FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 (I.R.S. Employer
incorporation) 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>
Item 1. Financial Statements
METROPOLITAN REALTY COMPANY, L.L.C.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 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 $ 850,387 $ 1,378,058 $ 2,228,445 $ 3,782,819 $ 1,541,231 $ 5,324,050
Investment securities 16,421,826 21,194,484 37,616,310 13,121,617 20,984,251 34,105,868
Mortgage notes receivable:
Unaffiliated 22,643,574 614,503 23,258,077 23,801,098 -- 23,801,098
Affiliated 4,131,299 -- 4,131,299 4,141,997 -- 4,141,997
Allowance for loan losses (1,384,837) -- (1,384,837) (1,384,837) -- (1,384,837)
------------ ------------ ------------ ------------ ------------ ------------
Total mortgage notes
receivable 25,390,036 614,503 26,004,539 26,558,258 -- 26,558,258
Accrued interest and other
receivables 299,339 93,157 392,496 325,874 94,396 420,270
Other assets 74,706 -- 74,706 11,132 -- 11,132
Organization costs, net
of accumulated amortization
of $112,252 and 90,214 at
March 31, 1998 and
December 31, 1997 -- 334,600 334,600 -- 356,638 356,638
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 43,036,294 $ 23,614,802 $ 66,651,096 $ 43,799,700 $ 22,976,516 $ 66,776,216
============ ============ ============ ============ ============ ============
Liabilities and Members' Equity
Liabilities
Accounts payable $ 103,547 $ 36,490 $ 140,037 $ 106,547 $ 14,130 $ 120,677
Due to (from) (553,525) 553,525 -- 42,028 (42,028) --
Deferred income 31,943 63,886 95,829 22,500 45,000 67,500
Deposits from borrowers
for property taxes 107,237 -- 107,237 114,431 -- 114,431
Other 190 -- 190 883 -- 883
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities (310,608) 653,901 343,293 286,389 17,102 303,491
Members' Equity
Class A members' equity 43,391,676 -- 43,391,676 43,564,552 -- 43,564,552
Class B members' equity -- 22,954,400 22,954,400 -- 22,936,275 22,936,275
Unrealized holding
gains (losses)
on marketable securities
available for sale (44,774) 6,501 (38,273) (51,241) 23,139 (28,102)
------------ ------------ ------------ ------------ ------------ ------------
Total members' equity 43,346,902 22,960,901 66,307,803 43,513,311 22,959,414 66,472,725
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
members' equity $ 43,036,294 $ 23,614,802 $ 66,651,096 $ 43,799,700 $ 22,976,516 $ 66,776,216
============ ============ ============ ============ ============ ============
</TABLE>
2
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31, 1998 Three months ended March 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>
Revenue
Interest income:
From mortgage
notes, unaffiliated $ 569,698 $ 1,935 $ 571,633 $ 672,310 $ -- $ 672,310
From mortgage
notes, affiliated 94,375 -- 94,375 95,310 -- 95,310
Investment income 314,522 354,848 669,370 225,275 388,772 614,047
Miscellaneous income 12,425 -- 12,425 35,263 -- 35,263
---------- ---------- ---------- ---------- ---------- ----------
Total revenue 991,020 356,783 1,347,803 1,028,158 388,772 1,416,930
Operating Expenses
General and
administrative 84,878 22,693 107,571 149,681 8,430 158,111
Amortization of
organization costs -- 22,038 22,038 -- 20,188 20,188
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses 84,878 44,731 129,609 149,681 28,618 178,299
---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income $ 906,142 $ 312,052 $1,218,194 $ 878,477 $ 360,154 $1,238,631
========== ========== ========== ========== ========== ==========
<CAPTION>
Year Ended December 31, 1997
----------------------------------
Class A Class B
Membership Membership
Interests Interests Total
---------- ---------- -----
<S> <C> <C> <C>
Revenue
Interest income:
From mortgage
notes, unaffiliated $2,615,038 $ -- $2,615,038
From mortgage
notes, affiliated 385,097 -- 385,097
Investment income 1,054,563 1,398,505 2,453,068
Miscellaneous income 241,501 5,667 247,168
---------- ---------- ----------
Total revenue 4,296,199 1,404,172 5,700,371
Operating Expenses
General and
administrative 483,695 40,634 524,329
Amortization of
organization costs -- 84,631 84,631
---------- ---------- ----------
Total operating
expenses 483,695 125,265 608,960
---------- ---------- ----------
Net Investment Income $3,812,504 $1,278,907 $5,091,411
========== ========== ==========
</TABLE>
3
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
Unrealized Holding Members' Equity
Gains (Losses) on ------------------------------- Total Members'
Investment Securities Class A Class B Equity
--------------------- ------- ------- --------------
<S> <C> <C> <C> <C>
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 -- 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
Net investment income -- 906,142 312,052 1,218,194
Distributions -- (1,079,018) (293,927) (1,372,945)
Change in unrealized holding
gains (losses) on
investment securities (10,171) -- -- (10,171)
------------ ------------ ------------ ------------
Balance - March 31, 1998 $ (38,273) $ 43,391,676 $ 22,954,400 $ 66,307,803
============ ============ ============ ============
</TABLE>
4
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net investment income $ 1,218,194 $ 1,238,631
Adjustments to reconcile net
investment income to net cash
from operating activities:
Depreciation and amortization expense 22,647 6,167
Loss on sale of investment securities 979 5,905
Decrease (increase) in assets:
Accrued interest and other receivables 27,774 (344,613)
Other assets (64,183) (23,854)
Increase (decrease) in liabilities:
Accounts payable 19,360 (36,931)
Other liabilities 20,442 22,595
------------ ------------
Total adjustments 27,019 (370,731)
------------ ------------
Net cash provided by operating
activities 1,245,213 867,900
Cash Flows from Investing Activities
Purchases of investment securities (3,592,547) (21,283,449)
Collections of principal from investment
securities 70,955 3,394,520
Net change in loans 553,719 (393,859)
------------ ------------
Net cash used in investing activities (2,967,873) (18,282,788)
Cash Flows from Financing Activities
Payment to minority stockholders -- (1,843,384)
Distributions paid to members (1,372,945) --
------------ ------------
Net cash used in financing activities (1,372,945) (1,843,384)
------------ ------------
Net Decrease in Cash and Cash Equivalents (3,095,605) (19,258,272)
Cash and Cash Equivalents - Beginning of period 5,324,050 23,361,679
------------ ------------
Cash and Cash Equivalents - End of period $ 2,228,445 $ 4,103,407
============ ============
</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 three months ended March 31, 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 three months ended March 31,
1997 reflect certain reclassifications to be consistent with the
presentation adopted for the three months ended March 31, 1998.
