FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998
OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Commission File No. 33-99694
METROPOLITAN REALTY COMPANY, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 38-3260057
(State of incorporation) (I.R.S. Employer Identification No.)
535 Griswold, Suite 748
Detroit, Michigan 48226
(Address of principal executive offices)
Registrant's Telephone Number, including area code:
(313) 961-5552
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X_ No
There is no established public trading market for the Company's Class A
Membership Interests and Class B Membership Interests.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METROPOLITAN REALTY COMPANY, L.L.C.
BALANCE SHEET (000's Omitted)
June 30, 1998 December 31, 1997
------------------------------- --------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
Assets
Cash and cash equivalents $ 11,057 $ 1,377 $ 12,434 $ 3,783 $ 1,541 $ 5,324
Investment securities 11,706 20,463 32,169 13,121 20,985 34,106
Mortgage notes receivable:
Unaffiliated 21,444 1,444 22,888 23,801 -- 23,801
Affiliated -- -- -- 4,142 -- 4,142
Allowance for loan losses (1,385) -- (1,385) (1,385) -- (1,385)
-------- -------- -------- -------- -------- --------
Total mortgage notes receivable 20,059 1,444 21,503 26,558 -- 26,558
Accrued interest and other receivables 277 101 378 327 94 421
Other assets 78 -- 78 11 -- 11
Organization costs, net of accumulated
amortization of $134 at June 30, 1998
and $90 at December 31, 1997 -- 312 312 -- 356 356
-------- -------- -------- -------- -------- --------
Total assets $ 43,177 $ 23,697 $ 66,874 $ 43,800 $ 22,976 $ 66,776
======== ======== ======== ======== ======== ========
Liabilities and Members' Equity
Liabilities
Accounts payable $ 56 $ 14 $ 70 $ 107 $ 13 $ 120
Due to (from) (542) 542 -- 41 (41) --
Deferred income 109 219 328 23 45 68
Deposits from borrowers for property taxes 153 -- 153 114 -- 114
Other 1 -- 1 1 -- 1
-------- -------- -------- -------- -------- --------
Total liabilities (223) 775 552 286 17 303
Members' Equity
Class A members' equity 43,406 -- 43,406 43,565 -- 43,565
Class B members' equity -- 22,909 22,909 -- 22,936 22,936
Unrealized holding gains (losses) on marketable
securities available for sale (6) 13 7 (51) 23 (28)
-------- -------- -------- -------- -------- --------
Total members' equity 43,400 22,922 66,322 43,514 22,959 66,473
-------- -------- -------- -------- -------- --------
Total liabilities and members' equity $ 43,177 $ 23,697 $ 66,874 $ 43,800 $ 22,976 $ 66,776
======== ======== ======== ======== ======== ========
2
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF OPERATIONS (000's Omitted)
Three months ended Three months ended
June 30, 1998 June 30, 1997
------------------------------- ------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
Revenue
Interest income:
From mortgage notes, unaffiliated $ 583 $ 21 $ 604 $ 649 $ -- $ 649
From mortgage notes, affiliated 10 -- 10 96 -- 96
Investment income 285 336 621 274 262 536
Miscellaneous income 60 3 63 40 -- 40
------ ------ ------ ------ ------ ------
Total revenue 938 360 1,298 1,059 262 1,321
Operating Expenses
General and administrative 55 7 62 89 10 99
Amortization of organization costs -- 22 22 -- 20 20
------ ------ ------ ------ ------ ------
Total operating expenses 55 29 84 89 30 119
------ ------ ------ ------ ------ ------
Net Investment Income $ 883 $ 331 $1,214 $ 970 $ 232 $1,202
====== ====== ====== ====== ====== ======
Six months ended Six months ended
June 30, 1998 June 30, 1997
------------------------------- ------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
Revenue
Interest income:
From mortgage notes, unaffiliated $1,152 $ 23 $1,175 $1,322 $ -- $1,322
From mortgage notes, affiliated 105 -- 105 191 -- 191
Investment income 612 712 1,324 498 651 1,149
Miscellaneous income 72 3 75 75 -- 75
------ ------ ------ ------ ------ ------
Total revenue 1,941 738 2,679 2,086 651 2,737
Operating Expenses
General and administrative 151 51 202 239 18 257
Amortization of organization costs -- 44 44 -- 40 40
------ ------ ------ ------ ------ ------
Total operating expenses 151 95 246 239 58 297
------ ------ ------ ------ ------ ------
Net Investment Income $1,790 $ 643 $2,433 $1,847 $ 593 $2,440
====== ====== ====== ====== ====== ======
3
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY (000's Omitted)
Members' Equity
-----------------------
Unrealized Holding
Gains (Losses) on
Investment Total Members'/
Securities Class A Class B Stockholders' Equity
