SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:
SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-22805
MASTER REALTY PROPERTIES, INC.
(FORMERLY MASTER MORTGAGE INVESTMENT FUND, INC.)
(Exact name of registrant as specified in its charter)
Delaware 48-1056392
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
712 Broadway, Suite 700
Kansas City, Missouri 64105
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (816) 474-9333
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 for the preceding
12 months (or 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 No X
As of September 30, 1996, the Registrant had 2,491.622 shares
of preferred stock and 12,246,969 shares of common stock outstanding.
The aggregate book value of all shares of the Registrant,
based on the September 30, 1996 unaudited statements was $9,722,210.
MASTER REALTY PROPERTIES, INC.
INDEX
Part I. Financial Statements
Item 1: Financial Statements*
A. Balance Sheets as of September 30, 1996
and December 31, 1995. 3
B. Statements of Income for the three months
ended September 30, 1996 and 1995. 4
C. Statement of Income for the nine months
ended September 30, 1996 and 1995. 5
D. Statements of Changes in Shareholders'
Equity for the nine months ended
September 30, 1996 and 1995. 6
E. Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995. 7
Notes to Unaudited Financial Statements 8-17
Item 2: Management's Discussion and
Analysis of Condition and Results of
Operations 18-22
Part II. Other Information 23
* All financial statements, except the
balance sheet as of December 31, are unaudited.
Master Realty Properties, Inc.
Balance Sheets
September 30, 1996 and December 31, 1995
September 30, 1996 December 31, 1995
ASSETS (Unaudited) (Audited)
Mortgage Notes Receivable 7,236,585 15,962,800
Foreclosed Property Held for Investment 1,000,000 1,000,000
__________ __________
Total Mortgage Notes Receivable
and foreclosed property held
for investment 8,236,585 16,962,800
Allowance for Losses (5,492,617) (10,780,742)
___________ ____________
Net Mortgage Notes Receivable and
Foreclosed Property held for Investment 2,743,968 6,182,058
Investment in Real Estate Partnerships 2,406,562 307,353
Interest Receivable 66,584 240,000
Cash 283,024 687,234
Restricted Cash 362,017 0
Accounts Receivable 241,110 119,360
Property and Equipment,
at cost less accumulated depreciation 21,712,883 21,376,772
Goodwill 758,255 790,130
Other Assets 492,664 293,419
___________ ___________
TOTAL ASSETS 29,067,067 29,996,326
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable 13,969,549 19,160,892
Notes Payable, Related Party 1,162,960 1,162,959
Interest Payable 82,564 23,012
Other Liabilities 2,133,034 2,316,604
Due to Advisory Company and Affiliate 311,335 383,979
Liabilities Subject to Settlement
under Reorganization Proceedings 59,010 106,091
__________ __________
TOTAL LIABILITIES 17,718,452 23,153,537
__________ ___________
Minority Interest in Subsidiary 1,626,405 1,625,254
__________ ___________
Shareholders' Equity
Convertible preferred stock,
$.01 par, liquidation preference
up to 5% of the Fund's net assets;
authorized 2,500,000 shares; issued
2,491,622 shares 24,916 24,916
Common Stock, $.01 par; authorized
45,000,000 shares; issued
12,246,969 shares 122,469 13,086
Capital in excess of par 38,097,251 35,667,043
Retained (Deficit) Earnings (28,522,426) (30,487,510)
____________ ____________
TOTAL SHAREHOLDERS' EQUITY 9,722,210 5,217,535
____________ ____________
TOTAL LIABILITY AND
SHAREHOLDERS EQUITY 29,067,067 29,996,326
Master Mortgage Investment Fund, Inc.
