FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1997
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. 33-99694
METROPOLITAN REALTY COMPANY, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 38-3260057
(State of incorporation) (I.R.S. Employer Identification No.)
535 Griswold, Suite 748
Detroit, Michigan 48226
(Address of principal executive offices)
Registrant's Telephone Number, including area code:
(313) 961-5552
Securities registered pursuant to Section 12(b) of the Act:
None.
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 report(s), 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_
There is no established public trading market for the Company's Class A
Membership Interests and Class B Membership Interests.
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY COMPANY, L.L.C.
INDEX TO ANNUAL REPORT ON FORM 10-K
(For the Fiscal Year Ended December 31, 1997)
Page
----
<S> <C> <C>
PART 1
ITEM 1. BUSINESS..........................................................1
ITEM 2. PROPERTIES........................................................2
ITEM 3. LEGAL PROCEEDINGS.................................................2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............2
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................3
ITEM 6. SELECTED FINANCIAL DATA...........................................4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*......................8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................9
ITEM 11. EXECUTIVE COMPENSATION...........................................14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...................................................14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K......................................................18
<FN>
* The company's financial statements are set forth in the separate
financial section which follows page 21 of this Form 10-K and begins on
page F-1.
</TABLE>
<PAGE>
PART I
------
ITEM 1. BUSINESS
Metropolitan Realty Company, L.L.C., a Delaware limited liability company
(the "Company"), is a successor in interest to Metropolitan Realty
Corporation (the "Corporation"), a Michigan corporation. The Corporation had
operated since 1988 as a qualified real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"), and
invested in commercial real estate mortgages in southeastern Michigan and
other investments. The Company was organized as a Delaware limited liability
company on October 23, 1995 for the purpose of implementing the Restructuring
described below. Prior to the consummation of the Restructuring, the Company
had never conducted any business and had no assets.
Restructuring
- -------------
At a special meeting of the shareholders of the Corporation held on December
6, 1996, the shareholders of the Corporation approved and adopted the
Agreement and Plan of Dissolution and Restructuring, dated as of September
24, 1996 (the "Restructuring Agreement"), between the Company and the
Corporation. Pursuant to the terms of the Restructuring Agreement, effective
December 6, 1996, the Corporation transferred all of its assets (the "Class A
Assets") to, and the liabilities of the Corporation were assumed by, the
Company in exchange for Class A limited liability company membership
interests (the "Class A Membership Interests") of the Company. The
Corporation was then dissolved, and the Class A Membership Interests were
distributed pro rata to the Corporation's shareholders who owned 50,000
shares or more of the Corporation's common stock beneficially or of record on
October 9, 1996 (the "Record Date") (the "Majority Shareholders") in
liquidation (the "Restructuring"). Holders, beneficially or of record, of
fewer than 50,000 shares of the Corporation's common stock (the "Minority
Shareholders") as of the Record Date received, upon surrender of their
shares, a cash payment equal to the book value of their shares as of
September 30, 1995 ($9.03 per share) in lieu of the distribution of Class A
Membership Interests in the Company. These cash payments will be made
exclusively from the Class A Assets.
Concurrent with the Restructuring, the Company offered its Class B Membership
Interests in a separate offering to create a new investment pool, which is
segregated on the books of the Company from the Class A Assets. The total
proceeds of the offering of Class B Membership Interests were $22,500,000.
The net proceeds of the offering of Class B Membership Interests (the "Class
B Assets") are being invested in short-term investments until such time as
the proceeds are invested in real estate loans.
Class A Assets
- --------------
The Company's Class A mortgage loans include financing for industrial and
office buildings, retail centers, residential projects and mixed-use
facilities. In making such loans, the Company favored investments that will
provide a competitive return and permanent financing for projects which
create construction jobs and stimulate the southeastern Michigan economy. All
Class A mortgage loans to date are collateralized by the first lien on real
property.
1
<PAGE>
Class A Assets that have not yet been invested in mortgage loans are
primarily invested in cash and marketable securities.
Class B Assets
- --------------
As of December 31, 1997, the Company has approximately $22,977,000 in net
Class B Assets, the majority of which is invested in cash and marketable
securities. The Company intends to invest the Class B Assets in commercial
real estate mortgages in southeastern Michigan and other investments. The
Class B mortgage loan investments are to be chosen on the basis of economic
merit, including availability, risk and potential return. The Class B Assets
are being invested in short-term investments until such time as the assets
are invested in mortgage loan investments.
The Company believes that its mortgage loans and marketable securities will
provide a competitive economic return to its members while protecting their
capital.
The Company continues to evaluate real estate projects and intends to use its
remaining marketable securities and short-term investments to make additional
mortgage loans to qualified projects located in southeastern Michigan.
Although the Company has competed and is competing with financial
institutions such as banks, insurance companies, savings and loan
associations, mortgage bankers, pension funds and other real estate
investment vehicles with investment objectives similar to those of the
Company, the Company believes it has targeted a market niche which is
underserved.
During 1997, the Company had one full-time and one part-time administrative
employee. The day-to-day operations of the Company are administered by its
Vice President, who serves on a part-time basis under the direction of the
President and Executive Committee of the Company. The Vice President and
other members of the Managing Board serve without pay as officers and
committee members and devote a considerable amount of time to the
administration and operations of the Company.
ITEM 2. PROPERTIES
The Company's executive offices are located at Suite 748, 535 Griswold,
Detroit, Michigan, 48226. The Company rents this office space under a lease
which provides for a monthly rental of approximately $1,600, which is
comparable to prevailing rentals for similar facilities. The Company's
offices are suitable and adequate for the current operations of the Company.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, or, to the knowledge of the
Company, threatened, to which the Company is a party or by which its property
may be bound.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's members since the
consummation of the Restructuring on December 6, 1996.
2
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's Class A
Membership Interests and Class B Membership Interests. As of March 25, 1998,
there were 115 holders of the Company's Class A Membership Interests and 106
holders of the Company's Class B Membership Interests.
The Company paid cash distributions in the amount of $2,538,209 to its Class
A Members and $911,225 to its Class B Members in 1997.
The Company's Operating Agreement provides that Class A Members will receive
pro rata quarterly distributions of 100% of the Class A income, less
expenses. Distributions of principal will be returned as follows to the Class
A Members:
i. prior to 2001, the Company may, at its sole option, reinvest any
principal returned with respect to real estate investments which are part
of the Class A Assets; and
ii.beginning in 2001, a Class A Member may elect each year to receive its
pro rata share of (x) principal returned with respect to real estate
investments which are part of the Class A Assets, and (y) any cash
equivalents which are part of the Class A Assets. Any part of the Class A
Assets which are not distributed pursuant to the foregoing may, at the
option of the Company, be reinvested in real estate investments. Any such
election must be made by a Member in writing and must be received by the
Company by the November first preceding the fiscal year for which such
election is to be effective.
The Company's Operating Agreement provides that Class B Members will receive
pro rata quarterly distributions of 100% of the Class B cash income, less
expenses. The Class B Membership Interests have been structured so that
payments, beginning in 2000, of principal in the Class B investment pool will
be passed through to the Class B Members on an annual basis (or more
frequently as determined by the Company's Managing Board).
In addition, any cash, cash equivalents and marketable securities, which are
part of the Class B Assets, which have not been invested in real estate
investments by December 31, 1999 will be passed through to the Class B
Members. All distributions are subject to a determination by the Managing
Board that the Company will have sufficient cash on hand to meet its current
and anticipated needs to fulfill its business purpose.
3
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data as of December 31,
1997, 1996, 1995, 1994, and 1993 and for the years then ended:
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -------------------------------------------
Class A Class B Total Class A(1) Class B(2) Total
------- ------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Total Income $ 4,296,199 $ 1,404,172 $ 5,700,371 $ 3,925,400 $ 74,178 $ 3,999,578
Net Investment Income 3,812,504 1,278,907 5,091,411 3,373,259 68,593 3,441,852
Net Investment Income per Share * * * * * *
Total Assets 43,799,700 22,976,516 66,776,216 44,084,538 22,977,946 67,062,484
Members'/Shareholders' Equity 43,513,311 22,959,414 66,472,725 42,168,811 22,568,593 67,737,404
Cash Dividend per Share * * * * * *
Return on Assets 8.68% 5.57% 7.61% 7.66% 4.44% 6.55%
Return on Equity 8.90% 5.62% 7.70% 8.00% 4.52% 6.79%
Dividend Payout Ratio * * * * * *
Equity to Assets Ratio 99.35% 99.93% 99.55% 95.65% 98.22% 96.53%
<CAPTION>
1995 1994 1993
----------- ----------- ---------------
<C> <C> <C>
$ 3,764,059 $ 3,858,028 $ 3,715,985
1,990,203 2,587,550 2,700,898
.44 .57 .60
41,760,901 41,025,168 41,626,490
41,333,327 40,479,424 41,104,089
.34 .63 .54
4.77% 6.31% 6.49%
4.82% 6.39% 6.57%
100% 100% 100%
98.98% 98.67% 98.75%
<FN>
1. On December 6, 1996, pursuant to the terms of a restructuring agreement,
the assets and liabilities of Metropolitan Realty Corporation (the
"Corporation") were transferred to Metropolitan Realty Company, L.L.C.
(the "Company") in exchange for Class A Membership Interests in the
Company. The Corporation was then dissolved and the Class A Membership
interests were distributed pro rata to the Corporation's shareholders who
owned 50,000 shares or more of the Corporation's common stock. Holders of
fewer than 50,000 shares of the Corporation's common stock as of October
9, 1996, the Record Date, received upon surrender of their shares, a cash
payment in lieu of the distribution of Class A Membership Interests in
the Company.
