FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1995
or
______ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to __________
Commission File Number 1-9450
[GRAPHIC OMITTED--Registrant's Logo]
METROPOLITAN REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2724893
535 Griswold, Suite 748
Detroit, Michigan 48226
(Address of principal executive offices)
(313) 961-5552
(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 number of shares outstanding of the registrant's common stock as of
September 30, 1995 was 4,532,169.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
BALANCE SHEET
September 30, 1995 and December 31, 1994
=============================================================================
September 30, December 31,
1995 1994
- - -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents .................... $ 1,570,762 $ 3,529,334
Marketable securities ........................ 13,715,418 10,783,048
Mortgage notes receivable:
Notes, earning ............................. 26,989,300 26,393,979
Allowance for loan losses .................. (1,600,000) (1,000,000)
------------ ------------
25,389,300 25,393,979
Real estate owned:
Foreclosed property held for sale, net of
accumulated depreciation of $65,866 at
December 31, 1994 ........................ -- 2,034,134
Valuation allowance ........................ -- (1,134,134)
------------ ------------
-- 900,000
Accrued interest and other receivables ....... 344,980 255,724
Other assets ................................. 308,953 163,083
------------ ------------
Total assets .................. $ 41,329,413 $ 41,025,168
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable:
Shareholder .............................. $ 5,500 $ 9,036
Trade .................................... 135,273 175,869
Deferred income ............................ 158,952 129,552
Deposits from borrowers for property taxes . 117,819 163,452
Security deposits .......................... -- 66,087
Other ...................................... -- 1,748
------------ ------------
Total liabilities ............. 417,544 545,744
------------ ------------
Commitments .................................. -- --
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000
shares authorized; no shares issued
and outstanding .......................... -- --
Common stock, $.01 par value; 25,000,000
shares authorized; 4,532,169 shares issued
and outstanding .......................... 45,322 45,322
Additional paid-in-capital ................. 43,355,529 43,355,529
Unrealized holding losses on marketable
securities available for sale ............ (16,245) (356,949)
Distributions in excess of net investment
income ................................... (2,472,737) (2,564,478)
------------ ------------
Total shareholders' equity .... 40,911,869 40,479,424
------------ ------------
Total liabilities and
shareholders' equity ... $ 41,329,413 $ 41,025,168
============ ============
<FN>
=============================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF OPERATIONS
for the three months and nine months ended
September 30, 1995 and 1994 and the year
ended December 31, 1994
==============================================================================================================================
Three months ended Nine months ended Year ended
==============================================================================================================================
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994 Dec. 31, 1994
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Interest income from mortgage notes $ 699,620 $ 728,339 $2,052,007 $2,369,964 $ 3,073,230
Investment income .................. 264,121 146,199 702,812 368,494 555,849
Miscellaneous income ............... 9,786 62,612 96,107 66,842 228,949
----------- ---------- ---------- ---------- -----------
Total income ................. 973,527 937,150 2,850,926 2,805,300 3,858,028
----------- ---------- ---------- ---------- -----------
Operating expenses:
Change in allowance for loan losses 850,000 -- 600,000 -- (461,500)
General and administrative ......... 308,074 117,707 601,261 343,615 436,562
Net loss (income) from
foreclosed property held for sale (827) 4,604 334,238 124,699 1,295,416
----------- ---------- ---------- ---------- -----------
Total operating expenses ..... 1,157,247 122,311 1,535,499 468,314 1,270,478
----------- ---------- ---------- ---------- -----------
Net investment income (loss) . $ (183,720) $ 814,839 $1,315,427 $2,336,986 $ 2,587,550
=========== ========== ========== ========== ===========
Net investment income (loss) per share $ (.04) $ .18 $ .29 $ .52 $ .57
=========== ========== ========== ========== ===========
Weighted average shares of common
stock outstanding .................. 4,532,169 4,532,169 4,532,169 4,532,169 4,532,169
