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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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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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Commission file number 0-21849
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METROPOLIS REALTY TRUST, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3910684
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
c/o Victor Capital Group, L.P.
605 Third Avenue
26th Floor
New York, New York 10016
..................................................
(Address of principal executive offices)
( Zip Code)
(212) 655-0220
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(Registrant's telephone number, including area code)
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 [ ]
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.
864583.4
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The Company is filing this amendment to the Company's quarterly
report on Form 10-Q for the three months ended June 30, 1999 in order to revise
the summary chart of Funds from Operations for the quarter ended and the six
months ended, June 30, 1999 by properly reflecting the write-off of deferred
rent receivable as an addition to Funds from Operations. See "Part I--Financial
Information; Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations" below.
ii
<PAGE>
PART I--Financial Information
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (In thousands, except share information)
General
The discussion below relates primarily to the financial condition and
results of operations of Metropolis Realty Trust, Inc. (the "Company") for the
second quarter of 1999. Stockholders are encouraged to review the financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1998 contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 for a
more complete understanding of the Company's financial condition and results of
operations.
Overview
The Company was formed on May 13, 1996 and commenced operations on
October 10, 1996, upon acquisition of the 237 Property and the 1290 Property,
pursuant to the Plan. The Company is a Maryland corporation that qualifies as a
REIT for tax purposes. 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 98% leased. Through December 2005,
approximately 25% of the total rentable area of the building is subject to
expiring leases.
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 and
Credit Suisse Asset Management ("CSAM"). The 237 Property is currently 98%
leased and through December 2005, approximately .6% of the total rentable area
of the building is subject to expiring leases.
On July 20, 1999, the Company announced the retention of Victor
Capital Group, L.P. and Eastdil Realty Company, LLC to explore the sale of the
237 Property.
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 REIT compliance monitoring services.
As of June 30, 1999, 12,970,646 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
Quarters Ended June 30, 1999 and 1998
-------------------------------------
Base rental income and escalation income decreased by approximately
$3,886 for the quarter ended June 30, 1999 as compared to the same period in the
prior year. This decrease is primarily attributable to the write off of $900 of
deferred rent receivables related to the early partial termination of the lease
with Warburg Pincus at the 237 Property $2,545 related to the lease assumption
of BT Alex Brown at the 1290 property and the expiration of two leases at the
1290 Property.
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As of June 30, 1999, the Company terminated the lease with Swiss
Reinsurance America Corporation ("Swiss Re"), a tenant of the 237 Property. The
termination of the lease resulted in the payment by Swiss Re to the Company of a
one-time lease termination fee of $25,855, which fee was received by the Company
in July of 1999. Contemporaneously with the termination of the Swiss Re lease,
the Company entered into a 15-year lease with Credit Suisse Asset Management
("CSAM") with respect to approximately 343,000 square feet of space including
all of the former Swiss Re leased space. The Company incurred leasing
commissions of $6,910 in connection with the CSAM lease that are payable prior
to year end and agreed to make tenant improvements in the amount of $11,491. The
CSAM lease also provides for a free rent period through December 31, 1999.
Effective with the delivery of the rental space which ABN-AMRO
Incorporated assumed the rights to and obligations of BT Alex-Brown under lease
as modified for a 15 year and 4 mos. term with respect to approximately 80,880
feet of space. The company incurred leasing commissions of $2,945 in connection
with the assignment. The ABN-AMRO lease also provides for months of free rent.
During the quarter ended June 30, 1999, the Company settled certain New
York City and New York State utility tax claims with respect to the property
located at 2 Broadway that was owned by the Predecessor for all tax years up to
December 31, 1995 for an amount that was approximately $2,900 less than the
amount the Company had previously reserved for such claims. The reversal of that
reserve resulted in an increase in miscellaneous income of approximately $2,900
million for such period. The Company continues to maintain adequate reserves for
utility tax claims with respect to open tax years.
Operating expenses for the quarter ended June 30, 1999 were $12,180,
representing no material change from operating expenses for the quarter ended
June 30, 1998. Operating expenses as a percentage of base rental income and
escalation income increased to 40% for the quarter ended June 30, 1999 from 35%
for the quarter ended June 30, 1998. This increase is due to the previously
discussed decrease in base rental income for the quarter ended June 30, 1998 to
the quarter ended June 30, 1999.
Depreciation and amortization for the quarter ended June 30, 1999 was
$4,378 as compared to $4,168 for the same period in the prior year. The increase
of $210 is primarily the result of building and tenant improvements made
subsequent to the first quarter of 1998, as well as the amortization of
remaining organizational costs in accordance with SOP 98-5, as described in Note
1 to the Company's financial statements.
