SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998, or
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period from ____________ to _____________
Commission File Number: 1934 Act File Number 33-22805
MASTER REALTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1056392
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
410 W. 8th Street
Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 474-9333
Securities registered pursuant to Section 12(d) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Shares of Common Stock None
Shares of Preferred Stock 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 amendments to this Form 10-K. ___
There is no quoted market value of the Shares of Common Stock held by
non-affiliates of the Registrant. The book value non-diluted for such
stock on December 31, 1998 was $14,637,957.
As of December 31, 1998, there were 1,187,804 Shares of Common Stock
and 35,925 Shares of Preferred Stock of the Registrant outstanding.
Documents Incorporated by Reference
- -----------------------------------
Portions of the proxy statement for the annual shareholders meeting to
be held in 1999 are incorporated by reference into Part III.
PART I
- ------
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements containing
the words "believes," "anticipates", "expects" and words of similar import.
Such forward-looking statements related to future events, the future
financial performance of the Company, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Readers should
specifically consider the various factors identified in this report which
could cause actual results to differ. The Company disclaims any obligation
to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statement contained herein to
reflect future events or developments.
ITEM 1. BUSINESS
(a) General Development of Business
Master Realty Properties, Inc. (the "Company") was incorporated in
Delaware on May 12, 1988 and is a self-administered real estate investment
trust ("REIT").
(b) Financial Information About Industry Segment
The Company is in the business of acquiring equity interests in hotel
and mixed-use apartment/commercial properties. See the Consolidated
Financial Statements and notes thereto included in Item 8 of this Report on
Form 10-K for certain financial information required in Item 1.
(c) Narrative Description of Business
At December 31,,1998, the Company owned either directly or indirectly
through subsidiaries and Partnerships four hotels containing 598 rooms
located in four states; (the "Hotels") three mixed-use apartment and
commercial Properties containing 308 apartments and 121,663 square feet of
commercial office space and a 178 car parking structure and other
commercial properties containing 43,622 square feet of leasable space
(collectively the "Properties"). In addition, the Company has a cash flow
mortgage on a 62,436 square foot commercial office building.
In order to qualify as a REIT neither the Company or any of its
subsidiaries or related partnerships can operate the Hotels. As a result,
all of the Hotels are leased to a third party lessee ("the Lessee").
The Company's primary strategy for growth is to acquire, develop and
own high quality hotel, apartment and apartment/commercial mixed-use
properties.
The Company filed for protection under Chapter 11 of the Federal
Bankruptcy Laws on April 17, 1992. On April 11, 1994 the Company's Plan of
Reorganization became effective and the Company commenced operations
outside of its Chapter 11 proceeding.
Business Strategy
- -----------------
The Company seeks growth in funds from operations (a common measure of
equity REIT performance, defined as net income [loss] computed in
accordance with generally accepted accounting principles, excluding gains
or losses from debt restructuring and sales of property and distributions
in excess of earnings allocated to minority interests, plus depreciation
and amortization of assets unique to the real estate industry) while
preserving and enhancing property values by pursuing the following
strategies: (i) maximizing cash flow from operations of the Properties by
seeking to maintain high occupancy levels, obtain rent and rate increases,
manage tenant turnover efficiently, make strategic capital investments,
maximize percentage rent under the Hotel leases and control operating
expenses; (ii) acquiring additional apartment/commercial and hotel
properties for Common Stock Units, or cash in situations where, in the
judgment of management, the Company's business strengths have the potential
to increase property performance and value; (iii) developing new
apartment/commercial properties.
Financing Strategy
- ------------------
To the extent that the Company's Board of Trustees determines to seek
additional capital for acquisitions or otherwise, the Company may raise
such capital through additional equity offerings, debt financing or
retention of cash flow, joint ventures or a combination of these methods.
The Company has a large net operating loss for income tax purposes which
will allow the Company to retain current taxable income without violating
the REIT rules and regulations.
Equity
- ------
During 1994, the Company issued Convertible Subordinated Debentures
(the "Debentures"). The Debentures are convertible on the basis of .1339
shares of the Company's Common Stock for each $1.00 of Debenture converted.
In 1996, 1997 and 1998 $3,047,185, $ 2,475,393 and $134,784 respectively of
Debentures have been converted into Common Stock.
The Company's shareholders approved, at the 1997 Annual Meeting, a
reverse stock split in the ratio of twenty-five hundred (2,500) shares to
one (1) share for both the Common Stock and Preferred Stock, with an
elimination of all fractional interests. Each shareholder was provided the
option of having their fractional interest purchased by the Company or
acquiring additional shares to eliminate the fractional interest. The
price approved for this purpose was $.31 per share. The reverse stock
split became effective April 30, 1998. The cost to acquire the fractional
shares was $294,171. An additional $37,698 of equity was raised from
holders of fractional shares.
The Company's shareholders approved at the 1998 Annual Meeting a forward
split of seventy-five (75) for one (1) forward split for both the common
stock and preferred stock effective June 30, 1998.
Property Management
- -------------------
The Lessee operates all four of the Hotels. The Lessee, through its
parent management company, (the "Manager") is paid a management fee equal
to 4% of gross revenue of the Hotels, plus reimbursement of out-of-pocket
expenses. The Lessee is generally required to perform all operational and
management functions necessary to operate the Hotels. Such functions
include, but are not limited to, ordering supplies, advertising and
marketing, maid service, laundry and maintenance.
The Company has engaged the Manager to manage all of its non-hotel
properties. The Manager is experienced in the management and leasing of
apartment and commercial properties. The Manager generally performs all
day to day activities including rent collection, tenant relations, leasing
and payment of all operating expenses.
Competition
- -----------
All four of the Hotels are located in developed areas where other
hotel properties exist. If and when additional hotel properties are
developed in these areas, the Company's hotel operations could incur
material and adverse impact. In addition, other hotels changes in rates
could adversely impact the Hotels.
The Company's Properties are primarily located in the downtown area of
Kansas City, Missouri. A number of new apartment properties are either
being developed or are in various stages of potential development in
downtown Kansas City. The Company is involved in several of these
potential developments. The Downtown Council of Kansas City has issued a
housing study for downtown Kansas City which indicates a substantial need
for additional housing in the downtown Kansas City area. The Company does
not believe the new properties being developed will have any impact on the
Properties.
Inflation
- ---------
Although inflation has slowed in recent years, it is still a factor in our
Economy and the Company continues to seek ways to mitigate its impact. To
The extent permitted by competition, the Company passes increased costs on
to its customers by increasing rent and common area maintenance charges.
Employees
- ---------
The Company has four full-time employees.
Recent Development
- ------------------
The Company acquired a mixed-use project containing 96 apartments and
23,137 square feet of commercial space in February, 1998.
The Company has an additional 14 apartments under construction as part
of the 96 apartment complex acquired in February, 1998.
Environmental Issues
- --------------------
Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property.
Such laws often impose such liability without regard to whether the owner
knew of, or was responsible for, the presence of hazardous or toxic
substances. Furthermore, a person that arranges for the disposal or
transports for disposal or treatment a hazardous substance at another
property may be liable for the costs of removal or remediation of hazardous
substances released into the environment at the property. The costs of
remediation or removal of such substances may be substantial, and the
presence of such substances, or the failure to promptly remediate such
substances, may adversely affect the owner's ability to sell such real
estate or to borrow using such real estate as collateral. Thus, if such
liability were to arise in connection with the ownership and operation of
the Hotels or Properties, the Company, the Lessee or the Manager, as the
case may be, may be potentially liable for such costs.
Phase I Environmental Survey Assessments ("ESA's") have been obtained
on all of the major Hotel and Properties of the Company from independent
environmental engineering firms at the time of acquisition and or in
connection with financing transactions. The Phase I ESA's were intended to
identify potential sources of contamination for which the Hotels or
Properties may be responsible and to assess the status of environmental
regulatory compliance. No assurance can be given that the Phase I ESA's
identified all significant environmental problems or that no additional
environmental liabilities exist.
The Phase I ESA reports have not revealed an environmental liability
or compliance concerns that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations,
nor is the Company aware of any such liability or compliance concerns.
Nevertheless, it is possible that these reports do not reveal all
environmental liabilities or compliance concerns or that there are material
environmental liabilities or compliance concerns of which the Company is
unaware. Moreover, no assurances can be given that (i) future laws,
ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Hotels and
Properties (such as the presence of leaking underground storage tanks) or
by third parties unrelated to the Company.
The Company believes that the Hotels and Properties are in compliance,
in all material respects, with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic substances and
other environmental matters.
Year 2000 Management
- --------------------
In order to address the computer industry's "Year 2000" problem, the
Company is in the process of upgrading the accounting software and network
server. Management does not believe the costs for this upgrade will be
significant. The Company is in the process of determining whether the
Companies that manage the Hotels are in the process of studying the
"Year 2000" issue. Upon completion, the Company will determine the
extent to which it is vulnerable to third parties' failure to remediate
their own "Year 2000" issues and the costs associated with resolving this
issue.
Tax Status
- ----------
The Company has made an election to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code, commencing with its taxable
year ended December 31, 1988. The Company believes that it qualifies for
taxation as a REIT, in which case the Company generally will not be subject
to federal income tax on income that it distributes to shareholders
provided it distributes at least 95% of its REIT taxable income to its
shareholders. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and to Federal income and excise taxes on its undistributed
income.
Executive Officers of the Company
- ---------------------------------
The following is a biographical summary of the experience of the
executive officers of the Company.
John J. Bennett, 55
3850 W. 171st Street
Stilwell, KS 66085
President, Chairman of the Board of Master Realty Properties, Inc. since
1988.
Mr. Bennett is the President of Master Realty Corp., Master Mortgage
Realty II, Inc., Master Mortgage Realty III, Inc., and Master Mortgage
Realty V, Inc., Mezzanine, Inc., and Soho, Inc., and the Vice President of
Master Mortgage Realty IV, Inc., River Market Venture, Inc., and Real
Estate Equities, Inc., all of which are wholly owned subsidiaries of the
Company.
Thomas H. Trabon, 49
3441 W 131st Street
Leawood, KS 66209
Executive Vice President since 1991.
Mr. Trabon was a partner in Laventhol & Horwath, a National Certified
Public Accounting firm from January 1, 1984 to November, 1990. Mr. Trabon
is the President of River Market Venture, Inc., Master Mortgage Realty IV,
Real Estate Equities, Inc., and Vice President of Master Realty Corp.,
Master Mortgage Realty II, Master Mortgage Realty III, Master Mortgage
Realty V, Mezzanine Inc., and Soho, Inc.
Byron Constance, 72
3729 S. Union
Independence, MO 64055
Secretary of Master Realty Properties, Inc. since, January 26, 1991.
Mr. Constance is the retired Senior Partner in Constance, Stewart &
Cook, L.C. a law firm located in Independence, Missouri, and is presently
counsel to the firm. He has practiced law since 1949, and serves on the
Advisory Board of Directors of Hillcrest Bank, located in Kansas City,
Missouri.
Robert K. Brown, 54
3200 South M-291 Highway
Independence, MO 64057
Treasurer since 1996.
Mr. Brown has been a partner in Floyd R. Brown & Co., P.C., a
certified public accounting firm in Independence, Missouri, since 1969.
