SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:
MARCH 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File Number 33-22805
MASTER REALTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1056392
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 W. 8th Street
Kansas City, Missouri 64105
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (816) 474-9333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No
As of March 31, 2000, the Registrant had 23,400 shares of preferred stock
and 1,256,916 shares of common stock outstanding. The aggregate book
value of all shares of the Registrant, based on the March 31, 2000
unaudited financial statements was $14,474,005.
MASTER REALTY PROPERTIES, INC.
MARCH 31, 2000 FORM 10-Q
INDEX
Part I: Financial Information
Financial Statements
A.Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3-4
B. Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 2000 and 1999. 5
C. Condensed Consolidated Statements of
Changes in Stockholders' Equity for the Three
Months Ended March 31, 2000 and 1999 6
D. Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
2000 and 1999. 7
Notes to the Condensed Consolidated Financial
Statements 8-18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 19-21
Signatures 22
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
A S S E T S
CASH $138,054 $390,089
RESTRICTED CASH 214,347 261,495
MORTGAGE NOTES RECEIVABLE,
net of allowance for loan
losses 722,775 722,775
NOTE RECEIVABLE 238,642 235,225
PROPERTY HELD FOR INVESTMENT 1,007,651 1,007,651
INVESTMENT IN REAL ESTATE PARTNERSHIPS 482,137 692,137
ACCOUNTS RECEIVABLE - OTHER 1,078,916 1,041,709
ACCOUNTS RECEIVABLE RELATED PARTY 790,490 760,490
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 39,727,534 39,777,094
OTHER ASSETS 1,146,887 1,135,325
---------- ----------
TOTAL ASSETS $45,547,433 $46,023,990
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Continued)
March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
L I A B I L I T I E S
NOTES PAYABLE $29,602,991 $30,285,413
OTHER LIABILITIES 1,105,429 1,082,471
----------- -----------
TOTAL LIABILITIES 30,708,420 31,367,884
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES 311,980 310,873
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 14)
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. 234 284
Common stock, par value $.01,
authorized 8,500,000 shares. 12,569 12,158
Capital in excess of par 42,138,956 41,869,942
Retained (Deficit) Earnings (27,624,726) (27,537,051)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,527,033 14,345,233
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $45,547,433 $46,023,990
============ ============
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 2000, and 1999
2000 1999
REVENUES
Rental Income $ 945,604 $ 911,870
Hotel Income 418,500 525,694
Interest and fees on
mortgage loans 10,178 25,034
Other income 137,773 25,514
------------ ------------
TOTAL REVENUES $ 1,512,055 $ 1,488,112
------------ ------------
EXPENSES
Loan Servicing Fees 3,583 3,915
Rental expenses 418,568 396,986
General and administrative expenses 106,489 90,535
Legal and accounting 86,552 69,745
Payroll and employee benefits 149,863 152,290
Depreciation and amortization 289,181 338,146
Interest expense 546,601 670,602
------------- -----------
TOTAL EXPENSES 1,600,387 1,722,219
------------- -----------
MINORITY INTEREST IN LOSS (INCOME) OF
CONSOLIDATED SUBSIDIARIES (1,107) (1,193)
------------- ------------
NET INCOME (LOSS) $ (87,675) $ (232,914)
============= ============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (0.0028) (0,0074)
======== ========
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 2000 and 1999
PREFERRED PREFERRED COMMON COMMON
STOCK STOCK STOCK STOCK
SHARES AMOUNT SHARES AMOUNT
Balances, 12-31-98 $35,925 $359 1,187,804 $11,878
Debenture Conversion
to Stock 14,956 150
------- ------- ---------- -------
Balances, March 31, 1999 35,925 359 1,202,760 12,028
======= ======= ========== =======
Balances, December 31, 1999 28,425 284 1,215,809 12,158
Debenture Conversion to Stock 36,082 361
Preferred converted
to Common (5,025) (50) 5,025 50
Net income for the period
-------- ------- --------- ------
Balances, March 31, 2000 23,400 234 1,256,916 12,569
======= ====== ========= ======
CAPITAL
IN EXCESS UNDISTRIBUTED TOTAL
OF PAR EARNINGS STOCKHOLDERS'
VALUE (DEFICIT) EQUITY
Balances, 12-31-98 $41,760,211 $(27,134,491) $14,637,957
Adjustment to reverse
stock split (961) (961)
Debenture Conversion
to Stock 111,528 111,678
Net income for the period (232,914) (232,914)
---------- ----------- -----------