Statement of Income
Three Months Ended
September 30, 1996 and 1995
Three months ended September 30
1996 1995
____ ____
REVENUES
Rental Income 654,031 253,611
Hotel Income 638,013 569,101
Interest and fees on mortgage loans 298,944 121,448
Other income (loss) 102,776 215,393
__________ ___________
TOTAL REVENUES 1,693,764 1,159,553
__________ __________
EXPENSES:
Loan Servicing Fees 13,641 24,575
Property Management Fees 9,199 17,553
Rental Operating Expenses 319,457 226,028
Hotel Operating Expenses 396,474 277,263
Provision for Loan Losses (Recoveries) (989,699) (370,763)
General and Administrative 543,554 42,822
Legal and Accounting 14,162 92,753
Payroll and Employee Benefits 115,416 90,975
Interest Expense 357,146 150,052
Depreciation and Amortization 205,050 176,022
_________ _________
TOTAL EXPENSES 984,400 727,280
MINORITY INTEREST IN SUBS INCOME (3,077) (78,290)
NET INCOME (LOSS) 712,441 510,563
_________ _________
Earnings (loss) per common and common
equivalent share (non-diluted) 0.12 0.13
__________ ________
Master Realty Properties, Inc.
Statement of Income
Nine Months Ended
September 30, 1996 and 1995
Nine Months Ended September 30
1996 1995
____ ____
REVENUES:
Rental Income 1,744,892 1,374,595
Hotel Income 1,743,281 1,744,471
Interest and Fees on Mortgage Loans 449,849 371,845
Other Income (Loss) 70,592 154,563
__________ _________
TOTAL REVENUES 4,008,614 3,645,474
__________ _________
EXPENSES:
Loan Servicing Fees 41,346 73,468
Property Management Fees 27,019 39,950
Rental Operating Expenses 970,418 1,078,850
Hotel Operating Expenses 1,102,532 1,320,132
Provisions for loan losses (Recoveries) (2,943,039) (1,937,633)
General and Administrative 610,920 131,451
Legal and Accounting 126,852 430,600
Payroll and Employee Benefits 340,686 320,755
Interest Expense 1,223,050 944,883
Depreciation and Amortization 538,280 501,083
Partnership Expense 250
_______________________________
TOTAL EXPENSES 2,038,064 2,903,789
______________________________
MINORITY INTEREST IN SUBS INCOME (1,151) (51,415)
NET INCOME (LOSS) 1,971,701 793,100
_______________________________
Earnings (loss) per common and common
equivalent share (non-diluted) 0.32 0.21
______________________________
Master Realty Properties, Inc.
Statement of Changes in Shareholders' Equity
Nine Months Ended in September 30, 1996 and 1995
Balances December 31, 1994
Capital in Undistributed Total
Preferred Stock Common Stock Excess of Earnings Shareholders'
Shares Shares par value (Deficit) Equity
2,491,622 $24,916 1,308,669 $13,086 $35,667,043 ($32,370,908) $3,334,137
Net Income for the Period: 793,100 793,100
Balances, September 30, 1995
2,491,622 $24,916 1,308,669 $13,086 $35,667,043 ($31,577,808) $4,127,237
_______________________________________________________________________________
Balances, December 31, 1995
2,491,622 $24,916 1,308,669 $13,086 $35,667,043 ($30,487,510) $5,217,535
Debenture to
Stock Conversion
10,938,300 $109,383
Debenture to
Stock Conversion $2,430,208 $2,430,208
Net Income
for the Period $1,971,701
Subsidiary
Distribution ($6,616)
_______________________________________________________________________________
Balances,
September 30, 1996
2,491,622 $24,916 12,246,969 $122,469 $38,097,251 $(28,522,425) $9,722,211
Master Realty Properties, Inc.
