SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
________________ to ________________
Commission File No. 1-9450
METROPOLITAN REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2724893
(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
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
- -------------- -----------------------------------------
Common Stock American 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 _______
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
Form 10-K.
YES _______ NO __ X __
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of March 22, 1996 was $15,023,741. The number of shares
outstanding of the Registrant's common stock as of March 22, 1996 was
4,532,169.
<PAGE>
ITEM 7. Item 7 is hereby amended to read as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The Company's net investment in mortgage loans to real estate
projects represented 61% of its assets, or $25,364,328, at December 31, 1995
and 62% of its assets, or $25,393,979, at December 31, 1994. The yields on the
Company's outstanding mortgage loans range from 7.25% to 12.25%. The weighted
average yield of earning mortgage loans is 10.27% at December 31, 1995, as
compared to 10.58% at December 31, 1994. The weighted average term of
outstanding mortgage loans is 8.94 years. At December 31, 1995, the Company
had outstanding loan commitments for additional commercial mortgage loans
aggregating $921,000. The amount of marketable securities (which consisted
primarily of Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation mortgage-backed, pass through securities) held by the
Company during 1995 averaged $11,992,000 and earned an average yield of 5.8%,
as compared to average marketable security holdings of $8,164,000 which earned
an average yield of 4.8% during 1994. The average yield on all interest
earning assets was 8.7% for the year ended December 31, 1995 and 8.9% for the
year ended December 31, 1994.
Investment income from marketable securities increased $302,673 to
$689,955 for the year ended December 31, 1995 from $387,282 for the year ended
December 31, 1994. Of the increase, $186,003 was the result of an increase in
the average amount invested in marketable securities and $116,670 was the
result of an increase in the average yield earned.
Investment income from money market securities increased $9,444 to
$194,431 for the year ended December 31, 1995 from $184,987 for the year ended
December 31, 1994. Of the increase, $56,106 was the result of an increase in
average yield offset by a $46,662 decrease in the average amount invested in
money market securities.
Investment income from mortgage loans decreased $318,255 to
$2,754,975 for the year ended December 31, 1995 from $3,073,230 for the year
ended December 31, 1994. Of the decrease, $233,321 was the result of a
decrease in the average amount invested in mortgage loans and $84,934 was the
result of a decrease in the average yield.
Miscellaneous income decreased $86,033 to $142,916 for the year
ended December 31, 1995 from $228,949 for the year ended December 31, 1994.
The decrease primarily results from $114,000 in prepayment penalties received
in 1994 offset by a $19,000 increase in income from guarantor settlements from
1994 to 1995.
Operating expenses increased 40% to $1,773,856 for the year ended
December 31, 1995 from $1,270,478 for the year ended December 31, 1994. This
increase is due to a $1,061,500 increase in the change in the provision for
loan losses, a $312,944 increase in general and administrative expenses for
costs associated with the Company's proposed restructuring into a limited
liability company, and a $92,397 increase in other general and administrative
expenses, due primarily to increased loan advisory and professional service
fees, offset by a $963,463 decrease in net loss from foreclosed property held
for sale.
<PAGE>
Net investment income decreased by 23% to $1,900,203 or $.44 per
share, for the year ended December 31, 1995 from $2,587,550, or $.57 per
share, for the year ended December 31, 1994 as a result of the items discussed
above.
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 other loans.
The Company had maintained an allowance for doubtful accounts of
$1,461,500 from December 31, 1992 through the third quarter of 1994 to reflect
the expected recoverable cash flows from three troubled loans.
During 1994, the cash flows generated by one of the above loans
which had previously been in default, collateralized by a shopping center,
increased significantly. As this increase was supported by an improvement in
tenant base, the Company determined at December 31, 1994 that this loan no
longer required a loss reserve. The loan loss reserve was reduced,
accordingly, by $461,500 during the fourth quarter of 1994 to $1,000,000. The
other loan with an affiliated borrower, which was also formerly in default,
had not exhibited the same magnitude of improvement in cash flows and tenants
during 1994. The loan loss reserve, however, was further reduced by $250,000
in the second quarter of 1995, based on the Company's determination that the
continued assignment of rents reduced the risk of loss associated with this
loan.
In 1994, only one loan was operating under a loan modification
agreement. The borrower was current with the modified debt service
requirements during 1994, although the underlying apartment collateral
continued to experience high tenant turnover and poor cash flow, and monthly
debt service payments were occasionally late. During 1995, the borrower tried
unsuccessfully to find a buyer for this property. The physical property
collateralizing the loan began to deteriorate as the year progressed. An
independent analysis of the loan portfolio performed in the third quarter of
1995, confirmed the deterioration of the property compared to similar
properties in the surrounding geographic location. The independent valuation
also identified a loan, collateralized by a shopping center which has begun to
experience limited market rent potential based on recent commercial
developments in its surrounding market area. Based on the results of this
independent market valuation, the allowance relating to these loans was
increased by $850,000 during the third quarter of 1995. The Company believes
that the allowance for loan losses of $1,600,000 at December 31, 1995 is
adequate to reflect mortgage loans at their estimated net realizable value.
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.
2
<PAGE>
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.
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 noninterest-bearing to
7.5%. Income from settlements is recorded as miscellaneous income when
received and totalled $62,000 and $43,000 for the years ended December 31,
1995 and 1994, respectively. The property's operating income and expenses from
the date of foreclosure are reflected in the statement of operations as net
loss from foreclosed property held for sale and total $331,953, $1,295,416,
and $337,699 for the year ended December 31, 1995, 1994 and 1993,
respectively.
Investment income from mortgage-backed marketable securities
decreased $34,968 to $387,282 for the year ended December 31, 1994 from
$403,608 for the year ended December 31, 1993. Of the decrease, $9,508 was the
result of a decrease in the average amount invested in marketable securities
and $26,260 was the result of a decrease in the average yield earned.
Investment income from money market securities increased $134,211
to $184,987 for the year ended December 31, 1994 from $50,776 for the year
ended December 31, 1993. Of the increase, $112,893 was the result of an
increase in the average amount invested in money market securities and $21,318
was the result of an increase in average yield.
Investment income from mortgage loans decreased $40,646 to
$3,073,230 for the year ended December 31, 1994 from $3,113,876 for the year
ended December 31, 1993. Of the decrease, $210,745 was the result of a
decrease in average mortgage loans offset by a $45,326 increase in the stated
average yield on all mortgage loans, and a $124,773 increase in interest
income from loans which were nonearning at December 31, 1993.
Miscellaneous income increased $102,162 to $228,949 for the year
ended December 31, 1994 from $126,787 for the year ended December 31, 1993.