Balances, March 31, 1999 41,870,778 (27,367,405) 14,515,760
========== ============ ==========
Balances, 12-31-1999 41,869,842 (27,537,051) 14,345,233
Debenture Conversion to Stock 269,114 269,475
Preferred converted to Common -
Net income for the period (87,675) (87,675)
----------- ------------- -------------
Balances, March 31, 2000 $42,138,956 $(27,624,726) $(14,527,033)
=========== ============= =============
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 2000 and 1999
2000 1999
------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (87,675) $ (232,914)
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities
Depreciation and amortization 289,181 320,751
Minority interest 1,107 (329)
Accounts receivable (67,207) 8,229
Other assets, net (73,517) (145,122)
Other liabilities 22,958 11,292
NET CASH PROVIDED BY (USED IN) -------- ---------
OPERATING ACTIVITIES 84,847 (38,093)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase mortgage notes receivable 0 (9,865)
Net change in real estate partnerships 210,000 (265)
Net change in note receivables (3,417) 190,396
Net change in fixed assets 177,666 (402,382)
-------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 28,917 (222,116)
CASH FLOWS FROM FINANCING ACTIVITIES
Costs of Debentures converted to Stock 7 (961)
Net change in notes payable (412,954) 705,064
-------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (412,947) 704,103
-------- --------
NET INCREASE (DECREASE) IN CASH (299,183) 443,894
CASH, BEGINNING OF PERIOD 651,584 1,795,718
---------- -----------
CASH, END OF PERIOD $ 352,401 $ 2,239,612
========== ===========
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.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1)Summary of significant accounting policies
In the opinion of management, the accompanying unaudited condensed
consolidated interim financial statementS reflect all adjustments
consisting of only normal and recurring adjustments) necessary to present
fairly the financial position of Master Realty Properties, Inc. and
Subsidiaries as of March 31, 2000 and December 31, 1999, and the results
of their operations and cash flows for the three-month periods ended March
31, 2000 and 1999. The results of operations for such interim periods are
not necessarily indicative of the results for the full year. The
accompanying unaudited condensed consolidated interim financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with instructions to Form
10-Q and accordingly do not include all disclosures required by generally
accepted accounting principles. The 1999 condensed consolidated financial
statements were derived from Master Realty Properties, Inc. and
Subsidiaries audited consolidated financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1999.
The preparation of financial statement in conformity with generally
Accepted accounting principles requires management to make estimates
And assumptions that affect the amounts reported in the financial
Statements and accompanying notes. Actual results could differ
From those estimates.
(2)Restricted cash and escrows
The Company entered into a Cash Management, Collateral and Security
Agreement (Cash Collateral Agreement), on 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, after December 19, 1997, 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. The following reserves were established under this agreement.
March 31, 2000 December 31,1999
Debt service reserve $162,654 $160,492
Capital expenditure reserve 18,335 77,611
Impound costs sub-account 33,358 23,392
-------- ---------
Total restricted cash and escrows $214,347 $261,495
======== ========
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 note receivable
March 31, December 31,
2000 1999
Mortgage note receivable,
partially-earning $1,774,738 $1,774,738
Allowance for losses (1,051,963) (1,051,963)
----------- -----------
Net mortgage note receivable $ 722,775 $ 722,775
========== ==========
As of December 31, 1999 and March 31, 2000, mortgage note receivable
consists of one mortgage note collateralized by an Office Building located
in the Historic Garment District of Downtown Kansas City, Missouri. The
Company has initiated procedures to buy out the Partnership holding the
collateral and convert its note to equity. The buyout is subject to
approval of the Land Clearance for Redevelopment Authority of Kansas City
who holds a lien on the property in favor of Soho Office Center Project
Series 1996 Bonds in the original amount of $2,655,000. The Company has
applied for approval, and expects to receive such approval during 2000.