Statement of Cash Flows
Nine Months Ended September 30, 1996 and 1995
Nine Months Ended September 30
1996 1995
____ ____
Cash flows from operating activities
Net income (loss) 2,471,954 793,101
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities'
Minority Interest 1,151 (51,505)
Decrease (increase)
in operating assets
Restricted Cash (362,017)
Interest receivable 173,416 (40,000)
Investment in subsidiaries 19,000
Accounts Receivable (121,750) 547,742
Prepaid Expenses (29,173) (19,601)
All Other, Net (130,438) (171,947)
Increase, (Decrease) in Operating Liabilities
Due to Advisory Company and Affiliate (54,719) (27,103)
Other Liabilities (701,748) 713,207
Prepetition Liabilities (47,081) (132,087)
Interest Payable 59,552 576,703
________________________________________
Net Cash Provided by
Used in) Operating Activities 1,278,147 1,035,104
Cash Flows from Investing Activities
Increase Mortgage Notes Receivable 8,726,215 7,047,320
Decrease in Foreclosed
Investment Property
Decrease in Partnership Real Estate (2,164,459) (2,658,612)
Decrease in Allowance for Losses (5,288,125) (5,887,552)
Increase in Fixed Assets 336,111 4,566,986
Decrease in Goodwill 31,875 31,875
All Other
____________________________________
Net Cash Provided by (Used In)
Investing Activities 969,395 3,100,017
Cash Flows from Financing Activities
Increase (Decrease) in Notes
Payable - Related Increase in 0 (3,649,277)
Notes Payable (2,651,752) (301,270)
____________________________________
Net Cash Provided by
(Used In) Financing Activities (2,651,752) (3,950,547)
_____________________________________
Net Increase (Decrease) in Cash (404,210) 184,574
Cash, Beginning of Period 687,234 1,176,431
_____________________________________
Cash, End of Period 283,024 1,361,005
MASTER REALTY PROPERTIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1. Unaudited Financial Statements:
The accompanying unaudited financial statements should be read in
conjunction with the Company's annual report on Form 10-K for the year
ended December 31, 1995 filed with the Securities and Exchange Commission.
The statements herein have been prepared in accordance with the
instructions to the Securities and Exchange Commission Form 10-Q and
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited financial statements
contain all adjustments necessary to present fairly and accurately
the financial position as of September 30, 1996 and 1995, and the
results of operations and cash flows for the nine months then ended.
Certain amounts as of September 30, 1995 have been reclassified
to conform with the September 30, 1996 presentation.
MASTER REALTY PROPERTIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
2. Mortgage notes receivable
September 30, December 31,
1996 1995
MORTGAGE NOTES RECEIVABLE
Earning $1,743,968 None
Partially-earning $1,821,200 $ 3,000,000
Non-earning $3,671,417 $12,962,800
TOTAL MORTGAGE NOTES
RECEIVABLE $7,236,585 $15,962,800
Mortgage notes receivable are collateralized by real estate,
assignment of rents, certain future earnings of borrowers,
other borrower assets, investor notes and borrower personal guarantees.
The collateralized real estate is located at various geographical
locations, with a concentration in the downtown district of
Kansas City, Missouri. A substantial portion of the Company's
debtors' ability to honor their contracts is dependent upon the
recovery of the real estate economy.
Due to the uncertainty of future collections and possible
foreclosures, management is unable to estimate the scheduled
maturities of mortgage notes receivable over the next five years
and thereafter.
3. Foreclosed property held for investment
September 30, December 31,
1996 1995
Land in New Mexico $1,000,000 $1,000,000
Total foreclosed property
held for investment $1,000,000 $1,000,000
4. Investment in real estate partnerships
Investment in real estate partnerships consists of the following:
Ownership Ownership % Ownership %
Partnership Name Interest at 9/30/96 at 12/31/95
OPP IX, Limited Partnership Limited 24.9% 24.9%
OPP X, Limited Partnership Limited 2.4% 2.4%
Historic Suites of America
- - - KC Limited 19.8% 19.8%
River Market Venture I, L.P. General 80.0% 80.0%
New Historic Suites
Partners I, L.P. General 89.6% 0%
In March of 1994, the Company, through River Market Venture, Inc.
acquired a 1% general partnership interest in River Market
Venture I, L.P. and 100% of the common stock of a related corporation,
Old Town Redevelopment Corporation. The partnership and corporation
own real estate and development rights in the River Market area of
Kansas City, Missouri. The Company acquired an additional 79%
general partner interest in May, 1995. Commencing June 1995, the
Company consolidated its 80% interest in the general
partnership into their financial statements. The business combination
has been accounted for under the purchase method of accounting.
