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, 1998
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 __X__ No _____
There is no established public trading market for the Company's Class A
Membership Interests and Class B Membership Interests.
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
INDEX TO ANNUAL REPORT ON FORM 10-K
(For the Fiscal Year Ended December 31, 1998)
Page
----
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.....................................2
ITEM 6. SELECTED FINANCIAL DATA.................................4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................5
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK....................................................9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*............9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....10
ITEM 11. EXECUTIVE COMPENSATION.................................15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.........................................15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K............................................19
* The company's financial statements are set forth in the separate
financial section which follows page 22 of this Form 10-K and begins on
page F-1.
<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
Pursuant to the terms of the Restructuring Agreement dated September 24,
1996, 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.
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.
Assets
The Company's 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
mortgage loans to date are collateralized by a first lien on real property.
Assets that have not yet been invested in mortgage loans are primarily
invested in cash equivalents and marketable securities.
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.
1
<PAGE>
During 1998, the Company had one full-time and one part-time administrative
employee. The day-to-day operations of the Company are administered by its
President, who serves on a part-time basis under the direction of the
Executive Committee of the Company. The 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.
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 20, 1999,
there were 116 holders of the Company's Class A Membership Interests and 107
holders of the Company's Class B Membership Interests.
The Company paid cash distributions in the amount of $3,735,375 to its Class
A Members and $1,303,491 to its Class B Members in 1998.
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
2
<PAGE>
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,
1998, 1997, 1996, 1995, and 1994 and for the years then ended (000's omitted
except per share and percentage data):
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ------------------------------------
Class A Class B(3) Total Class A(1) Class B(2) Total
------- --------- ----- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Total Income $ 3,699 $ 1,561 $ 5,260 $ 4,296 $ 1,404 $ 5,700
Net Investment Income 3,457 967 4,424 3,813 1,279 5,092
Net Investment Income Per Share * * * * * *
Total Assets 38,989 27,132 66,121 43,800 22,976 66,776
Members'/Stockholders' Equity 43,336 22,683 66,019 43,513 22,960 66,473
Cash Dividends Per Share * * * * * *
Return on Assets 8.9% 3.6% 6.7% 8.7% 5.6% 7.6%
Return on Equity 8.0% 4.3% 6.7% 8.9% 5.6% 7.7%
Dividend Payout Ratio * * * * * *
Equity to Assets Ratio 111.15% 83.60% 100.15% 99.35% 99.93% 99.55%
<CAPTION>
1996 1995 1994
------------------------------ ------- -------
Class A Class B Total
------- ------- -----
<S> <C> <C> <C> <C> <C>
Total Income $ 3,925 $ 74 $ 3,999 $ 3,764 $ 3,858
Net Investment Income 3,373 69 3,442 1,990 2,588
Net Investment Income Per Share * * * 0.44 0.57
Total Assets 44,085 22,978 67,063 41,761 41,025
Members'/Stockholders' Equity 42,169 22,569 64,738 41,333 40,479
Cash Dividends Per Share * * * 0.34 0.63
Return on Assets 7.7% 4.4% 6.6% 4.8% 6.3%
Return on Equity 8.0% 4.5% 6.8% 4.8% 6.4%
Dividend Payout Ratio * * * 100% 100%
Equity to Assets Ratio 95.65% 98.22% 96.53% 98.98% 98.67%
<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.
3. In 1998, the Company adopted Statement of Position (SOP) 98-5 -
Reporting on the costs of start-up activities. The adoption of this SOP
resulted in the Company recording a charge of $356,638 of which $89,370
would have been recorded had the Company not adopted the change.
* 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, 1998, the Company had outstanding loan
commitments of approximately $15 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 1998 financial conditions and results of operations individually for the
Class A and Class B Membership Interests.
5
<PAGE>
Financial condition and Results of Operation, Class A Membership Interests
Net investment income decreased by $355,335 for the year ended December 31,
1998 compared to 1997. The majority of this decrease was in interest income
from mortgage notes resulting from the early repayment of several loans and
the issuance of new loans at lower yields.
The allowance for loan losses decreased by $250,532 at December 31, 1998
relating to the partial charge-off of a loan. 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 $1,134,305 adequate to cover any
potential future write-offs of loan assets.
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 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. After evaluation of the loan portfolio and the
associated allowance for loan losses, management deemed the remaining
allowance of $1,384,837 at December 31, 1997 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 operating 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.
Liquidity and Capital Resources, Class A Membership Interests
The liquid assets of the Class A Membership Interests, including cash and
marketable securities, decreased by $2,503,063 to $14,401,373 at December 31,
1998. This decrease resulted primarily from the temporary funding of Pool B
due to a high level of loan activity in December 1998. The B Pool reimbursed
the A Pool $4.4 million in January 1999.
Accrued interest and other receivables decreased by $142,658 to $183,216 at
December 31, 1998. This decrease resulted primarily from a change in
investment strategy from bonds to mutual funds.
Other assets increased by $51,207 to $62,339 at December 31, 1998. This
increase is due to the prepayment of insurance premiums.
6
<PAGE>
The Company makes quarterly distributions of net income in accordance with
the Operating Agreement of the Company. During 1998, the Company distributed
approximately $2,656,000 with respect to Class A Membership Interests of 1998
cash income as defined in the Company's Operating Agreement. During 1999, the
Company will make its final distribution of 1998 net cash income with respect
to Class A Membership Interests of approximately $758,000.
Financial Condition and Results of Operation, Class B Membership Interests
Net investment income decreased by $311,738 for the year ended December 31,
1998 compared to 1997. This decrease was due primarily to the adoption of
Statement of Position (SOP) 98-5, Reporting on the costs of start-up
activities and establishing a loan loss reserve.
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.
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, decreased by $9,187,725 to $13,337,757 at December 31,
1998. The decrease resulted primparily from an increase in mortgage lending.
The Company makes quarterly distributions of net cash income to Class B
Members in accordance with the Operating Agreement of the Company. During
1998, the Company distributed approximately $1,009,565 to Class B Members of
1998 cash income as defined in the Company's Operating Agreement. During
1999, the Company will make its final distribution of 1998 cash income to
Class B Members of approximately $372,000.
