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, 1996
or
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from_______________to____________________
Commission File Number 1-9450
[LOGO]
METROPOLITAN REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2724893
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
535 Griswold, Suite 748
Detroit, Michigan 48226
(Address of principal executive offices)
(313) 961-5552
(Registrant's telephone number, including area code)
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____
The number of shares outstanding of the registrant's common stock as of June
30, 1996 was 4,532,169.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METROPOLITAN REALTY CORPORATION
BALANCE SHEET
June 30, 1996 and December 31, 1995
===============================================================================================================
June 30, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents............................................. $ 1,781,496 $ 2,446,221
Marketable securities................................................. 14,873,710 13,326,733
Mortgage notes receivable:
Notes, unaffiliated................................................. 22,873,170 22,757,998
Notes, affiliated................................................... 4,193,405 4,206,330
Allowance for loan losses........................................... (1,600,000) (1,600,000)
------------ ------------
25,466,575 25,364,328
Accrued interest and other receivables................................ 311,367 282,620
Other assets.......................................................... 367,522 340,999
------------ ------------
Total assets........................................... $ 42,800,670 $ 41,760,901
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable:
Shareholder....................................................... $ 16,500 $ 5,500
Trade............................................................. 103,594 120,032
Deferred income..................................................... 129,552 153,952
Deposits from borrowers for property taxes.......................... 186,338 146,385
Other............................................................... 1,627 1,705
------------ ------------
Total liabilities...................................... 437,611 427,574
------------- ------------
Commitments........................................................... -- --
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000
shares authorized; no shares issued
and outstanding................................................... -- --
Common Stock, $.01 par value; 25,000,000
shares authorized; 4,532,169 shares issued
and outstanding................................................... 45,322 45,322
Additional paid-in-capital.......................................... 43,355,529 43,355,529
Unrealized holding gains (losses) on marketable
securities available for sale..................................... (97,735) 47,690
Distributions in excess of net investment
income............................................................ (940,057) (2,115,214)
------------ ------------
Total shareholders' equity............................. 42,363,059 41,333,327
------------ ------------
Total liabilities and
shareholders' equity............................ $ 42,800,670 $ 41,760,901
============ ============
<FN>
==============================================================================
The accompanying notes are an integral part of the financial statements.
1
METROPOLITAN REALTY CORPORATION
STATEMENT OF OPERATIONS
for the three months and six months ended June 30, 1996 and 1995
and the year ended December 31, 1995
=================================================================================================================================
Three months ended Six months ended Year ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 Dec. 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Income:
Interest income:
From mortgage notes, unaffiliated....... $ 590,966 $ 577,973 $1,182,964 $1,157,684 $2,363,121
From mortgage notes, affiliated......... 97,001 97,784 194,217 194,703 391,854
Investment income......................... 216,321 239,023 482,992 438,691 866,168
Miscellaneous income...................... 11,723 12,106 51,800 86,321 142,916
--------- --------- ---------- ---------- ----------
Total income........................ 916,011 926,886 1,911,973 1,877,399 3,764,059
--------- --------- ---------- ---------- ----------
Operating expenses:
General and administrative................ 113,611 115,899 238,277 293,187 600,000
Change in allowance for
loan losses............................. -- (250,000) -- (250,000) 841,903
Net loss from foreclosed
property held for sale................... -- 324,361 -- 335,065 331,953
--------- --------- ---------- ---------- ----------
Total operating expenses............ 113,611 190,260 238,277 378,252 1,773,856
--------- --------- ---------- ---------- ----------
Net investment income............... $ 802,400 $ 736,626 $1,673,696 $1,499,147 $1,990,203
========= ========= ========== ========== ==========
Net investment income per share............. $ .18 $ .16 $ .37 $ .33 $ .44
========= ========= ========== ========== ==========
Weighted average shares of common stock
outstanding.............................. 4,532,169 4,532,169 4,532,169 4,532,169 4,532,169
========= ========= ========== ========== ==========
<FN>
==============================================================================
The accompanying notes are an integral part of the financial statements.
