UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the fiscal year ended December 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
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Commission file number 0-18294
METRIC INCOME TRUST SERIES, INC.
(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 94111-5415
- - ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
No market for the Shares of Common Stock exists and therefore a market
value for such Shares cannot be determined.
Shares of Common Stock outstanding as of March 27, 1997: 6,321,641
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
Information with respect to directors in Item 10 and the information required by
Items 11-13 is incorporated by reference from the proxy material of the
Registrant in connection with its Annual Meeting of Shareholders scheduled for
June 1997.
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
PART I
Item 1. Business.
Metric Income Trust Series, Inc., a California corporation (hereinafter referred
to as the "Fund" or "Registrant"), was formed in 1989. Effective April 1, 1997,
the operations of Metric Realty, which has been the Advisor to the Fund since
the Fund's inception, and certain related companies will be merged with MetLife
Realty Group, Inc. ("MRG") into SSR Realty Advisors, Inc. ("SSR Realty"), a
newly formed Delaware corporation. All companies involved in this transaction
are wholly owned by Metropolitan Life Insurance Company. Metric Realty's
managing partner as of April 1, 1997 will become SSR Realty, which will maintain
its principal office in White Plains, New York, and a major corporate office in
San Francisco, California. In anticipation of this transaction, the Advisory
Agreement between Metric Realty and the Fund, was assigned by Metric Realty to
SSR Realty, effective March 27, 1997, with the consent of the Fund's Independent
Directors. This assignment is not anticipated to have any material effect on the
advisory services provided to the Fund. At the Board Meeting held on March 27,
1997, the Independent Directors also approved the extension of the Advisory
Agreement to March 31, 1998.
The Fund's initial Registration Statement, filed pursuant to the Securities Act
of 1933 (No. 33-27083), was declared effective by the Securities and Exchange
Commission on June 30, 1989. The Registrant marketed its securities pursuant to
its Prospectus dated June 30, 1989 and thereafter supplemented (hereinafter the
"Prospectus"). Such Prospectus was filed with the Commission pursuant to Rule
424(b) of the Securities Act of 1933.
The principal business of the Fund is to acquire income producing net lease real
properties and investments in mortgage-backed securities which are guaranteed as
to payment of principal and interest by the U.S. Government, U.S. Government
agencies or instrumentalities, or federally chartered corporations. The Fund
qualifies as a real estate investment trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code. The proceeds of the offering were used to
purchase mortgage-backed securities and twenty-five net lease properties which
are described in Item 2.
Beginning in July 1989 through June 1990 the Fund offered and sold $60,254,000
in Shares of Common Stock. Through December 31, 1991, additional funding of
$2,800,000 was provided from the Dividend Reinvestment Plan ("DRP"). Effective
with the dividend paid on January 15, 1992 to Shareholders of record on December
31, 1991, the DRP was suspended as a result of the Chapter 11 bankruptcy filing
by National Convenience Stores, Inc. ("NCS"), which was the lessee of 19
convenience stores owned by the Fund (see Item 7 for further information
regarding the NCS bankruptcy and related events). All DRP participants received
the 1992, 1993 and January 15, 1994 dividends in cash. In September, 1993, the
Board of Directors voted unanimously to reinstate the DRP and activate the
Liquidity Option Program ("LOP") effective for the first quarter 1994 dividend
which was paid in May 1994. In June 1996, the Board of Directors voted
unanimously to terminate the DRP and LOP effective as to dividend payments made
after August 15, 1996 (see Item 7 and Item 8, Note 4 to the consolidated
financial statements). At the Fund's Annual Meeting on June 11, 1996, the Board
of Directors voted unanimously to proceed with the liquidation of the Fund's
portfolio over the next several years.
Net lease retail convenience store buildings and retail outlets are especially
susceptible to the impact of the financial condition and creditworthiness of the
lessee (or guarantor of the obligations of the lessee) and other conditions
outside the control of the Fund. In the event of the financial failure of a
lessee of the Fund, the Fund may be unable to promptly recover the property from
the lessee or a trustee in any bankruptcy proceedings or the Fund may not
receive rent in such proceedings sufficient to cover its expenses with respect
to such property. Also it may be difficult for the Fund to release properties
which have been designed or built primarily for a particular tenant.
Environmental site assessments were performed for five of the Fund's convenience
stores and all other properties at the time of property acquisition. No material
adverse environmental conditions or liabilities were identified. In no case has
the Fund received notice that it is a potentially responsible party with respect
to an environmental clean-up site.
The Fund or its tenants maintain property and liability insurance coverage on
the properties and the Fund believes such coverage to be adequate.
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The Fund is subject to the general competitive conditions in the real estate
industry and the net lease market for convenience store buildings and retail
outlets. In addition, each of the Fund's properties competes in an area which
normally contains numerous other properties which may be considered competitive
to the Fund's properties.
Investment in the Fund is subject to certain risks, including the lack of any
public market for the Fund's Shares which adversely affects the liquidity of
Shareholders' investments in the Fund; potential restrictions on transfers of
Shares which might jeopardize the Fund's qualification as a REIT; limitations on
the percentage of the Fund's Shares owned by any one person; market risks of
mortgage-backed securities related to their sensitivity to interest rate changes
(such as the fact that an increase in interest rates will result in a decrease
in the value of such securities and a decrease in rates may result in an
increased incidence of prepayment of principal at a time when reinvestment at
favorable rates would be impossible); the possibility that the Fund might not
continue to qualify as a REIT; normal risks generally attendant upon the
ownership of real estate such as vacancies, rent levels, changes in general
economic or fiscal conditions, regulatory risks, including zoning and other land
use laws, and natural disasters; costs or liabilities which may arise from any
hazardous materials affecting the Fund's properties; potential non-compliance
with Americans with Disabilities Act; losses which could result from the default
or bankruptcy of any tenant of the Fund; and uninsured losses.
Item 2. Properties.
A description of the properties owned by the Fund is as follows:
Date of Date of
Name and Location Purchase Sale Type Size
- - ----------------- -------- ---- ---- ----
Pearle Express Stores: (3)
24 Orland Square Drive 11/89 7/96 Retail 5,900
Orland Park, Illinois sq. ft.
1281 Southlake Circle 11/89 -- Retail 5,800
Morrow, Georgia sq. ft.
National Convenience Stores:
Stop N Go Store #1332 11/89 -- Retail 3,100
N. Little School Road sq. ft.
Arlington, Texas
Stop N Go Store #1386 11/89 -- Retail 3,100
Babcock Road sq. ft.
San Antonio, Texas
Stop N Go Store #2065 (5) 11/89 -- Retail 3,100
Baseline Road sq. ft.
Fontana, California
Stop N Go Store #2092 (5) 11/89 -- Retail 3,100
Mission Road sq. ft.
Rubidoux, California
Stop N Go Store #2374 (5) 11/89 -- Retail 3,100
E. Orangethorpe Road sq. ft.
Placentia, California
2
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Item 2. Properties (continued).
Date of Date of
Name and Location Purchase Sale Type Size
- - ----------------- -------- ---- ---- ----
Stop N Go Store #2378 11/89 -- Retail 3,100
Green Oaks Blvd sq. ft.
Arlington, Texas
Stop N Go Store #2406 (5) 11/89 -- Retail 3,100
Windy Hill sq. ft.
Marietta, Georgia
Stop N Go Store #285 11/89 -- Retail 3,100
Altamesa Blvd sq. ft.
Fort Worth, Texas
Stop N Go Store #308 11/89 -- Retail 3,100
West Tarrant Blvd sq. ft.
Grand Prairie, Texas
Stop N Go #328 11/89 -- Retail 3,600
Fredericksburg Blvd sq. ft.
San Antonio, Texas
Stop N Go #3592 (10) 11/89 -- Retail 2,400
25th/Loop 197 sq. ft.
Texas City, Texas
Stop N Go Store #655 (9) 11/89 3/97 Retail 3,100
Northwest Highway sq. ft.
Dallas, Texas
Stop N Go #3571 (8) 11/89 3/97 Retail 2,400
N. Circle sq. ft.
Sealy, Texas
Stop N Go #3583 (7) 11/89 2/97 Retail 2,400
Hwy 288 sq. ft.
Clute, Texas
Stop N Go Store #674 (5) 11/89 11/96 Retail 3,100
Archibald sq. ft.
Rancho Cucamonga, California
Stop N Go Store #3755 (6) 11/89 12/96 Retail 2,900
FM 1960 sq. ft.