7
<PAGE>
Market Risk
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company's earnings can be affected significantly by
the movement of interest rates, which is the primary component of market risk
to the Company. The interest rate risk affects the value of the mortgage
loans and investment securities and impacts interest income related to those
loans and investments subject to variable interest rates. The Company does
not have any interest bearing liabilities thus, impact of interest rate risk
from matching of interest-bearing assets and interest-bearing liabilities is
not pertinent. The following table shows the Company's expected maturities of
its mortgage loans and investment securities:
<TABLE>
<CAPTION>
Expected Maturities
----------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE NOTES
Mortgage notes - variable rate $ 4,238,419 $ -- $ -- $ -- $ -- $ --
Average interest rate 7.1% -- % -- % -- % -- % -- %
Mortgage notes - fixed rate $ 1,122,986 $4,095,326 $2,716,644 $967,661 $1,040,427 $29,661,078
Average interest rate 10.0% 8.7% 8.6% 7.3% 7.4% 7.5%
INVESTMENT SECURITIES
U. S. Treasury notes $ 674,187 $1,517,340 $ -- $ -- $ -- $ --
Average interest rate 6.4% 5.5% -- % -- % -- % -- %
Short-term bond fund $13,180,734 $ -- $ -- $ -- $ -- $ --
Average interest rate 5.3% -- % -- % -- % -- % -- %
</TABLE>
In the normal course of business the Company also faces risks that are either
nonfinancial or nonquantifiable. Such risks principally include credit risk.
The Company does not maintain a trading portfolio, As a result, the Company
is not exposed to market risk as it relates to trading activities. The
Company currently does not enter into any hedging activities.
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 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.
8
<PAGE>
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this item is contained in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
years ending December 31, 1998 and 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 years ended December 31, 1998 and 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 1996 fiscal year 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
fiscal year 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 report.
9
<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.
10
<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.
Appointee(s) to the
Member-Manager Managing Board
============================================================================
Daimler 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
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
11
<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, 38 Vice President - Chief Financial Officer, 1996
to present, Vice President - Controller, 1994 to
1996, Director - Financial Accounting, 1989 to
1994, Blue Cross and Blue Shield of Michigan. 1996(2)(4)
Daniel L. Boone, 50 Vice President - International Union of
Operating Engineers Local 324, a labor
organization, since 1987. 1991(2)(4)
Nicholas H. Degel, 50 Assistant Administrative Supervisor, Detroit
Police & Fire Retirement System, a public
retirement system. 1996(3)(4)
David M. Diegel, 53 Finance Director, Macomb County, Michigan,
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. 1993(2)
Wayne S. Doran, 64 Chairman of the Board of Ford Motor Land
Development Corp., a real estate development
company, since 1978. 1988(1)
Douglas E. Ebert, 53 Chief Executive Officer, 1995 to present, and
President and Chief Operating Officer, 1993 to
1995, Michigan National Corporation, a bank
holding company. 1996(2)
David B. Hanson, 52 Senior Vice President, Walbridge Aldinger, a
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. Director
and Treasurer of the Associated General
Contractors of Detroit. 1994(2)
Jeffrey A. Heldt, 50 Attorney since 1973, self-employed since 1989. 1996(1)
Kenneth L. Hollowell, 54 Secretary - Treasurer, Teamsters Local Union
#247, since March 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, 1994 to 1998. 1992(2)
12
<PAGE>
<CAPTION>
Has Served
as a Managing
Board Member
Name and Age Principal Occupation Since*
------------ -------------------- -------------
<S> <C> <C>
Robert G. Jackson, 67 Retired. Formerly served as President from 1985 to
1996, and Executive Vice President from 1977 to 1985,
of Ford Motor Land Development Corp., a real estate
development company. 1988
Richard P. Kughn, 69 Chairman of the Board of the Company since July
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 as the Chairman of the Board AAA
Michigan/Wisconsin and is President of the
University Cultural Center Association. Serves
on the Board of Trustees of the University of
Detroit Mercy. Serves on the Board of Directors
of Detroit Chamber of Commerce and the Henry
Ford Museum and Greenfield Village. 1987(1)
Robert J. Lee, 52 Secretary - Treasurer, Michigan State Building
and Construction Trades Council. Previously
served as a Field Representative for the Council
from 1985 to October 1996. Pipe fitter by trade. 1996
F. Thomas Lewand, 52 Partner, Bodman, Longley & Dahling LLP since
1992, a Detroit, Michigan-based law firm. Serves
as a Trustee of the University of Detroit Mercy
and numerous community associations. 1988(1)
Ernest Lofton, 67 Retired. Former Vice President, UAW
International Union, Director of the UAW
National Ford Department and Director of the UAW
Michigan Community Action Program Department
from 1989-1999. 1991
Robert H. Naftaly, 61 Executive Vice President and Chief Operating
Officer of Blue Cross and Blue Shield of
Michigan, since 1988. Serves on numerous
national and community associations. 1989(1)(3)
Michael Nevin, 34 Treasurer, Firefighter's Union Local #344 since
January 1996. Firefighter, City of Detroit, and
representative of Firefighter's Union Local #344
since 1991. 1996(2)
Mark Schmid, 39 Treasurer of the Company since 1997; Director,
Pension Fund Investments for Daimler Chrysler
Corporation, where he has been responsible for
investment of the benefit fund assets of Daimler
Chrysler Corporation since 1997. 1997(1)(3)
13
<PAGE>
<CAPTION>
Has Served
as a Managing
Board Member
Name and Age Principal Occupation Since*
------------ -------------------- -------------
<S> <C> <C>
Harold Smith, 58 Retired. Former Chief City Planner, City of
Detroit Planning Department, for 31 years. 1995(2)
Frank D. Stella, 79 Founder (in 1946), Chairman and Chief Executive
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, past Chairman of the
Board of Merrill Palmer Institute of Wayne State
University and Director of Michigan Opera
Theatre, Director of the Economic Club of
Detroit. 1987(4)
Marc Stepp, 76 Executive Director, Institute for Urban and
Community Affairs, University of Detroit Mercy.
Previously served as Vice President of the
International United Auto Workers (UAW) since
1974. 1987
R. Douglas Trezise, 74 Retired. Previously served as Deputy State
Treasurer, Michigan Department of Treasury, from
1975 to 1990. Chairman of State Employees'
Retirement Board. 1991(3)
Richard C. Webb, 59 Head of Commercial Financial Services, Michigan
National Bank, a banking corporation. Previously
held the positions of Senior Executive Vice
President of Michigan National Bank; Executive
Vice President of Michigan National Bank. 1996(1)
Ronald C. Yee, 46 Director of Wayne County Employees' Retirement
System, Executive Secretary to the Wayne County
Employees Retirement System. 1991(2)(3)
Thomas Zdrodowski, 58 Administrative Supervisor, Policemen & Firemen
Retirement System of the City of Detroit, since
1988. 1996
<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>
14
<PAGE>
Executive Officers
The table below sets forth certain information concerning the Company's
executive officers.
