------------ ------------ OTHER ASSETS: Financing fees (net of accumulated amortization of $129,333, $87,833 and $46,333) 78,167 119,667 161,167 Acquisition fees (net of accumulated amortization of $15,203, $10,390 and $5,577) 177,297 182,110 186,923 ------------ ------------ ------------ Total Other Assets 255,464 301,777 348,090 ------------ ------------ ------------ TOTAL ASSETS $ 41,628,380 $ 44,373,205 $ 47,115,816 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
5 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- BALANCE SHEET -------------
As At As At As At December 31, 1994 December 31, 1993 December 31, 1992 ----------------- ----------------- ----------------- LIABILITIES AND PARTNERS' CAPITAL --------------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 2,861,851 $ 2,514,736 $ 2,209,722 Accrued interest 80,112 85,561 75,291 Deferred rent 799,590 799,590 766,268 ------------ ------------ ------------ Total Current Liabilities 3,741,553 3,399,887 3,051,281 ------------ ------------ ------------ LONG-TERM LIABILITIES: Mortgage payable 36,974,896 39,489,632 41,699,354 Less: Current portion 2,861,851 2,514,736 2,209,722 ------------ ------------ ------------ 34,113,045 36,974,896 39,489,632 Deferred rent 1,465,916 2,265,506 3,065,072 Less: Current portion 799,590 799,590 766,268 ------------ ------------ ------------ 666,326 1,465,916 2,298,804 ------------ ------------ ------------ Total Long-Term Liabilities 34,779,371 38,440,812 41,788,436 ------------ ------------ ------------ Total Liabilities 38,520,924 41,840,699 44,839,717 PARTNERS' CAPITAL 3,107,456 2,532,506 2,276,099 ------------ ------------ ------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 41,628,380 $ 44,373,205 $ 47,115,816 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
6 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- STATEMENT OF INCOME -------------------
For the Years Ended December 31, 1994 December 31, 1993 December 31, 1992 ----------------- ----------------- ----------------- INCOME: Rental income $ 8,301,639 $ 8,301,614 $ 8,301,663 Miscellaneous - 25,000 6,050 ----------- ----------- ----------- Total Income 8,301,639 8,326,614 8,307,713 ----------- ----------- ----------- EXPENSES: Interest 4,981,864 5,302,597 5,825,836 Amortization 46,313 46,313 46,313 Depreciation 2,697,802 2,697,802 2,697,802 Legal - 20,992 3,892 Miscellaneous expenses 710 2,503 - ----------- ----------- ----------- Total Expenses 7,726,689 8,070,207 8,573,843 ----------- ----------- ----------- NET INCOME (LOSS) $ 574,950 $ 256,407 $ (266,130) =========== =========== =========== The accompanying notes are an integral part of these financial statements.
7 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- STATEMENT OF CHANGES IN PARTNERS' CAPITAL -----------------------------------------
For the Years Ended December 31, 1994 December 31, 1993 December 31, 1992 ----------------- ----------------- ----------------- PARTNERS' CAPITAL - Beginning of Year $ 2,532,506 $2,276,099 $2,542,229 NET INCOME (LOSS) 574,950 256,407 (266,130) ----------------- ----------------- ----------------- PARTNERS' CAPITAL - End of Year $ 3,107,456 $ 2,532,506 $ 2,276,099 ================= ================= ================= The accompanying notes are an integral part of these financial statements.
8 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- STATEMENT OF CASH FLOWS -----------------------
For the Years Ended December 31, 1994 December 31, 1993 December 31, 1992 ----------------- ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 574,950 $ 256,407 $ (266,130) ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 2,697,802 2,697,802 2,697,802 Amortization 46,313 46,313 46,313 Increase (Decrease) in Liabilities: Accrued expenses (5,449) 10,270 75,291 Deferred rent (799,590) (799,566) 2,532,012 ----------- ----------- ----------- Total Adjustments 1,939,076 1,954,819 5,351,418 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,514,026 2,211,226 5,085,288 CASH FLOWS USED IN FINANCING ACTIVITIES: Principal payments on long-term debt (2,514,736) (2,209,722) (5,083,129) ----------- ----------- ----------- NET (DECREASE) INCREASE IN CASH (710) 1,504 2,159 CASH AT THE BEGINING OF THE YEAR 4,593 3,089 930 ----------- ----------- ----------- CASH AT THE END OF THE YEAR $ 3,883 $ 4,593 $ 3,089 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 4,987,313 $ 5,292,326 $ 5,750,545 The accompanying notes are an integral part of these financial statements.