2. Concurrent with the Restructuring, the Company offered Class B Membership
Interests in a separate offering to create a new investment pool.
* Not relevant under the new structure (Note 1).
</TABLE>
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of
financial condition and results of operations. This discussion should be read
in conjunction with the consolidated financial statements.
Forward-Looking Statements
- --------------------------
This discussion and analysis of financial condition and results of
operations, contain forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates and projections. These
statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence. Therefore,
actual results and outcomes may materially differ from what may be expressed
or forecasted in such forward-looking statements.
Overview
- --------
The Company intends to continue to invest its available funds at competitive
rates in mortgage loans to real estate projects located in southeastern
Michigan. Cycles in the local and national economy have affected and will
continue to affect the Company's ability to invest its remaining funds in
mortgage loans and the yields attainable on such investments. As these funds
are employed in higher yielding loan assets versus short-term assets, the
investment income of the Company is expected to increase. Because interest
rates are decreasing generally for all interest-bearing asset classes,
however, the positive effect on net investment income of increasing the
amount of assets employed in mortgage assets will be reduced. While the
Company expects to have the balance of its available assets fully invested in
mortgage loans by the end of 1999, management will continue its prudent
approach of approving funding only of those loans which meet the Company's
underwriting criteria.
Funds that have not yet been invested in mortgage loans are primarily
invested in marketable securities until needed for the Company's operations
or investments in mortgage loans. Income and principal received with respect
to the Company's investments in mortgage loans are also invested in
marketable securities pending distribution to members or reinvestments in
mortgage loans. At December 31, 1997, the Company had outstanding loan
commitments of approximately $9 million which will be funded from these
liquid assets. Management deems the liquidity of the Company to be more than
adequate to meet the cash needs of the Company and continues to seek
investments in new loan assets that will further reduce liquid assets. At all
times, sufficient working capital will be maintained to meet the ongoing
working capital needs of the Company.
As a result of the restructuring previously discussed, the following presents
the 1997 financial conditions and results of operations individually for the
Class A and Class B Membership Interests.
Financial condition and Results of Operation, Class A Membership Interests
- --------------------------------------------------------------------------
Net investment income increased by $439,245 for the year ended December 31,
1997 compared to 1996. The majority of this increase was in interest income
from mortgage notes resulting from the
5
<PAGE>
acceleration of deferred income into the current year relating to the early
repayment of several loans. The remainder of the increase resulted from
prepayment premiums associated with these early payments, the higher average
loan balance of loans outstanding and the reduction of operating expenses.
The allowance for loan losses decreased by $215,163 at December 31, 1997
relating to the partial charge-off of a loan on an apartment project located
in the City of Detroit. The discounted loan repayment was received by the
Company in January 1998. Management reviews, on a regular basis, factors
which may adversely affect its mortgage loans, including occupancy levels,
rental rates and property values. It is possible that economic conditions in
southeastern Michigan, and the nation in general, may adversely affect
certain of the Company's loan assets. After evaluation of the loan portfolio
and the associated allowance for loan losses, management deemed the remaining
allowance of $1,384,837 adequate to cover any potential future write-offs of
loan assets.
Accounts payable at December 31, 1997 compared to 1996, decreased by
$1,939,524 relating primarily to the completion of payments due to minority
shareholders whose stock was redeemed in connection with the reorganization.
The decrease in general and administrative expenses of approximately $290,000
for the year ended December 31, 1996 compared to 1995 was primarily a result
of $313,000 of costs associated with the Company's restructuring into a
limited liability company incurred in 1995.
In 1995, the Corporation recorded losses relating to the operation of an
apartment building the Corporation had acquired through a foreclosure sale in
1992. The Corporation also wrote-down the carrying value of this asset
$900,000 to $555,000 as a result of an offer to purchase the property.
Subsequently, the Corporation did sell the property based on the price in the
purchase offer and took back a new mortgage on the property. In February of
1998, this mortgage note was repaid in full.
Liquidity and Capital Resources, Class A Membership Interests
- -------------------------------------------------------------
The liquid assets of the Class A Membership Interests, including cash and
marketable securities, increased by $1,455,509 to $16,904,436 at December 31,
1997. This increase resulted primarily from the early repayment of certain
loans toward the end of 1997. The Class A Membership Interests have
approximately $4 million of outstanding loan commitments at December 31,
1997.
The Company makes quarterly distributions of net income in accordance with
the Operating Agreement of the Company. During 1997, the Company distributed
approximately $2,538,000 with respect to Class A Membership Interests of 1997
cash income as defined in the Company's Operating Agreement. During 1998, the
Company will make its final distribution of 1997 net cash income with respect
to Class A Membership Interests of approximately $1,079,000.
Financial Condition and Results of Operation, Class B Membership Interests
- --------------------------------------------------------------------------
Proceeds of $22,500,000 from the offering of Class B Membership Interests
were received by the Company on December 6, 1996. At December 31, 1996, these
funds were invested in cash and cash equivalents. During 1997, the majority
of these funds were invested in marketable securities while the Company
sought to find suitable mortgage investments.
6
<PAGE>
Certain organizational costs of the Class B investment pool have been
capitalized at cost and will be amortized over five years. Net organization
costs at December 31, 1997 totaled $356,638.
While no mortgages were placed from Class B funds during 1997, the Company
expects to have significant investment of Class B funds in mortgage assets
during 1998. At December 31, 1997, approximately $5 million of Class B funds
were committed to mortgage investments. The investment income of the Class B
Membership Interests is expected to increase as these funds are invested in
mortgage assets.
Net investment income increased by $1,210,314 for the year ended December 31,
1997 compared to 1996. This increase results primarily from having the funds
invested for the full year of 1997 compared to 26 days in 1996. The higher
yield of the investments in 1997 also contributed to the increase.
Operating expenses increased by $119,680 during 1997. This increase results
primarily from having a full year of general, administrative and amortization
expense versus 26 days in the prior year. The Company's Operating Agreement
specifies that expenses not directly attributable to either Class A
Membership Interests nor Class B Membership Interests will be equitably
allocated based on the proportion of mortgage investments relating to each
class. Since the Class B Membership Interests had no mortgage investments
during 1997, no indirect expenses were allocated to the Class B Investment
pool during 1997.
Liquidity and Capital Resources, Class B Membership Interests
- -------------------------------------------------------------
The liquid assets of the Class B Membership Interests, including cash and
marketable securities, remained relatively unchanged with a decrease of
$48,696 to $22,525,482 at December 31, 1997. This result is consistent with
the Company's policy of distributing all cash income on a quarterly basis to
the Members.
The Company makes quarterly distributions of net cash income to Class B
Members in accordance with the Operating Agreement of the Company. During
1997, the Company distributed approximately $911,000 to Class B Members of
1997 cash income as defined in the Company's Operating Agreement. During
1998, the Company will make its final distribution of 1997 cash income to
Class B Members of approximately $294,000.
Readiness for the Year 2000
- ---------------------------
The Company has evaluated the potential impact of the Year 2000 on its
computer-based financial and management information systems. While the
Company is prepared to devote the necessary resources to resolve any problems
that may arise, the preliminary evaluation indicates that the impact to the
Company of the Year 2000 will be minimal and that the transition to the Year
2000 can be managed with little effect on the Company's business, its cost of
operations or financial prospects.
Future Business Prospects
- -------------------------
Since the Company conducts all of its business in southeastern Michigan, the
future financial results of the Company are highly dependent on the local
economy in general and the real estate market
7
<PAGE>
specifically in southeastern Michigan. While the southeast Michigan economy
has historically been driven by the automotive industry, the local economy
has made significant progress in diversifying into new industries over the
last several years. Nonetheless, the state of the automotive industry still
has a significant impact on the southeast Michigan economy.
Over the last five years, the southeast Michigan region and the automotive
industry have both seen very positive economic results and trends. Employment
levels are at record levels and inflation is very moderate. Under these
economic conditions, the Company is seeing a large increase in the level of
real estate development in the region and expects to participate in this
influx of development by making real estate loans in support of these new
developments. While the Company's future prospects will always be subject to
the cyclical nature of real estate markets and the automotive industry, the
strength of the Company's existing portfolio and the quality of new business
opportunities the Company is pursuing have both improved significantly during
the last year, suggesting positive future trends for the financial results of
the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements of the Company, consisting of balance sheet,
statement of operations, statements of members'/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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective December 1, 1997, Plante & Moran, L.L.P. was appointed as the
Company's principal accountant to audit its financial statements for the year
ending December 31, 1997. The decision to change accountants was approved by
the Executive and Audit Committees of the Company's Managing Board following
a bidding process.
There were no disagreements on any matter of accounting principles, practices
or financial statement disclosure between the Company and Plante & Moran,
L.L.P. for the year ended December 31, 1997.
Coopers & Lybrand L.L.P. had been previously engaged as the principal
accountant to audit the financial statements of the Company and its
predecessor in interest, the Corporation.
Coopers & Lybrand L.L.P.'s reports on the financial statements of the Company
and the Corporation for the past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope, or accounting principles. Further, during the last
two fiscal years of the Company and its predecessor, the Corporation, and
during the subsequent interim period, there were no disagreements with
Coopers & Lybrand L.L.P. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Coopers & Lybrand
L.L.P., would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its reports.
