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 June 30, 2000
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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
Commission file number 0-21849
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
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(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 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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As of August 1, 2000, there were 12,997,646 shares of the registrant's Common
Stock issued and outstanding, of which 8,061,586 shares were shares of Class A
Common Stock and 4,936,060 shares were shares of Class B Common Stock.
As of August 1, 2000, of the registrant's 12,997,646 shares of Common Stock
issued and outstanding, 9,540,035 shares are held by affiliates of the
registrant and 3,457,611 of the registrant's shares are held by non-affiliates
of the registrant. The registrant's Common Stock is not listed on any exchange;
the registrant does not intend to list its Common Stock on any exchange in the
near term; there is not currently a public market for the registrant's Common
Stock; and there can be no assurance that an active trading market for the
registrant's Common Stock will develop or be sustained.
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METROPOLIS REALTY TRUST, INC.
INDEX
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PART I - FINANCIAL INFORMATION PAGE
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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 June 30, 2000
(unaudited) and December 31, 1999 (audited).....................1
Consolidated Statements of Income for the quarters and
six months ended June 30, 2000 and 1999
(unaudited).....................................................2
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999
(unaudited).....................................................3
Notes to Consolidated Financial Statements
(unaudited).....................................................4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................9
ITEM 3. Quantitative and Qualitative Disclosure About Market
Risk.........................................................12
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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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Rental property - net of accumulated depreciation of $371,543 $374,282
$32,382 and $27,316, respectively
Cash and cash equivalents 12,382 9,113
Escrow deposits 3,834 3,179
Tenant security deposits 226 226
Due from tenants - net of allowance for doubtful accounts 3,001 2,446
of $3,651 and $3,651, respectively
Deferred financing costs - net of amortization of 10,547 12,616
$2,359 and $207, respectively
Real estate tax refunds 3,175 3,175
Deferred rent receivable 48,014 46,110
Prepaid real estate taxes 8,918 8,658
Deferred leasing costs, net of amortization of 14,861 14,864
$1,934 and $1,232, respectively
Other assets 462 607
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TOTAL ASSETS $476,963 $475,276
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes $425,000 $425,000
Accounts payable and accrued expenses 9,194 8,700
Dividends payable 1,950 -
Tenants' security deposits and unearned revenue 2,023 1,462
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Total Liabilities 438,167 435,162
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Subordinated Minority Interest 14,409 14,409
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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 deficit (281,433) (280,095)
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Total Stockholders' Equity 24,387 25,705
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $476,963 $475,276
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See notes to consolidated financial statements.
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<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share amounts)
Quarter Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Base rental income $21,540 $26,615 $42,667 $55,614
Operating escalation income 1,019 4,221 1,527 7,726
Lease termination income - 25,855 - 25,855
Miscellaneous income 1,218 2,454 1,458 2,764
------- ------- ------- -------
Total revenues 23,777 59,145 45,652 91,959
OPERATING EXPENSES:
Real estate taxes 4,332 7,074 8,663 14,147
Operating and maintenance 1,443 1,890 2,586 3,626
Utilities 1,667 1,359 3,162 2,865
Payroll 800 1,111 1,516 2,212
Management fees 418 486 857 1,065
Professional fees 368 209 545 366
General and administrative 105 51 148 127
Depreciation and amortization 2,907 3,832 5,769 7,702
------- ------- ------- -------
Total operating expenses 12,040 16,012 23,246 32,110
OTHER ITEMS:
Interest income 312 787 550 1,587
Interest expense (9,932) (8,794) (20,364) (17,537)
------- ------- ------- -------
Total other items (9,620) (8,007) (19,814) (15,950)
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NET INCOME $2,117 $35,126 $2,592 $43,899
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NET INCOME PER COMMON SHARE:
Net Income $ .16 $ 2.71 $ .20 $ 3.38
========== ========== ========== ==========
Weighted Average Common Shares Outstanding 12,997,646 12,970,646 12,997,646 12,970,646
========== ========== ========== ==========
NET INCOME PER COMMON SHARE (assuming dilution):
Net Income $ .16 $ 2.70 $ .20 $ 3.38
========== ========== ========== ==========
Weighted Average Common Shares Outstanding
(including 3,000 and 28,000 shares of
Common Stock issuable upon the exercise of
outstanding options as of June 30, 2000 and
1999, respectively) 13,000,646 12,998,646 13,000,646 12,998,646
========== ========== ========== ==========
See notes to consolidated financial statements.