9 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1994 ----------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property and Equipment ---------------------- The partnership is computing depreciation using the straight-line method over the estimated useful lives of the assets over a period of 5-40 years. Expenditures of maintenance, repairs and improvements which do not materially extend the useful lives of the property are charged to earnings. Income Taxes ------------ No provision for income taxes is made in the financial statements of the partnership because, as a partnership, it is not subject to income tax, as the tax effect of its activities accrue to the partners. Amortization ------------ Fees and expenses incurred in connection with placing the underlying financing in the amount of $207,500 are being amortized over five years on a straight-line basis. Expenses incurred in acquiring the property in the amount of $192,500 are being amortized over forty years on a straight-line basis. Statement of Cash Flows ----------------------- For purposes of the statement of cash flows, cash consists of unrestricted cash in a checking account. Credit Risk-Economic Dependency ------------------------------- On March 1, 1993, Lockheed Corporation purchased the Fort Worth Division of General Dynamics (the sole tenant). Lockheed purchased all of the assets held by the division and assumed all of the liabilities, including those under the lease with the Partnership. In the process of Lockheed's assumption of the General Dynamics Lease, the Partnership was able to negotiate a Consent Agreement which granted Lockheed the right to assume the Lease so long as General Dynamics remains jointly liable under the lease. As of December 31, 1994, two years remain on the lease. There are no renewal options in the lease agreement. 10 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1994 ----------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Partnership Income ------------------ The income of the partnership differs from the taxable ordinary income of the partnership on the federal income tax return due to tax laws regarding deferred expenses and depreciation. Income Reported on Tax Return $ 679,185 Items (Non-Deductible) Deductible on Tax Return: Deferred Rent 799,590 Depreciation (903,825) --------- Income Per Financial Statements $ 574,950 =========
NOTE 2 - THE PARTNERSHIP The partnership was formed on April 1, 1983 under the laws of the State of Texas for the purpose of acquiring, owning, and operating a twenty-story office building located in Dallas, Texas. On November 25, 1991, the partnership conveyed its land, building and personal property to 1910 Associates, LTD. (1910) in exchange for land, buildings and personal property located in Fort Worth, Texas. That transaction was reported as qualifying for nonrecognition of gain for income tax purposes. ICA Pacific Place, Inc., is the general partner of the partnership. NOTE 3 - MORTGAGE PAYABLE The partnership is indebted to 1910 Associates, LTD. under a wrap-around mortgage agreement in the initial amount of $48,187,500. The loan bears interest at 13% per annum during the initial five year term. Payment terms call for monthly payments in the amount of $958,333.33 for the first twelve months and $625,170.70 for the succeeding forty-eight months. During the initial term of the loan, the debt service payments are equal to the rental payments. The note is secured by the partnership's land, buildings, and equipment under a Deed of Trust. The tenant is making payments directly to the mortgagees. The underlying mortgagees, Principal Mutual Life Insurance Company, Realty Refund Trust and Prentiss/Copley Investment Group are secured by liens, security interests and collateral assignments of rents and leases. The initial term of the wrap loan is five years but may be extended under certain conditions. The two extension periods are for five and fifteen years, respectively. 11 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1994 ----------------- NOTE 3 - MORTGAGE PAYABLE (Continued) Maturities of long-term debt are as follows: Year Ending December 31, ------------------------ 1995 $ 2,861,851 1996 34,113,045 ----------- $36,974,896 ===========
12 REPORT OF --------- PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- DECEMBER 31, 1993 ----------------- 13 KONOWITZ, KAHN & COMPANY, P.C. - ------------------------------------------------------------------------------- Certified Public Accountants INEPENDENT AUDITORS' REPORT To the Partners of Pacific Place Partners, LTD. We have audited the accompanying balance sheet of Pacific Place Partners, LTD. (A Texas Limited Partnership) as of December 31, 1993, and the related statement of income, partners capital, and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 Pacific Place Partners, LTD., as of December 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Konowitz, Kahn & Company, P.C. February 12, 1994 14 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- BALANCE SHEET ------------- AS OF DECEMBER 31, 1993 ----------------------- ASSETS ------ CURRENT ASSETS: Cash $ 4,593 PROPERTY AND EQUIPMENT: Land $ 5,000,000 Building 35,912,072 Equipment 9,000,000 ------------ Total 49,912,072 Less: Accumulated depreciation 5,845,237 ------------ Net Book Value of Property and Equipment 44,066,835 OTHER ASSETS: Financing fees (net of accumulated amortization of $87,833) 119,667 Acquisition fees (net of accumulated amortization of $10,390) 182,110 ------------ Total Other Assets 301,777 ----------- TOTAL ASSETS $44,373,205 =========== The accompanying notes are an integral part of these financial statements.
15 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- BALANCE SHEET ------------- AS OF DECEMBER 31, 1993 ----------------------- LIABILITIES AND PARTNERS' CAPITAL --------------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 2,514,736 Accrued interest 85,561 Deferred rent 799,590 ----------- Total Current Liabilities $ 3,399,887 LONG-TERM LIABILITIES: Mortgage payable 39,489,632 Less: Current portion 2,514,736 ----------- 36,974,896 ----------- Deferred rent 2,265,506 Less: Current portion 799,590 ----------- 1,465,916 ----------- Total Long-Term Liabilities 38,440,812 ----------- Total Liabilities 41,840,699 PARTNERS' CAPITAL 2,532,506 ----------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $44,373,205 =========== The accompanying notes are an integral part of these financial statements.