ITEM 2. REAL ESTATE PROPERTIES
The following table sets forth certain proforma information for the
year ended December 31, 1998 with respect to the Hotels
For the year ended December 31, 1998
-------------------------------------------------------------
Number Average *Revenue Per
Date of Room Daily Available
Opened Rooms Revenue Occupancy Rate Room
------ ------- ---------- --------- ------- -----------
Ramada Inn
Phoenix, AZ 1955 162 $2,642,559 61.6% $72.30 $44.69
Euless, TX 1974 144 $1,923,427 80.4% $44.71 $35.85
**Wichita, KS 1959 192 $2,045,813 50.6% $57.16 $29.19
Historic Suites
of America 1989 100 $2,198,496 63.7% $93.50 $60.23
* Revenue per available room calculation is using total revenue and not
room revenue only.
As of April 1, 1998, the Holiday Inn - Wichita became a Ramada Inn Hotel.
The following table sets forth certain information relating to the
Properties as of December 31, 1998 (in the following table, occupancy is
based upon economic occupancy, which measures occupancy beginning on the
rent commencement date; monthly revenue per unit is total property revenue
divided by the number of apartment units)
Residential Portfolio Statistics for the Year Ended December 31, 1998
---------------------------------------------------------------------
Property Type/ Number of
Property Property Apartment Average Sq.
Name Type Year Built Units Ft. Per Unit
---------------- -------- ---------- --------- ------------
Mixed-use Property
Kansas City
- ------------------
River Market Mid Rise Late 1800's 165 880
Soho VI Mid Rise Late 1800's 47 729
Soho III* Mid Rise Late 1800's 96 731
Commercial Property
Kansas City
- -------------------
Oldham Building Mid Rise early 1900's N/A N/A
39/40 Plaza Low Rise 1970 N/A N/A
Loans Commercial
Property Kansas City
- --------------------
Soho Office Center Mid Rise Late 1800's N/A N/A
Gaslight Garage** Parking
Garage 1986 N/A N/A
Residential Portfolio Statistics for the Year Ended December 31, 1998
---------------------------------------------------------------------
Property Commercial
Type/ Monthly Average Commercial Average
Property Revenue Economic Square Rental Rate
Name Per Unit Occupancy Footage per Sq. Ft.
---------------- -------- --------- ---------- -----------
Mixed-use Property
Kansas City
- ------------------
River Market $577 96% 85,592 $9.01
Soho VI $563 96% 12,934 $9.71
Soho III* $603 92% 23,137 $5.60
Commercial Property
Kansas City
- -------------------
Oldham Building N/A N/A 35,000 $10.00
39/40 Plaza N/A N/A 8,622
Loans Commercial
Property Kansas City
- --------------------
Soho Office Center N/A N/A 62,436 $10.05
Gaslight Garage** N/A N/A 3,367 $3.48
* Soho III was acquired February 1, 1998.
** The Gaslight Garage contains 178 parking spaces which rent on an average
monthly rate of $65.00 per space.
Mortgage Financing
- ------------------
The following table reflects the terms and amounts of the Company's
mortgage financing at December 31, 1998.
Pool/Collateral 12/31/98
Salomon Brothers Outstanding Interest Maturity
Realty Corp. Pool Location Principal Rate Date
- ----------------- --------------------- ----------- -------- ---------
River Market Kansas City, Missouri $19,417,830 7.5% 1/1/2008
Soho VI Kansas City, Missouri
Ramada Inn Phoenix Phoenix, Arizona
Ramada Inn Euless Euless, Texas
Historic Suites
Hotel Kansas City, Missouri
Midland Bank
- ------------
Ramada Inn
Wichita Wichita, Kansas $ 7,245,312 7.0% 4/1/2004
-----------
Hilcrest Bank
- --------
Soho III Kansas City, Missouri $3,556,295 9.25% 2/17/2000
277,448 Prime + 1%
Oldham Building Kansas City, Missouri $ 152,834 Prime + 1% 12/1/1999
----------
$30,649,719
==========
Hotel Leases
- ------------
All of the Company's Hotels are leased to the Lessee under leases
which provide for a base rent and percentage rents.
The following table reflects the basis term of each lease.
% Rate
Period on
Gross Maximum
Property Initial Term Base Rent Revenues Rent
- --------------------- ----------------- --------- -------- --------
Ramada Inn Phoenix 1/1/95-1/1/2000 $672,000 26% $840,000
Ramada Inn Euless 1/1/97-1/1/2002 $504,000 27% $648,000
Ramada Inn Wichita 10/1/97-10/1/2002 * * *
Historic Suites Hotel 1/1/97-1/1/2002 $744,000 33% $816,000
*Annual amount not yet determined.
The leases require the Company to maintain the capital improvements
for the Hotels. The Company currently has established reserves for
replacement for each of the Hotels equal to up to five percent (5%) of the
Hotel gross revenues. The leases can be terminated by the Company upon
notice to the Lessee and the payment of certain defined severance payments.
The Ramada Inn Wichita lease provides for an interim rental period
which will expire in June, 1999 at which time all final terms of the lease
agreement will be finalized.
ITEM 3. LEGAL PROCEEDINGS.
The Company is presently subject to legal actions or claims for
damages that arise in the ordinary course of business. In the opinion of
management and counsel to the Company, the ultimate outcome of such
litigation will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND OTHER RELATED MATTERS:
Based on the Company's shareholder records at December 31, 1998, the
Company has approximately 354 common shareholders and 87 preferred
shareholders.
The preferred and common shares of the Company are not traded on any
established public trading market, and the Company is not aware of any
quotations of the market price, if any, for the preferred or common shares
of the Company. There were secondary trades in the Company's stock up to
September of 1990, but no systematic reports by brokers as to the prices at
which such stock was traded are available. However, the Company's stock
has periodically been traded between certain Beneficial Owners and
Management as reported in Item 12, Security Ownership of Certain Beneficial
Owners and Management for the appropriate periods
At the time of its public offering, the Company intended to apply for
quotation of the common shares on NASDAQ following completion of the
offering, assuming satisfaction of the requirements for a NASDAQ listing.
Among the requirements for obtaining a NASDAQ listing is the requirement
that the Company have at least two active market makers for the common
shares. The Company did not subscribe a sufficient number of common shares
during its initial offering to attract active market makers in its common
stock. The Company currently meets all requirements for obtaining a NASDAQ
listing with the exception of such requirement. The Trustees believe,
since the substantial interest shown to date in the Debenture conversion
option to common stock, that a trading market will be established in the
future.
There are no outstanding options to purchase any preferred or common
shares of the Company. The Company's preferred shares are convertible into
common shares at the option of the preferred shareholders at the ratio of
one common share for each preferred share.
The Company issued Convertible Subordinated Debentures in 1994. The
Debentures are convertible into shares of common stock of the Company,
unless the Debentures are called by the Company for redemption. The number
of shares issuable upon conversion is based on the Company's book value at
December 31 of 1993 of $.224/share ($.00672/share after all stock splits).
The Company maintains a Dividend Reinvestment Plan (the "Plan"),
pursuant to which shareholders who are participants in the Plan may
reinvest dividends from the Company in additional preferred and/or common
shares of the Company. Dividends may be reinvested by the Plan in shares
purchased either from the Company or its shareholders.
The Company is required to distribute not less than 95% of its taxable
income annually to maintain its status as a REIT. The Company has a net
operating loss for Federal Income Tax purposes which allows the Company to
retain any net current year taxable income for reinvestment in real estate
assets.
ITEM 6: SELECTED FINANCIAL DATA:
The following table, not covered by the report of independent
certified public accountants, sets forth selected historical financial data
from 1994 through 1998. This table should be read in conjunction with the
detailed information and financial statements of the Company appearing
elsewhere herein. The basic earnings per share amounts for 1993 through
1996 have been restated to conform with SFAS No. 128.
Operating Results:
- -----------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Revenues $6,579,712 $5,617,287 $6,587,642 $4,834,116 $9,518,079
Net income (Loss) 295,676 1,507,127 1,550,216 1,883,399 2,481,895
Basic Per Share:
- ---------------
Net income (Loss)
(Without anti-
dilutive effect) $.27 $2.27 $8.89 $1.44 $1.89
Dividends None None None None None
Weighted average
number of
common shares
outstanding $1,084,202 663,698 174,297 1,308,709 1,308,669
Balance Sheet:
- -------------
Total assets 50,527,507 47,193,662 38,972,126 29,996,326 27,408,492
Notes payable 34,981,360 30,842,693 24,964,331 20,323,851 19,610,838
Shareholders'
equity 14,637,957 13,797,456 9,814,936 5,217,535 3,334,136
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (dollars in thousands, unless otherwise stated):
Background:
- ----------
The following discussion compares historical results of operation for
the years ended December 31, 1996, 1997 and 1998. The discussion should be
read in conjunction with the "Selected Financial Data," and the financial
statements and notes thereto included elsewhere in this report.
The Company
- -----------
The Company is a public real estate investment trust that is primarily
engaged in the acquisition, development and operation of mixed use
apartment/commercial properties and the acquisition and development of
hotel properties. The Company operates these properties either directly or
through subsidiaries or partnerships.
Results of Operations
- ---------------------
Year Ended December 31,1998 Compared with Year Ended December 31,
1997.
Rental Properties
- -----------------
Revenue from rental properties increased by $783,228 from December 31,
1997 to December 31, 1998. This increase was due to the increases in
rental rates in all of the Properties, a reduction in vacancies, and the
acquisition of an additional 96 apartments and 23,137 square feet of
commercial space on February 1, 1998.
Rental expenses increased from $1,129,222 at December 31, 1997 to
$1,559,069 at December 31, 1998. This increase of $429,847 was due to
normal price increases related to the Properties operating costs and the
acquisition of an additional 96 apartments and 23,137 square feet of
commercial space on February, 1998.
Hotel Properties
- ----------------
Revenues from hotel lease income increased from $2,104,346 at December
31, 1997 to $2,605,749 for December 31, 1998. This increase was due to the
lease of the Company's hotel in Wichita, Kansas.
Other Revenues and Expenses
- ---------------------------
The Company continued to receive interest income on its remaining real
estate loans. The decrease in the amount received of $102,916 from
December 31, 1997 to December 31, 1998 was due to the decline in mortgage
notes receivable of the Company.
The Company had a $210,675 decrease in general and administrative
expenses for 1998. This decrease was entirely attributable to a decrease
in the Company's bonus pool for employees from December 31, 1997 to
December 31, 1998.
Interest expense increased by $274,323 from $2,274,698 at December 31,
1997 to $2,549,021 at December 31, 1998. This increase was due to the
acquisition of additional real estate properties using borrowed funds.
The Company has continued to recover losses previously reserved
related to the Company's former loan portfolio. The recovery for December
31, 1998 was $831,640 compared to $2,233,271 for December 31, 1997.
Results of Operations
- ---------------------
Year Ended December 31,1997 Compared with Year Ended December 31,
1996.
Rental Properties
- -----------------
Revenue from rental properties increased by $622,441 from December 31,
1996 to December 31, 1997. This increase was due to the increases in
rental rates in all of the Properties and a reduction in vacancies
Rental expenses increased from $1,062,361 at December 31, 1996 to
$1,129,222 at December 31, 1997. This increase of $66,861 was due to
normal price increases related to the Properties operating costs
Hotel Properties
- ----------------
Revenues from hotel lease income increased from $996,706 at December
31, 1996 to $2,104,346 for December 31, 1997. This substantial increase
was due to the lease of the Company's hotel in Euless, Texas and the
increases related to volume growth in hotel operating revenue and the
corresponding increases in percentage rent. In 1996, the Euless hotel was
accounted for as an operating activity, accordingly, the statements of
operation include this hotel's operating revenue and operating expenses.
Other Revenues and Expenses
- ---------------------------
The Company continued to receive some interest income on its remaining
real estate loans. The decrease in the amount received of $248,795 from
December 31, 1996 to December 31, 1997 was due to the decline in mortgage
notes receivable of the Company.