8
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Managing Board Members
Pursuant to the terms of the Company's Operating Agreement, the Company's
Managing Board Members are appointed from time to time by the Company's
Member-Managers. The Company's Member-Managers are (1) those Members with a
Total Percentage Interest (as defined in the Operating Agreement) at least
equal to the Minimum Percentage (defined as a Total Percentage Interest which
represents a positive Adjusted Capital Account Balance of $2,500,000), and
(2) to the extent not previously taken into account, those Class A Members
(but excluding their assignees) which held sufficient shares of Metropolitan
Realty Corporation's common stock immediately prior to the initial capital
contribution of the Class A Members to elect at least one director at an
annual meeting of the shareholders of Metropolitan Realty Corporation, and in
either case which have not declined in writing to serve as Member-Managers.
Each Member-Manager is entitled, but is not required, to appoint the greater
of one (1) Managing Board Member to the Managing Board or that number
obtained by dividing such Member-Manager's Total Percentage Interest by the
Minimum Percentage, rounded down to the nearest whole number. The Managing
Board will consist of that number of Managing Board Members appointed from
time to time by the Member-Managers of the Company, but in no event will the
number of Managing Board Members be fewer than three (3) or greater than
forty (40). The Company's Operating Agreement also permits the appointment by
the Managing Board of a limited number of at-large Managing Board Members. A
Managing Board Member may resign by written notice to the Company. A
Member-Manager may at any time, upon written notice to the Managing Board,
replace one of its appointees to the Managing Board, or fill an opening on
the Managing Board (i) which exists because it did not appoint the full
number of Managing Board Members to which it is entitled, (ii) which was
created by the death, resignation or removal by such Member-Manager of a
Managing Board Member which it had previously appointed, or (iii) which was
created by an increase in such Member-Manager's Total Percentage Interest.
9
<PAGE>
The following table sets forth those Member-Managers of the Company which
have appointed Managing Board Members, and the Managing Board Members which
have been appointed by them.
<TABLE>
<CAPTION>
Appointee(s) to the
Member-Manager Managing Board
-------------- --------------------
<S> <C>
Chrysler Corporation Master Retirement Trust Mark Schmid
F. Thomas Lewand
Kenneth L. Hollowell
Marc Stepp
Ernest Lofton
Ford Motor Company Wayne S. Doran
Robert G. Jackson
Joel A. Schwartz
Operating Engineers Local 324 Pension Fund Daniel L. Boone
Jeffrey A. Heldt
David B. Hanson
State of Michigan, Public School Employees R. Douglas Trezise
Policemen & Firemen Retirement System Michael Nevin
of the City of Detroit Nicholas H. Degel
Thomas Zdrodowski
General Retirement System of the City of Detroit Harold Smith
Macomb County Employees Retirement System David M. Diegel
Wayne County Retirement System Ronald C. Yee
Michigan National Corporation Douglas E. Ebert
Richard C. Webb
Blue Cross and Blue Shield of Michigan Robert H. Naftaly
Mark R. Bartlett
At Large Robert J. Lee
Richard P. Kughn
Frank D. Stella
</TABLE>
10
<PAGE>
The following table sets forth certain information regarding each Managing
Board Member, including name, age, principal occupation for the past five
years, other directorships with publicly-owned companies or with public
institutions and term of service as a Managing Board Member of the Company.
The information set forth in the table was provided to the Company by each
Managing Board Member.
<TABLE>
<CAPTION>
Has Served
as a Managing
Board Member
Name and Age Principal Occupation Since*
- -------------------- --------------------------------------------------------- -------------
<S> <C> <C>
Mark R. Bartlett, 37 Vice President - Chief Financial Officer, 1996 1996(2)(4)
to present, Vice President - Controller, 1994
to 1996, Director Financial Accounting, 1989 to
1994, Blue Cross and Blue Shield
of Michigan.
Daniel L. Boone, 49 Vice President - International Union of Operating 1991(2)(4)
Engineers Local 324, a labor organization, since 1987.
Nicholas H. Degel, 49 Assistant Administrative Supervisor, Detroit Police & Fire 1996(3)(4)
Retirement System, a public retirement system.
David M. Diegel, 52 Finance Director, Macomb County, Michigan, 1993(2)
serving as its Chief Financial Officer since
1984. Currently serves as Secretary to the
Macomb County Employees Retirement Commission
and as an ex-officio member of the Macomb
County Criminal Justice Building Authority.
Wayne S. Doran, 63 Chairman of the Board of Ford Motor Land Development Corp., 1988(1)
a real estate development company, since 1978.
Douglas E. Ebert, 52 Chief Executive Officer, 1995 to present, and President and 1996(2)
Chief Operating Officer, 1993 to 1995, Michigan National
Corporation, a bank holding company.
David B. Hanson, 51 Senior Vice President, Walbridge Aldinger, a 1994(2)
construction management and general contractor,
since 1995. Vice President and General Manager
of Turner Construction Co., a construction
management company and general contractor, from
1984 to 1995. Serves on the Boards of Directors
of Greater Detroit Chamber of Commerce and
Contractors, and Boys Hope - Detroit.
Jeffrey A. Heldt, 49 Self-employed as an attorney since 1988. 1996(1)
Kenneth L. Hollowell,53 Secretary - Treasurer, Teamsters Local Union #247, since March 1992(2)
1988. Served as member, Policy Committee of the Central
Conference of Teamsters from 1992 to 1994. Board member
Economic Alliance of Michigan. Member of Police
Commissioners, City of Detroit, May 1994 to February 1998.
11
<PAGE>
Robert G. Jackson, 66 Retired. Formerly served as President from 1985 1988
to 1996, and Executive Vice President from 1977
to 1985, of Ford Motor Land Development Corp.,
a real estate development company.
Richard P. Kughn, 68 Chairman of the Board of the Company since July 1987(1)
1989. Chairman and President of Kughn
Enterprises, a real estate development and
asset management company, since 1979. Chairman
Emeritus and minority owner of Lionel L.L.C.
Serves on the Board of Trustees of the
University of Detroit Mercy. Serves on the
Board of Directors of AAA Michigan and, Detroit
Chamber of Commerce.
Robert J. Lee, 51 Secretary - Treasurer, Michigan State Building 1996
and Construction Trades Council. Previously
served as a Field Representative for the
Council from 1985 to October 1996.
Pipe fitter by trade.
F. Thomas Lewand, 51 Partner, Bodman, Longley & Dahling LLP since 1992, a Detroit, 1988(1)
Michigan-based law firm. Serves as a Trustee of the
University of Detroit Mercy. Chair of Partners in Service, an
interfaith volunteer organization.
Ernest Lofton, 66 Vice President, UAW International Union, 1991
Director of the UAW National Ford Department
and Director of the UAW Michigan Community
Action Program Department, since 1989.
Robert H. Naftaly, 60 Executive Vice President and Chief Operating 1989(1)(3)
Officer of Blue Cross and Blue Shield of
Michigan, since 1988. Serves on numerous
national and community associations.
Michael Nevin, 33 Treasurer, Firefighter's Union Local #344 since January 1996. 1996(2)
Firefighter, City of Detroit, and representative of
Firefighter's Union Local #344 since 1991.
Mark Schmid, 38 Treasurer of the Company since 1997; Director, 1997(1)(3)
Pension Fund Investments for Chrysler
Corporation, where he has been responsible for
investment of the pension assets of Chrysler
Corporation since 1997.
12
<PAGE>
Joel A. Schwartz, 36 Project Manager, Ford Motor Land Services Corporation, a real 1995(4)
estate developer, since 1990. Adjunct Professor of Corporate
Finance, Wayne State University, School of Business
Administration, since 1993.
Harold Smith, 57 Retired. Former Chief City Planner, City of Detroit Planning 1995(2)
Department, for 31 years.
Frank D. Stella, 78 Founder (in 1946), Chairman and Chief Executive 1987(4)
Officer of the F.D. Stella Products Company and
Chairman of F.D. Stella International New York,
engaged in design and distribution of food
service and dining equipment. Director and
Member of Executive Committee of the Detroit
Symphony Orchestra Hall, Chairman of the Board
of Merrill Palmer Institute of Wayne State
University and Director and Vice President of
Michigan Opera Theatre.
Marc Stepp, 75 Executive Director, Institute for Urban and Community Affairs, 1987
University of Detroit Mercy. Previously served as Vice
President of the International United Auto Workers (UAW) since
1974.
R. Douglas Trezise, 73 Retired. Previously served as Deputy State Treasurer, 1991(3)
Michigan Department of Treasury, from 1975 to 1990. Chairman
of State Employees' Retirement Board.
Richard C. Webb, 58 Head of Commercial Financial Services, Michigan National Bank, 1996(1)
a banking corporation. Previously held the positions of
Senior Executive Vice President of Michigan National Bank;
Executive Vice President of Michigan National Bank.
Ronald C. Yee, 45 Director of Risk Management, Wayne County, and since 1990, 1991(2)(3)
Assistant Executive Secretary to Wayne County Employees
Retirement System.
Thomas Zdrodowski, 57 Administrative Supervisor, Policemen & Firemen Retirement 1996
System of the City of Detroit, since 1988.
<FN>
* Service as a Managing Board Member prior to December 6, 1996 was as a
director of Metropolitan Realty Corporation, the Company's predecessor in
interest.
(1) Member of the Executive Committee
(2) Member of the Loan Committee
(3) Member of the Audit Committee
(4) Member of the Nominating Committee
</TABLE>
13
<PAGE>
Executive Officers
- ------------------
The table below sets forth certain information concerning the Company's
executive officers.
