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FORM 10-Q
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 March 31, 2000...........................
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 number 0-21849............................................
METROPOLIS REALTY TRUST, INC.
.............................
(Exact name of registrant as specified in its charter)
MARYLAND 13-3910684
..................................... ............................
(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
..................................................
(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.
950710.3
<PAGE>
As of April 30, 2000, there were issued and outstanding 8,061,586 shares of the
Company's Class A Common Stock, par value $10.00 per share and 4,936,060 shares
of the Company's Class B Common Stock, par value $10.00 per share.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
involve certain risks and uncertainties. The Company's actual results or
outcomes may differ materially from those anticipated. Each forward-looking
statement that the Company believes is material is accompanied by a cautionary
statement or statements identifying important factors that could cause actual
results to differ materially from those described in the forward-looking
statement. The cautionary statements are set forth following the forward-looking
statement, and/or elsewhere in this Form 10-Q and the Company's other documents
filed with the Securities and Exchange Commission, whether or not such documents
are incorporated herein by reference. In assessing the forward-looking
statements contained in this Form 10-Q, readers are urged to read carefully all
cautionary statements.
ii
950710.3
<PAGE>
METROPOLIS REALTY TRUST, INC.
<TABLE>
<CAPTION>
INDEX
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PAGE
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PART I--FINANCIAL INFORMATION 1
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<S> <C>
ITEM 1. Financial Statements............................................................................1
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.
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and.........................................1
December 31, 1999 (audited)
Consolidated Statements of Income for the quarters ended March 31, 2000 and 1999 (unaudited) ............2
Consolidated Statements of Cash Flows for the quarters ended March 31, 2000 and 1999 (unaudited).........3
Notes to Consolidated Financial Statements (unaudited)...................................................4
ITEM 2. Management's Discussion and Analysis of Financial Condition and.................................9
Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk......................................10
PART II--OTHER INFORMATION................................................................................ 12
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ITEM 1. Legal Proceedings..............................................................................12
ITEM 2. Changes in Securities..........................................................................12
ITEM 3. Defaults Upon Senior Securities................................................................12
ITEM 4. Submission of Matters to a Vote of Security Holders............................................12
ITEM 5. Other Information..............................................................................12
ITEM 6. Exhibits and Reports on Form 8-K...............................................................12
SIGNATURES..................................................................................................S-1
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</TABLE>
iii
950710.3
<PAGE>
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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<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
(Unaudited) (Audited)
----------- ---------
ASSETS
<S> <C> <C>
Rental property - net of accumulated depreciation of $372,724 $374,282
$29,816 and $27,316, respectively
Cash and cash equivalents 14,500 9,113
Escrow deposits 7,195 3,179
Tenant security deposits 226 226
Due from tenants - net of allowance for doubtful accounts 2,521 2,446
of $3,651 and $3,651, respectively
Deferred financing costs - net of amortization of 11,623 12,616
$1,284 and $207, respectively
Real estate tax refunds 3,175 3,175
Deferred rent receivable 46,717 46,110
Prepaid real estate taxes 4,329 8,658
Deferred leasing costs, net of amortization of 15,071 14,864
$1,593 and $1,232, respectively
Other assets 223 607
------------ ------------
TOTAL ASSETS $ 478,304 $ 475,276
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes $425,000 $425,000
Accounts payable and accrued expenses 10,410 8,700
Dividends payable 1,950 -
Tenants' security deposits and unearned revenue 2,316 1,462
---------- ----------
Total Liabilities 439,676 435,162
---------- --------
Subordinated Minority Interest 14,409 14,409
---------- ---------
Stockholders' Equity
Common Stock - $10 par value
(Class A - outstanding - 8,061,586 and 8,059,586
shares, respectively
Class B - outstanding - 4,936,060 and 4,936,060