=========== ========== ========== ========== ===========
<FN>
==============================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1995 and 1994
=============================================================================================
Nine months ended
Sept. 30, 1995 Sept. 30, 1994
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net investment income ............................... $ 1,315,427 $ 2,336,986
----------- -----------
Adjustments to reconcile net investment income to
net cash provided by operating activities:
Change in allowance for loan losses ............... 600,000 --
Valuation provision for foreclosed property ....... 314,421 --
Amortization of loan origination fees ............. (36,883) (73,166)
Depreciation expense .............................. 42,382 53,252
Other ............................................. 15,861 13,121
Expiration of commitment fees ..................... -- (22,838)
Increase in assets:
Receivables ..................................... (89,256) (24,964)
Other assets .................................... (148,560) (16,096)
Increase (decrease) in liabilities:
Accounts payable ................................ (44,132) (66,676)
Deposits and other liabilities .................. (113,468) 18,153
----------- -----------
Total adjustments ....................... 540,365 (119,214)
----------- -----------
Net cash provided by operating activities 1,855,792 2,217,772
----------- -----------
Cash flows from investing activities:
Purchases of marketable securities .................. (3,507,382) (2,027,021)
Collections of principal from marketable securities . 899,855 908,831
Loan disbursements .................................. (402,047) --
Loan repayments ..................................... 274,721 3,511,304
Cash proceeds from sale of foreclosed property, net . 92,157 --
Commitment and loan extension fees received ......... 63,525 38,000
Loan origination expenses paid ...................... (10,237) --
Capital expenditures ................................ (1,270) --
----------- -----------
Net cash provided by (used in) investing
activities ........................... (2,590,678) 2,431,114
----------- -----------
Cash flows from financing activities:
Dividends paid ...................................... (1,223,686) (1,767,546)
----------- -----------
Net increase (decrease) in cash and cash equivalents .. (1,958,572) 2,881,340
Cash and cash equivalents, beginning of period ........ 3,529,334 2,336,939
----------- -----------
Cash and cash equivalents, end of period .............. $ 1,570,762 $ 5,218,279
=========== ===========
<FN>
=============================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
METROPOLITAN REALTY CORPORATION
Notes to Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation have been
included. Operating results for the three months and nine months ended
September 30, 1995 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995. For further
information, refer to the financial statements and footnotes thereto
included in Metropolitan Realty Corporation's (the "Company") annual
report on Form 10-K for the fiscal year ended December 31, 1994.
The accompanying financial statements for the three months and nine
months ended September 30, 1994 reflect certain reclassifications to
be consistent with the presentation adopted for the three months and
nine months ended September 30, 1995.
2. EARNINGS PER SHARE
The earnings per share for the three months and nine months ended
September 30, 1995 and 1994 and the year ended December 31, 1994 are
based on the weighted average number of shares of common stock
outstanding during the period.
3. MARKETABLE SECURITIES
Marketable securities available for sale are carried at market value
and unrealized gains and losses are included in a separate component
of shareholders' equity. Shareholders' equity at September 30, 1995
includes net unrealized holding losses on marketable securities of
$16,245 at September 30, 1995 and $356,949 at December 31, 1994.
Marketable securities at September 30, 1995 and December 31, 1994
consist of Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation mortgage-backed securities. Realized gains and
losses on sales of securities are determined based upon specific
identification.
The net loss on the sales of marketable securities included in
investment income in the accompanying statement of operations for the
three months and nine months ended September 30, 1995 aggregated
$7,927 and $15,861, respectively. The net loss on the sales of
marketable securities included in investment income for the three
months and nine months ended September 30, 1994 aggregated $5,877 and
$13,121, respectively. At September 30, 1995, all marketable
securities are considered available for sale.