Pro forma financial information has not been presented because
the Company's investment in the partnership does not result in a
significant business combination based on materiality.
Effective September 1 ,1996 the Company became the managing general
partner of New Historic Suites Partners I, L.P. (Historic). The Company
converted its debt owed by Historic with a carrying value
of $2,019,900 for an 89.6% interest in Historic. Historic owns
a 101 room hotel in downtown Kansas City which it leases to an
operating company. The Company will consolidate its investment in
Historic into their financial statements. The business combination
has been accounted for under the purchase method of accounting. Pro-forma
financial information has not been presented because the Company's
investment in Historic does not result in a significant
business combination based on materiality.
5. Property and equipment
September 30, December 31,
1996 1995
Cost
Land and land improvements $ 4,115,997 $ 3,563,643
Building and building
improvements 17,722,178 17,455,694
Furniture 1,590,765 1,544,226
Total Cost $21,712,883 $22,563,563
Accumulated depreciation (1,716,057) (1,186,791)
Net property, plant and
equipment $21,712,883 $21,376,772
The aggregate depreciation charged to operations for September 30, 1996
and the year ended December 31, 1995, was $529,266 and $743,039,
respectively.
September 30, December 31,
1996 1995
6. Notes Payable
Note payable - F.D.I.C.
(purchased by First Bank of Missouri)
due in monthly payments, including
interest at 8%, based upon a 20 year
amortization with all unpaid interest
and principle due April, 1999.
Collateralized by specific notes
receivable and foreclosed property.
This debt was paid in full
at August 31, 1996 None $2,019,828
Note payable - F.D.I.C. due in
monthly payments of $42,000 until
maturity May 2000. Interest is based
on the prime interest rate plus 2%.
The note is collateralized by land
and building located in the River
Market area of Kansas City, Missouri. $4,080,483 $4,168,500
Note payable - BRT due
September, 2000, payable in
60 monthly payments of $7,333 with
the remaining unpaid principal due at
maturity. The original note is for
$600,000 and is non-interest bearing.
Interest has been imputed at the rate
of 9%. The note is unsecured. $ 258,448 $ 371,103
Convertible Subordinated
Debentures issued April, 1994. The
securities were issued in the initial
aggregate principal amount of $9,127,752,
and bear interest at the rate of 6% per
annum. Interest accrues semiannually
on January 1 and July 1 of each year.
The securities mature December, 2003.
At any time prior to maturity, the
securities are convertible into shares
of common stock of the Company, unless
the securities are called for redemption.
The number of shares issuable upon
conversion is based on the Company's book
value of $.224/share as of the
December 31, 1993. As of September 30,
1996, $2,539,590 Debentures had been
converted into $11,337,455 shares of
common stock. In addition, at
August 31, 1996 $3,062,162 of Debentures
including accrued interest were
converted to the Alternative Treatment.
September 30, December 31,
1996 1994
The securities are subordinate and
junior in right of payment to all
senior indebtedness of the Company
(which includes all collateralized
debt of the Company). Senior
Indebtedness is to be paid in full
before holders of the Subordinated
Debentures are to be paid any
principal or interest. $3,722,284 $9,298,938
In the Company's reorganization plan,
and as certain individuals elected
an Alternative Treatment Plan, whereby
holders of certain debentures elected
the option to receive a directo loan
participation interest in a
collateral pool loan. The loan was to be
be collateralized by Ramada Inn - Phoenix,
a 161 room hotel, located in Phoenix,
Arizona. The participants elected to
change the collateral for the
Alternative Treatment as of August 31, 1996,
the closing date for the Alternative
Treatment. In addition, certain
participants elected to receive certain
Kansas City, Missouri, industrial revenue
bonds owned by the Company as a reduction
in their Alternative Treatment at closing.
