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, 1997
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 (I.R.S. Employer
of 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, 1997: 6,321,641
Page 1 of 15
<PAGE>
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,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash ........................................................... $ 2,847,000 $ 3,781,000
Accounts and Interest Receivable ............................... 659,000 669,000
Investment in Mortgage-Backed Securities - Net ................. 6,792,000 7,251,000
Rental Properties .............................................. 14,798,000 14,798,000
Accumulated Depreciation ....................................... (1,350,000) (1,286,000)
------------ ------------
Properties and Improvements - Net ......................... 13,448,000 13,512,000
Real Estate Held for Sale ...................................... 9,018,000 10,612,000
Prepaid and Other Assets ....................................... 143,000 114,000
------------ ------------
Total Assets .............................................. $ 32,907,000 $ 35,939,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Dividends Payable .............................................. $ 2,900,000 $ 3,888,000
Payable to Sponsor and Affiliates .............................. 9,000 9,000
Other Accounts Payable and Accrued Liabilities ................. 158,000 187,000
------------ ------------
Total Liabilities ......................................... 3,067,000 4,084,000
------------ ------------
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 .................. (25,414,000) (23,521,000)
Unrealized Holding Gain on Investment
in Mortgage-Backed Securities - Net ....................... 48,000 170,000
------------ ------------
Total Shareholders' Equity ................................ 29,840,000 31,855,000
------------ ------------
Total Liabilities and Shareholders' Equity ................ $ 32,907,000 $ 35,939,000
============ ============
</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,
--------------------------
1997 1996
---- ----
Revenues:
Lease income ................................... $ 853,000 $1,126,000
Interest on mortgage-backed securities ......... 138,000 168,000
Interest income ................................ 19,000 7,000
---------- ----------
Total Revenues .............................. 1,010,000 1,301,000
---------- ----------
Expenses:
Depreciation ................................... 64,000 135,000
General and administrative ..................... 151,000 174,000
---------- ----------
Total Expenses .............................. 215,000 309,000
---------- ----------
Income Before Net Gain on Sale of Properties ... 795,000 992,000
Gain on Sale of Properties - Net ............... 212,000 --
---------- ----------
Net Income ..................................... $1,007,000 $ 992,000
========== ==========
Net Income per Share:
Income before net gain on sale of properties ... $ .13 $ .16
Gain on sale of properties - net ............... .03 --
---------- ----------
Net Income per Share ........................ $ .16 $ .16
========== ==========
Dividends per Share ............................ $ .46 $ .20
========== ==========
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, 1997 and 1996
<CAPTION>
Unrealized
Holding
Gain/(Loss)
Additional Accumulated on Investment in
Common Stock Paid-in Dividends in Excess Mortgage-Backed
Shares Amount Capital of Net Income Securities - Net Total
------ ------ ------- ------------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ......... 6,321,641 $ 6,000 $55,200,000 $(23,521,000) $170,000 $31,855,000
Unrealized Holding Loss
On Investment in Mortgage -
Backed Securities - Net ..... (122,000) (122,000)
Income Before Net Gain on Sale of
Properties .................. 795,000 795,000
Gain on Sale of Properties - Net . 212,000 212,000
Dividends Declared ............... (2,900,000) (2,900,000)
---------- -------- ----------- ------------ -------- -----------
Balance, March 31, 1997 .......... 6,321,641 $ 6,000 $55,200,000 $(25,414,000) $ 48,000 $29,840,000
========== ======== =========== ============ ======== ===========
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
========== ======== =========== ============ ======== ===========
</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,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Operating Activities
Net income ...................................................................... $ 1,007,000 $ 992,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ......................................... 62,000 129,000
Gain on sale of properties - net ...................................... (212,000) --
Changes in operating assets and liabilities:
Accounts and interest receivable .............................. (58,000) (93,000)
Prepaid and other assets ...................................... 1,000 3,000
Payable to sponsor and affiliates ............................. -- 61,000
Other accounts payable and accrued liabilities ................ (29,000) (105,000)
----------- -----------
Net cash provided by operating activities ....................................... 771,000 987,000