2
METROPOLITAN REALTY CORPORATION
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
====================================================================================================================
Six months ended
June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net investment income................................................ $ 1,673,696 $ 1,499,147
------------ -------------
Adjustments to reconcile net investment income to
net cash provided by operating activities:
Change in allowance for loan losses................................ -- (250,000)
Valuation provision for foreclosed property........................ -- 312,066
Amortization of loan origination fees.............................. (25,177) (24,166)
Depreciation expense............................................... 1,477 34,231
Expiration of commitment and application fees...................... (29,400) --
Other.............................................................. 14,197 7,935
Increase in assets:
Accounts receivable.............................................. (28,747) (19,625)
Other assets..................................................... (28,000) (239,177)
Increase (decrease) in liabilities:
Accounts payable................................................. (5,438) (37,524)
Deferred income and other liabilities............................ 39,875 47,687
------------ -------------
Total adjustments....................................... (61,213) (168,573)
------------ -------------
Net cash provided by operating activities............... 1,612,483 1,330,574
------------ -------------
Cash flows from investing activities:
Commitment and loan extension fees received.......................... 5,000 44,400
Purchase of marketable securities.................................... (4,029,062) --
Collections of principal from marketable securities.................. 2,322,463 450,548
Loan repayments...................................................... 267,996 209,522
Loan disbursements................................................... (345,066) --
------------ -------------
Net cash (used in) provided by investing
activities............................................ (1,778,669) 704,470
------------ -------------
Cash flows from financing activities:
Dividends paid....................................................... (498,539) (906,434)
------------ -------------
Net (decrease) increase in cash and cash equivalents................... (664,725) 1,128,610
Cash and cash equivalents, beginning of period......................... 2,446,221 3,529,334
------------ -------------
Cash and cash equivalents, end of period............................... $ 1,781,496 $ 4,657,944
============ =============
<FN>
=============================================================================
The accompanying notes are an integral part of the financial statements.
3
METROPOLITAN REALTY CORPORATION
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 and six months ended
June 30, 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996. 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, 1995.
The accompanying financial statements for the three months and six
months ended June 30, 1995 reflect certain reclassifications to be
consistent with the presentation adopted for the three months and six
months ended June 30, 1996.
2. Earnings per Share
The earnings per share for the three months and six months ended June
30, 1996 and 1995 and the year ended December 31, 1995 are based on
the weighted average number of shares of common stock outstanding
during the period.
3. Marketable Securities
Marketable securities available for sale are carried at market value
and unrealized gains and losses are included in a separate component
of shareholders' equity. Shareholders' equity at June 30, 1996
includes net unrealized holding losses on marketable securities of
$97,735. Marketable securities at June 30, 1996 and December 31, 1995
consist of Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation mortgage-backed securities and U.S. Treasury
Notes. Realized gains and losses on sales of securities are determined
based upon specific identification.
The net loss on the sales of marketable securities included in
investment income in the accompanying statements of operations
aggregated $8,478 and $14,197 for the three months and six months
ended June 30, 1996, and $3,714 and $7,935 for the three months and
six months ended June 30, 1995. At June 30, 1996 and 1995, all
marketable securities are considered available for sale.
4
4. Mortgage Notes Receivable
Mortgage notes receivable as of the dates indicated are summarized as
follows:
===================================================================================================================
June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
9.09% Mortgage note receivable, net of loan origination fees of
$35,382 at June 30, 1996 and $27,668 at December 31, $ 4,193,405 $ 4,206,330
1995, due monthly in installments of principal and interest of
$35,494 through December 2000
10.875% Mortgage note receivable, net of loan origination fees
of $5,830 at June 30, 1996 and $6,505 at December 31, 963,241 965,898
1995, due monthly in varying installments of principal and
interest through December 1999
9.3752% Mortgage note receivable, net of loan origination fees
of $7,542 at June 30, 1996 and $6,541 at December 31, 2,101,841 2,111,851
1995, due monthly in installments of principal and interest of
$18,298 through January 2000
9.26% Mortgage note receivable, net of loan origination fees of
$16,111 at June 30, 1996 and $17,951 at December 31, 1,798,817 1,812,889
1995, due monthly in varying installments of principal and
