FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1995
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 No. 1-9450
METROPOLITAN REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Michigan 38-2724893
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(State of incorporation) (I.R.S. Employer Identification No.)
535 Griswold, Suite 748
Detroit, Michigan 48226
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(Address of principal executive offices)
Registrant's Telephone Number, including area code:
(313) 961-5552
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
- -------------- -----------------------------------------
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
Form 10-K.
YES _____ NO ___X___
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of March 22, 1996 was $15,023,741. The number of shares
outstanding of the Registrant's common stock as of March 22, 1996 was
4,532,169.
<PAGE>
METROPOLITAN REALTY CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
(For the Fiscal Year Ended December 31, 1995)
Page
----
PART I
ITEM 1. BUSINESS..................................................1
ITEM 2. PROPERTIES................................................2
ITEM 3. LEGAL PROCEEDINGS.........................................2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......2
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS...............................2
ITEM 6. SELECTED FINANCIAL DATA...................................3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................4
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*..............9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........9
ITEM 11. EXECUTIVE COMPENSATION...................................14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...........................................15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K..............................................18
* The Company's financial statements are set forth in the separate financial
section which follows page 21 of this Form 10-K and begins on page F-1.
<PAGE>
PART I
ITEM 1. BUSINESS.
Metropolitan Realty Corporation (the "Company") is a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Tax Code"). The Company was incorporated under Michigan law on November
13, 1986. In November 1988, the Company issued 4,512,169 shares of common
stock in an initial public offering and received net proceeds of $43,200,851.
As a REIT, the Company is required to invest most of its assets in real
estate assets, cash, and government securities. The Company intends to invest
substantially all of its assets in mortgage loans to real estate projects
located in southeastern Michigan in the counties of Wayne and Macomb. At
December 31, 1995, the Company's total mortgage loan portfolio is invested 74%
in projects located in the City of Detroit, 11% in projects located in the
County of Macomb, and 15% in projects located in the County of Wayne outside
of the City of Detroit.
The Company's mortgage loans include financing for industrial and
mixed-use facilities, office buildings, and retail and residential centers.
The Company has favored investments that will provide a competitive return and
permanent financing for projects which create construction jobs and stimulate
the Southeast Michigan economy. All mortgage loans to date are collateralized
by a first lien on real property. At December 31, 1995, the Company's largest
loan approximates 10% of its total assets, and the carrying value of all
mortgage loans approximates 61% of its total assets.
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. As of December 31,
1995, approximately 32% of the Company's net assets remained invested in
marketable securities. The Company believes that its mortgage loans and
marketable mortgage-backed securities will provide a competitive economic
return to its shareholders while protecting their capital.
The Company continues to evaluate real estate projects and intends to
liquidate its remaining marketable securities to make additional mortgage
loans to qualified projects located in southeastern Michigan. Although the
Company has competed and is competing with financial institutions such as
banks, insurance companies, savings and loan associations, mortgage bankers,
pension funds and other real estate investment vehicles with investment
objectives similar to those of the Company, the Company believes it has
targeted a market niche which is underserved.
During 1995, the Company had one full-time administrative employee. The
day-to-day operations of the Company are administered by the Executive Vice
President who serves on a part-time basis under the direction of the President
and the Executive Committee. Members of the Board of Directors serve without
pay as officers and committee members and devote a considerable amount of time
to the administration and operations of the Company.
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ITEM 2. PROPERTIES.
The Company's executive offices are located at Suite 748, 535 Griswold,
Detroit, Michigan, 48226. The Company rents this office space under a
month-to-month lease which provides for a monthly rental of approximately
$1,513, which is comparable to prevailing rentals for similar facilities. The
Company's offices are suitable and adequate for the current operations of the
Company.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending, or, to the knowledge of
the Company, threatened, to which the Company is a party or by which its
property may be bound.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders since
the Annual Meeting of Shareholders held June 8, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the American Stock Exchange (the
"Exchange"). The Company is listed for trading on the Exchange under the
symbol "MET". The following table sets forth the high and low sales prices on
the Exchange and dividends paid per share during each quarter of the years
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------------------------- --------------------------
Dividends Dividends
High Low Paid High Low Paid
---- --- ---- ---- --- ----
<C> <C> <C> <C> <C> <C> <C>
1st Quarter 6-1/8 5-5/8 $.13 6-3/8 5-1/8 $.22
2nd Quarter 7-1/8 5-3/4 .07 5-7/8 5-5/8 .12
3rd Quarter 7-1/4 6-3/4 .07 6 5-3/4 .05
4th Quarter 8-7/8 7-1/8 .07 5-3/4 5-5/8 .24
---- ----
$.34 $.63
==== ====
</TABLE>
As of March 15, 1996, 4,532,169 shares of common stock were issued and
outstanding, and the number of shareholders of record was 53.
The Company intends to continue to pay cash dividends to shareholders on
a quarterly basis in aggregate amounts sufficient to distribute at least 95%
of its "real estate investment trust taxable income" in order to maintain its
status as a REIT under the Tax Code. The Company will continue
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<PAGE>
to furnish annually to each shareholder a statement setting forth
distributions paid during the preceding year and their characterization as
ordinary income, return of capital or capital gain. All dividends paid in 1995
and 1994 have been ordinary income to shareholders.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data as of December 31,
1995, 1994, 1993, 1992, and 1991 and for the years then ended:
<TABLE>
<CAPTION>
1995(1) 1994(2) 1993(3) 1992(4) 1991(4)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total income....................... $3,764,059 $3,858,028 $3,715,985 $3,828,950 $4,135,186
Net investment income.............. 1,990,203 2,587,550 2,700,898 2,112,662 1,934,853
Net investment income per share.... .44 .57 .60 .47 .43
Total assets....................... 41,760,901 41,025,168 41,626,490 41,235,710 42,189,033
Shareholders' equity............... 41,333,327 40,479,424 41,104,089 40,850,562 41,910,418
Cash dividend per share............ .34 .63 .54 .70 .77
Return on assets................... 4.77% 6.31% 6.49% 5.12% 4.59%
Return on equity................... 4.82% 6.39% 6.57% 5.18% 4.64%
Dividend payout ratio.............. 100% 100% 100% 100% 97.98%
Equity to assets ratio............. 98.98% 98.67% 98.75% 99.07% 99.34%
<FN>
(1) Net investment income decreased by approximately 23% from $2,587,550,
or $.57 per share, for 1994 to $1,990,203, or $.44 per share for 1995. The
decrease in net investment income from 1994 to 1995 is due primarily to a
$1,061,500 increase in the change in the provision for loan losses and a
$405,000 increase in general and administrative expenses, of which $313,000 is
for costs associated with the Company's proposed restructuring into a limited
liability company, offset by a $963,000 decrease in net loss from foreclosed
property held for sale. Of the cash dividend of $.34 per share paid in 1994,
$.06 was paid from taxable income earned in 1994 and $.28 was paid from
taxable income in 1995. All dividends paid have been ordinary income to
shareholders.
(2) Net investment income decreased by approximately 4% from $2,700,898,
or $.60 per share, for 1993 to $2,587,550, or $.57 per share, for 1994. The
decrease in net investment income from 1993 to 1994 is due principally to a
$994,000 increase in the valuation provision for foreclosed property held for
sale, offset by a $462,000 decrease in the allowance for loan losses, a
$278,000 decrease in other operating expenses, and $114,000 of income from a
loan prepayment penalty. Of the cash dividend of $.63 per share paid in 1994,
$.08 was paid from taxable income earned in 1993 and $.55 was paid from
taxable income earned in 1994.
(3) Net investment income increased by approximately 28% from
$2,112,662, or $.47 per share, for 1992 to $2,700,898, or $.60 per share, for
1993. The increase in net investment income from 1992 to 1993 is due
principally to a $900,000 decrease in allowance for loan losses expense,
offset by the net loss from operations of foreclosed property held for sale of
approximately $338,000. Of the cash dividend of $.54 per share paid in 1993,
$.03 was paid from taxable income earned in 1992 and $.51 was paid from
taxable income earned in 1993.
3
<PAGE>
(4) Net investment income increased by approximately 9% from $1,934,853,
or $.43 per share, for 1991 to $2,112,662, or $.47 per share, for 1992. The
increase in net investment income from 1991 to 1992 is due principally to a
$440,500 decrease in allowance for loan losses expense, offset by an
approximately $306,000 decrease in total income. Of the cash dividend of $.70
per share paid in 1992, $.10 was paid from taxable income earned in 1991 and
$.60 was paid from taxable income earned in 1992. Of the cash dividend of $.77
per share paid in 1991, $.10 was paid from taxable income earned in 1990 and
$.67 was paid from taxable income earned in 1991. Taxable income resulting
from undistributed earnings for the year ended December 31, 1991 is $72,088.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
The Company's net investment in mortgage loans to real estate projects
represented 61% of its assets, or $25,364,328, at December 31, 1995 and 62% of
its assets, or $25,393,979, at December 31, 1994. The yields on the Company's
outstanding mortgage loans range from 7.25% to 12.25%. The weighted average
yield of earning mortgage loans is 10.27% at December 31, 1995, as compared to
10.58% at December 31, 1994. The weighted average term of outstanding mortgage
loans is 8.94 years. At December 31, 1995, the Company had outstanding loan
commitments for additional commercial mortgage loans aggregating $921,000. The
amount of marketable securities (which consisted primarily of Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation
mortgage-backed, pass through securities) held by the Company during 1995
averaged $11,992,000 and earned an average yield of 5.8%, as compared to
average marketable security holdings of $8,164,000 which earned an average
yield of 4.8% during 1994. The average yield on all interest earning assets
was 8.7% for the year ended December 31, 1995 and 8.9% for the year ended
December 31, 1994.
Investment income from marketable securities increased $302,673 to
$689,955 for the year ended December 31, 1995 from $387,282 for the year ended
December 31, 1994. Of the increase, $186,003 was the result of an increase in
the average amount invested in marketable securities and $116,670 was the
result of an increase in the average yield earned.
Investment income from money market securities increased $9,444 to
$194,431 for the year ended December 31, 1995 from $184,987 for the year ended
December 31, 1994. Of the increase, $56,106 was the result of an increase in
average yield offset by a $46,662 decrease in the average amount invested in
money market securities.
Investment income from mortgage loans decreased $318,255 to $2,754,975
for the year ended December 31, 1995 from $3,073,230 for the year ended
December 31, 1994. Of the decrease, $233,321 was the result of a decrease in
the average amount invested in mortgage loans and $84,934 was the result of a
decrease in the average yield.