Due to the probable conversion of the note to an equity interest in the
underlying collateral, no estimate has been made of the scheduled
maturities of the mortgage note receivable over the next five years and
thereafter. 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
March 31, December 31,
2000 1999
Non-earning, land in New Mexico $901,688 $901,688
Vacant residential building lots
- - Missouri 105,963 105,963
--------- --------
$1,007,651 $1,007,651
========== ==========
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.
The building lots consist of eight lots on the west side of downtown
Kansas City and one lot in Independence, Missouri.
(5)Investment in real estate entities
Investment in real estate partnerships and limited liability companies
accounted for on the equity method consists of the following:
Ownership Percentage at
Ownership March 31,
Name Interest 2000 1999
OPP IX, Limited Partnership Limited - 25.12
OPP X, Limited Partnership Limited - 2.3
Historic Suites of America - KC Limited 19.8 19.8
Wellington, L.L.C. Member 20.0 -
B & F Properties, L.P. General 0.0099 -
MRP Historic Development Company General 33.3 -
During November 1999, the Company sold its investments in OPP IX and OPP
X Limited Partnerships to the Company's President for an amount
approximating the Company's carrying value for the investments. The
aggregate sales proceeds was $191,173. No gain or loss was incurred on
the sale.
During May 1999, the Company acquired a 20 percent ownership interest in
Wellington L.L.C., a limited liability company, for a capital contribution
of $401,250. Wellington L.L.C. holds a 99.0 percent limited partnership
interest in Foxridge L.P. (Foxridge). Foxridge currently owns an
apartment complex known as the "Wellington Club Apartments" located in
Johnson County,Kansas.
During November 1999, the Company entered into a Limited Partnership
agreement with B & F Properties, L.P. The Company received an allocation
of Missouri Historic Tax Credits from the Partnership which it sold for a
gain of $918,167. Subsequent to year end the Company contributed the cash
to the partnership in the form of a capital contribution. This
capital contribution will give the Company a General Partner interest of
0.0099 percent. The Company will receive 0.0099 percent of available cash
flow in Years 1 through 5, and 89.999 percent thereafter. The limited
partners have an option after the first five years to have B & F
Properties, L.P. redeem their partnership interests in accordance with the
buy out formula specified in the partnership agreement.
During 1999, the Company acquired a 33.33 percent General Partnership
interest in MRP Historic Development Company for a capital contribution of
$100. The partnership was formed for the purpose of owning, developing,
managing, leasing, and operating real estate property. The initial
property and project for the partnership is the development and management
of the property owned by B & F Properties L.P. known as Soho IV
Apartments.
The Company has recorded its pro-rata 33.33 percent portion of development
Fees accrued on this project and owed to the Partnership. The Company's
Equity in earnings of the Partnership for the year ended December 31, 1999
Was recorded as other income in the amount of $289,280.
(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:
March 31, December 31,
2000 1999
Ramada Inn- Phoenix, Arizona $310,417 $280,417
Ramada Inn - Euless, Texas 392,453 392,453
Historic Suites - Kansas City,
Missouri 87,620 87,620
--------- --------
Total $790,490 $760,490
========= ========
(7)Property and equipment
March 31, December 31
2000 1999
Cost
Land and land improvements $6,816,160 $6,326,999
Building and building improvements 31,673,579 31,950,335
Furniture and equipment 2,871,857 2,805,469
Assets not yet in service 3,343,640 3,411,986
---------- ----------
Total cost 44,705,236 44,494,789
Accumulated depreciation (4,977,702) (4,717,695)
---------- -----------
Net property, plant and equipment $39,727,534 $39,777,094
=========== ===========
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 period ended March
31, 2000 and 1999 was $260,029 and $260,008 respectively.