shares, respectively) 129,976 129,956
Paid-in capital 175,844 175,844
Retained earnings (deficit) (281,601) (280,095)
----------- ----------
Total Stockholders' Equity 24,219 25,705
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 478,304 $ 475,276
========== =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share amounts)
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<TABLE>
<CAPTION>
Quarter Ended March 31,
2000 1999
---- ----
REVENUES:
<S> <C> <C>
Base rental income $21,127 $28,872
Operating escalation income 508 3,505
Miscellaneous income 240 436
---------- ----------
Total revenues 21,875 32,813
-------- --------
OPERATING EXPENSES:
Real estate taxes 4,332 7,074
Operating and maintenance 1,042 1,628
Utilities 1,495 1,538
Payroll 716 1,103
Management fees 440 579
Professional fees 176 166
General and administrative 143 140
Depreciation and amortization 2,861 3,871
-------- --------
Total operating expenses 11,205 16,099
-------- --------
OTHER ITEMS:
Interest income 237 800
Interest expense (10,432) (8,742)
--------- --------
Total other items (10,195) (7,942)
--------- --------
NET INCOME $ 475 $8,772
========= ======
NET INCOME PER COMMON SHARE:
Net Income $0.04 $0.68
===== =====
Weighted Average Common Shares Outstanding 12,997,646 12,970,646
========== ==========
NET INCOME PER COMMON SHARE (assuming
dilution):
Net Income $0.04 $0.68
===== =====
Weighted Average Common Shares Outstanding 13,000,646 12,998,646
========== ==========
(including 3,000 and 28,000 shares of Common Stock
issuable upon the exercise of outstanding options as of
March 31, 2000 and 1999, respectively)
</TABLE>
See notes to consolidated financial statements.
950710.3
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
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<TABLE>
<CAPTION>
Quarter Ended March 31,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 475 $8,772
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,938 4,417
Amortization of discount - notes receivable - (143)
Change in:
Increase in escrow deposits (4,016) (7,213)
(Increase)/Decrease in due from tenants (75) 855
Decrease in prepaid expenses and other assets 4,713 7,188
Increase in deferred rent receivable (607) (1,807)
Increase in accounts payable and accrued expenses 1,710 531
Increase/(Decrease) in unearned revenue 853 (376)
-------- ----------
Net cash provided by operating activities 6,991 12,224
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to building and equipment (942) (624)
Additions to leasing costs (568) (1,000)
Collections on notes receivable - 90
----------- ----------
Net cash used in investing activities (1,510) (1,534)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage notes - (1,875)
Other (94) -
------------ ----------
Net cash used in financing activities (94) (1,875)
------------ ----------
INCREASE IN CASH AND CASH EQUIVALENTS 5,387 8,815
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,113 25,357
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $14,500 $34,172
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during period $6,031 $8,278
====== ======
Dividends declared $1,950 $6,485
====== ======
</TABLE>
See notes to consolidated financial statements.
950710.3
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share information)
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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 ("Effective Date"), 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").
On November 22, 1999, the Company sold all of its interests in the 237
Property. As of March 31, 2000, the Company owns a 94.05% partnership
interest, as limited partner, in 1290 Partners, L.P., a Delaware limited
partnership (the "1290 Property Owning Partnership"). The 1290 Property
Owning Partnership owns the 1290 Property. A wholly-owned subsidiary of
the Company ("1290 GP Corp.") owns a 1% interest, as general partner, in
the 1290 Property Owning Partnership. The remaining 4.95% interest in the
1290 Property Owning Partnership is owned by 237/1290 Upper Tier
Associates, L.P., a Delaware limited partnership (the "Upper Tier LP").
The 4.95% interest is subordinated to the 94.05% partnership interest of
the Company with respect to certain priority distributions from the 1290
Property Owning Partnership. The Upper Tier LP and the 1290 Property
Owning Partnership are hereinafter referred to, collectively, as the
"Partnerships."
Basis of Presentation - The consolidated balance sheets include Metropolis
and each of the entities through which Metropolis indirectly owns the
Properties. 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. Certain 1999 amounts on the Consolidated Statements of
Income have been reclassified to conform with the 2000 presentation.
Rental Property - Rental property is carried at cost, net of accumulated
depreciation and amortization, and includes land, building, tenant
improvements and building improvements. Land is carried at $63,470 and
$134,518 as of March 31, 2000 and 1999, respectively. Building, tenant
improvements and building improvements are carried at $339,070 and
$547,282 as of March 31, 2000 and 1999, respectively. 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.