The increase primarily resulted from $114,000 in prepayment penalties received
in 1994.
Operating expenses increased 25% to $1,270,478 for the year ended
December 31, 1994 from $1,015,087 for the year ended December 31, 1993. The
majority of this increase is due to a $957,717 increase in net loss from
foreclosed property held for sale, which was largely attributable to a
$994,000 increase in the provision for valuation allowance, offset by a
$461,500 decrease in the allowance for loan losses. Other operating expenses
decreased $240,826 to $436,562 for the year ended December 31, 1994 from
$677,388 for the year ended December 31, 1993. This decrease is due to a
$147,363 reduction in general and administrative expenses, primarily as a
result of decreased professional service fees, and a $93,463 reduction in
amortization of organization costs, which became fully amortized in 1993.
3
<PAGE>
Net investment income decreased by 4% to $2,587,550, or $.57 per
share, for the year ended December 31, 1994 from $2,700,898, or $.60 per share
for the year ended December 31, 1993 as a result of the items discussed above.
Investment income from marketable securities decreased $264,888 to
$403,608 for the year ended December 31, 1993 from $668,496 for the year ended
December 31, 1992. Of the decrease, $153,487 was the result of a decrease in
the average amount invested in marketable securities and $111,401 was the
result of a decrease in the average yield earned.
Investment income from mortgage loans increased $105,192 to
$3,113,876 for the year ended December 31, 1993 from $3,008,684 for the year
ended December 31, 1992. Of the increase, $354,411 was the result of an
increase in average mortgage loans offset by a $38,918 decrease in the stated
average yield on all mortgage loans, a $54,381 decrease in interest income due
to property received in foreclosure and a $155,920 decrease in interest income
due to the Company's decision to discontinue accruing interest on certain
loans.
Operating expenses decreased 41% to $1,015,087 for the year ended
December 31, 1993 from $1,716,288 for the year ended December 31, 1992. The
majority of this decrease is due to a $900,000 decrease in the allowance for
loan losses offset by a $337,699 net loss from foreclosed property held for
sale. Other operating expenses, consisting primarily of general and
administrative expenses, decreased $138,900 as a result of decreased
professional fees.
Net investment income increased by 28% to $2,700,898, or $.60 per
share, for the year ended December 31, 1993 from $2,112,662, or $.47 per
share, for the year ended December 31, 1992 as a result of the items discussed
above.
The Company intends to continue to invest its available funds at
competitive market rates in mortgage loans to real estate projects located in
southeastern Michigan. Cycles in the local and national economy have affected
and could continue to affect the Company's ability to invest its remaining
funds in mortgage loans and the yields attainable on such investments.
Decreases in market interest rates may result in lower returns on future
mortgage loans than on the mortgage loans closed to date. Although the Company
expects to have the balance of its available assets fully invested in mortgage
loans by the end of 1996 management will continue its prudent approach of
approving funding only of those loans which meet appropriate underwriting
criteria.
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 investments in mortgage loans
are also invested in marketable mortgage backed securities pending
distribution to shareholders in the form of dividends or reinvestment in
mortgage loans. At December 31, 1995, the Company had $25,364,328 invested in
mortgage loans, $9,809,793 invested in marketable mortgage-backed securities,
$3,516,940 invested in U.S. Treasury Notes, and $2,294,965 invested in money
market funds. The Company does not invest in high risk, mortgage-backed
securities such as interest only strips or residual traunches. However, there
can be no assurance that cash flows will materialize as scheduled as a result
of prepayments of the
4
<PAGE>
underlying mortgages or that the proceeds can be invested in securities that
will provide comparable yields.
At December 31, 1995, the Company had outstanding loan commitments
aggregating $921,000. 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.
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. Current company shareholders with fewer
than 50,000 shares will receive a cash payment, in lieu of a membership
interest in the LLC, which approximates the book value of their shares, or
approximately $1.05 million in the aggregate. This payment will be made with
cash from the sale of marketable securities. Distributions to current company
shareholders under the proposed LLC restructuring are expected to remain
consistent with current levels. During the years ended December 31, 1995 and
1994, professional fees incurred in connection with this transaction totaled
$495,000 and $131,000, respectively, of which $182,000 and $131,000 have been
deferred at December 31, 1995 and 1994, respectively.
Net cash generated by operating activities during 1995 aggregated
$2,555,102, including $2,898,231 in net investment income adjusted for noncash
depreciation and amortization expense, the valuation provisions for mortgage
loans and foreclosed property held for sale, and amortization of net loan
origination fees.
Net cash used in investing activities during 1995 aggregated
$2,097,276 and consisted primarily of purchases of marketable securities and
loan disbursements offset by collections of principal from marketable
securities and loan repayments. The Company purchased $3,507,381 of marketable
securities and disbursed $444,293 in loans. The Company collected $1,345,072
of principal from marketable mortgage-backed securities and $355,151 of loan
repayments.
Financing activities in 1995 consisted of dividend payments to
shareholders of $1,540,939 which represented $.34 per outstanding share.
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 these new standards, 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 discounted cash
flows of the underlying collateral. The cumulative effect of adopting the
provisions of SFAS No. 114 was not significant.
The Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," at December 31, 1995; SFAS 107 requires disclosure of
fair value information about financial instruments along with the valuation
method and significant assumptions used.
5
<PAGE>
The Company's policy is to declare and pay cash dividends on a
quarterly basis. The Company declared and paid dividends aggregating $.34 per
share during the year ended December 31, 1995, compared to $.63 per share
during the year ended December 31, 1994 and $.54 per share during the year
ended December 31, 1993. The Company declared a dividend of $.11 per share of
common stock to its shareholders of record on March 25, 1996 which will be
paid on March 29, 1996 from the Company's money market funds.