The Company had a $871,232 decrease in general and administrative
expenses for 1997. This decrease was entirely attributable to a decrease
in the Company's bonus pool for employees from December 31, 1996 to
December 31, 1997.
Interest expense increased by $460,968 from $1,813,730 at December 31,
1996 to $2,274,698 at December 31, 1997. This increase was due to the
acquisition of additional real estate properties using borrowed funds.
The Company has continued to recover losses previously reserved
related to the Company's former loan portfolio. The recovery for December
31, 1997 was $2,233,271 compared to $2,632,194 for December 31, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company had positive cash flow from its operating activities and a
deficit in cash flow from its investing activities which represented the
payment of Company liabilities and the acquisition of additional real
estate assets.
The Company had an increase in cash flows from financing activities
related to debt financing of the acquisition of additional real estate
assets.
Funds from Operations
- ---------------------
FFO is defined by the National Association of Real Estate Investment
Trusts ("NAREIT") as net income (loss) (computed in accordance with
generally accepted accounting principles) excluding gains (or losses) from
debt restructuring and sales of property, and distributions in excess of
earnings allocated to Minority Interest, plus depreciation/amortization of
assets unique to the real estate industry. Depreciation/amortization of
assets not unique to the industry, such as amortization of deferred
financing costs and non-real estate assets, is not added back. FFO does
not represent cash flow from operating activities in accordance with
generally accepted accounting principles (which, unlike FFO, generally
reflects all cash effects of transactions and other events in the
determination of net income) and should not be considered an alternative to
net income as an indication of the Company's performance or to cash flow as
a measure of liquidity or ability to make distributions. The Company
considers FFO a meaningful, additional measure of operating performance
because it primarily excludes the assumption that the value of real estate
assets diminishes predictably over time, and because industry analysts have
accepted it as a performance measure. Comparison of the Company's
presentation of FFO, using the NAREIT definition, to similarly title
measures for other REITs may not necessarily be meaningful due to possible
differences in the application of the NAREIT definition used by such REITs.
The following reflects the FFO by the Company's primary segments.
Year Ended Residential/ Assets
December 31, Hotel mixed use for All
1998 Leasing Properties Restructure Other Total
- ------------ -------- ---------- ----------- --------- -----------
Net Income $ (144,331) $ 986,482 $230,418 ($776,893) $295,676
Add: Minority
interest 8,283 - - - 8,283
Less: Partner-
ship invest-
ment income - - - 13,565 13,565
---------- ---------- -------- --------- ----------
Income before
minority
interest (136,048) 986,482 230,418 (763,328) 317,524
Add: Deprecia-
tion and
amortization
of real
estate assets 1,213,409 196,782 23,037 125,873 1,559,101
Less: Gain on
sales of
assets - - (81,884) - (81,884)
Less: Non-recur-
ring items:
Accrued inte-
rest expense
forgone on
converted
debentures - - - (105,399) (105,399)
Funds from --------- ---------- -------- --------- ----------
operations $1,077,361 $1,183,264 $171,571 $(742,854) $1,689,342
========== ========== ======== ========= ==========
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK.
None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated and Combined Financial Statements on Page 21
of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to directors is
hereby incorporated by reference to the material appearing under the
caption "Election of Directors" in the Company's definitive proxy statement
for the annual meeting of shareholders to be held in 1999 (the "Proxy
Statement"). Information required by this item with respect to executive
officers is provided in Item 1 of this report. See "Executive Officers of
the Company".
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership of such securities with the
Securities and Exchange Commission and the NYSE. To the best of the
Company's knowledge, all required reports were timely filed during and with
respect to the fiscal year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is hereby incorporated by
reference to the material appearing under the caption "Executive
Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is hereby incorporated by
reference to the material appearing under the caption "Voting Securities
and Principal Holders Thereof" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is hereby incorporated by
reference to the material appearing under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements
Reference is made to the Index to Financial Statements and Schedule on Page
21 of this Form 10-K.
14(a)(2) Financial Statement Schedules
Reference is made to the Index to Financial Statements and Schedule on Page
21 of this Form 10-K.
All other schedules have been omitted because the required information of
such other schedules is not present in amounts sufficient to require
submission of the schedule or because the required information is included
in the consolidated financial statements.
(a) The following documents are filed as a part of this report.
(1) Financial Statements:
Report of Independent Auditors
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the year ended December 31, 1998,
1997 and 1996
Statements of changes in stockholders' equity for the year ended
December 31, 1998, 1997 and 1996.
Statements of cash flows for the year ended December 31, 1998,
1997 and 1996.
Notes to financial statements.
(2) Financial Statement Schedules
II - Valuation and qualifying accounts and reserves
III - Property, Equipment and Accumulated Depreciation
IV - Mortgage loans on real estate
All other schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or the notes
thereto.
(The remainder of this page intentionally left blank)
(3) Exhibits:
Number Description
*1.1 Form of Participating Dealer Agreement
*3.1 Restated Certificate of Incorporation
*3.2 Amended and Restated Bylaws
*4.1 Form of Preferred Share Certificate
*4.2 Form of Common Share Certificate
*4.3 Escrow Agreement
*5.1 Opinion of Counsel regarding legality of the
Shares
*5.2 Opinion of Counsel regarding ERISA matters
*8.1 Opinion of Counsel regarding certain tax
matters
*10.1 Reinvestment Plan
*10.2 Executed Bonus Interest Escrow Agreement
*10.3 Revised Advisory Agreement
*10.4 Appointment of Transfer Agent and Registrar
*10.5 Promissory Note for $10,000,000 line of
credit from Master Mortgage Fund Trust VII
*10.6 Revolving Line of Credit Loan Agreement,
Security Agreement and Revolving Credit Note
for $15,000,000 line of credit from Skopbank
*10.7 Revolving Line of Credit Loan Agreement for
$10,000,000 line of credit from Metro North
State Bank
* Previously filed
(b) Reports on Form 8-K
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.
Master Realty Properties, Inc.
March 30, 1999
By: /s/ John J. Bennett
President and Trustee
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
/s/ John J. Bennett Affiliated Trustee
President, and Chief
/s/ Byron Constance Independent Trustee
and Secretary
/s/ Robert K. Brown Independent Trustee
and Treasurer
/s/ Richard Polcari Independent Trustee
/s/ James E. Trimmer Independent Trustee
/s/ James I. Threatt Independent Trustee
/s/ Roger E. Buford Affiliated Trustee
/s/ Thomas H. Trabon Executive Vice President
Chief Financial Officer
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997 and 1996
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
MASTER REALTY PROPERTIES, INC.
We have audited the consolidated balance sheets of Master Realty
Properties, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended December 31, 1998, 1997 and 1996.
In connection with our audits of the consolidated financial statements, we
have also audited the attached supplementary schedules. These consolidated
financial statements and the supplementary schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements and supplementary schedules
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Master
Realty Properties, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for the years ended
December 31, 1998, 1997 and 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related supplementary
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects the
information set forth therein.
MAYER HOFFMAN McCANN L.C.
Kansas City, Missouri
February 5, 1999
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE STATEMENTS
December 31, 1998 and 1997
1998 1997
---- ----
A S S E T S
-----------
CASH $ 699,358 $ 2,348,692
RESTRICTED CASH 1,096,360 294,866
MORTGAGE NOTES RECEIVABLE,
net of allowance for loan losses 1,080,850 2,829,615
NOTE RECEIVABLE 535,871 193,460
PROPERTY HELD FOR INVESTMENT 1,001,688 1,000,000
INVESTMENT IN REAL ESTATE PARTNERSHIPS 173,456 188,938
ACCOUNTS RECEIVABLE - RELATED PARTY 987,062 1,112,143
ACCOUNTS RECEIVABLE - OTHER 37,004 43,071
INDUSTRIAL REVENUE BONDS -- 276,452
PROPERTY AND EQUIPMENT, at cost
less accumulated depreciation 43,870,414 37,638,765
OTHER ASSETS 1,045,444 1,267,660
TOTAL ASSETS $50,527,507 $47,193,662
=========== ==========
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 1998 and 1997
1998 1997
---- ----
L I A B I L I T I E S
---------------------
NOTES PAYABLE $34,981,360 $30,842,693
OTHER LIABILITIES 586,964 2,037,553
----------- -----------
TOTAL LIABILITIES 35,568,324 32,880,246
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES 321,226 515,960
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 16)
S T O C K H O L D E R S' E Q U I T Y
--------------------------------------
CAPITAL CONTRIBUTED
Convertible preferred stock, par
value $.01, liquidation preference
up to 5% of the Company's net assets,
authorized 1,000,000 shares in 1998;
2,500,000 shares in 1997. 359 24,916
Common stock, par value $.01,
authorized 8,500,000 shares
in 1998; 45,000,000 shares in1997 11,878 291,814
Additional paid-in capital 41,760,211 40,926,229
----------------
TOTAL CAPITAL CONTRIBUTED 41,772,448 41,242,959
RETAINED DEFICIT (27,134,491) (27,430,167)
TREASURY STOCK, 67,990 shares of
common stock, and 475 shares of
preferred stock in 1997 -- (15,336)
TOTAL STOCKHOLDERS' EQUITY 14,637,957 13,797,456
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $50,527,507 $47,193,662
===========
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
REVENUES
Rental income $ 3,598,406 $ 2,815,178 $ 2,192,737
Hotel lease income 2,605,749 2,104,346 996,706
Hotel operating income - --- 1,828,749
Interest and fees on
mortgage loans 155,882 258,798 507,593
Other income (loss) 137,791 372,286 652,653
Settlement of real
estate taxes ---- - 409,204
Gain on sale of assets 81,884 66,679 -
----------- ----------- -----------
TOTAL REVENUES 6,579,712 5,617,287 6,587,642
----------- ----------- -----------
EXPENSES
Rental expenses 1,559,069 1,129,222 1,062,361
Hotel operating expenses --- - 1,509,553
General and administrative
expenses 675,043 885,718 1,756,950
Legal and accounting 248,863 247,867 175,132
Payroll and employee benefits 379,306 517,080 485,759
Depreciation and amortization 1,563,108 1,139,532 780,474
Interest expense 2,549,021 2,274,698 1,813,730
Property management fees 132,983 141,549 119,734
Provision for loan losses
(recoveries) (831,640) (2,233,271) (2,632,194)
----------- ----------- -----------
TOTAL EXPENSES 6,275,753 4,102,395 5,071,499
MINORITY INTEREST IN LOSS
(INCOME) OF CONSOLIDATED
SUBSIDIARIES (8,283) (7,765) 34,073
NET INCOME $ 295,676 $ 1,507,127 $ 1,550,216
=========== =========== ==========
BASIC EARNINGS PER SHARE $ .27 $ 2.27 $ 8.89
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ .27 $ 1.61 $ 1.62
=========== =========== ===========
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
Preferred Stock Common Stock
-------------------------- ----------------------------
Shares Shares
Issued Amount Issued Amount
----------- ------------- ------------ -------------
Balance, December
31, 1995 2,491,622 24,916 1,308,669 13,086
Conversion of de-
bentures to common
stock - - 14,246,000 142,460
Acquisition of
treasury stock
Preferred stock - - - -
Common stock - - - -
Net income for
the year ended
December 31,
1996 - - - -
----------- ------------- ------------ ------------
Balance, December
31, 1996 2,491,622 $ 24,916 15,554,669 $ 155,546
Conversion of de-
bentures to common
stock - - 13,626,817 136,268
Net income for
the year ended
December 31, 1997 - - - -
----------- ------------- ------------ ------------
Balance, December
31, 1997 2,491,622 $ 24,916 29,181,486 $ 291,814
=========== ============= ============ ============
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Continued