Deferred Charges - Deferred financing costs, which include fees and costs
incurred to obtain long-term financing, are being amortized over the term
of the related loan, and such amortization is included in interest expense
in the accompanying Consolidated Statements of Income. Direct costs
related to leasing 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,
leasing commissions, insurance and real estate taxes.
950710.3
4
<PAGE>
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.
2. SALE OF PROPERTY
On November 22, 1999, the Company sold the 237 Property for an aggregate
purchase price of $372,000, subject to customary prorations and certain
adjustments. The following represents the results of operations for the
237 Property for the period January 1, 1999 through March 31, 1999:
(In Thousands)
REVENUES:
Base rental income $ 9,324
Operating escalation income 3,279
Miscellaneous income 121
---------
Total revenues 12,724
--------
OPERATING EXPENSES:
Real estate taxes 2,580
Operating and maintenance 669
Utilities 229
Payroll 408
Management fees 192
Professional fees 90
General and administrative 28
Depreciation and amortization 1,417
------
Total operating expenses 5,613
------
OTHER ITEMS:
Interest income 157
Interest expense (3,525)
-------
Total other items (3,368)
-------
NET INCOME $ 3,743
========
3. MORTGAGE NOTES
Mortgage notes consist of a $425,000 mortgage loan (the "1290 Mortgage
Loan"). Interest on the 1290 Mortgage Loan is based on LIBOR plus 2% and
requires interest only payments through maturity on January 2, 2003. The
1290 Property Owning Partnership has a one time right (subject to
achieving certain conditions, including a debt service coverage ratio,
loan to value ratio and the payment of a 25 basis point extension fee), at
its option to extend the maturity for a period of twelve months. The 1290
Mortgage Loan may not be prepaid prior to July 1, 2000. If prepaid between
July 1, 2000 and December 31, 2000, the 1290 Mortgage Loan can be repaid
with a prepayment premium equal to one-half of one percent of the
outstanding principal balance. The 1290 Mortgage Loan may be repaid in
whole after December 31, 2000, without penalty. The costs associated with
securing the 1290 Mortgage Loan of approximately $12,907 are included in
deferred financing costs and are amortized over the term of the 1290
Mortgage Loan.
The 1290 Property Owning Partnership and Morgan Stanley Derivative
Products, Inc. entered into an Interest Rate Exchange Agreement effective
December 13, 1999 (the "1290 Swap Agreement"). The 1290 Swap Agreement
provides that the 1290 Property Owning Partnership will pay interest at an
effective rate of 8.4995% per annum of the notional amount of $425,000.
Management believes that the risk of incurring losses related to the
credit risk is remote and that any losses would be immaterial.
950710.3
5
<PAGE>
Management believes that the fair value of the 1290 Swap Agreement
generally offsets gains or losses on the 1290 Mortgage Loan being hedged
and changes the nature of such underlying financial instruments. Because
the maturity date of the 1290 Mortgage Loan and the termination date of
the 1290 Swap Agreement are identical, the fair value of the 1290 Swap
Agreement is of limited usefulness.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include property operating expenses
payable, interest expense payable and funded reserves held by the Company
for utility tax claims and tenant claims against real estate tax proceeds.