<TABLE>
<CAPTION>
=================================================================================================
Name Age Office Time in Office
- ---- --- ------- --------------
<S> <C> <C> <C>
Richard P. Kughn* 68 Chairman of the Board Since July 1989**
Harold Smith* 57 Vice Chairman of the Board Since December 1996
Robert G. Jackson* 66 President Since December 1996
Robert J. Lee 51 Secretary Since December 1996
Mark Schmid* 38 Treasurer Since December 1997
Ronald C. Yee 45 Vice President Since July 1997
Joel Schwartz 36 Vice President Since July 1997
=================================================================================================
<FN>
* For a discussion of the officers' principal occupation and business
experience during the past five (5) years, see the information provided
under "Managing Board Members" above.
** Service in such office prior to December 1996 was with Metropolitan Realty
Corporation.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Robert G. Jackson became the President and Chief Executive Officer of the
Company on December 6, 1996 concurrently with the consummation of the
restructuring of the Company. Mr. Jackson received consulting fees of $18,375
in 1997. The Operating Agreement of the Company provides that the salaries of
all officers of the Company shall be fixed by the Managing Board. No cash or
other compensation was paid to any other executive officer of the Company for
services performed during 1997, except to the extent any such individual may
have been reimbursed for out-of-pocket expenses incurred in connection with
his duties as a member of the Managing Board or a committee thereof.
The Operating Agreement of the Company provides that no Managing Board Member
is entitled to compensation for serving as a Managing Board Member in
connection with regular or special meetings of the Managing Board. The
Managing Board Members may, by the affirmative vote of a majority of the
Managing Board Members in office, reimburse Managing Board Members and
committee members for their reasonable out-of-pocket expenses incurred in
connection with their duties and may establish reasonable compensation of
Managing Board Members for serving as a member of any committee established
by the Managing Board. To date, the Company has not paid any compensation to
any Managing Board Member for serving as a member of any committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners of Class A Membership Interests
- ---------------------------------------------------------
The following table sets forth certain information regarding the entities
which, to the Company's knowledge and belief, were the beneficial owners of
more than five percent (5%) of the Company's outstanding Class A Membership
Interests as of December 31, 1997.
14
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
CLASS A MEMBERSHIP INTERESTS
- -----------------------------------------------------------------------------------------------------------
Nature of
Beneficial
Name and Address of Beneficial Owner Ownership Percent of Class
- ------------------------------------ --------- ----------------
<S> <C> <C>
Chrysler Corporation Master Retirement Trust (1) 18.20%
12000 Oakland Avenue
Highland Park, MI 48203
Ford Motor Company (1) 17.64%
Ford Motor Company World Headquarters
The American Road
Dearborn, MI 48121
Operating Engineers Local 324 Pension Fund (1) 11.53%
37450 Schoolcraft, Suite 110
Livonia, MI 48150
Board of Trustees (1) 5.23%
General Retirement Systems of Detroit
908 City County Building
Detroit, MI 48226
Board of Trustees (1) 5.23%
Policemen & Firemen Retirement System of the City of Detroit
908 City County Building
Detroit, MI 48226
State Treasurer of the State of Michigan, (1) 5.01%
State Employees Retirement System
900 Tower Drive - Annex
Troy, MI 48098
State Treasurer of the State of Michigan, (1) 10.01%
Public School Employees Retirement System
900 Tower Drive - Annex
Troy, MI 48098
Macomb County Employees Retirement System (1) 5.23%
P.O. Box 9088
27777 Inkster Road
Farmington Hills, MI 48333
Wayne County Retirement System (1) 5.23%
400 Monroe Street
Detroit, MI 48226
NBD Bancorp, Inc. (1) 5.19%
611 Woodward 3rd Floor
Detroit, MI 48226-3408
===========================================================================================================
<FN>
(1) Reflects Class A Membership Interests held of record or beneficially as
to which the named beneficial owner exercises sole voting and investment
power.
</TABLE>
15
<PAGE>
Certain Beneficial Owners of Class B Membership Interests
- ---------------------------------------------------------
The following table sets forth certain information regarding the entities
which, to the Company's knowledge and belief, were the beneficial owners of
more than five percent (5%) of the Company's outstanding Class B Membership
Interests as of December 31, 1997.
<TABLE>
<CAPTION>
===========================================================================================================
CLASS B MEMBERSHIP INTERESTS
- -----------------------------------------------------------------------------------------------------------
Nature of
Beneficial
Name and Address of Beneficial Owner Ownership Percent of Class
- ------------------------------------ --------- ----------------
<S> <C> <C>
Chrysler Corporation Master Retirement Trust (1) 22.12%
12000 Oakland Avenue
Highland Park, MI 48203
Michigan National Corporation (1) 22.12%
27777 Inkster Road
Farmington Hills, MI 48333-9065
Blue Cross and Blue Shield of Michigan (1) 22.12%
600 East Lafayette #2105
Detroit, MI 48226
Policemen & Firemen Retirement System of the City of Detroit (1) 22.12%
908 City County Building
Detroit, MI 48226
Operating Engineers Local 324 Pension Fund (1) 11.06%
37450 Schoolcraft, Suite 110
Livonia, MI 48150
===========================================================================================================
<FN>
(1) Reflects Class B Membership Interests held of record or beneficially
as to which the named beneficial owner exercises sole voting and
investment power.
</TABLE>
Management
- ----------
The Company's Managing Board Members and executive officers are not the
record holders of any of the Company's Class A Membership Interests or Class
B Membership Interests.
Richard C. Webb, a Managing Board Member, is an executive officer of Michigan
National Corporation, the Member-Manager which appointed him, and, in such
capacity, may be deemed to be the beneficial owner of the 22% Class B
Membership Interest owned of record by Michigan National Corporation, in that
he may have or share voting power or investment power over such membership
interest. Mr. Webb disclaims any beneficial interest in the Class B
Membership Interest owned of record by Michigan National Corporation.
Douglas E. Ebert, a Managing Board Member, is an executive officer of
Michigan National Corporation, the Member-Manager which appointed him, and,
in such capacity, may be deemed to be
16
<PAGE>
the beneficial owner of the 22% Class B Membership Interest owned of record
by Michigan National Corporation, in that he may have or share voting power
or investment power over such membership interest. Mr. Webb disclaims any
beneficial interest in the Class B Membership Interest owner of record by
Michigan National Corporation.
Robert H. Naftaly, a Managing Board Member, is an executive officer of Blue
Cross and Blue Shield of Michigan, the Member-Manager which appointed him,
and, in such capacity, may be deemed to be the beneficial owner of the 22%
Class B Membership Interest owned of record by Blue Cross and Blue Shield of
Michigan, in that he may have or share voting power or investment power over
such membership interest. Mr. Naftaly disclaims any beneficial interest in
the Class B Membership Interests owned of record by Blue Cross and Blue
Shield of Michigan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert G. Jackson became the President and Chief Executive Officer of the
Company on December 6, 1996, concurrently with the consummation of the
restructuring of the Company. Mr. Jackson received consulting fees of $18,375
in 1997. No cash or other compensation was paid to any other executive
officer of the Company for services performed during 1997, except to the
extent any such individual may have been reimbursed for out-of-pocket
expenses incurred in connection with his duties as a member of the Managing
Board or a committee thereof.
NBD Bancorp, Inc. (NBD) is the record holder of a 5.2% Class A Membership
Interest of the Company. The Company and NBD Bank, N.A. (formerly National
Bank of Detroit) (the "Bank"), a wholly owned subsidiary of NBD, entered into
an Investment Management Service Agreement (the "Investment Agreement") dated
February 15, 1989, pursuant to which the Bank manages certain of the
Company's short-term investments. The Investment Agreement may be terminated
by either the Company or the Bank upon a thirty (30) day written notice. The
Bank is compensated by the Company for its services based on the average
daily market value of the Company's portfolio, with a minimum annual charge
of $5,000.
Fees aggregating $66,687 were earned by the Bank in 1997 for services
provided under the Investment Agreement, as well as other services.
The Company made a $4,376,000 mortgage loan in 1989 to Walbridge Aldinger, a
construction management company and general contractor of which Mr. Hanson, a
Managing Board Member since 1994, became senior vice president in January
1995. The carrying amount of the mortgage loan, reduced for unamortized loan
origination fees received in excess of loan origination costs paid, was
$4,141,997 at December 31, 1997. The mortgage note bears interest at 9.09% and
is due in December 2000.
Bodman, Longley & Dahling LLP provides legal services to the Company. Mr.
Lewand, a Managing Board Member, is a partner in Bodman, Longley & Dahling
LLP. Fees for legal services amounted to $32,547 for the year ended December
31, 1997.
17
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Documents Filed as Part of Report. The following documents are filed as
part of this report.
1. A list of the financial statements required to be filed as part of
this Form 10-K are shown in the "Index to the Financial Statements"
filed herewith.
2. A list of the exhibits required by Item 601 of the Regulation S-K to
be filed as a part of this Form 10-K are shown in the "Index to
Exhibits" filed herewith.
B. Reports on Form 8-K. The Company filed a report on Form 8-K dated
December 5, 1997 to report the change in certifying accountants in Item 9
of this report on Form 10-K. No financial statements were filed with such
report.
18
<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 report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1998
METROPOLITAN REALTY COMPANY, L.L.C.