ITEM 8. Item 8 is hereby amended to read as follows:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company, consisting of balance
sheet, statement of operations, statement of shareholders' equity, statement
of cash flows and the notes to financial statements, are set forth in the
separate financial section which begins on page F-1 and is incorporated herein
by reference.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Amendment
No. 1 to Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: June 11, 1996 METROPOLITAN REALTY CORPORATION
By: /s/ Jay B. Rising
---------------------------
Jay B. Rising, President
(Principal Executive Officer and Principal
Financial Officer)
And By: /s/ Russell P. Flynn
---------------------------
Russell P. Flynn, Treasurer
7
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this Amendment No. 1 on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
=================================================================
Signature Title Date
- -----------------------------------------------------------------
/s/ Jay B. Rising Attorney-In-Fact June 11, 1996
- --------------------------
*Jay B. Rising
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Daniel L. Boone
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
David M. Diegel
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Wayne S. Doran
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Russell P. Flynn
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
David B. Hanson
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Kenneth L. Hollowell
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Robert G. Jackson
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Richard P. Kughn
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
F. Thomas Lewand
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Ernest Lofton
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Robert H. Naftaly
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Timothy L. Nichols
- -----------------------------------------------------------------
Director June 11, 1996
Joel A. Schwartz
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Harold Smith
- -----------------------------------------------------------------
* Director June 11, 1996
- --------------------------
Frank D. Stella
8
<PAGE>
=================================================================
Signature Title Date
- -----------------------------------------------------------------
* Director June 11, 1996
- ---------------------------
Marc Stepp
- -----------------------------------------------------------------
* Director June 11, 1996
- ---------------------------
James M. Tervo
- -----------------------------------------------------------------
* Director June 11, 1996
- ---------------------------
Samuel H. Thomas, Jr.
- -----------------------------------------------------------------
* Director June 11, 1996
- ---------------------------
R. Douglas Trezise
- -----------------------------------------------------------------
* Director June 11, 1996
- ---------------------------
Ronald C. Yee
=================================================================
9
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS AND SCHEDULE
---------
PAGES
-----
REPORT OF INDEPENDENT ACCOUNTANTS F-2
BALANCE SHEET, DECEMBER 31, 1995 AND 1994 F-3
STATEMENT OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 F-4
STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993 F-5
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 F-6
NOTES TO FINANCIAL STATEMENTS F-7 - F-30
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts F-31
F-1
<PAGE>
[Letterhead of Coopers & Lybrand L.L.P.]
Report of Independent Accountants
To the Board of Directors and Shareholders
of Metropolitan Realty Corporation:
We have audited the financial statements and the financial statement schedule
of Metropolitan Realty Corporation listed on page F-1 of this Form 10-K. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metropolitan Realty
Corporation as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
March 15, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
BALANCE SHEET, December 31, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................... $ 2,446,221 $ 3,529,334
Marketable securities ............................................. 13,326,733 10,783,048
Mortgage notes receivable:
Notes, earning ................................................. 22,757,998 22,155,822
Notes, related party ........................................... 4,206,330 4,238,157
Allowance for loan losses ...................................... (1,600,000) (1,000,000)
------------ ------------
25,364,328 25,393,979
Real estate owned:
Foreclosed property held for sale, net of accumulated
depreciation of $65,866 at December 31, 1994 .................. -- 2,034,134
Valuation allowance ............................................ -- (1,134,134)
------------ ------------
-- 900,000
Accrued interest and other receivables ............................ 282,620 255,724
Other assets ...................................................... 340,999 163,083
------------ ------------
Total assets ................................. $ 41,760,901 $ 41,025,168
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable:
Shareholder ................................................... $ 5,500 $ 9,036
Trade ......................................................... 120,032 175,869
Deferred income ................................................. 153,952 129,552
Deposits from borrowers for property taxes ...................... 146,385 163,452
Security deposits ............................................... -- 66,087
Other ........................................................... 1,705 1,748
------------ ------------
Total liabilities ............................ 427,574 545,744
------------ ------------
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 ........................................... 47,690 (356,949)
Distributions in excess of net investment income ................ (2,115,214) (2,564,478)
------------ ------------
Total shareholders' equity ................... 41,333,327 40,479,424
------------ ------------
Total liabilities and shareholders' equity $ 41,760,901 $ 41,025,168
============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Interest income:
From mortgage notes $ 2,363,121 $ 2,678,387 $ 2,705,726
From mortgage notes, related party 391,854 394,843 408,150
Investment income 866,168 555,849 475,322
Miscellaneous income 142,916 228,949 126,787
----------- ----------- -----------
Total income 3,764,059 3,858,028 3,715,985
----------- ----------- -----------
Operating expenses:
Change in allowance for loan losses 600,000 (461,500) --
General and administrative 841,903 436,562 583,925
Net loss from foreclosed
property held for sale 331,953 1,295,416 337,699
Amortization of organization costs -- -- 93,463
----------- ----------- -----------
Total operating expenses 1,773,856 1,270,478 1,015,087
----------- ----------- -----------
Net investment income $ 1,990,203 $ 2,587,550 $ 2,700,898
=========== =========== ===========
Net investment income per share $ .44 $ .57 $ .60
=========== =========== ===========
Weighted average shares of common stock
outstanding 4,532,169 4,532,169 4,532,169
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
Common Stock Unrealized Distributions
------------ Holding Gains in Excess of
Additional (Losses) on Net Total
Paid-in Marketable Investment Shareholders'
Shares Amount Capital Securities Income1 Equity
------ ------ ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 4,532,169 $45,322 $ 43,355,529 $ (2,550,289) $ 40,850,562
Net investment income 2,700,898 2,700,898
Cash dividend of $.54 per share (2,447,371) (2,447,371)
--------- ------- ------------ ------------ ------------
Balances at December 31, 1993 4,532,169 45,322 43,355,529 (2,296,762) 41,104,089
Net investment income 2,587,550 2,587,550
Cash dividend of $.63 per share (2,855,266) (2,855,266)
Adjustment to beginning balance $ 3,624 3,624
for change in accounting
principle (Note 2)
Change in unrealized holding (360,573) (360,573)
gains (losses) on marketable
securities
--------- ------- ------------ ------------ ------------ ------------
Balances at December 31, 1994 4,532,169 45,322 $ 43,355,529 (356,949) (2,564,478) 40,479,424
Net investment income 1,990,203 1,990,203
Change in unrealized holding 404,639 404,639
gains (losses) on marketable
securities
Cash dividend of $.34 per share (1,540,939) (1,540,939)
--------- ------- ------------ ------------ ------------ ------------
Balances at December 31, 1995 4,532,169 $45,322 $ 43,355,529 $ 47,690 $ (2,115,214) $ 41,333,327
========= ======= ============ ============ ============ ============
<FN>
- ---------
1 See Note 7 to the financial statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net investment income ................................................ $ 1,990,203 $ 2,587,550 $ 2,700,898
----------- ----------- -----------
Adjustments to reconcile net investment income to net cash provided by
operating activities:
Amortization of net loan origination fees .......................... (50,095) (104,008) (83,832)
Allowance for loan losses (recovery) expense ....................... 600,000 (461,500) --
Valuation provision for foreclosed property ........................ 314,421 994,134 --
Depreciation and amortization expense .............................. 43,702 71,012 98,641
Expiration of commitment and application fees ...................... (15,000) (22,838) (21,000)
Other .............................................................. 23,263 16,557 24,223
(Increase) decrease in assets:
Accrued interest and other receivables ........................... (26,896) (33,784) 40,085
Other assets ..................................................... (181,926) (131,293) 190
Increase (decrease) in liabilities:
Accounts payable ................................................. (59,373) 16,615 28,566
Other liabilities ................................................ (83,197) 24,566 57,050
----------- ----------- -----------
Total adjustments ........................... 564,899 369,461 143,923
----------- ----------- -----------
Net cash provided by operating
activities ................................ 2,555,102 2,957,011 2,844,821
----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities ................................... (3,507,381) (4,767,232) --
Collections of principal from marketable securities .................. 1,345,072 1,093,691 1,874,708
Loan disbursements ................................................... (444,293) (150,000) (1,800,000)
Loan repayments ...................................................... 355,151 4,876,191 211,043
Commitment and loan extension fees received .......................... 73,525 38,000 40,223
Cash proceeds from sale of foreclosed property, net .................. 92,157 -- --
Loan origination expenses paid ....................................... (10,237) -- (15,601)
Capital expenditures ................................................. (1,270) -- --
Other receivable repayments .......................................... -- -- 16,785
----------- ----------- -----------
Net cash provided by (used in)
investing activities ...................... (2,097,276) 1,090,650 327,158
----------- ----------- -----------
Cash flows used in financing activities,
dividends paid ....................................................... (1,540,939) (2,855,266) (2,447,371)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents .......................................................... (1,083,113) 1,192,395 724,608
Cash and cash equivalents, beginning of year ........................... 3,529,334 2,336,939 1,612,331
----------- ----------- -----------
Cash and cash equivalents, end of year ................................. $ 2,446,221 $ 3,529,334 $ 2,336,939
=========== =========== ===========
Supplemental disclosure of cash flow information, noncash investing
activities: Receivable from sale of foreclosed property - $455,000.