4
<PAGE>
4. MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable as of the dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
======================================================================================
September 30, 1995 December 31, 1994
- - --------------------------------------------------------------------------------------
<S> <C> <C>
9.09% Mortgage note receivable, net of loan $4,216,547 $4,238,157
origination fees of $28,789 at September 30,
1995 and $31,985 at December 31, 1994, due
monthly in installments of principal and
interest of $35,494 through December 2000
10.0% and 10.5% Mortgage note receivable, 967,313 971,030
net of loan origination fees of $6,834 at
September 30, 1995 and $7,760 at December
31, 1994, due monthly in varying
installments of principal and interest
through December 1999
9.3752% Mortgage note receivable, net of 2,116,050 2,127,504
loan origination fees of $6,962 at September
30, 1995 and $8,216 at December 31, 1994, due
monthly in installments of principal and
interest of $18,298 through January 2000
10.25% Mortgage note receivable, net of loan 1,819,897 1,836,190
origination fees of $18,856 at September 30,
1995 and $21,407 at December 31, 1994, due
monthly in varying installments of principal
and interest through April 2000
8.0% and 9.5% Mortgage note receivable, net 1,364,957 1,369,349
of loan origination fees of $6,267 at
September 30, 1995 and $7,045 at December
31, 1994, due monthly in varying
installments of principal and interest
through August 2000
9.25% Mortgage note receivable, net of loan 616,596 622,842
origination fees of $9,258 at September 30,
1995 and $10,408 at December 31, 1994, due
monthly in installments of principal and
interest of $5,800 through September 2000
9.875% Mortgage note receivable, net of loan 671,038 673,579
origination fees of $6,381 at September 30,
1995 and $7,109 at December 31, 1994, due
monthly in varying installments of principal
and interest through October 2000
10.5% Mortgage note receivable, net of loan 942,008 945,613
origination fees of $4,359 at September 30,
1995 and $4,828 at December 31, 1994, due
monthly in varying installments of principal
and interest through December 2000
11.25% Mortgage note receivable, net of loan 2,106,026 2,119,938
origination fees of $13,807 at September 30,
1995 and $15,321 at December 31, 1994, due
monthly in installments of principal and
interest of $21,961 through October 2000
10.25% Mortgage note receivable, net of loan 259,301 261,166
origination fees of $3,847 at September 30,
1995 and $4,282 at December 31, 1994, due
monthly in varying installments of principal
and interest through January 2001
</TABLE>
6
<PAGE>
4. MORTGAGE NOTES RECEIVABLE, continued
<TABLE>
<CAPTION>
========================================================================================
September 30, 1995 December 31, 1994
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
11.25% Mortgage note receivable, net of loan $ 1,579,520 $ 1,589,953
origination fees of $10,355 at September 30,
1995 and $11,491 at December 31, 1994, due
monthly in installments of principal and
interest of $16,471 through October 2000
9.5% Mortgage note receivable, net of loan 720,636 723,425
origination fees of $9,592 at September 30,
1995 and $10,613 at December 31, 1994, due
monthly in varying installments of principal
and interest through February 2001
9.875% Mortgage note receivable, net of loan 2,448,910 2,458,787
origination fees of $16,240 at September 30,
1995 and $17,951 at December 31, 1994, due
monthly in varying installments of principal
and interest through January 1999
10.25% and 9.75% Mortgage notes receivable, 2,337,852 2,362,444
net of loan origination fees of $23,674 at
September 30, 1995 and $34,370 at December
31, 1994, due monthly in varying
installments of principal and interest
through April 1997
10.25% and 12.25% Mortgage notes receivable, 2,247,475 2,350,670
net of loan origination fees of $14,258 at
September 30, 1995 and $20,715 at December
31, 1994, due monthly in varying
installments of principal and interest
through April 1997
10.25% Mortgage note receivable, net of loan 1,742,985 1,743,332
origination fees of $53,807 at September 30,
1995 and $56,668 at December 31, 1994, due
monthly in installments of interest only
through April 1995 at which time varying
installments of principal and interest will
be due monthly through April 2003
10.00% Mortgage note receivable due monthly 454,029 --
in installments of principal and interest of
$4,889 through August 2000
Bank prime rate plus 1% Mortgage note 378,160 --
receivable of $1,365,000 with $402,047 ------------ ------------
disbursed at September 30, 1995, net of
loan origination fees of $23,887 at September 30,
1995 due monthly in installments of interest only
until final closing, July 1997, at which time
payments of principal and interest of $12,355
will be due monthly through July 2007
------------ ------------
26,989,300 26,393,979
Allowance for loan losses (1,600,000) (1,000,000)
------------ ------------
Mortgage notes receivable, net of allowance $ 25,389,300 $ 25,393,979
for loan losses ============ ============
</TABLE>
6
<PAGE>
4. MORTGAGE NOTES RECEIVABLE, continued
The Company's portfolio of mortgage notes receivable are reported at
their principal outstanding balance net of charge-offs and deferred
loan fees and costs on originated loans. Interest income is generally
recognized when income is earned using the interest method. Loan
origination fees and certain direct loan origination costs are
deferred and the net amounts are amortized as adjustments of the
loans' yields.
