UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission File Number 0-21849
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
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METROPOLIS REALTY TRUST, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 13-3910684
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
c/o Victor Capital Group, L.P.
885 Third Avenue
12th Floor
New York, New York 10022
(Address of principal executive offices, including zip code)
(212) 593-5400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Title of Class
Class A Common Stock, par value $10.00 per share
Class B Common Stock, par value $10.00 per share
Class C Common Stock, par value $10.00 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x/] No [ ]
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The Common Stock is not listed on any exchange, the Company does not intend to
list the Common Stock on any exchange in the near term, there is not currently a
public market for the Common Stock and there can be no assurance that an active
trading market for the Common Stock will develop or be sustained.
As of May 9, 1997, there were 12,963,046 shares of the Company's Common Stock
issued and outstanding.
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METROPOLIS REALTY TRUST, INC.
INDEX PAGE
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PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying unaudited, interim financial statements have been prepared
in accordance with the instructions to Form 10-Q. In the opinion of
management, all adjustments necessary for a fair presentation have been
included.
Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996 1
Statement of Operations for the quarter ended
March 31, 1997 (unaudited) 2
Statement of Cash Flows for the quarter ended
March 31, 1997 (unaudited) 3
Notes to Financial Statements (unaudited) 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES S-1
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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MARCH 31, 1997 DECEMBER 31,
(Unaudited) 1996
---------- ------------
ASSETS
Rental property - net of accumulated depreciation of $652,685 $655,755
$6,239 and $2,958, respectively
Cash and cash equivalents 42,276 42,215
Escrow deposits 14,960 9,217
Tenants' security deposits 608 594
Due from tenants - net of allowance for doubtful accounts 3,227 3,952
of $2,745 and $2,745, respectively
Deferred financing costs - net of amortization of 9,885 10,432
$1,040 and $493, respectively
Real estate tax refunds 14,088 14,088
Notes receivable - net of unamortized discount of 8,953 8,904
$583 and $636, respectively
Deferred rent receivable 13,663 6,576
Prepaid real estate taxes 6,604 13,208
Other assets 955 1,278
-------- ----------
TOTAL ASSETS $767,904 $ 766,219
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Secured notes $420,000 $ 420,000
Accounts payable and accrued expenses 15,386 16,421
Tenants' security deposits and unearned revenue 2,020 1,115
Dividends payable 3,241 6,481
----- -------
Total Liabilities 440,647 444,017
-------- -------
Subordinated Minority Interest 14,855 14,855
------ -------
Stockholders' Equity
Common Stock - $10 par value
(Class A - outstanding - 7,986,986 shares;
Class B - outstanding - 4,936,060 shares; 129,630 129,630
and Class C - outstanding - 40,000 shares)
Paid-in capital 175,615 175,615
Retained earnings 7,157 2,102
------- -------
Total Stockholders' Equity 312,402 307,347
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $767,904 $ 766,219
======== ==========
See notes to consolidated financial statements.
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METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED
MARCH 31, 1997 (UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
REVENUES:
Base rental income $28,261
Escalation income 3,461
Miscellaneous income 272
Interest income 828
-------
Total revenues 32,822
------
OPERATING ITEMS:
Real estate taxes 6,683
Operating and maintenance 1,904
Utilities 1,576
Payroll 1,174
General and administrative 563
Management fees 396
-----
Total operating expenses 12,296
OTHER EXPENSES:
Interest expense 8,386
Depreciation and amortization 3,844
-----
Total other items 12,230
------
NET INCOME $8,296
------
Primary Earnings Per Common Share:
Net Income from Continuing Operations $0.64
=====
Weighted Average Common Shares Outstanding 12,963,046
==========
Fully Diluted Earnings Per Share:
Net Income from Continuing Operations $0.64
=====
Weighted Average Common Shares Outstanding 12,990,046
==========
See notes to consolidated financial statements.