Years Ended December 31, 1998, 1997 and 1996
Additional Retained Total
paid-in earnings Treasury stockholders'
capital (deficit) stock equity
----------- ------------- ------------ -------------
Balance, December
31, 1995 35,667,043 (30,487,510) - 5,217,535
Conversion of de-
bentures to common
stock 2,904,725 - - 3,047,185
Acquisition of
treasury stock
Preferred stock 15,230 - (15,230) -
Common stock 106 - (106) -
Net income for
the year ended
December 31,
1996 - 1,550,216 - 1,550,216
----------- ------------ ------------ ------------
Balance, December
31, 1996 38,587,104 $(28,937,294) (15,336) $ 9,814,936
Conversion of de-
bentures to common
stock 2,339,125 - - 2,475,393
Net income for
the year ended
December 31, 1997 - 1,507,127 - 1,507,127
----------- ------------ ------------ ------------
Balance, December
31, 1997 $40,926,229 $(27,430,167) $ (15,336) $ 13,797,456
=========== ============ ============ ============
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Continued
Years Ended December 31, 1998, 1997 and 1996
Preferred Stock Common Stock
-------------------------
Shares Shares
Issued Amount Issued Amount
________________________________________________
Conversion of debentures
to common stock --- --- 521,700 5,217
Other liabilities converted
to common stock --- --- 3,763,900 37,640
Aggregate effect of reverse
Stock split (2,500 to 1),
Forward stock split (1 to 75),
Purchase and sale of
Fractional shares (2,426,672) (24,267) (32,308,307) (323,083)
Conversion of preferred
Stock and retirement of
treasury stock (29,025) (290) 29,025 290
Net income for the year
Ended December 31, 1998 -- -- -- --
________ ________ __________ ______
Balance 12/31/98 35,925 359 1,187,804 11,878
======== ======== ========== ======
Additional Retained Total
paid-in earnings Treasury stockholders'
capital (deficit) stock equity
----------- ------------- ------------ -------------
Conversion of debentures
to common stock 134,784 --- --- 140,001
Other liabilities converted
to common stock 625,801 --- --- 663,441
Aggregate effect of reverse
Stock split (2,500 to 1),
Forward stock split (1 to 75),
Purchase and sale of
Fractional shares 88,733 --- --- (258,617)
Conversion of preferred
Stock and retirement of
treasury stock (15,336) --- 15,336 ---
Net income for the year
Ended December 31, 1998 -- 295,676 -- 295,676
________ ________ __________ ______
Balance 12/31/98 41,760,211 (27,134,491) -- 14,637,957
======== ======== ========== ======
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 295,676 $ 1,507,127 $ 1,550,216
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities (8,283) 7,765 (34,073)
Minority interest 1,563,108 1,139,532 780,474
Depreciation and
amortization (865,670) (2,233,271) (2,632,194)
Provision for loan losses)
(non-cash recoveries (81,885) (66,679) -
Gain on disposal of assets 93,061 143,733 406,937
Interest expense added to
note payable 15,482 (7,143) (2,883)
Partnership investment loss
(income)
Changes in operating assets
and liabilities
Interest receivable --- - 28,861
Accounts receivable 131,148 (542,675) (566,925)
Other assets, net (7,538) (237,331) 128,381
Due to advisory company
and affiliates (367,707) (19,146) 2,874
Other liabilities (524,873) (429,497) 276,902
All other (89,495) (288,570) 13,264
NET CASH PROVIDED BY ----------- ----------- -----------
(USED IN) OPERATING
ACTIVITIES 153,024 (1,026,155) (48,166)
CASH FLOWS FROM INVESTING
ACTIVITIES
Funding of notes receivable (167,092) (200,000) (100,225)
Collection on notes
receivable 165,483 9,342 35,057
Redemption of industrial
Revenue bonds 206,452 33,548 ---
Proceeds from sale of assets 375,047
Acquisition of real estate
partnerships (net of cash
acquired) (3,576,367) (7,048,779) -
Purchase of property and
equipment (2,161,864) (916,066) (1,324,836)
NET CASH USED IN IN-
VESTING ACTIVITIES $(5,158,341) $(8,121,955) $(1,390,004)
=========== =========== ===========
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
----- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net cost of reverse
stock split $ (258,617) --- ---
Proceeds from notes payable 4,915,456 8,940,634 21,359,279
Payment of notes payable (499,362) (444,988) (15,253,393)
Decrease in debt service
reserves --- - (507,724)
(Decrease) increase in
minority interest in
subsidiaries --- (559,732) (520,988)
All other --- - (470,484)
NET CASH PROVIDED BY ------- ----- ------
FINANCING ACTIVITIES 4,157,477 7,935,914 4,606,690
------- ----- ------
NET INCREASE (DECREASE)
IN CASH (847,840) (1,212,196) 3,168,520
CASH, BEGINNING OF YEAR 2,643,558 3,855,754 687,234
----------- ----------- -----------
CASH, END OF YEAR $ 1,795,718 $ 2,643,558 $ 3,855,754
=========== =========== ===========
CASH $ 699,358 $ 2,348,692 $ 2,773,183
RESTRICTED CASH 1,096,360 294,866 1,082,571
----- ------ ------
TOTAL CASH $1,795,718 $ 2,643,558 $ 3,855,754
=========== =========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES
CASH PAID
Interest $ 2,424,422 $ 2,285,682 $ 1,828,525
NON-CASH INVESTING AND =========== =========== ===========
FINANCING ACTIVITIES
Property recovered as
collateral on notes
receivable $2,273,633 $ - $ 9,679,821
Convertible subordinated =========== =========== ===========
debentures converted to
common stock $ 134,784 $ 2,475,393 $ 3,047,185
Other liabilities paid
With stock $ 625,801 --- ---
=========== =========== ===========
Sale of property -
Assumption of liabilities
by buyer $ --- $ 591,270 $ -
Other consideration
(non-cash) $ --- 31,936 -
Total reduction of --------------------
property and equipment $ --- $ 623,206 $ -
=========== ========== ==========
Debt refinancing $ --- $19,200,000 $ -
=========== =========== ==========
See Notes to Financial Statements
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of significant accounting policies
------------------------------------------
Nature of operations - Master Realty Properties, Inc. (MRP) (formerly
Master Mortgage Investment Fund, Inc.) is a Delaware corporation organized
on May 12, 1988, with the original purpose of investing in mortgage loans.
However beginning in 1993, MRP became the owner of various real estate
assets through acquisitions, foreclosures, deeds in lieu of foreclosure or
workouts with previous borrowers. As a result, MRP and its majority-owned
subsidiaries (the Company) changed its purpose to holding, leasing and
operating real estate property for the production of income and
appreciation in value. The market for the Company's residential and
commercial real estate properties is Kansas City, Missouri. The hotels
owned by the Company are located in Phoenix, Arizona; Euless, Texas;
Wichita, Kansas and Kansas City, Missouri and are leased to hotel
operators.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the following:
Real estate investment trust
----------------------------
Master Realty Properties, Inc. and Subsidiaries and its majority-
owned subsidiaries:
Corporations
------------
Master Realty Corporation
River Market Venture, Inc. (formerly Master Mortgage Realty, Inc.)
Master Mortgage Realty II, Inc.
Master Mortgage Realty III, Inc.
Master Mortgage Realty IV, Inc.
Old Town Redevelopment Corporation
Real Estate Equities, Inc.
Partnerships and limited liability companies
------------
River Market Venture I, L.P.
New Historic Suites Partners, L.P. (Control acquired in August 1996)
Hospitality Wichita, L.C. (control acquired October 1997)
Soho West III, L.P. (control acquired February, 1998)
All significant intercompany balances and transactions have been eliminated
in consolidation.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
------------------------------------------
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on mortgage notes
and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowance for losses on loans and valuation of foreclosed real estate,
management evaluates the underlying real estate collateral and makes
estimates of value based on independent appraisals, estimates of operating
earnings and cash flow potential, and other factors.
The valuation of real estate collateral is assessed on the assumption that
the Company will be able to dispose of or realize the investments in the
ordinary course of business. Adjustments may be necessary in the event
that effective interest rates, rent-up periods, future economic conditions
and other relevant factors vary significantly from those utilized in the
estimates. While management uses available information to recognize losses
on mortgage notes receivable and foreclosed real estate, future valuation
allowances may be necessary based on changes in local economic conditions.
Because of these factors, it is possible that the allowances for losses on
mortgage notes receivable and the valuation of foreclosed real estate
acquired may change materially in the near term.
Revenue recognition - The Company does not accrue interest on delinquent
loans where, in the judgment of management, collection of such interest is
doubtful. Among the factors the Company considers in making the evaluation
of the collectibility of interest is the status and classification of the
loan, the financial condition of the borrower and anticipated future
events.
The Company recognizes revenue from rental real estate and hotel leases as
earned in accordance with the individual lease agreements.
Mortgage notes receivable - The Company's investment in mortgage notes
receivable is stated individually at the lower of cost or the estimated net
realizable value. Partially earning notes are loans where cash payments
are being received, but not according to the contractual terms of the
loans. Interest income on partially earning notes is recognized only to
the extent of interest payments received.
The allowance for losses on notes receivable is maintained based on the
underlying collateral, the cost of money and, in the case of anticipated
foreclosures, operating cash flows from the property during the anticipated
holding period.
As of December 31, 1998 and 1997, all of the notes classified as partially
earning are considered impaired and carried at lower of cost or estimated
net realizable value.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
Investment in real estate partnerships - Investment in real estate
Partnerships, with less than 50% ownership, is accounted for using the
equity method of accounting for investments where the investment is
initially recorded at cost and then adjusted for the Company's share of the
earnings and losses.
Cash - Cash consists of amounts on hand and demand deposits with financial
institutions.
Depreciation and amortization - Depreciation and amortization are computed
by the following methods and estimated useful lives:
Assets Principal Methods Lives
------ ----------------- -----
Land improvements Straight-line 27.5 years
Building and building improvements Straight-line 27.5-39 years
Furniture and equipment Double-declining balance 5-7 years
Goodwill Straight-line 20 years
Financing costs Straight-line 2-11 years
Financing costs - Financing costs are amortized over the life of the
mortgage note payable and presented net of accumulated amortization.
Minority interest in subsidiaries - Minority interest in subsidiaries
represents the minority partner's proportionate share of the equity of
New Historic Suites L.P.
The Company's investments in Soho West III, L.P., and Hospitality Wichita,
L.C. are considered to be in-substance 100% owned by the Company. The
minority interests in subsidiaries for Soho West III, L.P., and Hospitality
Wichita, L.C., are valued at zero as of the balance sheet dates presented,
based on the terms of the partnership agreements which give Master Realty
Properties, Inc. (MRP) a preferential return, until MRP recovers its
investment and preferred return. As of December 31, 1998, management
believes the probability of the minority interests receiving any
distributions is remote, and accordingly, no amount has been reflected for
the minority interests. In the event the Company were to receive all fo
the preferential returns, the minority interests would be entitled to 10%
and 20%, respectively, of any distributions.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Income taxes - Since inception, the Company has conducted its operations
with the intent of meeting the requirements of the Internal Revenue Code
for qualification as a real estate investment trust (REIT). REIT
qualification requires, among other things, that the Company distribute at
least 95% of its taxable income to its shareholders. The Company had
taxable losses for each of the years ended December 31, 1998, 1997 and
1996. As of December 31, 1998, the Company had approximately $14,595,000
of net operating loss carryforwards available to offset future taxable
income.
Convertibility of preferred stock into common stock - Preferred stock is
convertible into common stock at any time at the option of the stockholder
at the ratio of one common share for each preferred share.