Houston, Texas
Stop N Go Store #3254 (1) 11/89 06/93 Retail 2,400
Stedwick Street sq. ft.
San Antonio, Texas
3
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Item 2. Properties (continued).
Date of Date of
Name and Location Purchase Sale Type Size
- - ----------------- -------- ---- ---- ----
Stop N Go Store #3531 (1) 11/89 08/93 Retail 2,400
Seawall Blvd sq. ft.
Galveston, Texas
Stop N Go Store #1714 (1) 11/89 12/93 Retail 3,100
Grand Avenue Parkway sq. ft.
Pflugerville, Texas
Other Stores:
Wickes Furniture Store 01/90 -- Retail 51,000
Torrance, California sq. ft.
Sam's Club (2) 05/90 06/96 Retail 108,000
Menomonee Falls, Wisconsin sq. ft.
Former Phar-Mor Store (4) 12/90 03/95 Retail 56,400
Franklin Township, Ohio sq. ft.
Haverty's Furniture Store 12/94 -- Retail 55,000
Plano, Texas sq. ft.
(1) In December 1991 NCS filed a petition with the U.S. Bankruptcy Court for
reorganization under Chapter 11 of the federal Bankruptcy Code. As a
result of the bankruptcy proceedings, three stores were closed in 1992 for
which the leases were rejected and those properties were subsequently sold
to unaffiliated buyers (see Item 7 and Item 8, Note 8 to the consolidated
financial statements).
(2) Formerly Wholesale Club. The Fund's store was vacated in April 1992 and
100% of the building was subleased in 1994 and 1995. On June 25, 1996, the
building was sold to an unaffiliated buyer.
(3) Formerly Eyelab Superstores. On July 10, 1996, the Orland Park, Illinois
store was sold to an unaffiliated buyer.
(4) On March 15, 1995, the building was sold to an unaffiliated buyer.
(5) In April 1994, through a purchase and exchange transaction with NCS,
Circle K became the operator of five of the Fund's stores, four in
California and one in Georgia. Although lease payments for the stores
owned by the Fund are now received from Circle K, NCS remains financially
liable under the terms of the leases. On November 12, 1996, the store
located in Rancho Cucamonga, California was sold to an unaffiliated buyer.
(6) In August 1994, a portion of the land was sold through condemnation. On
December 19, 1996, the store was sold to an unaffiliated buyer.
(7) On February 28, 1997 the store in Clute,Texas was sold to an unaffiliated
buyer.
(8) On March 5, 1997 the store in Sealy, Texas was sold to an unaffiliated
buyer.
(9) On March 12, 1997 the store in Dallas, Texas was sold to an unaffiliated
buyer.
(10) The store in Texas City, Texas is currently under a sales contract,
dated March 13, 1997, with the anticipated closing date of March 27,
1997.
All of the Registrant's properties are owned in fee.
4
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See Selected Financial Data in Item 6 for lease income. See the Consolidated
Financial Statements in Item 8 for information regarding the Fund's properties.
An occupancy summary is set forth on the chart following:
OCCUPANCY SUMMARY
Occupancy rate (%)
at December 31
1996 1995 1994
---- ---- ----
COMMERCIAL BUILDINGS:
Pearle Express Stores (1) .................. 100% 100% 100%
National Convenience Stores (2) ............ 100 100 100
Wickes Furniture Store ..................... 100 100 100
Sam's Club (4) ............................. N/A 100 100
Former Phar-Mor Store (3) .................. N/A N/A 44
Haverty's Furniture Store .................. 100 100 100
(1) Represents occupancy at both of the Pearle Express Stores. In July 1996,
the Orland Park, Illinois store was sold.
(2) Represents the number of stores leased as a percentage of the total number
of stores owned by the Fund. One leased store is vacant, but the lessee
remains current in its lease obligations to the Fund. In April 1994,
through a purchase and exchange transaction with NCS, Circle K became the
operator of five of the Fund's stores, four in California and one in
Georgia. Although lease payments for the stores operated as Circle K are
now received from them, NCS remains financially liable under the terms of
the leases. In November and December 1996, two of the stores were sold,
followed by one more in February 1997 and two in March 1997. See Note 10
and Note 11 to the consolidated financial statements.
(3) In August 1992 Phar-Mor filed for protection under Chapter 11 of the
federal Bankruptcy Code (see Item 7 and Item 8, Note 8 to the consolidated
financial statements). Phar-Mor rejected the Fund's lease effective May
15, 1993 after closing the store at the end of April. The store was
subdivided in 1994 and 24,709 square feet was leased to Superpetz, Inc.
The building was subsequently sold on March 15, 1995.
(4) Represents economic occupancy at December 31, 1994. Lessee vacated the
store in April 1992, but remained current in its lease obligations to the
Fund. During the fourth quarter of 1994 and first quarter of 1995, the
Fund's Advisor reviewed and approved two subleases presented by the lessee
and the building was 100% occupied until it was sold in June 1996.
Item 3. Legal Proceedings.
The Fund has been a creditor in bankruptcy proceedings filed by Phar-Mor. (See
Item 7 and Item 8, Note 8 to the consolidated financial statements.) 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 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 a reorganization plan for Phar-Mor.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period covered
by this Report.
5
<PAGE>
PART II
Item 5. Market for Registrant's Shares of Common Stock and Related Stockholder
Matters.
No public market for the Shares exists, nor is one expected to develop. However,
see Item 8, Note 4 to the consolidated financial statements for a discussion of
the circumstances under which Shares of Common Stock were sold through the
Dividend Reinvestment Plan (DRP) pursuant to the Liquidity Option Program (LOP).
The per Share price for Shares acquired through the DRP with the proceeds of the
dividends was established by the Fund's Board of Directors, pursuant to a
formula having as its components independent third-party appraisals of the
Fund's properties as of December 31 of each year, the market value of the Fund's
mortgage-backed securities, and the net book value of its other assets and
liabilities as of each quarter end prior to the dividend payment. In June 1996
the Board of Directors voted to terminate the DRP and LOP effective as to
dividend payments made after August 15, 1996. The Board of Directors believed
that with the implementation of a formal disposition strategy for the Fund, the
Plan was no longer a viable purchase and liquidation vehicle. It is the
intention of the Fund's Advisor, however, to continue to provide, on a quarterly
basis, an estimated net asset value per Share utilizing the same method as
previously used to determine the DRP per Share price. The estimated net asset
value per Share as of December 31, 1996 has been determined to be $5.08.
Many factors are involved in determining the actual fair market value of the
shares of stock of a company. Therefore, no assurance can be given that the
estimated net asset value per Share determined by the Advisor to the Fund as of
any valuation date will represent actual fair market value of a Share of stock
of the Fund.
In addition, appraised values represent only the opinion of the appraiser and do
not necessarily reflect the price which the Fund would receive upon the sale of
the asset. In this regard, since methods for determining values vary, if an
alternate method of valuation were used, it could result in a value different
from the value determined based on a discounted cash flow analysis, which is the
primary method utilized by the appraisers engaged to appraise the properties.
As of December 31, 1996 the approximate number of Shareholders was as follows:
Number of
Title of Class Record Holders
-------------- --------------
Common Stock....................... 4,782
Item 6. Selected Financial Data.
The following table presents selected financial data for Metric Income Trust
Series, Inc., a California corporation, for the years ended December 31, 1996,
1995, 1994, 1993, and 1992. The data should be read in conjunction with the
consolidated financial statements included elsewhere herein.