interest through April 2000
8.0% and 9.5% Mortgage note receivable, net of loan
origination fees of $5,454 at June 30, 1996 and $5,998 at 1,362,222 1,361,789
December 31, 1995, due monthly in varying installments of
principal and interest through August 2000
9.25% Mortgage note receivable, net of loan origination fees of
$8,040 at June 30, 1996 and $8,856 at December 31, 1995, 609,417 614,211
due monthly in installments of principal and interest of $5,800
through September 2000
7.25% Mortgage note receivable, net of loan origination fees of
$5,541 at June 30, 1996 and $6,103 at December 31, 1995, 665,683 669,449
due monthly in varying installments of principal and interest
through October 2000
10.5% Mortgage note receivable, net of loan origination fees of
$3,853 at June 30, 1996 and $4,194 at December 31, 1995, 938,110 940,653
due monthly in varying installments of principal and interest
through December 2000
11.25% Mortgage note receivable, net of loan origination fees
of $12,172 at June 30, 1996 and $13,272 at December 31, 2,090,884 2,100,907
1995, due monthly in installments of principal and interest of
$21,961 through October 2000
10.25% Mortgage note receivable, net of loan origination fees
of $3,390 at June 30, 1996 and $3,693 at December 31, 257,273 258,623
1995, due monthly in varying installments of principal and
interest through January 2001
5
4. Mortgage Notes Receivable, continued
- -------------------------------------------------------------------------------------------------------------
11.25% Mortgage note receivable, net of loan origination fees
of $9,129 at June 30, 1996 and $9,954 at December 31, $ 1,568,163 $ 1,575,680
1995, due monthly in installments of principal and interest of
$16,471 through October 2000
9.5% Mortgage note receivable through February 28, 1996
adjusted to 6.75% (based on the U.S. Treasury Securities 716,065 719,601
weekly average yield adjusted to a constant maturity of 5 years
plus 1.5%) on March 1, 1996 to maturity, net of loan origination
fees of $8,440 at June 30, 1996 and $9,232 at December 31, 1995, due
monthly in varying installments of
principal and interest through February 2001
9.875% Mortgage note receivable, net of loan origination fees
of $14,401 at June 30, 1996 and $15,636 at December 31, 2,438,279 2,445,235
1995, due monthly in varying installments of principal and
interest through January 1999
10.25% and 9.75% Mortgage notes receivable, net of loan
origination fees of $12,220 at June 30, 1996 and $19,911 at 2,311,204 2,329,018
December 31, 1995, due monthly in varying installments of
principal and interest through April 1997
10.25% and 12.25% Mortgage notes receivable, net of loan
origination fees of $7,354 at June 30, 1996 and $11,989 at 2,102,351 2,239,156
December 31, 1995, due monthly in varying installments of
principal and interest through April 1997
10.25% Mortgage note receivable, net of loan origination fees
of $50,030 at June 30, 1996 and $52,570 at December 31, 1,739,896 1,741,822
1995, due monthly in installments of interest only through April
1995 at which time varying installments of principal and
interest will be due monthly through April 2003
Bank prime rate plus 1% Mortgage note receivable, net of loan
origination fees of $23,888 at June 30, 1996 and 1995, due 765,471 420,406
monthly in installments of interest only until final closing, July
1997, at which time payments of principal and interest of
$12,355 will be due monthly through July 2007
10.00% Mortgage note receivable due monthly in installments
of principal and interest of $4,889 through August 2000 444,253 450,810
----------- ------------
27,066,575 26,964,328
Allowance for loan losses
(1,600,000) (1,600,000)
----------- ------------
Mortgage notes receivable, net of allowance for loan losses $25,466,575 $ 25,364,328
=========== ============
=============================================================================
6
4. Mortgage Notes Receivable, continued
The Company's portfolio of mortgage notes receivable are reported at
their principal outstanding balance net of charge-offs and deferred
loan origination fees and costs on originated loans. Interest income is
generally recognized when income is earned using the interest method.
Loan origination fees and certain direct loan origination costs are
deferred and the net amounts are amortized as adjustments of the
loans' yields.
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114), as
amended by SFAS 118, on January 1, 1995. Under the new standard, a
loan is considered impaired, based on current information and events,
if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired
loans is based on the fair value of the underlying collateral. The
cumulative effect of adopting the provisions of SFAS No. 114 was not
significant.
The adequacy of the allowance for loan losses (substantially all of
the allowance is related to the provision for impaired loans as
discussed above) is periodically evaluated by the Company in order to
maintain the allowance at a level that is sufficient to absorb
probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of known and inherent risks in the loan
portfolio, including adverse circumstances that may affect the ability
of the borrower to repay interest and/or principal and the estimated
value of collateral. In determining the allowance for possible losses,
the Company has considered many indicators of value, including market
evaluations of the underlying collateral, the cost of money, operating
cash flow from the property during the projected holding period and
expected capitalization rates applied to the stabilized net operating
income of the specified property.
