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 March 31, 1999
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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METROPOLITAN REALTY COMPANY, L.L.C.
BALANCE SHEET (000's Omitted)
March 31, 1999 December 31, 1998
------------------------------------ -------------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
Assets
Cash and cash equivalents $ 1,067 $ -- $ 1,067 $ 1,221 $ 78 $ 1,299
Investment securities 18,462 8,592 27,054 13,181 13,260 26,441
Mortgage notes receivable:
Unaffiliated 22,164 16,657 38,821 25,476 13,842 39,318
Allowance for loan losses (1,134) (139) (1,273) (1,134) (139) (1,273)
-------- -------- -------- -------- -------- --------
Total mortgage notes receivable 21,030 16,518 37,548 24,342 13,703 38,045
Accrued interest and other receivables 229 112 341 183 91 274
Other assets 54 -- 54 62 -- 62
-------- -------- -------- -------- -------- --------
Total assets $ 40,842 $ 25,222 $ 66,064 $ 38,989 $ 27,132 $ 66,121
======== ======== ======== ======== ======== ========
Liabilities and Members' Equity
Liabilities
Accounts payable $ 59 $ 8 $ 67 $ 59 $ 9 $ 68
Due to (from) (2,606) 2,606 -- (4,440) 4,440 --
Deposits from borrowers for property taxes 89 -- 89 33 -- 33
Other 1 1 2 1 -- 1
-------- -------- -------- -------- -------- --------
Total liabilities (2,457) 2,615 158 (4,347) 4,449 102
Members' Equity
Class A members' equity 43,347 -- 43,347 43,286 -- 43,286
Class B members' equity -- 22,607 22,607 -- 22,600 22,600
Accumulated other comprehensive
income (48) -- (48) 50 83 133
-------- -------- -------- -------- -------- --------
Total members' equity 43,299 22,607 65,906 43,336 22,683 66,019
-------- -------- -------- -------- -------- --------
Total liabilities and members' equity $ 40,842 $ 25,222 $ 66,064 $ 38,989 $ 27,132 $ 66,121
======== ======== ======== ======== ======== ========
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METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF OPERATIONS (000's Omitted)
Three months ended Three months ended Year ended
March 31, 1999 March 31, 1998 December 31, 1998
---------------------------- --------------------------- ----------------------------
Class A Class B Class A Class B Class A Class B
Membership Membership Membership Membership Membership Membership
Interests Interests Total Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Revenue
Interest income:
From mortgage notes,
unaffiliated $ 519 $ 275 $ 794 $ 570 $ 2 $ 572 $ 2,307 $ 361 $ 2,668
From mortgage notes, affiliated -- -- -- 94 -- 94 105 -- 105
Investment income 318 127 445 315 355 670 1,160 1,187 2,347
Miscellaneous income 17 -- 17 12 -- 12 127 13 140
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue 854 402 1,256 991 357 1,348 3,699 1,561 5,260
Operating Expenses
General and administrative 35 23 58 85 23 108 242 98 340
Amortization of organization costs -- -- -- -- 22 22 -- 139 139
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses 35 23 58 85 45 130 242 237 479
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income - before
cumulative effect of change in
accounting principle 819 379 1,198 906 312 1,218 3,457 1,324 4,781
Cumulative effect of change in
accounting principle -- -- -- -- -- -- -- (357) (357)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income $ 819 $ 379 $ 1,198 $ 906 $ 312 $ 1,218 $ 3,457 $ 967 $ 4,424
======= ======= ======= ======= ======= ======= ======= ======= =======
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METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY (000's Omitted)
Accumulated
Other Members' Equity
Comprehensive ------------------ Total Members
Income Class A Class B Equity
------------- ------- ------- -------------
Balance - December 31, 1997 $ (28) $ 43,565 $ 22,936 $ 66,473
Comprehensive income:
Net investment income -- 3,457 967 4,424
Change in unrealized holding
gains(losses) on investment
Securities 161 -- -- 161
--------
Total Comprehensive income 4,585
Distributions -- (3,736) (1,303) (5,039)
-------- -------- -------- --------
Balance - December 31, 1998 $ 133 $ 43,286 $ 22,600 $ 66,019
Comprehensive income:
Net investment income -- 819 379 1,198
Change in unrealized holding
gains(losses) on investment
Securities (85) -- -- (85)
--------
Total Comprehensive income 1,113
Distributions -- (758) (372) (1,130)
-------- -------- -------- --------
Balance - March 31, 1999 $ 48 $ 43,347 $ 22,607 $ 66,002
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METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CASH FLOWS (000's Omitted)
Three months ended
March 31
--------------------
1999 1998
---- ----
Cash Flows from Operating Activities