5. SUBORDINATED MINORITY INTEREST
The Subordinated Minority Interest represents the 99% limited partnership
interest of JMB/NYC Office Building Associates, L.P. ("JMB/NYC") in the
Upper Tier LP which owns a subordinated 5% limited partnership interest in
the 1290 Property Owning Partnership (the "Subordinated Minority
Interest"). Pursuant to the 1290 Property Owning Partnership's Amended and
Restated Agreement of Limited Partnership (the "1290 Partnership
Agreement"), (A) if JMB/NYC exercises its right (the "JMB Put Right"),
which right is exercisable commencing in September 2001, to cause the
Company to acquire the interest held by Upper Tier LP in the 1290 Property
Owning Partnership (the "Upper Tier LP Interest"), the Company would be
required to pay to JMB/NYC the greater of (x) $1,000 and (y) the Put
Amount (as defined below), (B) if the Company exercises its right (the
"Company Call Right"), which right is exercisable commencing in March
2001, to acquire the Upper Tier LP Interest, the Company would be required
to pay to JMB/NYC the greater of (x) $1,400 and (y) the Call Amount (as
defined below), and (C) the Company may sell the 1290 Property, its
partnership interest in the 1290 Property Owning Partnership or greater
than a 51% interest in the Company itself at any time after January 1,
2000; provided that in connection with such sale the Company pays $4,500
to JMB/NYC. "Put Amount" means the price based upon a multiple of the net
operating income of the 1290 Property for the immediately preceding
calendar year reduced by the debt encumbering the 1290 Property and any
priority distributions to which the Company is entitled as a partner of
the 1290 Property Owning Partnership. "Call Amount" means the price based
upon a multiple of twice the net operating income of the 1290 Property for
the period of January 1, 2000 through June 30, 2000 reduced by the debt
encumbering the 1290 Property and any priority distributions to which the
Company is entitled as a partner of the 1290 Property Owning Partnership.
The Company does not intend to sell the 1290 Property prior to March 2001
and intends to exercise the Company Call Right in March 2001. If the
Company exercises the Company Call Right in March 2001, the Company
expects that it would be required to pay $1,400 to JMB/NYC. Pursuant to
the agreements that existed prior to their amendment in accordance with
the Restructuring Agreement, the Company estimates that it would have been
required to pay JMB/NYC significantly less than $1,000 upon the exercise
of the JMB Put Right or $1,400 upon the exercise of the Company Call
Right.
Management believes, however, that no economic obligation exists to
JMB/NYC as of March 31, 2000 and that JMB/NYC would not be entitled to
receive any distributions in excess of amounts under the Put Right and
Call Right in respect of the Subordinated Minority Interest. Management
believes that, upon exercise by the Company of the Company Call Right,
JMB/NYC would only be entitled to receive $1,400 in respect of the
Subordinated Minority Interest. Pursuant to the 1290 Partnership
Agreement, JMB/NYC would be entitled to distributions only after the
Company has received certain priority distributions as more fully
described below.
The 1290 Partnership Agreement provides that the aggregate Available Cash
(as defined in the 1290 Partnership Agreement) will be distributed no less
frequently than quarterly to the partners of the 1290 Property Owning
Partnership as follows:
(i) 100% TO the Company, until it has received, aggregate
distributions on or after November 22, 1999 (the "Closing Date")
equal to an amount which, when added to all prior distributions to
the Company on or after the Closing Date pursuant to this clause and
clauses (i) and (iv) of the succeeding paragraph,
950710.3
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<PAGE>
aggregate distributions equal to a cumulative compounded return, of
12% per annum on the sum of (x) approximately $274,375 and (y) any
additional capital contributions made by the Company, as general
partner, to the 1290 Property Owning Partnership (the amounts in (x)
and (y), as reduced by distributions in respect of such amounts
referred to herein as the "Adjusted GP Contribution");
(ii) 100% to the Company, until it has received aggregate
distributions on or after the Closing Date pursuant to this clause
equal to an amount which, when added to all prior distributions to
the Company on or after the Closing Date pursuant to clauses (ii) and
(v) below, equals the Adjusted GP Contribution; and
(iii) the balance, 94.05% to the Company, 1% to 1290 GP Corp. and
4.95% to the Upper Tier LP.
The 1290 Partnership Agreement provides that distributions from the 1290
Property Owning Partnership after the Closing Date related to any sale,
refinancing, condemnation or insurance recovery of the 1290 Property or
any loan made to the 1290 Property Owning Partnership will be distributed
by the 1290 Property Owning Partnership to its partners as follows:
(i) 100% to the Company, 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;
(ii) 100% to the Company, 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
approximately $107,172;
(iii) of the next $500, 90% (i.e., $450) to the Upper Tier LP and 10%
to the Company;
(iv) 100% to the Company, 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;
(v) 100% to the Company, until it has received, together with all
prior distributions pursuant to this clause (v), clause (ii) of this
paragraph and clause (ii) of the immediately preceding paragraph,
aggregate distributions equal to the Adjusted GP Contribution; and
(vi) the balance 94.05% to the Company, 1% to 1290 GP Corp. and 4.95%
to the Upper Tier LP.