The allowance for credit losses is established through charges to
earnings in the form of a provision for loan losses. Increases and
decreases in the allowance due to changes in the measurement of
impaired loans are included in the provision for credit losses. Loans
continue to be classified as impaired unless they are brought fully
current and the collection of scheduled interest and principal is
considered probable. When a loan or portion of a loan is determined to
be uncollectible, the portion deemed uncollectible is charged against
the allowance and subsequent recoveries, if any, are credited to the
allowance.
At June 30, 1996, the total recorded investment in impaired loans
was $5,289,500. The allowance related to these loans totalled
$1,600,000. The average recorded investment in impaired loans was
approximately $5,298,000 with interest income of $267,000 for the
six months ended June 30, 1996. All impaired loans were classified as
earning during 1996 with interest income recognized on an accrual
basis. The Company believes that the allowance for loan losses of
$1,600,000 at June 30, 1996 is at a level that is sufficient to
absorb probable credit losses in the mortgage loan portfolio.
7
5. Real Estate Owned
A sale of the property which was foreclosed by the Company in 1992 was
consummated on August 1, 1995. In accordance with the terms of the
purchase agreement, the Company received $100,000 of the purchase
price at the August 1, 1995 settlement date. The remaining $455,000 of
the purchase price will be paid, pursuant to the terms of the mortgage
note bearing interest at 10% per annum, in monthly installments of
principal and interest of $4,889 commencing in September 1995 until
maturity in August 2000, at which time the remaining unpaid principal
of approximately $375,000 is due. The mortgage note is guaranteed by
the borrower and may be prepaid in whole or in part at any time.
The property's 1995 operating income and expenses are reflected
in the statement of operations. The net loss from foreclosed property
held for sale totalled $335,065 for the six months ended June 30, 1995
and was largely attributable to a $312,066 increase in the valuation
provision.
6. Dividends
Under pertinent provisions of the Internal Revenue Code (the "Code"),
a real estate investment trust may consider a dividend declared in a
subsequent year to be a distribution of income of the immediately
prior year and thus reduce income subject to income tax. On March 13,
1996, the Board of Directors of the Company declared a cash dividend
of $.11 per share of common stock, to its shareholders of record on
March 25, 1996, payable on March 29, 1996. Of this dividend, $.01 was
payable from income earned by the Company in 1995 and $.10 was payable
from 1996 income. These dividends are taxable to shareholders as
ordinary income. For the quarter ending June 30, 1996, no cash
dividend was declared by the Board of Directors of the Company in
anticipation of the consummation of the restructuring of the Company
into a limited liability company in accordance with the transaction
discussed in Note 10.
7. Income Taxes
The Company currently intends to operate as a qualified real
estate investment trust under the Code (See Note 10). In general,
each year qualification is met, income is not subject to federal
income tax at the Company level to the extent distributed to
shareholders. The Company distributes at least 95% of its net taxable
investment income to its shareholders. Accordingly, no provision for
income taxes has been made for the three and six months ended
June 30, 1996.
8. Related Party Transactions
The Company was involved in various transactions with affiliates as
follows:
Consulting fees under a contractual agreement aggregating $23,373 and
$22,260 were earned by an officer of the Company during the six months
ended June 30, 1996 and 1995, respectively.
Fees aggregating $11,018 and $12,546 during the six months ended June
30, 1996 and 1995, respectively were earned by a shareholder of the
Company for providing various investment and other services to the
Company.
8
8. Related Party Transactions, continued
During 1995, one of the Company's board members became the vice
president of an entity which has a mortgage note with the Company. The
carrying amount of the mortgage note receivable totaled $4,193,405 and
$4,223,200 at June 30, 1996 and 1995, respectively and earned the
Company $194,217 and $194,703 during the six months ended June 30,
1996 and 1995, respectively.
During the six months ended June 30, 1996 and 1995, one of the
Company's directors was a member of a law firm which provides legal
services to the Company. Fees for legal services provided by the law
firm amounted to $49,932 and $159,120, for the six months ended June
30, 1996 and 1995, respectively. Of the fees earned in 1996 and 1995,
$3,500 and $118,618, respectively, relate to the transaction discussed
in Note 10.
9. Commitments
At June 30, 1996, the Company had outstanding loan commitments
aggregating $576,000.
