================================================================================
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 June 30, 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 Identification No.)
of incorporation or organization)
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 June 30, 1997: 6,321,641
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Page 1 of 16
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1997 1996
---- ----
ASSETS
Cash ........................................... $ 869,000 $ 3,781,000
Accounts and Interest Receivable ............... 719,000 669,000
Investment in Mortgage-Backed Securities - Net . 6,770,000 7,251,000
Rental Properties .............................. -- 14,798,000
Accumulated Depreciation ....................... -- (1,286,000)
------------ ------------
Properties and Improvements - Net ........ -- 13,512,000
Real Estate Held for Sale ...................... 20,060,000 10,612,000
Prepaid and Other Assets ....................... 148,000 114,000
------------ ------------
Total Assets ............................. $ 28,566,000 $ 35,939,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Dividends Payable .............................. $ 1,067,000 $ 3,888,000
Payable to Sponsor and Affiliates .............. 52,000 9,000
Other Accounts Payable and Accrued Liabilities . 173,000 187,000
------------ ------------
Total Liabilities ........................ 1,292,000 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 .. (28,098,000) (23,521,000)
Unrealized Holding Gain on Investment
in Mortgage-Backed Securities - Net ...... 166,000 170,000
------------ ------------
Total Shareholders' Equity ............... 27,274,000 31,855,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 28,566,000 $ 35,939,000
============ ============
See notes to consolidated financial statements (unaudited).
Page 2 of 16
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended
June 30,
-------------------------
1997 1996
---- ----
Revenues:
Lease income ....................................... $ 1,647,000 $2,242,000
Interest on mortgage-backed securities ............. 271,000 318,000
Interest and other income .......................... 55,000 58,000
----------- ----------
Total Revenues ................................. 1,973,000 2,618,000
----------- ----------
Expenses:
Depreciation ....................................... 128,000 270,000
General and administrative ......................... 325,000 357,000
Impairment provision for real estate held for sale . 2,342,000 --
----------- ----------
Total Expenses ................................. 2,795,000 627,000
----------- ----------
Income (Loss) Before Net Gain on Sale of Properties (822,000) 1,991,000
Gain on Sale of Properties - Net ................... 212,000 574,000
----------- ----------
Net Income (Loss) .................................. $ (610,000) $2,565,000
=========== ==========
Net Income (Loss) per Share:
Income (loss) before net gain on sale of properties $(.13) $.32
Gain on sale of properties - net ................... .03 .09
----- ----
Net Income (loss) per Share .................... $(.10) $.41
===== ====
Dividends per Share ................................ $.63 $.40
===== ====
See notes to consolidated financial statements (unaudited).
Page 3 of 16
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
June 30,
--------------------------
1997 1996
---- ----
Revenues:
Lease income ..................................... $ 794,000 $1,116,000
Interest on mortgage-backed securities ........... 133,000 150,000
Interest and other income ........................ 36,000 51,000
----------- ----------
Total Revenues ................................ 963,000 1,317,000
----------- ----------
Expenses:
Depreciation ..................................... 64,000 135,000
General and administrative ....................... 174,000 183,000
Impairment provision for real estate held for sale 2,342,000 --
----------- ----------
Total Expenses ................................ 2,580,000 318,000
----------- ----------
Income (Loss) Before Gain on Sale of Property .... (1,617,000) 999,000
Gain on Sale of Property ......................... -- 574,000
----------- ----------
Net Income (Loss) ................................ $(1,617,000) $1,573,000
=========== ==========
Net Income (Loss) per Share:
Income (loss) before gain on sale of property ... $(.26) $.16
Gain on sale of property ......................... -- .09
----- ----
Net Income (loss) per Share ................... $(.26) $.25
===== ====
Dividends per Share .............................. $ .17 $.20
===== ====
See notes to consolidated financial statements (unaudited).
