UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - - --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - - --- EXCHANGE ACT OF 1934
For the transition period from____________________to___________________
Commission file number 0-18294
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3087630
- - - ------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One California Street
San Francisco, California 94111
- - - ------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
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
--- ---
Shares of common stock outstanding as of March 31, 1996: 6,321,641
Page 1 of 15
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash ........................................................... $ 929,000 $ 976,000
Accounts and Interest Receivable ............................... 505,000 412,000
Investment in Mortgage-Backed Securities - Net ................. 8,178,000 8,575,000
Rental Properties .............................................. 30,889,000 30,889,000
Accumulated Depreciation ....................................... (2,919,000) (2,784,000)
------------ ------------
Properties and Improvements - Net ......................... 27,970,000 28,105,000
Real Estate Held for Sale ...................................... 4,135,000 4,135,000
Prepaid and Other Assets ....................................... 5,000 8,000
------------ ------------
Total Assets .............................................. $ 41,722,000 $ 42,211,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Dividends Payable .............................................. $ 1,264,000 $ 1,264,000
Payable to Sponsor and Affiliates .............................. 83,000 22,000
Other Accounts Payable and Accrued Liabilities ................. 203,000 308,000
------------ ------------
Total Liabilities ......................................... 1,550,000 1,594,000
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common Stock - no par value, stated at $0.001, 12,250,000 shares
authorized and 6,321,641 shares issued and outstanding .... 6,000 6,000
Additional Paid-in Capital ..................................... 55,200,000 55,200,000
Accumulated Dividends in Excess of Net Income .................. (15,219,000) (14,947,000)
Unrealized Holding Gain on Investment
in Mortgage-Backed Securities - Net ....................... 185,000 358,000
------------ ------------
Total Shareholders' Equity ................................ 40,172,000 40,617,000
------------ ------------
Total Liabilities and Shareholders' Equity ................ $ 41,722,000 $ 42,211,000
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
Page 2 of 15
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
March 31,
1996 1995
---- ----
Revenues:
Lease income ............................. $1,126,000 $1,022,000
Interest on mortgage-backed securities ... 168,000 181,000
Interest and other income ................ 7,000 20,000
Gain on sale of mortgage-backed securities -- 16,000
---------- ----------
Total Revenues ........................ 1,301,000 1,239,000
---------- ----------
Expenses:
Depreciation ............................. 135,000 180,000
General and administrative ............... 174,000 171,000
---------- ----------
Total Expenses ........................ 309,000 351,000
---------- ----------
Income Before Gain on Sale of Property ... 992,000 888,000
Gain on Sale of Property ................. -- 127,000
---------- ----------
Net Income ............................... $ 992,000 $1,015,000
========== ==========
Net Income per Share
Income before gain on sale of property ... $ .16 $ .14
Gain on sale of property ................. -- .02
---------- ----------
Net Income per Share .................. $ .16 $ .16
========== ==========
Dividends per Share ...................... $ .20 $ .66
========== ==========
See notes to consolidated financial statements (unaudited).
Page 3 of 15
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1996 and 1995
<CAPTION>
Unrealized
Holding
Accumulated Gain/(Loss)
Additional Dividends on Investment in
Common Stock Paid-in in Excess of Mortgage-Backed
Shares Amount Capital Net Income Securities - Net Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ......... 6,321,641 $ 6,000 $ 55,200,000 $(14,947,000) $ 358,000 $ 40,617,000
Unrealized Holding Loss
On Investment in Mortgage -
Backed Securities - Net ..... (173,000) (173,000)
Net Income ....................... 992,000 992,000
Dividends Declared ............... (1,264,000) (1,264,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1996 .......... 6,321,641 $ 6,000 $ 55,200,000 $(15,219,000) $ 185,000 $ 40,172,000
============ ============ ============ ============ ============ ============
Balance, January 1, 1995 ......... 6,321,641 $ 6,000 $ 55,200,000 $(10,912,000) $ (319,000) $ 43,975,000
Unrealized Holding Gain on
Investment in Mortgage-Backed
Securities - Net ............ 247,000 247,000
Income Before Gain on Sale of
Property .................... 888,000 888,000
Gain on Sale of Property ......... 127,000 127,000
Dividends Declared ............... (4,172,000) (4,172,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1995 .......... 6,321,641 $ 6,000 $ 55,200,000 $(14,069,000) $ (72,000) $ 41,065,000