For the Year Ended
December 31
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in thousands except per unit data)
TOTAL REVENUES $ 4,886 $ 5,156 $ 4,670 $ 4,886 $ 5,348
NET INCOME $ 4,552 $ 3,930 $ 2,888 $ 2,644 $ 2,313
NET INCOME PER SHARE $ .72 $ .62 $ .46 $ .42 $ .37
TOTAL ASSETS $35,939 $42,211 $45,603 $49,510 $52,261
DIVIDENDS PER SHARE $ 2.08 $ 1.26 $ .85 $ .85 $ .85
6
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Lease Income
The following Lease Income table presents lease income for the properties by
lessee included in the Fund's consolidated financial statements:
For the Year Ended
December 31
------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in thousands)
National Convenience Stores (1)(2) $1,825 $1,852 $1,552 $1,527 $1,777
Pearle Express Stores (5) ........ 217 283 282 265 265
Wickes Furniture Store (7) ....... 1,372 1,202 1,135 1,036 1,036
Sam's Club (6) ................... 284 524 511 511 511
Former Phar-Mor Store (3) ........ -- 28 6 135 361
Haverty's Furniture Store (4) .... 411 411 11 -- --
------ ------ ------ ------ ------
Total ............................ $4,109 $4,300 $3,497 $3,474 $3,950
====== ====== ====== ====== ======
(1) As a result of bankruptcy proceedings, three stores were closed in 1992
for which the leases were rejected and the properties were subsequently
sold in June, August and December 1993 (see Item 7 and Item 8, Note 8 to
the consolidated financial statements). In April 1994, through a purchase
and exchange transaction with NCS, Circle K became the operator of five of
the Fund's stores, four in California and one in Georgia. Lease payments
for the Circle K stores are now received from Circle K; however, NCS
remains financially liable under the terms of the leases. In December 1995
Diamond Shamrock purchased the outstanding stock of NCS and subsequently
merged with Ultramar Corporation to form Ultramar Diamond Shamrock
Corporation. In November and December 1996, two stores were sold (one of
which was operated by Circle K), followed by one more in February 1997 and
two in March 1997 (See Note 10 and Note 11 to the consolidated financial
statements).
(2) Includes $245,000 and $279,000 deferred rent receivable in 1996 and 1995,
respectively.
(3) On March 15, 1995, the building was sold to an unaffiliated buyer.
(4) Acquired in December 1994.
(5) The Orland Park, Illinois store was sold in July 1996. See Note 10 to the
consolidated financial statements.
(6) The property was sold in June 1996. See Note 10 to the consolidated
financial statements.
(7) Includes $162,000 deferred rent receivable in 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Results of Operations
Income before net gain on sale of properties decreased $12,000 in 1996 compared
to 1995. The 1996 decrease was primarily due to decreases in lease income and
interest on mortgage-backed securities, which were partially offset by the
decrease in depreciation, as discussed below.
Lease income in 1996 decreased $191,000 when compared to 1995 primarily due to
the sale of Sam's Club in June 1996, the Pearle Express store in Orland Park,
Illinois in July 1996, and the NCS stores in Rancho Cucamonga, California and
Houston, Texas in November and December 1996, respectively, which decrease was
partially offset by the increase in lease income from the Wickes Furniture store
as a result of recording deferred lease income of $162,000 in 1996.
Interest on the Fund's mortgage-backed securities portfolio declined 13% in 1996
compared to 1995 due to the reduction in the amount of securities owned by the
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Fund. The total of the Fund's mortgage-backed securities was reduced due to
principal repayments. These repayment proceeds were used to support dividend
payments to Shareholders. Other income increased in 1996 compared to 1995
primarily due to the receipt of the administrative claim of approximately
$19,000 from Phar-Mor for post-petition real estate taxes for the period through
May 15, 1993 (see Note 8 to the consolidated financial statements).
Depreciation expense decreased in 1996 compared to 1995 primarily due to the
sale of the Pearle Express store in July 1996 and the classification of Sam's
Club in 1995 and the NCS properties in the third quarter of 1996 as Real Estate
Held for Sale and depreciation not being provided for subsequent to the
classification (see Note 10 and Note 6 to the consolidated financial
statements).
General and administrative expense decreased slightly in 1996 as compared to
1995 primarily due to the decrease in advisory fee as a result of the sales of
properties in 1996 and 1995 (see Note 10 to the consolidated financial
statements) and the decrease in legal fees relating to the Phar-Mor bankruptcy
proceedings (see Note 8 to the consolidated financial statements). The decreases
were partially offset by the increase in administrative expenses reimbursed to
the Fund's Advisor.
As discussed in Item 8, Note 10, in June, July, November, and December 1996, the
Fund sold the Sam's Club, Pearle Express - Orland Park, Illinois, NCS store in
Rancho Cucamonga, California and NCS store in Houston, Texas, respectively, and
recognized a net gain totaling $760,000.
1995 Compared to 1994
Income before gain (loss) on sale of property and extraordinary items increased
$513,000 in 1995 compared to 1994. The 1995 increase was primarily due to the
increase in lease income as discussed below. In addition, interest on
mortgage-backed securities decreased $145,000, and interest and other income
decreased $141,000, which were offset in part by a $38,000 decrease in general
and administrative expenses.
Lease income in 1995 compared to the prior year increased primarily due to an
increase in lease income of $400,000 from the Haverty's Furniture Store
("Haverty's") purchased in December 1994, and an increase in lease income from
NCS as a result of recording deferred lease income of $279,000 in 1995 (see
revenue recognition policy in Note 1 to the consolidated financial statements).
Interest on the Fund's mortgage-backed securities portfolio declined 17% in 1995
compared to 1994 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 and the sale of mortgage-backed securities to
purchase Haverty's. These repayment proceeds were used to support dividend
payments to Shareholders. In 1995, the Fund recognized a $16,000 gain on the
sale of mortgage-backed securities.
Interest and other income decreased in 1995 compared to 1994 primarily due to
the decrease in cash available for investments as a result of the use of
available cash for the acquisition of Haverty's in December 1994. Other income
also decreased as less stock was received from NCS in 1995 than 1994 in
connection with the settlement of the Fund's claim following bankruptcy
proceedings and the lessee's subsequent reorganization. Revenue from the sale of
Shares of stock in 1995 totaled $20,000 compared to $70,000 in 1994.
General and administrative expenses decreased in 1995 compared to 1994. This
decrease was primarily a result of a decrease of $28,000 in legal fees mainly
due to the nonrecurring costs incurred in 1994 associated with the establishment
of the DRP/LOP, and the discontinuance of amortization of the deferred
consulting fees (see Item 8, Note 9) which was offset in part by a $48,000
increase in costs reimbursed to the Fund's Advisor.
As discussed in Item 8, Note 10, in March 1995 the Fund sold the former Phar-Mor
building located in Franklin Township, Ohio, and recognized a gain of $126,000.
8
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Fund Liquidity and Capital Resources
Introduction
The Fund intends to meet its cash needs from cash flow generated by properties
and securities and from the proceeds from the sale of properties and securities.
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 regular quarterly cash
dividends 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 ("NCS"). 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 through the DRP (to the extent of
participation in the DRP) commenced with respect to the dividend paid for the
first quarter of 1994. Shares were purchased through 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
May 15, 1996 .... $ 6.59 Quarterly Dividend
August 15, 1996 . $ 6.52 Quarterly Dividend
In June 1996 the Board of Directors voted unanimously to terminate the DRP and
LOP effective as to dividends paid after August 15, 1996. The Fund's Advisor
will continue to provide, on a quarterly basis, an estimated net asset value per
Share utilizing the same methods previously utilized to calculate the DRP per
Share purchase price. Based on December 31, 1996 appraisals for the properties,
the market value of the Fund's mortgage-backed securities, and carrying value of
its other assets and liabilities as of December 31, 1996, the Advisor estimates
the per Share net asset value to be $5.08. Appraisals of the real property in
the portfolio will continue to occur annually.
As presented in the Consolidated Statement of Cash Flows, cash was provided by
operating activities. In addition, cash was provided by investing activities
from proceeds from sales of properties and principal payments received on
mortgage-backed securities. Cash was used by investing activities for expenses
incurred in the sales of properties. Cash was used by financing activities for
dividends paid to Shareholders.
NCS was the seller and lessee of 19 properties operated as Stop N Go convenience
stores acquired by the Fund in November 1989. In March 1993, NCS had a
reorganization plan confirmed by the Court which became effective March 9, 1993
(NCS had filed a petition for reorganization under Chapter 11 in December 1991).
As payment for a claim filed by the Fund with the Bankruptcy Court with respect
to the three rejected leases, NCS agreed to issue new shares of its common stock
to the Fund. Through May 1995, the Fund received 17,161 shares of NCS stock
which were immediately sold and resulted in net proceeds of $230,000. In June
1996 the Fund received $32,000 in lieu of 1,170 shares of NCS common stock from
Diamond Shamrock Corporation, the firm which purchased the majority of the
9
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outstanding NCS stock in December 1995. In late 1996 Diamond Shamrock
Corporation 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. The Fund expects to receive some additional compensation from UDS in
1997 as payment for the remainder of the outstanding claim.