------------------- ------- ------- --------------------
Balance - December 31, 1996 $ (40) $ 42,209 $ 22,568 $ 64,737
Net investment income -- 3,813 1,279 5,092
Transfer of member interest -- 82 -- 82
Distributions -- (2,539) (911) (3,450)
Change in unrealized holding gains
(losses) on investment securities 12 -- -- 12
-------- -------- -------- --------
Balance - December 31, 1997 $ (28) $ 43,565 $ 22,936 $ 66,473
Net investment income -- 1,789 643 2,432
Distributions -- (1,948) (670) (2,618)
Change in unrealized holding gains
(losses) on investment securities 35 -- -- 35
-------- -------- -------- --------
Balance - June 30, 1998 $ 7 $ 43,406 $ 22,909 $ 66,322
======== ======== ======== ========
4
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CASH FLOWS (000's Omitted)
Six months ended June 30
------------------------
1998 1997
---- ----
Cash Flows from Operating Activities
Net investment income $ 2,432 $ 2,440
Adjustments to reconcile net investment income to
net cash from operating activities:
Depreciation and amortization expense 46 15
Other 46 9
Decrease (increase) in assets:
Accrued interest and other receivables 42 (326)
Other assets (68) (15)
Increase (decrease) in liabilities:
Accounts payable (50) 13
Other liabilities 38 77
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Total adjustments 54 (227)
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Net cash provided by operating activities 2,486 2,213
Cash Flows from Investing Activities
Purchases of investment securities (12,345) (23,326)
Collections of principal from investment securities 14,271 3,648
Net change in loans 5,316 (86)
Capital expenditures -- (4)
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Net cash provided by (used in)
investing activities 7,242 (19,768)
Cash Flows from Financing Activities
Payment to minority stockholders -- (1,848)
Distributions paid to members (2,618) (1,018)
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Net cash used in financing activities (2,618) (2,866)
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Net Increase (Decrease) in Cash and Cash Equivalents 7,110 (20,421)
Cash and Cash Equivalents - Beginning of period 5,324 23,362
-------- --------
Cash and Cash Equivalents - End of period $ 12,434 $ 2,941
======== ========
5
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF COMPREHENSIVE INCOME (000's Omitted)
Three months ended June 30, 1998 Three months ended June 30, 1997
------------------------------------ ------------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
--------- ---------- ----- ---------- ---------- -----
Net Investment Income $ 883 $ 331 $1,214 $ 970 $ 232 $1,202
Other Comprehensive
Income (Loss):
Unrealized holding gain
loss for period, net
of tax 39 6 45 61 89 150
------ ------ ------ ------ ------ ------
Comprehensive Income $ 922 $ 337 $1,259 $1,031 $ 321 $1,352
====== ====== ====== ====== ====== ======
Six months ended June 30, 1998 Six months ended June 30, 1997
------------------------------------ ------------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
--------- ---------- ----- ---------- ---------- -----
Net Investment Income $ 1,790 $ 643 $ 2,433 $ 1,848 $ 593 $ 2,441
Other Comprehensive
Income (Loss):
Unrealized holding gain
loss for period, net
of tax 45 (10) 35 (7) 14 7
------- ------- ------- ------- ------- -------
Comprehensive Income $ 1,835 $ 633 $ 2,468 $ 1,841 $ 607 $ 2,448
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6
METROPOLITAN REALTY COMPANY, L.L.C.
Notes to Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 1998 are
not necessarily indicative of the results that would be expected for
the year ending December 31, 1998. For further information, refer to
the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended December
31, 1997.
The accompanying financial statements for the six months ended June 30,
1997 reflect certain reclassifications to be consistent with the
presentation adopted for the six months ended June 30, 1998.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components. SFAS No. 130
requires unrealized gains or losses on securities available for sale to
be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of
SFAS No. 130.
2. INCOME TAXES
As a limited liability company, it is intended that the Company will be
classified as a partnership for federal income tax purposes and, as
such, it generally will be treated as a "pass-through" entity that is
not subject to federal income tax. Accordingly, no provision for income
taxes has been made for the periods presented.