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
Page 4 of 15
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Operating Activities
Net income ............................................................... $ 992,000 $ 1,015,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ......................................... 129,000 178,000
Gain on sale of mortgage-backed securities ............................ -- (16,000)
Gain on sale of property .............................................. -- (127,000)
Changes in operating assets and liabilities:
Accounts and interest receivable .............................. (93,000) (12,000)
Prepaid and other assets ...................................... 3,000 2,000
Payable to sponsor and affiliates ............................. 61,000 16,000
Other accounts payable and accrued liabilities ................ (105,000) (20,000)
----------- -----------
Net cash provided by operating activities ....................................... 987,000 1,036,000
----------- -----------
Investing Activities
Rental properties acquisitions and additions .................................... -- (38,000)
Purchase of mortgage-backed securities .......................................... -- (301,000)
Proceeds from sale of mortgage-backed securities ................................ -- 304,000
Principal payments received on mortgage-backed securities ....................... 230,000 130,000
Proceeds from sale of property .................................................. -- 3,050,000
Cash used in sale of property ................................................... -- (125,000)
----------- -----------
Net cash provided by investing activities ....................................... 230,000 3,020,000
----------- -----------
Financing Activities
Dividends paid to shareholders .................................................. (1,264,000) (1,343,000)
----------- -----------
Cash used by financing activities ............................................... (1,264,000) (1,343,000)
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents ................................ (47,000) 2,713,000
Cash and cash equivalents at beginning of period ................................ 976,000 1,339,000
----------- -----------
Cash and Cash Equivalents at End of Period ...................................... $ 929,000 $ 4,052,000
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized holding gain (loss) on investment in mortgage-backed securities - see
Note 8.
Sale of rental property in 1995 - see Note 5.
See notes to consolidated financial statements (unaudited).
Page 5 of 15
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to 1995 Audited Consolidated Financial Statements
These unaudited consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements
included in the 1995 audited consolidated financial statements.
The financial information contained herein reflects all normal and
recurring adjustments that are, in the opinion of management,
necessary for a fair presentation.
2. Transactions with Advisor and Affiliates
In accordance with the Advisory Agreement, the Fund pays the Advisor
and affiliates compensation for services provided to the Fun . Amounts
earned by the Advisor and its affiliates for the three months ended
March 31, 1996 and 1995 were as follows:
1996 1995
---- ----
Reimbursement of administrative expenses $ 50,000 $ 30,000
Securities management fee 10,000 11,000
Advisory fee 63,000 65,000
-------- --------
Total $123,000 $106,000
======== ========
The securities management fee is earned by State Street Research and
Management Company, an affiliate of Metropolitan Life Insurance
Company.
The quarterly advisory fees payable to the Advisor under the Advisory
Agreement commencing April 1, 1994, are calculated at a rate of 0.75
percent per annum of the appraised value of the properties. Such fees
are payable in full only if the Fund makes annualized dividend
payments equaling at least 8.5 percent of the shareholders' adjusted
capital contribution (current dividends are 9.2% of adjusted
shareholder capital). To the extent that the dividend paid for a
calendar quarter is less than 8.5 percent on an annualized basis, the
advisory fee payable to the Advisor will be proportionately reduced.
In March 1996, the Independent Directors approved the extension of the
term of the Advisory Agreement to March 31, 1997.
3. Net Income per Share
Net income per share is based upon 6,321,641 shares outstanding.
4. Commitments and Contingencies (Major Tenant Developments)
The Fund and National Convenience Stores ("NCS") reached a settlement
of the Fund's claim which had been filed in conjunction with the
bankruptcy and subsequent reorganization of NCS. As payment for the
claim the Fund is to receive shares of newly issued NCS common stock
in accordance with the terms of the reorganization plan. To date the
Fund has received 17,161 shares of NCS stock which were immediately
sold and have resulted in net proceeds of $230,000. The Fund expects
to receive some additional compensation from Diamond Shamrock
Corporation, the firm which purchased the majority of the outstanding
NCS stock in December, 1995.