============================================================================
Name Age Office Time in Office**
- ---- --- ------ ----------------
Richard P. Kughn* 69 Chairman of the Board Since July 1989
Harold Smith* 58 Vice Chairman of the Board Since December 1996
Robert G. Jackson* 66 President Since December 1996
Robert J. Lee 52 Secretary Since December 1996
Mark Schmid* 39 Treasurer Since December 1997
Ronald C. Yee 46 Vice President Since July 1997
============================================================================
* 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.
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 $8,126
in 1998. 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 1998, 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, 1998.
15
<PAGE>
CLASS A MEMBERSHIP INTERESTS
- ----------------------------------------------------------------------------
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
============================================================================
Daimler Chrysler Corporation Master Retirement Trust
1000 Chrysler Drive (1) 18.20%
Auburn Hills, MI 48326
- ----------------------------------------------------------------------------
Ford Motor Company
Ford Motor Company World Headquarters (1) 17.64%
The American Road
Dearborn, MI 48121
- ----------------------------------------------------------------------------
Operating Engineers Local 324 Pension Fund
37450 Schoolcraft, Suite 110 (1) 11.53%
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
- ----------------------------------------------------------------------------
(1) Reflects Class A Membership Interests held of record or beneficially as
to which the named beneficial owner exercises sole voting and investment
power.
16
<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, 1998.
CLASS B MEMBERSHIP INTERESTS
- ----------------------------------------------------------------------------
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
============================================================================
Daimler Chrysler Corporation Master Retirement Trust
1000 Chrysler Drive (1) 22.12%
Auburn Hills, MI 48326
- ---------------------------------------------------------------------------
Michigan National Corporation
27777 Inkster Road (1) 22.12%
Farmington Hills, MI 48333-9065
- ---------------------------------------------------------------------------
Blue Cross and Blue Shield of Michigan
600 East Lafayette #2105 (1) 22.12%
Detroit, MI 48226
- ---------------------------------------------------------------------------
Policemen & Firemen Retirement System of the City of Detroit
908 City County Building (1) 22.12%
Detroit, MI 48226
- ---------------------------------------------------------------------------
Operating Engineers Local 324 Pension Fund
37450 Schoolcraft, Suite 110 (1) 11.06%
Livonia, MI 48150
- ---------------------------------------------------------------------------
(1) Reflects Class B Membership Interests held of record or beneficially
as to which the named beneficial owner exercises sole voting and
investment power.
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.
17
<PAGE>
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 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 $8,126
in 1998. No cash or other compensation was paid to any other executive
officer of the Company for services performed during 1998, 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 $92,887 were earned by the Bank in 1998 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 mortgage loan was paid in 1998.
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 $83,517 for the year ended December
31, 1998 of which $47,082 related to costs associated with the underwriting
of loans and paid by the borrower.
18
<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.
19
<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 29, 1999
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
20
<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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert G. Jackson Attorney-in-Fact March 29, 1999
- ---------------------------------------
*
* Managing Board Member March 29, 1999
- ---------------------------------------
Mark R. Bartlett
* Managing Board Member March 29, 1999
- ---------------------------------------
Daniel L. Boone
* Managing Board Member March 29, 1999
- ---------------------------------------
Nicholas H. Degel
* Managing Board Member March 29, 1999
- ---------------------------------------
David M. Diegel
* Managing Board Member March 29, 1999
- ---------------------------------------
Wayne S. Doran
* Managing Board Member March 29, 1999
- ---------------------------------------
Douglas E. Ebert
* Managing Board Member March 29, 1999
- ---------------------------------------
Mark Schmid
* Managing Board Member March 29, 1999
- ---------------------------------------
David B. Hanson
* Managing Board Member March 29, 1999
- ---------------------------------------
Jeffrey A. Heldt
* Managing Board Member March 29, 1999
- ---------------------------------------
Kenneth L. Hollowell
* Managing Board Member March 29, 1999
- ---------------------------------------
Robert G. Jackson
* Managing Board Member March 29, 1999
- ---------------------------------------
Richard P. Kughn
21
<PAGE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Managing Board Member March 29, 1999
- ---------------------------------------
Robert J. Lee
* Managing Board Member March 29, 1999
- ---------------------------------------
F. Thomas Lewand
* Managing Board Member March 29, 1999
- ---------------------------------------
Ernest Lofton
* Managing Board Member March 29, 1999
- ---------------------------------------
Robert H. Naftaly
* Managing Board Member March 29, 1999
- ---------------------------------------
Michael Nevin
* Managing Board Member March 29, 1999
- ---------------------------------------
Harold Smith
* Managing Board Member March 29, 1999
- ---------------------------------------
Frank D. Stella
* Managing Board Member March 29, 1999
- ---------------------------------------
Marc Stepp
* Managing Board Member March 29, 1999
- ---------------------------------------
R. Douglas Trezise
* Managing Board Member March 29, 1999
- ---------------------------------------
Richard C. Webb
* Managing Board Member March 29, 1999
- ---------------------------------------
Ronald C. Yee
* Managing Board Member March 29, 1999
- ---------------------------------------
Thomas Zdrodowski
</TABLE>
22
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Contents
Report Letters F-2 - F-3