In April 1994, NCS completed an exchange and sale of stores with another
convenience store operator, Circle K Corporation. NCS exchanged 53 stores in
Southern California for 88 Circle K stores in the Dallas and Houston markets. In
addition, Circle K purchased 27 NCS stores in the Atlanta market. Five of the
Fund's stores, four in Southern California and one in Atlanta, were included in
the transactions and during the third quarter of 1994 were converted to Circle K
operations. Although lease payments for the stores operated as Circle K are now
received from Circle K Corporation, NCS remains financially liable under the
terms of the leases. Also in the third quarter of 1994, the Fund received a
payment of $91,000 from the Texas Department of Transportation through
condemnation and sale of approximately 3,593 square feet of frontage of the Stop
N Go property in Houston. Effective September 1, 1994, the rent on the store was
reduced by 10.4% to approximately $132,000 per year. The loss recorded at the
time of sale was $32,000.
In November 1996 the Fund sold National Convenience Store Stop N Go #674
(operated as Circle K) located in Rancho Cucamonga, California for $1,650,000.
After payment of expenses of sale of $103,000 (including real estate commissions
of $93,000 paid to outside brokers) the proceeds received by the Fund were
approximately $1,547,000. The carrying value at the time of sale was $1,038,000
(including $37,000 deferred lease income receivable). The gain recognized at the
time of sale was $509,000.
In December 1996 the Fund sold National Convenience Store Stop N Go #3755
located in Houston (Harris County), Texas for $1,410,000. After payment of
expenses of sale of $100,000 (including $81,000 real estate commissions paid to
outside brokers), the proceeds to the Fund were $1,310,000. The carrying value
at the time of sale was $1,587,000 (including $38,000 deferred lease income
receivable). The loss recognized at the time of sale was $277,000.
In February 1997 the Fund 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 $16,000 real estate commissions 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 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 $16,000 real estate commissions 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 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 $80,000 real estate commission 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.
The Fund received several purchase offers for the building formerly occupied by
Sam's Club, located in Menomonee Falls, Wisconsin, and in 1996 negotiated a
purchase and sale agreement with one potential buyer which was 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 was received by the Advisor.
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 in 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. The Fund's Advisor has since
negotiated an extension with the tenant and the buyer which requires completion
by June 1, 1997. Once the repairs have been completed to the satisfaction of the
buyer, the remaining escrow funds will be released to the Fund.
10
<PAGE>
During the fourth quarter of 1995, the Fund successfully negotiated a three
year, eight month lease extension for the Pearle Express location in Orland
Park, Illinois, which took effect December 1, 1995. During the first quarter of
1996 the Fund received an offer to purchase the property. In July 1996 the Fund
sold the Orland Park location for $1,069,000. After payment of 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.
In early 1996 the Fund received a purchase offer for the Morrow, Georgia
location, from a potential buyer not affiliated with the MITS or the Advisor.
The Fund, however, was not able to reach an acceptable agreement with the buyer,
and continued to market the property through the second quarter. No other viable
offers were received and the property was subsequently removed from the market.
The Fund continues to negotiate with Pearle Inc. to extend or modify the lease
for the Morrow location, which by its current lease terms would expire on
January 31, 1999.
As discussed in Note 8 to the consolidated financial statements, Phar-Mor, a
lessee responsible for 4 percent of lease income for 1993, 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 following the closure of the
store in April and, as discussed in Note 8 to the consolidated financial
statements, the Fund filed claims in the bankruptcy proceedings. The Fund
determined that based upon the closure of the Phar-Mor store, and current Ohio
market conditions, recovery of the carrying value of that property appeared
unlikely. Accordingly, a provision for impairment of value of $780,000 was
recognized in 1993 to reduce the carrying value of the property based upon the
estimated economic loss to the Fund. In the fourth quarter of 1994, the Fund
received an unsolicited purchase offer for the building. Following negotiations,
a purchase and sale agreement was executed. The transaction closed escrow on
March 15, 1995 at a sales price of $3,050,000. After expenses of sale of
$126,000 (including real estate commissions of $91,000 paid to outside brokers),
the proceeds to the Fund were approximately $2,924,000. At the date of sale, the
carrying amount of land, improvements and unamortized leasing commissions, after
a $780,000 provision for impairment of value recognized in 1993, was $2,798,000.
The gain on the sale was $126,000.
In September 1994, the Board of Directors approved the purchase, by the Fund's
subsidiary, of a 55,000 square foot free standing retail building located along
a major transportation corridor in Plano, Texas. The purchase price for the
property, which was built in 1988 and expanded in early 1994, was $4,083,000,
including acquisition fees and expenses. The store, leased to Haverty's
Furniture Companies, Inc., is subject to a 15 year lease, with an additional
renewal option for five years. The tenant is responsible for all operating
expenses, including taxes, maintenance and insurance expenses. Haverty's,
established in 1885, is one of the largest publicly-owned furniture retailers in
the country and owns and operates 89 stores throughout the Southeast and Texas.
The seller of the property was the original developer, Rosewood Real Estate
Investment, Inc. The purchase closed on December 22, 1994.
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 an interest in purchasing the Store at a price
acceptable to the Fund. The property was subsequently withdrawn from the market
and will be held until market conditions improve.
The impact of inflation on the Fund's revenues and expenses cannot be
determined. It is also impossible to predict the impact of inflation on the
ultimate sales price of the properties which the Fund has acquired and on the
market values of mortgage-backed securities. 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 Advisor anticipates that the Fund will have sufficient resources to meet its
capital and operating requirements into the foreseeable future.
11
<PAGE>
Item 8. Financial Statements and Financial Statement Schedules.
METRIC INCOME TRUST SERIES, INC.,
a California corporation
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................................................ 13
Consolidated Financial Statements:
Balance Sheets at December 31, 1996 and 1995 .......................................................... 14
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.......................... 15
Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994................ 16
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.......................... 17
Notes to Consolidated Financial Statements............................................................. 18
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996....................... 26
Financial statements and financial statement schedules not included have been omitted because of the absence of
conditions under which they are required or because the information is included elsewhere in the consolidated
financial statements.
</TABLE>
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Metric Income Trust Series, Inc., a California corporation:
We have audited the accompanying consolidated balance sheets of Metric Income
Trust Series, Inc., a California corporation ("the Fund"), as of December 31,
1996 and 1995 and the related consolidated statements of operations,
Shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994. Our audits also included the financial statement schedules of the Fund
listed in the accompanying table of contents. These financial statements and
financial statement schedules are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Fund at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information shown therein.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Fund changed its method of accounting for mortgage-backed securities.