Voting rights - Stockholders are entitled to one vote for each common share
and one vote for each preferred share held on all matters submitted for the
approval of the stockholders.
(2) Restricted cash and escrows
---------------------------
December 31,
1998 1997
------- -------
Lasalle Bank accounts -
Central operating account $109,526 $ --
Debt services reserve 153,078 146,000
Capital expenditures reserve 20,157 91,035
Impound costs sub-account 13,599 57,831
Other -
Cash - Real Estate Equities, Inc. 600,000 --
Certificate of deposit - Hillcrest Bank 200,000 --
------- ------
Total restricted cash $1,096,360 $294,866
Cash in the amount of $600,000 is pledged against Notes Payable-
Real Estate Equities, Inc. The certificate of deposit in the amount
$200,000 is collateral on a bank note payable.
The Lasalle Bank accounts are restricted pursuant to the Cash Management,
Collateral and Security Agreement (Cash Collateral Agreement dated December
19, 1997, as part of the First Mortgage Note and Mezzanine Note
Transactions. As a result, all cash received from the operations of the
collateral pledged for the First Mortgage Note is deposited into a central
operating account. A monthly sweep of this account is used to fund, in
priority, certain reserves and sub-accounts created pursuant to the Cash
Collateral Agreement. All remaining funds, if any, are paid to the
Company.
Debt service reserve - This account was created to fund the First Mortgage
Note debt service to the extent necessary. Withdrawals from this account
occur only when there are insufficient funds in the central operating
account to fully fund the First Mortgage Note debt service.
Capital expenditure reserve - This account was created to fund the payment
of replacement expenditures, furniture, fixtures and equipment replacement
expenditures and leasing expenditures. Funding is provided in monthly
deposits from the central operating account. Withdrawals may be made from
this account for approved expenditures.
Impound costs sub-account - This account was established to pay impound
costs. These impound costs are defined as all taxes of the First Mortgage
Note borrowers and insurance (if insurance not otherwise provided for by
the Company) for the pledged collateral of the First Mortgage Note.
Funding is provided in monthly deposits from the central operating account.
Withdrawals may be made from this account for approved costs.
The Cash Collateral Agreement is secured by a pledge of the central
operating account and all income derived from the investment of that
account. The First Mortgage Note and Mezzanine Note are also cross-
collateralized and cross-defaulted with the Cash Collateral Agreement.
(3) Mortgage notes receivable
December 31,
---------------------------
1998 1997
------------ ------------
Mortgage notes receivable, partially-earning $2,299,738 $ 6,521,108
Allowance for losses (1,218,888) (3,691,493)
----------- -----------
Net mortgage notes receivable $ 1,080,850 $ 2,829,615
=========== ===========
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 a downtown area of Kansas City,
Missouri. A substantial portion of the Company's debtors' ability
to honor their contracts is dependent upon the real estate economy.
Due to the uncertainty of future collections and possible foreclosures, it
is not practicable to estimate the scheduled maturities of mortgage notes
receivable over the next five years and thereafter.
(4) Property held for investment
December 31,
---------------------------
1998 1997
------------ ------------
Non-earning, land in New Mexico $ 1,001,688 $ 1,000,000
=========== ===========
The carrying amount of the land in New Mexico is based on an estimate of
value established at the time the contractual right to the property was
acquired in foreclosure on collateral for a note receivable. The estimate
was based on prior appraisals, studies of the development possibilities for
the property, and local economic conditions. The land is in a remote part
of New Mexico and access to the property is limited. There is limited real
estate sales activity in this region to determine the likelihood of
realizing the carrying value of this investment. Because of these factors,
it is possible that the estimate of the realizable value of this land may
change materially.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(5) Investment in real estate partnerships
--------------------------------------
Investment in real estate partnerships consists of the following:
Ownership %
at December 31,
Ownership ---------------------------
Partnership Name Interest 1998 1997 1996
- ---------------- --------- -------- -------- --------
OPP IX, Limited Partnership Limited 25.12% 24.9% 24.9%
OPP X, Limited Partnership Limited 2.3% 2.3% 2.3%
Historic Suites of America - KC Limited 19.8% 19.8% 19.8%
Financial information, summarizing the financial position of the
Partnerships as of December 31, 1998, 1997 and 1996, and the operating
performances for the years then ended is as follows:
1998 1997 1996
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
FINANCIAL POSITION
Total assets $4,980,753 $ 5,120,981 $ 5,130,921
Total liabilities 2,488,492 2,521,329 2,596,944
--------- ----------- ------------
Partners' equity $2,492,261 $ 2,599,652 $ 2,533,977
=========== =========== ===========
OPERATING PERFORMANCE
Total revenue $ 821,774 $ 843,905 $ 852,322
Total expenses 835,083 790,418 809,319
---------- ----------- -----------
Net income $ (13,309) $ 53,487 $ 43,003
=========== =========== ===========
In February of 1998, the Company acquired a 90% general partnership
Interest in Soho West III, L.P. by converting its notes receivable
From the partnership to an ownership interest. In addition, the
Company contributed real estate property known as Gaslight Garage,
Which adjoins the real estate property owned by Soho West III, L.P.
The Company's cost as a result of the conversion of the notes
Receivable is $5,850,000. The net book value of the Gaslight
Garage contributed is $1,014,239, resulting in an initial cost basis
in the partnership totaling $6,864,239. Commencing February, 1998,
the Company consolidated its 90% interest in the partnership into its
financial statements. The business combination has been accounted for
under the purchase method of accounting. The operations of Soho West
III, L.P. are included in the consolidated statement of operations from
the date of acquisition. The Company is to receive all of the
distributions until recovery of its capital contributions is attained.
After the Company recovers its capital contribution, the Company is to
Receive 90% of any distributions.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(5) Investment in real estate partnerships (continued)
In October, 1997, the Company acquired an 80% managing ownership interest
In Hospitality Wichita, L.C., a limited liability company, for a
Contribution of $608,044. The Company is to receive all of the
distributions until recovery of its capital contribution is attained,
plus a 15% return. After distributions of these amounts and repayment
of any additional capital contributions and 15% returns to all memebers,
the Company is to receive 80% of any distributions.
In February 1997, the Company acquired the remaining 10.88% limited
partnership interest in River Market Venture I, L.P. (RMV) for $250,000 to
achieve 100% ownership of the partnership. Previously, the Company paid
$150,000 in December 1996 for a 9.12% interest in RMV and acquired its
initial 80% general partnership interest in March 1995. On December 19,
1997, substantially all of RMV's assets were transferred to Master Realty
Corporation. The business combination was accounted for under the purchase
method of accounting without pro forma presentation of the financial
information due to materiality considerations.
In December 1996, the Company acquired the remaining 25% partnership
interest in Euless, Texas 1192 General Partnership (Euless) for $1,433,873
to achieve 100% ownership of the partnership. The partnership was
terminated simultaneously. The Company initially acquired a 75% general
partnership interest in Euless in September 1993.
In August of 1996, the Company acquired an 89.6% general partnership
interest in New Historic Suites Partners, L.P. by converting its notes
receivable from the partnership to an ownership interest. The Company's
cost as a result of this conversion is $3,039,255. The partnership owns a
hotel in Kansas City, Missouri. Commencing August 1996, the Company
consolidated its 89.6% interest in the general partnership into its
financial statements. The business combination has been accounted for
under the purchase method of accounting. The operations of New Historic
Suites Partners, L.P. are included in the consolidated statement of
operations from the date of acquisition.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(5) Investment in real estate partnerships (continued)
The pro forma unaudited results of operations for the years ended December
31, 1998, 1997 and 1996, assuming the purchase of Soho West III, L.P., New
Historic Suites Partners, L.P. and Hospitality Wichita, L.C. had been
consummated as of January 1, 1996 are as follows:
(Unaudited)
Years ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
Revenues
Revenues as reported $6,579,712 $5,617,287 $ 6,587,642
Pro-forma effect of
acquisitions -
New Historic Suites
Partners, L.P. --- - 267,619
Hospitality Wichita, L.C. --- 450,000 600,000
Soho West III, L.P. $ 66,621 773,747 769,381
------- -------- ---------
Pro-forma revenues after
acquisitions $ 6,646,333 $ 6,841,034 $ 8,224,642
=========== =========== ===========
- --------------------------------------
(Unaudited)
Years ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Net income
Net income as reported $ 295,676 $ 1,507,127 $ 1,550,216
Pro-forma effect of
acquisitions -
New Historic Suites
Partners, L.P. --- - 267,619
Hospitality Wichita, L.C. --- (238,571) (277,985)
Soho West III, L.P. 35,332 327,132 356,486
------ ------- -------
Pro-forma net income after
acquisitions $ 331,008 $ 1,595,688 $ 1,896,336
=========== =========== ===========
Pro-forma earnings per
common share
Basic $ .31 $ 2.40 $ 10.88
=========== =========== ===========
Diluted $ .31 $ 1.70 $ 1.90
=========== =========== ===========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(6) Accounts receivable - related party
-----------------------------------
Amounts due from Embassy Hotel Management, Inc. are in connection with the
leases and funds advanced for operations of the following hotel properties:
December 31,
---------------------------
1998 1997
------------ ------------
Ramada Inn- Phoenix, Arizona $ 345,347 $ 353,085
Ramada Inn - Euless, Texas 397,392 525,755
Historic Suites - Kansas City, Missouri 24,399 114,479
Ramada Inn - Wichita, Kansas 219,924 118,824
----------- -----------
Total $ 987,062 $ 1,112,143
=========== ===========
(7) Industrial revenue bonds
As disclosed in Note (17) the Company is contingently liable as a guarantor
on Industrial Revenue Bonds (Soho Office Center Project) Series 1996
between the Land Clearance for Redevelopment Authority of Kansas City (the
Issuer) and Soho Office Center, L.P. (the Borrower). The Company owned the
bonds, which totalled $2,655,000 as part of a note receivable, and
distributed $2,345,000 in 1996, and $33,548 in 1997 in satisfaction of
certain notes payable obligations. The Company redeemed the balance of
these bonds during the year ended December 31, 1998.
(8) Property and equipment
December 31,
1998 1997
Cost
Land and land improvements $ 7,051,999 $ 6,880,699
Building and building improvements 37,271,763 30,750,746
Furniture and equipment 3,385,308 2,840,758
Assets not yet in service 145,723 ---
---------- -----------
Total cost 47,854,793 40,472,203
Accumulated depreciation (3,984,379) (2,833,438)
----------- -----------
Net property, plant and equipment $43,870,414 $37,638,765
=========== ===========
Expenditures for maintenance, repairs and improvements which do not
materially extend the useful life of the asset are expensed. The aggregate
depreciation charged to operations for the years ended December 31, 1998,
1997 and 1996 was $1,333,354, $969,802, and $703,638, respectively.
Included in property and equipment is a hotel property in Wichita, Kansas
With a net book value of $7,822,586 and $7,257,691 as of December 31,
1998 and 1997 respectively. The Company acquired the property in October,
1997 and switched from a Holiday Inn to a Ramada Inn during April, 1998.
In connection with this change, the property experienced a significant drop
in its occupancy rate and the room rates. Correspondingly, the operating
income and cash flow performance for this property decreased in 1998.
Management has implemented a plan designed to correct these declines
In operating performance, but the long-term results of this plan are
Not yet known. Because of these factors, it is possible that the
estimate of the realizable value of this investment may change in the
near term, and that change could be material.