Financial Statements
Balance Sheet F-4
Statement of Income 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-23
F-1
<PAGE>
[ Letterhead of Plante & Moran, LLP ]
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 Metropolitan Realty
Company, L.L.C. as of December 31, 1998 and 1997 and the related statements
of income, changes in members'/stockholders' equity and cash flows for the
years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998 and 1997 and the results of its operations and
its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Plante & Moran, LLP
Bloomfield Hills, Michigan
February 23, 1999
F-2
<PAGE>
[letterhead]
PricewaterhouseCoopers[logo]
- ------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
400 Renaissance Center
Detroit, MI 48243-1507
Telephone (313) 446-7100
Facsimile (313) 446-7117
Report of Independent Accountants
To the Managing Board and Member Managers
Metropolitan Realty Company, L.L.C.:
In our opinion, the accompanying statements of income, changes in members'/
stockholders' equity and cash flows present fairly, in all material respects,
the results of operations and cash flows of Metropolitan Realty Company,
L.L.C. for the year ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
March 24, 1997
F-3
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Balance Sheet
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------------
1998 1997
------------------------------------------ -----------------------------------------
Class A Class B Class A Class B
Member Member Member Member
Interest Interest Total Interest Interest Total
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 1,220,639 $ 77,768 $ 1,298,407 $ 3,782,819 $ 1,541,231 $ 5,324,050
Investment securities 13,180,734 13,259,989 26,440,723 13,121,617 20,984,251 34,105,868
Mortgage notes receivable:
Unaffiliated 25,476,755 13,842,481 39,319,236 23,801,098 -- 23,801,098
Affiliated -- -- -- 4,141,997 -- 4,141,997
Allowance for loan losses (1,134,305) (139,421) (1,273,726) (1,384,837) -- (1,384,837)
------------ ------------ ------------ ------------ ------------ ------------
Total mortgage notes receivable 24,342,450 13,703,060 38,045,510 26,558,258 -- 26,558,258
Accrued interest and other receivables 183,216 90,708 273,924 325,874 94,396 420,270
Other assets 62,339 -- 62,339 11,132 356,638 367,770
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 38,989,378 $ 27,131,525 $ 66,120,903 $ 43,799,700 $ 22,976,516 $ 66,776,216
============ ============ ============ ============ ============ ============
Liabilities and Members' Equity
Liabilities
Accounts payable $ 59,382 $ 8,267 $ 67,649 $ 106,547 $ 14,130 $ 120,677
Due to (from) (4,440,146) 4,440,146 -- 42,028 (42,028) --
Deferred income -- -- -- 22,500 45,000 67,500
Deposits from borrowers for
property taxes 32,571 -- 32,571 114,431 -- 114,431
Other 1,553 -- 1,553 883 -- 883
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities (4,346,640) 4,448,413 101,773 286,389 17,102 303,491
Members' Equity
Class A members' equity 43,286,346 -- 43,286,346 43,564,552 -- 43,564,552
Class B members' equity -- 22,599,953 22,599,953 -- 22,936,275 22,936,275
Accumulated other comprehensive
income (loss) (Note 2) 49,672 83,159 132,831 (51,241) 23,139 (28,102)
------------ ------------ ------------ ------------ ------------ ------------
Total members' equity 43,336,018 22,683,112 66,019,130 43,513,311 22,959,414 66,472,725
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
members' equity $ 38,989,378 $ 27,131,525 $ 66,120,903 $ 43,799,700 $ 22,976,516 $ 66,776,216
============ ============ ============ ============ ============ ============
<FN>
See Notes to Financial Statements.
</TABLE>
F-4
<PAGE>
Metropolitan Realty Company, L.L.C.
=============================================================================
Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------------
1998 1997
-------------------------------------- -------------------------------------
Class A Class B Class A Class B
Member Member Member Member
Interest Interest Total Interest Interest Total
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue
Interest income:
From mortgage notes, unaffiliated $ 2,306,890 $ 361,131 $ 2,668,021 $ 2,615,038 $ -- $ 2,615,038
From mortgage notes, affiliated 104,841 -- 104,841 385,097 -- 385,097
Investment income 1,159,874 1,186,771 2,346,645 1,054,563 1,398,505 2,453,068
Miscellaneous income 127,654 12,925 140,579 241,501 5,667 247,168
----------- ----------- ----------- ----------- ------- -----------
Total revenue 3,699,259 1,560,827 5,260,086 4,296,199 1,404,172 5,700,371
Operating Expenses
General and administrative 242,090 97,599 339,689 483,695 40,634 524,329
Amortization of organization costs -- -- -- -- 84,631 84,631
Provision for loan losses -- 139,421 139,421 -- -- --
----------- ----------- ----------- ----------- ------- -----------
Total operating expenses 242,090 237,020 479,110 483,695 125,265 608,960
----------- ----------- ----------- ----------- ------- -----------
Net Investment Income - Before cumulative
effect of change in accounting principle 3,457,169 1,323,807 4,780,976 3,812,504 1,278,907 5,091,411
Cumulative Effect of Change in Accounting
Principle (Note 2) -- (356,638) (356,638) -- -- --
----------- ----------- ----------- ----------- ------- -----------
Net Investment Income $ 3,457,169 $ 967,169 $ 4,424,338 $ 3,812,504 $ 1,278,907 $ 5,091,411
=========== =========== =========== =========== =========== ===========
<CAPTION>
Year Ended December 31
---------------------------------------
1996
---------------------------------------
Class A Class B
Member Member
Interest Interest Total
-------- -------- -----
<S> <C> <C> <C>
Revenue
Interest income:
From mortgage notes, unaffiliated $ 2,407,234 $ -- $ 2,407,234
From mortgage notes, affiliated 389,732 -- 389,732
Investment income 1,020,763 74,178 1,094,941
Miscellaneous income 107,671 -- 107,671
----------- ----------- -----------
Total revenue 3,925,400 74,178 3,999,578
Operating Expenses
General and administrative 552,141 -- 552,141
Amortization of organization costs -- 5,585 5,585
Provision for loan losses -- -- --
----------- ----------- -----------
Total operating expenses 552,141 5,585 557,726
----------- ----------- -----------
Net Investment Income - Before cumulative
effect of change in accounting principle 3,373,259 68,593 3,441,852
Cumulative Effect of Change in Accounting
Principle (Note 2) -- -- --
----------- ----------- -----------
Net Investment Income $ 3,373,259 $ 68,593 $ 3,441,852
=========== =========== ===========
<FN>
See Notes to Financial Statements.
</TABLE>
F-5
<PAGE>
Metropolitan Realty Company, L.L.C.