Page 4 of 16
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1997 and 1996
<CAPTION>
Unrealized
Holding
Gain/(Loss)
Common Stock Additional Accumulated on Investment in
------------ 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 ..... (4,000) (4,000)
Loss Before Net Gain on Sale of
Properties .................. (822,000) (822,000)
Gain on Sale of Properties - Net .. 212,000 212,000
Dividends Declared ................ (3,967,000) (3,967,000)
---------- ----------- ----------- ------------ -------- -----------
Balance, June 30, 1997 ............ 6,321,641 $ 6,000 $55,200,000 $(28,098,000) $166,000 $27,274,000
========== =========== =========== ============ ======== ===========
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 ............ (276,000) (276,000)
Income Before Net Gain on Sale of
Property .................... 1,991,000 1,991,000
Gain on Sale of Property .......... 574,000 574,000
Dividends Declared ................ (2,529,000) (2,529,000)
---------- ----------- ----------- ------------ -------- -----------
Balance, June 30, 1996 ............ 6,321,641 $ 6,000 $55,200,000 $(14,911,000) $ 82,000 $40,377,000
========== =========== =========== ============ ======== ===========
See notes to consolidated financial statements (unaudited).
Page 5 of 16
</TABLE>
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
June 30,
--------------------------
1997 1996
---- ----
Operating Activities
Net income (loss) .............................. $ (610,000) $ 2,565,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .............. 125,000 266,000
Impairment provision for real estate
held for sale ............................. 2,342,000 --
Gain on sale of properties - net ........... (212,000) (574,000)
Changes in operating assets and liabilities:
Accounts and interest receivable ........ (118,000) (180,000)
Prepaid and other assets ................ 2,000 (102,000)
Payable to sponsor and affiliates ....... 43,000 50,000
Other accounts payable and accrued
liabilities ............................ (14,000) (91,000)
----------- -----------
Net cash provided by operating activities ...... 1,558,000 1,934,000
----------- -----------
Investing Activities
Principal payments received on mortgage-backed
securities .................................... 480,000 730,000
Proceeds from sale of properties ............... 2,056,000 4,910,000
Cash used for selling costs of properties ...... (218,000) (201,000)
----------- -----------
Net cash provided by investing activities ...... 2,318,000 5,439,000
----------- -----------
Financing Activities
Dividends paid to Shareholders ................. (6,788,000) (2,529,000)
----------- -----------
Cash used by financing activities .............. (6,788,000) (2,529,000)
----------- -----------
Increase (Decrease) in Cash .................... (2,912,000) 4,844,000
Cash at beginning of period .................... 3,781,000 976,000
----------- -----------
Cash at End of Period .......................... $ 869,000 $ 5,820,000
=========== ===========
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 6 of 16
<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; except as disclosed in Note 9
below.
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 six months
ended June 30, 1997 and 1996 were as follows:
1997 1996
---- ----
Reimbursement of administrative expenses $ 100,000 $ 100,000
Securities management fee 17,000 20,000
Advisory fee 89,000 125,000
--------- ---------
Total $ 206,000 $ 245,000
========= =========
The securities management fee is earned by State Street Research &
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
9.8% 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 claim the Fund had received cash as well as shares of NCS
Page 7 of 16
<PAGE>
common stock which were subsequently sold. Total compensation
received by the Fund in connection with the settlement approximated
$262,000, and it appears the Fund will receive no further
compensation in this regard. 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). In 1996 the Fund sold
the convenience stores located in Rancho Cucamonga, California and
Houston, Texas, and 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 and agreed
to settle its remaining outstanding lease rejection claim for
approximately $629,000. This settlement was approved by the
Bankruptcy Court in January 1997. To satisfy the claim, in March
1997, the Fund received 1,058 shares of stock and 881 warrants which
were sold in June 1997, for $7,000.
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), resulting in a loss of $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), resulting in a loss of $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), resulting in a gain of $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), 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), resulting in a loss of $159,000. In June 1996
Page 8 of 16
<PAGE>
the Fund sold the Sam's Club property located in Menomonee Falls,
Wisconsin, 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 real estate commission of $168,00 paid to an
outside broker), the proceeds received by the Fund were $4,709,000.
The carrying value at the time of sale was $4,135,000, resulting in
a gain of $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. The
tenant subsequently claimed that the work specified was beyond the
requirements under the original lease. The tenant will complete the
work to the extent required under the lease, and the remainder will
be completed and paid for from the escrowed funds. Once the work is
completed, any remaining funds from the escrow account will be
released to MITS.
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. The remaining fourteen stores and ten
stores were classified as Real Estate Held for Sale at December 31,
1996 and June 30, 1997, respectively.