The Alternative Treatment is to be repaid
in quarterly installments including interest
at 9% based upon a 20 year amortization with
all remaining interest and principal due
December, 2003. During 1995 and 1996
interest has been paid on a quarterly basis
based on the cash investment made by
participants. $3,628,474 $2,165,809
Note payable due April, 2015,
collateralized by hotel property in
Euless, Texas. The note
is payable in monthly installments of
$10,720. Interest is at 9.5%, adjusted
every five years to the prime rate
plus 3.5%. $1,120,729 $1,136,714
Note payable due in monthly payments of
$2,075,84 with a sixty month amortization
all unpaid interest and principle due
May 1, 1998. This note was paid in
full at August 31, 1996. None None
Note payable due in monthly payments
collateralized by a note receivable with
identical terms related to Tenant
improvements on a project in which the
Company was a participating lender.
Payments received under the note
receivable are paid in identical
amount under this note payable. $ 83,587 None
Real Estate tax note payable to
Jackson County, Missouri
payable over 72 months. $ 189,166 None
A note payable due 2001
collateralized by a first mortgage
on a mixed use apartments and
commercial building in Kansas City,
Missouri. The note is payable in
monthly installments of $7,247.07. $ 886,378 None
Total Notes Payable $13,969,549 $19,160,892
The Company acquired $93,787 and $661,130 of convertible
subordinated debentures during the years ended December 31, 1995 and 1994,
respectively, as required by the Plan of Reorganization under the Guymon
settlement and the hardship debenture's agreement. These acquired
debentures were not retired and have been netted against the total
debentures outstanding to arrive at the $3,722,284 and $9,298,938 shown
outstanding at September 30, 1996 and December 31, 1995.
September 30, December 31,
1996 1995
7. Notes payable, related party.
The following notes payable
consist of advances from the
25% minority partner of Euless,
Texas 1192 General Partnership, and
must be repaid before the Company
can receive any cash distributions
from the Partnership: The company has
a tentative agreement with its
minority partner to acquire their
interest in this partnership. This
acquisition is contingent on a final
agreement being executed and the
closing of a financing transaction
by the Company. All of the following
loans will be paid in full as part
10% note payable due July 31, 1998 with
interest only payments monthly based
on the cash flow of the property.
Collateralized by the property and
equipment of Euless, Texas 1192
General Partnership. $600,000 $600,000
10% note payable due on demand
with interest only payments monthly
based on the cash flow of the
property. Collateralized by the
property and equipment of Euless,
Texas 1192 General Partnership. $123,893 $123,893
Unsecured note payable relating
to Euless, Texas hotel due
July 31, 1998, with interest at
the prime interest rate plus 3%.
Interest is payable monthly. $439,117 $439,116
________________________________
Total notes payable,
related party $1,162,960 $1,162,959
8. Other Liabilities
Other liabilities consisted
of the following:
September 30, December 31,
1996 1995
Accounts payable $ 186,078 $ 69,992
Accrued, current and
delinquent real estate taxes $1,095,480 $1,533,496
Other accrued expenses 523,977 548,507
Other liabilities 327,499 164.609
_______________________________
TOTAL $2,133,034 $2,316,604
The Company has consummated agreements with the certain taxing
authorities for the repayment of delinquent real estate taxes,
which included a substantial abatement of penalties and interest
in the amount of $332,204. The Company continues to have
delinquent taxes related to a rental property in Arizona. The
Company intends to pay these delinquent taxes out of a
financing transaction, which is scheduled to tentatively
close in December 1996. Part of the accrued taxes are subject
to the terms of the reorganization agreement, a portion of the
real estate taxes are due to be paid in 1998 and management
is currently negotiating final repayment terms on the balance.
If the Company fails to pay the delinquent taxes, the
underlying real estate could be foreclosed by the taxing authorities.
9. Pension Plan
During 1994, the Company established a defined contribution
pension plan covering all of its employees. All contributions
to the plan are made by the Company, no contributions are
required from the employees. Employees vest in the plan
over a five year period. Total pension expense for the
September 30, 1996 and year ended December 31, 1995 was
$ 31,185 and $41,576.
MASTER REALTY PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Environment
During 1990 through most of 1992 the United States, in
general, suffered through a recessionary cycle. The markets
served by the Company were affected to varying degrees. The
national economic environment continued to affect the
Company's activities through a reduction in demand for rental
space and a lack of activity in the real estate market. In
particular commercial, retail, and development activities
continued to be negatively impacted during 1991-1993.