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114), as
amended by SFAS 118, on January 1, 1995. Under the new standard, a
loan is considered impaired, based on current information and events,
if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired
loans is based on the discounted cash flows of the underlying
collateral. The cumulative effect of adopting the provisions of SFAS
No. 114 was not significant.
At September 30, 1995, the total recorded investment in impaired
loans, as defined by SFAS 114, was $5,826,000. The allowance related
to these loans was increased by $850,000 during the third quarter of
1995. The Company determined an increase in the allowance was
necessary as a result of the continued deterioration of the underlying
collateral and limited market rent potential on certain loans. In its
analysis of the adequacy of the allowance for loan losses, the Company
used operating cash flow analyses and other information obtained
through an independent valuation of the Company's mortgage portfolio
performed in conjunction with the proposed restructuring discussed in
Note 10.
5. REAL ESTATE OWNED
The Company had been carrying an apartment building obtained through a
foreclosure at its estimated fair value which was $900,000 at December
31, 1994. The carrying value was written down to $555,000 during the
quarter ended June 30, 1995 as the result of an offer to purchase the
property. On August 1, 1995, a sale of this property was consummated.
In accordance with the terms of the purchase agreement, the Company
received $100,000 of the purchase price at the August 1, 1995
settlement date. The remaining $455,000 of the purchase price will be
paid, pursuant to the terms of a mortgage note bearing interest at 10%
per annum, in monthly installments of principal and interest of $4,889
commencing in September 1995 until maturity in August 2000, at which
time the remaining unpaid principal of approximately $375,000 is due.
The mortgage note is guaranteed by the borrower and may be prepaid in
whole or in part at any time.
During 1994, the Company reached settlements with the guarantors of
the foreclosed loan aggregating $320,000. These settlements are
payable over four to eight years, commencing in 1995, with interest
rates ranging from non-interest bearing to 7.5%. Income from the
settlements is recognized by the Company when received and is recorded
as miscellaneous income in the statement of operations. Settlement
income totalled $9,450 and $52,450 for the three months and nine
months ended September 30, 1995, respectively.