As a result of the Board of Directors' decision to proceed with an
orderly liquidation of the Fund, as of June 30, 1997, the remaining
Rental Properties owned by the Fund were classified as Real Estate
Held for Sale. Pursuant to FAS 121, real estate held for sale is
presented at the lower of carrying value or fair market less
estimated cost to dispose (See Note 9). No further depreciation is
provided after properties are classified as Real Estate Held for
Sale.
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.
Page 9 of 16
<PAGE>
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 reported as a net amount in
a separate component of Shareholders' Equity.Mortgage-backed
securities at June 30, 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 $4,877,000 $106,000 $ 63,000 $4,920,000
FNMA 977,000 65,000 -- 1,042,000
FHLMC 750,000 58,000 -- 808,000
---------- -------- ---------- ----------
$6,604,000 $229,000 $ 63,000 $6,770,000
========== ======== ========== ==========
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.
9. Impairment Provision for Real Estate Held for Sale
As discussed in Note 6, at June 30, 1997 the Fund classified its
remaining properties as Real Estate Held for Sale. In accordance
with FAS 121, an impairment provision of $2,342,000 was recorded to
reduce the carrying values of the Wickes Furniture Store
($2,300,000) and the Pearle Express Morrow, Georgia location
($42,000) to their estimated fair value less cost to sell.
10. Subsequent Event
In July 1997, the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #2378 located in Arlington,
Texas for $1,413,000. After payment of the estimated expenses of
sale of $110,000 (including a real estate commission of $81,000 paid
to an outside broker), the estimated proceeds to the Fund were
$1,303,000. The carrying value at the time of sale was $1,408,000
(including $73,000 deferred lease income receivable), resulting in a
loss of approximately $105,000.
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.
Page 10 of 16
<PAGE>
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 %
at June 30,
Date of ---------------
Size Purchase 1997 1996
---- -------- ---- ----
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
Haverty's Furniture Store
Plano, Texas................. 55,000 sq. ft. 12/94 100 100
___________
(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.
Results of Operations
Income before net gain on sale of properties decreased $2,813,000 and
$2,616,000, respectively, in the first half and second quarter of 1997 compared
to the same periods in 1996. Of these amounts, $2,342,000 was due to an
impairment provision for real estate held for sale recorded in the second
quarter of 1997. (See Note 9 to the consolidated financial statements). Lease
income decreased in the first half and second quarter of 1997 compared to the
same periods 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, the NCS stores located in Rancho Cucamonga, California
and Houston, Texas in November and December of 1996, respectively, the NCS store
located in Clute, Texas in February 1997 and the NCS stores located in Sealy,
Dallas, and Texas City, Texas in March 1997.
Interest on the Fund's mortgage-backed securities portfolio declined 15% and
11%, respectively, in the first half and second quarter of 1997 compared to the
same periods 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. Interest and other income decreased by
$3,000 and $15,000, respectively, in the first half and second quarter of 1997
compared to the same periods in 1996. The increase in interest income in the
first half and second quarter of 1997, 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, was more than offset by the decrease in other income, primarily due to the
receipt in the second quarter of 1996 of $32,000 towards settlement of the
Fund's claim filed in conjunction with the bankruptcy and subsequent
reorganization of NCS (see Note 4 to the consolidated financial statements).
Page 11 of 16
<PAGE>
General and administrative expenses decreased by $32,000 and $9,000,
respectively, in the first half and second quarter of 1997 compared to the same
periods 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. The
decrease was partially offset by an increase in investor reporting expenses,
resulting from costs associated with responding to unsolicited offers to
purchase Shares, and to costs associated with SEC filings relating to the sale
of properties.
Depreciation expenses decreased $142,000 and $71,000, respectively, in the first
half and second quarter of 1997 compared to the same periods in 1996 due to
depreciation not being provided for the NCS stores for the first half 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 nine convenience store properties, five 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 makes
payment directly to the Fund for the stores it operates 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"), reported to be the fourth largest independent oil refining
and marketing company in North America.
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
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). Subsequent to the close of the second
quarter, the Stop N Go Store located in Arlington (Green Oaks Blvd.), Texas was
sold (see Note 10 to the consolidated financial statements).
At the request of the Board of Directors and in conjunction with the Fund's
current liquidation strategy, the Advisor has commenced marketing Haverty's and
the remaining Pearle Express Store in Morrow, Georgia. A decision regarding the
potential disposition of Wickes has been deferred pending further analysis of
the asset and market conditions and evaluation of alternative investment
strategies. The Advisor is also analyzing the potential sale of the Fund's
mortgage-backed securities portfolio at the request of the Board of Directors.