Miscellaneous income decreased $86,033 to $142,916 for the year ended
December 31, 1995 from $228,949 for the year ended December 31, 1994. The
decrease primarily results from
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<PAGE>
$114,000 in prepayment penalties received in 1994 offset by a $19,000 increase
in income from guarantor settlements from 1994 to 1995.
Operating expenses increased 40% to $1,773,856 for the year ended
December 31, 1995 from $1,270,478 for the year ended December 31, 1994. This
increase is due to a $1,061,500 increase in the change in the provision for
loan losses, a $312,944 increase in general and administrative expenses for
costs associated with the Company's proposed restructuring into a limited
liability company, and a $92,397 increase in other general and administrative
expenses, due primarily to increased loan advisory and professional service
fees, offset by a $963,463 decrease in net loss from foreclosed property held
for sale.
Net investment income decreased by 23% to $1,900,203 or $.44 per share,
for the year ended December 31, 1995 from $2,587,550, or $.57 per share, for
the year ended December 31, 1994 as a result of the items discussed above.
Management reviews, on a regular basis, factors which may adversely
affect its mortgage loans, including occupancy levels, rental rates and
property values. It is possible that economic conditions in southeastern
Michigan, and the nation in general, may adversely affect certain of the
Company's other loans.
The Company had maintained an allowance for doubtful accounts of
$1,461,500 from December 31, 1992 through the third quarter of 1994 to reflect
the expected recoverable cash flows from three troubled loans.
During 1994, the cash flows generated by one of the above loans which had
previously been in default, collateralized by a shopping center, increased
significantly. As this increase was supported by an improvement in tenant
base, the Company determined at December 31, 1994 that this loan no longer
required a loss reserve. The loan loss reserve was reduced, accordingly, by
$461,500 during the fourth quarter of 1994 to $1,000,000. The other loan with
an affiliated borrower, which was also formerly in default, had not exhibited
the same magnitude of improvement in cash flows and tenants during 1994. The
loan loss reserve, however, was further reduced by $250,000 in the second
quarter of 1995, based on the Company's determination that the continued
assignment of rents reduced the risk of loss associated with this loan.
In 1994, only one loan was operating under a loan modification agreement.
The borrower was current with the modified debt service requirements during
1994, although the underlying apartment collateral continued to experience
high tenant turnover and poor cash flow, and monthly debt service payments
were occasionally late. During 1995, the borrower tried unsuccessfully to find
a buyer for this property. The physical property collateralizing the loan
began to deteriorate as the year progressed. An independent analysis of the
loan portfolio performed in the third quarter of 1995, confirmed the
deterioration of the property compared to similar properties in the
surrounding geographic location. The independent valuation also identified a
loan, collateralized by a shopping center which has begun to experience
limited market rent potential based on recent commercial developments in its
surrounding market area. Based on the results of this independent market
valuation, the allowance relating to these loans was increased by $850,000
during the third quarter of 1995. The Company believes that the allowance for
loan losses of $1,600,000 at December 31, 1995 is adequate to reflect mortgage
loans at their estimated net realizable value.
5
<PAGE>
On December 23, 1992, the Company obtained an apartment building located
in Detroit, Michigan, through a foreclosure sale. This property was the
collateral for a construction loan under which the borrower defaulted during
1992. The carrying value of the property was written down to its estimated
fair value at the time of foreclosure of $2,100,000, based upon a July 1992
independent appraisal, net of a $140,000 valuation allowance for the estimated
costs to sell the property. At December 31, 1994 the carrying value of the
property was reduced to $900,000 to reflect an updated property valuation
based on the results of the Company's marketing efforts to locate a buyer for
the property. The carrying value of the property was further 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, the 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 noninterest-bearing to 7.5%.
Income from settlements is recorded as miscellaneous income when received and
totalled $62,000 and $43,000 for the years ended December 31, 1995 and 1994,
respectively. The property's operating income and expenses from the date of
foreclosure are reflected in the statement of operations as net loss from
foreclosed property held for sale and total $331,953, $1,295,416, and $337,699
for the year ended December 31, 1995, 1994 and 1993, respectively.
Investment income from mortgage-backed marketable securities decreased
$34,968 to $387,282 for the year ended December 31, 1994 from $403,608 for the
year ended December 31, 1993. Of the decrease, $9,508 was the result of a
decrease in the average amount invested in marketable securities and $26,260
was the result of a decrease in the average yield earned.
Investment income from money market securities increased $134,211 to
$184,987 for the year ended December 31, 1994 from $50,776 for the year ended
December 31, 1993. Of the increase, $112,893 was the result of an increase in
the average amount invested in money market securities and $21,318 was the
result of an increase in average yield.
Investment income from mortgage loans decreased $40,646 to $3,073,230 for
the year ended December 31, 1994 from $3,113,876 for the year ended December
31, 1993. Of the decrease, $210,745 was the result of a decrease in average
mortgage loans offset by a $45,326 increase in the stated average yield on all
mortgage loans, and a $124,773 increase in interest income from loans which
were nonearning at December 31, 1993.
Miscellaneous income increased $102,162 to $228,949 for the year ended
December 31, 1994 from $126,787 for the year ended December 31, 1993. The
increase primarily resulted from $114,000 in prepayment penalties received in
1994.
6
<PAGE>
Operating expenses increased 25% to $1,270,478 for the year ended
December 31, 1994 from $1,015,087 for the year ended December 31, 1993. The
majority of this increase is due to a $957,717 increase in net loss from
foreclosed property held for sale, which was largely attributable to a
$994,000 increase in the provision for valuation allowance, offset by a
$461,500 decrease in the allowance for loan losses. Other operating expenses
decreased $240,826 to $436,562 for the year ended December 31, 1994 from
$677,388 for the year ended December 31, 1993. This decrease is due to a
$147,363 reduction in general and administrative expenses, primarily as a
result of decreased professional service fees, and a $93,463 reduction in
amortization of organization costs, which became fully amortized in 1993.
Net investment income decreased by 4% to $2,587,550, or $.57 per share,
for the year ended December 31, 1994 from $2,700,898, or $.60 per share for
the year ended December 31, 1993 as a result of the items discussed above.
Investment income from marketable securities decreased $264,888 to
$403,608 for the year ended December 31, 1993 from $668,496 for the year ended
December 31, 1992. Of the decrease, $153,487 was the result of a decrease in
the average amount invested in marketable securities and $111,401 was the
result of a decrease in the average yield earned.
Investment income from mortgage loans increased $105,192 to $3,113,876
for the year ended December 31, 1993 from $3,008,684 for the year ended
December 31, 1992. Of the increase, $354,411 was the result of an increase in
average mortgage loans offset by a $38,918 decrease in the stated average
yield on all mortgage loans, a $54,381 decrease in interest income due to
property received in foreclosure and a $155,920 decrease in interest income
due to the Company's decision to discontinue accruing interest on certain
loans.
Operating expenses decreased 41% to $1,015,087 for the year ended
December 31, 1993 from $1,716,288 for the year ended December 31, 1992. The
majority of this decrease is due to a $900,000 decrease in the allowance for
loan losses offset by a $337,699 net loss from foreclosed property held for
sale. Other operating expenses, consisting primarily of general and
administrative expenses, decreased $138,900 as a result of decreased
professional fees.
Net investment income increased by 28% to $2,700,898, or $.60 per share,
for the year ended December 31, 1993 from $2,112,662, or $.47 per share, for
the year ended December 31, 1992 as a result of the items discussed above.
The Company intends to continue to invest its available funds at
competitive market rates in mortgage loans to real estate projects located in
southeastern Michigan. Cycles in the local and national economy have affected
and could continue to affect the Company's ability to invest its remaining
funds in mortgage loans and the yields attainable on such investments.
Decreases in market interest rates may result in lower returns on future
mortgage loans than on the mortgage loans closed to date. Although the Company
expects to have the balance of its available assets fully invested in mortgage
loans by the end of 1996 management will continue its prudent approach of
approving funding only of those loans which meet appropriate underwriting
criteria.
7
<PAGE>
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 investments in mortgage loans are also
invested in marketable mortgage backed securities pending distribution to
shareholders in the form of dividends or reinvestment in mortgage loans. At
December 31, 1995, the Company had $25,364,328 invested in mortgage loans,
$9,809,793 invested in marketable mortgage-backed securities, $3,516,940
invested in U.S. Treasury Notes, and $2,294,965 invested in money market
funds. The Company does not invest in high risk, mortgage-backed securities
such as interest only strips or residual traunches. However, there can be no
assurance that cash flows will materialize as scheduled as a result of
prepayments of the underlying mortgages.
At December 31, 1995, the Company had outstanding loan commitments
aggregating $921,000. 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 a proposed restructuring of the Company into a limited liability company
("LLC") and the generation of additional capital through the LLC. The Company
expects to raise new capital of $25 to $50 million through the private
placement of securities by the LLC. Current company shareholders with fewer
than 50,000 shares will receive a cash payment, in lieu of a membership
interest in the LLC, which approximates the book value of their shares, or
approximately $1.05 million in the aggregate. This payment will be made with
cash from the sale of marketable securities. Distributions to current company
shareholders under the proposed LLC restructuring are expected to remain
consistent with current levels. During the years ended December 31, 1995 and
1994, professional fees incurred in connection with this transaction totaled
$495,000 and $131,000, respectively, of which $182,000 and $131,000 have been
deferred at December 31, 1995 and 1994, respectively.
Net cash generated by operating activities during 1995 aggregated
$2,555,102, including $2,898,231 in net investment income adjusted for noncash
depreciation and amortization expense, the valuation provisions for mortgage
loans and foreclosed property held for sale, and amortization of net loan
origination fees.
Net cash used in investing activities during 1995 aggregated $2,097,276
and consisted primarily of purchases of marketable securities and loan
disbursements offset by collections of principal from marketable securities
and loan repayments. The Company purchased $3,507,381 of marketable securities
and disbursed $444,293 in loans. The Company collected $1,345,072 of principal
from marketable mortgage-backed securities and $355,151 of loan repayments.
Financing activities in 1995 consisted of dividend payments to
shareholders of $1,540,939 which represented $.34 per outstanding share.
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 these new standards, a loan is considered
impaired, based on current information and
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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.
The Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," at December 31, 1995; SFAS 107 requires disclosure of
fair value information about financial instruments along with the valuation
method and significant assumptions used.