As a result of the distribution of the net proceeds from the sale of the
237 Property and the refinancing of the 1290 Property $446 was paid to
JMB/NYC in 1999.
6. 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. Of the 12,997,646 shares issued
and outstanding, 8,061,586 represent shares of Class A Common Stock and
4,936,060 represent shares of Class B Common Stock. The Class A Common
Stock and the Class B 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
dividends and distributions upon liquidation.
950710.3
7
<PAGE>
7. STOCK PLAN AND REGISTRATION RIGHTS
The Board of Directors of the Company adopted a Directors' Stock Plan
effective October 10, 1996 and amended the Stock Plan on December 13,
1999. The purpose of the Stock Plan is to attract and retain qualified
persons as Directors. 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 Common Stock and options to purchase, in the aggregate,
100,000 shares of Class A 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.
On December 13, 1999, the Board of Directors decreased the exercise price
of all outstanding options by $15.00 per share. After the adjustment of
the options' exercise prices, every Director but one exercised his options
on December 23, 1999. In March 1998, John R. S. Jacobsson was granted
options entitling him to purchase an aggregate of 3,000 shares of Common
Stock at an exercise price of $42.50 per share. Such options were issued
in July 1998, and became fully exercisable on October 10, 1999. The
exercise price of Mr. Jacobsson's options was adjusted to $27.50 per share
on December 13, 1999 and to $12.50 per share on December 28, 1999.
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.
8. 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 at a rate of $25 per month, in arrears. The
Asset Management Agreement also provides for reimbursement of costs and
expenses for contractors and professional fees, as incurred. Asset
management fees incurred for each of the quarters ended March 31, 2000 and
1999 aggregated approximately $75.
Property Management - The Company has 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
manages and operates the property and provides 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-of-pocket-expenses incurred. The
Management and Leasing Agreement also provides for leasing commissions to
be calculated on a sliding scale percentage basis of a lease's base rent.
Fees incurred under the Management and Leasing Agreement for the quarters
ended March 31, 2000 and 1999 aggregated approximately $854 and $482,
respectively.
An affiliate of the Property Manager/Leasing Agent provides cleaning
services for the Properties. Fees paid for cleaning services for the
quarters ended March 31, 2000 and 1999 totaled $799 and $1,084,
respectively.
REIT Management - The Company has entered into a REIT Management Agreement
with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager
performs certain accounting, administrative and monitoring services. The
REIT Management Agreement provides for compensation to the REIT Manager
950710.3
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<PAGE>
of a monthly fee and reimbursement of documented out-of-pocket expenses.
Fees and reimbursable expenses incurred under the REIT Management
Agreement for each of the quarters ended March 31, 2000 and 1999
aggregated approximately $31.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, escrow deposits, tenant
security deposits, tax refunds receivable, and accounts receivable are a
reasonable estimate of their fair value due to their short-term nature.
The Company believes the fair value of the 1290 Swap Agreement generally
offsets gains or losses on the 1290 Mortgage Loan being hedged and changes
the nature of such underlying financial instruments. Because the maturity
date of the 1290 Mortgage Loan and the termination date of the 1290 Swap
Agreement are identical, the fair value of the 1290 Swap Agreement is of
limited usefulness.
Management believes the fair market value of the 1290 Mortgage Loan
approximates the carrying value at March 31, 2000.
The fair value estimates presented herein are based on pertinent
information available to management as of March 31, 2000.
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
first quarter of 2000. 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, 1999 contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 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.
Prior to November 22, 1999, the Company owned and operated the 237
Property and the 1290 Property. On November 22, 1999, the Company sold its
interests in the 237 Property. Consequently, the Company's principal business
objective is to operate the 1290 Property in a manner that will maximize the
1290 Property's 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 99% leased. Over the next five years,
approximately 21% of the total rentable area of the building is subject to
expiring leases.
The Company has retained Tishman Speyer Properties, L.P. to serve as
the property manager and leasing agent, which is responsible for managing the
daily operations of the 1290 Property, 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.