3. DISTRIBUTIONS
In accordance with the terms of the Operating Agreement, Class A and
Class B members will receive pro rata quarterly distributions of cash
income, less expenses, from their respective class of net assets within
90 days after the end of each fiscal quarter. The Operating Agreement
also provides for the pass through to Class A members (commencing in
the year 2001, if elected) and Class B members (commencing in the year
2000), from their respective classes of net assets, of principal
returned with respect to real estate investments and any cash and cash
equivalents which have not been invested in real estate investments.
All distributions are subject to a determination by the Managing Board
that the Company will have sufficient cash on hand to meet its current
and anticipated needs to fulfill its business purpose.
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Item 2. Management's Discussion and Analysis Of Financial Condition And
Results Of Operation
Overview
The Company intends to continue to invest its available funds at competitive
rates in mortgage loans to real estate projects located in southeastern
Michigan. Cycles in the local and national economy have affected and will
continue to affect the Company's ability to invest its remaining funds in
mortgage loans and the yields attainable on such investments. While the
Company expects to have the balance of its available assets fully invested in
mortgage loans by the end of 1999, management will continue its prudent
approach of approving funding only for those loans which meet the Company's
underwriting criteria.
Funds that have not yet been invested in mortgage loans are primarily
invested in marketable securities until needed for the Company's operations
or investments in mortgage loans. Income and principal received with respect
to the Company's investments in mortgage loans are also invested in
marketable securities pending distribution to members or reinvestments in
mortgage loans.
Class A Assets and Class B Assets
As a result of the restructuring effective December 6, 1996, the Company
reports its financial condition and results of operations by segregating all
information into Class A membership interests and Class B membership
interests. Each class is distinguished by its differing member composition.
Interim Financial Statements
The Interim Financial Statements furnished include all adjustments which, in
the opinion of management, are necessary to reflect fair statements of the
results for the interim period presented and are recurring in nature.
Financial Condition and Results of Operation, Class A Membership Interests
Net investment income for the three months ended June 30, 1998 was $883,000
versus $970,000 in the same period in 1997 - a 9% decrease.
The allowance for loan losses remains at $1,385,000 - unchanged since
December 31, 1997. Management reviews, on a regular basis, factors which may
adversely affect its mortgage loans, including occupancy levels, rental rates
and property values. It is possible that economic conditions in southeastern
Michigan, and the nation in general, may adversely affect certain of the
Company's loan assets. After evaluation of the loan portfolio and the
associated allowance for loan losses, management deemed the allowance of
$1,385,000 adequate to cover any potential future write-offs of loan assets.
The liquid assets of the Class A Membership Interest, including cash and
investment securities, increased from $16,904,000 at December 31, 1997 to
$22,763,000 at June 30, 1998. This resulted from loan repayments received by
the Company partially offset by new loans issued.
8
The Company makes quarterly distributions of net income in accord with the
Operating Agreement of the Company. During June of 1998, the Company
distributed approximately $869,000 to Class A Membership Interests relating
to first quarter 1998 cash income.
Management is not aware of any material unrecorded liabilities or
contingencies relating to Class A Membership Interests.
Financial Condition and Results of Operation, Class B Membership Interests
Net investment income for the three months ended June 30, 1998 was $331,000
versus $232,000 in the same period in 1997 - a 43% increase. This resulted
from a change in investment strategy and an overall increase in yield.
No loan loss allowance has been recorded relating to the loans in the Class B
membership pool at June 30, 1998. Management will continually review any
potential adverse factors which may affect these mortgage loans and record a
loan loss reserve if, and when, this analysis indicates that a loan loss
reserve is appropriate.
The Company makes quarterly distributions of net income in accord with the
Operating Agreement of the Company. During June of 1998, the Company
distributed approximately $376,000 to Class B Membership Interests relating
to first quarter 1998 cash income.
Certain organization costs of the Class B Investment pool have been
capitalized at cost and will be amortized over five years. Net organization
costs at June 30, 1998 totaled $312,000.
Management is not aware of any material unrecorded liabilities or
contingencies relating to Class B Membership Interests.
Future Business Prospects
Since the Company conducts all of its business in southeastern Michigan, the
future financial results of the Company are highly dependent on the local
economy in general and the real estate market specifically in southeastern
Michigan. In recent years, the local economy has been very strong with an
influx of new real estate developments. Consequently, the Company is
receiving a significant increase in mortgage applications versus historical
averages. At June 30, 1998, the Company had outstanding loan commitments of
$28,000,000.
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 14, 1998
METROPOLITAN REALTY COMPANY, L.L.C.
By: /s/ Robert G. Jackson
----------------------------
Robert G. Jackson, President
(Principal Executive Officer and Principal Financial Officer)
10