The result of over-building in certain markets, the lack
of transactions in real estate and the general decline
in the economy led to increased vacancies, declining
or no growth rents and a substantial number of defaults
in mortgage notes. The market conditions and activities
of regulatory agencies created a decline in real estate
loans available. Due to the basic nature of the Company's
short-term lending policies, the national credit crisis and
the inability of borrowers to find takeout lenders were to
be the most significant factors affecting the performance
of the Company.
The real estate economy, both nationally and the markets
served by the Company, improved during 1994 and 1995 and have
continued to improve in 1996. Residential vacancies have decreased
and office market leasing has improved. The hotel industry had
a profitable year in 1995 and expectations for 1996 are for
continued profitability. In general, these factors have had
a positive impact on the Company's financial results.
Due to the number of assets taken through foreclosure and
loan workouts, the operating monthly cash flow of the Company has
continued to be adversely affected. The continuation of substantial
non-earning loans at September 30, 1996 and in 1995 has negatively
impacted the Company's cash flow. Although the Company has
decreased its non-earning loans through foreclosures and loan
workouts, some of these assets are still under-performing. Due
to a limited liquidity in the real estate markets serving
the Company is pursuing workouts or foreclosures related to its
existing debts whose terms have expired and strategies to
improve cash flow on real estate owned. The Company has
received a tentative commitment to refinance the majority
of its asset secured debt. This financing will provide the
Company with a better control over its cash flow.
The Company has continued to operate under its Strategic
Redirection Plan (SRP). The SRP is intended to preserve and
enhance the value of the Company's assets. The SRP
comprises three phases as follows:
PHASE 1
ASSET PRESERVATION - The Company is taking steps to
protect its interest in its assets. The Company has
undertaken foreclosures, workouts and litigation as its
primary tools in accomplishing this first phase of the SRP.
The Company is in the process of negotiating a final workout
relating to its remaining asset under Phase I of the SRP.
PHASE 2
CASH FLOW ENHANCEMENT - The Company is focusing its
energies on the re-establishing of cash flow. This phase
encompasses asset monitoring, collection efforts and control
procedures over Phase 1 workout programs. The ultimate success
of this phase will be dependent on the continued improvement of
the general real estate market.
PHASE 3
SHAREHOLDER LIQUIDITY - The final phase of the SRP is to
provide shareholders of the Company with liquidity options.
The first and foremost goal of this phase will be the creation
of a marketplace for the Company's stock. In addition, a
program for hardship situations in the case of death, disability
and certain retirements will be considered. The ability for
Company management to accomplish this phase will be subject to the
marketplace response to the SRP and the conversion of
the Company's convertible Debentures to stock.
Liquidity and Capital Resources
It was the policy of the Company to augment its
equity capital by borrowings in order to increase its
investments in realty and mortgage loans and thus diversify
its investment risk. The Company, in its early years,
experienced favorable results from lending Companies
to borrowers at higher rates, or acquiring mortgage loans
paying higher rates, than are charged to the Company under
its credit facilities. However, due to the number of
non-earning or partially earning loans in 1990 through 1995,
this technique led to an additional strain on the Company's
cash flow and operations. These issues were addressed as part of
the debt restructuring under the Company's Plan of Reorganization.
The following summarizes the primary debts of the Company.
The Company had a note payable with the First Bank of
Missouri which was formerly a revolving line of credit.
This note was paid in full on August 31, 1996
The Company and its partner has a $1,120,729 first mortgage
loan with a bank in Texas relating to the Company's hotel in
Euless, Texas. The Company is a seventy-five percent (75%) partner
in the partnership which owns the Hotel. The partnership is
current on its obligation with the bank. In addition, the
partnership owes to the non-Company partner $1,162,960 as
of September 30, 1996, which is being paid out of the
cash flow from the Hotel. Interest accrued of $170,555
remains unpaid at September 30, 1996.
