UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------
Commission file number 0-18294
METRIC INCOME TRUST SERIES, INC.,
a California corporation
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3087630
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One California Street
San Francisco, California 94111
- --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports ), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Shares of common stock outstanding as of September 30, 1998: 6,321,641.
- --------------------------------------------------------------------------------
Page 1 of 13
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
1998 1997
---- ----
ASSETS
Cash and Cash Equivalents $ 282,000 $ 19,762,000
Accounts and Interest Receivable 73,000 65,000
Investment in Mortgage-Backed Securities 2,665,000 --
Real Estate Held for Sale 828,000 1,744,000
Prepaid and Other Assets 75,000 54,000
------------ ------------
Total Assets $ 3,923,000 $ 21,625,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Dividends Payable $ -- $ 17,385,000
Payable to Advisor and Affiliates 4,000 50,000
Other Accounts Payable and Accrued
Liabilities 25,000 326,000
------------ ------------
Total Liabilities 29,000 17,761,000
------------ ------------
Commitments and Contingencies
Shareholder's 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 (51,389,000) (51,342,000)
Unrealized Holding Gain on Investment in
Mortgage-Backed Securities 77,000 --
------------ ------------
Total Shareholder's Equity 3,894,000 3,864,000
------------ ------------
Total Liabilities and Shareholder's Equity $ 3,923,000 $ 21,625,000
============ ============
See notes to consolidated financial statements (unaudited).
Page 2 of 13
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METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF INCOME OR LOSS (UNAUDITED)
For the Nine Months Ended
September 30,
-------------------------
1998 1997
---- ----
Revenues:
Lease income $ 98,000 $ 2,409,000
Interest on mortgage-backed securities 78,000 401,000
Interest and other income 80,000 155,000
Gain on sale of mortgage-backed securities - net -- 226,000
----------- -----------
Total Revenues 256,000 3,191,000
----------- -----------
Expenses:
Depreciation -- 128,000
General and administrative 278,000 463,000
Impairment provision for real estate held for
sale -- 1,647,000
----------- -----------
Total Expenses 278,000 2,238,000
----------- -----------
Income (Loss) Before Net Gain (Loss) on Sale
of Properties (22,000) 953,000
Gain (Loss) on Sale of Properties - Net (25,000) 105,000
----------- -----------
Net Income (Loss) $ (47,000) $ 1,058,000
=========== ===========
Net Income (Loss) per Share:
Income (Loss) before net gain (loss) on sale of
properties $ -- $ 0.15
Gain (loss) on sale of properties - net -- 0.02
----------- -----------
Net Income (Loss) per Share $ -- $ 0.17
=========== ===========
Dividends per Share $ -- $ 2.04
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS (UNAUDITED)
For the Nine Months Ended
September 30,
-------------------------
1998 1997
---- ----
Net income (loss) $ (47,000) $ 1,058,000
Unrealized holding gain on investment in
mortgage-backed securities 77,000 --
Realization of unrealized holding gain on
investment in mortgage-backed securities -- (170,000)
----------- -----------
Comprehensive income $ 30,000 $ 888,000
=========== ===========
See notes to consolidated financial statements (unaudited).
Page 3 of 13
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METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF INCOME OR LOSS (UNAUDITED)
For the Three Months Ended
September 30,
--------------------------
1998 1997
---- ----
Revenues:
Lease income $ 27,000 $ 762,000
Interest on mortgage-backed securities 43,000 130,000
Interest and other income 7,000 100,000
Gain on sale of mortgage-backed securities - net -- 226,000
----------- -----------
Total Revenues 77,000 1,218,000
----------- -----------
Expenses:
General and administrative 87,000 138,000
Adjustment to impairment provision for real estate
held for sale -- (695,000)
----------- -----------
Total Expenses 87,000 (557,000)
----------- -----------
Income (Loss) Before Loss on Sale of Properties (10,000) 1,775,000
Loss on Sale of Properties -- (107,000)
----------- -----------
Net Income (Loss) $ (10,000) $ 1,668,000
=========== ===========
Net Income (Loss) per Share:
Income (Loss) before loss on sale of properties $ -- $ 0.28
Loss on sale of properties -- (0.01)
----------- -----------
Net Income (Loss) per Share $ -- $ 0.27
=========== ===========
Dividends per Share $ -- $ 1.41
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS (UNAUDITED)
For the Three Months Ended
September 30,
--------------------------
1998 1997
---- ----
Net income (loss) $ (10,000) $ 1,668,000
Unrealized holding gain on investment in
mortgage-backed securities 57,000
Realization of unrealized holding gain on
investment in mortgage-backed securities (166,000)
----------- -----------
Comprehensive income $ 47,000 $ 1,502,000
=========== ===========
See notes to consolidated financial statements (unaudited).