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-6
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Metropolitan Realty Corporation (the "Company"), incorporated
November 13, 1986, was organized to qualify as a real estate
investment trust ("REIT") under the provisions of the Internal
Revenue Code. As a REIT, the Company is required to invest most of
its assets in real estate assets, cash and government securities.
The Company intends to invest substantially all of its assets in
mortgage loans to real estate projects located in southeastern
Michigan in the counties of Wayne and Macomb. At December 31, 1995,
the Company's total mortgage loan portfolio is invested 74% in
projects located in the City of Detroit, 11% in projects located in
the County of Macomb, and 15% in projects located in the County of
Wayne outside of the City of Detroit.
The Company's mortgage loans include financing for industrial and
mixed-use facilities, office buildings, and retail and residential
centers. The Company has favored investments that will provide a
competitive return and permanent financing for projects which
create construction jobs and stimulate the Southeast Michigan
economy. All mortgage loans to date are collateralized by a first
lien on real property. At December 31, 1995, the Company's largest
loan approximates 10% of its total assets, and the carrying value
of all mortgage loans approximates 61% of its total assets.
2. ACCOUNTING POLICIES:
The preparation of these financial statements, in order to be
presented in conformity with generally accepted accounting
principles, requires that management use estimates and assumptions
regarding events anticipated and transpired, together with their
potential effects upon the reported amounts of assets and
liabilities, as well as the disclosures and assessments of
contingent liabilities at the date of the financial statements, and
in determining the reported amounts of revenues, costs and expenses
of the reporting periods.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or
less to be cash equivalents.
Marketable Securities
The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115), effective
January 1, 1994. Under SFAS No. 115, 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 includes net unrealized holding gains on
marketable securities of $47,690 at December 31, 1995
($38,133 related to mortgage-backed securities and $9,557
related to U.S. Treasury
Continued
F-7
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES, continued:
Marketable Securities, continued:
notes) and net unrealized holdings losses on marketable
mortgage-backed securities of $356,949 at December 31,
1994. Realized gains or losses on sales of securities are
determined based upon specific identification. The
realized net loss on marketable securities, included in
investment income in the accompanying statement of
operations, resulted from called mortgaged-backed
securities and aggregated $23,263 for the year ended
December 31, 1995 and $16,557 for the year ended December
31, 1994. At December 31, 1995 and 1994, all marketable
securities are considered available for sale.
Allowance for Loan Losses
The Company adopted SFAS 114, "Accounting by Creditors
for Impairment of a Loan", 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 generally based on the
present value of expected future cash flows discounted at
the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The cumulative
effect of adopting the provisions of SFAS 114 was not
significant.
The Company provides for possible losses on its portfolio
of mortgage notes receivable based on an evaluation of
each mortgage note. In determining the allowance for
possible losses, the Company has considered various
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 loan losses is established through
charges to earnings in the form of a provision for credit
losses. Increases and decreases in the allowance due to
changes in the measurement of the 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.
Continued
F-8
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES, continued:
Allowance for Loan Losses, continued:
The allowance is based upon management's estimates and
ultimate losses may vary from the current estimates.
These estimates are reviewed by management at least
quarterly, and as adjustments become necessary, they are
reported in the statement of operations in the period in
which they become known.
Foreclosed Property Held for Sale
Property acquired through loan foreclosure is initially
recorded at the lesser of mortgage loan balance or fair
value at the date of foreclosure. Losses, if any,
attributable to the excess of the recorded investment
including accrued interest over fair value are charged to
the allowance for loan losses on mortgage loans at the
time of foreclosure. A valuation allowance is also
established at the time of foreclosure for the estimated
costs to sell the property, as the Company is dependent
on the liquidation of the property for the recovery of
its investment in foreclosed real estate. Subsequent to
foreclosure, the property is carried at the lower of cost
or fair value less estimated costs to sell. The
property's operating income and expenses from the date of
foreclosure are reflected in the statement of operations.
Depreciation of the property commences one year from the
date of foreclosure. Income from guarantor settlements is
recognized when received.
Organization Costs
Certain costs related to the organization of the Company
were capitalized at cost and amortized on a straight-line
basis over 60 months. Organization costs became fully
amortized in fiscal 1993.
Income Taxes
The Company intends to operate at all times to qualify as
a real estate investment trust under the provisions of
the Internal Revenue Code. 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.
Revenue Recognition
Loan origination fees received from the borrower, in
excess of loan origination costs paid, are amortized to
interest income using the effective interest method over
the life of the mortgage loan.