16 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- STATEMENT OF INCOME ------------------- FOR THE YEAR ENDED DECEMBER 31, 1993 ------------------------------------ INCOME: Rental income $ 8,301,614 Miscellaneous 25,000 ----------- Total Income $ 8,326,614 EXPENSES: Interest 5,302,597 Amortization 46,313 Depreciation 2,697,802 Legal 20,992 Miscellaneous expenses 2,503 ----------- Total expenses 8,070,207 ----------- NET INCOME $ 256,407 =========== The accompanying notes are an integral part of these financial statements.
17 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- STATEMENT OF CHANGES IN PARTNERS' CAPITAL ----------------------------------------- AS OF DECEMBER 31, 1993 ----------------------- PARTNERS' CAPITAL - January 1, 1993 $2,276,099 NET INCOME 256,407 ---------- PARTNERS' CAPITAL - December 31, 1993 $2,532,506 ========== The accompanying notes are an integral part of these financial statements.
18 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- STATEMENT OF CASH FLOWS ----------------------- FOR THE YEAR ENDED DECEMBER 31, 1993 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 256,407 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation $ 2,697,802 Amortization 46,313 Increase (Decrease) in Liabilities: Accrued expenses 10,270 Deferred rent (799,566) ----------- Total Adjustments 1,954,819 ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,211,226 CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (2,209,722) ----------- NET CASH USED IN FINANCING ACTIVITIES (2,209,722) ----------- NET INCREASE IN CASH 1,504 CASH AT THE BEGINING OF THE YEAR 3,089 ----------- CASH AT THE END OF THE YEAR $ 4,593 =========== Interest in the amount of $5,292,326 was paid in 1993. The accompanying notes are an integral part of these financial statements.
19 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- AS OF DECEMBER 31, 1993 ----------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property and Equipment ---------------------- The partnership is computing depreciation using the straight-line method over the estimated useful lives of the assets over a period of 5-40 years. Expenditures of maintenance, repairs and improvements which do not materially extend the useful lives of the property are charged to earnings. Income Taxes ------------ No provision for income taxes is made in the financial statements of the partnership because, as a partnership, it is not subject to income tax, as the tax effect of its activities accrue to the partners. Amortization ------------ Fees and expenses incurred in connection with placing the underlying financing in the amount of $207,500 are being amortized over five years on a straight-line basis. Expenses incurred in acquiring the property in the amount of $192,500 are being amortized over forty years on a straight-line basis. Statement of Cash Flows ----------------------- For purposes of the statement of cash flows, cash consists of unrestricted cash. Credit Risk-Economic Dependency ------------------------------- On March 1, 1993, Lockheed Corporation purchased the Fort Worth Division of General Dynamics (the sole tenant). Lockheed purchased all of the assets held by the division and assumed all of the liabilities, including those under the lease with the Partnership. In the process of Lockheed's assumption of the General Dynamics Lease, the Partnership was able to negotiate a Consent Agreement which granted Lockheed the right to assume the Lease so long as General Dynamics remains jointly liable under the lease. As of December 31, 1993, three years remain on the lease. There are no renewal options in the lease agreement. 20 PACIFIC PLACE PARTNERS, LTD. (A TEXAS LIMITED PARTNERSHIP) ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- AS OF DECEMBER 31, 1993 ----------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Partnership Income ------------------ The income of the partnership differs from the taxable ordinary income of the partnership on the federal income tax return due to tax laws regarding deferred expenses and depreciation. Loss Reported on Tax Return $(489,802) Items (Non-Deductible) Deductible on Tax Return: Deferred Rent 799,566 Depreciation (53,357) --------- Income Per Financial Statements $ 256,407 =========
NOTE 2 THE PARTNERSHIP The partnership was formed on April 1, 1983 under the laws of the State of Texas for the purpose of acquiring, owning, and operating a twenty-story office building located in Dallas, Texas. On November 25, 1991, the partnership conveyed its land, building and personal property to 1910 Associates, LTD. (1910) in exchange for land, buildings and personal property located in Forth Worth, Texas. That transaction was reported as qualifying for nonrecognition of gain for income tax purposes. ICA Pacific Place, Inc., is the general partner of the partnership. NOTE 3 MORTGAGE PAYABLE The partnership is indebted to 1910 Associates, LTD. under a wrap-around mortgage agreement in the initial amount of $48,187,500. The loan bears interest at 13% per annum during the initial five year term. Payment terms call for monthly payments in the amount of $958,333.33 for the first twelve months and $625,170.70 for the succeeding forty-eight months. During the initial term of the loan, the debt service payments are equal to the rental payments. The note is secured by the partnership's land, buildings, and equipment under a Deed of Trust. The tenant is making payments directly to the mortgagees. The underlying mortgagees, Principal Mutual Life Insurance Company, Realty Refund Trust and Prentiss/Copley Investment Group are secured by liens, security interests and collateral assignments of rents and leases. The initial term of the wrap loan is five years but may be extended under certain conditions. The two extension periods are for five and fifteen years, respectively. -----END PRIVACY-ENHANCED MESSAGE-----