Ernst & Young LLP
San Francisco, California
January 23, 1997, except Note 11 as
to which the date is March 12, 1997
13
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash ........................................................... $ 3,781,000 $ 976,000
Accounts and Interest Receivable ............................... 669,000 412,000
Investment in Mortgage-Backed Securities - Net ................. 7,251,000 8,575,000
Rental Properties .............................................. 14,798,000 30,889,000
Accumulated Depreciation ....................................... (1,286,000) (2,784,000)
------------ ------------
Properties and Improvements - Net ......................... 13,512,000 28,105,000
Real Estate Held for Sale ...................................... 10,612,000 4,135,000
Prepaid and Other Assets ....................................... 114,000 8,000
------------ ------------
Total Assets .............................................. $ 35,939,000 $ 42,211,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Dividends Payable .............................................. $ 3,888,000 $ 1,264,000
Payable to Sponsor and Affiliates .............................. 9,000 22,000
Other Accounts Payable and Accrued Liabilities ................. 187,000 308,000
------------ ------------
Total Liabilities ......................................... 4,084,000 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 .................. (23,521,000) (14,947,000)
Unrealized Holding Gain on Investment
in Mortgage-Backed Securities - Net ....................... 170,000 358,000
------------ ------------
Total Shareholders' Equity ................................ 31,855,000 40,617,000
------------ ------------
Total Liabilities and Shareholders' Equity ................ $ 35,939,000 $ 42,211,000
============ ============
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Lease income ................................................ $4,109,000 $4,300,000 $ 3,497,000
Interest on mortgage-backed securities ...................... 611,000 702,000 847,000
Interest and other income ................................... 166,000 138,000 279,000
Gain on sale of mortgage-backed securities - net ............ -- 16,000 47,000
---------- ---------- -----------
Total Revenues ........................................... 4,886,000 5,156,000 4,670,000
---------- ---------- -----------
Expenses (including $467,000, $454,000 and $414,000 paid or
payable to advisor and affiliates in 1996, 1995 and 1994):
Depreciation ................................................ 397,000 652,000 641,000
General and administrative .................................. 697,000 700,000 738,000
---------- ---------- -----------
Total Expenses ........................................... 1,094,000 1,352,000 1,379,000
---------- ---------- -----------
Income Before Gain (Loss) on Sale of Properties
and Extraordinary Items ................................. 3,792,000 3,804,000 3,291,000
Gain (Loss) on Sale of Properties - Net ..................... 760,000 126,000 (32,000)
Extraordinary Items - Net ................................... -- -- (371,000)
---------- ---------- -----------
Net Income .................................................. $4,552,000 $3,930,000 $ 2,888,000
========== ========== ===========
Net Income per Share
Income before gain (loss) on sale of properties and
extraordinary items $0.60 $0.60 $0.52
Gain (loss) on sale of properties - net 0.12 0.02 -
Extraordinary items - net - - (0.06)
----- ----- -----
Net Income per Share $0.72 $0.62 $0.46
===== ===== =====
Dividends per Share $2.08 $1.26 $0.85
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<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, 1994 ................ 6,321,641 $ 6,000 $55,200,000 $ (8,427,000) $ $46,779,000
Effect of Adopting Statement of Financial
Accounting Standard No. 115 ........ 713,000 713,000
Unrealized Holding Loss
On Investment in Mortgage-Backed
Securities - Net ................... (1,032,000) (1,032,000)
Income Before Loss on
Sale of Property and
Extraordinary Items ................ 3,291,000 3,291,000
Loss on Sale of Property ................ (32,000) (32,000)
Extraordinary Items - Net ............... (371,000) (371,000)
Dividends Declared ...................... (5,373,000) (5,373,000)
--------- ----- ---------- ----------- --------- -----------
Balance, December 31, 1994 .............. 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 ................... 677,000 677,000
Income Before Gain on
Sale of Property ................... 3,804,000 3,804,000
Gain on Sale of Property ................ 126,000 126,000
Dividends Declared ...................... (7,965,000) (7,965,000)
--------- ----- ---------- ----------- --------- -----------
Balance, December 31, 1995 .............. 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 ................... (188,000) (188,000)
Income Before Gain on
Sale of Properties ................. 3,792,000 3,792,000
Gain on Sale of Properties - Net ........ 760,000 760,000
Dividends Declared ...................... (13,126,000) (13,126,000)
--------- ----- ---------- ----------- --------- -----------
Balance, December 31, 1996 .............. 6,321,641 $ 6,000 $55,200,000 $(23,521,000) $ 170,000 $31,855,000
========= ===== ========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
Operating Activities
<S> <C> <C> <C>
Net income ...................................................................... $ 4,552,000 $ 3,930,000 $ 2,888,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 389,000 642,000 640,000
Gain on sale of mortgage-backed securities - net ............................. (16,000) (47,000)
(Gain) loss on sale of properties ............................................ (760,000) (126,000) 32,000
Extraordinary items - net .................................................... 371,000
Changes in operating assets and liabilities:
Accounts and interest receivable ...................................... (332,000) (296,000) 58,000
Prepaid and other assets .............................................. (106,000) 9,000 (93,000)
Payable to sponsor and affiliates ..................................... (13,000) (48,000) (23,000)
Other accounts payable and accrued liabilities ........................ (121,000) 93,000 (134,000)
------------ ----------- -----------
Net cash provided by operating activities ....................................... 3,609,000 4,188,000 3,692,000
------------ ----------- -----------
Investing Activities
Rental properties acquisitions and additions .................................... (59,000) (4,250,000)
Acquisition fee paid ............................................................ (56,000)
Purchase of cash investments .................................................... (2,855,000) (1,876,000)
Proceeds from cash investments .................................................. 2,855,000 1,876,000
Purchase of mortgage-backed securities .......................................... (301,000) (1,140,000)
Proceeds from sale of mortgage-backed securities ................................ 303,000 1,419,000
Principal payments received on mortgage-backed securities ....................... 1,144,000 626,000 3,066,000
Proceeds from sales of properties ............................................... 9,039,000 3,050,000 91,000
Cash used for selling costs of properties ....................................... (485,000) (126,000)
------------ ----------- -----------
Net cash provided (used) by investing activities ................................ 9,698,000 3,493,000 (870,000)
------------ ----------- -----------
Financing Activities
Dividends paid to Shareholders .................................................. (10,502,000) (8,044,000) (5,373,000)
Consulting fees paid ............................................................ (709,000)
------------ ----------- -----------
Cash used by financing activities ............................................... (10,502,000) (8,044,000) (6,082,000)
------------ ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents ................................ 2,805,000 (363,000) (3,260,000)
Cash and cash equivalents at beginning of year .................................. 976,000 1,339,000 4,599,000
------------ ----------- -----------
Cash and Cash Equivalents at End of Year ........................................ $ 3,781,000 $ 976,000 $ 1,339,000
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized holding gain (loss) on investment in mortgage-backed securities - see note 3.
Sale of rental properties in 1996 and 1995 - see note 10.
See notes to consolidated financial statements.
</TABLE>
17
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization - Metric Income Trust Series, Inc., a California corporation
("Fund"), was organized in 1989 under the laws of the State of California
to acquire income producing real properties and investments in securities
which are guaranteed as to payment of principal and interest by the U.S.
Government, U.S. Government agencies or instrumentalities, or federally
chartered corporations. The Fund qualifies as a real estate investment
trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code. Metric Realty (formerly known as Metric Partners), an Illinois
general partnership ("Sponsor" and "Advisor"), is the Sponsor and Advisor
of the Fund. The general partners of Metric Realty are Metric Realty Corp.
and Metric Holdings, Inc., Delaware corporations which are wholly owned
subsidiaries of Metropolitan Life Insurance Company. As the Advisor,
Metric Realty has entered into an advisory agreement with the Fund under
which it will furnish day-to-day management and carry out the investment
objectives and policies established by the Board of Directors. The term of
the Advisory Agreement is expected to be extended by the Board of
Directors to March 31, 1998. The Sponsor owns 21,506 Shares of common
stock.
Consolidation - The consolidated financial statements include the
statements of the Fund, and its wholly-owned subsidiary which owns all
properties located in Texas. All significant intercompany transactions and
balances have been eliminated.
Fair Value of Financial Instruments - Except for the Fund's investment in
mortgaged-backed securities, the fair values of the Fund's financial
instruments approximate their historic cost, as reported in the balance
sheet. In accordance with FASB Statement 115 (see below), the Fund's
investments in mortgage-backed securities are reported at fair value.
Change in Accounting Principle - In June 1993, the Financial Accounting
Standards Board (FASB) issued Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". In accordance with this
Statement 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. The Fund's investment in
mortgage-backed securities is stated at amortized cost at December 31,
1993. The effect of adopting this statement at January 1, 1994 was to
increase mortgage-backed securities and Shareholders' equity by $713,000.
New Accounting Pronouncement - In March 1995, the FASB issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). This statement requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets during the holding period are
less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Fund adopted SFAS 121 in the fourth quarter of 1995. No impairment losses
were required to be recorded as a result of adopting SFAS 121.
Use of Estimates - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Fund considers highly liquid investments
with an original maturity date of three months or less at the time of
purchase to be cash equivalents.
18
<PAGE>
Rental Properties - Rental properties are stated at cost. Prior to 1995, a
provision for impairment of value is recorded when a decline in value of
property is determined to be other than temporary as a result of one or
more of the following: (1) a property is offered for sale at a price below
its current carrying value, (2) a property has been, and is expected to
continue generating significant operating deficits and the Fund is unable
or unwilling to sustain such deficit results of operations or, (3) a
property's value has declined based on management's expectations with
respect to projected future operational cash flows during the expected
holding period and prevailing economic conditions. An impairment loss is
indicated when the undiscounted sum of estimated future cash flows from an
asset, including estimated sales proceeds, and assuming a reasonable
period of ownership up to 5 years, is less than the carrying amount of the
asset. The impairment loss is measured as the difference between the
estimated fair value and the carrying amount of the asset. As of December
31, 1995, the carrying value of the rental properties is determined in
accordance with SFAS 121.
Real Estate Held for Sale - Real estate held for sale is stated at the
lower of its carrying amount or estimated fair value less disposal costs.
Estimated fair value for financial reporting purposes is computed using
the estimated sales price approved by the Board of Directors. Depreciation
is not recorded on assets classified as held for sale.