Page 4 of 13
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METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
Holding
Accumulated Gain/(Loss)on
Common Stock Additional Dividends in Investment in
------------ Paid-in Excess of Mortgage-Backed
Shares Amount Capital Net Income Securities - Net Total
------ ------ ------- ---------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 6,321,641 $ 6,000 $ 55,200,000 $(51,342,000) $ -- $ 3,864,000
Unrealized Holding Gain
on Investment in Mortgage-Backed
Securities 77,000 77,000
Loss Before Loss on
Sale of Properties (22,000) (22,000)
Loss on Sale of Properties (25,000) (25,000)
--------- ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 6,321,641 $ 6,000 $ 55,200,000 $(51,389,000) $ 77,000 $ 3,894,000
========= ============ ============ ============ ============ ============
Balance, January 1, 1997 6,321,641 $ 6,000 $ 55,200,000 $(23,521,000) $ 170,000 $ 31,855,000
Realization of Unrealized Holding
Gain on Investment in Mortgage-
Backed Securities (170,000) (170,000)
Income Before Net Gain on
Sale of Properties 953,000 953,000
Gain on Sale of Properties - Net 105,000 105,000
Dividends Declared (12,896,000) (12,896,000)
--------- ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 6,321,641 $ 6,000 $ 55,200,000 $(35,359,000) $ -- $ 19,847,000
========= ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
Page 5 of 13
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METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
-------------------------
1998 1997
---- ----
Operating Activities
Net Income (Loss) $ (47,000) $ 1,058,000
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization -- 122,000
Gain on sale of mortgage-backed securities -- (226,000)
Impairment provision for real estate held for
sale -- 1,647,000
(Gain) loss on sale of properties - net 25,000 (105,000)
Changes in operating assets and liabilities:
Increase in accounts and interest receivable (8,000) (145,000)
Decrease in prepaid and other assets 5,000 6,000
Decrease in payable to sponsor and affiliates (46,000) (1,000)
Decrease in other accounts payable and
accrued liabilities (301,000) (5,000)
----------- -----------
Net cash provided (used) by operating activities (372,000) 2,351,000
----------- -----------
Investing Activities
Proceeds from sale of mortgage-backed securities -- 4,662,000
Purchase of mortgage-backed securities (2,702,000)
Principal payments received on mortgage-backed
securities 114,000 608,000
Proceeds from sale of properties 1,005,000 3,469,000
Cash used for selling costs of properties (140,000) (335,000)
----------- -----------
Net cash provided (used) by investing
activities (1,723,000) 8,404,000
----------- -----------
Financing Activities
Dividends paid to Shareholders (17,385,000) (7,855,000)
----------- -----------
Cash used by financing activities (17,385,000) (7,855,000)
----------- -----------
Increase (Decrease) in Cash (19,480,000) 2,900,000
Cash at beginning of period 19,762,000 3,781,000
----------- -----------
Cash at End of Period $ 282,000 $ 6,681,000
=========== ===========
SUPPLEMETAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized holding gain on investment in mortgage-backed securities - see Note 8
Sale of rental properties - see Note 6
See notes to consolidated financial statements (unaudited).
Page 6 of 13
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METRIC INCOME TRUST SERIES, INC.,
a California corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to 1997 Audited Consolidated Financial Statements
These unaudited consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included in
the 1997 audited consolidated financial statements.
The financial information contained herein reflects all normal and
recurring adjustments that are, in the opinion of management, necessary for
a fair presentation.
2. Adoption of FAS 130
In 1998, the Fund adopted FAS 130, Reporting Comprehensive Income.
Statement no. 130 requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in
the calculation of net income. Therefore, unrealized holding gains and
losses on mortgage-backed securities are now included on the Consolidated
Statements of Comprehensive Income or Loss.
3. Transactions with Advisor and Affiliates
In accordance with the Advisory Agreement, the Fund pays the Advisor and
its affiliates compensation for services provided to the Fund. Amounts
earned by the Advisor and its affiliates for the nine months ended
September 30, 1998 and 1997 were as follows:
1998 1997
-------- --------
Reimbursement of administrative expenses $ 75,000 $150,000
Securities management fee 7,000 25,000
Advisory fee 50,000 131,000
-------- --------
Total $132,000 $306,000
======== ========
The securities management fee was earned by State Street Research &
Management Company, an affiliate of the Advisor.
The quarterly advisory fees payable to the Advisor under the Advisory
Agreement commencing April 1, 1994 were calculated at a rate of 0.75
percent per annum of the appraised value of the properties. Such fees were
payable in full only if the Fund made annualized dividend payments equaling
at least 8.5 percent of the Shareholders' adjusted capital contribution. To
the extent that the dividend paid for a calendar quarter was less than 8.5
percent on an annualized basis, the advisory fee payable to the Advisor was
proportionately reduced. No dividends were paid for the first quarter of
1998; therefore no advisory fee was earned. In February 1998, the
Independent Directors approved the renewal of the term of the Advisory
Agreement to December 31, 1998 with flat fees of $25,000 per quarter to be
paid to the Advisor with the quarter commencing April 1, 1998.