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METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED
MARCH 31, 1997 (UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,844
Amortization of discount - notes receivable (122)
Change in:
Increase in escrow deposits (5,743)
Decrease in due from tenants 725
Decrease in prepaid expenses and other assets 6,951
Increase in deferred rent receivable (7,087)
Decrease in accounts payable and accrued (1,035)
expenses
Increase in unearned revenue 891
---------
Net cash provided by operating activities 6,720
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to building and equipment (211)
Additions to leasing and organization costs (41)
Collections on notes receivable 74
---------
Net cash used in investing activities (178)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (6,481)
----------
Net cash used in financing activities (6,481)
----------
INCREASE IN CASH AND CASH EQUIVALENTS 61
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 42,215
----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,276
==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during period $ 8,200
==========
Dividends declared $ 3,241
==========
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share amounts)
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1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Metropolis Realty Trust, Inc., a Maryland corporation
("Metropolis" or the "Company"), was formed on May 13, 1996 to facilitate
the consummation of the Second Amended Joint Plan of Reorganization of 237
Park Avenue Associates, L.L.C. ("237 LLC") and 1290 Associates, L.L.C.
("1290 LLC" and, together with 237 LLC, the "Predecessors"), dated September
20, 1996 (the "Plan"). Pursuant to the Plan, on October 10, 1996, the date
operations commenced, the Company acquired the interests of 237 LLC and 1290
LLC in the properties located at 237 Park Avenue (the "237 Property") and
1290 Avenue of the Americas (the "1290 Property," and together with the 237
Property, the "Properties"). The Company owns a 95% interest, as general
partner, and .05% interest, as limited partner (through its 1% general
partnership interest in Upper Tier Associates, L.P.), in 237/1290 Lower Tier
Associates, L.P., a Delaware limited partnership (the "Lower Tier Limited
Partnership") which owns a 99% partnership interest, as limited partner in
each of 237 Park Partners, L.P., a Delaware limited partnership, and 1290
Partners, L.P., a Delaware limited partnership (together with the 237 Park
Partners L.P., the "Property Owning Partnerships"). The Property Owning
Partnerships were formed to own the Properties. The remaining 1% general
partnership interest in each of the Property Owning Partnerships is owned by
237 GP Corp. and 1290 GP Corp. (the "GP Corps") which are wholly-owned
subsidiaries of the Company.
Basis of Presentation - The consolidated balance sheets includes Metropolis,
the Lower Tier Limited Partnership, the GP Corps and each of the Property
Owning Partnerships.
The presentation of the consolidated balance sheets requires estimates and
assumptions that affect the reported amounts of assets and liabilities at
the balance sheet date. Actual results could differ from those estimates.
Rental Property - Rental property includes land, land improvements,
building, tenant improvements and building improvements. Land is valued at
$134,518 and building, tenant improvements and building improvements are
valued at $524,301 as of March 31, 1997. In accordance with SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," impairment is determined to exist when estimated amounts
recoverable through future operations and sale of property on an
undiscounted basis are below that property's carrying value. If a property
is determined to be impaired, it must be written down to its estimated fair
value. Fair value is defined as the amount for which the asset could be
bought or sold in a current transaction, that is, other than a forced or
liquidation sale.
Cash and Cash Equivalents - Cash and cash equivalents includes investments
purchased with an original maturity of three months or less.
Depreciation and Amortization - Building and building improvements are
depreciated over their useful lives of 40 years. Furniture and fixtures are
depreciated over their useful lives, ranging from 5 to 7 years. Tenant
improvements are amortized on a straight-line basis over the terms of the
respective leases.
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Deferred Charges - Deferred financing costs are amortized over the term of
the related loan. Deferred leasing costs are amortized over the related
lease term.
Rental Income - Rental income is recognized on a straight-line basis over
the terms of the related leases. Differences between actual base amounts due
from tenant leases and the straight-line basis are included in deferred rent
receivable.
Escrow Deposits - Escrow deposits include reserves for certain claims made
in conjunction with the Plan and escrow deposits for tenant improvements,
insurance and real estate taxes.