----------- -----------
Investing Activities
Principal payments received on mortgage-backed securities ....................... 339,000 230,000
Proceeds from sale of properties ................................................ 2,056,000 --
Cash used for selling costs of properties ....................................... (212,000) --
----------- -----------
Net cash provided by investing activities ....................................... 2,183,000 230,000
----------- -----------
Financing Activities
Dividends paid to Shareholders .................................................. (3,888,000) (1,264,000)
----------- -----------
Cash used by financing activities ............................................... (3,888,000) (1,264,000)
----------- -----------
Decrease in Cash ................................................................ (934,000) (47,000)
Cash at beginning of period ..................................................... 3,781,000 976,000
----------- -----------
Cash at End of Period ........................................................... $ 2,847,000 $ 929,000
=========== ===========
</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 properties - 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 1996 Audited Consolidated Financial Statements
These unaudited consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements
included in the 1996 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
Effective April 1, 1997, Metric Holdings Inc., the indirect Parent of
Metric Realty, the former Advisor, was merged into a newly formed
entity known as SSR Realty Advisors, Inc. ("SSR"). SSR was
incorporated under the laws of Delaware on February 25, 1997 and is a
registered investment advisor in accordance with the Investment
Advisors Act of 1940. With the consent of the Fund, the Advisory
Agreement was assigned to SSR by Metric Realty on March 27, 1997. SSR
is a subsidiary of Metropolitan Life Insurance Company.
In accordance with the Advisory Agreement, the Fund pays the Advisor
and affiliates compensation for services provided to the Fund. Amounts
earned by the Advisor and its affiliates for the three months ended
March 31, 1997 and 1996 were as follows:
1997 1996
---- ----
Reimbursement of administrative expenses $ 50,000 $ 50,000
Securities management fee 9,000 10,000
Advisory fee 46,000 63,000
--------- ---------
Total $105,000 $ 123,000
======== =========
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 9.3% 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 1997, the Independent Directors approved the extension of the
term of the Advisory Agreement to March 31, 1998.
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
Page 6 of 15
<PAGE>
claim the Fund had received Shares of NCS common stock which were sold
as well as cash. Total compensation received by the Fund to date is
$262,000. In the fourth quarter of 1996, Diamond Shamrock Corporation,
the firm which purchased the outstanding stock of NCS in December
1995, merged with Ultramar Corporation to form Ultramar Diamond
Shamrock Corporation (UDS). The Fund expects to receive some
additional compensation from UDS as payment for the remainder of its
outstanding claim. The Fund sold the convenience stores located in
Rancho Cucamonga, California and Houston, Texas in 1996. In the first
quarter of 1997, the Fund sold the convenience stores located in
Clute, Sealy, Dallas and Texas City, Texas (see Note 5).
In April 1992, Sam's Club, a lessee located in Menomonee Falls,
Wisconsin, informed the Fund that it had vacated its premises. The
lessee remained current in its lease payments to the Fund, and had
informed the Fund that it intended to honor the terms of the lease,
which was to have expired 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 was
100 percent leased. The sublease amounts were less than the rent
required under the lease; however, the lessee paid the full lease
amount. The property was sold in June 1996.
Phar-Mor, a former lessee of one property, filed for protection under
Chapter 11 of the Federal Bankruptcy Code in August 1992 and rejected
the Fund's lease effective May 15, 1993. The Fund filed claims in the
bankruptcy proceeding totalling $794,000. In December 1994, Phar-Mor
filed in the 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 was
$90,250 consisting of rent paid to the Fund within 90 days of the
filing of the Phar-Mor bankruptcy petitions. This preference action
was dismissed in connection with the confirmation of the
reorganization plan of Phar-Mor. In August 1995, the Court confirmed
Phar-Mor's proposed reorganization plan which called 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. In
October 1996, the Fund received approximately $19,000 from Phar-Mor to
satisfy its administrative claim. Also in October, the Fund agreed to
settle its remaining outstanding lease rejection claim for an allowed
claim of approximately $629,000, which settlement was approved by the
Bankruptcy Court in January 1997. In March 1997, the Fund received
1,058 shares of stock and 881 warrants with an estimated value of
$8,000 to $10,000 to satisfy this allowed claim.