- -----------------------------------------------------------------------------
Statement of Changes in Members'/Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
------------------------- Paid-in Comprehensive
Shares Amount Capital Income
--------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1995 4,532,169 $ 45,322 $ 43,355,529 $ 47,690
Comprehensive income (Note 2):
Net investment income - January 1, 1996
through December 6, 1996 -- -- -- --
Change in unrealized holding losses on
investment securities - January 1, 1996
through December 6, 1996 -- -- -- (58,498)
Total comprehensive income
Cash dividend of $.11 per share -- -- -- --
Declared payment in dissolution with respect
to minority stockholders (Note 1) (214,948) (2,149) (1,938,831) --
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
---------- ------------ ------------ ------------
Balance - December 6, 1996 -- -- -- --
Contributions - Class B -- -- -- --
Comprehensive income (Note 2):
Net investment income - December 7, 1996
through December 31, 1996 -- -- -- --
Change in unrealized holding losses on
investment securities - December 7, 1996
through December 31, 1996 -- -- -- (39,758)
Total comprehensive income -- -- -- --
---------- ------------ ------------ ------------
<CAPTION>
Total
Distributions of Members' Equity Members'/
Net Investment ----------------------------- Stockholders'
Income Class A Class B Equity
---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance - December 31, 1995 $ (2,115,214) $ -- $ -- $ 41,333,327
Comprehensive income (Note 2):
Net investment income - January 1, 1996
through December 6, 1996 3,095,396 -- -- 3,095,396
Change in unrealized holding losses on
investment securities - January 1, 1996
through December 6, 1996 -- -- -- (58,498)
------------
Total comprehensive income 3,036,898
Cash dividend of $.11 per share (498,539) -- -- (498,539)
Declared payment in dissolution with respect
to minority stockholders (Note 1) -- -- -- (1,940,980)
Distribution of Class A membership interests
in dissolution with respect to majority
stockholders (Note 1) (481,643) 41,930,706 -- --
------------ ------------ ------------ ------------
Balance - December 6, 1996 -- 41,930,706 -- 41,930,706
Contributions - Class B -- -- 22,500,000 22,500,000
Comprehensive income (Note 2):
Net investment income - December 7, 1996
through December 31, 1996 -- 277,863 68,593 346,456
Change in unrealized holding losses on
investment securities - December 7, 1996
through December 31, 1996 -- -- -- (39,758)
------------
Total comprehensive income -- -- -- 306,698
------------ ------------ ------------ ------------
<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>
Accumulated
Common Stock Additional Other
------------------------- Paid-in Comprehensive
Shares Amount Capital Income
--------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 (carried forward
from p. F-6) -- $ -- $ -- $ (39,758)
Comprehensive income (Note 2):
Net investment income -- -- -- --
Change in unrealized holding gains on
investment securities -- -- -- 11,656
Total comprehensive income
Transfer of member interest (Note 1) -- -- -- --
Distributions -- -- -- --
---------- ------------ ------------ ------------
Balance - December 31, 1997 -- -- -- (28,102)
Comprehensive income (Note 2):
Net investment income -- -- -- --
Change in unrealized holding gains on
investment securities -- -- -- 160,933
Total comprehensive income
Distributions -- -- -- --
---------- ------------ ------------ ------------
Balance - December 31, 1998 -- $ -- $ -- $ 132,831
========== ============ ============ ============
<CAPTION>
Total
Distributions of Members' Equity Members'/
Net Investment ----------------------------- Stockholders'
Income Class A Class B Equity
---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 (carried forward
from p. F-6) $ -- $ 42,208,569 $ 22,568,593 $ 64,737,404
Comprehensive income (Note 2):
Net investment income -- 3,812,504 1,278,907 5,091,411
Change in unrealized holding gains on
investment securities -- -- -- 11,656
------------
Total comprehensive income 5,103,067
Transfer of member interest (Note 1) -- 81,688 -- 81,688
Distributions -- (2,538,209) (911,225) (3,449,434)
------------ ------------ ------------ ------------
Balance - December 31, 1997 -- 43,564,552 22,936,275 66,472,725
Comprehensive income (Note 2):
Net investment income -- 3,457,169 967,169 4,424,338
Change in unrealized holding gains on
investment securities -- -- -- 160,933
------------
Total comprehensive income 4,585,271
Distributions -- (3,735,375) (1,303,491) (5,038,866)
------------ ------------ ------------ ------------
Balance - December 31, 1998 $ -- $ 43,286,346 $ 22,599,953 $ 66,019,130
============ ============ ============ ============
<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
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net investment income $ 4,424,338 $ 5,091,411 $ 3,441,852
Adjustments to reconcile net investment income to net
cash from operating activities:
Depreciation and amortization expense 2,435 86,815 8,538
Provision for loan losses 139,421 -- --
Change in accounting principle 356,638 -- --
(Gain) loss on sale of investment securities (17,578) (81,581) 33,208
(Increase) decrease in assets:
Accrued interest and other receivables 146,346 (89,715) (47,935)
Other assets (53,642) (22,664) (95,097)
Increase (decrease) in liabilities:
Accounts payable (53,028) 1,667 (20,311)
Other liabilities (148,690) (96,065) (3,763)
------------ ------------ ------------
Total adjustments 371,902 (201,543) (125,360)
------------ ------------ ------------
Net cash provided by operating
activities 4,796,240 4,889,868 3,316,492
Cash Flows from Investing Activities
Purchases of investment securities (19,622,951) (43,305,484) (8,039,531)
Collections of principal from investment securities 27,466,607 23,954,279 6,573,374
Loan disbursements (28,050,015) (7,076,681) (3,355,137)
Loan repayments 16,423,342 8,799,689 418,799
Capital expenditures -- (4,363) --
------------ ------------ ------------
Net cash used in investing activities (3,783,017) (17,632,560) (4,402,495)
Cash Flows from Financing Activities
Members' equity contributions -- -- 22,500,000
Payment to minority stockholders -- (1,845,503)
Distributions paid to members (5,038,866) (3,449,434) --
Dividends paid to stockholders -- -- (498,539)
------------ ------------ ------------
Net cash provided by (used in)
financing activities (5,038,866) (5,294,937) 22,001,461
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (4,025,643) (18,037,629) 20,915,458
Cash and Cash Equivalents - Beginning of year 5,324,050 23,361,679 2,446,221
------------ ------------ ------------
Cash and Cash Equivalents - End of year $ 1,298,407 $ 5,324,050 $ 23,361,679
============ ============ ============
<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
See Notes to Financial Statements.
</TABLE>
F-8
<PAGE>
Metropolitan Realty Company, L.L.C.
- -----------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1998, 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) received, upon surrender of
their shares, a cash payment in lieu of Class A membership
interests in the Company. 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, 1998, 42 percent of the Company's
total mortgage loan portfolio is invested 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. Assets that
have not yet been invested in mortgage loans are invested in
short-term investments and investment securities until the
proceeds are invested in real estate loans.
F-9
<PAGE>
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 $17,578, $81,581 and
($33,208) for the years ended December 31, 1998, 1997 and
1996, 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, 1998 and 1997.