Fair Value of Financial Instruments - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. The Company's financial instruments
consist of cash and cash equivalents, escrow deposits, tenants' security
deposits, real estate tax refunds, accounts receivable, notes receivable and
secured notes. Unless otherwise disclosed, the fair value of financial
instruments approximate their recorded values. The fair value estimates
presented herein are based upon pertinent information available to
management as of March 31, 1997.
Income Taxes - The Company qualifies as a REIT under the Internal Revenue
Code, as amended, and will generally not be taxed at the corporate level on
income it currently distributes to its stockholders so long as it, among
other things, distributes at least 95% of its REIT taxable income.
Recently Issued Accounting Pronouncement - The Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" in February, 1997. This pronouncement establishes
standards for computing and presenting earnings per share, and is effective
for the Company's 1997 year-end financial statements. The Company's
management has determined that this standard will have no impact on the
Company's computation or presentation of net income per common share.
2. REAL ESTATE TAX REFUNDS
Real estate tax refunds represent real estate tax proceeds expected to be
recovered by the Company as a result of real estate tax certiorari
proceedings commenced by the Predecessors, net of any fees and expenses
incurred to collect such proceeds (the "Tax Proceeds"). The Company has
reserved approximately $6,414 for tenant claims against the Tax Proceeds.
This reserve is included in accounts payable and accrued expenses on the
accompanying balance sheet.
3. NOTES RECEIVABLE
Included in Notes Receivable is the estimated fair value of two tenant notes
aggregating approximately $8,953. The first note, dated April 1, 1989 with a
face amount of $6,500 and a maturity date of September 1, 1999, is carried
at $5,409, based on certain payment terms net of unamortized discount. Such
payment terms include a stated interest rate of 10%. In 1991 and 1992, the
tenant claimed certain concessions regarding the payment terms of such note.
Without the Company expressing an opinion with regard thereto, if such
concessions were granted, the note would bear interest at 7.5% per annum and
would require level monthly payments of interest and principal of $75. The
second note, dated August 20, 1985, with a face value of $4,355, is carried
at $3,544, net of unamortized discount. The second note does not bear
interest and is payable on October 31, 1999.
4. SECURED NOTES
Secured Notes consist of promissory notes ("Loan") issued by the Property
Owning Partnerships in the original principal amount of $420,000 pursuant to
a Credit Agreement ("Agreement") among
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the Property Owning Partnerships, the lenders as signatories thereto in the
Agreement and the lead lender. Of the aggregate principal amount of the
loan, $250,000 of the Loan is allocated to the 1290 Property and $170,000 is
allocated to the 237 Property. The Loan is cross-collateralized by the
Properties. The Loan matures on October 10, 2000. The Loan requires the
Property Owning Partnerships to make interest only payments during the first
year of the Loan and then make principal payments of $1,875, $7,500, $8,125,
$11,250 and $11,250 in each of 1997, 1998, 1999, 2000 and 2001,
respectively. If any such scheduled principal payments would cause the
Company to fail to comply with any income test requirements necessary for
the Company to maintain its status as a REIT, then the Property Owning
Partnerships may, in lieu of such principal payment, post an irrevocable
letter of credit in the amount of such payment. The Property Owning
Partnerships have entered into lock box agreements for the collection of
rents and have established escrow accounts for real estate taxes and
insurance.
The Property Owning Partnerships and the lead lender entered into an
Interest Rate Exchange Agreement effective October 10, 1996 (the "Swap
Agreement"). The Swap Agreement has a term of 5 years and provides that the
Property Owning Partnerships will pay interest at an effective rate of
7.987% per annum of the notional amount of $420,000. Management believes the
risk of incurring losses related to the credit risk is remote and any losses
would be immaterial.
The Company believes the fair value of the Swap Agreement generally offsets
gains or losses on the Loan being hedged and changes the nature of such
underlying financial instruments. Because the maturity date of the Loan and
the termination date of the Swap Agreement are identical and the Company has
no intention of terminating either the Loan or the Swap Agreement, the fair
value of the Swap Agreement may be of limited usefulness.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include funded reserves held by the
Company for utility tax claims, certain claims related to the Plan, tenant
claims against Tax Proceeds and property operating expenses payable. The
utility tax claims include approximately $2,677 of claims pertaining to a
property owned by an affiliate of the Predecessors which was disposed of
prior to October 10, 1996.