By: /s/ Robert G. Jackson
---------------------------
Robert G. Jackson, President
(Principal Executive Officer and Principal Financial Officer)
And By: /s/ Mark Schmid
----------------------
Mark Schmid, Treasurer
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
=============================================================================
Signature Title Date
- --------- ----- ----
/s/ Robert G. Jackson Attorney-in-Fact March 27, 1998
*
- --------------------------------
* Managing Board Member March 27, 1998
- --------------------------------
Mark R. Bartlett
* Managing Board Member March 27, 1998
- --------------------------------
Daniel L. Boone
* Managing Board Member March 27, 1998
- --------------------------------
Nicholas H. Degel
* Managing Board Member March 27, 1998
- --------------------------------
David M. Diegel
* Managing Board Member March 27, 1998
- --------------------------------
Wayne S. Doran
* Managing Board Member March 27, 1998
- --------------------------------
Douglas E. Ebert
* Managing Board Member March 27, 1998
- --------------------------------
Mark Schmid
* Managing Board Member March 27, 1998
- --------------------------------
David B. Hanson
* Managing Board Member March 27, 1998
- --------------------------------
Jeffrey A. Heldt
* Managing Board Member March 27, 1998
- --------------------------------
Kenneth L. Hollowell
* Managing Board Member March 27, 1998
- --------------------------------
Robert G. Jackson
* Managing Board Member March 27, 1998
- --------------------------------
Richard P. Kughn
20
<PAGE>
* Managing Board Member March 27, 1998
- --------------------------------
Robert J. Lee
* Managing Board Member March 27, 1998
- --------------------------------
F. Thomas Lewand
* Managing Board Member March 27, 1998
- --------------------------------
Ernest Lofton
* Managing Board Member March 27, 1998
- --------------------------------
Robert H. Naftaly
* Managing Board Member March 27, 1998
- --------------------------------
Michael Nevin
* Managing Board Member March 27, 1998
- --------------------------------
Joel A. Schwartz
* Managing Board Member March 27, 1998
- --------------------------------
Harold Smith
* Managing Board Member March 27, 1998
- --------------------------------
Frank D. Stella
* Managing Board Member March 27, 1998
- --------------------------------
Marc Stepp
* Managing Board Member March 27, 1998
- --------------------------------
R. Douglas Trezise
* Managing Board Member March 27, 1998
- --------------------------------
Richard C. Webb
* Managing Board Member March 27, 1998
- --------------------------------
Ronald C. Yee
* Managing Board Member March 27, 1998
- --------------------------------
Thomas Zdrodowski
21
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Contents
Report Letters F-2 - F-3
Financial Statements
Balance Sheet F-4
Statement of Operations F-5
Statement of Changes in Members'/Stockholders' Equity F-6 - F-7
Statement of Cash Flows F-8
Notes to Financial Statements F-9 - F-22
F-1
<PAGE>
Independent Auditor's Report
To the Managing Board and Member Managers
Metropolitan Realty Company, L.L.C.
We have audited the accompanying balance sheet of as of December 31, 1997,
and the related statements of operations, changes in members'/stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the financial position of Metropolitan
Realty Company, L.L.C. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Plante & Moran, LLP
Bloomfield Hills, Michigan
February 19, 1998
F-2
<PAGE>
[ Letterhead of Coopers & Lybrand L.L.P. ]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Managing Board and Member Managers of Metropolitan Realty Company,
L.L.C.:
We have audited the accompanying balance sheet of Metropolitan Realty Company,
L.L.C. as of December 31, 1996, and the related statements of operations,
members'/stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 Company,
L.L.C. as of December 31, 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
March 24, 1997
F-3
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Balance Sheet
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------------------
1997 1996
--------------------------------------------- ---------------------------------------------
Class A Member Class B Member Class A Member Class B Member
Interest Interest Total Interest Interest Total
-------------- -------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 3,782,819 $ 1,541,231 $ 5,324,050 $ 787,501 $ 22,574,178 $ 23,361,679
Investment securities 13,121,617 20,984,251 34,105,868 14,661,426 -- 14,661,426
Mortgage notes receivable:
Unaffiliated 23,801,098 -- 23,801,098 25,703,825 -- 25,703,825
Affiliated 4,141,997 -- 4,141,997 4,177,441 -- 4,177,441
Allowance for loan losses (1,384,837) -- (1,384,837) (1,600,000) -- (1,600,000)
------------ ------------ ------------ ------------ ------------ ------------
Total mortgage notes
receivable 26,558,258 -- 26,558,258 28,281,266 -- 28,281,266
Accrued interest and
other receivables 325,874 94,396 420,270 330,555 -- 330,555
Other assets 11,132 -- 11,132 23,790 -- 23,790
Organization costs, net of
accumulated amortization
of $90,214 and $5,583 at
December 31, 1997 and 1996 -- 356,638 356,638 -- 403,768 403,768
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 43,799,700 $ 22,976,516 $ 66,776,216 $ 44,084,538 $ 22,977,946 $ 67,062,484
============ ============ ============ ============ ============ ============
Liabilities and Members'
Equity
Liabilities
Accounts payable $ 106,547 $ 14,130 $ 120,677 $ 2,046,201 $ -- $ 2,046,201
Due to (from) 42,028 (42,028) -- (409,353) 409,353 --
Deferred income 22,500 45,000 67,500 134,552 -- 134,552
Deposits from borrowers
for property taxes 114,431 -- 114,431 140,682 -- 140,682
Other 883 -- 883 3,645 -- 3,645
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 286,389 17,102 303,491 1,915,727 409,353 2,325,080
Members' Equity
Class A members' equity 43,564,552 -- 43,564,552 42,208,569 -- 42,208,569
Class B members' equity -- 22,936,275 22,936,275 -- 22,568,593 22,568,593
Unrealized holding gains
(losses) on marketable
securities available
for sale (51,241) 23,139 (28,102) (39,758) -- (39,758)
------------ ------------ ------------ ------------ ------------ ------------
Total members' equity 43,513,311 22,959,414 66,472,725 42,168,811 22,568,593 64,737,404
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
members' equity $ 43,799,700 $ 22,976,516 $ 66,776,216 $ 44,084,538 $ 22,977,946 $ 67,062,484
============ ============ ============ ============ ============ ============
<FN>
See Notes to Financial Statements.
</TABLE>
F-4
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------ ------------------------------------ ----------
Class A Class B Class A Class B
Member Member Member Member
Interest Interest Total Interest Interest Total Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Interest income:
From mortgage notes,
unaffiliated $2,615,038 $ -- $2,615,038 $2,407,234 $ -- $2,407,234 $2,363,121
From mortgage notes,
affiliated 385,097 -- 385,097 389,732 -- 389,732 391,854
Investment income 1,054,563 1,398,505 2,453,068 1,020,763 74,178 1,094,941 866,168
Miscellaneous income 241,501 5,667 247,168 107,671 -- 107,671 142,916
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue 4,296,199 1,404,172 5,700,371 3,925,400 74,178 3,999,578 3,764,059
Operating Expenses
General and administrative 483,695 40,634 524,329 552,141 -- 552,141 841,903
Amortization of
organization costs -- 84,631 84,631 -- 5,585 5,585 --
Provision for loan losses -- -- -- -- -- -- 600,000
Net loss from foreclosed
property held for sale -- -- -- -- -- -- 331,953
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses 483,695 125,265 608,960 552,141 5,585 557,726 1,773,856
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income $3,812,504 $1,278,907 $5,091,411 $3,373,259 $ 68,593 $3,441,852 $1,990,203
========== ========== ========== ========== ========== ========== ==========
Net Investment Income
per Share * * * * * * $ 0.44
========== ========== ========== ========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding * * * * * * 4,532,169
========== ========== ========== ========== ========== ========== ==========
<FN>
* Per-share information is no longer relevant as a result of the
restructuring described in Note 1.
See Notes to Financial Statements.
</TABLE>
F-5
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Statement of Changes in Members'/Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
Holding Distri-
Gains butions Total
Common Stock (Losses) on of Net Members' Equity Members'/
--------------------- Additional Paid- Investment Investment ------------------- Stockholders'
Shares Amount in Capital Securities Income Class A Class B Equity
---------- -------- ---------------- ---------- ----------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 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 gains (losses)
on investment securities -- -- -- 404,639 -- -- -- 404,639
Cash dividend of $.34
per share -- -- -- -- (1,540,939) -- -- (1,540,939)
---------- -------- ------------ --------- ----------- ----------- ------ ------------
Balance - December 31, 1995 4,532,169 45,322 43,355,529 47,690 (2,115,214) -- -- 41,333,327
Net investment income -
January 1, 1996 -
December 6, 1996 -- -- -- -- 3,095,396 -- -- 3,095,396
Change in unrealized
holding gains (losses)
on investment
securities -
January 1, 1996 -
December 6, 1996 -- -- -- (58,498) -- -- -- (58,498)
Cash dividend of $.11
per share -- -- -- -- (498,539) -- -- (498,539)
Declared payment in
dissolution with respect
to minority stockholders
(Note 1) (214,948) (2,149) (1,938,831) -- -- -- -- (1,940,980)
Distribution of Class A
membership interests
in dissolution with
respect to majority
stockholders (Note 1) (4,317,221) (43,173) (41,416,698) 10,808 (481,643) 41,930,706 -- --
---------- -------- ------------ --------- ----------- ----------- ------ ------------
<FN>
See Notes to Financial Statements.