(9) Notes payable
December 31,
1998 1997
------------ ------------
Salomon Brothers mortgage note $19,417,830 $19,675,000
Salomon Brothers Mezzanine note 1,190,000 930,000
Midland Bank mortgage note 7,245,312 7,249,997
Convertible subordinated debentures 1,468,623 1,646,534
Hillcrest Bank note #1 3,556,295 ---
Hillcrest Bank note #2 277,448 ---
Hillcrest Bank note #3 152,834 ---
Unsecured alternative treatment note 827,895 994,430
Real Estate Equities, Inc. note 600,000 ---
Unsecured non-interest bearing note payable 113,049 174,406
Real estate tax notes 92,614 147,890
Hotel van loan 39,460 24,436
Total notes payable $34,981,360 $30,842,693
=========== ===========
Salomon Brothers mortgage note - Mortgage note payable (First Mortgage
Note) of December 19, 1997 with monthly principal and interest payments of
$145,397 based on an interest rate of 7.5% and a 25-year amortization
period. The initial payment of accrued interest only through January 31,
1997 is due on February 1, 1998. The outstanding principal and interest
are due at maturity on January 1, 2008. The nonrecourse First Mortgage
Note is collateralized by commercial, residential and hotel properties in
Kansas City, Missouri, a hotel in Phoenix, Arizona and a hotel in Euless,
Texas. This note is also cross-collateralized and cross-defaulted with the
Mezzanine Note and the Cash Collateral Agreement.
Salomon Brothers Mezzanine note - Mortgage note payable (Mezzanine Note) of
December 19, 1997 with interest payable monthly based upon the one-month
London Interbank Offered Rate (LIBOR) plus 4.95%. The interest rate at
December 31, 1997 was 10.92% with the initial payment due February 1, 1998.
Monthly principal payments begin in January 1999 based upon a monthly
calculation using the outstanding principal balance, the interest rate from
the preceding month and a 48-month amortization period less the months
elapsed since January 1, 1999. The outstanding principal and interest are
due at maturity on January 1, 2003. The Mezzanine Note is secured by the
pledge of the Company's general partner interest in New Historic Suites
Partners, L.P. and a full payment guaranty by the Company. The Mezzanine
Loan Agreement requires that the monthly aggregated Adjusted Property Net
Cash Flow for the properties securing the First Mortgage Note to at least
equal the monthly calculation of the Debt Service Coverage Threshold. The
Debt Service Coverage Threshold is defined as 1.05 times the sum of the
annual debt service on the First Mortgage Loan plus the debt service
payable on the Mezzanine Loan at an assumed principal and interest constant
of 27%. This note is cross-collateralized and cross-defaulted with the
First Mortgage Note and the Cash Collateral Agreement.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(9) Notes payable (continued)
-------------
Midland Bank mortgage note - Mortgage note payable of October 1, 1997 with
interest payable monthly at an initial rate of 7% until May 5, 1999. The
rate then increases to 8% through March 31, 2001 and to 8.5% from April 1,
2001 until maturity. Interest only is payable monthly through October 5,
2000. The interest payments are based on the Deemed Balance (as defined)
determined annually beginning on April 1, 1999. The initial Deemed Balance
is the face amount of the note. The deemed balance as of December 31,
1998 and 1997 was $6,745,312 and $7,249,997, respectively. From November
5, 1998 through October 5, 2000, monthly payments of principal and interest
are based on a 30-year amortization of the outstanding principal balance.
Beginning on November 5, 2000, the monthly principal and interest payments
are based on a 25-year amortization of the outstanding principal balance.
The outstanding principal and interest are due at maturity on April 1, 2004
The note is collateralized by a hotel in Wichita, KS and the Disbursement
Account (required reserve account to fund property improvements).
Convertible subordinated debentures - Convertible Subordinated Debentures
issued January 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 outstanding balance as of December 31, 1998 consists of principal of
$1,094,381 and accrued interest of $374,242, for a total of $1,468,623.
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 before reverse and forward stock split as of the December 31,
1993 financial statements. Related accrued interest expense is not subject
to conversion to common stock and the liability is eliminated upon
conversion of the debenture principal. Accrued interest eliminated upon
conversion of debentures during the years ended December 31, 1998, 1997
and 1996 amounted to $105,399, $285,624 and $439,486, respectively.
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.
Hillcrest Bank note #1 - Mortgage note payable of February 17, 1998 with
monthly principal and interest payments of $32,975 based on an interest
rate of 9.25%. The outstanding principal and interest are due at maturity
on February 17, 2000, although the Company has the option to extend the
maturity until February 17, 2001. The note is collateralized by an
apartment/retail/parking garage facility located in Kansas City, Missouri.
The note is also collateralized by a certificate of deposit in the amount
of $200,000, and a full payment guaranty by the Company.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(9) Notes payable (continued)
Hillcrest Bank note #2 - Line of credit, with maximum aggregate principal
Amount of $850,000, with interest at the Wall Street Prime Interest Rate
Plus 1%. Monthly payments of interest are required until maturity on
February 17, 2000, at which time any unpaid accrued interest and principal
Are due. The Company has the option to extend the maturity until February
17, 2000. The note is cross-collateralized with the Hillcrest Bank
note #1.
Hillcrest Bank note #3 - Line of credit, with maximum aggregate principal
Amount of $250,000, with interest at the Wall Street Prime Interest Rate
Plus 1%. Monthly payments of interest are required until maturity on
December 1, 1999, at which time any unpaid accrued interest and principal
Are due. The note is collateralized by a commercial property located in
the River Market area Kansas City, Missouri, a vacant lot, assignment of
Rents, furniture and fixtures, and a full payment guaranty by the Company.
Unsecured alternative treatment note - 9% unsecured note payable to
previous participants in the alternative treatment plan, with interest only
payable quarterly until maturity in August 2000.
Real Estate Equities, Inc. notes - Demand notes payable to related parties,
With interest at 9%. The notes are collateralized by restricted cash
Totaling $600,000.
Unsecured non-interest bearing note payable - Note due September 2000,
payable in an installment of $75,000 on January 31, 1996 and 60 monthly
payments of $7,333 with the remaining unpaid principal due at maturity.
Interest has been imputed at a rate of 9%.
Real estate tax notes - Unsecured notes payable consisting of agreements
with the taxing authorities for delinquent real estate taxes on foreclosed
properties with interest imputed at 9% and monthly payments of $4,046 until
maturity on August 15, 2002.
Hotel van loan - 9.25% and 8.75% notes payable, collateralized by
vehicles, payable in aggregate monthly installments of $1,445 through
May 2001, and $646 through September 2001.
Maturities for notes payable are as follows:
Year
----
1999 $ 815,636
2000 5,269,995
2001 695,906
2002 737,378
2003 2,421,155
Thereafter 24,441,290
Unscheduled maturities 600,000
-----------
Total long-term obligations $34,981,360
===========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(10) Other liabilities
-----------------
Other liabilities consists of the following:
December 31,
---------------------------
1998 1997
Accounts payable $ 227,557 $ 169,550
Accrued bonus pool 215,126 1,324,113
Due to affiliates --- 367,707
Other liabilities 144,281 176,183
----------- --------
Totals $ 586,964 $ 2,037,553
=========== ==========
At December 31, 1998 and 1997, other liabilities includes the accrued bonus
pool liability. The Company's bonus pool became effective June 15, 1994 to
provide additional compensation to Company employees. Bonus pool expense
charged to operations for the years ended December 31, 1998, 1997, and 1996
was $16,744, $425,340, and $1,403,608, respectively.
(11) Treasury stock
--------------
During the year ended December 31, 1996, the Company acquired 67,990 shares
of preferred stock and 475 shares of common stock. These shares were
obtained under a provision in the Company's Plan of Reorganization which
allowed holders of convertible debentures over 65 years old to convert
their debentures into alternative treatment debt. Since no value was
assigned to the treasury stock, management has used $.224 per share as the
cost of the treasury stock acquired. The treasury stock was retired during
the year ended December 31, 1998.
(12) Capital Stock
The Company completed both a twenty-five hundred (2,500) to one (1) reverse
Stock split effective April 30, 1998 and a seventy five (75) for one (1)
Forward stock split effective June 30, 1998. Both of these stock splits
Were approved by the stockholders of the Company. As part of the reverse
stock split all fractional interests in the Company stock were redeemed.
The cost to acquire the fractional shares was $294,171. An additional
$35,554 of equity was raised from holders of fractional shares.
As a result of the forward stock split, the number of authorized shares
Of common stock was changed to 8,500,000 shares, and the number of
Authorized shares of preferred stock was changed to 1,000,000 shares.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(13) Earnings per share
------------------
Basic earnings per share was computed by dividing income available to
Common stockholders by the weighted average number of common shares
Outstanding for the periods. Diluted earnings per share reflects the
Potential dilution that could occur if convertible preferred shares
And convertible subordinated debentures were converted into common
Stock.
The following shows the amounts used in computing earnings per share and
the effects on income and the weighted average number of shares of dilutive
potential common stock. All per share and weighted average share amounts
for 1997 and 1996 have been retroactively restated to reflect the impact of
the stock splits occuring during 1998, as described in Note (12).
Weighted
Average
Common
Income Shares Earnings
Numerator Denominator Per Share
1998
Basic earnings per share
- ------------------------
Income available to common
stockholders $ 295,676 1,084,202 $ 0.27
=========
Dilutive effect of potential
common stock:
Convertible debentures 68,551 153,016
Less Convertible debentures
Since their inclusion would
Be antidilutive (22,723) (50,722)
---------- ---------
Net convertible debentures 45,828 102,294
---------- ---------
Convertible preferred shares --- 55,358
---------- ---------
Diluted earnings per share
Income available to common
shareholders after assumed
conversions of dilutive
securities $ 341,504 1,241,854 $ 0.27
========= ========= ========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(13) Earnings per share (Continued)
------------------
Weighted
Average
Common
Income Shares Earnings
Numerator Denominator Per Share
----------- ----------- ---------
1997 (restated)
Basic earnings per share
- ------------------------
Income available to common
stockholders $ 1,507,127 663,698 $ 2.27
=========
Dilutive effect of potential
common stock:
Convertible debentures 122,718 273,924
Convertible preferred shares - 74,734
---------- --------
Diluted earnings per share
Income available to common
shareholders after assumed
conversions of dilutive
securities $ 1,629,845 1,012,356 $ 1.61
========= ========= =========
1996 (restated)
Basic earnings per share
Income available to common
stockholders $ 1,550,216 174,297 $ 8.89
=========
Dilutive effect of potential
common stock:
Convertible debentures 438,151 978,016
Convertible preferred shares - 74,749
--------- -------
Diluted earnings per share
- --------------------------
Income available to common
shareholders after assumed
conversions of dilutive
securities $ 1,988,367 1,227,062 $ 1.62
=========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(14) Pension plan
- ------------
The Company has 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 years ended
December 31, 1998, 1997 and 1996 was $58,000, $63,147, and $43,180.
(15) Related parties
---------------
The Company had party transactions with the following related parties -
Embassy Properties, Inc. - Embassy Properties, Inc. (EPI) provides property
management services to the Company. EPI is considered a related party due
to the 90% ownership of EPI by the immediate family of the Company's
president.
Embassy Hotel Management Company, Inc. - Embassy Hotel Management Company,
Inc. (EHM) is a subsidiary of Embassy Properties, Inc. The Company has
leased their hotels to this management company and receives hotel lease
revenues rather than the corresponding hotel revenues and expenses directly
connected with the individual hotel properties.