6. SUBORDINATED MINORITY INTEREST
The Subordinated Minority Interest represents 4.95% of the net
reorganization value of the Lower Tier Limited Partnership, reflecting the
99% limited partnership interest of JMB/NYC Office Building Associates, L.P.
("JMB LP") in the limited partnership (the "Upper Tier Limited Partnership")
which owns a subordinated 5% limited partnership interest in the Lower Tier
Limited Partnership (the "Subordinated Minority Interest"). Management
believes, however, that no economic obligation exists to JMB LP as of March
31, 1997 and, that, pursuant to the distribution priorities set forth in the
limited partnership agreement of the Lower Tier Limited Partnership (the
"Lower Tier Partnership Agreement"), if the Company's Properties were sold,
JMB LP would be entitled to receive approximately $450 in respect of the
Subordinated Minority Interest. Pursuant to the Lower Tier Limited
Partnership Agreement, JMB LP would be entitled to distributions only after
the Company has received certain priority distributions as more fully
described below. As of March 31, 1997, the Company, as general partner of
the Lower Tier Limited Partnership, is entitled to receive $400,000 and a
12% cumulative compounded return on such amount from the Lower Tier Limited
Partnership, before any distributions are made in respect of the
Subordinated Minority Interest.
The Upper Tier Limited Partnership has the right to require the Company to
acquire the Subordinated Minority Interest at a price based upon a multiple
of the net operating income of the
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Properties for the immediately preceding calendar year reduced by the debt
encumbering the Properties and any priority distributions to which the
Company is entitled as general partner of the Lower Tier Limited
Partnership. As of March 31, 1997, no economic obligation exists based upon
such formula.
The Lower Tier Limited Partnership Agreement provides that the aggregate
Available Cash (as defined in the Lower Tier Limited Partnership Agreement),
from distributions from the Property Owning Partnerships will be distributed
no less frequently than quarterly to the partners of the Lower Tier Limited
Partnership as follows:
(i) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause and
clauses (i) and (iv) of the succeeding paragraph, aggregate
distributions equal to a cumulative compounded return, commencing on
October 10, 1996 (or with respect to capital contributions made after
October 10, 1996, the date of such capital contributions), of 12% per
annum on the sum of (x) $280,000, (y) any additional capital
contributions made by the Company, as general partner, to the Lower
Tier Limited Partnership ($20,000 as of March 31, 1997), and (z) a
$100,000 preference amount (the "Preference Amount") (the amounts in
(x), (y) and (z), as reduced by distributions in respect of such
amounts referred to herein as the "Adjusted GP Contribution");
(ii) 100% to the Company, as general partner, until it has received in
total, taking into account distributions made to it from Available Cash
and sale or refinancing proceeds, the Adjusted GP Contribution; and
(iii) the balance, 95% to the Company, as general partner, and 5% to
the Upper Tier Limited Partnership, as limited partner.
The Lower Tier Limited Partnership Agreement also provides that net
proceeds from any distributions from the Property Owning Partnerships
related to any sale, refinancing, condemnation or insurance recovery of
the Properties or any loan made to the Partnership will be distributed
by the Lower Tier Limited Partnership to its partners as follows:
(i) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (i) and
clause (i) of the immediately preceding paragraph, aggregate
distributions equal to the product of (x) 0.5 and (y) a 12% per annum
cumulative compounded return on the Adjusted GP Contribution from
October 10, 1996 (or with respect to capital contributions made after
October 10, 1996, the date of such capital contributions);
(ii) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (ii) and
clause (ii) of the immediately preceding paragraph, aggregate
distributions equal to the product of (x) .75 and (y) the Adjusted GP
Contribution;
(iii) from the next $500, 90% (i.e., $450) to the Upper Tier Limited
Partnership, as limited partner, and 10% to the Company, as general
partner;
(iv) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (iv),
clause (i) of this paragraph and clause (i) of the immediately
preceding paragraph, a 12% per annum cumulative compounded return on
the Adjusted GP Contribution commencing with respect to each capital
contribution, on the date such Capital Contribution was made;
(v) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (v),
clause (ii) of this paragraph and clause (ii) of the
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immediately preceding paragraph, aggregate distributions equal to the
Adjusted GP Contribution; and
(vi) 95% to the Company, as general partner, and 5% to the Upper Tier
Limited Partnership, as limited partner.