10. Other
On September 8, 1995, the Company's Board of Directors gave its
approval for a proposed restructuring of the Company into a limited
liability company ("LLC") and the generation of additional capital
through the LLC. The Company expects to raise new capital of $25 to
$50 million through the private placement of securities by the LLC.
Distributions to current company shareholders under the proposed LLC
restructuring are expected to remain consistent with current levels.
At June 30, 1996, $688,000 of professional fees have been incurred in
connection with this transaction, of which $344,000 have been
deferred.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The Company's net investment in mortgage loans represented 60% and 61%
of its assets, or $25,466,575 and $25,364,328, at June 30, 1996 and
December 31, 1995, respectively. The range of yields on mortgage loans closed
from the Company's inception through June 30, 1996 ranges from 7.06% to 12.25%.
The weighted average yield of mortgage notes was 10.12% at June 30, 1996 and
10.27% at December 31, 1995.
The overall average yield on interest earning assets was 8.8% for the
six months ended June 30, 1996 and 8.7% for the year ended December 31, 1995.
The average amount held in marketable securities net of unrealized holding
gains and losses for the six months ended June 30, 1996 was $17.0 million. The
average yield (based on total yield
9
divided by average amount of investments) on marketable securities was 5.2%
for the six months ended June 30, 1996 and 5.8% for the year ended
December 31, 1995.
Investment income from marketable securities increased $25,741 to
$200,625 for the second quarter of 1996 from $174,884 for the second quarter
of 1995. Of the increase, $70,304 was the result of an increase in the average
amount invested in marketable securities, offset by a $44,563 decrease in the
average yield. Investment income from marketable mortgage-backed securities
increased $117,356 to $436,908 for the first six months of 1996 from $319,552
for the first six months of 1995. Of the increase, $178,587 was the result of
an increase in the average amount invested in marketable securities, offset by
a $61,231 decrease in the average yield.
Investment income from money market securities decreased $48,798 to
$15,696 for the second quarter of 1996 from $64,494 for the second quarter of
1995. Of the decrease, $46,300 was the result of a decrease in the average
amount invested in money market securities combined with a $2,498 increase in
the average yield. Investment income from money market securities decreased
$73,055 to $46,084 for the first six months of 1996 from $119,139 for the
first six months of 1995. Of the decrease, $76,010 was the result of a
decrease in the average amount invested in money market securities offset by a
$2,955 increase in average yield.
Interest income from mortgage notes increased $12,210 to $687,967 for
the second quarter of 1996 from $675,757 for the second quarter of 1995. Of
the increase, $16,698 was the result of an increase in average earning loans
offset by a $4,488 decrease in average yield. Interest income from mortgage
notes increased $24,794 to $1,377,181 for the first six months of 1996 from
$1,352,387 for the first six months of 1995. Of the increase, $31,473 was the
result of an increase in the average amount invested in mortgage notes offset
by a $6,679 decrease in average yield.
Operating expenses decreased $76,649, or 40%, to $113,611 for the
second quarter of 1996 from $190,260 for the second quarter of 1995. This
decrease results primarily from a $324,361 net loss from foreclosed property
held for sale incurred in 1995, which was largely attributable to an increase
in the valuation provision, offset by a $250,000 decrease in the allowance
for loan losses. Operating expenses decreased $139,975, or 37%, to $238,277
for the first six months of 1996 from $378,252 for the first six months of
1996. This decrease results from a $335,065 net loss from foreclosed property
held for sale incurred in 1995, offset by a $250,000 decrease in the allowance
for loan losses and a $54,910 decrease in general and administrative expenses,
due primarily to decreased professional and loan advisory fees.
Net investment income increased 9% to $802,400, or $.18 per share, for
the second quarter of 1996 from $736,626, or $.16 per share, for the second
quarter of 1995 as a result of the items discussed above. Net investment
income increased 12% to $1,673,696, or $.37 per share, for the first six
months of 1996 from $1,499,147, or $.33 per share for the first six months of
1995 as a result of the items discussed above.
10
Management reviews, on a regular basis, factors which adversely affect
its mortgage loans, including occupancy levels, rental rates and property
values. It is possible that economic conditions in Southeast Michigan and the
nation in general may adversely affect the recoverability of the Company's
loans. The Company believes that the allowance for loan losses of $1,600,000 at
June 30, 1996 is at a level that is sufficient to absorb probable credit losses
in the mortgage loan portfolio.