(8)Notes payable
March 31, December 31,
2000 1999
Salomon Brothers mortgage note $19,040,085 $19,119,204
Salomon Brothers Mezzanine note 876,458 939,802
Convertible subordinated debentures 1,032,124 1,383,446
ITLA mortgage note 4,900,000 4,900,000
Hillcrest Bank Note #3 1,084,232 558,872
Hillcrest Bank Note #4 - 480,000
Hillcrest Bank Note #5 480,000 480,000
Hillcrest Bank Note #6 154,159 450,000
Hillcrest Bank Note #7 800,000 800,000
Hillcrest Bank Note #8 80,000 -
Unsecured alternative treatment note 1,017,444 1,017,444
Unsecured non-interest bearing
note payable 51,692 61,906
Real estate tax notes 61,238 67,521
Hotel van loan 25,559 27,218
---------- ----------
Total notes payable $29,602,991 $30,285,413
=========== ===========
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 percent and a 25-year
amortization period. The initial payment of accrued interest only through
January 31, 1997 was paid 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 percent. The
interest rate at December 31, 1997 was 10.92 percent 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 percent. This
note is cross-collateralized and cross-defaulted with the First Mortgage
Note and the Cash Collateral Agreement.
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 percent
per annum. Interest accrues semiannually on January 1 and July 1 of each
year. The outstanding balance as of March 31, 2000 and December 31, 1999
consists of principal of $713,285 and $982,704 and accrued interest
of $318,839 and $400,742, respectively. Although the securities mature
December 2003, 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 securities are to be paid any principal or
interest. As a result, management does not anticipate that the securities
will be paid at the date of maturity. 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
$7.4667/share (after 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 period ended March 31, 2000 and March
31, 1999 amounted to $92,539 and $31,828, respectively.
ITLA mortgage note - mortgage note payable (first mortgage note) with
monthly interest only payments based on a 8.75 percent for the first
twelve months and then monthly principal and interest payments with
interest determined quarterly based on LIBOR plus 3.75 percent and
principal payments based on a 25 year amortization period. This note
matures April 1, 2009.
Hillcrest Bank note #3 - Line of credit, with maximum aggregate principal
amount of $480,000, with interest at the Wall Street Prime Interest Rate
plus 1 percent. Monthly payments of interest are required until maturity
on October 1, 2000, at which time any unpaid accrued interest and
principal are due. The note is collateralized by a commercial property
located in Rivermarket area Kansas City, Missouri, a vacant lot,
assignment of rents, furniture and fixtures, and a full payment guaranty
by the Company. On October 1, the note was increased to $1,200,000. The
proceeds from this note will be used for construction costs on the
collateralized building.
Hillcrest Bank note #4 - Line of credit, with maximum aggregate principal
amount of $480,000 with interest at Wall Street prime interest plus 1
percent. Monthly payments on interest only are required until maturity at
April 1,2000. This note is collateralized by a building located in
Downtown Kansas City, Missouri. This note was paid in full in March, 2000
as part of a transfer of the building to a development partnership.
Hillcrest Bank note #5 - Line of credit, with maximum aggregate principal
amount of $480,000 with interest at Wall Street prime interest plus 1
percent. Monthly payments on interest only are required until maturity at
May 1, This note is collateralized by a building located in Kansas City,
Missouri. This note was paid in full in May,2000 as part of a transfer
of the building to a development partnership.
Hillcrest Bank note #6 - Line of credit, with maximum aggregate principal
amount of $450,000 with interest at the Wall Street Prime Interest Rate
plus 1 percent. Monthly payments on interest only are required until
maturity at May 1, 2000. This recourse note was collateralized by an
earnout agreement related to the ITLA mortgage note due at the earlier of
he payout of the earnout or May 2000. Subsequent to December 31, 1999,
the Company paid down $290,000 on this obligation and the terms changed to
a 3 year amortization period through December 2002.
Hillcrest Bank note #7 - Line of credit, with maximum aggregate principal
amount of $800,000 with interest at Wall Street prime interest plus 1
percent. Monthly payments of interest only are required until maturity at
September 1, 2000. This note is collateralized by a building located in
Downtown Kansas City, Missouri.
Hillcrest Bank note #8 - Line of credit with maximum principal amount of
$80,000 with interest at Wall Street prime plus 1 percent. Monthly
payments of interest only are due until maturity at March 1, 2001. This
note is collateralized by a building in downtown Kansas City, Missouri.
Unsecured note - 9 percent unsecured note payable to previous participants in
the alternative treatment plan, with interest only payable quarterly
Until maturity in August 2000.