7. STOCKHOLDERS' EQUITY
The Company has the authority to issue 50,000,000 shares of common stock,
par value $10 per share (the "Common Stock"), and 10,000,000 shares of
Preferred Stock, par value $10 per share. Stockholders' equity consists of
12,963,046 shares of Common Stock issued and outstanding. Of the 12,963,046
shares issued and outstanding, 7,986,986 represent shares of Class A Common
Stock, 4,936,060 represent shares of Class B Common Stock, and 40,000
represent shares of Class C Common Stock which were issued to affiliates of
the Company's Asset Manager, all of which shares were issued pursuant to the
Plan. The Class A Common Stock, the Class B Common Stock and the Class C
Common Stock have identical rights and privileges, and are treated as a
single class, with respect to all matters (other than certain voting rights)
including, without limitation, the payment of distributions and upon
liquidation.
On March 6, 1997, the Company declared a dividend of $.25 per share of
Common Stock (aggregating $3,241) payable on April 15, 1997 to shareholders
of record on March 31, 1997.
8. STOCK PLAN AND REGISTRATION RIGHTS
The Board of Directors of the Company adopted a Directors' Stock Plan
effective October 10, 1996. Pursuant to the Stock Plan, the Board of
Directors of the Company has the authority to issue to members of the
Company's Board of Directors options to purchase, in the aggregate, 100,000
shares of Common Stock. On the Effective Date, the initial members of the
Company's Board of Directors were granted options entitling each director to
purchase an aggregate of 3,000 shares of Common Stock at an exercise price
of $25 per share in accordance with the Plan. Each Director will receive an
additional 400 shares of Common Stock at the 1997 annual meeting and each
subsequent annual meeting. Total outstanding options at March 31, 1997
aggregated 27,000, of which 9,000 are exercisable currently and 9,000 are
exercisable as of October 10, 1997 and October 10, 1998, respectively.
The Company has entered into a Registration Rights Agreement between the
Company and the holders of Common Stock. The Registration Rights Agreement
permits certain of the Company's stockholders to demand, subject to certain
conditions, that the Company register their Common Stock for sale and
provides all of the Company's stockholders with the right to participate
proportionally in any public offering of the Company's securities.
9. RELATED PARTY TRANSACTIONS
Asset Management - The Company has entered into an Asset Management
Agreement with a company ("Asset Manager") that is directly affiliated with
two of Metropolis' shareholders. One of these shareholders is also a
Director and Officer of the Company. The Asset Manager provides asset
advisory, consultation and management services for the Company. Fees for
such services are payable in arrears, on a monthly basis of $25. The Asset
Management Agreement also provides for reimbursement for costs and expenses
for contractors and professional fees, payable as incurred. Asset management
fees and reimbursable expenses incurred for the three months ended March 31,
1997 aggregated approximately $79.
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Property Management - The Company has also entered into a Management and
Leasing Agreement with a company ("Property Manager/Leasing Agent") that is
an affiliate of a shareholder. The Property Manager/Leasing Agent is to
manage and operate the property and provide all supervisory, management and
leasing services. The Management and Leasing Agreement provides for a fee of
1.5% of Gross Revenues, payable monthly and reimbursement for overhead and
all reasonable out-pocket-expenses incurred. The Management and Leasing
Agreement also provides for leasing commissions to be calculated on a
sliding scale percentage basis of the lease's base rent. Fees under the
Management and Leasing Agreement for the three months ended March 31, 1997
aggregated approximately $404.