5. Sale of Rental Properties
In February 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #3583 located in Clute, Texas for
$264,000. After payment of expenses of sale of $29,000 (including real
estate commissions of $16,000 paid to outside brokers), the proceeds
to the Fund were $235,000. The carrying value at the time of sale was
$373,000 (including $9,000 deferred lease income receivable). The loss
recognized at the time of sale was $138,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #3571 located in Sealy, Texas for
$265,000. After payment of expenses of sale of $28,000 (including real
estate commissions of $16,000 paid to outside brokers), the proceeds
to the Fund were $237,000. The carrying value at the time of sale was
$303,000 (including $9,000 deferred lease income receivable). The loss
recognized at the time of sale was $66,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #655 located in Dallas, Texas for
$1,392,000. After payment of expenses of sale of $102,000 (including a
real estate commission of $80,000 paid to an outside broker), the
proceeds to the Fund were $1,290,000. The carrying value at the time
of sale was $715,000 (including $43,000 deferred lease income
receivable). The gain recognized at the time of sale was $575,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #3592 located in Texas City,
Texas for $135,000. After payment of expenses of sale of $23,000
(including real estate commissions of $8,000 paid to outside brokers),
Page 7 of 15
<PAGE>
the proceeds to the Fund were $112,000. The carrying value at the time
of sale was $271,000 (including $7,000 deferred lease income
receivable). The loss recognized at the time of sale was $159,000.
6. Real Estate Held for Sale
In the third quarter of 1996, the Fund's Board of Directors approved a
plan to market for sale the sixteen National Convenience Stores
located in California, Georgia and Texas. Two of the stores were sold
in the fourth quarter of 1996, and four of the stores were sold in the
first quarter of 1997. In accordance with the Fund's accounting
policies, the remaining fourteen stores and ten stores were classified
as real estate held for sale at December 31, 1996 and March 31, 1997,
respectively. The lease income from the remaining ten stores for the
first quarter of 1997 and 1996 was $321,000 (including deferred lease
income recognized of $41,000 and $46,000, respectively). Depreciation
was $41,000 for the first quarter of 1996. No depreciation was
provided for the first quarter of 1997.
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 were issued by the Fund and no
proceeds from the sale of Shares to the DRP were received by the Fund.
In June 1996, the Board of Directors of the Fund voted to terminate
the DRP and the LOP effective as to dividend payments made after
August 15, 1996.
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 losses excluded from earnings and reported as a
net amount in a separate component of Shareholders' equity.
Mortgage-backed securities at March 31, 1997 and December 31, 1996 are
carried at fair value as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Holding Gains Holding Losses Value
---- ------------- -------------- -----
1997:
GNMA $4,959,000 $ 90,000 $ 153,000 $4,896,000
FNMA 1,013,000 59,000 -- 1,072,000
FHLMC 773,000 51,000 -- 824,000
---------- ---------- ---------- ----------
$6,745,000 $ 200,000 $ 153,000 $6,792,000
========== ========== ========== ==========
1996:
GNMA $5,227,000 $ 113,000 $ 82,000 $5,258,000
FNMA 1,049,000 75,000 -- 1,124,000
FHLMC 806,000 63,000 -- 869,000
---------- ---------- ---------- ----------
$7,082,000 $ 251,000 $ 82,000 $7,251,000
========== ========== ========== ==========
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.
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:
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
PROPERTY AND OCCUPANCY SUMMARY
<CAPTION>
Occupancy Rate %
Date of at March 31,
Size Purchase 1997 1996
---- -------- ---- ----
<S> <C> <C> <C> <C>
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
Haverty's Furniture Store
Plano, Texas................................ 55,000 sq. ft. 12/94 100 100
</TABLE>
(1) Represents occupancy at both of the Pearle Express Stores, if applicable.
The Pearle Express Store in Orland Park, Illinois was sold in July 1996.