Continued
F-9
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES, continued:
Revenue Recognition, continued:
Interest income is accrued when earned. The Company
discontinues the accrual of interest income when
circumstances exist which cause the collection of
interest to be doubtful. The determination to discontinue
accruing interest is made after a review by the Company's
management of all relevant facts, including delinquency
of principal and/or interest, and financial stability of
the borrower. The Company classifies loans on which the
accrual of interest has been discontinued as nonearning.
Interest income on nonaccrual loans is recognized on a
cash basis if the future collectibility of the recorded
loan balance is expected. When the future collectibility
of the recorded loan balance is doubtful, collection of
interest will be applied as a reduction to outstanding
loan principal. All mortgage loans held by the Company
are classified as earning loans at December 31, 1995 and
1994.
3. MARKETABLE SECURITIES:
Marketable securities at December 31, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
----------------------------- --------------------------
Interest Rate at
12/31/95 Cost Market Value Cost Market Value
----------------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Note 6.125% $ 3,507,383 $ 3,516,940
Federal National 6.36%-6.44% 5,956,601 5,948,714 $ 6,504,138 $ 6,218,604
Mortgage Association,
pass through
Federal Home Loan 7.92%-8.02% 3,815,059 3,861,079 4,635,859 4,564,444
----------- ----------- ----------- -----------
Mortgage Corporation,
pass through
$13,279,043 $13,326,733 $11,139,997 $10,783,048
=========== =========== =========== ===========
</TABLE>
The U.S. Treasury note has a scheduled maturity in July 1996. The
mortgage-backed securities mature according to payment characteristics of the
underlying loans. The ultimate maturity dates of the mortgage-backed
securities held by the Company at December 31, 1995 range from January 2017 to
August 2024.
Continued
F-10
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE:
Mortgage notes receivable as of dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C>
First mortgage note 9.09% December 2000 Monthly payments of principal and
on parking garage in interest of $35,494 until maturity, at
Detroit, Michigan which time the remaining unpaid
principal balance of approximately
$4,010,000 is due. The note may be
prepaid in whole, but not in part, for
a fee ranging from 1 percent to 1.5
percent of the outstanding principal
balance at the time of prepayment.
First mortgage on 10.25% through March 31, April 2000 Monthly payments in varying
rehabilitation of 1995 adjusted to 9.26% on installments of principal and interest
historic office April 1, 1995** until maturity, at which time the
building located in remaining unpaid principal balance
Detroit, Michigan of approximately $1,858,000 is due.
The note may be prepaid in whole,
but not in part, for a set fee based
upon the rate by which the annual
yield on certain U.S. Treasury
securities exceeds the yield on the
note through April 1997, after which
time the fee ranges from 1 percent
to 3 percent of the outstanding
principal balance at the time of
prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C> <C> <C> <C>
First mortgage note None $4,376,000 $4,206,330 $4,238,157 $4,265,018
on parking garage in
Detroit, Michigan
First mortgage on None 1,900,000 1,812,889 1,836,190 1,703,506
rehabilitation of
historic office
building located in
Detroit, Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** Admustment based on the U.S. Treasury Securities weekly average yield
adjusted to a constant maturity of 5 years plus 2.25%.
</TABLE>
Continued F-11
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C>
First mortgage 9.875% February 1999 Monthly payments in varying
permanent loan on a installments of principal and interest
light industrial until maturity, at which time the
building located in remaining unpaid principal balance
Plymouth Township, of approximately $2,402,000 is due.
Michigan The note may be prepaid in whole,
but not in part, for a fee based upon
the rate by which the annual yield
on certain U.S. Treasury securities
exceeds the yield on the note at the
time of prepayment.
First mortgage on 10.50% December 2000 Monthly payments of interest only
day care center until January 1993 when payments
located in Plymouth, in varying installments of principal
Michigan and interest commence until
maturity, at which time the
remaining unpaid principal balance
of approximately $908,000 is due.
The note may be prepaid in whole,
but not in part, for a fee based upon
the rate by which the annual yield
on certain U.S. Treasury securities
exceeds the yield on the note at the
time of prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C> <C> <C> <C>
First mortgage None $2,525,000 $2,445,235 $2,458,787 $2,471,031
permanent loan on a
light industrial
building located in
Plymouth Township,
Michigan
First mortgage on None 960,000 940,653 945,613 950,070
day care center
located in Plymouth,
Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-12
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C>
First mortgage on 9.875% through October 31, October 2000 Monthly payments in varying
retail tire 1995 adjusted to 7.25% on installments of principal and interest
center located in November 1, 1995 based on until maturity, at which time the
Woodhaven, the U.S. Treasury average remaining unpaid principal balance
Michigan weekly yield adjusted to a of approximately $647,000 is due.
constant maturity of 5 years The note may be prepaid in whole,
plus 1.5% at that date but not in part, for a fee of 1 percent
of the outstanding principal balance
or based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.
First mortgage on 9.50% through February 28, February 2001 Monthly payments in varying
retail tire center 1996. The interest rate will installments of principal and interest
located in Sterling be adjusted on March 1, until maturity, at which time the
Heights, Michigan 1996 to the U.S. Treasury remaining unpaid principal balance
weekly average yield of approximately $693,000 is due.
adjusted to a constant The note may be prepaid in whole,
maturity of 5 years plus 1.5% but not in part, for a fee of 1 percent
to 2 percent of the outstanding
principal balance or based upon the
rate by which the annual yield on
certain U.S. Treasury securities
exceeds the yield on the note at the
time of prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C> <C> <C> <C>
First mortgage on None $ 695,000 $ 669,449 $ 673,579 $ 676,731
retail tire
center located in
Woodhaven,
Michigan
First mortgage on None 750,000 719,601 723,425 726,887
retail tire center
located in Sterling
Heights, Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-13
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C>
First mortgage on 10.25% April 2003 Monthly payments of interest only
office building through April 1995 and varying
located in Detroit, installments of principal and interest
Michigan from May 1995 until maturity, at
which time the remaining unpaid
principal balance of approximately
$1,695,000 is due. The note may be
prepaid in whole, but not in part, at
varying prepayment rates, based on
the date of prepayment.
First mortgage on 10.50% July 1997** Monthly payments of principal and
Industrial building interest of $11,933 until maturity, at
located in Van Buren which time the remaining unpaid
Township, Michigan principal balance of approximately
$1,185,230 is due. The note may be
prepaid in whole, but not in part, for
a fee based upon the rate by which
the annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C> <C> <C> <C>
First mortgage on None $1,800,000 $1,741,822 $1,743,332 $1,739,059
office building
located in Detroit,
Michigan
First mortgage on None 1,250,000 -- -- 1,212,924
Industrial building
located in Van Buren
Township, Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** On November 9, 1994, the outstanding principal balance of this mortgage
note was prepaid. The Company also received a prepayment penalty of
approximately $114,000.