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 percent.
Real estate tax note - Unsecured note payable consisting of an agreement
with the taxing authorities for delinquent real estate taxes on a
foreclosed property with interest imputed at 9 percent and monthly
payments of $3,220.30 until maturity on August 15, 2002
Hotel van loan - 9.25 percent and 8.75 percent notes payable,
collateralized by vehicles, payable in aggregate monthly installments of
$1,445 through May 2001, and $646 through September 2001.
(9)Other liabilities
Other liabilities consists of the following:
March 31, December 31,
2000 1999
Interest Payable $177,948 $179,249
Accounts payable 658,319 556,477
Accrued bonus pool - 68,744
Other liabilities 269,162 278,001
-------- ---------
Totals $1,105,429 $1,082,471
(10) Common and Preferred Stock and Paid in Capital.
Stockholder rights plan: During 1999 the Board of Trustees adopted a
stockholder rights plan. Under this plan each shareholder was given the
right to purchase additional shares of stock at a price below market
value. The number of shares allowed to be purchased by each shareholder
and the purchase price is defined in this agreement. The rights become
exercisable if a triggering event, as defined in the agreement, occurs.
Certain stockholders, as defined in the agreement, are precluded from
participating in this plan. The rights under the plan will expire if not
utilized by October 31, 2009. The dilutive effect of this plan cannot be
determined due to significant variables at this time.
(11) Extraordinary item
During September 1999, the Company entered into an agreement with its
lender to transfer hotel property in Wichita, Kansas in full settlement of
the nonrecourse debt collateralized by the property. The Company acquired
the troubled property in October 1997 with the intent of improving the
operating performance of the property. Certain adverse market
conditions, including a switch from a Holiday Inn to a Ramada Inn during
1998 contributed to a continued decline in the operating performance of
the property. The carrying amount of the collateral exceeded its fair
value by an estimated $5,654,395, and, accordingly, a loss on the asset
transfer was included in net operating income for 1999. The carrying
amount of the loan payable at the date of foreclosure exceeded the fair
value of the collateral by an estimated $4,789,488, and, accordingly, an
extraordinary gain, was recognized in 1999.
(12) 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.
The following table illustrates information concerning segment profit or
loss and segment assets:
Period Ended March 31, 2000
Residential Assets
Hotel mixed use For
Leasing Properties Restructure
Revenues from external
Customers $418,500 $903,296 $52,426
Interest revenue 793 - 3,433
-------- -------- -------
Total revenues $419,293 $903,296 $55,859
======== ======== =======
Percentage of segment
revenues to total 28 60 4
Interest expense 247,414 225,092 -
Depreciation and
Amortization 204,714 66,917 6,851
Other expenses 3,275 366,959 36,856
Segment profit (loss) (36,110) (244,328) 12,152
Percentage of segment
profit (loss) to total 41 -279 -14
March 31, 2000
Segment assets $18,908,677 $20,585,708 $2,863,499
Percentage of segment
assets to total 42 45 6
Expenditures for
segment assets 47,765 588,178 75,241
Period Ended March 31, 2000
All
Other Total
Revenues from external
Customers $127,655 $1,501,877
Interest revenue 5,952 10,178
-------- ----------
Total revenues $133,607 $1,512,055
======== ==========
Percentage of segment
revenues to total 9 100
Interest expense 74,095 546,601
Depreciation and
Amortization 10,699 289,181
Other expenses 356,858 763,948
Segment profit (loss) (308,045) (87,675)
Percentage of segment
profit (loss) to total 351 100
March 31, 2000
Segment assets $3,189,549 $45,547,433
Percentage of segment
assets to total 7 100
Expenditures for
segment assets 60,892 772,076
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:
Period Ended March 31, 2000
Residential Assets
Hotel mixed use For
Leasing Properties Restructure
Net income $(36,110) $244,328 $12,152
Add: Minority interest 1,107 - -
Add: Depreciation and amortization
of real estate assets 204,714 66,917 6,851
-------- --------- --------
Funds from operations $169,711 $311,245 $19,003
======== ======== =======
Period Ended March 31, 2000
All
Other Total
Net income $(308,045) $(87,675)
Add: Minority interest - 1,107
Add: Depreciation and amortization
of real estate assets 10,699 289,181
Less: Accrued Interest forgone on
converted debentures (92,539) (92,539)
--------- ----------
Funds from operations $(389,885) $110,074
========== ==========
(13) Commitments and contingencies
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. The Company is completing negotiations to acquire
Soho Office Center project.