Page 6 of 15
<PAGE>
In April 1992, Wal-Mart, the parent company of Wholesale Club, Inc.,
the lessee of the Fund's property in Menomonee Falls, Wisconsin,
informed the Fund that it had vacated its premises. The lessee remains
current in its lease payments to the Fund, and has informed the Fund
that it intends to honor the terms of the lease, which expires in
2005. During the fourth quarter of 1994 and the first quarter of 1995,
the Fund's Advisor reviewed and approved two subleases presented by
the lessee and the building is currently 100 percent leased. The
sublease amounts are less than the rent required under the lease;
however, the lessee is paying the full amount to the Fund.
Phar-Mor, a former lessee of the Fund's property in Franklin Township,
Ohio, filed for protection under Chapter 11 of the Federal Bankruptcy
Code in August 1992. Phar-Mor rejected the Fund's lease effective May
15, 1993, after closing the store at the end of April. The Fund has
filed the following claims in the bankruptcy proceeding: (i) an
administrative claim for approximately $20,000 for post-petition real
estate taxes for the period through May 15, 1993; and (ii) an
unsecured claim for $774,000 representing damages for unpaid
pre-petition real estate taxes and real estate taxes, rent and
insurance for the remainder of the lease term after May 15, 1993. In
December 1994, Phar-Mor filed in these proceedings a preference
recovery action against several hundred vendors and landlords,
including the Fund. The amount of the preferential payments alleged to
have been made to the Fund is $90,250 consisting of rent paid to the
Fund within 90 days of the filing of the Phar-Mor bankruptcy
petitions. This preference action is subject to an indefinite stay
pursuant to bankruptcy court order. The Fund believes that the action
was filed as a precaution and that Phar-Mor does not intend to pursue
the action against the Fund. In any event, the Fund believes that the
action is without merit. In February 1995, Phar-Mor filed an objection
to the Fund's lease-rejection claim. The objection alleges that the
lease-rejection damages were not properly calculated and similar
objections were apparently filed against all lease-rejection claims in
these proceedings. The Fund has filed materials supporting its
lease-rejection claims, now calculated to be $774,000. In November
1995, Phar-Mor also filed an objection to the Fund's administrative
claims. The court has directed Phar-Mor to report its progress in
resolving all outstanding claim objections, including that relating to
the Fund. In August 1995, the Court confirmed Phar-Mor's proposed
reorganization plan which calls for unsecured creditors to receive a
portion of a pool of the company's new stock, as well as warrants to
purchase additional stock at a fixed price. No assurance can be given
that the Fund will recover any material amount with respect to these
claims.
The former Phar-Mor store was subdivided in 1994 and 24,709 square
feet of the approximately 56,000 square-foot store was leased to
Superpetz, Inc., which lease commenced November 16, 1994. In the
fourth quarter of 1994, the Fund received an unsolicited offer to
purchase the building. Following negotiations a purchase and sale
agreement was executed. The transaction closed escrow on March 15,
1995 and is discussed below.
5. Sale of Rental Property
In March 1995 the Fund sold the former Phar-Mor building located in
Franklin Township, Ohio for $3,050,000. After payment of the estimated
expenses of sale of $125,000 (including real estate commissions of
$91,000 paid to outside brokers) the proceeds received by the Fund
were approximately $2,925,000. The carrying value at the time of sale
was $2,798,000, net of the $780,000 provision for impairment of value
recognized in 1993. The net gain recognized at the time of sale was
$127,000.
6. Real Estate Held for Sale
In the third quarter of 1995, the Fund's Board of Directors approved a
plan to market for sale the Sam's Club located in Menomonee Falls,
Wisconsin. Subsequently, the Fund received an offer from an
unaffiliated party to purchase the property. The Board of Directors
approved the sale of the property at a specified price. The Fund's
Advisor is currently negotiating the sale terms with the potential
buyer and it appears likely to management that the sale will be
consummated (although no sale contract has yet been executed). In
accordance with the Fund's accounting policies, the property was
classified as real estate held for sale at March 31, 1996 and December
31, 1995. The lease income from the property for the three months
ended March 31, 1996 and 1995 was $147,000 and $128,000, respectively.
Depreciation was $34,000 for the three months ended March 31, 1995. No
depreciation was provided for the three months ended March 31, 1996.
Page 7 of 15
<PAGE>
7. Dividend Reinvestment Plan
The Fund established the Dividend Reinvestment Plan ("DRP") which, to
the extent of shareholder participation and dividends paid by the
Fund, was to purchase newly issued shares from the Fund after the
termination of the initial public offering and through June 30, 1992.