(2) For details of individual properties, see Part I, Item 2 of the Form 10-K
Report filed for 1996.
(3) In the fourth quarter of 1996, the stores located in Rancho Cucamonga,
California and Houston, Texas were sold to unaffiliated buyers. In the
first quarter of 1997, the stores located in Clute, Sealy, Dallas and Texas
City, Texas were sold to unaffiliated buyers. See Note 5 to the
consolidated financial statements.
(4) Lessee vacated the store in April 1992, but remained current in its lease
obligations to the Fund. 100 percent of the store was subleased in 1994 and
1995. The property was sold in June 1996.
Page 9 of 15
<PAGE>
Results of Operations
Income before net gain on sale of properties decreased $197,000 in the first
quarter of 1997 compared to the same period in 1996. Lease income decreased in
the first quarter of 1997 compared to the same period in 1996 primarily due to
the sales of the Orland Park, Illinois Pearle Express store in July 1996, Sam's
Club located in Menomonee Falls, Wisconsin in June 1996, and the NCS stores
located in Rancho Cucamonga, California and Houston, Texas in November and
December of 1996, respectively.
Interest on the Fund's mortgage-backed securities portfolio declined 18% in the
first quarter of 1997 compared to the same period in 1996 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.
Other interest income increased in the first quarter of 1997 compared to the
same period in 1996, primarily due to interest income earned on proceeds from
sales of the NCS stores in the first quarter of 1997 (see Note 5 to the
consolidated financial statements) prior to the distribution in May 1997.
General and administrative expenses decreased $23,000 in the first quarter of
1997 compared to the same period in 1996. The decrease is primarily due to a
decrease in advisory fees as a result of the sales of the Pearle Express Store,
Sam's Club and the NCS stores, as discussed above, and a decline in appraisal
fees incurred.
Depreciation expense decreased $71,000 in the first quarter of 1997 compared to
the same period in 1996 due to depreciation not being provided for the NCS
stores for the first quarter of 1997 (see Note 6 to the consolidated financial
statements) and the sale of the Orland Park Pearle Express Store in July 1996.
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, Pearle Express, Wickes, and Haverty's
Furniture stores continue to experience competition from other similar
operations in the markets where the properties are located.
The Fund currently owns 10 convenience store properties, six operated as Stop N
Go and four as Circle K. Although NCS was the original lessee of the properties
and remains financially liable for all of the leases, Circle K operates four 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. Diamond
Shamrock, Inc. ("DSI") purchased the outstanding stock of NCS effective December
15, 1995 and NCS became a wholly-owned subsidiary of DSI. In late 1996 DSI
merged with Ultramar Corporation to form Ultramar Diamond Shamrock Corporation
("UDS"). This newly created $4 billion corporation is now reported to be the
fourth largest independent oil refining and marketing company in North America.
In May 1996 Circle K Corporation was acquired by Tosco Corporation, but UDS,
successor to NCS, remains responsible for the lease payments for the four
remaining stores operated by Circle K. Tosco currently sells its petroleum
products through the convenience store outlets and continues to operate them
under the Circle K name. The acquisition by Tosco of Circle K has not had any
impact on the Fund's four convenience stores currently operated as Circle K.
During the third quarter of 1995 the Board of Directors approved the marketing
for 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 Sam's Club was sold in
June 1996 and the Pearle Express Store in Orland Park, Illinois was sold in July
1996. The Wickes Furniture Store and Pearle Express Store in Morrow, Georgia
were offered for sale but subsequently withdrawn from the market due to weak
market conditions and lease terms that were unattractive to potential buyers.
On August 29, 1996 in a special meeting, the Advisor recommended, and the Board
of Directors approved, a sales strategy for the Fund's convenience stores and
approved two independent brokers, who began marketing the properties for sale.
In November 1996 the Fund sold the Circle K store in Rancho Cucamonga,
California, followed by the Stop N Go Store in Houston, Texas in December. In
Page 10 of 15
<PAGE>
February 1997 the Stop N Go Store in Clute, Texas was sold, followed by the Stop
N Go Stores in Sealy, Dallas, and Texas City, Texas in March 1997 (see Note 5 to
the consolidated financial statements). In March 1997 the Board of Directors
approved the distribution of proceeds from the sales which occurred during the
first quarter, to be paid in conjunction with the first quarter dividend.