7
<PAGE>
5. REAL ESTATE OWNED, continued
The property's operating income and expenses are reflected in the
statement of operations. The net loss from foreclosed property held
for sale totalled $334,238 for the nine months ended September 30,
1995 and $124,699 for the nine months ended September 30, 1994 and
consisted of the following:
<TABLE>
<CAPTION>
=======================================================================
Nine Months Ended
- - -----------------------------------------------------------------------
September 30, 1995 September 30, 1994
- - -----------------------------------------------------------------------
<S> <C> <C>
Rental Income ............ $432,292 $504,954
-------- --------
Expenses:
Operating expenses ..... 382,296 540,086
Valuation provision* ... 314,421 --
Depreciation expense ... 38,422 49,400
Management fees ........ 23,779 26,738
Professional fees ...... 7,612 13,429
-------- --------
Total expenses . 766,530 629,653
-------- --------
Net loss from foreclosed
property held for sale ... $334,238 $124,699
======== ========
<FN>
* - Net of selling expenses
=======================================================================
</TABLE>
6. DIVIDENDS
Under pertinent provisions of the Internal Revenue Code (the "Code"),
a real estate investment trust may consider a dividend declared in a
subsequent year to be a distribution of income of the immediately
prior year and thus reduce income subject to income tax. On March 10,
1995, the Board of Directors of the Company declared a cash dividend
of $.13 per share of common stock, to its shareholders of record on
March 21, 1995, payable on March 31, 1995. Of this dividend, $.06 was
payable from income earned by the Company in 1994 and $.07 was payable
from 1995 income. On June 8, 1995, the Board of Directors of the
Company declared a cash dividend of $.07 per share of common stock, to
its shareholders of record on June 21, 1995, payable on June 30, 1995
from 1995 income. On September 8, 1995, the Board of Directors of the
Company declared a cash dividend of $.07 per share of common stock to
its shareholders of record on September 20, 1995 payable on September
29, 1995 from 1995 income. These dividends are taxable to shareholders
as ordinary income.
7. INCOME TAXES
The Company intends to operate at all times to qualify as a real
estate investment trust under the Code. In general, each year
qualification is met, income is not subject to federal income tax at
the Company level to the extent distributed to shareholders. The
Company thus intends to distribute at least 95% of its net investment
income to its shareholders. Accordingly, no provision for income taxes
has been made for the three and nine months ended September 30, 1995.
8
<PAGE>
8. RELATED PARTY TRANSACTIONS
The Company was involved in various transactions with affiliates as
follows:
Consulting fees under a contractual agreement aggregating $33,390 and
$31,800 were earned by an officer of the Company during the nine
months ended September 30, 1995 and 1994, respectively.
Fees aggregating $18,210 and $14,259 during the nine months ended
September 30, 1995 and 1994, respectively, were earned by a
shareholder of the Company for providing various investment and other
services to the Company.
During the nine months ended September 30, 1995 and 1994, one of the
Company's directors was a member of a law firm which provides legal
services to the Company. Fees for legal services provided by the law
firm amounted to $230,805 for the nine months ended September 30,
1995, of which $163,083 relates to the transaction discussed in Note
10, and $94,366 for the nine months ended September 30, 1994.
9. COMMITMENTS
At September 30, 1995, the Company had outstanding loan commitments
aggregating $2,413,000.
10. OTHER
On September 8, 1995, the Company's Board of Directors gave its
approval for the generation of additional capital through a limited
liability company ("LLC") to be formed and for a proposed
restructuring of the Company into the LLC. The Company expects to
raise new capital of approximately $50 million through the private
placement of securities by the LLC. Distributions to current Company
shareholders under the proposed LLC restructuring are expected to
remain consistent with current levels. At September 30, 1995, $450,000
of professional fees have been incurred in connection with this
transaction, of which $250,000 have been deferred.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The Company's investment in mortgage loans represented 61% and 62% of
its assets at September 30, 1995 and December 31, 1994 or $25,389,300 and
$25,393,979, respectively. The range of yields on earning mortgage loans
closed from the Company's inception through September 30, 1995 ranges from 8%
to 12.25%. At September 30, 1995, the Company had outstanding loan commitments
for additional commercial and residential land development loans aggregating
$2,413,000.
The overall average yield on interest earning assets was 8.8% for the
nine months ended September 30, 1995 and 9.6% for the year ended December 31,
1994. The average amount held in marketable mortgage-backed securities, net of
unrealized holding gains and losses for the nine months ended September 30,
1995, was $11.5 million. The average yield on marketable mortgage-backed
securities
9
<PAGE>
(based on total yield divided by average amount of investments) was 5.7% for
the nine months ended September 30, 1995 and 4.6% for the year ended December
31, 1994.