After June 30, 1992, the DRP, as originally established, would, to the
extent of shareholder participation and dividends paid by the Fund,
seek to purchase shares from selling shareholders at a formula price,
in the absence of market price, and potentially provide a market for
the shares (the "Liquidity Option Program"). However, the Board of
Directors of the Fund revised the Liquidity Option Program ("LOP") for
the period after June 30, 1992 to include a share purchase price based
on the appraised value of the properties and the net value of other
assets and liabilities rather than the formula price as described in
the original Prospectus for the Fund. The LOP was activated and became
effective for the dividend paid for the first quarter of 1994. The
Fund registered 500,000 shares to be sold by shareholders to the DRP
through the LOP. No additional shares will be issued by the Fund and
no proceeds from the sale of shares to the DRP will be received by the
Fund.
8. Mortgage-Backed Securities
In accordance with FASB statement No. 115 and Management's intentions,
the Fund's investment in mortgage-backed securities is classified as
"available-for-sale securities" and reported at fair value, with
unrealized gains and loses excluded from earnings and reported as a
net amount in a separate component of shareholders' equity.
Mortgage-backed securities at March 31, 1996 and December 31, 1995 are
carried at fair value as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Holding Gains Holding Losses Value
---------- ---------- ---------- ----------
1996:
GNMA $5,596,000 $ 138,000 $ 109,000 $5,625,000
FNMA 1,201,000 84,000 -- 1,285,000
FHLMC 1,196,000 72,000 -- 1,268,000
---------- ---------- ---------- ----------
$7,993,000 $ 294,000 $ 109,000 $8,178,000
========== ========== ========== ==========
1995:
GNMA $5,749,000 $ 198,000 $ 18,000 $5,929,000
FNMA 1,249,000 94,000 -- 1,343,000
FHLMC 1,219,000 84,000 -- 1,303,000
---------- ---------- ---------- ----------
$8,217,000 $ 376,000 $ 18,000 $8,575,000
========== ========== ========== ==========
The individual securities held are not due at a single maturity date.
The repayment periods terminate between 2009 and 2024. The coupon
rates range from 7 to 10 percent per annum. Proceeds from the sale of
mortgage-backed securities in the first quarter of 1995 were $304,000.
The realized gains on the sale were $16,000. Specific identification
was used to determine amortized cost in computing the gains and
losses.
Page 8 of 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This item should be read in conjunction with Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Properties
A description of the properties in which the Fund or its subsidiary
has an ownership interest follows:
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
PROPERTY AND OCCUPANCY SUMMARY
Occupancy Rate %
Date of at March 31,
Size Purchase 1996 1995
---- -------- ---- ----
Pearle Express Stores(1) .......... (2) 11/89 100 100
National Convenience Stores (3) ... (2) 11/89 100 100
Wickes Furniture Store
Torrance, California .......... 51,000 sq.ft. 01/90 100 100
Sam's Club
Menomonee Falls, Wisconsin(4) . 108,000 sq.ft. 05/90 100 100
Haverty's Furniture Store
Plano, Texas .................. 55,000 sq. ft. 12/94 100 100
(1) Represents occupancy at both of the Pearle Express Stores.
(2) For details of individual properties see Part I, Item 2 of the Form 10-K
Report filed for 1995.
(3) As a result of bankruptcy proceedings, three of the Stop N Go stores
owned by National Convenience Stores and located in Texas, were closed in
1992 and sold in 1993. One leased store is vacant, but remains current in
its lease obligations to the Fund. In April 1994, through a purchase and
exchange transaction with NCS, Circle K now operates five of the Fund's
stores, four in Southern California and one in Georgia. Although lease
payments for these five stores are now received from Circle K, NCS
remains financially liable under the terms of the leases. The majority of
the outstanding stock of NCS was purchased by Diamond Shamrock effective
December 15, 1995.
(4) Lessee vacated the store in April 1992, but remains current in its lease
obligations to the Fund. 100 percent of the store was subleased in 1994
and 1995.