Accordingly, a dividend totaling $0.45875, consisting of $0.29 from sales
proceeds and $0.16875 from operations, will be paid to Shareholders of record as
of March 31, 1997 on May 15, 1997. The Stop N Go Stores located in Arlington
(Green Oaks Blvd.) and San Antonio (Fredericksburg Blvd.) are under contract for
sale with a closing date estimated to occur in June. However, there can be no
assurance that these sales will close escrow.
Fund Liquidity and Capital Resources
The Fund intends to meet its cash needs from cash flow generated by properties
and securities that it acquires and holds. 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 from the sale of securities.
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. The DRP/LOP share purchase price was determined
pursuant to a formula set forth in the Prospectus regarding the DRP dated March
1, 1994. The methodology described in the DRP Prospectus had as its components
independent third party appraisals of the Fund's properties (undertaken annually
and reviewed quarterly), and the market value of the Fund's mortgage-backed
securities and the book value of its other assets and liabilities as of each
quarter end. Purchases of Shares by the DRP and liquidation of Shares through
the LOP commenced with respect to the dividend paid for the first quarter of
1994.
In a special communication dated July 15, 1996, all Shareholders were informed
that in June 1996 the Board of Directors unanimously voted to proceed with the
orderly liquidation of the Fund's assets over the next several years and,
accordingly, to terminate the DRP and LOP for dividends payable after August 15,
1996. The Board of Directors believed that with the implementation of a formal
disposition strategy, the Plan was no longer a viable investment
purchase/liquidation vehicle. The Fund's regular quarterly dividend for the
second quarter of 1996 was the final dividend for which the DRP/LOP was
effective.
The Fund's Advisor has continued to provide, on a quarterly basis, an estimated
net asset value per Share for the Shares of MITS, utilizing the methodology
previously utilized to determine the DRP Share purchase price. Based on property
appraisals as of December 31, 1996, and the value of the Fund's mortgage-backed
securities portfolio as of March 31, 1997, as well as the carrying value of its
other assets and liabilities as of that date, the estimated net asset value per
Share as of March 31, 1997 has been established as $4.73. This value is reduced
from the previous quarter's estimated net asset value per Share of $5.08 due
primarily to the sale of properties as described above, the sales proceeds from
which will be distributed to Shareholders in a special dividend to be paid in
conjunction with the first quarter dividend.
Page 11 of 15
<PAGE>
First Quarter of 1997
The Fund, after taking into account lease income, interest on investments in
securities, other interest income and general and administrative expenses,
experienced positive results from operations for the period.
As presented in the Consolidated Statement of Cash Flows, cash was provided by
operating activities. Cash was provided by investing activities, from proceeds
from sales of properties and principal payments received on mortgage-backed
securities, and used by investing activities for expenses incurred in the sales
of properties. Cash was used by financing activities for dividends paid to
Shareholders.
During the third quarter of 1995, the Fund's Advisor recommended, and the Board
of Directors approved, the sale of Sam's Club located in Menomonee Falls,
Wisconsin, the Wickes Furniture Store in Torrance, California and the Pearle
Express locations in Orland Park, Illinois and Morrow, Georgia.
In June 1996 the Fund sold Sam's Club for $4,910,000 (after credit to seller for
a construction holdback of $28,000). After payment of the expenses of sale of
$201,000 (including a real estate commission of $168,000 paid to an outside
broker), the proceeds received by the Fund were approximately $4,709,000. The
carrying value at the time of sale was $4,135,000. The gain recognized at the
time of sale was $574,000. Of the proceeds received by the Fund, $108,000 was
deposited into an escrow account to secure payment for construction work to be
completed by the tenant at the property. Due to severe weather, the repairs were
not undertaken within the time frame specified. An extension was negotiated with
the tenant and the new owner which requires completion by June 1, 1997. Once
repairs have been completed to the satisfaction of the new owner, the funds will
be released to MITS.