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,
2000 $2,167,143
2001 1,098,960
2002 983,010
2003 561,761
2004 463,656
Thereafter 882,382
-----------
Total $6,156,912
==========
Year 2000 Management:
In order to address the computer industry's "Year 2000" problem, the
Company upgraded its accounting software and network server. Management
incurred limited costs for this upgrade. The Company determined that the
company that managed the Hotels were in compliance for "Year 2000"
issues.
MASTER REALTY PROPERTIES, INC.
AND SUBSIDIARIES
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
three months ended March 31, 2000 and 1999. 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
Three Month Period Ended March 31, 2000 Compared with Three Month Period
Ended March 31, 1999.
Rental Properties
Revenue from rental properties increased by $33,734 from $911,870 at March
31, 1999 to $945,604 at March 31, 2000. This increase was due to the
increases in rental rates in all of the Properties.
Rental expenses increased from $396,986 at March 31, 1999 to $418,568 at
March 31, 2000. This increase of $21,582 was due to increased real estate
taxes on one property which came off tax abatement in 1999.
Funds from operations from rental properties was $311,245 at March 31,
2000 compared to $339,871 at March 31, 1999.
Hotel Properties
Revenues from hotel lease income decreased by $107,194 from $525,694 at
March 31, 1999 to $418,500 for March 31, 2000. This decrease was due to
the elimination of percentage rent and the disposition of the Company's
hotel in Wichita, Kansas. The Company disposed of the Wichita hotel in
September, 1999. The Company acquired this hotel as part of a workout
between the lender and its former borrower. The Company implemented new
management and funded capital improvements to reposition the hotel.
However, a significant decline in room demand in Wichita due to the
relocation of two companies' international headquarters devastated the
Wichita hotel market. The Company had no choice but to negotiate a
transfer of the hotel back to the lender. The disposition of the property
resulted in a loss on the asset transfer of $5,654,395 and an
extraordinary gain on the debt discharge of $4,789,488 in 1999.
Funds from operations from Hotels was $169,710 at March 31, 2000 compared
to $131,192 at March 31, 1999.
Other Revenues and Expenses
The Company continued to receive interest income on its remaining real
estate loans. The decrease in the amount received of $14,856 from March
31, 1999 to March 31, 2000 was due to the decline in mortgage notes
receivable of the Company.
The Company had a $15,954 increase in general and administrative expenses
for March 31, 2000 compared to March 31, 1999. This increase was
attributable to increased franchise tax cost and general increases in
costs.
Interest expense decreased by $124,001 from $670,602 at March 31, 1999 to
$546,601 at March 31, 2000. This decrease was due to the disposition of
the Wichita hotel in September, 1999.
Liquidity and Capital Resources
The Company had a deficit in cash flow from both the operating and
financing activities which represented the payment of Company liabilities.
The Company had an increase in cash flows from its investing activities
related to partnership and asset acquisitions.
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 of the Company for the periods ended March
31, 2000 and 1999.
March 31, 2000 March 31, 1999
Net Income (Loss) $(87,675) $(232,914)
Add partnership interest 1,107 1,193
Add minority interest (744)
Less partnership investment income
---------- ----------
Income before minority interest (86,568) (232,465)
Add depreciation and amortization of real
estate assets 289,181 320,751
Less Non-Recurring Items:
Accrued interest expense forgone on
converted debentures (92,539)
Gain on sale of assets (31,828)
----------- -----------
Funds from operations $110,074 $56,458
=========== ===========
SIGNATURES
Pursuant to the requirements to the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000 MASTER REALTY PROPERTIES, INC.
By:
John J. Bennett, Chairman
(Principal Executive Officer)
Thomas H. Trabon, Executive Vice President
and Chief Financial Officer