On December 23, 1992, the Company obtained an apartment building
located in Detroit, Michigan, through a foreclosure sale. This property was
the collateral for a construction loan under which the borrower defaulted
during 1992. The carrying value of the property was written down to its
estimated fair value at the time of foreclosure of $2,100,000, based upon a
July 1992 independent appraisal, net of a $140,000 valuation allowance for the
estimated costs to sell the property. At December 31, 1994 the carrying value
of the property was reduced to $900,000 to reflect an updated property
valuation based on the results of the Company's marketing efforts to locate a
buyer for the property. The carrying value of the property was further written
down to $555,000 during the quarter ended June 30, 1995 as the result of an
offer to purchase the property.
On August 1, 1995, the sale of this property was consummated. In
accordance with the terms of the purchase agreement, the Company received
$100,000 of the purchase price at the August 1, 1995 settlement date. The
remaining $455,000 of the purchase price will be paid, pursuant to the terms
of a mortgage note bearing interest at 10% per annum, in monthly installments
of principal and interest of $4,889 commencing in September 1995 until
maturity in August 2000, at which time the remaining unpaid principal of
approximately $375,000 is due. The mortgage note is guaranteed by the borrower
and may be prepaid in whole or in part at any time. The net loss from
foreclosed property held for sale totaled $335,065 for the six months ended
June 30, 1995 and was largely attributable to a $312,066 increase in the
valuation provision.
During 1994, the Company reached settlements with the guarantors of
the foreclosed loan aggregating $320,000. These settlements are payable over
four to eight years, with interest rates ranging from non-interest bearing to
7.5%. Income from settlements is recorded as miscellaneous income when
received and totaled $9,400 and $18,900 for the three and six months ended
June 30, 1996 and $9,450 and $43,000 for the three and six months ended June
30, 1995, respectively.
Liquidity and Capital Resources
Funds that have not yet been invested in mortgage loans are primarily
invested in marketable mortgage-backed securities until needed for the
Company's operations or investments in mortgage loans. Income and principal
received with respect to the Company's investment in mortgage loans are also
invested in marketable securities
11
pending distribution to shareholders in the form of dividends or reinvestment
in mortgage loans. At June 30, 1996, the Company had $25,466,575 invested in
net mortgage loans, $8,867,150 invested in marketable mortgage-backed
securities, $6,006,560 invested in U.S. Treasury Notes and $1,597,299 invested
in money market funds. The Company does not invest in high-risk
mortgage-backed securities, such as interest only strips or residual tranches.
However, there can be no assurance that cash flows will materialize as
scheduled as a result of prepayments of the underlying mortgages or that the
proceeds can be invested in securities that will provide comparable yields.
At June 30, 1996, the Company had outstanding loan commitments
aggregating $576,000. The source of funds to satisfy these commitments will be
the Company's marketable securities. The Company anticipates that its sources
of cash are more than adequate to meet its liquidity needs.
The Company expects to invest the balance of its available assets
in mortgage loans to real estate projects during the balance of 1996 and 1997;
however, management will continue its prudent approach of approving funding
only of those loans which meet appropriate underwriting criteria.
On September 8, 1995, the Company's Board of Directors gave its
approval for a proposed restructuring of the Company into a limited liability
company ("LLC") and the generation of additional capital through the LLC. The
Company expects to raise new capital of $25 to $50 million through the private
placement of securities by the LLC. Distributions to current company
shareholders under the proposed LLC restructuring are expected to remain
consistent with current levels. At June 30, 1996, $688,000 of professional
fees have been incurred in connection with this transaction, of which $344,000
have been deferred.
The Company's policy is to declare and pay cash dividends on a
quarterly basis. The Company paid dividends totalling $.11 per share during
the first six months of 1996, all of which was ordinary income to
shareholders. The Company did not declare a dividend in the second quarter
of 1996 as a result of the circumstances discussed in Note 10 to the
Financial Statements. The Company paid dividends totalling $.20 per share
during the first six months of 1995.
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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.
METROPOLITAN REALTY CORPORATION
Dated: August 14, 1996 By: /s/ Jay B. Rising
------------------------
Jay B. Rising, President
(Chief Executive Officer and
Chief Financial Officer)
By: /s/ Russell P. Flynn
------------------------
Russell P. Flynn, Treasurer
13