The Company's policy is to declare and pay cash dividends on a quarterly
basis. The Company declared and paid dividends aggregating $.34 per share
during the year ended December 31, 1995, compared to $.63 per share during the
year ended December 31, 1994 and $.54 per share during the year ended December
31, 1993. The Company declared a dividend of $.11 per share of common stock to
its shareholders of record on March 25, 1996 which will be paid on March 29,
1996 from the Company's money market funds.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company, consisting of balance sheet,
statement of operations, statement of shareholders' equity, statement of cash
flows and the notes to financial statements, are set forth in the separate
financial section which begins on page F-1 and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There have been no changes in the Company's independent public
accountants during the past two fiscal years, and the Company does not
disagree with such accountants on any matter of accounting principles,
practices, or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Board of Directors
The following table sets forth certain information regarding each
director, including name, age, principal occupation for the past five years,
other directorships with publicly-owned companies or with public institutions,
and term of service as a director of the Company. The information set forth in
the table was provided to the Company by each director.
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<TABLE>
<CAPTION>
Has Served
as a Director
Name and Age Principal Occupation Since
------------ -------------------- ------------
<S> <C> <C>
Daniel L. Boone, 47 Business Representative, International Union of 1991(2)
Operating Engineers Local 324, a labor
organization, since 1987. Has been with the
Apprenticeship Program since 1989. Previously
worked as an Operating Engineer since 1967.
David M. Diegel, 50 Finance Director, Macomb County, Michigan, serving 1993(2)(4)
as its Chief Financial Officer since 1984.
Previously served as Assistant Finance Director,
Audit Officer, and Chief Accountant for the County
of Macomb from 1973 to 1984. Currently serves as
Secretary to the Macomb County Employees
Retirement Commission and as an ex-officio Member
of the Macomb County Criminal Justice Building
Authority.
Wayne S. Doran, 61 Chairman of the Board of Ford Motor Land 1988(1)(5)
Development Corp., a real estate development
company, since 1978.
Russell P. Flynn, 63 Treasurer of the Company since 1994; Director, 1988(1)(3)
Pension Fund Investments for Chrysler Corporation,
where he has been responsible for investment of
the pension assets of Chrysler Corporation since
1981.
David B. Hanson, 49 Senior Vice President, Walbridge Aldinger, a 1994(2)
construction management and general contractor,
since 1995. Vice President and General Manager of
Turner Construction Co., a construction management
company and general contractor, from 1984 to 1995.
Serves on the Boards of Directors of Greater
Detroit Chamber of Commerce, African American
Association of Businesses and Contractors, and
Boys Hope-Detroit.
Kenneth L. Hollowell, 51 Secretary-Treasurer, Teamsters Local Union #247, 1992
since March 1988, and a staff member and/or
officer since May 1971. Served as Member, Policy
Committee of the Central Conference of Teamsters
from 1992 to 1994. Michigan Teamsters Joint
Council #43, Executive Board member since 1989
currently its Recording Secretary. Board member
Economic Alliance of Michigan. Member of Police
Commissioners, City of Detroit, since May 1994.
Robert G. Jackson, 64 President, since 1985, and Executive Vice 1988(2)(3)
President, from 1977 to 1985, of Ford Motor Land
Development Corp., a real estate development
company.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Has Served
as a Director
Name and Age Principal Occupation Since
------------ -------------------- -------------
<S> <C> <C>
Richard P. Kughn, 66 Chairman of the Board of the Company since July 1987(1)(3)
1989. In addition, Chairman and President of Kughn
Enterprises, a real estate development and asset
management company, since 1979. Chairman Emeritus
and minority owner of Lionel L.L.C. Other ventures
include: The Upper Deck Company, a sports card
manufacturer; The Whitney Restaurant, Detroit;
Longbow Productions, a film and television
production company. Serves on the Board of
Trustees of the University of Detroit Mercy.
Serves on the Board of Directors of AAA Michigan,
Core Industries, Detroit Chamber of Commerce and
Michigan Historical Foundation. Mr. Kughn served
as President of Frenchtown Commons Development
Company, which filed for relief under Chapter 7 of
the United States Bankruptcy Code in 1991.
F. Thomas Lewand, 49 Partner, Bodman, Longley & Dahling LLP since 1992, 1988(1)(4)
a Detroit, Michigan-based law firm; practicing
attorney with and shareholder of Jaffe, Raitt,
Heuer & Weiss, Professional Corporation from 1970
to 1992. Serves as a Vice Chairman of the
President's Cabinet of the University of Detroit
Mercy. Also served as Chairman of the Michigan
Democratic Party from 1989- 1990 and Chief of
Staff to Michigan Governor Blanchard in 1983.
Ernest Lofton, 64 Vice President, UAW International Union, Director 1991(1)
of the UAW National Ford Department and Director
of the UAW Michigan Community Action Program
Department, since 1989. Served as a member of the
UAW International Executive Board since May 1983
when elected Director of UAW Region 1A. Serves on
the Board of the NAACP; Blue Cross & Blue Shield
of Michigan; New Detroit, Inc.; Detroit Economic
Growth Corporation; and Economic Alliance of
Michigan; National Secretary of the Coalition of
Black Trade Unionists and a member of the Economic
Policy Council of the UNA.
Robert H. Naftaly, 58 Executive Vice President, Chief Financial Officer 1989(1)(3)
and Treasurer of Blue Cross and Blue Shield of
Michigan, since 1988. Previously served as Vice
President and General Auditor of Detroit Edison
Company, an electric utility, since July 1987;
Director - Michigan Department of Management and
Budget from 1983 to July 1987; and managing
partner and founder of Geller, Naftaly & Shapero,
C.P.A.s from 1960 to October 1983. Also serves on
numerous national and community associations.
Timothy L. Nichols, 45 Secretary of the Company since August 1989. 1989(1)
Secretary/Treasurer of the Michigan State Building
and Construction Trades Council since 1988. Served
as President of the Michigan State Building and
Construction Trades Council (from 1985 to 1988)
and as Secretary/Treasurer of the Southeast
Michigan Building Trades Council (from 1983 to
1985). Served as Business Agent, Ironworkers Local
#25, from 1979 to 1988.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Has Served
as a Director
Name and Age Principal Occupation Since
------------ -------------------- -------------
<S> <C> <C>
Jay B. Rising, 43 President of the Company since July 1989. 1988(2)(3)
Principal, Miller, Canfield, Paddock and Stone,
P.L.C. Chief Deputy Treasurer, State of Michigan,
from 1986 to 1991.
Joel A. Schwartz, 34 Project Manager, Ford Motor Land Services 1995(2)
Corporation, a real estate developer, since 1990.
Adjunct Professor of Corporate Finance, Wayne
State University, School of Business
Administration, since 1993. Associate, Plante &
Moran Certified Public Accountants & Management
Consultants, 1983 to 1990.
Harold Smith, 55 Retired. Former Chief City Planner, City of 1995
Detroit Planning Department, for 31 years.
Frank D. Stella, 76 Founder (in 1946) and Chairman and Chief Executive 1987(4)(5)
Officer of the F.D. Stella Products Company and
Chairman of F.D. Stella International New York,
engaged in design and distribution of food service
and dining equipment. Former chairman of the
Finance Committee of the Michigan State Republican
Committee, trustee of the University of Detroit
Mercy, director of the Economic Club of Detroit,
director of Complete Business Solutions, Inc.
(CBSI), past member of the Executive Committee of
the Republican National Committee, past chairman
of the National Republican Heritage Groups
Council, past director of the Michigan Chamber of
Commerce, past Chairman of the Greater Detroit
Chamber of Commerce, past chairman of the
Concerned Citizens for the Arts of Michigan,
Director and Member of Executive Committee of the
Detroit Symphony Orchestra Hall, Chairman of the
Board of Merrill Palmer Institute of Wayne State
University and Director and Vice President of
Michigan Opera Theatre.
Marc Stepp, 73 Executive Director, Institute for Urban and 1987(1)(2)(5)
Community Affairs, University of Detroit Mercy.
Previously served as Vice President of the
International United Auto Workers (`UAW') since
1974. Served as director of the UAW's Chrysler
Department, General Dynamics Department, Foundry
Department and Job Development and Training
Department.
James M. Tervo, 49 Executive Assistant to the Mayor, City of Detroit, 1995(2)(4)(5)
Michigan, since 1995. Prior to 1995 was a Partner,
Dickinson, Wright, Moon, Van Dusen & Freeman, a
Detroit, Michigan-based law firm.
Samuel H. Thomas, Jr., 54 Vice Chairman of the Company since August 1989. In 1988(2)
addition, Vice President of Phoenix Management
since 1994, and owner of Burlington Investments,
Inc. (real estate management and development
companies, respectively). President of Thomas &
Mancinelli Pizza, Inc., from 1987 to 1994. Also
serves as a trustee of the Detroit Institute of
Arts.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Has Served
as a Director
Name and Age Principal Occupation Since
------------ -------------------- -------------
<S> <C> <C>
R. Douglas Trezise, 71 Retired. Previously served as Deputy State 1991(4)
Treasurer, Michigan Department of Treasury, from
1975 to 1990. Was a member of the Michigan House
of Representatives from 1971 to 1974. Was employed
by General Telephone Company of Michigan (now GTE)
from 1950 to 1970. From 1967 to 1975, served as a
director of the First Federal Savings and Loan
Association of Owosso. Member of Owosso Advisory
Committee to First Federal of Detroit (now First
Federal of Michigan) from 1975 to 1989. Chairman
of State Employees' Retirement Board.
Ronald C. Yee, 43 Director of Risk Management, Wayne County, and 1991(2)(3)
since 1990 Assistant Executive Secretary to Wayne
County Employees Retirement System. Served as
Chief Labor Relations Analyst for Wayne County
Labor Relations from 1986 to 1990.
<FN>
* Less than 0.1%.
(1) Member of the Executive Committee
(2) Member of the Loan Committee
(3) Member of the Audit Committee
(4) Member of the Nominating and Personnel Committee
(5) Member of the Fee and Compensation Committee
</TABLE>
On September 4, 1991, Frenchtown Commons Development Company, a Michigan
corporation ("Frenchtown Commons"), filed for relief under Chapter 7 of the
United States Bankruptcy Code. Executive officers of Frenchtown Commons
included Richard P. Kughn as president. The first meeting of creditors was
held on October 1, 1991. The Trustee submitted a report of no assets to the
court on December 24, 1991 and the court is now in the process of closing the
case. Richard P. Kughn is also a director of Core Industries, a company that
is required to file periodic reports with the Securities and Exchange
Commission.