</TABLE>
F-6
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Statement of Changes in Members'/Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Unrealized
Holding Distri-
Gains butions Total
Common Stock (Losses) on of Net Members' Equity Members'/
--------------------- Additional Paid- Investment Investment ------------------------- Stockholders'
Shares Amount in Capital Securities Income Class A Class B Equity
---------- -------- ---------------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 6,
1996 -- $ -- $ -- $ -- $ -- $ 41,930,706 $ -- $ 41,930,706
Contributions - Class B -- -- -- -- -- -- 22,500,000 22,500,000
Net investment income -
December 7, 1996 -
December 31, 1996 -- -- -- -- -- 277,863 68,593 346,456
Change in unrealized
holding gains
(losses)
on investment
securities -
December 7, 1996 -
December 31, 1996 -- -- -- (39,758) -- -- -- (39,758)
---------- ---------- ----------- ------------ --------- ------------ ------------ ------------
Balance - December 31,
1996 -- -- -- (39,758) -- 42,208,569 22,568,593 64,737,404
Net investment income -- -- -- -- -- 3,812,504 1,278,907 5,091,411
Transfer of member
interest (Note 1) -- -- -- -- -- 81,688 -- 81,688
Distributions -- -- -- -- -- (2,538,209) (911,225) (3,449,434)
Change in unrealized
holding gains
(losses) on
investment securities -- -- -- 11,656 -- -- -- 11,656
---------- ---------- ----------- ------------ --------- ------------ ------------ ------------
Balance - December 31,
1997 -- $ -- $ -- $ (28,102) $ -- $ 43,564,552 $ 22,936,275 $ 66,472,725
========== ========== =========== ============ ========= ============ ============ ============
<FN>
See Notes to Financial Statements.
</TABLE>
F-7
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net investment income $ 5,091,411 $ 3,441,852 $ 1,990,203
Adjustments to reconcile net
investment income to net cash
from operating activities:
Depreciation and amortization
expense 86,815 8,538 43,702
Provision for loan losses -- -- 600,000
Valuation provision for
foreclosed property -- -- 314,421
(Gain) loss on sale of investment
securities (81,581) 33,208 23,263
Increase in assets:
Accrued interest and other
receivables (89,715) (47,935) (26,896)
Other assets (22,664) (95,097) (181,926)
Increase (decrease) in
liabilities:
Accounts payable 1,667 (20,311) (59,373)
Other liabilities (96,065) (3,763) (83,197)
------------ ------------ ------------
Total adjustments (201,543) (125,360) 629,994
------------ ------------ ------------
Net cash provided by
operating activities 4,889,868 3,316,492 2,620,197
Cash Flows from Investing Activities
Purchases of investment securities (43,305,484) (8,039,531) (3,507,381)
Collections of principal from
investment securities 23,954,279 6,573,374 1,345,072
Loan disbursements (7,076,681) (3,355,137) (444,293)
Loan repayments 8,799,689 418,799 353,344
Cash proceeds from sale of
foreclosed property, net -- -- 92,157
Capital expenditures (4,363) -- (1,270)
------------ ------------ ------------
Net cash used in
investing activities (17,632,560) (4,402,495) (2,162,371)
Cash Flows from Financing Activities
Members' equity contributions -- 22,500,000 --
Payment to minority stockholders (1,845,503)
Distributions paid to members (3,449,434) -- --
Dividends paid to stockholders -- (498,539) (1,540,939)
------------ ------------ ------------
Net cash provided by
(used in) financing
activities (5,294,937) 22,001,461 (1,540,939)
------------ ------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (18,037,629) 20,915,458 (1,083,113)
Cash and Cash Equivalents -
Beginning of year 23,361,679 2,446,221 3,529,334
------------ ------------ ------------
Cash and Cash Equivalents -
End of year $ 5,324,050 $ 23,361,679 $ 2,446,221
============ ============ ============
<FN>
Supplemental disclosure of cash flow information:
1997 noncash financing activities: transfer from payable to minority
stockholders to members' equity - $81,688.
1996 noncash financing activities: payable to minority stockholders for
surrender of shares - $1,940,980.
1995 noncash Investing activities: receivable from sale of foreclosed
property - $455,000.
See Notes to Financial Statements.
</TABLE>
F-8
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Organization
Metropolitan Realty Company, L.L.C., a Delaware limited liability
company, (the "Company") is the successor in interest to Metropolitan
Realty Corporation (the "Corporation"). The Corporation, incorporated
November 13, 1986, was organized to qualify as a real estate investment
trust ("REIT") under the provisions of the Internal Revenue Code. On
December 6, 1996, pursuant to the terms of a restructuring agreement,
the assets and liabilities of the Corporation were transferred to
Metropolitan Realty Company, L.L.C. in exchange for Class A Membership
Interests in the Company. Class A Membership Interests were distributed
pro rata to the Corporation's stockholders who owned 50,000 shares or
more of the Corporation's common stock. Holders of fewer than 50,000
shares of common stock of the Corporation as of October 9, 1996 (the
Record Date) receive, upon surrender of their shares, a cash payment in
lieu of Class A Membership Interests in the Company. The amount due to
minority stockholders was $13,789 and $1,940,980 at December 31, 1997 and
1996 respectively. During 1997, $81,668 was transferred to Members'
Equity as 8,681 shares held by a current member were originally
attributed to minority stockholders.
For financial statement presentation, the assets and liabilities, with
the exception of investment securities, were transferred to the Company
at their carrying values at the date of distribution. Investment
securities were recorded at fair market value with the unrealized loss
recorded as a reduction in Class A members' equity.
Concurrent with the restructuring, the Company offered Class B
Membership Interests in a separate offering, to create a new investment
pool.
The Company intends to invest substantially all of its assets in
mortgage notes. The Company intends to make, where possible, the
majority of its mortgage loans on property located in Detroit, with the
balance being in southeastern Michigan. At December 31, 1997, the
Company's total mortgage loan portfolio is invested 73 percent in
projects located in the City of Detroit.
The Company's mortgage notes include financing for industrial and office
buildings, residential developments, retail centers, residential
projects, and mixed-use facilities. The Company has favored investments
that will provide a competitive return and permanent financing for
projects that will create construction jobs and stimulate the
southeastern Michigan economy. All mortgage loans to date are
collateralized by a first lien on real property. Class B Membership
Interests are invested in short-term investments and investment
securities until the proceeds are invested in real estate loans.
F-9
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 2 - Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures and assessments of contingent liabilities at the date of the
financial statements, and the reported amounts of revenue, costs and
expenses in 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.
Investment Securities - Investment securities are classified as
available for sale and are carried at market value. Unrealized gains and
losses are included in a separate component of members'/stockholders'
equity. Realized gains or losses on sales of securities are determined
based on specific identification. The realized net gain (loss) on sales
of investment securities, included in investment income in the
accompanying statement of operations was $81,581, ($33,208) and
($23,263) for the years ended December 31, 1997, 1996, and 1995,
respectively.
Loan Interest and Fee Income - Loans are generally reported at the
principal amount outstanding, net of unamortized loan origination fees
and costs. 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.
Interest on loans is accrued and credited to income based on the
principal amount outstanding. The Company discontinues the accrual of
interest income when circumstances exist that 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 nonearning 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, 1997 and 1996.
F-10
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 2 - Accounting Policies (Continued)
Allowance for Loan Losses - The Company considers a loan 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 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 loan losses. Increases and decreases in
the allowance due to changes in the measurement of the impaired loans
are included in the provision for loan 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.
The allowance is based on 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 the fair value of the property at the date of foreclosure. Losses, if
any, on foreclosures 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. 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.
F-11
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 2 - Accounting Policies (Continued)
Organization and Restructuring Costs - Certain costs related to the
organization of the Class B investment pool of the Company have been
capitalized and are being amortized on a straight-line basis over 60
months. Costs associated with the restructuring of the Class A
investment pool were expensed as incurred.
Income Taxes - As a limited liability company, it is intended that the
Company will be classified as a partnership for federal income tax
purposes and, as such, it generally will be treated as a "pass-through"
entity that is not subject to federal income tax. Prior to the
restructuring into a limited liability company, the Company operated at
all times to qualify as a real estate investment trust under provisions
of the Internal Revenue Code. As a real estate investment trust, each
year qualification is met, income is not subject to federal income tax
at the company level, to the extent distributed to stockholders.
General Expenses - Those expenses incurred by the Company that are not
directly attributable to a particular class of Membership Interest shall
be allocated in accordance with a formula established in the Operating
Agreement and based primarily on the real estate investments held by
each class of assets.
Distributions - In accordance with the terms of the Company's Operating
Agreement, Class A and Class B members will receive pro rata quarterly
distributions of cash income, less expenses from their respective class
of net assets. The Operating Agreement also provides for the pass
through to Class A members (commencing in the year 2001, if elected) and
Class B members (commencing in the year 2000), from their respective
class of net assets, of principal returned with respect to real estate
investments and any cash and cash equivalents that have not been
invested in real estate investments. All distributions are subject to a
determination by the Managing Board that the Company will have
sufficient cash on hand to meet its current and anticipated needs to
fulfill its business purpose.
Other - Certain prior year accounts have been reclassified to conform
with current year presentations.
F-12
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 3 - Investment Securities
Investment securities at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------- --------------------------
Pool A Pool B Pool A
--------------------------- --------------------------- --------------------------
Interest Rate
at 12/31/97 Cost Market Value Cost Market Value Cost Market Value
------------- ----------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury notes 5.875%-
6.375% $ 3,600,686 $ 3,616,598 $ 5,757,539 $ 5,776,085 $ 6,526,289 $ 6,515,940
Mutual Funds -- 5,049,658 5,044,747 14,978,402 14,979,346 -- --
Mortgage-backed
securities:
Federal National
Mortgage
Association, 6.141%-
pass through 6.251% 4,507,263 4,444,656 225,171 228,820 5,331,622 5,235,831
Federal Home
Loan Mortgage
Corporation, 7.842%-
pass through 8.002% 15,251 15,616 -- -- 2,854,082 2,909,655
----------- ----------- ----------- ----------- ----------- -----------
Total $13,172,858 $13,121,617 $20,961,112 $20,984,251 $14,711,993 $14,661,426
=========== =========== =========== =========== =========== ===========
</TABLE>
The U.S. Treasury notes have scheduled maturities that range from August
1998 to March 1999. 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, 1997 range from January 2017 to August 2024. There can be no
assurance that cash flows will materialize as scheduled as a result of
prepayments of the underlying mortgages.