Results of Operations
Six Months Ended June 30, 1999 and 1998
---------------------------------------
Base rental income and escalation income decreased by approximately
$1,796 for the six months ended June 30, 1999 as compared to the same period in
the prior year. This decrease is primarily attributable to the write off of $900
of deferred rent receivables related to the early partial termination of the
lease with Warburg Pincus at the 237 Property $2,545 related to the lease
assumption of BT Alex Brown at the 1290 property, and the expiration of two
leases at the 1290 Property.
As of June 30, 1999, the Company terminated the lease with Swiss
Reinsurance America Corporation ("Swiss Re"), a tenant of the 237 Property. The
termination of the lease resulted in the payment by Swiss Re to the Company of a
one-time lease termination fee of $25,855, which fee was received by the Company
in July of 1999. Contemporaneously with the termination of the Swiss Re lease,
the Company entered into a 15-year lease with Credit Suisse Asset Management
("CSAM") with respect to approximately 343,000 square feet of space including
all of the former Swiss Re leased space. The Company incurred leasing
commissions of $6,910 in connection with the CSAM lease that are payable prior
to year end and agreed to make tenant improvements in the amount of $11,491. The
CSAM lease also provides for a free rent period through December 31, 1999.
As of June 30, 1999 the Company entered into an assignment and
assumption agreement where B.T. Alex Brown, a tenant at the 1290 Property
assigned its lease to ABN/AMRO, Incorporated. The assignment of the lease
resulted in Alex Brown delivering its rental space to ABN-AMRO, Incorporated,
and the payment to Alex Brown of a one time payment of $8,000, which fee was
paid by the Company in June 1999.
During the quarter ended June 30, 1999, the Company settled certain New
York City and New York State utility tax claims with respect to the property
located at 2 Broadway that was owned by the Predecessor for all tax years up to
December 31, 1995 for an amount that was approximately $2,900 less than the
amount the Company had previously reserved for such claims. The reversal of that
reserve resulted in an increase in miscellaneous income of approximately $2,900
million for such period. The Company continues to maintain adequate reserves for
utility tax claims with respect to open tax years.
Operating expenses for the six months ended June 30, 1999 were
$24,408, an increase of .2% from the six months ended June 30, 1998. Operating
expenses as a percentage of base rental income and escalation income increased
to 39% for the six months ended June 30, 1999 from 36% for the six months ended
June 30, 1998.
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Depreciation and amortization for the six months ended June 30, 1999
was $8,795 as compared to $8,243 for the same period in the prior year. The
increase of $552 is primarily the result of building and tenant improvements
made subsequent to the second quarter of 1998.
Liquidity and Capital Resources
During the six months ended June 30, 1999, cash flow from operations
totaled $32,264. The Company used this cash flow from operations for leasing
costs of approximately $9,245, $8,000 to acquire tenant improvements related to
the early termination of a tenant lease at the 1290 Property, principal payments
on the Loan of $1,875 and $410 to fund building and tenant improvements.
At June 30, 1999, the Company had unrestricted cash on hand of
approximately $28,290 of which $6,485 was used to pay a dividend on July 15,
1999 to holders of record of the Company's Common Stock on June 30, 1999. The
lease termination payment of $25,855 was received by the Company in July of
1999.
On October 10, 1996, the Property Owning Partnerships borrowed
$420,000 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.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company began preparations for the year 2000 in 1996 and has
identified all significant applications that will require modification to ensure
compliance. Internal and external resources have been and continue to be used to
make the required modifications and test Year 2000 Compliance. The modification
process of all significant applications is substantially complete.
In addition, the Company has communicated with others with whom it
does significant business to determine their Year 2000 Compliance readiness and
the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance
activities has not been and is not anticipated to be material to its financial
position or results of operations in any given year. These costs to complete the
Year 2000 modification and testing processes are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from those
plans.
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
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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 is summarized in the following table.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended June 30, Six Months Ended June 30,
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1999 1998 1999 1998
------------------ --------------- --------------- -------------------
Net income $35,126 $10,852 $43,899 $20,209
Add:
Depreciation attributable to real
property and amortization
attributable to leasing costs 3,831 3,619 7,618 7,135
---------------- ----------------- --------------- -------------------
Write off deferred rent
receivable 3,500 0 3,500 0
Subtract:
Lease termination income 25,855 0 25,855 0
---------------- ----------------- --------------- -------------------
Funds from Operations 16,602 14,471 29,162 27,344
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Weighted average number of shares of 12,998,646 12,991,646 12,998,646 12,991,646
Common Stock outstanding1
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</TABLE>
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1 Includes 28,000 and 25,000 shares of Common Stock issuable upon the exercise
of outstanding options as of June 30, 1999 and 1998, respectively.
4
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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
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Date: August 17, 1999 Name: Lee S. Neibart
Title: President and Director
By: /s/ Stuart Koenig
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Name: Stuart Koenig
Date: August 17, 1999 Title: Vice President and Treasurer
S-1