Page 9 of 15
<PAGE>
Results of Operations
Net income before gain on sale of property increased $104,000 in the first
quarter of 1996 compared to the same period in 1995. Lease income increased
primarily due to an increase in lease income from NCS and the Wickes Furniture
stores as a result of recording deferred lease income of $63,000 and $43,000,
respectively in the first quarter of 1996. Lease income also increased due to a
scheduled rent increase at Sam's Club. The increase in lease income was
partially offset by a decrease in lease income from the former Phar-Mor property
which was sold in March 1995 (see Note 5).
Interest on the Fund's mortgage-backed securities portfolio declined 7% in
the first quarter of 1996 compared to the same period in 1995 due to the
reduction in the amount of securities owned by the Fund. The total of the Fund's
mortgage-backed securities portfolio was reduced due to principal repayments.
The Fund recognized a $16,000 gain on the sale of mortgage-backed securities in
the first quarter of 1995. Other interest income decreased in the first quarter
of 1996 compared to the same period in 1995 primarily due to a decrease in cash
available for investments.
General and administrative expenses increased $3,000 in the first quarter
of 1996, in comparison to the same period in 1995. This increase was primarily
due to higher costs reimbursed to the Fund's Advisor, which was offset in part
by a reduction of property operating and maintenance expenses incurred for the
former Phar-Mor property in the first quarter of 1995. Depreciation expense
decreased $45,000 in the first quarter of 1996, in comparison to the same period
in 1995 due to depreciation not being provided for Sam's Club for the first
quarter of 1996 (see Note 6) and the sale of the former Phar-Mor property in
March 1995 (see Note 5).
The Fund's operations are primarily dependent upon the overall financial
condition and creditworthiness of the lessees of its real estate properties. The
Fund, however, remains subject to competitive conditions in the real estate
industry and the net lease market for convenience stores and retail
establishments. The Stop N Go, Circle K and Pearle Express stores continue to
experience competition from other similar operations in the markets where the
properties are located. The Fund's former Sam's Club property, which was closed
in April 1992, had remained vacant for several years; however, in late 1994 and
early 1995 the building was successfully subleased to two tenants. The leases,
which represent 100 percent of the building, are at rates below the lessee's
agreement with the Fund; however, the lessee continues to submit full payment to
the Fund.
The Fund currently owns 16 convenience store properties, 11 operated as
Stop N Go and five as Circle K. Although NCS was the original lessee of the
properties and remains financially liable for all of the leases, Circle K
operates five of the stores and makes payment directly to the Fund as the result
of an exchange transaction which was consummated in the second quarter of 1994.
In mid-August, Circle K Corporation initiated a hostile tender offer to acquire
NCS. This offer as well as another reported unsolicited offer were rejected. NCS
subsequently engaged an investment banker to represent the company and accepted
an offer of $27 per share from Diamond Shamrock Corporation, a firm which also
operates convenience stores and gas stations. Diamond Shamrock purchased the
outstanding stock of NCS effective December 15, 1995. During the first quarter
of 1996, the Fund's Advisor received information that Tosco Corporation, a
refiner and marketer of petroleum products, agreed to purchase Circle K
Corporation. At this time, the Fund's Advisor does not anticipate that the
acquisition by Tosco of Circle K would have any impact on the Fund's five
convenience stores currently operated as Circle K.
The Fund's Advisor periodically reviews each of the markets where the real
properties are located and identifies potential sale opportunities. During the
third quarter of 1995, the Fund's Advisor recommended and the Board of Directors
approved, a sale of the following properties: Sam's Club in Menomonee Falls,
Wisconsin; Wickes Furniture Store in Torrance, California; and the Pearle
Express Stores located in Orland Park, Illinois and Morrow, Georgia. The Fund is
currently in negotiations to effect a sale of the Sam's Club property and the
Pearle Express Store in Orland Park, Illinois, while the Wickes Furniture Store
has been withdrawn from the market. The Pearle Express store in Morrow is
continuing to be marketed for sale.
Page 10 of 15
<PAGE>
Fund Liquidity and Capital Resources
The Fund intends to meet its cash needs from cash flow generated by
properties and securities that it acquires. In order to continue to qualify as a
REIT for income tax purposes, the Fund is required, among other things, to
distribute 95 percent of its REIT taxable income to its shareholders annually.
The current level of cash distributions to shareholders is being sustained by
cash provided from net operating activities, from principal repayments on the
mortgage-backed securities, and from capital gains.