Due to affiliates - Integrated Financial Services (IFS) served as the
sponsor and advisory company to the Company from inception through June
1994, at which time the contract with IFS was terminated. Pursuant to the
prior agreements, the Company pays an assignee of IFS for amounts due IFS
and one of its affiliates for various services previously performed for the
Company and expenses previously incurred on the Company's behalf. Interest
accrues monthly with semi-annual payments. Principal payments of $9,575
plus accrued interest are payable on a semi-annual basis. The obligation
was paid off during the year ended December 31, 1998.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(15) Related parties (continued)
---------------
Years ended December 31,
-------------------------------
1998 1997 1996
Embassy Properties, Inc. (EPI)
- ------------------------------
Payment of loan servicing fees to EPI $ 19,712 $ 33,404 $ 51,481
Payment of property management
fees to EPI 132,983 141,549 119,734
Payment of asset management fees to EPI 24,000 32,687 -
Payment of real estate lease
commissions to EPI 24,216 32,005 2,183
Payment to EPI for loan closing services --- 19,700 -
Payment for painting services 58,260 --- ---
Payment of development fee 6,034 --- ---
Payment of payroll processing fee 3,000 --- ---
Embassy Hotel Management
Company, Inc. (EHM)
- ------------------------
Hotel lease revenue earned from
leases with EHM $2,605,749 $2,104,346 $996,706
========== ======== ========
Due to affiliates
- -----------------
Due to affiliates, beginning of year $ 367,707 386,853 $383,979
Interest expense 10,974 31,316 89,530
Payments on obligation (378,681) (50,462) (86,656)
---------- -------- --------
Due to affiliates, end of year $ --- $ 367,707 $386,853
========== ======== ========
December 31,
---------------------
Embassy Hotel Management 1998 1997
Company, Inc. (EHM
Accounts receivable for hotel lease
revenue and advances made to hotels $ 987,062 $1,112,143
=========== ========
OTHER RELATED PARTY TRANSACTIONS
Certain officers and trustees of the Company own limited partnership
interests in certain borrowers of the Company.
During the years ended December 31, 1998 and 1997, the Company incurred
$100,000 and $70,000, respectively for consulting and investment banking
services related to the Salomon Brothers financing to an entity in which an
officer of the Company is a minority owner.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(15) Related parties (continued)
---------------
During the year ended December 31, 1996, the Company and its subsidiaries
incurred fees and expenses, totaling $106,000 to parties affiliated with
the Company's trustees.
During the years ended December 31, 1998 and 1997, certain trustees and
officers of the Company converted debentures to common stock in accordance
with the conversion features on the bonds.
(16) Business segment information
----------------------------
Description of the types of activities for reportable segments - The
Company has three reportable segments: hotel leasing, residential/mixed
use properties, and assets held for restructure. The hotel leasing segment
realizes rent income on Hotel properties leased to operators. The
residential/mixed use properties segment realizes income from residential
and commercial real estate properties. The assets held for restructure are
assets recovered as collateral on notes receivable for which the Company
has no long-term objective of owning and operating.
Revenue from segments below the quantitative thresholds are reported as all
other. Those activities are predominantly non-recurring gains and losses.
The assets in all other are predominantly administrative assets, intangible
assets, and assets held for long-term capital appreciation.
Measurement of segment profit or loss and segment assets - The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. The Company does not have intersegment
sales and transfers.
Factors management used to identify the enterprise's reportable segments -
The Company's reportable segments are strategic business units that are in
distinct markets consistent with the Company's long-range strategic
business plan. They are managed separately because each business requires
different management practices.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(16) Business segment information (continued)
----------------------------
The following table illustrates information concerning segment profit or
loss and segment assets:
Residential/ Assets
Hotel mixed use for
Year Ended December 31, 1998 Leasing Properties Restructure
- ---------------------------- ----------- ----------- -----------
Revenues from external customers $ 2,605,749 $ 3,348,194 $ 332,097
Interest revenue 9,838 13,812 114,244
Total revenues $ 2,615,587 $ 3,362,006 $ 446,341
=========== =========== ===========
Percentage of segment
revenues to total 40% 51% 7%
Interest expense $ 1,500,975 $ 741,073 $ 13,101
Depreciation and amortization 1,213,409 196,782 23,037
Segment profit (loss) (144,331) 986,482 230,418
Percentage of segment profit
(loss) to total (49%) 334% 78%
Other significant noncash items:
Property recovered as collateral
On note receivable $ - $ 2,273,633 $ ---
Convertible subordinated
debentures converted to
common stock - - -
December 31, 1998
- -----------------
Segment assets $27,650,820 $17,469,568 $ 2,594,229
Percentage of segment
assets to total 55% 35% 5%
Expenditures for segment assets 1,635,853 6,386,541 ---
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(16) Business segment information (continued)
All
Year Ended December 31, 1998 Other Total
Revenues from external customers $ 96,844 $ 6,382,884
Interest revenue 58,934 196,828
----------- -----------
Total revenues $ 155,778 $ 6,579,712
=========== ===========
Percentage of segment
revenues to total 2% 100%
Interest expense $ 293,872 $ 2,549,021
Depreciation and amortization 129,880 1,563,108
Segment profit (loss) (776,893) 295,676
Percentage of segment profit
(loss) to total (263%) 100%
Other significant noncash items:
Property recovered as collateral
On note receivable $ - $ 2,273,633
Convertible subordinated
debentures converted to
common stock 134,784 134,784
December 31, 1998
- -----------------
Segment assets $ 2,812,890 $50,527,507
Percentage of segment
assets to total 5% 100%
Expenditures for segment assets 8,022,394
In addition to the above measures for business segments, the Company
monitors Funds from Operations (FFO) as defined by National Association of
Real Estate Investment Trusts (NAREIT). Real Estate Investment Trusts use
FFO as a standard measure of operating performance. FFO is defined by
NAREIT as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. The
calculation of FFO for the Company for each operating segment is as
follows:
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(16) Business segment information (continued)
----------------------------
Residential/ Assets
Hotel mixed use for
Year Ended December 31, 1998 Leasing Properties Restructure
- ---------------------------- ----------- ----------- -----------
Segment profit (loss) $ (144,331) $ 986,482 $ 230,418
Add: Minority interest 8,283 - -
Less: Partnership investment
income - - -
----------- ----------- -----------
Income before minority interest (136,048) 986,482 230,418
Add: Depreciation and amorti-
zation of real estate assets 1,213,409 196,782 23,037
Less: Gain on sales of assets - - (81,884)
Less: Non-recurring items:
Accrued interest expense
foregone on converted
debentures - - -
----------- ----------- -----------
Funds from operations $ 1,077,361 $ 1,183,264 $ 171,571
=========== =========== ===========
All
Year Ended December 31, 1997 Other Total
Segment profit (loss) $ (776,893) $ 295,676
Add: Minority interest - 8,283
Less: Partnership investment income 13,565 13,565
Income before minority interest (763,328) 317,524
Add: Depreciation and amorti-
zation of real estate assets 125,873 1,559,101
Less: Gain on sales of assets - (81,884)
Less: Non-recurring items:
Accrued interest expense foregone on
converted debentures (105,399) (105,399)
------------ ------------
Funds from operations $ (742,854) $ 1,689,342
=========== ===========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(16) Business segment information (continued)
----------------------------
Residential/ Assets
Hotel mixed use for
Year Ended December 31, 1997 Leasing Properties Restructure
- ---------------------------- ----------- ----------- -----------
Segment profit (loss) $ 743,499 $ 904,901 $ 220,208
Add: Minority interest 7,765 - -
Less: Partnership investment
income - - -
----------- ----------- -----------
Income before minority interest 751,264 904,901 220,208
Add: Depreciation and amorti-
zation of real estate assets 745,990 181,493 24,483
Less: Gain on sales of assets - - (66,679)
Less: Non-recurring items:
Accrued interest expense
foregone on converted
debentures - - -
----------- ----------- -----------
Funds from operations $ 1,497,254 $ 1,086,394 $ 178,012
=========== =========== ===========
All
Year Ended December 31, 1997 Other Total
- ---------------------------- ----------- -----------
Segment profit (loss) $ (361,481) $ 1,507,127
Add: Minority interest - 7,765
Less: Partnership investment income (7,143) (7,143)
----------- -----------
Income before minority interest (368,624) 1,507,749
Add: Depreciation and amorti-
zation of real estate assets 14,823 966,789
Less: Gain on sales of assets - (66,679)
Less: Non-recurring items:
Accrued interest expense foregone on
converted debentures (285,624) (285,624)
----------- -----------
Funds from operations $ (639,425) $ 2,122,235
=========== ===========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(16) Business segment information (continued)
----------------------------
Segment information for December 31, 1996 - The Company has not
restated 1996 business segment information to conform to the
current reporting. During the years ended 1996, the
Company was undergoing a fundamental reorganization of its business
activities. The Company's original purpose was investing in mortgage
loans. However, beginning in 1993, the Company became the owner of various
real estate assets through acquisitions, foreclosures, and loan workouts
with previous borrowers. As a result, throughout 1994, 1995 and 1996, the
Company was changing its purpose to holding, leasing and operating real
estate property for the production of income and appreciation in value. As
a result, it is not cost justified to restate segment information, because
the revised information would lack any comparability to current information
due to the dramatic difference in business purpose.
For 1996, the Company's operations have been classified into three
business segments: mortgage loan investing, rental real estate and hotel
activities. Mortgage loan investing involves investing in mortgage loans
primarily collateralized by income-producing real estate or real estate
under development. Rental real estate includes the operation and
management of commercial and residential properties. Hotel activities
consist of hotel operating and lease revenue and operating expenses.
Identifiable assets are those assets that are used in the business
segment's operation. The identifiable assets of the mortgage loan
investing segment consist of mortgage loans receivable net of allowance for
losses, foreclosed property held for sale and interest receivable. The
identifiable assets of the rental real estate operation segment include
property and equipment net of accumulated depreciation. The identifiable
assets of the hotel activities include all assets of the hotels plus
related goodwill.
Summarized financial information by business segment for the year ended
December 31, 1996 is as follows:
1996
REVENUES
Mortgage loan investing $ 1,569,450
Rental real estate 2,192,737
Hotel activities 2,825,455
CONSOLIDATED TOTAL $ 6,587,642
===========
EXPENSES
Mortgage loan investing $ 1,157,552
Rental real estate 1,700,658
Hotel activities 2,179,216
CONSOLIDATED TOTAL $ 5,037,426
===========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(16) Business segment information (continued)
----------------------------
1996
NET INCOME (LOSS)
Mortgage loan investing $ 411,898
Rental real estate activities 492,079
Hotel activities 646,239
------
CONSOLIDATED TOTAL $ 1,550,216
===========
IDENTIFIABLE ASSETS
Mortgage loan investing $ 1,550,024
Rental real estate activities 17,840,295
Hotel activities 13,152,177
CONSOLIDATED TOTAL $32,542,496
===========
DEPRECIATION AND AMORTIZATION
Mortgage loan investing $ -
Rental real estate operations 335,223
Hotel activities 445,251
------
CONSOLIDATED TOTAL $ 780,474
===========
CAPITAL EXPENDITURES
Mortgage loan investing $ -
Rental real estate operations 2,796,117
Hotel activities 7,523,064
------
CONSOLIDATED TOTAL $10,319,181
===========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(17) Commitments and contingencies
-----------------------------
Contingency:
The Company has a non-recourse second mortgage note for $525,536 in a
collection action presently pending in bankruptcy court. There are two
competing bankruptcy plans currently being considered by the bankruptcy
court. The first plan was submitted by a limited partner of the debtor
which would pay the Company's claim for $525,536, subject to a pending
adversary proceeding in which the limited partner has requested equitable
subordination of the Company's claim. The second plan was submitted by the
Partnership as the general partner, and debtor in possession. The plan
would relinquish the general partner role to Real Estate Equities, Inc., (a
wholly owned subsidiary of Master Realty Properties, Inc.). This plan
would admit Real Estate Equities, Inc. as a 17.5% limited partner in
consideration for the notes receivable balance, and an additional 42.5%
limited partner interest in return for $1,275,000 cash.