During the first quarter of 1996 the Fund received an offer to purchase the
Pearle Express location in Orland Park, Illinois ("Orland Park"). During the
fourth quarter of 1995, the Fund had successfully negotiated a three year, eight
month lease extension, which took effect December 1, 1995. In July 1996 the Fund
sold the Orland Park location for $1,069,000. After payment of the expenses of
sale of $81,000 (including real estate commissions of $64,000 paid to outside
brokers) the proceeds received by the Fund were approximately $988,000. The
carrying value at the time of sale was $1,034,000. The loss recognized at the
time of sale was $46,000.
As reported in the special communication to Shareholders dated July 15, 1996,
the Board of Directors declared a special dividend of these sales proceeds in
the amount of $0.88 per original $10.00 Share which was paid on August 30, 1996
to Shareholders of record as of July 31, 1996.
The Fund continued to market for sale the Pearle Express location in Morrow, GA
through the second quarter of 1996; however, due to the short term of the
existing lease, no other viable offers were received and the property was
removed from the market. The Board of Directors, at its March 27, 1997 meeting,
instructed the Advisor to begin preliminary procedures to remarket the property
in the event that negotiations to extend the lease were successful. On March 31,
1997 Pearle, Inc. signed an amendment to the lease on the Morrow location
providing for an extension of eight years in exchange for a blending of the
remaining lease obligations with current market rates. Accordingly, the Advisor
is currently preparing to market the property.
During the latter part of 1995 and early 1996, the Wickes Furniture Store (the
"Store") was 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 expressed interest in purchasing the Store at a price
acceptable to the Fund. The property was subsequently withdrawn from the market;
however, in accordance with the Fund's current liquidation strategy and with the
approval of the Board of Directors, efforts have been initiated in anticipation
of again marketing the Store for sale.
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. In
Page 12 of 15
<PAGE>
October 1996 Phar-Mor paid $19,321 to satisfy a claim for post-petition real
estate taxes for the period through May 15, 1993. Shortly thereafter, the Fund
agreed to settle its remaining outstanding claim for an allowed claim of
$629,000. Under that settlement agreement the Fund received 1,058 shares of
Phar-Mor stock and 881 warrants to purchase stock, with a total estimated value
of between $8,000 to $10,000. The Fund intends to liquidate these securities
during the second quarter of 1997.
In the first quarter of 1997 the Fund experienced a higher rate of prepayment on
its mortgage-backed securities portfolio than for the same period of 1996.
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 $122,000 on its
mortgage-backed securities during the first quarter of 1997 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.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Fund (or any of its
subsidiaries) is a party or of which any of their property is the subject.
Item 6. Exhibits and Reports on Form 8-K.
a) No reports on Form 8-K were required to be filed during the last
quarter of the period covered by this Report other than the Form
8-K Reports filed on January 8, 1997, and on January 29, 1997,
amending the Form 8-K Reports filed on November 22, 1996 and
December 23, 1996 to include additional information concerning
the disposition of the Rancho Cucamonga, CA Circle K and the
Harris County, (Houston), Texas Stop N Go properties. On March
14, 1997 a report on Form 8-K was filed reporting the
disposition of the Clute, Sealy, and Dallas, Texas Stop N Go
Stores. Subsequent to the close of the quarter, on April 11,
1997 the Form 8-K filed on March 14, 1997 was amended to include
additional information concerning the disposition of the
properties. Also on April 11, 1997 a report on Form 8-K was
filed reporting the sale of the Texas City, Texas Stop N Go
Store, which was amended on April 18, 1997 to include additional
information regarding the disposition of the property.
b) List of Exhibits (numbered in accordance with Item 601 of
Regulation S-K):
10.18 First Amendment, dated March 31, 1997, to Lease between
the Registrant and Pearle, Inc. dated May 4, 1988.
10.19 Eighth Amendment to Advisory Agreement dated as of
April 1, 1997, between the Fund and SSR Realty
Advisors, Inc.