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<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended June 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,592 $43,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,921 8,795
Amortization of discount - notes receivable - (288)
Change in:
Increase in lease termination fee receivable - (25,855)
(Increase)/Decrease in escrow deposits (656) 2,331
Increase in due from tenants (555) (312)
Increase in prepaid expenses and other assets (116) (205)
(Increase)/Decrease in deferred rent receivable (1,904) 262
Increase in accounts payable and accrued expenses 494 5,408
Increase/(Decrease) in unearned revenue 561 (1,771)
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Net cash provided by operating activities 8,337 32,264
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to building and equipment (2,327) (9,034)
Additions to leasing costs (699) (10,245)
Collections on notes receivable 2 183
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Net cash used in investing activities (3,024) (19,096)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage notes - (3,750)
Dividends paid (1,950) (6,485)
Other (94) -
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Net cash used in financing activities (2,044) (10,235)
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INCREASE IN CASH AND CASH EQUIVALENTS 3,269 2,933
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,113 25,357
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CASH AND CASH EQUIVALENTS, END OF PERIOD $12,382 $28,290
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during period $15,299 $16,518
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Dividends declared $3,900 $12,970
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See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share information)
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 June 30, 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 1290 Property. 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 June 30, 2000 and 1999,
respectively. Building, tenant improvements and building improvements
are carried at $340,455 and $555,692 as of June 30, 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.
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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 tenants 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.
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 quarter and six months ended
June 30, 1999:
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<CAPTION>
Quarter Ended Six Months Ended
June 30, 1999 June 30, 1999
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<S> <C> <C>
REVENUES:
Base rental income $ 8,325 $17,648
Operating escalation income 3,357 6,637
Lease termination income 25,855 25,855
Miscellaneous income 142 263
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Total revenues 37,679 50,403
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OPERATING EXPENSES:
Real estate taxes 2,580 5,161
Operating and maintenance 703 1,372
Utilities 142 371
Payroll 440 848
Management fees 119 311
Professional fees 95 185
General and administrative 13 41
Depreciation and amortization 1,420 2,837
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Total operating expenses 5,512 11,126
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OTHER ITEMS:
Interest income 228 386
Interest expense (3,544) (7,070)
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Total other items (3,316) (6,684)
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NET INCOME $28,851 $32,593
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3. MORTGAGE NOTES
Mortgage notes consist of a $425,000 mortgage loan (the "1290 Mortgage
Loan") secured by the 1290 Property. 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 payment of a 25 basis point extension fee), at its option,
to extend the maturity for a period of twelve months. Between July 1,
2000 and December 31, 2000, the 1290 Mortgage Loan can be repaid
together with a prepayment premium equal to one-half of one percent of
the outstanding principal balance. The
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1290 Mortgage Loan may be repaid in whole after December 31, 2000,
without penalty or premium. 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.
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 4.95%
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.
Management believes, however, that no economic obligation exists to
JMB/NYC as of June 30, 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.
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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, 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.
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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. As of June 30,
2000, of the 12,997,646 shares issued and outstanding, 8,061,586
represents 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.
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 in consideration
of a special distribution to stockholders of $15.00 per share that was
made on that date. 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 in
consideration of two special distributions to stockholders of $15.00
per share that were made on such dates.
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 the three and six months ended June 30,
2000 aggregated approximately $75 and $150, respectively. Asset
management fees incurred for the three and six months ended June 30,
1999 aggregated approximately $75 and $150, respectively.
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 1290 Property and provides all
supervisory, management and leasing services. Until the sale of the 237
Property in November 1999, the Property Manager/Leasing Agent performed
similar services with respect to the 237 Property. The Management and
Leasing Agreement provides for a fee of 1.5% of gross revenues, payable
monthly and reimbursement for overhead and all reasonable
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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 three and six months ended
June 30, 2000 aggregated approximately $354 and $995, respectively.
Fees incurred for the three and six months ended June 30, 1999
aggregated approximately $2,626 and $3,213, respectively.
An affiliate of the Property Manager/Leasing Agent provides cleaning
services for the 1290 Property. Until the sale of the 237 Property in
November 1999, an affiliate of the Property Manger/Leasing Agent
performed similar services with respect to the 237 Property. Fees
incurred for cleaning services for the three and six months ended June
30, 2000 totaled $799 and $1,599, respectively. Fees incurred for the
three and six months ended June 30, 1999 aggregated approximately $986
and $2,081, 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 of a monthly fee and reimbursement of documented
out-of-pocket expenses. Fees incurred under the REIT Management
Agreement for the three and six months ended June 30, 2000 aggregated
approximately $31 and $63, respectively. Fees incurred for the three
and six months ended June 30, 1999 aggregated approximately $31 and
$63, respectively.
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 June 30, 2000.
The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 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
second 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.
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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.