The Company and its partner has a $ 4,900,000 first
mortgage loan with a bank in Missouri relating to the Company's
hotel in Kansas City, Missouri. The Company is a 89.6% partner
in the partnership which owns the Hotel. The partnership is
current on its obligation with the bank. This note
and the corresponding assets have not been consolidated
into the financial statements at September, 1996. The
partnership interest has been accounted for under the equity
method at September, 1996.
The Company has a note payable with the FDIC related
to the Company's acquisition of a first mortgage on an
apartment and commercial building in which the Company had
been a subordinated participant. This note is due in monthly
installments with a five year term. The Company is
current on this obligation.
The Company owes $3,722,284 as of September 30, 1996 on
its subordinated debentures. The terms of the debentures
include an amortization period over twenty years with interest
at six percent and a balloon payment in 2003 of any unpaid
principal and interest. The debentures are subordinated and
junior in right of payment to all senior indebtedness of the
Company (which includes all collateralized debt of the Company).
Senior indebtedness will be paid in full before holders
of the subordinated debentures will be paid any principal or
interest. Accordingly, no payment under the debentures has been
made. The Company has converted $2,539,590 of Debentures into
11,337,455 shares of common stock under the conversation privilege
of the Debenture. In addition, the Company converted $3,062,116 of
the Debentures including accrued interest into the Alternative
Treatment on August 31, 1996.
The Company re-acquired certain debentures in 1994 and 1995.
These debentures were acquired under the hardship provisions of
the debenture instrument and under required payments
under the Plan of Reorganization.
The Plan of Reorganization included an Alternative Treatment
for debenture holders whereby the debenture holder could elect
to convert their debenture plus an equal amount of
cash to a debt or a specific property. In 1995, those
debenture holders who elected this Alternative Treatment
agreed to expand the pool of assets to which this treatment applied.
Effective August 31, 1996, the Alternative Treatment was closed.
The participants had $2,902,345 of cash, $399,147 of the Company
common stock, and $3,062,162 of Debentures including accrued
interest thereon included in their investment. Certain of
the participants elected to receive $2,336,032 of Kansas City,
Missouri, industrial revenue bonds owned by the Company, as
a reduction in their Alternative Treatment.
As the real estate economy continues to recover and
the full implementation of the SRP is completed, the
Company's management believes the Company should be able
to substantially recover from its current short-term cash flow problems.
Results of Operations
The Company's total assets, before giving effect
to the allowance for losses, was $34,559,684 and $40,777,068
at September 30, 1996 and December 31, 1995 respectively.
This reduction was related to the conversion of certain
mortgage notes which had previously been reserved into an 89.6%
equity position in a partnership which owns a hotel
property in Kansas City, Missouri.
Included in total assets at September 30, 1996 were mortgage
loans totaling $7,236,585. Non-earning mortgage notes
receivable were decreased at September 30, 1996 to $3,671,417
from $12,962,000 at December 31, 1995. The allowance
for possible losses related to the mortgage notes of the
Company was $5,492,617 at September 30, 1996 and $10,780,742
at December 31, 1995. The allowance for possible losses
continues to be a direct result of the lack of liquidity in
the real estate industry with respect to certain of the Company's
borrowers. The Company's management, in determining the reserve
for possible loan losses, takes into consideration
a number of factors including property appraisals, the net
operating cash flow of the property, the cost of money expected,
capitalization, and national and local economic and
real estate conditions in arriving at its loan loss evaluation.
The Company had a net profit for the nine months
ended September 30, 1996 of $1,971,701 or $.32 per share
(non-diluted) as compared to a profit for the period
ended September 30, 1995 of $793,100 or $.21 per
share (non-diluted). The continued profitability of the
Company is a result of implementation of the SRP.
Interest and fee revenue on mortgage loans for
September 30, 1996 was $449,849 compared to $371,845
for September 30, 1995. This increase is a direct
result of the restructuring of two non-earning loans in
which previously reserved interest was recovered.