F-13
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Mortgage Notes Receivable
Mortgage notes receivable are summarized in the following table. The
carrying amount of each mortgage is reported net of the unamortized
balance of loan origination fees received in excess of loan origination
costs paid.
<TABLE>
<CAPTION>
Carrying Amount of
Mortgage at December 31
Interest Final Maturity Face Amount ------------------------
Description Rate Date Periodic Payment Terms of Mortgage 1997 1996
- ----------- -------- -------------- ---------------------- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Parking garage in 9.09% December Monthly payments of principal and
Detroit, Michigan 2000 interest of $35,494 until maturity,
at which time the remaining unpaid
principal balance is due. $4,376,000 $4,141,997 $4,177,441
Light industrial 9.875% February Monthly payments in varying
building, 1999 installments of principal and
Plymouth Township, interest until maturity. This note
Michigan was paid in 1997. 2,525,000 -- 2,430,975
Day care center 10.50% December Monthly payments in varying
located in 2000 installments of principal and
Plymouth, interest until maturity, at which
Michigan time the remaining unpaid principal
balance of approximately $908,000 is
due. 960,000 929,319 935,431
Rehabilitation 9.26% April Monthly payments in varying
of historic 2000 installments of principal and
office building interest until maturity, at which
located in time the remaining unpaid principal
Detroit, Michigan balance of approximately $1,858,000
is due. 1,900,000 1,751,816 1,784,069
Retail tire 7.25% October Monthly payments in varying
center 2000 installments of principal and
located in interest until maturity, at which
Woodhaven, time the remaining unpaid principal
Michigan balance of approximately $647,000 is
due. 695,000 653,321 661,773
Retail tire 6.75% February Monthly payments in varying
center 2001 installments of principal and
located in interest until maturity, at which
Sterling time the remaining unpaid principal
Heights, balance of approximately $693,000 is
Michigan due. 750,000 701,701 711,498
Office 10.25% April Monthly payments of varying
building 2003 installments of principal and
located in interest until maturity, at which
Detroit, time the remaining unpaid principal
Michigan balance of approximately $1,695,000
is due. 1,800,000 1,732,934 1,737,891
</TABLE>
F-14
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Mortgage Notes Receivable (Continued)
<TABLE>
<CAPTION>
Carrying Amount of
Mortgage at December 31
Interest Final Maturity Face Amount ------------------------
Description Rate Date Periodic Payment Terms of Mortgage 1997 1996
- ----------- -------- -------------- ---------------------- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Renovation of an Prime July Monthly payments in varying
office building rate 2008 installments of principal and
located in plus interest until maturity. This note is
Detroit, 1% in the process of being rewritten
Michigan into a permanent loan. $1,855,000 $1,641,113 $ 925,543
Shopping center 10.875% December Monthly payments in varying
located in 1999 installments of principal and
Detroit, interest until maturity. This note
Michigan was paid in 1997. 1,080,500 -- 960,439
Shopping center 9.3752% January Monthly payments of principal and
located in 2000 interest of $18,298 until maturity,
Sterling at which time the remaining unpaid
Heights, principal balance of approximately
Michigan $2,028,000 is due. 2,200,000 2,074,403 2,093,322
Rehabilitation 11.25% October Monthly payments of principal and
of a shopping 2000 interest of $16,471 until maturity,
center located at which time the remaining unpaid
in Detroit, principal balance of approximately
Michigan $1,477,000 is due. 1,650,000 1,542,300 1,560,208
Rehabilitation 11.25% October Monthly payments of principal and
of a shopping 2000 interest of $21,961 until maturity,
center located at which time the remaining unpaid
in Detroit, principal balance of approximately
Michigan $1,969,000 is due. 2,200,000 2,056,401 2,080,277
Shopping center 10.25% April Monthly payments in varying
located in and 1997 installments of principal and
Detroit, 9.75% interest until maturity, at which
Michigan time the remaining unpaid principal
balance is due. This note was paid in
1997. 2,500,000 -- 2,292,465
Shopping center 9.00% November Monthly interest payment of $21,375
located in 2008 until maturity. This note was
Detroit, converted to a permanent loan in
Michigan March 1998. 2,850,000 2,793,000 2,793,000
Renovation of 9.25% September Monthly payments of principal and
a 54-unit 2000 interest of $5,800 until maturity, at
building which time the remaining unpaid
located in principal balance of approximately
Detroit, $557,000 is due. 728,000 593,393 604,392
Michigan
</TABLE>
F-15
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Mortgage Notes Receivable (Continued)
<TABLE>
<CAPTION>
Carrying Amount of
Mortgage at December 31
Interest Final Maturity Face Amount ------------------------
Description Rate Date Periodic Payment Terms of Mortgage 1997 1996
- ----------- -------- -------------- ---------------------- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Renovation of a 8.0% August Monthly payments of interest only
75-unit building and 2000 through April 1994 and varying
located in 9.5% installments of principal and
Detroit, interest from May 1995 until
Michigan maturity. This note was written down
to its net realizable value at
December 31, 1997 and was paid in
January 1998. $1,260,000 $ 1,001,113 $ 1,354,681
Renovation of 10.25% April Monthly payments in varying
a 167-unit and 1997 installments of principal and
building 12.25% interest until maturity. This note
located in was paid in 1997. 2,500,000 -- 2,084,656
Detroit,
Michigan
24-unit building 10.25% January Monthly payments in varying
located in 2001 installments of principal and
Detroit, interest until maturity, at which
Michigan time the remaining unpaid principal
balance of approximately $241,000 is
due. 275,000 252,678 255,850
205-unit 10.00% August Monthly payments in varying
high-rise 2000 installments of principal and
apartment interest until maturity, at which
building time the remaining unpaid principal
located balance of approximately $375,000 is
in Detroit, due. 455,000 422,336 437,355
Michigan
Land 10.25% March Monthly payments of interest only on 6,500,000
acquisition and 2000 the outstanding principal balance. ($812,000 un-
development disbursed
of 210 at
residential December 31,
lots located 1997) 5,655,270 --
in Ann Arbor,
Michigan
Total mortgage notes receivable 27,943,095 29,881,266
Allowance for doubtful accounts (1,384,837) (1,600,000)
----------- -----------
Net mortgage notes receivable $26,558,258 $28,281,266
=========== ===========
</TABLE>
F-16
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Mortgage Notes Receivable (Continued)
Aggregate, contractual annual maturities of mortgage notes receivable
principal are as follows:
<TABLE>
<S> <C>
1998 $ 304,914
1999 367,883
2000 16,558,670
2001 5,046,714
2002 134,480
2003 and after 5,753,158
------------
Total mortgage notes 28,165,819
Less unamortized net loan origination fees (222,724)
------------
Net mortgage notes $ 27,943,095
============
</TABLE>
There can be no assurance that cash flows will materialize as scheduled
as a result of prepayments of the mortgage notes.
A reconciliation of the carrying value of mortgage notes receivable for
the years December 31, 1997 and 1996 ended is as follows:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Mortgage notes receivable:
Balance - Beginning of year $ 29,881,266 $ 26,964,328
Additions:
New mortgage loans 7,076,681 3,355,137
Amortization of net loan origination fees 53,328 55,619
------------ ------------
Total additions 7,130,009 3,410,756
------------ ------------
Deductions:
Collections of principal (8,820,517) (436,818)
Charge-offs (215,163) --
Loan origination fees received (32,500) (57,000)
------------ ------------
Total deductions (9,068,180) (493,818)
------------ ------------
Balance - End of year 27,943,095 29,881,266
------------ ------------
</TABLE>
F-17
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Mortgage Notes Receivable (Continued)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Allowance for loan losses:
Balance - Beginning of year $ (1,600,000) $ (1,600,000)
Charge-offs 215,163 --
Provision for loan losses -- --
------------ ------------
Balance - End of year (1,384,837) (1,600,000)
------------ ------------
Mortgage notes receivable, net of
allowance for loan losses $ 26,558,258 $ 28,281,266
============ ============
</TABLE>
Note 5 - Impaired Loans
At December 31, 1997 and 1996, the total recorded investment in impaired
loans, as defined by SFAS 114, was $0 and $5,264,000, respectively. The
allowance related to these loans totaled $0 and $1,600,000 at December
31, 1997 and 1996. The average recorded investment in impaired loans was
approximately $2,082,000 and $5,328,000 and interest income was $201,000
and $538,000 for the years ended December 31, 1997 and 1996,
respectively. All impaired loans were classified as earning loans during
1997 and 1996, with interest income recognized on an accrual basis.
Note 6 - Financial Instruments
The estimated fair value of financial instruments held by the Company at
December 31, 1997 and 1996, and the valuation techniques used to
estimate the fair value, were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
Estimated Fair Estimated Fair
Carrying Value Value Carrying Value Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,324,050 $ 5,324,050 $23,361,679 $23,361,679
Investment securities 34,105,868 34,105,868 14,661,426 14,661,426
Mortgage notes receivable 26,558,258 28,022,286 28,281,266 28,374,000
Accrued interest and other
receivables 420,270 420,270 330,555 330,555
Accounts payable 120,677 120,677 2,046,201 2,046,201
</TABLE>
F-18
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 6 - Financial Instruments (Continued)
The terms and short-term nature of certain assets and liabilities result
in their carrying amount approximating fair value. These include cash
and cash equivalents, accrued interest and other receivables and
accounts payable. The following methods and assumptions were used by the
Company to estimate the fair value of the remaining classes of financial
instruments:
Mortgage Notes Receivable - The fair value of mortgage notes receivable
was estimated by discounting future cash flows using an estimated
discount rate that reflects the current credit, interest rate and
prepayment risks associated with similar types of instruments.