Since inception, the principal source of capital resources has been
proceeds from the sale of the Fund's common stock. Through June 30, 1992,
proceeds from the sale of common stock totaled $63,054,000, including proceeds
raised through the DRP of $2,800,000. The DRP was to have purchased newly issued
shares until June 30, 1992, and thereafter, shares from shareholders wishing to
sell shares, if any. However, the DRP was suspended effective with the January
15, 1992 distribution to shareholders of record on December 31, 1991 as a result
of the Chapter 11 bankruptcy filing by National Convenience Stores. The Board of
Directors extended the suspension of the DRP with respect to the dividends paid
in 1992, 1993 and January 20, 1994 and all DRP participants received the
dividends in cash.
In September, 1993, the Board of Directors voted unanimously to reinstate
the DRP and activate the LOP. Purchases of shares by the DRP (to the extent of
participation in the DRP) commenced with respect to the dividend paid for the
first quarter of 1994. Shares have been purchased by the DRP on the dates and at
the prices noted below:
DRP Purchase Date Share Price Source of Proceeds
- - - ----------------- ----------- ------------------
May 16, 1994 $ 7.41 Quarterly Dividend
August 15, 1994 $ 7.21 Quarterly Dividend
November 15, 1994 $ 7.10 Quarterly Dividend
January 16, 1995 $ 7.04 Quarterly Dividend
May 15, 1995 $ 6.93 Quarterly Dividend
July 17, 1995 $ 6.53 Special Dividend of Sales Proceeds
August 15, 1995 $ 6.53 Quarterly Dividend
November 15, 1995 $ 6.54 Quarterly Dividend
January 16, 1996 $ 6.51 Quarterly Dividend
The initial price of $7.41 was determined pursuant to a formula set forth
in the Prospectus regarding the DRP dated March 1, 1994 having as its components
independent third-party appraisals of the Fund's properties, the market value of
the Fund's mortgage-backed securities and the book value of its other assets and
liabilities, all as of December 31, 1993. Appraisals of the real property in the
portfolio will occur annually and the value of the Fund's mortgage-backed
securities and its other assets and liabilities will be reassessed on a
quarterly basis. Based on December 31, 1995 property appraisals and the December
31, 1995, market value of the Fund's mortgage-backed securities and carrying
value of its other assets and liabilities, the Board of Directors established
the per share price for shares to be purchased with dividends to be paid on May
15, 1996 for the first quarter of 1996 to be $6.59 per share. Based on December
31, 1995 property appraisals and the March 31, 1996 market value of the Fund's
mortgage-backed securities and carrying value of its other assets and
liabilities, the Board of Directors has established the per share purchase price
to be $6.52 per share for shares to be purchased by the DRP with dividends to be
paid in August 1996 for the second quarter of 1996. The reduction from the share
price for the dividend to be paid on May 15, 1996, reflects the return of
original principal to shareholders as a portion of the quarterly dividend and a
slight decline in the value of the mortgage-backed securities.
Page 11 of 15
<PAGE>
First Quarter of 1996
The Fund, after taking into account lease income, interest on investments
in securities, interest and other income and general and administrative
expenses, experienced positive results from operations for the period.
In addition, as presented in the Consolidated Statement of Cash Flows,
cash was provided by operating activities. Cash was provided by investing
activities from principal payments received on mortgage-backed securities.
Cash was used by financing activities for dividends paid to shareholders.
In April 1992, Wal-Mart informed the Fund that it had vacated its
premises, as discussed in Note 4 to the consolidated financial statements.
During the fourth quarter of 1994 and the first quarter of 1995, the Fund's
Advisor reviewed and approved two subleases presented by the lessee and the
building is currently 100 percent leased. Both leases are at rates below the
lessee's agreement with the Fund; however, the lessee continues to submit full
payment to the Fund.
As discussed in Note 4 to the consolidated financial statements, Phar-Mor
filed for protection under Chapter 11 of the federal Bankruptcy Code in August
1992. The Fund's lease was rejected effective May 15, 1993 following the closure
of the store in April. Phar-Mor filed a plan of reorganization in July 1994 and
has subsequently amended the plan. In August 1995, the court confirmed the plan.