F-10
<PAGE>
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>
Note 2 - Accounting Policies (Continued)
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 Comprehensive Income - The Company adopted SFAS No. 130,
Reporting Comprehensive Income, as of January 1, 1998.
Accounting principles generally require that recognized
income, expenses, gains and losses be included in net
investment income. Certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component in the
members' equity section of the balance sheet. Such items,
along with net investment income, are components of
comprehensive income. The adoption of SFAS No. 130 had no
effect on the Company's net investment income or members'
equity.
Accumulated other comprehensive income at December 31, 1998
and 1997 is comprised solely of unrealized gains on
available-for-sale securities.
F-12
<PAGE>
Note 2 - Accounting Policies (Continued)
Accounting Change - In the fourth quarter of the year ended
December 31, 1998, the Company adopted Statement of Position
(SOP) 98-5, Reporting on the Costs of Start-up Activities.
Under this SOP, the costs of start-up activities, including
previously capitalized organization costs, should be charged
to expense. The adoption of this SOP resulted in the Company
recording a charge of $356,638 for the cumulative effect of
the change. As a result of the change, income before the
cumulative effect of the change was increased by $89,370.
Other - Certain prior year accounts have been reclassified to
conform with current year presentations.
Note 3 - Investment Securities
Investment securities at December 31, 1998 and 1997 consisted
of the following:
<TABLE>
<CAPTION>
1998
------------------------------------------------------
Pool A Pool B
-------------------------- --------------------------
Cost Market Value Cost Market Value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ -- $ -- $ 2,172,583 $ 2,191,528
Mutual funds 13,131,062 13,180,734 11,004,247 11,068,461
----------- ----------- ----------- -----------
Total $13,131,062 $13,180,734 $13,176,830 $13,259,989
=========== =========== =========== ===========
<CAPTION>
1997
------------------------------------------------------
Pool A Pool B
-------------------------- --------------------------
Cost Market Value Cost Market Value
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 3,600,686 $ 3,616,598 $ 5,757,539 $ 5,776,085
Mutual funds 5,049,658 5,044,747 14,978,402 14,979,346
Mortgage-backed securities:
Federal National
Mortgage Association
pass-through 4,507,263 4,444,656 225,171 228,820
Federal Home
Loan Mortgage
Corporation
pass-through 15,251 15,616 -- --
----------- ----------- ----------- -----------
Total $13,172,858 $13,121,617 $20,961,112 $20,984,251
=========== =========== =========== ===========
</TABLE>
The U.S. Treasury notes have scheduled maturities that range
from May 1999 to May 2000. Interest rates on U.S. Treasury
notes range from 5.5 percent to 6.375 percent at December 31,
1998.
F-13
<PAGE>
Metropolitan Realty Company, L.L.C.
- -----------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1998, 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>
Interest Final Maturity
Description Rate Date Periodic Payment Terms
----------- -------- -------------- ----------------------
<S> <C> <C> <C>
Parking garage in Detroit, 9.09% December 2000 Monthly payments of principal and interest of $35,494. This note
Michigan was paid in 1998.
Day care center located in 10.50% December 2000 Monthly payments in varying installments of principal and
Plymouth, Michigan interest until maturity, at which time the remaining unpaid
principal balance of approximately $908,000 is due
Rehabilitation of historic 9.26% April 2000 Monthly payments in varying installments of principal and
office building located in interest until maturity. This note was paid in 1998.
Detroit, Michigan
Retail tire center located 7.25% October 2000 Monthly payments in varying installments of principal and
in Woodhaven, Michigan interest until maturity, at which time the remaining unpaid
principal balance of approximately $630,000 is due
Retail tire center located 6.75% February 2001 Monthly payments in varying installments of principal and
in Sterling Heights, Michigan interest until maturity, at which time the remaining unpaid
principal balance of approximately $671,000 is due
Office building located in 10.25% April 2003 Monthly payments of varying installments of principal and
Detroit, Michigan interest until maturity, at which time the remaining unpaid
principal balance of approximately $1,695,000 is due
Renovation of a 54-unit 9.25% September 2000 Monthly payments of principal and interest of $5,800 until
building located in Detroit, maturity, at which time the remaining unpaid principal balance of
Michigan approximately $557,000 is due
<CAPTION>
Carrying Amount of
Mortgage at December 31
Face Amount of ----------------------------
Description Mortgage 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Parking garage in Detroit, $4,376,000 $ -- $4,141,997
Michigan
Day care center located in 960,000 922,515 929,319
Plymouth, Michigan
Rehabilitation of historic 1,900,000 -- 1,751,816
office building located in
Detroit, Michigan
Retail tire center located 695,000 644,182 653,321
in Woodhaven, Michigan
Retail tire center located 750,000 691,181 701,701
in Sterling Heights, Michigan
Office building located in 1,800,000 2,125,956 1,732,934
Detroit, Michigan
Renovation of a 54-unit 728,000 581,268 593,393
building located in Detroit,
Michigan
</TABLE>
F-14
<PAGE>
Note 4 - Mortgage Notes Receivable (Continued)
<TABLE>
<CAPTION>
Interest Final Maturity
Description Rate Date Periodic Payment Terms
----------- -------- -------------- ----------------------
<S> <C> <C> <C>
Renovation of an office Prime July 2008 Monthly payments in varying installments of principal and
building located in Detroit, rate plus interest until maturity. This note was paid in 1998.
Michigan 1%
Shopping center located in 9.3752% January 2000 Monthly payments of principal and interest of $18,298 until
Sterling Heights, Michigan maturity, at which time the remaining unpaid principal balance of
approximately $2,028,000 is due
Rehabilitation of a shopping 11.25% October 2000 Monthly payments of principal and interest of $16,471 until
center located in Detroit, maturity. This note was paid in 1998.
Michigan
Rehabilitation of a shopping 11.25% October 2000 Monthly payments of principal and interest of $21,961 until
center located in Detroit, maturity. This note was paid in 1998.
Michigan
Shopping center located in 9.00% November 2008 Monthly interest payment of $21,375 until maturity. This note
Detroit, Michigan was converted to a permanent loan in March 1998.
24-unit building located in 10.25% January 2001 Monthly payments in varying installments of principal and
Detroit, Michigan interest until maturity, at which time the remaining unpaid
principal balance of approximately $241,000 is due
205-unit high-rise apartment 10.00% August 2000 Monthly payments in varying installments of principal and
building located in Detroit, interest until maturity. This note was paid in 1998.