REIT Management - The Company has entered into a REIT Management Agreement
with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager
is to perform certain accounting, administrative and monitoring services.
The REIT Management Agreement provides for compensation to the REIT Manager
of a monthly fee and reimbursement of documented out-of-pocket expenses.
Fees incurred under the REIT Management Agreement for the period January 1,
1997 to March 31, 1997 aggregated $46.
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ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The discussion below relates primarily to the financial condition and
results of operations of Metropolis Realty Trust, Inc. (the "Company") for the
first quarter of 1997. Stockholders are encouraged to review the financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the period October 10, 1996 to December 31, 1996
contained in the Company's Annual Report on Form 10-K for the period October 10,
1996 to December 31, 1996 for a more complete understanding of the Company's
financial condition and results of operations.
Overview
The Company is a Maryland corporation that qualifies as a real estate
investment trust (a "REIT") for tax purposes. The Company was formed on May 13,
1996 to facilitate the consummation of the Second Amended Joint Plan of
Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and 1290
Associates, L.L.C. ("1290 LLC" and, together with 237 LLC, the "Debtors"), dated
September 20, 1996 (as amended, the "Plan"), and, thereby, acquire the interests
of 237 LLC and 1290 LLC in the properties located in New York City at 237 Park
Avenue (the "237 Property") and 1290 Avenue of the Americas (the "1290
Property," and together with the 237 Property, the "Properties"). The Debtors
were two of the many companies, partnerships and joint ventures that
collectively constituted the United States operations of the Olympia & York
group of companies. The transactions contemplated by the Plan were consummated
on October 10, 1996 and the Company commenced operations on such date.
The Company owns a 95% interest, as general partner, and .05% interest,
as limited partner (through its 1% general partnership interest in the Upper
Tier Limited Partnership (as hereinafter defined)), in 237/1290 Lower Tier
Associates, L.P., a Delaware limited partnership (the "Lower Tier Limited
Partnership") which owns a 99% partnership interest, as limited partner in each
of 237 Park Partners, L.P., a Delaware limited partnership, and 1290 Partners,
L.P., a Delaware limited partnership (together with 237 Park Partners, L.P., the
"Property Owning Partnerships"). The Property Owning Partnerships own the
Properties. The remaining 1% general partnership interest in each of the
Property Owning Partnerships is owned by 237 GP Corp. and 1290 GP Corp. (the "GP
Corps") which are wholly-owned subsidiaries of the Company. The remaining 5%
interest in the Lower Tier Limited Partnership (the "LP Interest") is owned by a
limited partnership (the "Upper Tier Limited Partnership") which is owned almost
entirely by JMB/NYC Office Building Associates, L.P. ("JMB LP"), a former holder
of equity interests in the Debtors, as limited partner. The 5% LP Interest is
subordinated to the 95% partnership interest of the Company with respect to
certain priority distributions from the Lower Tier Limited Partnership. The
Upper Tier Limited Partnership, the Lower Tier Limited Partnership and the
Property Owning Partnerships are hereinafter referred to, collectively, as the
"Partnerships."
The Company's principal business objective is to operate the Properties
in a manner that will maximize the Properties' revenues and value and in turn
maximize funds from operations and stockholder value.
The 1290 Property is a 43-story Class A commercial office building with
approximately 1.9 million rentable square feet of space. The building is
centrally located in midtown Manhattan and is connected to the famed
"Rockefeller Center" complex via an underground passageway. The 1290 Property
serves as the corporate headquarters for The Equitable Life Assurance Society of
the United States, and is currently 95% occupied. Over the next four years, less
than 12% of the total rentable area of the building is subject to expiring
leases.