To the Company's knowledge, no director, officer or beneficial owner of
more than ten percent of the outstanding Common Stock of the Company failed to
file on a timely basis reports, if any, required by Section 16(a) of the
Securities Exchange Act of 1934.
13
<PAGE>
Executive Officers
The table below sets forth certain information concerning the
Company's executive officers.
<TABLE>
<CAPTION>
Name Age Office Time in Office
---- --- ------ --------------
<S> <C> <C>
Richard P. Kughn* 66 Chairman of the Board Since July 1989
Samuel H. Thomas, Jr.* 54 Vice Chairman of the Board Since August 1989
Jay B. Rising* 43 President Since July 1989
Nancy A. Mattar* 34 Executive Vice President Since January 1993
Russell P. Flynn* 63 Treasurer Since March 1994
Timothy L. Nichols* 45 Secretary Since August 1989
Prior to becoming the Executive Vice President of the Company in 1993,
Ms. Mattar was Vice President of M.S. Goldklang & Co., Inc. (a merchant
banking firm in Jersey City, NJ).
<FN>
*For a discussion of the officers' (other than Ms. Mattar's) principal
occupation and business experience during the past five (5) years, see the
information provided under "Board of Directors", above.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION.
Jay B. Rising, the President, serves without compensation as the Chief
Executive Officer and Chief Financial Officer of the Company. Nancy A. Mattar,
the Executive Vice President, has responsibility for the day-to-day
administration of the Company's affairs under the direction of the President
and the Executive Committee.
Cash compensation in the aggregate amount of $42,400.08 was paid,
directly or indirectly, to Mattar Consulting Services, Inc. for services
rendered during 1995. Nancy A. Mattar, the Executive Vice President, is the
record or beneficial owner of all of the outstanding stock of Mattar
Consulting Services, Inc. All such compensation was paid pursuant to the
Agency and Consulting Agreement described below in Item 13. No cash or other
compensation was paid to any other executive officer for services performed
during 1995, except to the extent any such individual may have been reimbursed
for out-of-pocket expenses incurred in connection with his duties as a member
of the Board of Directors or a committee thereof.
The Bylaws provide that no director is entitled to compensation for
serving as a Director in connection with regular or special meetings of the
Board of Directors. The Board of Directors may, by the affirmative vote of a
majority of directors in office, reimburse directors and committee members for
their reasonable out-of-pocket expenses incurred in connection with their
duties and may establish reasonable compensation of directors for serving as a
member of any committee established by the Board. To date, the Company has not
paid any compensation to any director for serving as a member of any
committee.
14
<PAGE>
The Company does have a Fee and Compensation Committee. The current
members of the Fee and Compensation Committee are Messrs. Doran, Kughn,
Stella, Stepp and Tervo. Mr. Doran serves as Chairman of the Fee and
Compensation Committee. The Committee is responsible for recommending the
appropriate fees and compensation, if any, to be paid to the Company's
executive officers and committee members. During the fiscal year ended
December 31, 1995, the Fee and Compensation Committee had one meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Certain Beneficial Owners
The following table sets forth certain information regarding the entities
which, to the Company's knowledge and belief, were the beneficial owners of
more than five percent (5%) of the outstanding Common Stock as of December 31,
1995.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
- ------------------------------------ --------- --------
<S> <C> <C>
Chrysler Corporation Master Retirement Trust... 789,470(1) 17.42%
12000 Oakland Ave.
Highland Park, MI 48203
Ford Motor Company............................. 765,000(1) 16.88%
Ford Motor Company World Headquarters
The American Road
Dearborn, MI 48121
Treasurer, State of Michigan................... 760,000(2) 16.77%
Department of Treasury
Treasury Building
Lansing, MI 48922
Operating Engineers Local 324 Pension Fund..... 500,000(1) 11.03%
37450 Schoolcraft, Suite 110
Livonia, MI 48150
<FN>
(1) Reflects shares held of record or beneficially as to which the named
beneficial owner exercises sole voting and investment power.
(2) The Treasurer of the State of Michigan is the investment fiduciary for
the following state-sponsored retirement systems, each of which
beneficially owns the indicated number of shares of Common Stock; (a)
Public School Employees' Retirement System, 500,000 shares (11.03%); (b)
State Employees' Retirement System, 250,000 shares (5.52%); and (c) State
Police Retirement System, 10,000 shares (.22%). As the investment
fiduciary, the Treasurer, by and through the Department of Treasury's
Bureau of Investments, and subject to the authority of an Investment
Advising Committee, exercises sole voting and investment power with
respect to the shares held by such retirement systems.
</TABLE>
15
<PAGE>
Management
The following table sets forth certain information as of February 9, 1996
regarding ownership of shares of Common Stock by the directors and officers of
the Company individually and as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Ownership(1) of Class
------------------------ ------------ --------
<S> <C> <C>
Daniel L. Boone, Director
David M. Diegel, Director
Wayne S. Doran, Director
Russell P. Flynn, Treasurer, Director
David B. Hanson, Director
Kenneth L. Hollowell, Director
Robert G. Jackson, Director
Richard P. Kughn, Chairman of the Board, Director ..... 100 (2)
F. Thomas Lewand, Director
Ernest Lofton, Director
Nancy A. Mattar, Executive Vice President
Robert H. Naftaly, Director
Timothy L. Nichols, Secretary, Director
Jay B. Rising, President, Director
Joel A. Schwartz, Director
Harold Smith, Director
Frank D. Stella, Director ............................. 500 (2)
Marc Stepp, Director .................................. 100 (2)
James M. Tervo, Director
Samuel H. Thomas, Jr., Vice Chairman, Director
R. Douglas Trezise, Director
Ronald C. Yee, Director
All current directors and officers of the Company
as a group (22 persons) ............................. 700 (2)
<FN>
(1) Reflects shares held of record or beneficially as to which the named
beneficial owner exercises sole voting and investment power.
(2) Less than 1%.
</TABLE>
16
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company entered into an Agency and Consulting Agreement dated as of
February 4, 1993 with Mattar Consulting Services, Inc. ("MCS"), pursuant to
which MCS provides certain financial and business consulting and other
services to the Company. Nancy A. Mattar is President of MCS and is the
Company's Executive Vice President. The Agreement has been extended through
December 31, 1996 and provides for annual compensation in the amount of
$46,746.
NBD Bancorp, Inc. ("NBD") is the record holder of 225,000 shares or 4.96%
of the outstanding Common Shares. The Company and NBD Bank, N.A. (formerly
National Bank of Detroit) (the "Bank"), a wholly-owned subsidiary of NBD,
entered into an Investment Management Service Agreement (the "Investment
Agreement") dated February 15, 1989, pursuant to which the Bank manages
certain of the Company's short-term investments. The Investment Agreement may
be terminated by either the Company or the Bank upon thirty (30) days' written
notice. The Bank is compensated by the Company for its services at the rate of
.15 of 1% per annum on the average daily market value of the Company's
portfolio, with a minimum annual charge of $5,000. In 1994, fees aggregating
$11,280.18 were paid to the Bank for services provided under the Investment
Agreement. In 1995, fees aggregating $22,371.69 were paid to the Bank for
services provided under the Investment Agreement as well as other services.
The Company made a $4,376,000 mortgage loan in 1989 to Walbridge
Aldinger, a construction management company and general contractor of which
Mr. Hanson, a director since 1994, became senior vice president in January
1995. The carrying amount of the mortgage loan, reduced for unamortized loan
origination fees received in excess of loan origination costs paid, was
$4,265,018 at December 31, 1993, $4,238,157 at December 31, 1994 and
$4,206,330 at December 31, 1995. The mortgage note bears interest at 9.09% and
is due in December, 2000.
Bodman, Longley & Dahling LLP provides legal services to the Company. Mr.
Lewand, a director, is a partner in Bodman, Longley & Dahling LLP. Fees for
legal services amounted to $306,394 for the year ended December 31, 1995.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. Documents Filed as part of Report. The following documents are filed
---------------------------------
as part of this Report.
1. A list of the financial statements
required to be filed as part of this Form
10-K are shown in the "Index to the
Financial Statements and Schedule" filed
herewith.
2. The financial statement schedule required
to be filed as a part of this Form 10- K
is shown in the "Index to the Financial
Statements and Schedule" filed herewith.
3. A list of the exhibits required by Item
601 of the Regulation S-K to be filed as a
part of this Form 10-K are shown in the
"Index to Exhibits" filed herewith.
b. Reports on Form 8-K. The Company did not file any reports on
-------------------
Form 8-K during the last quarter of 1995.
18
<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.
Dated: March 25, 1995 METROPOLITAN REALTY CORPORATION
By: /s/ Jay B. Rising
--------------------------------
Jay B. Rising, President
(Principal Executive Officer and
Principal Financial Officer)
And By: /s/ Russell P. Flynn
--------------------------------
Russell P. Flynn, Treasurer
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
/s/ Jay B. Rising Attorney-In-Fact March 25, 1996
- -------------------------------
*Jay B. Rising
* Director March 25, 1996
- --------------------------------
Daniel L. Boone
* Director March 25, 1996
- --------------------------------
David M. Diegel
* Director March 25, 1996
- --------------------------------
Wayne S. Doran
* Director March 25, 1996
- --------------------------------
Russell P. Flynn
* Director March 25, 1996
- --------------------------------
David B. Hanson
* Director March 25, 1996
- --------------------------------
Kenneth L. Hollowell
* Director March 25, 1996
- --------------------------------
Robert G. Jackson
* Director March 25, 1996
- --------------------------------
Richard P. Kughn
* Director March 25, 1996
- --------------------------------
F. Thomas Lewand
* Director March 25, 1996
- --------------------------------
Ernest Lofton
* Director March 25, 1996
- --------------------------------
Robert H. Naftaly
* Director March 25, 1996
- --------------------------------
Timothy L. Nichols
Director March 25, 1996
Joel A. Schwartz
* Director March 25, 1996
- --------------------------------
Harold Smith
* Director March 25, 1996
- --------------------------------
Frank D. Stella
20
<PAGE>
Signature Title Date
--------- ----- -----
* Director March 25, 1996
- --------------------------------
Marc Stepp
* Director March 25, 1996
- --------------------------------
James M. Tervo
* Director March 25, 1996
- --------------------------------
Samuel H. Thomas, Jr.