The Company believes that the full value of its investment of $525,536 is
recoverable under either plan, provided that the pending adversary
proceeding seeking equitable subordination of the Company's claim is
satisfactorily resolved in favor of the Company.
Guaranty:
- --------
The Company is contingently liable as a guarantor on Industrial Revenue
Bonds (IRB's) (Soho Office Center Project) Series 1996 between the Land
Clearance for Redevelopment Authority of Kansas City (the Issuer) and Soho
Office Center, L.P. (the borrower) in the amount of $2,655,000. The Series
1996 bonds were reissued to pay amounts due to the Company on Series 1984
Bonds. The Company entered into the Guarantor Agreement to effectuate the
transaction whereby these funds would be available to the Company. The
Company has pledged collateral to secure the guaranty. The collateral
consists of the Company's Deed of Trust and Security Agreement executed by
the borrower in favor of the Company on the Series 1984 Bonds, and
assignment on a ratable basis of General Partnership Interest of River
Market Venture, Inc. (a wholly owned subsidiary of the Company) in River
Market Venture I, L.P.
In 1996, the Company assigned the IRB's, which were originally part of a
note receivable, to the participants in the Company's Alternative Treatment
Plan who elected to receive them as reductions of their Alternative
Treatment. The Company's guarantee and collateral remain in place for
these bonds.
Minimum rents:
- -------------
The Company receives income on commercial and residential properties under
noncancelable operating lease agreements expiring through 2001 in
connection with its rental operations. Future minimum rental payments
under these leases as of December 31, 1998 are as follows:
Years Ended December 31,
------------------------
1999 $1,961,879
2000 556,338
2001 198,696
2002 143,276
2003 43,468
Thereafter 196,770
------
Total $ 3,100,427
===========
(18) Fair value of financial instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS No. 107) requires disclosure of
estimated fair values for financial instruments held by the Company.
Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts do not represent the underlying value of
the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash and restricted cash - The carrying amounts reported in the statements
of condition for cash and cash equivalents and interest bearing deposits
approximate those assets' fair values.
Mortgage notes receivable - Fair values for loans are estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers for the same remaining maturities. The
carrying amount has been evaluated for impairment and is stated at
estimated net realizable value which is equivalent to fair value.
Notes payable - The fair value of the Company's convertible subordinated
debentures was determined by using the most recent trades occurring between
individual debenture holders. The value used in those trades was 30% of the
face amount of the debentures. Based on those trades, the fair value of
the convertible subordinated debentures is estimated at 30% of the
principal amount of the debentures, plus accrued interest payable on those
obligations.
The fair value of the Company's remaining long-term debt was estimated
based on estimates of the current market rates for debt with similar
remaining maturities and collateral.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(18) Fair value of financial instruments (continued)
-----------------------------------
The estimated fair values of the financial instruments are as follows:
December 31, 1998 December 31, 1997
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Financial assets
Cash and restricted
cash $ 1,795,718 $ 1,795,718 $ 2,643,558 $ 2,643,558
Mortgage notes
receivable (after
reduction for
allowance for loan
losses) 1,080,850 1,080,850 2,829,615 2,829,615
Notes receivable 535,871 535,871 193,460 193,460
Financial liabilities
Convertible subordi-
nated debentures 1,468,623 702,556 1,646,534 715,673
Notes payable - other 33,512,737 33,393,832 29,196,159 28,956,755
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Write Off
Beginning Charged to of Un- Balance at
Balance at Expense Collectible End of
Period (Recovery) Accounts Period
------------ ------------ ------------ ------------
DESCRIPTION
- -----------
Year ended December
31, 1998:
Deducted from
asset accounts:
Allowance for
losses -
mortgage
notes
receivable $ 3,691,493 $( 831,640) $(1,640,965 $ 1,218,888
=========== =========== =========== ===========
Year ended December
31, 1997:
Deducted from
asset accounts:
Allowance for
losses -
mortgage
notes
receivable $ 4,974,901 $(1,283,408) $ -- $ 3,691,493
Year ended December
31, 1996:
Deducted from
asset accounts:
Allowance for
losses -
mortgage
notes
receivable $10,780,742 $(3,854,698) $(1,951,143) $ 4,974,901
Allowance for
losses -
interest
receivable 613,742 (408,028) ( 205,714) -
----------- ----------- ------------ -----------
TOTAL $11,394,484 $(4,262,726) $(2,156,857) $ 4,974,901
=========== =========== =========== ===========
See Accompanying Independent Auditors' Report
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE III - PROPERTY, EQUIPMENT AND ACCUMULATED DEPRECIATION
Carrying Cost
Additions at 12/31/97
Initial Cost since ------------
------------ Acquisition Buildings
Buildings ------------ & Land
Encum- & Land Improvements Improvements
Description brances Improvements Carrying Cost Total (4)
- ----------- ------------ ------------ ------------ ------------
Commercial:
- ----------
Rivermarket -
Kansas City, MO (1) $ 7,490,894 $ 848,788 $ 8,339,682
Soho VI -
Kansas City, MO (1) 1,494,345 79,092 1,573,437
Soho III/
Gaslight Garage -
Kansas City, MO 6,864,239 231,583 7,095,822
39/40 Plaza -
Kansas City, MO 725,000 95,274 820,274
Hotels:
- ------
Ramada -
Phoenix, AZ (1) 3,952,594 2,988,029 6,940,623
Ramada -
Euless, TX (1,3) 5,772,619 1,215,453 6,988,072
Ramada -
Wichita, KS (2) 7,323,687 674,391 7,998,078
Historic Suites -
Kansas City, MO (1) 7,500,000 324,112 7,824,112
(1) Encumbered by mortgage note payable with a balance at December 31,
1998 of $19,417,830.
(2) Encumbered by mortgage note payable with a balance at December 31,
1998 of $7,245,312.
(3) Encumbered by note payable with a balance at December 31, 1998 of
$18,699.
(4) Encumbered by a mortgage note payable with an aggregate balance at
December 31, 1998 of $3,833,743.
(5) The aggregate carrying cost for Federal income tax purposes at
December 31, 1998 is $47,854,793.
See Accompanying Independent Auditors' Report
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE III - PROPERTY, EQUIPMENT AND ACCUMULATED DEPRECIATION
(Continued)
Carrying Cost
Additions at 12/31/97
Initial Cost since ------------
------------ Acquisition Buildings
Buildings ------------ & Land
Encum- & Land Improvements Improvements
Description brances Improvements Carrying Cost Total (4)
- ----------- ------------ ------------ ------------ ------------
Unimproved land:
- ---------------
Gabriel -
Kansas City, MO 65,003 69,700 134,703
All other property
and equipment 20,860 119,130 139,990
----------- ---------- -----------
Totals $41,209,241 $ 6,645,552 $47,854,793
=========== =========== ===========
(1) Encumbered by mortgage note payable with a balance at December 31,
1998 of $19,417,830.
(2) Encumbered by mortgage note payable with a balance at December 31,
1998 of $7,245,312.
(3) Encumbered by note payable with a balance at December 31, 1998 of
$18,699.
(5) Encumbered by a mortgage note payable with an aggregate balance at
December 31, 1998 of $3,833,743.
(5) The aggregate carrying cost for Federal income tax purposes at
December 31, 1998 is $47,854,793.
See Accompanying Independent Auditors' Report
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE III - PROPERTY, EQUIPMENT AND ACCUMULATED DEPRECIATION
(Continued)
Estimated
Accumulated Date of Date Depreciable
Description Depreciation Construction Acquired Life
- ----------- ------------ ------------ ------------ ------------
Commercial:
- ----------
Rivermarket -
Kansas City, MO $ 495,880 1870 - 1890 6-95 7 & 39 years
Soho VI -
Kansas City, MO 46,984 1900 12-96 7 & 39 years
Soho III/
Gaslight Garage - 2-98/
Kansas City, MO 157,881 1986 8-93 5 & 39 years
39/40 Plaza -
Kansas City, MO 53,348 1970 1-94 5 & 39 years
Hotels:
- ------
Ramada -
Phoenix, AZ 770,547 1956 6-94 7 & 39 years
Ramada -
Euless, TX 1,615,391 1971 3-94 5 - 39 years
Ramada -
Wichita, KS 305,787 1954, 1973
1985 10-97 5 - 39 years
Historic Suites -
Kansas City, MO 526,950 1890 9-96 7 & 39 years
Unimproved land:
- ---------------
Gabriel -
Kansas City, MO - 1890 Various 5 & 39 years
All other property
and equipment 11,611
-----------
Totals $ 3,984,379
===========
(1) Encumbered by mortgage note payable with a balance at December 31,
1998 of $19,417,830.
(2) Encumbered by mortgage note payable with a balance at December 31,
1998 of $7,245,312.
(3) Encumbered by note payable with a balance at December 31, 1998 of
$18,699.
(6) Encumbered by a mortgage note payable with an aggregate balance at
December 31, 1998 of $3,833,743.
(5) The aggregate carrying cost for Federal income tax purposes at
December 31, 1998 is $47,854,793.
See Accompanying Independent Auditors' Report
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Interest
rate at Final Periodic
Interest December Maturity Payment
Location Rate 31, 1998 Date Terms
- ------------------- --------- --------- -------- -----------------
PARTIALLY-EARNING
2ND AND 3RD MORTGAGE LOANS
- ------------------
COMMERCIAL BUILDINGS
Kansas City, MO 10.00% 10.00% 10/01/94 Quarterly pay-
ments equal to
property's net
cash flow; Unpaid
principal and
interest at
maturity
RESIDENTIAL
Mission, KS 9.5% 9.5% 06/01/01 Monthly payments
equal to
property's
available cash
flow after prin-
cipal & interest
payments on 1st
mortgage
See Accompanying Independent Auditors' Report
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued)
Principal
Amount
Carrying of Loans
Amount of Subject to
Face Mortgages Delinquent
Prior Amount of at December Principal
Location Liens Mortgages 31, 1997 or Interest
- ------------------- ---------- ---------- ---------- ----------
PARTIALLY-EARNING
2ND & 3RD MORTGAGE LOANS
- ------------------
COMMERCIAL BUILDINGS
Kansas City, MO $ - $3,300,000 $1,774,738 $1,774,738
RESIDENTIAL
Mission, KS 6,768,000 300,000 525,000 525,000
TOTAL MORTGAGE NOTES
RECEIVABLE, PARTIALLY-
EARNING $6,768,000 $3,600,000 $2,299,738 $2,299,738
========== ========== ========== ==========
See Accompanying Independent Auditors' Report
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued)
Years Ended December 31, 1998, 1997 and 1996
Year Ended December 31
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Balance at beginning of year $ 6,521,108 $ 5,519,500 $15,962,800
Additions during year
Advances on existing loans 67,338 295,258 101,856
Other recoveries - 709,151 -
----------- ----------- -----------
Total additions 6,588,446 6,523,909 16,064,656
----------- ----------- -----------
Deductions during year
Collection of principal 3,815,739 2,801 35,057
Write off principal against
the allowance 226,489 - 10,510,099
Reclassification to notes
Receivable 246,480 --- ---
----------- ----------- -----------
Total deductions 4,288,708 2,801 10,545,156
----------- ----------- -----------
BALANCE AT END OF YEAR $ 2,299,738 $ 6,521,108 $ 5,519,500
=========== =========== ===========
See Accompanying Independent Auditors' Report