Net investment income $ 1,198 $ 1,218
Adjustments to reconcile net investment
income to net cash
from operating activities:
Depreciation and amortization expense 1 22
Other (31) 1
Decrease (increase) in assets:
Accrued interest and other receivables (67) 28
Other assets 7 (64)
Increase (decrease) in liabilities:
Accounts payable (1) 19
Other liabilities 57 21
------- -------
Total adjustments (34) 27
------- -------
Net cash provided by operating activities 1,164 1,245
Cash Flows from Investing Activities
Purchases of investment securities (5,712) (3,593)
Collections of principal from investment securities 4,949 71
Net change in loans 498 554
------- -------
Net cash used in investing activities (265) (2,968)
Cash Flows from Financing Activities
Distributions paid to members (1,130) (1,373)
------- -------
Net Decrease in Cash and Cash Equivalents (231) (3,096)
Cash and Cash Equivalents - Beginning of period 1,298 5,324
------- -------
Cash and Cash Equivalents - End of period $ 1,067 $ 2,228
======= =======
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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 three months ended March 31, 1999 are not
necessarily indicative of the results that would be expected for the
year ending December 31, 1999. 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, 1998.
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.
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 March 31, 1999 was $819,000
versus $906,000 in the same period in 1998 - a 10 percent decrease.
The allowance for loan losses remains at $1,134,000 - unchanged since
December 31, 1998. 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
$1,134,000 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 $14,402,000 at December 31, 1998 to
$19,529,000 at March 31, 1999. This resulted from loan repayments received by
the Company partially offset by new loans issued.
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The Company makes quarterly distributions of net income in accord with the
Operating Agreement of the Company. During March of 1999, the Company
distributed approximately $758,000 to Class A Membership Interests relating
to fourth 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 March 31, 1999 was $379,000
versus $312,000 in the same period in 1998 - a 21 percent increase. This
resulted from a change in investment strategy and an overall increase in
yield.
The allowance for loan losses remains at $139,000 - unchanged since December
31, 1998. 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
$139,000 adequate to cover any potential future write-offs of loan assets.
The Company makes quarterly distributions of net income in accord with the
Operating Agreement of the Company. During March of 1999, the Company
distributed approximately $372,000 to Class B Membership Interests relating
to fourth quarter 1998 cash income.
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.
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Item 5. Other Information
On May 11, 1999, the Managing Board of the Company approved a contract with
WMF Proctor, a Michigan Corporation located in Bloomfield Hills, Michigan.
Pursuant to the terms of the contract, WMF Proctor will use its best efforts
to find buyers for the Company's outstanding mortgage loans.
The Managing Board also voted to approve the sale and disposition of the
Company's assets, to dissolve the Company, and to make interim distributions
of the Company's assets to Members in such amounts as may, from time to time,
be approved by the Executive Committee of the Managing Board; provided,
however, that distributions to certain Members who received their Membership
Interests by gift at the time of the Company's restructuring in December,
1996 may be deferred until the Company is dissolved, to the extent permitted
by the Company's Operating Agreement.
The sale of the Company's assets is subject to the affirmative vote of
Members holding at least 66 2/3% of the Total Percentage Interests, based
upon each Member's Total Percentage Interests as of the end of 1998. The
dissolution of the Company is subject to the consent of Members holding at
least 75% of the Membership Interests. It is anticipated that a special
meeting of the Members of the Company will be held as soon as practical to
vote on these matters.
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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: May 14, 1999
METROPOLITAN REALTY COMPANY, L.L.C.
By: /s/ Robert G. Jackson
----------------------------
Robert G. Jackson, President
(Principal Executive Officer and Principal Financial Officer)
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