* Director March 25, 1996
- --------------------------------
R. Douglas Trezise
* Director March 25, 1996
- --------------------------------
Ronald C. Yee
21
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS AND SCHEDULE
PAGES
-----
REPORT OF INDEPENDENT ACCOUNTANTS F-2
BALANCE SHEET, DECEMBER 31, 1995 AND 1994 F-3
STATEMENT OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 F-4
STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993 F-5
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 F-6
NOTES TO FINANCIAL STATEMENTS F-7--F-29
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts F-30
F-1
<PAGE>
[ letterhead of Coopers & Lybrand ]
Coopers Coopers & Lybrand L.L.P.
& Lybrand
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Metropolitan Realty Corporation:
We have audited the financial statements and the financial statement
schedule of Metropolitan Realty Corporation listed on page F-1 of this Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metropolitan Realty
Corporation as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand LLP
Detroit, Michigan
March 15, 1996
F-2
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International,
a limited liability association incorporated in Switzerland.
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
BALANCE SHEET, December 31, 1995 and 1994
ASSETS 1995 1994
- ------ ---- ----
<S> <C> <C>
Cash and cash equivalents ........................................ $ 2,446,221 $ 3,529,334
Marketable securities ............................................ 13,326,733 10,783,048
Mortgage notes receivable:
Notes, earning ................................................ 22,726,171 22,187,649
Notes, related party .......................................... 4,238,157 4,206,330
Allowance for loan losses ..................................... (1,600,000) (1,000,000)
------------ ------------
25,364,328 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 ........................... 282,620 255,724
Other assets ..................................................... 340,999 163,083
------------ ------------
Total assets ............................. $ 41,760,901 $ 41,025,168
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable:
Shareholder .................................................. $ 5,500 $ 9,036
Trade ........................................................ 120,032 175,869
Deferred income ................................................ 153,952 129,552
Deposits from borrowers for property taxes ..................... 146,385 163,452
Security deposits .............................................. -- 66,087
Other .......................................................... 1,705 1,748
------------ ------------
Total liabilities ........................ 427,574 545,744
------------ ------------
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 gains (losses) on marketable securities
available for sale .......................................... 47,690 (356,949)
Distributions in excess of net investment income ............... (2,115,214) (2,564,478)
------------ ------------
Total shareholders' equity ........................ 41,333,327 40,479,424
------------ ------------
Total liabilities and shareholders' equity ... $ 41,760,901 $ 41,025,168
============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Interest income from mortgage notes ...... $2,754,975 $3,073,230 $3,113,876
Investment income ........................ 866,168 555,849 475,322
Miscellaneous income ..................... 142,916 228,949 126,787
---------- ---------- ----------
Total income ..................... 3,764,059 3,858,028 3,715,985
---------- ---------- ----------
Operating expenses:
Change in allowance for loan losses ...... 600,000 (461,500) --
General and administrative ............... 841,903 436,562 583,925
Net loss from foreclosed
property held for sale ................. 331,953 1,295,416 337,699
Amortization of organization costs ....... -- -- 93,463
---------- ---------- ----------
Total operating expenses ......... 1,773,856 1,270,478 1,015,087
---------- ---------- ----------
Net investment income ............ $1,990,203 $2,587,550 $2,700,898
========== ========== ==========
Net investment income per share ............ $ .44 $ .57 $ .60
========== ========== ==========
Weighted average shares of common stock
outstanding .............................. 4,532,169 4,532,169 4,532,169
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
METROPOLITAN REALTY CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
Unrealized Distributions
Holding Gains in Excess of
Common Stock Additional (Losses) on Net Total
------------------- Paid-in Marketable Investment Shareholders'
Shares Amount Capital Securities Income(1) Equity
------ ------ --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 ....... 4,532,169 $45,322 $43,355,529 $(2,550,289) $40,850,562
Net investment income ............. 2,700,898 2,700,898
Cash dividend of $.54 per share ... (2,447,371) (2,447,371)
--------- ------- ----------- ----------- -----------
Balances at December 31, 1993 ..... 4,532,169 45,322 43,355,529 (2,296,762) 41,104,089
Net investment income ............. 2,587,550 2,587,550
Cash dividend of $.63 per share ... (2,855,266) (2,855,266)
Adjustment to beginning balance ... $ 3,624 3,624
for change in accounting
principle (Note 2)
Change in unrealized holding ...... (360,573) (360,573)
gains (losses) on marketable
securities
--------- ------- ----------- --------- ----------- -----------
Balances at December 31, 1994 ..... 4,532,169 45,322 43,355,529 (356,949) (2,564,478) 40,479,424
Net investment income ............. 1,990,203 1,990,203
Change in unrealized holding ...... 404,639 404,639
gains (losses) on marketable
securities
Cash dividend of $.34 per share ... (1,540,939) (1,540,939)
--------- ------- ----------- --------- ----------- -----------
Balances at December 31, 1995 ..... 4,532,169 $45,322 $43,355,529 $ 47,690 $(2,115,214) $41,333,327
========= ======= =========== ========= =========== ===========
<FN>
1 See Note 7 to the financial statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY CORPORATION
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net investment income .................................. $ 1,990,203 $ 2,587,550 $ 2,700,898
----------- ----------- -----------
Adjustments to reconcile net investment income to net
cash provided by operating activities:
Amortization of net loan origination fees ........... (50,095) (104,008) (83,832)
Allowance for loan losses (recovery) expense ........ 600,000 (461,500) --
Valuation provision for foreclosed property ......... 314,421 994,134 --
Depreciation and amortization expense ............... 43,702 71,012 98,641
Expiration of commitment and application fees ....... (15,000) (22,838) (21,000)
Other ............................................... 23,263 16,557 24,223
(Increase) decrease in assets:
Accrued interest and other receivables ............ (26,896) (33,784) 40,085
Other assets ...................................... (181,926) (131,293) 190
Increase (decrease) in liabilities:
Accounts payable .................................. (59,373) 16,615 28,566
Other liabilities ................................. (83,197) 24,566 57,050
----------- ----------- -----------
Total adjustments ........................ 564,899 369,461 143,923
----------- ----------- -----------
Net cash provided by operating
activities ............................. 2,555,102 2,957,011 2,844,821
----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities ..................... (3,507,381) (4,767,232) --
Collections of principal from marketable securities .... 1,345,072 1,093,691 1,874,708
Loan disbursements ..................................... (444,293) (150,000) (1,800,000)
Loan repayments ........................................ 355,151 4,876,191 211,043
Commitment and loan extension fees received ............ 73,525 38,000 40,223
Cash proceeds from sale of foreclosed property, net .... 92,157 -- --
Loan origination expenses paid ......................... (10,237) -- (15,601)
Capital expenditures ................................... (1,270) -- --
Other receivable repayments ............................ -- -- 16,785
----------- ----------- -----------
Net cash provided by (used in)
investing activities ................... (2,097,276) 1,090,650 327,158
----------- ----------- -----------
Cash flows used in financing activities,
dividends paid ......................................... (1,540,939) (2,855,266) (2,447,371)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents ............................................ (1,083,113) 1,192,395 724,608
Cash and cash equivalents, beginning of year ............. 3,529,334 2,336,939 1,612,331
----------- ----------- -----------
Cash and cash equivalents, end of year ................... $ 2,446,221 $ 3,529,334 $ 2,336,939
=========== =========== ===========
Supplemental disclosure of cash flow
information, noncash investing activities:
Receivable from sale of foreclosed property - $455,000.
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-6
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Metropolitan Realty Corporation (the "Company"), incorporated November 13,
1986, was organized to qualify as a real estate investment trust ("REIT")
under the provisions of the Internal Revenue Code. As a REIT, the Company
is required to invest most of its assets in real estate assets, cash and
government securities. The Company intends to invest substantially all of
its assets in mortgage loans to real estate projects located in
southeastern Michigan in the counties of Wayne and Macomb. At December 31,
1995, the Company's total mortgage loan portfolio is invested 74% in
projects located in the City of Detroit, 11% in projects located in the
County of Macomb, and 15% in projects located in the County of Wayne
outside of the City of Detroit.
The Company's mortgage loans include financing for industrial and mixed-use
facilities, office buildings, and retail and residential centers. The
Company has favored investments that will provide a competitive return and
permanent financing for projects which create construction jobs and
stimulate the Southeast Michigan economy. All mortgage loans to date are
collateralized by a first lien on real property. At December 31, 1995, the
Company's largest loan approximates 10% of its total assets, and the
carrying value of all mortgage loans approximates 61% of its total assets.
2. ACCOUNTING POLICIES:
The preparation of these financial statements, in order to be presented in
conformity with generally accepted accounting principles, requires that
management use estimates and assumptions regarding events anticipated and
transpired, together with their potential effects upon the reported amounts
of assets and liabilities, as well as the disclosures and assessments of
contingent liabilities at the date of the financial statements, and in
determining the reported amounts of revenues, costs and expenses of the
reporting periods. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS
No. 115), effective January 1, 1994. Under SFAS No. 115, 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 includes net unrealized
holding gains on marketable securities of $47,690 at December 31, 1995
($38,133 related to mortgage-backed securities and $9,557 related to
U.S. Treasury
Continued
F-7
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES, continued:
Marketable Securities, continued:
notes) and net unrealized holdings losses on marketable mortgage-backed
securities of $356,949 at December 31, 1994. Realized gains or losses on
sales of securities are determined based upon specific identification.
The realized net loss on marketable securities, included in investment
income in the accompanying statement of operations, resulted from called
mortgaged-backed securities and aggregated $23,263 for the year ended
December 31, 1995 and $16,557 for the year ended December 31, 1994. At
December 31, 1995 and 1994, all marketable securities are considered
available for sale.
Allowance for Loan Losses
The Company adopted SFAS 114, "Accounting by Creditors for Impairment of
a Loan", 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
generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair
value of the collateral. The cumulative effect of adopting the
provisions of SFAS 114 was not significant.
The Company provides for possible losses on its portfolio of mortgage
notes receivable based on an evaluation of each mortgage note. In
determining the allowance for possible losses, the Company has
considered various indicators of value, including market evaluations of
the underlying collateral, the cost of money, operating cash flow from
the property during the projected holding period and expected
capitalization rates applied to the stabilized net operating income of
the specified property.