In the course of business, the Fund will receive offers for sale of its
properties, either solicited or unsolicited. For those offers which are
accepted, the buyer will usually require a due diligence period before
consummation of the transaction; it is not unusual for matters to arise
which result in withdrawal of the offer during this process. As a result,
real estate is not classified as "held for sale" until it is likely, in
the opinion of management, that a property will be disposed of in the near
term, even if sales negotiations for such property are underway.
Revenue Recognition - Rental revenue under tenant lease agreements is
recognized on the straight-line method over the lease terms except where
such amounts are immaterial or where the underlying tenants are
experiencing financial difficulties. Once difficulties are resolved,
rental revenue is straight lined (unless the adjustment is immaterial) on
prospective rental streams for tenants who have resolved or mitigated
their financial difficulties.
Depreciation - Depreciation is computed using the straight-line method
over estimated useful lives of 30 years for buildings and improvements.
Beginning in the fourth quarter of 1995, properties categorized as real
estate held for sale are not depreciated as a result of the Fund adopting
SFAS 121.
Mortgage-Backed Securities - Mortgage-backed securities consist of
certificates originated under or in connection with Federal housing
programs of the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC") and are guaranteed as to payment of principal and
interest. The Fund's intent is to hold these securities as available-for-
sale investments. The Fund will sell and re-invest in mortgage pools to
adjust the cash flow from these investments. Discounts are amortized over
the terms of the related securities using the interest method. Prior to
1994 mortgage-backed securities were carried at the lower of amortized
cost or market. As a result of the adoption of FASB Statement No. 115 in
1994, as discussed above, mortgage-backed securities are carried at fair
value.
Net Income and Dividends Per Share - Net income and dividends per Share
are based upon 6,321,641 Shares outstanding for each of the years ended
December 31, 1996, 1995 and 1994. Dividends per Share were composed of
$.52 ordinary income, $.10 capital gains and $1.46 return of capital in
1996, $.47 ordinary income, $.01 capital gains and $.78 return of capital
in 1995, and $.45 ordinary income, $.01 capital gains and $.39 return of
capital in 1994.
Income Taxes - The Internal Revenue Code provides that a corporation can
qualify as a REIT if, among other things, the corporation distributes at
least 95 percent of its taxable income to Shareholders each year. If the
corporation distributes at least 95 percent of its taxable income to
Shareholders, such distributions can be treated as deductions for income
tax purposes. Because the Fund qualifies as a REIT and had distributed
amounts in excess of its taxable income for 1996, 1995, and 1994, no
provision for income taxes has been made in the accompanying consolidated
financial statements.
19
<PAGE>
The tax basis of the Shareholders' equity differs at December 31, 1996
from the amounts presented in the consolidated balance sheet as follows:
Financial statement basis of Shareholders' equity $31,855,000
Tax basis of Shareholders' equity 31,684,000
-----------
Difference $ 171,000
===========
The difference consists primarily of adjustments made for depreciation
less straight-lined rental revenue and unrealized holding gain on
investment in mortgage-backed securities.
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 Fund. Amounts earned
by the Advisor and its affiliates for the years ended December 31, 1996,
1995 and 1994 were as follows:
1996 1995 1994
---- ---- ----
Reimbursement of administrative expenses . $200,000 $160,000 $112,000
Securities management fee ............... 38,000 44,000 51,000
Advisory fee ............................ 229,000 250,000 251,000
Acquisition fee ............... ......... 56,000
-------- -------- --------
$467,000 $454,000 $470,000
======== ======== ========
The securities management fee is earned by State Street Research and
Management Company, an affiliate of Metropolitan Life Insurance Company.
Through March 31, 1994, the quarterly advisory fees paid to the Advisor
were calculated at an annual rate of 0.75 percent of the asset value of
the Fund's properties, which asset value was based on the original
purchase price of the properties, adjusted annually based on changes in
the Consumer Price Index. Under the terms of the Advisory Agreement, 50
percent of the fees were subordinated to the payment of an annualized
dividend payment equaling at least 8.5 percent of the Shareholders'
adjusted capital contribution. Pursuant to an amendment of the Advisory
Agreement approved by the Independent Directors in March 1994, 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 9.1% 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.
3. Mortgage-Backed Securities
As a result of adopting FASB Statement No. 115, a $713,000 net unrealized
holding gain on investments in mortgage-backed securities was reported in
1994 reflecting the cumulative effect upon adoption of the Statement on
January 1. In addition, during 1996, 1995 and 1994, the Fund incurred a
$188,000 unrealized holding loss, $677,000 unrealized holding gain and a
$1,032,000 unrealized holding loss on investments in mortgage-backed
securities, respectively, resulting in a cumulative net unrealized holding
gain of $170,000 at December 31, 1996 and a cumulative net unrealized
holding gain of $358,000 at December 31, 1995.
20
<PAGE>
Mortgage-backed securities at December 31, 1996 and December 31, 1995 are
carried at fair value and amortized cost, respectively, as follows:
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
---- ----- ------ -----
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
========== ======== ========== ==========
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 1995 and 1994 were $303,000 and $1,419,000, respectively.
The gross realized gains on the sales in 1995 and 1994 were $16,000 and
$59,000, respectively. The gross realized losses on sales in 1994 were
$12,000. Specific identification was used to determine amortized cost in
computing the gains and losses.
4. 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.
21
<PAGE>
5. Rental Properties
Rental properties at cost at December 31, 1996 and 1995 are summarized as
follows:
Other
Convenience Retail
Stores Stores Total
------ ------ -----
1996:
Land ..................... $ 7,145,000 $ 7,145,000
Buildings and improvements 7,653,000 7,653,000
Accumulated depreciation . (1,286,000) (1,286,000)
------------ ------------
Total .................... $ 13,512,000 $ 13,512,000
============ ============
1995:
Land ..................... $ 7,303,000 $ 7,403,000 $ 14,706,000
Buildings and improvements 7,533,000 8,650,000 16,183,000
Accumulated depreciation . (1,548,000) (1,236,000) (2,784,000)
------------ ------------ ------------
Total .................... $ 13,288,000 $ 14,817,000 $ 28,105,000
============ ============ ============
In July 1996, the sixteen National Convenience Stores located in
California, Georgia and Texas were reclassified to real estate held for
sale (see Note 6). Subsequently, two of the stores were sold in the fourth
quarter of 1996 (see Note 10).
In July 1996, the Pearle Express Store located in Orland Park, Illinois
was sold (see Note 10).
In October 1995, Sam's Club located in Menomonee Falls, Wisconsin was
reclassified to real estate held for sale (see Note 6). The property was
subsequently sold in June 1996 (see Note 10).
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 subsequently sold in
the fourth quarter of 1996 (see Note 10). In accordance with the Fund's
accounting policies, the remaining fourteen stores were classified as real
estate held for sale at December 31, 1996. The lease income from these
fourteen stores for 1996, 1995 and 1994 was $1,536,000 (including deferred
lease income recognized of $212,000), $1,536,000 (including deferred lease
income recognized of $238,000) and $1,273,000, respectively. Depreciation
was $106,000 for the six months ended June 30, 1996, and $212,000 for 1995
and 1994. No depreciation was provided for the six months ended December
31, 1996.
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, and the property was subsequently
sold in June 1996 (see Note 10). In accordance with the Fund's accounting
policies, the property was classified as real estate held for sale at
December 31, 1995. The lease income from the property for 1996, 1995, 1994
was $284,000, $524,000, and $511,000, respectively. Depreciation was
$101,000 for the nine months ended September 30, 1995, and $135,000 for
1994. No depreciation was provided for 1996 and the fourth quarter of
1995.
22
<PAGE>
7. Minimum Future Lease Income
Minimum future lease income based on contractual payment obligations from
operating leases having noncancelable lease terms in excess of one year,
excluding the property classified as real estate held for sale as
discussed in Note 6, is as follows:
1997 ...................................... $ 1,852,000
1998 ...................................... 1,852,000
1999 ...................................... 1,776,000
2000 ...................................... 1,804,000
2001 ...................................... 1,814,000
Thereafter ................................ 7,049,000
-----------
Total ..................................... $16,147,000
===========
8. Commitment and Contingencies (Major Tenant Developments)
National Convenience Stores ("NCS") was the seller and lessee of 19
properties operated as Stop N Go convenience stores acquired by the Fund.
In December 1991, NCS filed a petition with the U.S. Bankruptcy Court in
Houston, Texas for reorganization under Chapter 11 of the federal
Bankruptcy Code. Its reorganization plan was confirmed by the Court and
became effective in March 1993. The Fund filed a claim with the Bankruptcy
Court and reached a settlement with NCS. As payment for the claim, the
Fund has 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 (see Note 10).