It remains uncertain, however, at this time as to the level of recovery, if any,
that the Fund may realize from its two claims filed in the bankruptcy
proceeding. On October 12, 1994, the Fund's Advisor finalized a lease with
Superpetz, Inc., for 24,709 square feet of the approximately 56,000 square foot
former Phar-Mor building. The space was subdivided and the lease commenced
November 16, 1994. As discussed in Note 5, the building was sold in March 1995
at a sale price of $3,050,000. After estimated expenses of sale of $125,000
(including real estate commissions of $91,000 paid to outside brokers), the
proceeds received by the Fund were approximately $2,925,000. At the date of
sale, the carrying amount of land, improvements and unamortized leasing
commissions, for financial statement purposes, after a $780,000 provision for
impairment of value recognized in 1993, was $2,798,000. For tax reporting
purposes the carrying value at the date of sale was $3,639,000. The gain on the
sale under the accrual method of accounting is $127,000. Under the tax method of
accounting the loss on sale is $714,000. As noted above, a special dividend of
substantially all of the net sales proceeds was made to shareholders.
On an ongoing basis, the Fund's Advisor continues to monitor the financial
positions of the lessees of the Fund's real properties and periodically reviews
each of the markets where the properties are located to identify potential
opportunities for the sale of the assets. During the third quarter of 1995, the
Fund's Advisor recommended, and the Board of Directors approved, the sale of
Sam's Club in Menomonee Falls, Wisconsin, the Wickes Furniture Store in
Torrance, California and the Pearle Express Stores in Orland Park, Illinois and
Morrow, Georgia.
The Fund has received several purchase offers for the building formerly
occupied by Sam's Club (the "Building") and is currently negotiating a purchase
and sale agreement with one potential buyer which is not affiliated with MITS or
the Advisor. A written notification of the waiver by the lessee of its first
right of refusal to purchase the property has been received by the Advisor. The
currently proposed sale price is in excess of the appraised value and the
carrying value of the Building established as of December 31, 1995.
The Fund also received a purchase offer for the Pearle Express location in
Morrow, Georgia ("Morrow"). The potential buyer was not affiliated with MITS or
the Advisor. Due to the relatively short term of the existing lease, which
Pearle has not been willing to renegotiate, and since other scenarios, such as
re-tenanting, do not appear to be economically justified, the Fund pursued a
purchase and sale agreement with the potential buyer. The Fund, however, has
been unable to reach an acceptable agreement with this particular buyer. The
property is continuing to be marketed for sale.
Page 12 of 15
<PAGE>
During the first quarter of 1996 the Fund received an offer to purchase
the Pearle Express location in Orland Park, Illinois ("Orland Park") and is
continuing negotiations with the potential buyer regarding a sale of the
property. The buyer is not affiliated with MITS or the Advisor. During the
fourth quarter of 1995, the Fund successfully negotiated a three year, eight
month lease extension, which took effect December 1, 1995. The lease now expires
on September 30, 2002 and carries two five year options.
No definitive agreements to sell the Building or the Morrow or Orland Park
properties have been executed and no assurance can be given that any such
agreements will be executed, or, if executed, that the sales will close, or if
the sales close, that the actual prices will be equal to the proposed sale
prices.
Over the past several months the Wickes Furniture Store (the "Store") has
been marketed for sale, in accordance with the Advisor's recommendation and as
approved by the Fund's Board of Directors. However, due to weak retail market
conditions in Southern California and current lease rates, few prospective
buyers have expressed interest in purchasing the store at the Fund's asking
price. Therefore, the property has been withdrawn from the market and will be
held until market conditions improve.
In the first quarter of 1996 and in the second half of 1995, the Fund
experienced a relatively low level of principal prepayments of its
mortgage-backed securities portfolio. Mortgage-backed securities are interest
rate sensitive financial investments and, to the extent inflation affects
interest rates, their value will generally decrease if market interest rates
increase. Conversely, if market interest rates decline, the underlying mortgages
may be prepaid and the Fund may not be able to reinvest the proceeds at interest
rates as favorable as previously invested. The Fund experienced a net unrealized
holding loss of $173,000 on its mortgage-backed securities during the first
quarter of 1996 due to increases in market interest rates. The Fund anticipates
a reduction in interest income from mortgage-backed securities as certain
proceeds received from the prepayments are used to support dividend payments.
The Advisor anticipates that the Fund will have sufficient resources to
meet its capital and operating requirements into the foreseeable future.