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The 237 Property is a 21-story Class A commercial office building with
approximately 1.1 million rentable square feet of space. The building, centrally
located in midtown Manhattan, is situated off one of New York City's most
prestigious thoroughfares and is within close proximity to Grand Central
Station, a transportation hub. The 237 Property serves as the corporate
headquarters for J. Walter Thompson Company, a major advertising agency, as well
as Swiss Reinsurance Company ("Swiss Re"), an insurance/financial services
organization, and is currently 99% occupied. Over the next four years, less than
4% of the total rentable area of the building is subject to expiring leases. The
Swiss Re lease terminates on August 31, 2001 and is not expected to be renewed
upon expiration.
The Company, through the Property Owning Partnerships, has retained
Tishman Speyer Properties, L.P. to serve as the Property Manager / Leasing
Agent, which is responsible for managing the daily operations of the Properties,
and 970 Management, LLC, an affiliate of Victor Capital Group, L.P., to serve as
the Asset Manager. The Company has also entered into a REIT Management Agreement
with Tishman Speyer Properties, L.P. to perform certain accounting,
administrative and monitoring services.
On January 20, 1997, the Company made a special distribution of $.50
per share of Common Stock to shareholders of record on December 31, 1996.
On March 6, 1997, the Board of Directors adopted a distribution policy
calling for a regular quarterly dividend of $.25 per share of Common Stock and
authorized the payment of the regular quarterly dividend of $.25 per share of
Common Stock payable on April 15, 1997, to holders of record on March 31, 1997.
Such dividend was paid on April 15, 1997.
As of March 31, 1997, 12,963,046 shares of Common Stock were issued and
outstanding. The Common Stock of the Company is not listed on any exchange, and
the Company does not intend to list the Common Stock on any exchange in the near
term.
The assets and results of operations of the Properties are reported in
the consolidated financial statements of the Company using the consolidation
method of accounting.
Results of Operations
The Company's revenues of $32,822,000 for the period consist of base
rental income of $28,261,000 (86.1%), escalation income of $3,461,000 (10.5%),
and miscellaneous income of $272,000 (.8%). This revenue is achieved based on
the 237 Property and the 1290 Property being approximately 99% and 95% leased,
respectively, during the period.
Liquidity and Capital Resources
At March 31, 1997, the Company had unrestricted cash on hand of
approximately $42,276,000 of which $3,240,500 was used to pay a dividend on
April 15, 1997 to holders of record of the Company's Common Stock on March 31,
1997. On October 10, 1996, the Property Owning Partnerships borrowed
$420,000,000 secured by the 1290 Property and the 237 Property. The Loan is
cross-collateralized by the Properties and prohibits the Property Owning
Partnerships from incurring any additional indebtedness. The Company may,
however, be able to incur unsecured indebtedness, although it has no present
plans to do so. The Company believes that cash on hand and existing cash flow
from operations are sufficient to satisfy the Company's foreseeable cash
requirements which consist primarily of property operating expenses, real estate
taxes, capital expenditures, debt service on the Loan and distributions
necessary to enable the Company to continue to qualify as a REIT. The Loan
matures on October 10, 2001. If not repaid or refinanced prior to such date, the
Property Owning Partnerships will be required to refinance the Loan on that
date. There can be no assurance, however, that the Company will be able to
refinance the Loan on that date or what the terms of any refinancing will be.
-11-
486497.4
<PAGE>
Funds from Operations
The Company generally considers Funds from Operations to be a useful
measure of the operating performance of an equity REIT because, together with
net income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds from Operations does
not represent net income or cash flows from operations as defined by generally
accepted accounting principles ("GAAP") and does not necessarily indicate that
cash flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Funds from Operations
does not measure whether cash flow is sufficient to fund all of the Company's
cash needs, including principal amortization, capital improvements and
distributions to shareholders. Funds from operations also does not represent
cash flows generated from operating, investing or financing activities as
defined by GAAP. Further, Funds from Operations as disclosed by other REITs may
not be comparable to the Company's calculation of Funds from Operations. The
Company adopted the National Association of Real Estate Investment Trusts
("NAREIT") definition of Funds from Operations in 1996 and has used it for all
periods presented. Funds from Operations is calculated as net income (loss)
computed in accordance with GAAP adjusted for depreciation expense attributable
to real property, amortization expense attributable to capitalized leasing
costs, tenant allowances and improvements, gains and losses on sales of real
estate investments and extraordinary and nonrecurring items.