2. INCOME TAXES
- ---------------
As a limited liability company, it is intended that the Company will be
classified as a partnership for federal income tax purposes and, as such,
it generally will be treated as a "pass-through" entity that is not
subject to federal income tax. Accordingly, no provision for income taxes
has been made for the three months ended March 31, 1998.
3. 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 within
90 days after the end of each fiscal quarter. The Company's 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.
4. INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------------------
In accordance with the terms of the Company's Operating Agreement,
indirect general and administrative expenses are allocated between Class
A Membership Interests and Class B Membership Interests generally in
proportion to their respective outstanding mortgage loans compared to
total mortgage loans.
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.
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.
Financial Condition and Results of Operation, Class A Membership Interests
- --------------------------------------------------------------------------
Net investment income for the three months ended March 31, 1998 was $906,142
versus $878,477 in the same period in 1997 - a 3% increase. For the same
three month period, operating expenses decreased from $149,681 to $84,878 - a
43% decrease. The decrease is a result of lower professional fees and to a
lesser extent the indirect general and administrative expense allocation
formula as set forth in the Company's Operating Agreement.
The allowance for loan losses remains at $1,384,837 - 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
$1,384,837 adequate to cover any potential future write-offs of loan assets.
The liquid assets of the Class A Membership Interests, including cash and
investment securities, increased from $16,904,436 at December 31, 1997 to
$17,272,213 at March 31, 1998. This resulted from loan repayments received by
the Company partially offset by new loans issued.
7
<PAGE>
The Company makes quarterly distributions of net income in accordance with
the Operating Agreement of the Company. During March of 1998, the Company
distributed approximately $1,079,000 to Class A Members relating to fourth
quarter 1997 cash income.
Management is not aware of any material unrecorded liabilities or
contingencies relating to Class A Membership Interests.
Financial Condition and Results of Operation Class B Membership Interests
- -------------------------------------------------------------------------
Net investment income for the three months ended March 31, 1998 was $312,052
versus $360,154 in the same period in 1997 - a 13% decrease. For the same
three month period, general and administrative expenses increased from $8,430
to $22,693. The increase is a result of the indirect general and
administrative expense allocation formula as set forth in the Company's
Operating Agreement and costs associated with the origination of two new
loans.
No loan loss allowance has been recorded relating to the two loans in the
Class B membership pool at March 31, 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 liquid assets of the Class B Membership Interests, including cash and
investment securities, increased from $22,094,755 at December 31, 1997 to
$22,572,542 at March 31, 1998. This increase was offset by the increase in
the amount due to Class A which was settled in April, 1998.
The Company makes quarterly distributions of net income in accordance with
the Operating Agreement of the Company. During March of 1998, the Company
distributed approximately $294,000 to Class B Members relating to fourth
quarter 1997 cash income.
Certain organization costs of the Class B Investment pool have been
capitalized at cost and will be amortized over five years. Net organization
costs at March 31, 1998 totaled $334,600.
Management is not aware of any material unrecorded liabilities or
contingencies relating to Class B Membership Interests.
Future Business Prospects
- -------------------------
Since the Company conducts all of its business in southeastern Michigan, the
future financial results of the Company are highly dependent on the local
economy in general and the real estate market specifically in southeastern
Michigan. In recent years, the local economy has been very strong with an
influx of new real estate developments. Consequently, the Company is
receiving a significant increase in mortgage applications versus historical
averages. At March 31, 1998, the Company had outstanding loan commitments of
$7,687,433.
8
<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: May 11, 1998
METROPOLITAN REALTY COMPANY, L.L.C.
By: /s/ Robert G. Jackson
----------------------------
Robert G. Jackson, President
(Principal Executive Officer and Principal Financial Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $ 2,228,445
<SECURITIES> 37,616,310
<RECEIVABLES> 27,389,376
<ALLOWANCES> (1,384,837)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,938
<DEPRECIATION> (35,161)
<TOTAL-ASSETS> 66,651,096
<CURRENT-LIABILITIES> 343,293
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 66,307,803
<TOTAL-LIABILITY-AND-EQUITY> 66,651,096
<SALES> 0
<TOTAL-REVENUES> 1,347,803
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 129,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,218,194
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,218,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,218,194
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
