FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998
OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
_________________________ to __________________________
Commission File No. 33-99694
METROPOLITAN REALTY COMPANY, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 38-3260057
(State of incorporation) (I.R.S. Employer Identification No.)
535 Griswold, Suite 748
Detroit, Michigan 48226
(Address of principal executive offices)
Registrant's Telephone Number, including area code:
(313) 961-5552
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
There is no established public trading market for the Company's Class A
Membership Interests and Class B Membership Interests.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METROPOLITAN REALTY COMPANY, L.L.C.
BALANCE SHEET (000's Omitted)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------ -------------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 2,957 $ 17 $ 2,974 $ 3,783 $ 1,541 $ 5,324
Investment securities 15,203 15,480 30,683 13,121 20,985 34,106
Mortgage notes receivable:
Unaffiliated 24,573 9,301 33,874 23,801 -- 23,801
Affiliated -- -- -- 4,142 -- 4,142
Allowance for loan losses (1,385) -- (1,385) (1,385) -- (1,385)
-------- -------- -------- -------- -------- --------
Total mortgage notes receivable 23,188 9,301 32,489 26,558 -- 26,558
Accrued interest and other receivables 227 139 366 327 94 421
Other assets 71 -- 71 11 -- 11
Organization costs, net of accumulated
amortization of $156 at
September 30, 1998 and $90
at December 31, 1997 -- 290 290 -- 356 356
-------- -------- -------- -------- -------- --------
Total assets $ 41,646 $ 25,227 $ 66,873 $ 43,800 $ 22,976 $ 66,776
======== ======== ======== ======== ======== ========
Liabilities and Members' Equity
Liabilities
Accounts payable $ 122 $ 39 $ 161 $ 107 $ 13 $ 120
Due to (from) (2,015) 2,015 -- 41 (41) --
Deferred income 20 41 61 23 45 68
Deposits from borrowers for property taxes 103 -- 103 114 -- 114
Other 2 -- 2 1 -- 1
-------- -------- -------- -------- -------- --------
Total liabilities (1,768) 2,095 327 286 17 303
Members' Equity
Class A members' equity 43,242 -- 43,242 43,565 -- 43,565
Class B members' equity -- 22,939 22,939 -- 22,936 22,936
Unrealized holding gains
(losses) on marketable
securities available for sale 172 193 365 (51) 23 (28)
-------- -------- -------- -------- -------- --------
Total members' equity 43,414 23,132 66,546 43,514 22,959 66,473
-------- -------- -------- -------- -------- --------
Total liabilities and members' equity $ 41,646 $ 25,227 $ 66,873 $ 43,800 $ 22,976 $ 66,776
======== ======== ======== ======== ======== ========
</TABLE>
1
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF OPERATIONS (000's Omitted)
<TABLE>
<CAPTION>
Three months ended Three months ended Nine months ended
September 30, 1998 September 30, 1997 September 30, 1998
---------------------------- ---------------------------- ----------------------------
Class A Class B Class A Class B Class A Class B
Membership Membership Membership Membership Membership Membership
Interests Interests Total Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Interest income:
From mortgage notes, unaffiliated $ 567 $ 122 $ 689 $ 670 $ -- $ 670 $1,719 $ 146 $1,865
From mortgage notes, affiliated -- -- -- 97 -- 97 105 -- 105
Investment income 286 246 532 211 376 587 898 958 1,856
Miscellaneous income 6 -- 6 8 5 13 78 3 81
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue 859 368 1,227 986 381 1,367 2,800 1,107 3,907
Operating Expenses
General and administrative 82 16 98 122 8 130 233 67 300
Amortization of organization costs -- 22 22 -- 22 22 -- 67 67
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 82 38 120 122 30 152 233 134 367
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Investment Income $ 777 $ 330 $1,107 $ 864 $ 351 $1,215 $2,567 $ 973 $3,540
====== ====== ====== ====== ====== ====== ====== ====== ======
777 330 1,107 863 351 1,214 2,567 973 3,540
<CAPTION>
Nine months ended
September 30, 1997
------------------------------------
Class A Class B
Membership Membership
Interests Interests Total
---------- ---------- -----
<S> <C> <C> <C>
Revenue
Interest income:
From mortgage notes, unaffiliated $ 1,992 $ -- $ 1,992
From mortgage notes, affiliated 288 -- 288
Investment income 710 1,027 1,737
Miscellaneous income 83 5 88
---------- ---------- ----------
Total revenue 3,073 1,032 4,105
Operating Expenses
General and administrative 361 26 387
Amortization of organization costs -- 62 62
---------- ---------- ----------
Total operating expenses 361 88 449
---------- ---------- ----------
Net Investment Income $ 2,712 $ 944 $ 3,656
========== ========== ==========
2,712 944 3,656
</TABLE>
2
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY (000's Omitted)
<TABLE>
<CAPTION>
Members' Equity
--------------------------------
Class A Class B
------- -------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 $ (40) $ 42,209 $ 22,568 $ 64,737
Net investment income -- 3,813 1,279 5,092
Transfer of member interest -- 82 -- 82