The allowance for loan losses is established through charges to earnings
in the form of a provision for credit losses. Increases and decreases in
the allowance due to changes in the measurement of the impaired loans
are included in the provision for credit losses. Loans continue to be
classified as impaired unless they are brought fully current and the
collection of scheduled interest and principal is considered probable.
When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance and
subsequent recoveries, if any, are credited to the allowance.
Continued
F-8
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES, continued:
Allowance for Loan Losses, continued:
The allowance is based upon management's estimates and ultimate losses
may vary from the current estimates. These estimates are reviewed by
management at least quarterly, and as adjustments become necessary, they
are reported in the statement of operations in the period in which they
become known.
Foreclosed Property Held for Sale
Property acquired through loan foreclosure is initially recorded at the
lesser of mortgage loan balance or fair value at the date of
foreclosure. Losses, if any, attributable to the excess of the recorded
investment including accrued interest over fair value are charged to the
allowance for loan losses on mortgage loans at the time of foreclosure.
A valuation allowance is also established at the time of foreclosure for
the estimated costs to sell the property, as the Company is dependent on
the liquidation of the property for the recovery of its investment in
foreclosed real estate. Subsequent to foreclosure, the property is
carried at the lower of cost or fair value less estimated costs to sell.
The property's operating income and expenses from the date of
foreclosure are reflected in the statement of operations. Depreciation
of the property commences one year from the date of foreclosure. Income
from guarantor settlements is recognized when received.
Organization Costs
Certain costs related to the organization of the Company were
capitalized at cost and amortized on a straight-line basis over 60
months. Organization costs became fully amortized in fiscal 1993.
Income Taxes
The Company intends to operate at all times to qualify as a real estate
investment trust under the provisions of the Internal Revenue 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.
Revenue Recognition
Loan origination fees received from the borrower, in excess of loan
origination costs paid, are amortized to interest income using the
effective interest method over the life of the mortgage loan.
Continued
F-9
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES, continued:
Revenue Recognition, continued:
Interest income is accrued when earned. The Company discontinues the
accrual of interest income when circumstances exist which cause the
collection of interest to be doubtful. The determination to discontinue
accruing interest is made after a review by the Company's management of
all relevant facts, including delinquency of principal and/or interest,
and financial stability of the borrower. The Company classifies loans on
which the accrual of interest has been discontinued as nonearning.
Interest income on nonaccrual loans is recognized on a cash basis if the
future collectibility of the recorded loan balance is expected. When the
future collectibility of the recorded loan balance is doubtful,
collection of interest will be applied as a reduction to outstanding
loan principal. All mortgage loans held by the Company are classified as
earning loans at December 31, 1995 and 1994.
3. MARKETABLE SECURITIES:
Marketable securities at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
-------------------------- ---------------------------
Interest Rate at
12/31/95 Cost Market Value Cost Market Value
---------------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Note ..... 6.125% $ 3,507,383 $ 3,516,940
Federal National ....... 6.36%-6.44% 5,956,601 5,948,714 $ 6,504,138 $ 6,218,604
Mortgage Association,
pass through
Federal Home Loan ...... 7.92%-8.02% 3,815,059 3,861,079 4,635,859 4,564,444
Mortgage Corporation, ----------- ----------- ----------- -----------
pass through
$13,279,043 $13,326,733 $11,139,997 $10,783,048
=========== =========== =========== ===========
</TABLE>
The U.S. Treasury note has a scheduled maturity in July 1996. The
mortgage-backed securities mature according to payment characteristics of the
underlying loans. The ultimate maturity dates of the mortgage-backed
securities held by the Company at December 31, 1995 range from January 2017 to
August 2024.
Continued
F-10
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE:
Mortgage notes receivable as of dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- ---------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First 9.09% December Monthly payments None $4,376,000 $4,206,330 $4,238,157 $4,265,018
mortgage 2000 of principal and
note on interest of $35,494
parking until maturity, at
garage in which time the
Detroit, remaining unpaid
Michigan principal balance
of approximately
$4,010,000 is due.
The note may be
prepaid in whole, but
not in part, for
a fee ranging from 1
percent to 1.5
percent of the
outstanding principal
balance at the time
of prepayment.
First 10.25% April Monthly payments None 1,900,000 1,812,889 1,836,190 1,703,506
mortgage on through 2000 in varying
rehabilitation March 31, installments of
of historic 1995 principal and interest
office adjusted until maturity, at
building to 9.26% which time the
located in on April remaining unpaid
Detroit, 1, 1995** principal balance
Michigan of approximately
$1,858,000 is due.
The note may be
prepaid in whole,
but not in part,
for a set fee based
upon the rate by
which the annual
yield on certain
U.S. Treasury
securities exceeds
the yield on the
note through April
1997, after which
time the fee ranges
from 1 percent
to 3 percent of the
outstanding
principal balance
at the time of
prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** Adjustment based on the U.S. Treasury Securities weekly average yield
adjusted to a constant maturity of 5 years plus 2.25%.
</TABLE>
Continued F-11
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First 9.875% February Monthly payments None $2,525,000 $2,445,235 $2,458,787 $2,471,031
mortgage 1999 in varying
permanent installments of
loan on a principal and interest
light until maturity,
industrial at which time the
building remaining unpaid
located in principal balance
Plymouth of approximately
Township, $2,402,000 is due.
Michigan The note may be
prepaid in whole,
but not in part, for
a fee based upon
the rate by which
the annual yield
on certain U.S.
Treasury securities
exceeds the yield on
the note at the
time of prepayment.
First 10.50% December Monthly payments None 960,000 940,653 945,613 950,070
mortgage 2000 of interest only
on day care until January 1993
center when payments
located in in varying
Plymouth, installments
Michigan of principal
and interest
commence until
maturity, at
which time the
remaining unpaid
principal balance
of approximately
$908,000 is due.
The note may be
prepaid in whole,
but not in part,
for a fee based upon
the rate by which
the annual yield
on certain U.S.
Treasury securities
exceeds the yield on
the note at the
time of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-12
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of ------------------------------ and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First 9.875% through October Monthly payments None $695,000 $669,449 $673,579 $676,731
mortgage October 31, 2000 in varying
on retail 1995 adjusted installments of
tire to 7.25% on principal and interest
center November 1, until maturity, at
located in 1995 based on which time the
Woodhaven, the U.S. remaining unpaid
Michigan Treasury average principal balance
weekly yield of approximately
adjusted to a $647,000 is due.
constant maturity The note may be
of 5 years prepaid in whole,
plus 1.5% but not in part, for
at that date a fee of 1 percent
of the outstanding
principal balance
or based upon the
rate by which the
annual yield on
certain U.S.
Treasury securities
exceeds the yield
on the note at
the time of
prepayment.
First 9.50% through February Monthly payments None 750,000 719,601 723,425 726,887
mortgage February 28, 2001 in varying install-
on retail 1996. The ments of principal
tire center interest rate and interest
located in will be adjusted until maturity,
Sterling on March 1, at which time the
Heights, 1996 to the remaining unpaid
Michigan U.S. Treasury principal balance
weekly average of approximately
yield adjusted $693,000 is due.
to a constant The note may be
maturity of 5 prepaid in whole,
years plus 1.5% but not in part, for
a fee of 1 percent
to 2 percent of
the outstanding
principal balance
or based upon the
rate by which the
annual yield on
certain U.S. Treasury
securities
exceeds the yield on
the note at the
time of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
Continued F-13
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First 10.25% April Monthly payments None $1,800,000 $1,741,822 $1,743,332 $1,739,059
mortgage 2003 of interest only
on office through April
building 1995 and varying
located in installments of
Detroit, principal and interest
Michigan from May 1995
until maturity, at
which time the
remaining unpaid
principal balance
of approximately
$1,695,000 is due.
The note may be
prepaid in whole, but
not in part, at
varying prepayment
rates, based on
the date of prepayment.
First 10.50% July Monthly payments None 1,250,000 -- -- 1,212,924
mortgage on 1997** of principal and
industrial interest of $11,933
building until maturity, at
located in which time the
Van Buren remaining unpaid
Township, principal balance
Michigan of approximately
$1,185,230 is due.
The note may be
prepaid in whole, but
not in part, for
a fee based upon
the rate by which
the annual yield
on certain U.S.
Treasury securities
exceeds the yield
on the note at
the time of
prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** On November 9, 1994, the outstanding principal balance of this mortgage
note was prepaid. The Company also received a prepayment penalty of
approximately $114,000.
</TABLE>
Continued F-14
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of ------------------------------ and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renovation 1% Over Prime July Monthly payments None $1,365,000 $420,406 -- --
of office Prime Rate 1997 in varying (of which
building at December installments of $921,000 is
located in 31, 1995 was interest until undisbursed
Detroit, 8.5%) maturity, at at December
Michigan which time it is 31, 1995)
anticipated that it
will convert to a
permanent loan.
The construction
note may be prepaid
in whole, but
not in part, for a
fee based upon the
rate by which the
annual yield on
certain U.S. Treasury
Securities exceeds
the yield on the
rate at the time
of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
Continued F-15
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of ------------------------------ and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- ---------
First Mortgage Notes on Shopping Centers:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping 10.50% through December Monthly payments None $1,080,500 $ 965,898 $ 971,030 $ 975,153
center December 31, 1999 in varying install-
located 1994 adjusted ments of principal
in Detroit, to 10.875% on and interest
Michigan January 1, until maturity, at
1995** which time the
remaining unpaid
principal balance
of approximately
$941,000 is due.
The note may be
prepaid in whole,
but not in part,
for a fee ranging
from 1 percent to
5 percent of the
outstanding principal
balance or based
upon the rate
by which the annual
yield on certain U.S.
Treasury securities
exceeds the yield
on the note at the
time of prepayment.
Shopping 9.3752% January Monthly payments None 2,200,000 2,111,851 2,127,504 2,141,578
center 2000 of principal and
located in interest of $18,298
Sterling until maturity, at
Heights, which time the
Michigan remaining unpaid
principal balance
of approximately
$2,028,000 is due.
The note may be
prepaid in whole, but
not in part, for
a fee based upon the
rate by which
the annual yield on
certain U.S.
Treasury securities
at the time of
prepayment exceeds
the yield on the
note through January
1997. After such date,
the note may be
prepaid without a fee.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** Adjustment based on the U.S. Treasury Securities weekly average yield
adjusted to constant maturity of 5 years plus 3%.