Michigan
<CAPTION>
Carrying Amount of
Mortgage at December 31
Face Amount of ----------------------------
Description Mortgage 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Renovation of an office $1,855,000 $ -- $1,641,113
building located in Detroit,
Michigan
Shopping center located in 2,200,000 2,053,579 2,074,403
Sterling Heights, Michigan
Rehabilitation of a shopping 1,650,000 -- 1,542,300
center located in Detroit,
Michigan
Rehabilitation of a shopping 2,200,000 -- 2,056,401
center located in Detroit,
Michigan
Shopping center located in 2,850,000 2,778,677 2,793,000
Detroit, Michigan
24-unit building located in 275,000 249,147 252,678
Detroit, Michigan
205-unit high-rise apartment 455,000 -- 422,336
building located in Detroit,
Michigan
</TABLE>
F-15
<PAGE>
Note 4 - Mortgage Notes Receivable (Continued)
<TABLE>
<CAPTION>
Interest Final Maturity
Description Rate Date Periodic Payment Terms
----------- -------- -------------- ----------------------
<S> <C> <C> <C>
Renovation of a 75-unit 8.0% August 2000 Monthly payments of interest only through April 1994 and varying
building located in Detroit, and installments of principal and interest from May 1995 until
Michigan 9.5% maturity. This note was paid in 1998.
Land acquisition and 10.25% March 2000 Monthly payments of interest only on the outstanding principal
development of 210 balance
residential lots located in
Ann Arbor, Michigan
Shopping center located in Prime March 2009 Construction loan with monthly payments of interest at the
Taylor, Michigan rate plus variable rate through March 1999. At the end of the
1.0% and construction period, monthly payments of principal and interest
7.31% at the fixed rate until maturity
Shopping center located in 7.30% February 2021 Monthly payments of interest only through February1999 and
Brownstown, Michigan monthly payments of principal and interest of $69,700 from March
1999 until maturity, at which time the remaining
unpaid principal balance of approximately $2,303,000 is due
Office building located in 7.09% October 2009 Monthly payments of principal and interest of $28,836 until
Troy, Michigan maturity, at which time the remaining unpaid principal balance
of approximately $2,638,000 is due
<CAPTION>
Carrying Amount of
Mortgage at December 31
Face Amount of ----------------------------
Description Mortgage 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Renovation of a 75-unit $1,260,000 $ -- $1,001,113
building located in Detroit,
Michigan
Land acquisition and 6,500,000 4,665,099 5,655,270
development of 210
residential lots located in
Ann Arbor, Michigan
Shopping center located in 2,325,000 1,763,102 --
Taylor, Michigan
Shopping center located in 9,600,000 2,632,271 --
Brownstown, Michigan
Office building located in 3,850,000 3,843,912 --
Troy, Michigan
</TABLE>
F-16
<PAGE>
Note 4 - Mortgage Notes Receivable (Continued)
<TABLE>
<CAPTION>
Interest Final Maturity
Description Rate Date Periodic Payment Terms
----------- -------- -------------- ----------------------
<S> <C> <C> <C>
Movie theater complex 2.0% October 1999 Construction loan with monthly payments of interest only through
located in Ann Arbor, over the maturity, at which time the remaining unpaid principal balance
Michigan LIBOR is due
Light industrial building 7.08% July 2009 Monthly payments of principal and interest of $83,380 until
located in Detroit, Michigan maturity, at which time the remaining unpaid principal balance
of approximately $7,358,000 is due
Light industrial building 7.13% October 2008 Monthly payments of principal and interest of $9,296 until
located in Plymouth, Michigan maturity, at which time the remaining unpaid principal balance
of approximately $1,026,000 is due
Warehouse located in Warren, 2.0% September 1999 Construction loan with monthly payments of interest only through
Michigan over the maturity, at which time the remaining unpaid principal balance
LIBOR is due
<CAPTION>
Carrying Amount of
Mortgage at December 31
Face Amount of -----------------------------
Description Mortgage 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Movie theater complex $4,100,000 $ 1,390,083 $ --
located in Ann Arbor,
Michigan
Light industrial building 10,831,500 10,831,500 --
located in Detroit, Michigan
Light industrial building 1,300,000 1,298,428 --
located in Plymouth, Michigan
Warehouse located in Warren, 5,800,000 2,848,336 --
Michigan
Total mortgage notes
receivable $39,319,236 $27,943,095
Allowance for doubtful
accounts (1,273,726) (1,384,837)
----------- -----------
Net mortgage notes
receivable $38,045,510 $26,558,258
=========== ===========
</TABLE>
F-17
<PAGE>
Note 4 - Mortgage Notes Receivable (Continued)
Aggregate, contractual annual maturities of mortgage notes
receivable principal are as follows:
1999 $ 5,361,405
2000 4,095,326
2001 2,716,644
2002 967,661
2003 1,040,427
Thereafter 25,422,659
------------
Total mortgage notes 39,604,122
Less unamortized net loan
origination fees 284,886
------------
Net mortgage notes $ 39,319,236
============
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 amount of mortgage notes
receivable for the years ended December 31, 1998, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Mortgage Notes Receivable
<S> <C> <C> <C>
Balance - Beginning of year $ 27,943,095 $ 29,881,266 $ 26,964,328
Additions:
New mortgage loans 28,050,015 7,076,681 3,355,137
Amortization of net loan origination
fees 96,438 53,328 55,619
------------ ------------ ------------
Total additions 28,146,453 7,130,009 3,410,756
Deductions:
Collections of principal (16,361,180) (8,820,517) (436,818)
Charge-offs (250,532) (215,163) --
Loan origination fees received (158,600) (32,500) (57,000)
------------ ------------ ------------
Total deductions (16,770,312) (9,068,180) (493,818)
------------ ------------ ------------
Balance - End of year $ 39,319,236 $ 27,943,095 $ 29,881,266
============ ============ ============
</TABLE>
F-18
<PAGE>
Note 4 - Mortgage Notes Receivable (Continued)
1998 1997 1996
---- ---- ----
Allowance for Loan Losses
Balance - Beginning of year $(1,384,837) $(1,600,000) $(1,600,000)
Charge-offs 250,532 215,163 --
Provision for loan losses (139,421) -- --
----------- ----------- -----------
Balance - End of year $(1,273,726) $(1,384,837) $(1,600,000)
=========== =========== ===========
Note 5 - Impaired Loans
At December 31, 1998 and 1997, the total recorded investment
in impaired loans, as defined by SFAS 114, was $0. The average
recorded investment in impaired loans was approximately
$2,082,000 and interest income was $201,000 for the year ended
December 31, 1997. All impaired loans were classified as
earning loans during 1998 and 1997, with interest income
recognized on an accrual basis.