Investment income increased $117,922 to $264,121 for the third quarter
of 1995 from $146,199 for the third quarter of 1994. Of the increase, $130,768
was the result of an increase in investment income from marketable
mortgage-backed securities offset by a $12,846 decrease in investment income
from money market securities. Investment income increased $334,318 to $702,812
for the first nine months of 1995 from $368,494 for the first nine months of
1994. Of the increase, $279,343 and $54,975 were the result of increased
investment income from marketable mortgage-backed securities and money market
securities, respectively.
Investment income from marketable mortgage-backed securities increased
$130,768 to $218,431 for the third quarter of 1995 from $87,663 for the third
quarter of 1994. Of the increase, $39,420 was the result of an increase in the
average amount invested in marketable mortgage-backed securities and $91,348
was the result of an increase in average yield. Investment income from
marketable mortgage-backed securities increased $279,343 to $537,982 for the
first nine months of 1995 from $258,639 for the first nine months of 1994. Of
the increase, $149,960 was the result of an increase in average yield and
$129,383 was the result of an increase in the average amount invested in
marketable mortgage-backed securities.
Investment income from money market securities decreased $12,846 to
$45,690 for the third quarter of 1995 from $58,536 for the third quarter of
1994. Of the decrease, $25,595 was the result of a decrease in the average
amount invested in money market securities offset by a $12,749 increase in
average yield. Investment income from money market securities increased
$54,975 to $164,830 for the first nine months of 1995 from $109,855 for the
first nine months of 1994. Of the increase, $60,886 was the result of an
increase in average yield offset by a $5,911 decrease due to a decrease in the
average amount invested in money market securities.
Interest income from mortgage notes decreased $28,719 to $699,620 for
the third quarter of 1995 from $728,339 for the third quarter of 1994. Of the
decrease, $27,570 was the result of a decrease in the average amount invested
in loans and $1,149 was the result of a decrease in average yield. Interest
income from mortgage notes decreased $317,957 to $2,052,007 for the first nine
months of 1995 from $2,369,964 for the first nine months of 1994. Of the
decrease, $221,532 was the result of a decrease in the average amount invested
in loans and $96,425 was the result of a decrease in average yield.
Operating expenses increased $1,034,936 to $1,157,247 for the third
quarter of 1995 from $122,311 for the third quarter of 1994. This increase
resulted primarily from an $850,000 increase in the allowance for loan losses
and a $200,000 increase in general and administrative expenses for costs
associated with the Company's proposed restructuring into a limited liability
company. Operating expenses increased $1,067,185 to $1,535,499 for the first
nine months of 1995 from $468,314 for the first nine months of 1994. This
increase consisted of a $600,000 increase in the allowance for loan losses, a
$209,539 increase in the net loss from foreclosed property held for sale,
which was largely attributable to an increase in the provision for valuation
allowance, a $200,000 increase in general and administrative expenses for
10
<PAGE>
costs of the Company's proposed restructuring, and a $57,646 increase in other
general and administrative expenses, due primarily to increased loan advisory
and professional service fees.
Net investment income decreased to a $183,720 net loss, or $.04 loss
per share, for the third quarter of 1995 from $814,839 net income, or $.18 per
share, for the third quarter of 1994. Net investment income decreased to
$1,315,427, or $.29 per share, for the first nine months of 1995 from
$2,336,986, or $.52 per share, for the first nine months of 1994.
Management reviews, on a regular basis, factors which adversely affect
its mortgage loans, including occupancy levels, rental rates and property
values. It is possible that economic conditions in Southeast Michigan and the
nation in general may adversely affect certain of the Company's loans. The
allowance related to these loans was increased by $850,000 during the third
quarter of 1995. The Company determined an increase in the allowance was
necessary as a result of the continued deterioration of the underlying
collateral and limited market rent potential on certain loans. In its analysis
of the adequacy of the allowance for loan losses, the Company used operating
cash flow analyses and other information obtained through an independent
valuation of the Company's mortgage portfolio performed in conjunction with
its proposed restructuring.