Distributions -- (2,539) (911) (3,450)
Change in unrealized holding gains
(losses) on investment securities 12 -- -- 12
-------- -------- -------- --------
Balance - December 31, 1997 $ (28) $ 43,565 $ 22,936 $ 66,473
Net investment income -- 2,567 973 3,540
Distributions -- (2,890) (970) (3,860)
Change in unrealized holding gains
(losses) on investment securities 393 -- -- 393
-------- -------- -------- --------
Balance - September 30, 1998 $ 365 $ 43,242 $ 22,939 $ 66,546
======== ======== ======== ========
</TABLE>
3
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CASH FLOWS (000's Omitted)
<TABLE>
<CAPTION>
Nine months ended
September 30
--------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net investment income $ 3,540 $ 3,656
Adjustments to reconcile net investment income to net cash
from operating activities:
Depreciation and amortization expense 69 29
Other 34 (56)
Decrease (increase) in assets:
Accrued interest and other receivables 55 (48)
Other assets (63) (40)
Increase (decrease) in liabilities:
Accounts payable 41 (44)
Other liabilities (10) (47)
-------- --------
Total adjustments 126 (206)
-------- --------
Net cash provided by operating activities 3,666 3,450
Cash Flows from Investing Activities
Purchases of investment securities (19,243) (40,487)
Collections of principal from investment securities 23,025 21,218
Net change in loans (5,938) (622)
Capital expenditures -- (4)
-------- --------
Net cash used in investing activities (2,156) (19,895)
Cash Flows from Financing Activities
Payment to minority stockholders -- (1,848)
Distributions paid to members (3,860) (2,210)
-------- --------
Net cash used in financing activities (3,860) (4,058)
-------- --------
Net Decrease in Cash and Cash Equivalents (2,350) (20,503)
Cash and Cash Equivalents - Beginning of period 5,324 23,362
-------- --------
Cash and Cash Equivalents - End of period $ 2,974 $ 2,859
======== ========
</TABLE>
4
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF COMPREHENSIVE INCOME (000's Omitted)
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1998 September 30, 1997
---------------------------- ----------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income $ 777 $ 330 $1,107 $ 864 $ 351 $1,215
Other Comprehensive
Income (Loss):
Unrealized holding gain
loss for period, net of
tax 178 180 358 29 (6) 23
------ ------ ------ ------ ------ ------
Comprehensive Income $ 955 $ 510 $1,465 $ 893 $ 345 $1,238
====== ====== ====== ====== ====== ======
<CAPTION>
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
---------------------------------- ---------------------------------
Class A Class B Class A Class B
Membership Membership Membership Membership
Interests Interests Total Interests Interests Total
---------- ---------- ----- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income $2,567 $ 973 $3,540 $2,712 $ 944 $3,656
Other Comprehensive
Income (Loss):
Unrealized holding gain
loss for period, net of
tax 223 170 393 24 8 32
------ ------ ------ ------ ------ ------
Comprehensive Income $2,790 $1,143 $3,933 $2,736 $ 952 $3,688
====== ====== ====== ====== ====== ======
</TABLE>
5
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
Notes to Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that would be expected for the
year ending December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1997.
The accompanying financial statements for the nine months ended
September 30, 1997 reflect certain reclassifications to be consistent
with the presentation adopted for the nine months ended September 30,
1998.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires
unrealized gains or losses on securities available for sale to be
included in other comprehensive income. Prior year financial statements
have been reclassified to conform to the requirements of SFAS No. 130.
2. INCOME TAXES
As a limited liability company, it is intended that the Company will be
classified as a partnership for federal income tax purposes and, as
such, it generally will be treated as a "pass-through" entity that is
not subject to federal income tax. Accordingly, no provision for income
taxes has been made for the periods presented.
3. DISTRIBUTIONS
In accordance with the terms of the Operating Agreement, Class A and
Class B members will receive pro rata quarterly distributions of cash
income, less expenses, from their respective class of net assets within
90 days after the end of each fiscal quarter. The Operating Agreement
also provides for the pass through to Class A members (commencing in the
year 2001, if elected) and Class B members (commencing in the year
2000), from their respective classes of net assets, of principal
returned with respect to real estate investments and any cash and cash
equivalents which have not been invested in real estate investments. All
distributions are subject to a determination by the Managing Board that
the Company will have sufficient cash on hand to meet its current and
anticipated needs to fulfill its business purpose.