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
Page 12 of 16
<PAGE>
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 employed to determine the DRP Share purchase price. However, as all
of the Fund's properties are now being prepared or marketed for sale, the
Advisor utilizes estimations of current market value rather than year-end
appraisals to calculate the estimated net asset value per Share. Based on
current brokers' opinions of value of the Fund's real properties and the value
of the Fund's mortgage-backed securities portfolio as of June 30, 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 June 30, 1997 has been established as
$4.41. This value has declined from the previous quarter's estimated net asset
value per Share of $4.73 due primarily to the write down of the Fund's Wickes
property based on recent broker valuations.
First Half 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
Page 13 of 16
<PAGE>
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, and an extension was granted
through July 30, 1997. The tenant subsequently contested the extent of repairs
originally agreed upon, claiming that they were beyond the scope of the original
lease. The tenant will complete the work to the extent required under the
original lease, and the remainder of the work will be completed and paid for
from the funds held in the escrow account. Any remaining funds will be released
to MITS upon completion of the work to the satisfaction of the new owner.
During the first quarter of 1996 the Fund received an offer to purchase the
Pearle Express location in Orland Park, Illinois ("Orland Park"), for which
during the fourth quarter of 1995, the Fund had successfully negotiated a three
year, eight month lease extension, beginning 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,
Georgia 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. Subsequently, the Advisor began negotiations to extend
the lease, and in March 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. Pursuant
to instructions from Board of Directors, the Advisor has begun marketing the
property for sale.
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 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 were initiated in anticipation of again marketing the
Store for sale. Brokers' opinions of value, however, were significantly below
the year-end appraisal value, reflecting concern in the marketplace with respect
to Wickes' creditworthiness and its ability to continue to pay rents. Under the
terms of its lease, which is relatively short, rents are nearly double those in
the current market. The Advisor is currently preparing several alternative
disposition strategies for presentation to the Board of Directors.
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
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 the settlement agreement the Fund received 1,058 shares of
Phar-Mor stock and 881 warrants to purchase stock to satisfy its claims. The
Fund sold these securities in June 1997 for a total of $7,000.
In accordance with the August 29, 1997 decision of the Board of Directors, the
Fund's convenience store properties were marketed for sale. In November 1996 the
Fund sold the Circle K Store located in Rancho Cucamonga, California, followed
by the Stop N Go Store in Houston, Texas in December. The proceeds of these
sales were distributed in conjunction with the fourth quarter 1996 dividend,
paid to Shareholders of Record as of December 31, 1996, on January 15, 1997. In
February 1997, the Fund sold the Stop N Go Store located in Clute, Texas,
followed by the sale of the Stop N Go Stores in Sealy, Dallas, and Texas City,
Texas, in March 1997. A special dividend resulting from the proceeds of these
Page 14 of 16
<PAGE>
sales was paid on May 15, 1997 to Shareholders of Record as of March 31, 1997.
Subsequent to the close of the second quarter, the Fund sold the Stop N Go Store
located in Arlington (Green Oaks Boulevard), Texas, the sales proceeds from
which will be distributed, subject to the approval of the Board of Directors, in
conjunction with the third quarter dividend, scheduled for the week of November
17, 1997.
In the first half 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 $4,000 on its mortgage-backed
securities during the first half of 1997 due to first quarter increases in
market interest rates.
The Advisor anticipates that the Fund will have sufficient resources to meet its
capital and operating requirements into the foreseeable future.
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/A Report filed on April 11, 1997 amending the
Form 8-K filed on March 14, 1997 reporting the disposition of
the Clute, Sealy, and Dallas, Texas Stop N Go Stores 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.
Page 15 of 16
<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: August 12, 1997
-------------------------
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 869,000
<SECURITIES> 6,770,000
<RECEIVABLES> 719,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 20,060,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,566,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 27,268,000
<TOTAL-LIABILITY-AND-EQUITY> 28,566,000
<SALES> 0
<TOTAL-REVENUES> 1,973,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 325,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (822,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (822,000)
<DISCONTINUED> 212,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (610,000)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0.00
</TABLE>