</TABLE>
Continued F-16
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping 9.17% June Monthly payments of None $3,300,000 -- -- $3,300,000
center 1994 interest only of
located in $25,218 until
St. Clair maturity, at which
Shores, time the remaining
Michigan unpaid principal
balance of $3,300,000
is due.
Rehabilitation 11.25% October Monthly payments of None 1,650,000 $1,575,680 $1,589,953 1,602,673
of shopping 2000 principal and
center interest of $16,471
located in until maturity, at
Detroit, which time the
Michigan remaining unpaid
principal balance
of approximately
$1,477,000 is due.
The note may be
prepaid in whole, but
not in part, for
a fee based upon
the rate by which
the annual yield
on certain U.S.
Treasury securities
exceeds the yield
on the note at
the time of
prepayment.
Rehabilitation 11.25% October Monthly payments None 2,200,000 2,100,907 2,119,938 2,136,897
of shopping 2000 of principal and
center interest of $21,961
located in until maturity, at
Detroit, which time the
Michigan remaining unpaid
principal balance of
approximately
$1,969,000 is due.
The loan may be
prepaid in whole,
but not in part,
and may require
payment of a fee
based upon the
rate by which the
annual yield on
certain U.S.
Treasury securities
exceeds the yield
on the note at the
time of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-17
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping 10.25% April Monthly payments None $2,500,000 $2,329,018 $2,362,444 $2,392,384
center and 1997 in varying
located 9.75% installments of
in Detroit, principal and interest
Michigan until maturity, at
which time the
remaining unpaid
principal balance
of approximately
$2,277,000 is due.
The note may be
prepaid in whole,
but not in part, for
a fee based upon
the rate by which
the annual yield
on certain U.S.
Treasury securities
exceeds the yield on
the note at the
time of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-18
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- -----------
First Mortgage Notes on Apartment Buildings:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renovation 8.0% August Monthly payments
of 75-unit and 2000 of interest only None $1,260,000** $1,361,789 $1,369,349 $1,369,463
building 9.5% through April 1994
located and varying
in Detroit, installments of
Michigan principal and interest
from May 1994 until
maturity, at
which time the
remaining unpaid
principal balance
of approximately
$1,284,000 is due.
The note may be
prepaid in whole,
but not in part,
and may require
payment of a fee
based upon the
rate by which the
annual yield on
certain U.S.
Treasury securities
exceeds the yield
on the note at the
time of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** During 1993, the Company modified the terms of this mortgage note, pursuant
to which approximately $125,000 of interest was added to the principal
balance of the mortgage.
Continued F-19
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renovation 9.25% September Monthly payments None $728,000 $614,211 $622,842 $703,403
of 54-unit 2000 of principal and
building interest of $5,800
located until maturity, at
in Detroit, which time the
Michigan remaining unpaid
principal balance of
approximately
$557,000 is due.
The note may be
prepaid in whole,
but not in part,
and may require
payment of a fee
based upon the rate
by which the
annual yield on
certain U.S.
Treasury securities
exceeds the yield
on the note at the
time of prepayment.**
24-unit 10.25% January Monthly payments None 275,000 258,623 261,166 263,451
building 2001 in varying
located installments of
in Detroit, principal
Michigan and interest
until maturity,
at which time the
remaining unpaid
principal balance
of approximately
$241,000 is due.
The note may be
prepaid in whole,
but not in part,
and may require
payment of a fee
based upon the
rate by which the
annual yield on
certain U.S.
Treasury securities
exceeds the yield
on the note at the
time of prepayment.
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** In December 1994, the Company modified the terms of this loan pursuant to
which $75,000 of principal was prepaid and the interest rate was reduced
from 11% to 9.25%.
</TABLE>
Continued F-20
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
to
Carrying Amount of Delinquent
Final Face Mortgages at December 31,* Principal
Interest Maturity Periodic Prior Amount of --------------------------------- and
Description Rate Date Payment Terms Liens Mortgage 1995 1994 1993 Interest
- ----------- -------- -------- ------------- ----- -------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renovation 10.25% April Monthly payments None $ 2,500,000 $ 2,239,156 $ 2,350,670 $ 2,418,934
of 167 unit and 1997 in varying
building 12.25% installments of
located principal and
in Detroit, interest until
Michigan maturity, at
which time the
remaining unpaid
principal balance
of approximately
$1,910,857 is due.
The note may be
prepaid in whole,
but not in part,
for a fee based upon
the rate by which
the annual yield
on certain U.S.
Treasury securities
exceeds the yield
on the note at the
time of prepayment.
205-unit 10.00% August Monthly payments None 455,000 450,810 -- --
high-rise 2000 in varying
apartment installments of
building principal and
located in interest until
Detroit, maturity, at
Michigan which time the
remaining unpaid
principal balance
is due. The note
may be prepaid in
whole or in part
at anytime.
----------- ----------- ----------- ----------- ------
33,769,500 26,964,328 26,393,979 31,049,162 --
Allowance for loan losses (1,600,000) (1,000,000) (1,461,500)
----------- ----------- ----------- ----------- ------
Mortgage notes receivable, net of allowance for loan losses $33,769,500 $25,364,328 $25,393,979 $29,587,662 --
=========== =========== =========== =========== ======
<FN>
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-21
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
Aggregate, contractual annual maturities of mortgage note receivable principal
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 440,034
1997 5,088,625
1998 283,573
1999 3,631,394
2000 15,361,258
2001 and after 2,403,406
-----------
27,208,290
Less unamortized net loan 243,962
origination fees
-----------
$26,964,328
===========
</TABLE>
Continued F-22
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
A reconciliation of the carrying value of mortgage notes
receivable for the years ended December 31, 1995, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Mortgage notes receivable:
Balance, beginning of year $ 26,393,979 $ 31,049,162 $ 29,328,358
------------ ------------ ------------
Additions:
New mortgage loans 899,293 150,000 1,800,000
Amortization of net loan origination fees 50,095 104,008 60,946
Amortization of loan discount -- -- 22,886
Interest deferred until maturity
of mortgage loan -- -- 124,550
------------ ------------ ------------
Total additions 949,388 254,008 2,008,382
------------ ------------ ------------
Deductions:
Collections of principal (355,151) (4,876,191) (211,043)
Loan origination fees received (23,888) (33,000) (76,535)
------------ ------------ ------------
Total deductions (379,039) (4,909,191) (287,578)
------------ ------------ ------------
Balance, close of year 26,964,328 26,393,979 31,049,162
------------ ------------ ------------
Allowance for loan losses:
Balance, beginning of year (1,000,000) (1,461,500) (1,461,500)
------------ ------------ ------------
(Provisions to) recovery from operations (600,000) 461,000 --
Balance, close of year (1,600,000) (1,000,000) (1,461,500)
------------ ------------ ------------
Mortgage notes receivable, net of
allowance for loan losses $ 25,364,328 $ 25,393,979 $ 29,587,662
============ ============ ============
</TABLE>
During the year ended December 31, 1995, the Company earned approximately
$392,000 or 10.4% of its total income on one mortgage note with a carrying
value of approximately $4,206,000.
Two mortgage notes carried at an aggregate carrying value of approximately
$3,677,000; four mortgage notes carried at an aggregate carrying value of
approximately $3,201,000 and two mortgage notes carried at an aggregate
carrying value of approximately $2,162,228 at December 31, 1995, made with
entities affiliated through common ownership earned the Company $423,940,
$313,898 and $204,687, respectively, during the year ended December 31, 1995.
Continued
F-23
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
The Company evaluates its portfolio of mortgage loans on an individual
basis, comparing the amount at which the investment is carried to its
estimated net realizable value. In making its evaluations, the Company
has assumed that it will be able to acquire property collateralizing
mortgage loans by foreclosure, if deemed appropriate, and hold and
dispose of such assets and real estate currently owned in the ordinary
course of business to maximize the return to the Company. The evaluations
and related assumptions are dependent upon current estimates of future
operations, proceeds, costs, events and general market and economic
conditions all of which are influenced by many unpredictable factors.
Accordingly, the ultimate realizations of the Company's investments,
including future income, may differ from amounts presently estimated.
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 these new standards, 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 December 31, 1995, the total recorded investment in impaired loans, as
defined by SFAS 114, was $5,308,000. The allowance related to these loans
totaled $1,600,000 at December 31, 1995. During the third quarter of
1995, the Company determined that an $850,000 increase in the allowance
related to these loans 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 11. The Company believes that the
allowance for loan losses of $1,600,000 at December 31, 1995 is adequate
to properly reflect the portfolio of mortgage loans at estimated net
realizable value.
5. REAL ESTATE OWNED:
At December 23, 1992, the Company obtained an apartment building located
in Detroit, Michigan, through a foreclosure sale. This property was the
collateral for a construction loan under which the borrower defaulted
during 1992. The carrying value of the property was written down to its
estimated fair value at the time of foreclosure of $2,100,000, based upon
a July 1992 independent appraisal, net of a $140,000 valuation allowance
for the estimated costs to sell the property. At December 31, 1994, the
carrying value of the property was reduced to $900,000 to reflect an
updated property valuation based on the results of the Company's
marketing efforts to locate a buyer for the property. The carrying value
of the property was further written down to $555,000 during the quarter
ended June 30, 1995 as the result of an offer to purchase the property.
Continued
F-24
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
5. REAL ESTATE OWNED, continued:
On August 1, 1995, the 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.
The property's operating income and expenses from the date of foreclosure
are reflected in the statement of operations. The net loss from
foreclosed property held for sale, for the years ended December 31, 1995,
1994, and 1993 totaled $331,953, $1,295,416 and $337,699 and consisted of
the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rental income $ 432,292 $ 661,679 $ 553,668
---------- ---------- ----------
Expenses:
Operating expenses 380,011 840,950 834,503
Valuation provision 314,421 994,134 --
Depreciation expense 38,422 65,866 --
Management fees 23,779 37,538 40,123
Professional fees 7,612 18,607 16,741
---------- ---------- ----------
Total expenses 764,245 1,957,095 891,367
---------- ---------- ----------
Net loss from foreclosed
property held for sale $ 331,953 $1,295,416 $ 337,699
========== ========== ==========
</TABLE>
Continued
F-25
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
6. FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments held by the Company at
December 31, 1995 and 1994, and the valuation techniques used to estimate
the fair value, were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,446,221 $ 2,446,221 $ 3,529,334 $ 3,529,334
Marketable securities 13,326,733 13,374,423 10,783,048 10,426,099
Mortgage notes receivable, net 25,364,328 25,490,028 25,393,979 25,203,520
Accrued interest and other 282,620 282,620 255,724 255,724
receivables
Accounts payable 125,532 125,532 184,905 184,905
<FN>
Cash and cash equivalents -- The carrying amount is a reasonable
estimate of fair value.