</TABLE>
Continued F-14
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C>
Renovation of office 1% Over Prime (Prime Rate July 1997 Monthly payments in varying
building located in at December 31, 1995 was installments of interest until
Detroit, Michigan 8.5%) maturity, at which time it is
anticipated that it will convert to a
permanent loan. The construction
note may be prepaid in whole, but
not in part, for a fee based upon the
rate by which the annual yield on
certain U.S. Treasury Securities
exceeds the yield on the rate at the
time of prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C> <C> <C> <C>
Renovation of office None $1,365,000 $420,406 -- --
building located in (of which
Detroit, Michigan $921,000 is
undisbursed at
December 31,
1995)
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-15
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C>
Shopping center 10.50% through December December 1999 Monthly payments in varying
located in Detroit, 31, 1994 adjusted to installments of principal and interest
Michigan 10.875% on January 1, until maturity, at which time the
1995** remaining unpaid principal balance
of approximately $941,000 is due.
The note may be prepaid in whole,
but not in part, for a fee ranging
from 1 percent to 5 percent of the
outstanding principal balance or
based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.
Shopping center 9.3752% January 2000 Monthly payments of principal and
located in Sterling interest of $18,298 until maturity, at
Heights, Michigan which time the remaining unpaid
principal balance of approximately
$2,028,000 is due. The note may be
prepaid in whole, but not in part, for
a fee based upon the rate by which
the annual yield on certain U.S.
Treasury securities at the time of
prepayment exceeds the yield on
the note through January 1997. After
such date, the note may be prepaid
without a fee.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C> <C> <C> <C>
Shopping center None $1,080,500 $ 965,898 $ 971,030 $ 975,153
located in Detroit,
Michigan
Shopping center None 2,200,000 2,111,851 $2,127,504 2,141,578
located in Sterling
Heights, Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** Adjustment based on the U.S. Treasury Securities weekly average yield
adjusted to constant maturity of 5 years plus 3%.
</TABLE>
Continued F-16
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C>
Shopping center 9.17% June 1994 Monthly payments of interest only of
located in St. Clair $25,218 until maturity, at which
Shores, Michigan time the remaining unpaid principal
balance of $3,300,000 is due.
Rehabilitation of 11.25% October 2000 Monthly payments of principal and
shopping center interest of $16,471 until maturity, at
located in Detroit, which time the remaining unpaid
Michigan principal balance of approximately
$1,477,000 is due. The note may be
prepaid in whole, but not in part, for
a fee based upon the rate by which
the annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.
Rehabilitation of 11.25% October 2000 Monthly payments of principal and
shopping center interest of $21,961 until maturity, at
located in Detroit, which time the remaining unpaid
Michigan principal balance of approximately
$1,969,000 is due. The loan may be
prepaid in whole, but not in part,
and may require payment of a fee
based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C> <C> <C> <C>
Shopping center None $3,300,000 -- -- $3,300,000
located in St. Clair
Shores, Michigan
Rehabilitation of None 1,650,000 $1,575,680 $1,589,953 1,602,673
shopping center
located in Detroit,
Michigan
Rehabilitation of None 2,200,000 2,100,907 2,119,938 2,136,897
shopping center
located in Detroit,
Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-17
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C>
Shopping center 10.25% April 1997 Monthly payments in varying
located in Detroit, and installments of principal and interest
Michigan 9.75% until maturity, at which time the
remaining unpaid principal balance
of approximately $2,277,000 is due.
The note may be prepaid in whole,
but not in part, for a fee based upon
the rate by which the annual yield
on certain U.S. Treasury securities
exceeds the yield on the note at the
time of prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C> <C> <C> <C>
Shopping center None $2,500,000 $2,329,018 $2,362,444 $2,392,384
located in Detroit,
Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-18
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C>
Renovation of 75- 8.0% August 2000 Monthly payments of interest only
unit building located and through April 1994 and varying
in Detroit, Michigan 9.5% installments of principal and interest
from May 1994 until maturity, at
which time the remaining unpaid
principal balance of approximately
$1,284,000 is due. The note may be
prepaid in whole, but not in part,
and may require payment of a fee
based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C> <C> <C> <C>
Renovation of 75- None $1,260,000** $1,361,789 $1,369,349 $1,369,463
unit building located
in Detroit, Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** During 1993, the Company modified the terms of this mortgage note, pursuant
to which approximately $125,000 of interest was added to the principal
balance of the mortgage.
</TABLE>
Continued F-19
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C>
Renovation of 54- 9.25% September 2000 Monthly payments of principal and
unit building located interest of $5,800 until maturity, at
in Detroit, Michigan which time the remaining unpaid
principal balance of approximately
$557,000 is due. The note may be
prepaid in whole, but not in part,
and may require payment of a fee
based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the yield
on the note at the time of
prepayment.**
24-unit building 10.25% January 2001 Monthly payments in varying
located in Detroit, installments of principal and interest
Michigan until maturity, at which time the
remaining unpaid principal balance
of approximately $241,000 is due.
The note may be prepaid in whole,
but not in part, and may require
payment of a fee based upon the
rate by which the annual yield on
certain U.S. Treasury securities
exceeds the yield on the note at the
time of prepayment.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C> <C> <C> <C>
Renovation of 54- None $728,000 $614,211 $622,842 $703,403
unit building located
in Detroit, Michigan
24-unit building None 275,000 258,623 261,166 263,451
located in Detroit,
Michigan
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** In December 1994, the Company modified the terms of this loan pursuant to
which $75,000 of principal was prepaid and the interest rate was reduced
from 11% to 9.25%.
</TABLE>
Continued F-20
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
=============================================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- -----------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C>
Renovation of 167 10.25% and 12.25% April 1997 Monthly payments in varying
unit building located installments of principal and interest
in Detroit, Michigan until maturity, at which time the
remaining unpaid principal balance
of approximately $1,910,857 is due.
The note may be prepaid in whole,
but not in part, for a fee based upon
the rate by which the annual yield
on certain U.S. Treasury securities
exceeds the yield on the note at the
time of prepayment.
205-unit high-rise 10.00% August 2000 Monthly payments in varying
apartment building installments of principal and interest
located in Detroit, until maturity, at which time the
Michigan remaining unpaid principal balance
is due. The note may be prepaid in
whole or in part at anytime.