Revenues from rental real estate increased in the period
ending September 30, 1996 increased from September 30, 1995
by $370,297. This increase was primarily a result of the
Company's increase in its rental real estate activities.
The Company recognized revenues of $1,570,281
and $1,624,471 for September 30, 1996 and September 30, 1995
respectively from a hotel in which the Company is a
seventy-five percent (75%) partner and $173,000 of hotel
lease rental revenue for September 30, 1996 compared to
$120,000 for September 30, 1995. The hotel lease revenue increase
was due to the Company's increased ownership in a
hotel property in September, 1996.
The Company recorded a $2,943,039 recovery on its previous
reserves for loan and investment losses and reductions
in liabilities at September 30, 1996. These recoveries are
directly related to the implementation of the SRP.
Interest expense increased from $944,883 for September 30, 1995
to $1,223,050_ for September 30, 1996. This increase
was due to the increased debt related to consolidated partnership
activities. The conversion of $2,019,829 of Debentures
into common stock of the Company for the three month ended
September 30, 1996 resulted in $299,825 of previously
expensed interest to be recovered and recorded as recovery income.
The Company's general and administrative expenses
increased by $479,464 for the nine months ended
September 30, 1996 as compared to the nine months ended
June 30, 1995. This increase is substantially due to the
recording of the accrued of bonuses which will be earned
under the bonus pool in 1996.
The Company's servicing fees declined in the period
ending in September 30, 1996 from $73,468 at September 30, 1995
to $41,346 in the period ending September 30, 1996. This
decline was a result of lower loan servicing fees related
to the decline in mortgage notes. Payroll costs
for September 30, 1996 were $340,686 as compared to $320,755
at September 30, 1995.
The Company recognized rental real estate operating
expenses of $970,418 and $1,078,850 for the period September 30, 1996
and 1995 respectively. The decrease in expenses was
primarily related to the Company's disposition of an
office building in October, 1995 and its strategies related
to Phase II of the SRP.
The Company recognized hotel expenses of $1,102,532
and $1,320,132 for the periods of September 30, 1996 and
1995, respectively, from a hotel in which the Company
is a seventy five percent (75%) partner.
Potential Impact of Known Facts, Commitments, Events
And Uncertainties on Future Operating Results
The Company is substantially impacted by the general
economic trends in the real estate economy. As the real
estate markets served by the Company continue to recover the
Company's ability to perform under the SRP is improved.
The Company's Trustees and management believe this improving
trend will continue and will result in the Company stabilizing its
monthly operating cash flow. In the interim, the Company
must complete its debt restructurings and continue to pursue
the sale of one or more of its asset
The Company has actively solicited Debenture
holders to exercise their option of conversion of their
Debentures into stock of the Company. These conversions will
result in a positive impact to the Company's financial position.
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits:
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements to 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: November 12, 1996 MASTER REALTY PROPERTIES, INC.
By: /s/ John J. Bennett
John J. Bennett, Chairman
(Principal Executive Officer)
/s/ Thomas H. Trabon
Thomas H. Trabon, Executive
Vice President, Treasurer and
Chief Financial Officer
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Master Realty Properties, Inc.
Statement of Changes in Shareholders' Equity
Nine Months Ended in September 30, 1996 and 1995
Balances, December 31, 1994
Capital in Undistributed Total
Preferred Stock Common Stock Excess of Earnings Shareholders'
Shares Amount Shares Amount Par Value (Deficit) Equity
2,491,622 $24,916 1,308,669 $13,086 $35,667,043 ($32,370,908) $3,334,137
Net income for period 793,100 793,100
______________________________________________________________________________
Balances, September 30, 1995
2,491,622 $24,916 1,308,669 $13,086 $35,667,043 ($30,487,510) $4,217,535
Debenture to
Stock Conversion ######### $109,383
Debenture to
Stock Conversion $2,430,208 $2,430,208
Net Income
for the Period $1,971,701
Subsidiary Distribution ($6,616)
_____________________________________________________________________________
Balances,
September 30, 1996
2,491,622 $24,916 ######### $122,469 ########### $(28,522,425) $9,722,211