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% 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 (see Note 10).
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 totaling $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. It is anticipated that the Fund
will receive shares of stock with an estimated value of $8,000 to $10,000
to satisfy this allowed claim.
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 (see Note 10).
23
<PAGE>
9. Extraordinary Items
A $237,000 gain on extinguishment of debt included in extraordinary items
in 1994 represents debt forgiveness related to a reduction in the amount
of a consulting fee owed by the Fund to its Advisor. Under the Advisory
Agreement referenced in Note 2, the Fund was obligated to pay a $946,000
consulting fee to the Advisor. Pursuant to the June 1989 consulting
agreement between the Advisor and Prudential-Bache Properties, Inc.
("Prudential"), Prudential agreed to provide the Advisor with consultation
and advice relating to the day-to-day management of the Fund, for which
services Prudential was to receive the $946,000 consulting fee payable to
the Advisor by the Fund as well as a portion of the advisory fee and other
contingent compensation payable to the Advisor. This liability was
recorded by the Fund along with a deferred consulting fee. Prudential and
the Advisor terminated their consulting agreement effective March 31,
1994, and in connection therewith, Prudential accepted $709,000 (75% of
the consulting fee) from the Advisor in full satisfaction of the
consulting fee. In turn, the Advisor agreed in an amendment of the
Advisory Agreement to accept, and on April 27, 1994 accepted, $709,000
from the Fund as payment in full of the consulting fee owed to the Advisor
by the Fund, thus passing on to the Fund the $237,000 savings from the
reduction in the consulting fee.
In connection with the above transaction, the $608,000 remaining balance
of deferred consulting fees was written off in the first quarter of 1994
and is also included as an extraordinary item.
10. Sale of Rental Properties
In June 1996 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 $168,000 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. The Fund's Advisor has since negotiated an extension with the
tenant and the buyer which requires completion by June 1, 1997. Once the
repairs have been completed to the satisfaction of the buyer, the
remaining escrow funds will be released to the Fund.
In July 1996 the Fund sold the Pearle Express Store located in Orland
Park, Illinois 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.
In November 1996 the Fund sold the Stop N Go Store #674 located in Rancho
Cucamonga, California for $1,650,000. After payment of the expenses of
sale of $103,000 (including real estate commissions of $93,000 paid to
outside brokers) the proceeds received by the Fund were approximately
$1,547,000. The carrying value at the time of sale was $1,038,000
(including $37,000 deferred lease income receivable). The gain recognized
at the time of sale was $509,000.
In December 1996 the Fund sold the Stop N Go Store #3755 located in
Houston, Texas for $1,410,000. After payment of the expenses of sale of
$100,000 (including real estate commissions of $81,000 paid to outside
brokers) the proceeds received by the Fund were approximately $1,310,000.
The carrying value at the time of sale was $1,587,000 (including $38,000
deferred lease income receivable). The loss recognized at the time of sale
was $277,000.
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 $126,000 (including real estate commissions of $91,000
paid to outside brokers) the proceeds received by the Fund were
approximately $2,924,000. 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
$126,000.
24
<PAGE>
11. Subsequent Events
In February 1997 the Fund 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 $16,000 real estate commissions 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 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 $16,000 real estate commissions 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 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 $80,000 real estate commission 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.
25
<PAGE>
<TABLE>
SCHEDULE III
METRIC INCOME TRUST SERIES, INC.,
a California corporation
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
All amounts in thousands
COLUMNS
A B C D E F G
- - ------------------------------------------------------------------------------------------------------------------------------------
Cost capitalized Gross amount at which
Initial Cost to Fund subsequent to acquisition carried at close of period(1)
-------------------- ------------------------- -----------------------------
<CAPTION>
Buildings
Buildings and Date
and Improve- Carrying Improve- Accumulated of con- Date ac-
Description Land Improvements ments Costs Land ments Total(2) depreciation(3)(4) struction quired
- - ----------- ---- ------------ ----- ----- ---- ----- -------- ------------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pearle Express
Store
Morrow, GA $ 333 $ 838 $ $ $ 333 $ 838 $ 1,171 $ 200 1977 11/89
Wickes
Furniture
Store
Torrance, CA 5,801 3,740 5,801 3,740 9,541 873 1988 01/90
Haverty's
Furniture
Store
Plano, TX 1,011 3,072 3 1,011 3,075 4,086 213 1988 12/94
------ ------ -- -- ------ ------ ------- ------
Total $7,145 $7,650 $3 $ $7,145 $7,653 $14,798 $1,286
====== ====== == == ====== ====== ======= ======
</TABLE>
See accompanying notes.
26
<PAGE>
<TABLE>
SCHEDULE III
METRIC INCOME TRUST SERIES, INC.,
a California corporation
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<CAPTION>
NOTES:
<S> <C>
(1) The aggregate cost for Federal income tax purposes is $14,798,000.
(2) Balance, January 1, 1994...................................................... $35,344,000
Property acquisitions (initial cost to Fund) ................................. 4,055,000
Improvements capitalized subsequent to acquisition ........................... 251,000
Cost of land sold ............................................................ (123,000)
-----------
Balance, December 31, 1994 ................................................... 39,527,000
Property acquisitions (initial cost to Fund) ................................. 28,000
Improvements capitalized subsequent to acquisition ........................... 31,000
Cost of property and improvements sold ...................................... (3,832,000)
Property reclassified to real estate held for sale ........................... (4,865,000)
-----------
Balance, December 31, 1995 ................................................... 30,889,000
Cost of property and improvements sold ....................................... (1,255,000)
Property reclassified to real estate held for sale ........................... (14,836,000)
-----------
Balance, December 31, 1996 ................................................... $ 14,798,000
===========
(3) Balance, January 1, 1994...................................................... $ 3,347,000
Additions charged to expense ................................................. 641,000
-----------
Balance, December 31, 1994 ................................................... 3,988,000
Additions charged to expense ................................................. 652,000
Accumulated depreciation on improvements sold ................................ (346,000)
Provision on property sold ................................................... (780,000)
Accumulated depreciation on property reclassified to real estate held for sale (730,000)
-----------
Balance, December 31, 1995 ................................................... 2,784,000
Additions charged to expense ................................................. 397,000
Accumulated depreciation on improvements sold ................................ (221,000)
Accumulated depreciation on property reclassified to real estate held for sale (1,674,000)
-----------
Balance, December 31, 1996 ................................................... $ 1,286,000
===========
(4) Depreciation is computed on life of 30 years.
</TABLE>
27
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Information with respect to directors and executive officers of the Registrant
in Item 10 and the information required by Items 11 - 13 is incorporated by
reference to the proxy material of the Registrant in connection with its Annual
Meeting of Shareholders scheduled for June 1997.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a) 1. and 2. See Item 8 of this Form 10-K for Consolidated Financial
Statements for the Fund, Notes thereto, and Financial Statement Schedules.
(A table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.)
(b) The following reports on Form 8-K was required to be filed during the last
quarter covered by this Report:
On November 22, 1996, and December 23, 1996, Reports were filed on Form
8-K reporting the disposition of the Rancho Cucamonga, California and
Harris County (Houston), Texas convenience store properties, respectively.
On January 8, 1997, and January 29, 1997, subsequent to the close of the
quarter, the Reports filed on November 22, 1996 and December 23, 1996 were
amended to include additional information concerning the disposition of
the properties.
(c) List of Exhibits (numbered in accordance with Item 601 of Regulation S-K):
3.1 Restated Articles of Incorporation of the Registrant. Incorporated
by reference to Post-Effective Amendment No. 1 to the Registrant's
Form S-11 Registration Statement filed with the Commission on
September 29, 1989.
3.2 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's Form
S-11 Registration Statement filed with the Commission on September
29, 1989.
10.1 Advisory Agreement dated June 29, 1989, between the Registrant and
Metric Realty. Incorporated by reference to Post-Effective Amendment
No. 1 to the Registrant's Form S-11 Registration Statement filed
with the Commission on September 29, 1989.
10.2 First Amendment to Advisory Agreement dated January 1, 1991.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for 1990 filed with the Commission on March 25, 1991.
10.3 Second Amendment to Advisory Agreement dated April 1, 1991.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for 1990 filed with the Commission on March 25, 1991.
10.4 Third Amendment to Advisory Agreement dated April 1, 1992.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for 1993 filed with the Commission on February 25, 1994.