950710.3
9
<PAGE>
As of March 31, 2000, 12,997,646 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 Company's properties are
reported in the consolidated financial statements of the Company using the
consolidation method of accounting.
Results of Operations
Quarters Ended March 31, 2000 and 1999
--------------------------------------
Base rental income decreased by approximately $7,745 for the quarter
ended March 31, 2000 as compared to the same period in the prior year. This
decrease of 26.8% is primarily attributable to the sale of the 237 Property,
offset by an increase due to higher base rents at the 1290 Property associated
with new leases for 160,168 square feet entered into in 1999.
Operating expenses for the quarter ended March 31, 2000 were $11,205, a
decrease of 30.4% from the quarter ended March 31, 1999. This decrease is
primarily due to the sale of the 237 Property. The decreases were partially
offset by an increase in depreciation and amortization related to additions to
building and tenant improvements in 1999 and 2000, and an increase in utility
expense. Operating expenses as a percentage of base rental income and escalation
income increased to 51.8% for the quarter ended March 31, 2000 from 49.7% for
the quarter ended March 31, 1999.
Interest expense for the quarter ended March 31, 2000 increased 19.3%
from the quarter ended March 31, 1999. This increase is due to a higher level of
mortgage indebtedness, a higher interest rate on such indebtedness and an
increase in amortization of the deferred financing costs associated with such
indebtedness for the same period.
Liquidity and Capital Resources
During the quarter ended March 31, 2000, cash flow from operations
totaled $6,991. The Company used this cash flow from operations to fund building
and tenant improvements of approximately $942 and leasing costs of approximately
$568.
At March 31, 2000, the Company had unrestricted cash on hand of
approximately $14,500 of which $1,950 was used to pay a dividend on April 14,
2000 to holders of record of the Company's Common Stock on March 31, 2000.
During the fourth quarter of 1999, the Company sold the 237 Property
and refinanced the 1290 Property with a $425,000 mortgage loan (the "1290
Mortgage Loan"). Interest on the 1290 Mortgage Loan is based on LIBOR plus 2%
and requires interest only payments through maturity on January 2, 2003. The
1290 Property Owning Partnership has a one time right at its option to extend
the maturity for a period of 12 months (subject to achieving certain conditions,
including a debt service coverage ratio, loan to value ratio and the payment of
a 25 basis point extension fee). The 1290 Mortgage Loan may not be prepaid prior
to June 30, 2000. If prepaid between July 1, 2000 and December 31, 2000, the
mortgage loan can be repaid with a prepayment premium equal to one-half of one
percent (.5%) of the outstanding principal balance. The 1290 Mortgage Loan may
be repaid in whole after December 31, 2000, without penalty. The costs
associated with securing the 1290 Mortgage Loan of approximately $12,823 are
included in deferred financing costs and are amortized over the term of the 1290
Mortgage Loan.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The 1290 Property Owning Partnership and Morgan Stanley Derivative
Products, Inc. entered into an Interest Rate Exchange Agreement effective
December 13, 1999 (the "1290 Swap Agreement"). The 1290 Swap Agreement
provides that the 1290 Property Owning Partnership will pay interest at an
effective rate of 8.4995%
950710.3
10
<PAGE>
per annum on the notional amount of $425,000. Management believes that the
risk of incurring losses related to the credit risk is remote and that any
losses would be immaterial.
Management believes the fair value of the 1290 Swap Agreement generally
offsets gains or losses on the 1290 Mortgage Loan being hedged and changes
the nature of such underlying financial instruments. Because the maturity
date of the 1290 Mortgage Loan and the termination date of the 1290 Swap
Agreement are identical, the fair value of the 1290 Swap Agreement is of
limited usefulness.
950710.3
11
<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
In July 1997, the United States Bankruptcy Court for the Southern
District of New York entered a final decree closing the reorganization cases of
the Predecessors.
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 November 19, 1999.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
27.1 Financial Data Schedule as of, and for the quarter ending,
March 31, 2000.
(b) Reports on Form 8-K
None.
950710.3
12
<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 and Director
By: /s/ Stuart Koenig
--------------------------------------
Name: Stuart Koenig
Title: Vice President and Treasurer
Dated: May 15, 2000
S-1
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