Page 13 of 15
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Fund is a creditor in bankruptcy proceedings filed by Phar-Mor. In
December 1994, Phar-Mor filed in these proceedings a preference recovery action
against many vendors and landlords, including the Fund. The amount of
preferential payments alleged to have been made to the Fund is $90,250 (the rent
paid to the Fund within 90 days of the filing of the bankruptcy petitions).
In February 1995, Phar-Mor filed an objection to the Fund's
lease-rejection claim. The objection alleges that the lease-rejection damages
were not properly calculated and similar objections were apparently filed
against all lease-rejection claims in these proceedings. The Fund has filed
materials supporting its lease rejection-claims, calculated to be $774,410. In
August 1995, the court confirmed Phar-Mor's proposed reorganization plan. In
connection with the confirmation, Phar-Mor waived its preference recovery rights
against most creditors, including the Fund. In September 1995, the Fund filed a
separate administrative claim for $19,835, representing pro-rated, post-petition
property taxes owed by Phar-Mor under the rejected lease. Phar-Mor has also
filed an objection to this claim. The court has directed Phar-Mor to report its
progress in resolving all outstanding claim objections, including that relating
to the Fund.
Item 6. Exhibits and Reports on Form 8-K.
a) List of Exhibits (numbered in accordance with Item 601 of
Regulation S-K:
10.13 Seventh Amendment to Advisory Agreement dated as of April
1, 1996, between the Fund and Metric Realty).
b) The following report on Form 8-K was required to be filed
during the quarter for which this report is filed. None.
Page 14 of 15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
By: /s/ Margot M. Giusti
--------------------
Margot M. Giusti
Executive Vice President and
Chief Financial Officer;
Principal Financial and
Accounting Officer
Date: May 10, 1996
------------
Page 15 of 15
SEVENTH AMENDMENT
TO
ADVISORY AGREEMENT
BETWEEN
METRIC INCOME TRUST SERIES, INC. AND METRIC REALTY
THIS SEVENTH AMENDMENT TO ADVISORY AGREEMENT is dated as of April 1,
1996, between Metric Income Trust Series, Inc., a California corporation (the
"Fund") and Metric Realty, an Illinois general partnership, successor in
interest to Metric Partners (the "Advisor").
WHEREAS, the Fund entered into an Advisory Agreement with the Advisor
dated as of June 29, 1989 and Amendments to such Agreement dated as of January
1, 1991 and April 1 of 1993, 1994 and 1995 (collectively, the "Agreement").
WHEREAS, the term of the Agreement expired on March 31, 1996 and the
Fund and the Advisor desire to renew the term of the Agreement.
WHEREAS, pursuant to Section 4.9 and 6.2 of the Bylaws of the Fund, the
Independent Directors of the Fund have (i) evaluated the performance of the
Advisor and (ii) determined that the Advisor's compensation is reasonable in
relation to the nature and quality of services performed.
WHEREAS, the Fund is desirous of renewing the Agreement and the Advisor
is willing to continue to perform services under the Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants in this Amendment, the parties agree as follows:
1. Paragraph 18 of the Agreement is hereby deleted in its entirety and
the following is substituted therefor:
"Term: Termination of Agreement. This Agreement shall continue
in force until March 31, 1997, and thereafter it may be renewed,
subject to the approval of the Independent Directors. Notwithstanding
any other provision to the contrary, this Agreement may be terminated
without cause upon 60 days' written notice by the Fund to the Advisor
or 60 days' written notice by the Advisor to the Fund."
2. Except as set forth herein, the Agreement remains in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written:
FUND: METRIC INCOME TRUST SERIES, INC.,
a California corporation
/s/ Herman H. Howerton
---------------------------------------
Herman H. Howerton
Executive Vice President,
General Counsel and Secretary
ADVISOR: METRIC REALTY,
an Illinois general partnership,
BY: Metric Realty Corp.,
a Delaware corporation,
its managing general partner
By: /s/ Ronald E. Zuzack
------------------------------
Ronald E. Zuzack
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 929,000
<SECURITIES> 8,178,000
<RECEIVABLES> 505,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,024,000
<DEPRECIATION> 2,919,000
<TOTAL-ASSETS> 41,722,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 40,166,000
<TOTAL-LIABILITY-AND-EQUITY> 41,722,000
<SALES> 0
<TOTAL-REVENUES> 1,301,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 174,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 992,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 992,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 992,000
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0
</TABLE>