Marketable securities -- The estimated fair value of
marketable securities is estimated based
on quoted market prices.
Mortgage notes receivable, net -- The fair value of mortgage notes
receivable is estimated by discounting
future cash flows using an estimated
discount rate which reflects the current
credit, interest rate and prepayment
risks associated with similar types of
instruments.
Accrued interest and other -- The carrying amount is a reasonable
receivables estimate of fair value.
Accounts payable -- The carrying amount is a reasonable
estimate of fair value.
</TABLE>
7. FEDERAL INCOME TAX:
A real estate investment trust is not subject to federal income
tax on taxable income distributed to its shareholders during its
fiscal year and subsequent year, but prior to filing its federal
tax return. If, however, the real estate investment trust has
retained income within the limits allowed under the federal tax
laws, it must pay tax at corporate rates on its undistributed
income. Furthermore, if the real estate investment trust fails to
distribute, during the fiscal year, an amount equal to 85% of its
taxable income for that year, it is subject to a 4% excise tax on
the shortfall. The excise tax is not deductible for federal income
tax purposes. Income for tax and financial reporting purposes is
reconciled as follows:
Continued
F-26
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
7. FEDERAL INCOME TAX, continued:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Investment income before income tax on
undistributed earnings $ 1,990,203 $ 2,587,550 $ 2,700,898
Increase (decrease) in taxable income
resulting from:
Loan origination and application-
fees, net 8,430 (88,845) (57,324)
Provision for valuation allowances, net 914,421 532,634 --
Realized loss on sale of
foreclosed property (1,566,594) -- --
Bad debt expense -- (312,000) --
Dividends declared on
investment income (1,314,329) (2,764,623) (2,673,980)
Other, net (32,131) 45,284 30,406
----------- ----------- -----------
Taxable investment income -- -- --
=========== =========== ===========
</TABLE>
8. RELATED PARTY TRANSACTIONS:
The Company was involved in various transactions with affiliates
as follows:
o One of the Company's legal counselors is also a member of the
Company's Board of Directors. Fees for legal services provided by the
director's law firm amount to $306,394, $153,296 and $57,599 for the
years ended December 31, 1995, 1994 and 1993, respectively, of which
$227,586 and $70,076 of the fees earned in 1995 and 1994,
respectively, relate to the transaction discussed in Note 11. Accrued
legal fees of $30,860 and $22,524 are included in accounts payable in
the accompanying balance sheet at December 31, 1995 and 1994,
respectively.
o Fees aggregating $23,920, $19,831, and $19,261 for the years ended
December 31, 1995, 1994 and 1993, respectively, were earned by a
shareholder of the Company for providing various investment and other
services to the Company.
Continued
F-27
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
8. RELATED PARTY TRANSACTIONS, continued:
o Consulting fees under a contractual agreement aggregating $44,520,
$42,400 and $40,000 were earned by an officer of the Company in 1995,
1994 and 1993 respectively.
o During 1995, one of the Company's board members became the vice
president of an entity which has a mortgage note with the Company.
The carrying amount of the mortgage note receivable totaled
$4,206,330 and $4,238,157 at December 31, 1995 and 1994, respectively
and earned the Company $391,854 and $394,843 during the years ended
December 31, 1995 and 1994, respectively.
9. DIVIDEND DECLARATION:
Under pertinent provisions of the Internal Revenue 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 13, 1996, the Board of Directors
of the Company declared a cash dividend of $.11 per share of common stock
to its shareholders of record on March 25, 1996, payable on March 29,
1996. Of this dividend, $.01 will be paid from income earned by the
Company in 1995. This dividend will be taxable to shareholders as
ordinary income.
10. COMMITMENTS:
At December 31, 1995, the Company had outstanding loan commitments
aggregating $921,000.
11. OTHER:
On September 8, 1995, the Company's Board of Directors gave its approval
for a proposed restructuring of the Company into a limited liability
company ("LLC") and the generation of additional capital through the LLC.
The Company expects to raise new capital of $25 to $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 December 31, 1995, $626,000 of
professional fees have been incurred in connection with this transaction,
of which $313,000 have been deferred.
Continued
F-28
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
12. INTERIM FINANCIAL INFORMATION (unaudited):
<TABLE>
<CAPTION>
Net Investment
Total Net Investment Income (Loss)
Quarters Ended Income Income (Loss) per Share
- -------------- ------ --------------- --------------
<S> <C> <C> <C>
Fiscal 1995
December 31 $ 913,133 $ 764,414 $ .17
September 30 973,527 (183,720) (.04)(1)
June 30 926,886 736,626 .16
March 31 950,513 672,883 .15
----------- ----------- -----
$ 3,764,059 $ 1,990,203 $ .44
=========== =========== =====
Fiscal 1994
December 31 $ 1,052,728 $ 250,564 $ .05(2)
September 30 937,150 814,839 .18
June 30 929,888 809,875 .18
March 31 938,262 712,272 .16
----------- ----------- -----
$ 3,858,028 $ 2,587,550 $ .57
=========== =========== =====
<FN>
- --------
(1) The results of operations for the third quarter of fiscal year 1995
include a $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. See Notes 4
and 11 to the financial statements.
(2) The results of operations for the fourth quarter of fiscal year 1994
include a $994,000 increase in the valuation provision for foreclosed property
held for sale offset by a $462,000 decrease in the allowance for loan losses
and recognition of $114,000 in income from loan prepayment penalties. See
Notes 4 and 5 to the financial statements.
</TABLE>
F-29
<PAGE>
METROPOLITAN REALTY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additions, Charged Balance
Charged to (Credited) to at
Balance at Costs and Other December
Description January 1 Expenses Accounts Deductions 31
----------- ---------- ---------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for
Loan Losses:
1995 $1,000,000 $600,000 $1,600,000
1994 1,461,500 $(461,500)(1) 1,000,000
1993 1,461,500 1,461,500
Valuation
Allowance:
1995 1,134,134 314,421 (1,448,555)(2) --
1994 140,000 994,134 1,134,134
1993 140,000 140,000
<FN>
- ---------
1 Decrease in allowance for loan losses was charged against
operating expenses.
2 Foreclosed property sold in 1995.
</TABLE>
F-30
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Exhibit Incorporated Herein Filed Number
No. Description by Reference to Herewith Herein
- ------- ----------- ------------------- -------- ------
<S> <C> <C> <C> <C>
3.1 Second Restated Articles of Exhibit 3.1 to the Company's Form 10-K
Incorporation for the fiscal year ended December 31,
1988
3.2 Amendments to ByLaws adopted May Exhibit 3.2 to 1991 10-K
17, 1991
3.3 Restated ByLaws adopted July 19, Exhibit 3.3 to 1991 10-K
1989, as amended October 27, 1989,
May 15, 1990 and May 17, 1991
10.1 Investment Management Service Exhibit 10.2 to 1988 10-K
Agreement dated February 15, 1989
between the Company and NBD
Bank, N.A. (formerly National Bank of
Detroit)
10.2 Agency and Consulting Agreement Exhibit 10.2 to 1990 10-K
dated as of November 15, 1989
between the Company and
Walters & Associates, Inc.
10.3 Letter agreement dated July 1990 Exhibit 10.1 to 1990 10-K
between the Company and Acquest
Capital Management, Inc.
10.4 Buhl Building Lease dated April 25, Exhibit 10.4 to 1991 10-K
1991 between the Company and Buhl
Realty Company
10.5 Agency and Consulting Agreement Exhibit 10.5 to 1992 10-K
dated as of February 4, 1993 between
the Company and Mattar Consulting
Services, Inc.
10.6 First lease amendment to Buhl Exhibit 10.6 to 1992 10-K
Building Lease dated May 14, 1992
between the Company and Buhl
Realty Company
10.7 Letter agreement dated March 8, 1994 Exhibit 10.7 to 1993 10-K
between the Company and Mattar
Consulting Services, Inc.
10.8 Second lease amendment to Buhl Exhibit 10.8 to 1993 10-K
Building Lease dated May 14, 1992
between the Company and Buhl
Realty Company
10.9 Minutes of Executive Committee of Exhibit 10.9 to 1994 10-K
the Board of Directors meeting
dated March 3, 1995
modifying Agency and Consulting
Agreement dated as of
February 4, 1993 between
the Company and Mattar
Consulting Services, Inc.
10.10 Extension of Agency and Consulting X E-2
Agreement
25 Powers of Attorney X E-3
27 Financial Data Schedule X
</TABLE>
E-1
EXHIBIT 10.10
AGENCY AND CONSULTING AGREEMENT
<PAGE>
March 8, 1996
Nancy A. Mattar
President
Mattar Consulting Services
c/o Metropolitan Realty Corporation
535 Griswold, Suite 748
Detroit, Michigan 48226
RE: Mattar Consulting Services - Agency and Consulting Agreement
Dear Nancy:
This letter shall serve to formally extend the Agency and Consulting Agreement
between Metropolitan Realty Corporation (MRC) and Mattar Consulting Services
(MCS) for one year. It will expire as of December 31, 1996, subject to earlier
termination as provided in the Agreement.
The Corporation shall pay the Agent $46,746 per year in bi-monthly
installments upon receipt of an invoice for each installment.
All other terms and conditions contained in the Agreement shall remain the
same.
Sincerely,
METROPOLITAN REALTY CORPORATION
By: /s/ Wayne S. Doran
--------------------------------
Wayne S. Doran
Chairman, Executive Committee
AGREED AND ACCEPTED
/s/ Nancy A. Mattar
--------------------------------
Nancy A. Mattar, President
Mattar Consulting Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> $ 2,446,221
<SECURITIES> 13,326,733
<RECEIVABLES> 26,964,328
<ALLOWANCES> 1,600,000
<INVENTORY> 0
<CURRENT-ASSETS> 41,760,901
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,760,901
<CURRENT-LIABILITIES> 427,574
<BONDS> 0
<COMMON> 45,322
0
0
<OTHER-SE> 41,288,005
<TOTAL-LIABILITY-AND-EQUITY> 41,760,901
<SALES> 0
<TOTAL-REVENUES> 3,764,059
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 859,435
<LOSS-PROVISION> 914,421
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,990,203
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,990,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,990,203
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.00
</TABLE>