Investment Securities - The estimated fair value of investment
securities is estimated based on quoted market prices.
Loan Commitments - The fair value of loan commitments, valued on the
basis of fees currently charged for commitments for similar loan terms
to new borrowers with similar credit profiles, is not considered
material.
Note 7 - Federal Income Tax
Prior to the restructuring, the Company operated to qualify as a real
estate investment trust and was not subject to federal income tax on
taxable income distributed to its stockholders during its fiscal year
and subsequent year, but prior to filing its federal tax return. As part
of the restructuring, the Corporation contributed its assets to the
limited liability company (LLC) in exchange for Class A Membership
interests in the LLC. The Corporation then distributed the Class A
Membership interests to its majority stockholders in a liquidating
distribution. Income for tax and financial reporting purposes is
reconciled as follows:
F-19
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 7 - Federal Income Tax (Continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Investment income before
income tax on undistributed
earnings $ 3,441,852 $ 1,990,203
Less investment income from the
date of restructuring
(for the period December 7, 1996
through December 31, 1996) (346,456) --
Increase (decrease) in taxable
income resulting from:
Loan origination and application fees, net (24,023) 8,430
Provision for valuation allowances, net -- 914,421
Realized loss on sale of foreclosed property -- (1,566,594)
Dividend deductions:
From regular distributions (453,217) (1,314,329)
From liquidating distribution (2,595,903) --
Other - Net (22,253) (32,131)
----------- -----------
Taxable investment income $ -- $ --
=========== ===========
</TABLE>
Note 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 Managing Board. Fees for legal services provided by the
Managing Board Member's law firm amounted to $32,547, $95,277 and
$306,394 for the years ended December 31, 1997, 1996 and 1995,
respectively, of which $0, $14,313 and $227,586 of the fees earned in
1997, 1996 and 1995, respectively, relate to the restructuring of
the Company and new offering discussed in Note 1. Accrued legal fees
of $12,663 and $30,581 are included in accounts payable in the
accompanying balance sheet at December 31, 1997 and 1996,
respectively.
F-20
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 8 - Related Party Transactions (Continued)
o Fees aggregating $66,687, $22,951 and $23,920 for the years ended
December 31, 1997, 1996 and 1995, respectively, were earned by a
member manager of the Company for providing various investment and
other services to the Company. Accrued fees of $24,046 and $12,786
are included in accounts payable in the accompanying balance sheet at
December 31, 1997 and 1996, respectively.
o Consulting fees under a contractual agreement aggregating $18,375,
$46,746 and $44,520 were earned by officers of the Company in 1997,
1996 and 1995 respectively.
o During 1995, one of the Company's Managing Board Members became the
vice president of an entity that has a mortgage note with the
Company. The carrying amount of the mortgage note receivable totaled
$4,141,997 and $4,177,441 at December 31, 1997 and 1996,
respectively, and earned the Company $385,097, $389,732 and $391,854
during the years December 31, 1997, 1996 and 1995, respectively.
Note 9 - Commitments
The Company is party to loan commitments, financial instruments with
off-balance-sheet risk, in the normal course of business to meet the
financing needs of its customers. These instruments involve, to varying
degrees, elements of credit and interest rate risk that are not
recognized in the financial statements.
Commitments to extend credit are agreements to lend to a customer as
long as there are no violations of any conditions established in the
contract. Commitments generally have fixed expiration dates. Since a
portion of the commitments may expire without being drawn upon, the
total commitments do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is
based on management's credit evaluation of customers. At December 31,
1997, the Company had outstanding loan commitments aggregating
$8,850,000.
The Company's exposure to credit loss in the event of nonperformance by
the other party is represented by the contractual amount of those items.
The Company generally requires collateral to support such financial
instruments in excess of the contractual amount of those instruments.
F-21
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Notes to Financial Statements
December 31, 1997 and 1996
Note 10 - Interim Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net
Net Investment
Investment Income per
Quarters Ended Total Income Income Share
- -------------- ------------ ---------- ----------
<S> <C> <C> <C>
Fiscal 1997
- -----------
December 31 $1,594,941 $1,435,625 $ NA
September 30 1,367,277 1,215,150 NA
June 30 1,321,223 1,202,005 NA
March 31 1,416,930 1,238,631 NA
---------- ----------
Total $5,700,371 $5,091,411
========== ==========
Fiscal 1996
- -----------
December 31 $1,105,276 $ 895,275 NA
September 30 982,329 872,881 0.19
June 30 916,011 802,400 0.18
March 31 995,962 871,296 0.19
---------- ----------
Total $3,999,578 $3,441,852
========== ==========
</TABLE>
Effective upon the consummation of the restructuring of the Corporation,
the Company's predecessor in interest, on December 6, 1996 Class A
Membership Interests were distributed pro rata to the majority
stockholders of the Corporation. Per-share information is no longer
relevant as a result of the restructuring (See Note 1).
F-22
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Schedule of Index to Exhibits
<TABLE>
<CAPTION>
Page
Exhibit Filed Number
No. Description Incorporated Herein by Reference to Herewith Herein
- ------- ----------- ----------------------------------- -------- ------
<S> <C> <C> <C>
3.1 Certificate of Formation of Exhibit 3.1 to the Company's
Metropolitan Realty Company, L.L.C. Registration Statement on Form
S-4, File No. 033-99694
3.2 Operating Agreement of Metropolitan Exhibit 3.2 to the Company's
Realty Company, L.L.C. Registration Statement on Form
S-4, File No. 033-99694
3.3 Certificate of Amendment to Exhibit 3.3 to the Company's
Certificate of Formation of Registration Statement on Form
Metropolitan Realty Company, L.L.C. S-4, File No. 033-99694
10.1 Investment Management Service Exhibit 10.2 to Metropolitan
Agreement dated February 15, 1989 Realty Corporation's Annual
between the Company's predecessor Report on Form 10-K for the
in interest, Metropolitan Realty fiscal year ending December 31,
Corporation, and NBD Bank, N.A. 1988, Commission File No.
(formerly National Bank of Detroit) 1-9450
10.2 Buhl Building Lease dated April 25, Exhibit 10.4 to Metropolitan
1991 between the Company's Realty Corporation's Annual
predecessor in interest, Report on Form 10-K for the
Metropolitan Realty Corporation, fiscal year ending December 31.
and Buhl Realty Company 1991. Commission File No.
1-9450
10.3 First lease amendment to Buhl Exhibit 10.6 to Metropolitan
Building Lease dated May 14, 1992 Realty Corporation's Annual
between the Company and Buhl Realty Report on Form 10-K for the
Company fiscal year ending December 31,
1992, Commission File No.
1-9450
10.4 Second lease amendment to Buhl Exhibit 10.8 to Metropolitan
Building lease dated May 14, 1992 Realty Corporation's Annual
between the Company and Buhl Realty Report on Form 10-K for the
Company fiscal year ending December 31,
1993, Commission File No.
1-9450
16 Letter dated December 5, 1997 from Exhibit 16 to Metropolitan
Cooper's & Lybrand, L.L.P. Realty Company's current report
regarding change in certifying on Form 8-K for the fiscal year
accountant ending December 5, 1997,
Commission File No. 33-99694
24 Powers of Attorney X E-2
</TABLE>
E-1
POWER OF ATTORNEY
The undersigned hereby designates, constitutes and appoints Robert G.
Jackson, President, and Mark Schmid, Treasurer, and each of them, the true
and lawful attorney for the undersigned, with full power of substitution, to
sign for and on behalf of the undersigned an annual report on Form 10-K for
Metropolitan Realty Company, L.L.C. with respect to the fiscal year ending
December 31, 1997, all amendments thereto, and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatever requisite or necessary to be done
in the premises as fully, and for all intents and purposes, as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
/s/ Mark R. Bartlett Dated: March 19, 1998
/s/ Daniel L. Boone Dated: March 19, 1998
/s/ Nicholas H. Degel Dated: March 19, 1998
/s/ David M. Diegel Dated: March 24, 1998
/s/ Wayne S. Doran Dated: March 19, 1998
/s/ Douglas E. Ebert Dated: March 19, 1998
/s/ David B. Hanson Dated: March 19, 1998
/s/ Jeffrey A. Heldt Dated: March 19, 1998
/s/ Kenneth L. Hollowell Dated: March 20, 1998
/s/ Robert G. Jackson Dated: March 19, 1998
/s/ F. Thomas Lewand Dated: March 24, 1998
/s/ Ernest Lofton Dated: March 19, 1998
/s/ Robert H. Naftaly Dated: March 19, 1998
/s/ Joel A. Schwartz Dated: March 19, 1998
/s/ Frank D. Stella Dated: March 19, 1998
/s/ Marc Stepp Dated: March 19, 1998
/s/ R. Douglas Trezise Dated: March 19, 1998
/s/ Richard C. Webb Dated: March 19, 1998
/s/ Ronald C. Yee Dated: March 20, 1998
/s/ Thomas Zdrodowski Dated: March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $ 5,324,050
<SECURITIES> 34,105,868
<RECEIVABLES> 26,558,258
<ALLOWANCES> (1,384,837)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 44,301
<DEPRECIATION> (36,737)
<TOTAL-ASSETS> 66,776,216
<CURRENT-LIABILITIES> 303,491
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 66,472,725
<TOTAL-LIABILITY-AND-EQUITY> 66,776,216
<SALES> 0
<TOTAL-REVENUES> 5,700,371
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 608,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,091,411
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,091,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,091,411
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