<CAPTION>
================================================================================================================================
Principal
Amount of
Carrying Amount of Loans Subject
Face Mortgages at December 31,* to
Prior Amount of ------------------------- Delinquent
Description Liens Mortgage 1995 1994 1993 Principal
and Interest
- --------------------------------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C> <C> <C> <C>
Renovation of 167 None $ 2,500,000 $ 2,239,156 $ 2,350,670 $ 2,418,934
unit building located
in Detroit, Michigan
205-unit high-rise None 455,000 450,810 -- --
apartment building
located in Detroit,
Michigan
---------------- ---------------- ---------------- ---------------
33,769,500 26,964,328 26,393,979 31,049,162 --
Allowance for
loan losses (1,600,000) (1,000,000) (1,461,500)
---------------- ---------------- ---------------- ---------------
Mortgage notes
receivable, net of
allowance for loan
losses $ 33,769,500 $ 25,364,328 $ 25,393,979 $ 29,587,662 --
================ ================ ================ ===============
<FN>
- ---------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-21
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
Aggregate, contractual annual maturities of mortgage note receivable principal
are as follows:
<TABLE>
<S> <C>
1996 $ 440,034
1997 5,088,625
1998 283,573
1999 3,631,394
2000 15,361,258
2001 and after 2,403,406
-----------
27,208,290
Less unamortized net loan
origination fees 243,962
-----------
$26,964,328
===========
</TABLE>
Continued F-22
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
A reconciliation of the carrying value of mortgage notes receivable
for the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Mortgage notes receivable:
Balance, beginning of year $ 26,393,979 $ 31,049,162 $ 29,328,358
------------ ------------ ------------
Additions:
New mortgage loans 899,293 150,000 1,800,000
Amortization of net loan origination fees 50,095 104,008 60,946
Amortization of loan discount -- -- 22,886
Interest deferred until maturity
of mortgage loan -- -- 124,550
------------ ------------ ------------
Total additions 949,388 254,008 2,008,382
------------ ------------ ------------
Deductions:
Collections of principal (355,151) (4,876,191) (211,043)
Loan origination fees received (23,888) (33,000) (76,535)
------------ ------------ ------------
Total deductions (379,039) (4,909,191) (287,578)
------------ ------------ ------------
Balance, close of year 26,964,328 26,393,979 31,049,162
------------ ------------ ------------
Allowance for loan losses:
Balance, beginning of year (1,000,000) (1,461,500) (1,461,500)
------------ ------------ ------------
(Provisions to) recovery from operations (600,000) 461,000 --
Balance, close of year (1,600,000) (1,000,000) (1,461,500)
------------ ------------ ------------
Mortgage notes receivable, net of
allowance for loan losses $ 25,364,328 $ 25,393,979 $ 29,587,662
============ ============ ============
</TABLE>
During the year ended December 31, 1995, the Company earned approximately
$392,000 or 10.4% of its total income on one mortgage note with a carrying
value of approximately $4,206,000.
Two mortgage notes carried at an aggregate carrying value of approximately
$3,677,000; four mortgage notes carried at an aggregate carrying value of
approximately $3,201,000 and two mortgage notes carried at an aggregate
carrying value of approximately $2,162,228 at December 31, 1995, made with
entities affiliated through common ownership earned the Company $423,940,
$313,898 and $204,687, respectively, during the year ended December 31, 1995.
Continued
F-23
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
The Company evaluates its portfolio of mortgage loans on an
individual basis, comparing the amount at which the investment is
carried to its estimated net realizable value. In making its
evaluations, the Company has assumed that it will be able to
acquire property collateralizing mortgage loans by foreclosure, if
deemed appropriate, and hold and dispose of such assets and real
estate currently owned in the ordinary course of business to
maximize the return to the Company. The evaluations and related
assumptions are dependent upon current estimates of future
operations, proceeds, costs, events and general market and economic
conditions all of which are influenced by many unpredictable
factors. Accordingly, the ultimate realizations of the Company's
investments, including future income, may differ from amounts
presently estimated.
The Company had maintained an allowance for doubtful accounts of
$1,461,500 from December 31, 1992 through the third quarter of 1994
to reflect the expected recoverable cash flows from three troubled
loans. During 1994, the cash flows generated by one of the above
loans which had previously been in default, collateralized by a
shopping center, increased significantly. As this increase was
supported by an improvement in tenant base, the Company determined
at December 31, 1994 that this loan no longer required a loss
reserve. The loan loss reserve was reduced, accordingly, by
$461,500 during the fourth quarter of 1994 to $1,000,000. The other
loan with an affiliated borrower, which was also formerly in
default, had not exhibited the same magnitude of improvement in
cash flows and tenants during 1994. The loan loss reserve, however,
was further reduced by $250,000 in the second quarter of 1995,
based on the Company's determination that the continued assignment
of rents reduced the risk of loss associated with this loan.
During the third quarter of 1995, the Company determined that an
$850,000 increase in the allowance related to certain loans was
necessary as a result of the continued deterioration of the
underlying collateral and limited market rent potential on these
loans. In its analysis of the adequacy of the allowance for loan
losses, the Company used operating cash flow analyses and other
information obtained through an independent valuation of the
Company's mortgage portfolio performed in conjunction with the
proposed restructuring discussed in Note 11. The Company believes
that the allowance for loan losses of $1,600,000 at December 31,
1995 is adequate to properly reflect the portfolio of mortgage
loans at estimated net realizable value.
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 these new
standards, 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 discounted cash
flows of the underlying collateral. The cumulative effect of
adopting the provisions of SFAS No. 114 was not significant. At
December 31, 1995, the total recorded investment in impaired loans,
as defined by SFAS 114, was $5,308,000. The allowance related to
these loans totaled $1,600,000 at December 31, 1995. The average
recorded investment in impaired loans was approximately $5,328,000
and interest income was $536,117 for the
Continued
F-24
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
year ended December 31, 1995. All impaired loans were classified as
earning loans during 1995, with interest income recognized on an
accrual basis.