10.5 Fourth Amendment to Advisory Agreement dated April 1, 1993.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for 1993 filed with the Commission on February 25, 1994.
10.6 Securities Management Agreement dated June 29, 1989, between the
Registrant and Federal Street Financial Advisors, Inc. Incorporated
by reference to Post-Effective Amendment No. 1 to the Registrant's
Form S-11 Registration Statement filed with the Commission on
September 29, 1989.
28
<PAGE>
10.7 Custodial Services Agreement dated July 17, 1989 between Citibank,
N.A. Incorporated by reference to Post-Effective Amendment No. 2 to
the Registrant's Form S-11 Registration Statement filed with the
Commission on February 28, 1990.
10.8 Indemnification Agreements dated May 7, 1991, between Registrant and
the following: William G. Moeckel, Jr., Donald K. Devine, William F.
Garlock, W. Patrick McDowell and Robert M. Rouse. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for 1993
filed with the Commission on February 25, 1994.
10.9 Indemnification Agreements dated February 11, 1994, between
Registrant and the following: Carroll Archibald, Robert A. Fiddaman,
Margot M. Giusti, Herman H. Howerton and Joyce Jaber. Incorporated
by reference to the Registrant's Annual Report on Form 10-K for 1993
filed with the Commission on February 25, 1994.
10.10 Fifth Amendment to Advisory Agreement dated as of April 1, 1994.
Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on February 15, 1995.
10.11 Sixth Amendment to Advisory Agreement dated as of April 1, 1995.
Incorporated by reference to the Registrant's Report on Form 10-Q
filed with the Commission on May 11, 1995.
10.12 Seventh Amendment to Advisory Agreement dated as of April 1, 1996.
Incorporated by reference to the Registrant's Report on Form 10-Q
filed with the Commission on May 14, 1996.
10.13 Assignment and Assumption Agreement dated as of March 27, 1997
between Metric Realty and SSR Realty Advisors, Inc., relating to the
Advisory Agreement.
10.14 Agreement for Purchase and Sale of Sam's Club, dated May 15, 1996,
incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on July 9, 1996, as amended on Form 8-
K/A, filed with the Commission on August 23, 1996.
10.15 Agreement for Purchase and Sale of Pearle Express Store, located in
Orland Park, Illinois, dated May 16, 1996, incorporated by reference
to the Registrant's Report on Form 8-K filed with the Commission on
July 25, 1996, as amended on Form 8-K/A, filed with the Commission
on October 10, 1996.
10.16 Agreement for Purchase and Sale of Circle K Store, located in Rancho
Cucamonga, California, dated November 12, 1996, incorporated by
reference to the Registrant's Report on Form 8-K filed with the
Commission on November 22, 1996, as amended on Form 8-K/A, filed
with the Commission on January 8, 1997.
10.17 Earnest Money Contract for Stop N Go Store, located in Harris County
(Houston), Texas, dated December 3, 1996, incorporated by reference
to the Registrant's Report on Form 8-K filed with the Commission on
December 23, 1996, as amended on Form 8-K/A, filed with the
Commission on January 29, 1997.
16.1 Letter from Deloitte & Touche, LLP dated September 27, 1994 to the
Securities and Exchange Commission. Incorporated by reference to the
Registrant's Report on Form 8-K filed with the Commission on
September 28, 1994.
20.1 Letter dated February 15, 1995 from Registrant to its Shareholders.
Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on February 15, 1995.
20.2 Letter dated February 15, 1996 from Registrant to its Shareholders.
Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on February 15, 1996.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT
METRIC INCOME TRUST SERIES, INC.,
a California corporation
By: /s/ Kevin M. Howley
-------------------------------------
Kevin M. Howley
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 1997
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
By: /s/Thomas P. Lydon, Jr. By: /s/William A. Finelli
--------------------------------- --------------------------
Thomas P. Lydon, Jr. William A. Finelli
Chairman of the Board Director
By: /s/ William G. Moeckel, Jr. By: /s/ William F. Garlock
-------------------------------- --------------------------
William G. Moeckel, Jr. William F. Garlock
Director Director
By: /s/ Margot M. Giusti By: /s/ Robert M. Rouse
-------------------------------- --------------------------
Margot M. Giusti Robert M. Rouse
Executive Vice President and Chief Director
Financial Officer (Principal
Financial and Accounting
Officer)
Date: March 27, 1997
-------------------------------
EXHIBIT 10.13
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT is made as of the 27th day of March, 1997 by and between
METRIC REALTY, an Illinois general partnership having its principal office at
One California Street, San Francisco, California ("Assignor"), and SSR REALTY
ADVISORS, INC., a Delaware corporation having its principal office at One North
Broadway, Suite 500, White Plains, NY 10601 ("Assignee").
RECITALS
Assignor has entered into an Advisory Agreement dated June 29, 1989
between Assignor and Metric Income Trust Series, Inc., a California corporation
("MITS"), as amended (hereinafter referred to as the "Advisory Agreement").
The parties hereto desire that responsibility for the advisory and
other services provided by Assignor for MITS pursuant to the Advisory Agreement
be assumed by Assignee, which pursuant to a merger will become the parent of
Assignor on April 1, 1997, and that all rights of Assignor under the Advisory
Agreement be assigned to Assignee, as of March 27, 1997.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties mutually agree as follows:
1. Assignor hereby sells, assigns, transfers, sets over and conveys to
Assignee, all of Assignor's right, title and interest in, to and under the
Advisory Agreement, to have and to hold the same, together with all rights,
privileges and appurtenances thereunto belonging or appertaining or held and
enjoyed therewith, unto Assignee, for and during the full unexpired term of the
Advisory Agreement, subject to the terms, covenants, obligations, and conditions
contained in the Advisory Agreement.
2. Assignee hereby agrees to and accepts such assignment and, in
addition, expressly assumes and agrees to keep, perform and fulfill all of the
terms, covenants, obligations, and conditions required to be kept, performed and
fulfilled by Assignor under or with respect to the Advisory Agreement to the
extent accruing from and after the date hereof. To the extent permitted by law,
Assignee further agrees to protect, indemnify, defend and hold harmless Assignor
from and against any and all claims, liability, loss, cost, damage and expense
(including reasonable attorneys' fees and costs) directly or indirectly arising
out of or related to any breach or default in Assignee's obligations with
respect to the Advisory Agreement arising from and after the date hereof. To the
extent permitted by law, Assignor agrees to protect, indemnify, defend and hold
harmless Assignee from and against any and all claims, liability, loss, cost,
damage and expense (including reasonable attorneys' fees and costs) directly or
indirectly arising out of or related to any breach or default in Assignor's
obligations with respect to the Advisory Agreement arising prior to the date
hereof.
3. The provisions of this Assignment and Assumption Agreement shall be
binding upon and inure to the benefit of Assignor and Assignee and their
respective successors and assigns.
4. This Assignment and Assumption Agreement shall be subject to consent
by MITS.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
and Assumption Agreement as of the date first set forth above, to be effective
as of such date.
<TABLE>
<CAPTION>
<S> <C>
ASSIGNOR: ASSIGNEE:
METRIC REALTY SSR REALTY ADVISORS, INC.,
an Illinois general partnership a Delaware corporation
By: Metric Realty Corp., a Delaware corporation, By: /s/ Thomas P. Lydon, Jr.
its managing partner Thomas P. Lydon, Jr.
President and Chief Executive Officer
By: /s/ Robert A. Fiddaman
Robert A. Fiddaman
President and Chief Executive Officer
</TABLE>
<PAGE>
CONSENT
The undersigned, in accordance with Section 20 of the Advisory Agreement,
consents to this Assignment and Assumption Agreement.
Dated: March 27, 1997 Metric Income Trust Series, Inc.,
------------------- a California corporation
By: /s/ Kevin M. Howley
------------------------------------
Signature
Kevin M. Howley
------------------------------------
Print Name
President and Chief Executive Officer
------------------------------------
Title
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,781,000
<SECURITIES> 7,251,000
<RECEIVABLES> 669,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 25,410,000
<DEPRECIATION> 1,286,000
<TOTAL-ASSETS> 35,939,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 31,849,000
<TOTAL-LIABILITY-AND-EQUITY> 35,939,000
<SALES> 0
<TOTAL-REVENUES> 4,886,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 697,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,792,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,792,000
<DISCONTINUED> 760,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,552,000
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.00
</TABLE>