6
<PAGE>
Item 2. Management's Discussion and Analysis Of Financial Condition And
Results Of Operation
Overview
The Company intends to continue to invest its available funds at competitive
rates in mortgage loans to real estate projects located in southeastern
Michigan. Cycles in the local and national economy have affected and will
continue to affect the Company's ability to invest its remaining funds in
mortgage loans and the yields attainable on such investments. While the
Company expects to have the balance of its available assets fully invested in
mortgage loans by the end of 1999, management will continue its prudent
approach of approving funding only for those loans which meet the Company's
underwriting criteria.
Funds that have not yet been invested in mortgage loans are primarily
invested in marketable securities until needed for the Company's operations
or investments in mortgage loans. Income and principal received with respect
to the Company's investments in mortgage loans are also invested in
marketable securities pending distribution to members or reinvestments in
mortgage loans.
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.
Class A Assets and Class B Assets
As a result of the restructuring effective December 6, 1996, the Company
reports its financial condition and results of operations by segregating all
information into Class A membership interests and Class B membership
interests. Each class is distinguished by its differing member composition.
Interim Financial Statements
The Interim Financial Statements furnished include all adjustments which, in
the opinion of management, are necessary to reflect fair statements of the
results for the interim period presented and are recurring in nature.
Financial Condition and Results of Operation, Class A Membership Interests
The liquid assets of the Class A Membership Interest, including cash and
investment securities, increased from $16,904,000 at December 31, 1997 to
$18,160,000 at September 30, 1998. This resulted from loan repayments
received by the Company partially offset by new loans issued.
7
<PAGE>
Net investment income for the three months ended September 30, 1998 was
$777,000 versus $864,000 in the same period in 1997. This decrease of 10%
resulted from the prepayment of higher yielding loans and the recent issuance
of lower yielding loans.
The allowance for loan losses remains at $1,385,000 - unchanged since
December 31, 1997. Management reviews, on a regular basis, factors which may
adversely affect its mortgage loans, including occupancy levels, rental rates
and property values. It is possible that economic conditions in southeastern
Michigan, and the nation in general, may adversely affect certain of the
Company's loan assets. After evaluation of the loan portfolio and the
associated allowance for loan losses, management deemed the allowance of
$1,385,000 adequate to cover any potential future write-offs of loan assets.
The Company makes quarterly distributions of net income in accord with the
Operating Agreement of the Company. During August of 1998, the Company
distributed approximately $941,000 to Class A Membership Interests relating
to second quarter 1998 cash income.
Management is not aware of any material unrecorded liabilities or
contingencies relating to Class A Membership Interests.
Financial Condition and Results of Operation, Class B Membership Interests
The liquid assets of the Class B Membership Interest, including cash and
investment securities, decreased from $22,526,000 at December 31, 1997 to
$15,497,000 at September 30, 1998. This resulted from issuance of new loans.
Net investment income for the three months ended September 30, 1998 was
$330,000 versus $351,000 in the same period in 1997 - a 6% decrease.
No loan loss allowance has been recorded relating to the loans in the Class B
membership pool at September 30, 1998. Management will continually review any
potential adverse factors which may affect these mortgage loans and record a
loan loss reserve if, and when, this analysis indicates that a loan loss
reserve is appropriate.
The Company makes quarterly distributions of net income in accord with the
Operating Agreement of the Company. During August of 1998, the Company
distributed approximately $300,000 to Class B Membership Interests relating
to second quarter 1998 cash income.
Certain organization costs of the Class B Investment pool have been
capitalized at cost. Recent accounting pronouncements require the retroactive
write-off of these assets in 1999. The Company is considering adopting this
change in accounting principle in the fourth quarter of 1998. Net
organization costs at September 30, 1998 totaled $290,000.
Management is not aware of any material unrecorded liabilities or
contingencies relating to Class B Membership Interests.
8
<PAGE>
Future Business Prospects
Since the Company conducts all of its business in southeastern Michigan, the
future financial results of the Company are highly dependent on the local
economy in general and the real estate market specifically in southeastern
Michigan. In recent years, the local economy has been very strong with an
influx of new real estate developments. Consequently, the Company is
receiving a significant increase in mortgage applications versus historical
averages. At September 30, 1998, the Company had outstanding loan commitments
of $22,000,000.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 12, 1998
METROPOLITAN REALTY COMPANY, L.L.C.
By: /s/ Robert G. Jackson
----------------------------
Robert G. Jackson, President
(Principal Executive Officer and Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 2,974
<SECURITIES> 30,683
<RECEIVABLES> 67,748
<ALLOWANCES> (1,385)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40
<DEPRECIATION> (36)
<TOTAL-ASSETS> 66,873
<CURRENT-LIABILITIES> 327
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 66,546
<TOTAL-LIABILITY-AND-EQUITY> 66,873
<SALES> 0
<TOTAL-REVENUES> 3,907
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,540
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,540
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