As of June 30, 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 Properties are reported in
the consolidated financial statements of the Company using the consolidation
method of accounting.
Results of Operations
Quarters Ended June 30, 2000 and 1999
-------------------------------------
Base rental income decreased by approximately $5,075 for the quarter
ended June 30, 2000 as compared to the same period in the prior year. This
decrease of 19.1% 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 approximately 161,000 square feet entered into subsequent to
June 30, 1999.
Lease termination income decreased by $25,855 for the quarter ended
June 30, 2000 as compared to the same period in the prior year. 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 a payment by Swiss Re to the Company of a one-time lease
termination fee of $25,855.
Miscellaneous income decreased by $1,236 for the quarter ended June 30,
2000 as compared to the same period in the prior year. This decrease is
primarily due to the reversal of a utility tax claim reserve in June 1999 in the
amount of $2,900 which resulted in an increase in miscellaneous income for that
quarter, offset by $1,000 that the Company received in June 2000 from a tenant
at the 1290 Property in connection with the occupancy of space that the tenant
was previously subleasing and now leases directly.
Operating expenses for the quarter ended June 30, 2000 were $12,040, a
decrease of 24.8% from the quarter ended June 30, 1999. This decrease is
primarily attributable to the sale of the 237 Property. This decrease is
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 at the 1290 Property. Operating expenses as a percentage of
base rental income and escalation income increased to 53.4% for the quarter
ended June 30, 2000 from 51.9% for the quarter ended June 30, 1999.
Interest expense for the quarter ended June 30, 2000 increased 12.9%
from the quarter ended June 30, 1999. This increase is due to a higher level of
mortgage indebtedness, a higher interest rate on such indebtedness and an
increase in the amortization of deferred financing costs associated with such
indebtedness.
Six Months Ended June 30, 2000 and 1999
---------------------------------------
Base rental income decreased by $12,947 for the six months ended June
30, 2000 as compared to the same period in the prior year. This decrease 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
approximately 161,000 square feet entered into subsequent to June 30, 1999.
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Lease termination income decreased by $25,855 for the six months ended
June 30, 2000 as compared to the same period in the prior year. As of June 30,
1999, the Company terminated the lease with Swiss Re, a tenant of the 237
Property. The termination of the lease resulted in a payment by Swiss Re to the
Company of a one-time lease termination fee of $25,855.
Miscellaneous income decreased $1,306 for the six months ended June 30,
2000 as compared to the same period in the prior year. This decrease is
primarily due to the reversal of a utility tax claim reserve in June 1999 in the
amount of $2,900 which resulted in an increase in miscellaneous income for that
period, offset by $1,000 that the Company received in June 2000 from a tenant at
the 1290 Property in connection with the occupancy of space that the tenant was
previously sub-leasing and now leases directly.
Operating expenses for the six months ended June 30, 2000 were $23,246,
a decrease of 27.6% from the six months ended June 30, 1999. This decrease is
primarily due to the sale of the 237 Property. This decrease is 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 at
the 1290 Property. Operating expenses as a percentage of base rental income and
escalation income increased to 52.6% for the six months ended June 30, 2000 from
50.7% for the six months ended June 30, 1999.
Interest expense for the six months ended June 30, 2000 increased 16.1%
from the six months ended June 30, 1999. This increase is due to a higher level
of mortgage indebtedness, a higher interest rate on such indebtedness and an
increase in the amortization of deferred financing costs associated with such
indebtedness.
Liquidity and Capital Resources
During the six months ended June 30, 2000, cash flow from operations
totaled $8,337. The Company used this cash flow from operations to fund building
and tenant improvements of approximately $2,327 and leasing costs of
approximately $699.
At June 30, 2000, the Company has unrestricted cash on hand of
approximately $12,382 of which $1,950 was used to pay a dividend on July 14,
2000 to holders to record of the Company's Common Stock on June 30, 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). Between July 1, 2000 and December 31, 2000, the
1290 Mortgage Loan can be repaid together 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 or
premium. 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.
Other
This report contains certain "forward-looking statements" within the
protection of the statutory safe-harbors of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such statements using the
words "believes," "anticipates," "expects" and similar expressions, are
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected or suggested in such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
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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%
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.
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 6 months ended
June 30, 2000.
(b) Reports on Form 8-K.
None.
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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
---------------------------------------
Name: Lee S. Neibart
Title: President and Director
By: /S/ STUART KOENIG
----------------------------------------
Name: Stuart Koenig
Title: Vice President and Treasurer
Dated: August 14, 2000
S-1
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EXHIBIT INDEX
Exhibit No. Description
27.1 Financial Data Schedule