The Company had been carrying an apartment building obtained through a
foreclosure at its estimated fair value which was $900,000 at December 31,
1994. The carrying value was written down to $555,000 during the quarter ended
June 30, 1995 as the result of an offer to purchase the property. On August 1,
1995, a sale of this property was consummated. In accordance with the terms of
the purchase agreement, the Company received $100,000 of the purchase price at
the August 1, 1995 settlement date. The remaining $455,000 of the purchase
price will be paid, pursuant to the terms of a mortgage note bearing interest,
at 10% per annum, in monthly installments of principal and interest of $4,889
commencing in September 1995 until maturity in August 2000, at which time the
remaining unpaid principal of approximately $375,000 is due. The mortgage note
is guaranteed by the borrower and may be prepaid in whole or in part at any
time.
During 1994, the Company reached settlements with the guarantors of
the foreclosed loan aggregating $320,000. These settlements are payable over
four to eight years, with interest rates ranging from non-interest bearing to
7.5%. Income from settlements is recorded as miscellaneous income when
received and totalled $9,450 and $52,450 for the three months and nine months
ended September 30, 1995. The property's operating income and expenses are
reflected in the statement of operations as net loss from foreclosed property
held for sale and totalled $334,238 for the nine months ended September 30,
1995 and $124,699 for the nine months ended September 30, 1994.
The Company expects to have the balance of its available assets
invested in mortgage loans to real estate projects by the end of 1996.
Liquidity and Capital Resources
Funds that have not yet been invested in mortgage loans are primarily
invested in marketable mortgage-backed securities until needed for the
Company's operations or investments in mortgage loans. Income and principal
received with respect to the Company's investment in mortgage loans are also
11
<PAGE>
invested in marketable securities pending distribution to shareholders in the
form of dividends or reinvestment in mortgage loans. At September 30, 1995,
the Company had $25,389,300 invested in net mortgage loans, $13,715,418
invested in marketable mortgage-backed securities and $1,454,219 invested in
money market funds.
At September 30, 1995, the Company had outstanding loan commitments
aggregating $2,413,000 which are expected to close by the end of 1995. The
source of funds to satisfy these commitments will be the Company's marketable
securities. The Company anticipates that its sources of cash are more than
adequate to meet its liquidity needs.
On September 8, 1995, the Company's Board of Directors gave its
approval for the generation of additional capital through a limited liability
company ("LLC") to be formed and for a proposed restructuring of the Company
into the LLC. The Company expects to raise new capital of approximately $50
million through the private placement of securities by the LLC. Distributions
to current Company shareholders under the proposed LLC restructuring are
expected to remain consistent with current levels. At September 30, 1995,
$450,000 of professional fees have been incurred in connection with this
transaction, of which $250,000 have been deferred.
The Company's policy is to declare and pay cash dividends on a
quarterly basis. The Company paid dividends totalling $.27 per share during
the first nine months of 1995, all of which was ordinary income to
shareholders. The Company paid dividends totalling $.39 per share during the
first nine months of 1994.
12
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
METROPOLITAN REALTY CORPORATION
Dated: November 13, 1995 By: /s/ Jay B. Rising, President
----------------------------
Jay B. Rising, President
(Chief Executive Officer and
Chief Financial Officer)
13
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> $ 1,570,762
<SECURITIES> 13,715,418
<RECEIVABLES> 26,989,300
<ALLOWANCES> (1,600,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,329,413
<CURRENT-LIABILITIES> 258,592
<BONDS> 0
<COMMON> 45,322
0
0
<OTHER-SE> 40,866,547
<TOTAL-LIABILITY-AND-EQUITY> 41,329,413
<SALES> 0
<TOTAL-REVENUES> 2,850,926
<CGS> 0
<TOTAL-COSTS> 621,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 914,421
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,315,427
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,315,427
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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