5. REAL ESTATE OWNED:
At 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 property's operating income and expenses from the date of
foreclosure are reflected in the statement of operations. The net
loss from foreclosed property held for sale, for the years ended
December 31, 1995, 1994, and 1993 totaled $331,953, $1,295,416 and
$337,699 and consisted of the following:
Continued
F-25
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
5. REAL ESTATE OWNED, continued:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rental income $ 432,292 $ 661,679 $ 553,668
---------- ---------- ----------
Expenses:
Operating expenses 380,011 840,950 834,503
Valuation provision 314,421 994,134 --
Depreciation expense 38,422 65,866 --
Management fees 23,779 37,538 40,123
Professional fees 7,612 18,607 16,741
---------- ---------- ----------
Total expenses 764,245 1,957,095 891,367
---------- ---------- ----------
Net loss from foreclosed
property held for sale $ 331,953 $1,295,416 $ 337,699
========== ========== ==========
</TABLE>
6. FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments held by the
Company at December 31, 1995 and 1994, and the valuation techniques
used to estimate the fair value, were as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,446,221 $ 2,446,221 $ 3,529,334 $ 3,529,334
Marketable securities 13,326,733 13,374,423 10,783,048 10,426,099
Mortgage notes receivable, net 25,364,328 25,490,028 25,393,979 25,203,520
Accrued interest and other 282,620 282,620 255,724 255,724
receivables
Accounts payable 125,532 125,532 184,905 184,905
</TABLE>
Cash and cash equivalents -- The carrying amount is a
reasonable estimate of fair
value.
Marketable securities -- The estimated fair value of
marketable securities is
estimated based on quoted
market prices.
Continued
F-26
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
6. FINANCIAL INSTRUMENTS, continued:
Mortgage notes receivable,
net -- The fair value of mortgage
notes receivable is estimated
by discounting future cash
flows using an estimated
discount rate which reflects
the current credit, interest
rate and prepayment risks
associated with similar types
of instruments.
Accrued interest and other
receivables -- The carrying amount is a
reasonable estimate of fair
value.
Accounts payable -- The carrying amount is a
reasonable estimate of fair
value.
7. FEDERAL INCOME TAX:
A real estate investment trust is not subject to federal income tax
on taxable income distributed to its shareholders during its fiscal
year and subsequent year, but prior to filing its federal tax
return. If, however, the real estate investment trust has retained
income within the limits allowed under the federal tax laws, it
must pay tax at corporate rates on its undistributed income.
Furthermore, if the real estate investment trust fails to
distribute, during the fiscal year, an amount equal to 85% of its
taxable income for that year, it is subject to a 4% excise tax on
the shortfall. The excise tax is not deductible for federal income
tax purposes. Income for tax and financial reporting purposes is
reconciled as follows:
Continued
F-27
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
7. FEDERAL INCOME TAX, continued:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income before income
tax on undistributed earnings $ 1,990,203 $ 2,587,550 $ 2,700,898
Increase (decrease) in taxable income resulting from:
Loan origination and appli-
cation fees, net 8,430 (88,845) (57,324)
Provision for valuation
allowances, net 914,421 532,634 --
Realized loss on sale of
foreclosed property (1,566,594) -- --
Bad debt expense -- (312,000) --
Dividends declared on
investment income (1,314,329) (2,764,623) (2,673,980)
Other, net (32,131) 45,284 30,406
----------- ----------- -----------
Taxable investment income -- -- --
=========== =========== ===========
</TABLE>
8. RELATED PARTY TRANSACTIONS:
The Company was involved in various transactions with affiliates as
follows:
o One of the Company's legal counselors is also a member of
the Company's Board of Directors. Fees for legal services
provided by the director's law firm amount to $306,394,
$153,296 and $57,599 for the years ended December 31,
1995, 1994 and 1993, respectively, of which $227,586 and
$70,076 of the fees earned in 1995 and 1994,
respectively, relate to the transaction discussed in Note
11. Accrued legal fees of $30,860 and $22,524 are
included in accounts payable in the accompanying balance
sheet at December 31, 1995 and 1994, respectively.
Continued
F-28
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
8. RELATED PARTY TRANSACTIONS, continued:
o Fees aggregating $23,920, $19,831, and $19,261 for the
years ended December 31, 1995, 1994 and 1993,
respectively, were earned by a shareholder of the Company
for providing various investment and other services to
the Company.
o Consulting fees under a contractual agreement aggregating
$44,520, $42,400 and $40,000 were earned by an officer of
the Company in 1995, 1994 and 1993 respectively.
o 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 $4,206,330 and $4,238,157 at
December 31, 1995 and 1994, respectively and earned the
Company $391,854, $394,843 and $408,150 during the years
ended December 31, 1995, 1994 and 1993, respectively.
9. DIVIDEND DECLARATION:
Under pertinent provisions of the Internal Revenue 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 will be paid from income earned by the Company in
1995. This dividend will be taxable to shareholders as ordinary
income.
10. COMMITMENTS:
At December 31, 1995, the Company had outstanding loan commitments
aggregating $921,000.
11. 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 December 31, 1995, $626,000 of professional fees have
been incurred in connection with this transaction, of which
$313,000 have been deferred.
Continued
F-29
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
12. INTERIM FINANCIAL INFORMATION (unaudited):
<TABLE>
<CAPTION>
=======================================================================
Net Investment
Total Net Investment Income (Loss)
Quarters Ended Income Income (Loss) per Share
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal 1995
December 31 $ 913,133 $ 674,776 $ .15
September 30 973,527 (183,720) (.04)(1)
June 30 926,886 736,626 .16
March 31 950,513 762,521 .17
----------- ----------- --------
$ 3,764,059 $ 1,990,203 $ .44
=========== =========== ========
Fiscal 1994
December 31 $ 1,052,728 $ 250,564 $ .05(2)
September 30 937,150 814,839 .18
June 30 929,888 809,875 .18
March 31 938,262 712,272 .16
----------- ----------- --------
$ 3,858,028 $ 2,587,550 $ .57
=========== =========== ========
<FN>
- --------
1 The results of operations for the third quarter of fiscal year 1995
include a $850,000 increase in the allowance for loan losses and a $200,000
increase in general and administrative expenses for costs associated with the
Company's proposed restructuring into a limited liability company. See Notes 4
and 11 to the financial statements.
2 The results of operations for the fourth quarter of fiscal year 1994
include a $994,000 increase in the valuation provision for foreclosed property
held for sale offset by a $462,000 decrease in the allowance for loan losses
and recognition of $114,000 in income from loan prepayment penalties. See
Notes 4 and 5 to the financial statements.
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1994 and 1993
=======================================================================================================
Additions, Charged Balance
Charged to (Credited) to at
Balance at Costs and Other December
Description January 1 Expenses Accounts Deductions 31
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
Loan Losses:
1995 $1,000,000 $600,000 $1,600,000
1994 1,461,500 $ (461,500)(1) 1,000,000
1993 1,461,500 1,461,500
Valuation
Allowance:
1995 1,134,134 314,421 (1,448,555)(2) --
1994 140,000 994,134 1,134,134
1993 140,000 140,000
<FN>
- ---------
1 Decrease in allowance for loan losses was charged against operating
expenses.
2 Foreclosed property sold in 1995.
F-31
</TABLE>