Note 6 - Fair Values of Financial Instruments
The estimated fair values of financial instruments held by the
Company at December 31, 1998 and 1997, and the valuation
techniques used to estimate the fair values, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,298,407 $ 1,298,407 $ 5,324,050 $ 5,324,050
Investment securities 26,440,723 26,440,723 34,105,868 34,105,868
Mortgage notes receivable 38,045,510 38,621,821 26,558,258 28,022,286
Accrued interest and other
receivables 273,924 273,924 420,270 420,270
Accounts payable 67,649 67,649 120,677 120,677
</TABLE>
The terms and short-term nature of certain assets and
liabilities result in their carrying amounts 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 values of the remaining classes of financial
instruments:
F-19
<PAGE>
Note 6 - Fair Values of Financial Instruments (Continued)
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 for the year ended December 31, 1996 is
reconciled as follows:
<TABLE>
<S> <C>
Investment income before income tax on undistributed earnings $ 3,441,852
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)
Provision for valuation allowances - Net --
Realized loss on sale of foreclosed property --
Dividend deductions:
From regular distributions (453,217)
From liquidating distribution (2,595,903)
Other - Net (22,253)
-----------
Taxable investment income $ --
===========
</TABLE>
F-20
<PAGE>
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 $36,435, $32,547 and $95,277 for the years ended
December 31, 1998, 1997 and 1996, respectively, of which
$14,313 of the fees earned in 1996 relate to the
restructuring of the Company and new offering discussed in
Note 1. Accrued legal fees of $2,819 and $12,663 are
included in accounts payable in the accompanying balance
sheet at December 31, 1998 and 1997, respectively.
o Fees aggregating $92,887, $66,687 and $22,951 for the
years ended December 31, 1998, 1997 and 1996,
respectively, were earned by a member manager of the
Company for providing various investment and other
services to the Company. Accrued fees of $17,320 and
$24,046 are included in accounts payable in the
accompanying balance sheet at December 31, 1998 and 1997,
respectively.
o Consulting fees under a contractual agreement aggregating
$8,126, $18,375 and $46,746 were earned by officers of the
Company in 1998, 1997 and 1996, respectively.
o One of the Company's Managing Board members is the vice
president of an entity that has a mortgage note with the
Company. The carrying amount of the mortgage note
receivable totaled $0 and $4,141,997 at December 31, 1998
and 1997, respectively, and earned the Company $104,841,
$385,097 and $389,732 during the years ended December 31,
1998, 1997 and 1996, respectively.
Note 9 - Commitments
The Company is party to loan commitments and 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.
F-21
<PAGE>
Note 9 - Commitments (Continued)
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, 1998, the Company had outstanding
loan commitments aggregating $14,900,000.
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.
Note 10 - Interim Financial Information (Unaudited)
Net
Net Investment
Total Investment Income per
Quarters Ended Revenue Income Share
- -------------- ------- ---------- ----------
Fiscal 1998
- -----------
December 31 $1,387,000 $ 885,000 $ N/A
September 30 1,227,000 1,107,000 N/A
June 30 1,298,000 1,214,000 N/A
March 31 1,348,000 1,218,000 N/A
---------- ----------
Total $5,260,000 $4,424,000
========== ==========
Fiscal 1997
- -----------
December 31 $1,595,000 $1,435,000 N/A
September 30 1,367,000 1,215,000 N/A
June 30 1,321,000 1,202,000 N/A
March 31 1,417,000 1,239,000 N/A
---------- ----------
Total $5,700,000 $5,091,000
========== ==========
F-22
<PAGE>
Note 10 - Interim Financial Information (Unaudited) (Continued)
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-23
<PAGE>
Metropolitan Realty Company, L.L.C.
- -----------------------------------------------------------------------------
Schedule of Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Incorporated Herein by Filed Page Number
No. Description Reference to Herewith Herein
- ------- ----------- ---------------------- -------- -----------
<S> <C> <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 S-4,
Metropolitan Realty Company, L.L.C. File No. 033-99694
10.1 Investment Management Service Exhibit 10.2 to Metropolitan Realty
Agreement dated February 15, 1989 Corporation's Annual Report on Form
between the Company's predecessor in 10-K for the fiscal year ended
interest, Metropolitan Realty December 31, 1988, Commission File
Corporation, and NBD Bank, N.A. No. 1-9450
(formerly National Bank of Detroit)
10.2 Buhl Building lease dated April 25, Exhibit 10.4 to Metropolitan Realty
1991 between the Company's Corporation's Annual Report on Form
predecessor in interest, Metropolitan 10-K for the fiscal year ended
Realty Corporation, and Buhl Realty December 31, 1991, Commission File
Company No. 1-9450
10.3 First lease amendment to Buhl Exhibit 10.6 to Metropolitan Realty
Building lease dated May 14, 1992 Corporation's Annual Report on Form
between the Company and Buhl Realty 10-K for the fiscal year ended
Company December 31, 1992, Commission File
No. 1-9450
10.4 Second lease amendment to Buhl Exhibit 10.8 to Metropolitan Realty
Building lease dated May 14, 1992 Corporation's Annual Report on Form
between the Company and Buhl Realty 10-K for the fiscal year ended
Company December 31, 1993, Commission File
No. 1-9450
16 Letter dated December 5, 1997 from Exhibit 16 to Metropolitan Realty
Cooper's & Lybrand, L.L.P. regarding Company's current report on
change in certifying accountant Form 8-K for the fiscal year ended
December 5, 1997, Commission File
No. 33-99694
24 Powers of Attorney X E-2
</TABLE>
[ POWERS OF ATTORNEY DOCUMENT TO COME ]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> $ 1,298
<SECURITIES> 26,441
<RECEIVABLES> 39,319
<ALLOWANCES> (1,274)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40
<DEPRECIATION> (36)
<TOTAL-ASSETS> 66,121
<CURRENT-LIABILITIES> 102
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 66,019
<TOTAL-LIABILITY-AND-EQUITY> 66,121
<SALES> 0
<TOTAL-REVENUES> 5,260
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 340
<LOSS-PROVISION> 139
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,781
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (357)
<NET-INCOME> 4,424
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