Funds from Operations for the period January 1, 1997 to March 31, 1997
is summarized in the following table (in thousands, except share data).
January 1, 1997
to March 31, 1997
-----------------
Net Income $8,296
Add:
Depreciation attributable to real property and
amortization attributable to leasing costs 3,284
-----
Funds from Operations $11,580
=======
Weighted average number of shares of Common Stock outstanding (1) 12,990,046
==========
(1) Includes 27,000 shares of Common Stock issuable upon the exercise of
outstanding options.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Property Owning Partnerships and the lead lender entered into an Interest
Rate Exchange Agreement effective October 10, 1996 (the "Swap Agreement").
The Swap Agreement has a term of 5 years and provides that the Property
Owning Partnerships will pay interest at an effective rate of 7.987% per
annum of the notional amount of $420,000,000. Management believes the risk of
incurring losses related to the credit risk is remote and any losses would be
immaterial.
The Company believes the fair value of the Swap Agreement generally offsets
gains or losses on the Loan being hedged and changes the nature of such
underlying financial instruments. Because the maturity date of the Loan and
the termination date of the Swap Agreement are identical and the Company has
no intention of terminating either the Loan or the Swap Agreement, the fair
value of the Swap Agreement may be of limited usefulness.
-12-
486497.4
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, against or
involving the Company, the Partnerships or the Properties.
Retention of Jurisdiction by Bankruptcy Court
The United States Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court") may retain jurisdiction, and if the Bankruptcy Court
exercises its retained jurisdiction, it will have exclusive jurisdiction of all
matters arising out of, and related to, the Plan and, for among other things,
the following purposes: (a) to determine any and all adversary proceedings,
applications and contested matters; (b) to ensure that distributions to holders
of Allowed Claims (as defined in the Plan) are accomplished in accordance with
the Plan; (c) to hear and determine any timely objections to Administrative
Expense Claims (as defined in the Plan) or to proofs of claim and equity
interests filed, including to allow or disallow any Disputed Claim (as defined
in the Plan), in whole or in part; (d) to issue such orders in aid of execution
of the Plan, to the extent authorized by section 1142 of the Bankruptcy Code;
(e) to consider any modifications of the Plan, to cure any defect or omission,
or reconcile any inconsistency in any order of the Bankruptcy Court, including
the Confirmation Order (as such term is defined in the Plan); (f) to hear and
determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan; (g) to hear and determine matters
concerning state, local and federal taxes in accordance with sections 346, 505
and 1146 of the Bankruptcy Code including, without limitation, the New York Real
Property Transfer Gains Tax, Article 31-B of the New York Tax Law; and (h) to
enter a final decree closing the reorganization cases of the Debtors.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters To a Vote of Security Holders
No matters have been submitted to a vote of the Company's security
holders since October 10, 1996.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K.
None.
-13-
486497.4
<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.
METROPOLIS REALTY TRUST, INC.
By:/s/ Lee S. Neibart
---------------------
Name: Lee S. Neibart
Title: President
By:/s/ Stuart Koenig
--------------------
Name: Stuart Koenig
Title: Vice President and Treasurer
Date: May ___, 1997
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF METROPOLIS
REALTY TRUST, INC. FOR THE PERIOD JANUARY 1,
1997 TO MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 57,844
<SECURITIES> 0
<RECEIVABLES> 12,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,924
<DEPRECIATION> 6,239
<TOTAL-ASSETS> 767,904
<CURRENT-LIABILITIES> 20,647
<BONDS> 0
0
0
<COMMON> 129,630
<OTHER-SE> 175,615
<TOTAL-LIABILITY-AND-EQUITY> 767,904
<SALES> 31,994
<TOTAL-REVENUES> 32,822
<CGS> 0
<TOTAL-COSTS> 92,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,386
<INCOME-PRETAX> 8,296
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,296
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