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/ William A. Finelli
-------------------------
William A. Finelli
Director, Vice President,
Chief Financial Officer,
and Treasurer
Date: May 12, 1997
--------------------------
Page 15 of 15
EXHIBIT 10.18
FIRST AMENDMENT TO LEASE
This Amendment to Lease ("Amendment") is entered into on March 31 ,
1997, between Pearle Vision, Inc., the successor in interest to Eyelab, Inc.
("Tenant") and Metric Income Trust Series, Inc., successor in interest to
Anthony A. Petrarca ("Landlord").
WHEREAS, Landlord and Tenant entered into a lease agreement dated May
4, 1988, for a certain premises located at 1281 Southlake Circle, Morrow,
Georgia 30260 (the "Premises"); and
WHEREAS, Landlord and Tenant desire to extend the terms of the Lease
and modify the rent.
THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, it is agreed as follows:
(1) The term of the lease is extended so that it expires on March
31, 2007.
(2) Fixed rent shall be payable as follows:
April 1, 1997 - March 31, 2002; $9,057.75/mo.; $108,693.00/yr.
April 1, 2002 - March 31, 2003; $9,329.50/mo.; $111,954.00/yr.
April 1, 2003 - March 31, 2004; $9,609.42/mo.; $115,313.00/yr.
April 1, 2004 - March 31, 2005; $9,897.67/mo.; $118,772.00/yr.
April 1, 2005 - March 31, 2006; $10,194.58/mo.;
$122,335.00/yr.
April 1, 2006 - March 31, 2007; $10,500.42/mo.;
$126,005.00/yr.
(3) Landlord's address for notice is Metric Income Trust Series,
Inc. c/o SSR Realty Advisors, Inc., One California Street,
Suite 1400, San Francisco, CA 94111-5415.
(4) All other terms and conditions of the Lease will remain and
continue in full force and effect and will be deemed unchanged
except to the extent provided herein.
<PAGE>
First Amendment to Lease dated March 31, 1997
1281 Southlake Circle, Morrow, GA 30260
TENANT:
Pearle Vision, Inc.
By: /s/ J. David Pierson, President
---------------------------------
J. David Pierson, President
LANDLORD:
Metric Income Trust Series, Inc.,
a California corporation
By: Metric Realty Services, Inc.,
a Delaware corporation,
its agent and property manager
By: /s/ Richard A. Faber
-----------------------------
Richard A. Faber
Vice President
EXHIBIT 10.19
EIGHTH AMENDMENT
TO
ADVISORY AGREEMENT
BETWEEN
METRIC INCOME TRUST SERIES, INC. AND SSR REALTY ADVISORS, INC.
THIS EIGHTH AMENDMENT TO ADVISORY AGREEMENT is dated as of April 1,
1997, between Metric Income Trust Series, Inc., a California corporation (the
"Fund"), and SSR Realty Advisors, Inc., a Delaware corporation, as assignee of
Metric Realty, an Illinois general partnership (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, 1995 and 1996 (collectively, the
"Agreement").
WHEREAS, Metric Realty, as the Advisor, assigned its interest in the
Agreement to SSR Realty Advisors, Inc., which accepted such assignment, pursuant
to an Assignment and Assumption Agreement dated as of March 27, 1997, to which
the Fund consented.
WHEREAS, the term of the Agreement expired on March 31, 1997 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, 1998, 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
By: /s/ Kevin M. Howley
-------------------------------------
Kevin M. Howley
President and Chief Executive Officer
ADVISOR: SSR REALTY ADVISORS, INC.
a Delaware corporation
By: /s/ Herman H. Howerton
-------------------------------------
Herman H. Howerton
Managing Director, General Counsel
<TABLE> <S> <C>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,847,000
<SECURITIES> 6,792,000
<RECEIVABLES> 659,000
<ALLOWANCES> 0
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<PP&E> 23,816,000
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0
0
<COMMON> 6,000
<OTHER-SE> 29,834,000
<TOTAL-LIABILITY-AND-EQUITY> 32,907,000
<SALES> 0
<TOTAL-REVENUES> 1,010,000
<CGS> 0
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<DISCONTINUED> 212,000
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