4. Net Income (Loss) per Share
Net income (loss) per Share is based upon 6,321,641 Shares outstanding.
Page 7 of 13
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5. Contingencies and Major Tenant Developments
In 1997, in connection with the marketing of the convenience stores, the
Fund commissioned Phase I Environmental Site Assessments, which revealed
that Circle K, the tenant of the Rubidoux National Convenience Store
property, had reported hydrocarbon contaminants to regulatory authorities
in April 1994. It is estimated that the total cost to cure the
contamination will not exceed $120,000. Per the terms of the lease, Circle
K was required to notify the Fund at the time of discovery and to promptly
mitigate the problem but no such action was taken. The Fund subsequently
negotiated the specific terms of an indemnification with Circle K, and is
in receipt of an Indemnity Letter executed by Circle K. With this
indemnification, the Advisor believes that the contamination as it is now
defined, will not materially adversely affect the ultimate sale price.
Marketing efforts for the property continue.
The Fund received $76,000 in lieu of 2,638 shares of common stock plus
accrued interest in August 1997 in connection with settlement of its claim
filed in conjunction with the bankruptcy and subsequent reorganization of
NCS. Total compensation received by the Fund in connection with the
settlement approximates $338,000.
6. Sale of Rental Properties
In the first half of 1998, additional expenses of sale were paid and a loss
on sale totaling $11,000 was recognized for the following properties which
were sold in December of 1997: the National Convenience Stores located in
Placentia, California, Marietta, Georgia, and Fort Worth and San Antonio,
Texas and the Wickes Furniture Store located in Torrance, California.
In March 1998, the Fund sold the Pearle Express Store located in Morrow,
Georgia for $1,005,000. After payment of expenses of sale of $103,000
(including real estate commissions of $80,000 paid to outside brokers), the
proceeds received by the Fund were $902,000. The carrying value at the time
of sale was $916,000 (net of the $42,000 provision for impairment of value
recognized in 1997), resulting in a net loss on sale of $14,000.
In July 1997 the Fund's subsidiary, Metric Real Estate L.P., sold National
Convenience Store Stop N Go #2378 located in Arlington, Texas for
$1,413,000. After payment of expenses of sale of $110,000 (including a real
estate commission of $81,000 paid to an outside broker), the proceeds to
the Fund were $1,303,000. The carrying value at the time of sale was
$1,408,000 (including $73,000 deferred lease income receivable), resulting
in a loss of $105,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #3571 located in Sealy, Texas for
$265,000. After payment of expenses of sale of $28,000 (including real
estate commissions of $16,000 paid to outside brokers), the proceeds to the
Fund were $237,000. The carrying value at the time of sale was $303,000
(including $9,000 deferred lease income receivable), resulting in a loss of
$66,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #655 located in Dallas, Texas for
$1,392,000. After payment of expenses of sale of $103,000 (including a real
estate commission of $80,000 paid to an outside broker), the proceeds to
the Fund were $1,289,000. The carrying value at the time of sale was
$715,000 (including $43,000 deferred lease income receivable), resulting in
a gain of $574,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #3592 located in Texas City, Texas for
$135,000. After payment of expenses of sale of $23,000 (including real
estate commissions of $8,000 paid to outside brokers), the proceeds to the
Fund were $112,000. The carrying value at the time of sale was $272,000
(including $7,000 deferred lease income receivable), resulting in a loss of
$160,000.
In February 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #3583 located in Clute, Texas for
Page 8 of 13
<PAGE>
$264,000. After payment of expenses of sale of $29,000 (including real
estate commissions of $16,000 paid to outside brokers), the proceeds to the
Fund were $235,000. The carrying value at the time of sale was $373,000
(including $9,000 deferred lease income receivable), resulting in a loss of
$138,000.
7. 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 and all the National Convenience Stores were
classified as Real Estate Held for Sale at that time. As a result of the
Board of Directors' decision to proceed with an orderly liquidation of the
Fund, the remaining Rental Properties owned by the Fund were classified as
Real Estate Held for Sale as of June 30, 1997. The Fund's remaining one
property (at September 30, 1998) and two properties (at December 31, 1997)
are classified as Real Estate Held for Sale.
Pursuant to FAS 121, real estate held for sale is presented at the lower of
carrying value or fair market less estimated cost to dispose. No further
depreciation is provided after properties are classified as Real Estate
Held for Sale. In the second quarter of 1997, an impairment provision of
$2,342,000 was recorded to reduce the carrying values of Wickes Furniture
Store and the Pearle Express Morrow, Georgia location to their estimated
fair value less cost to sell. This provision was reduced by $695,000 in the
third quarter of 1997. Wickes Furniture was sold in December 1997 and the
Pearle Express Store in March 1998.
8. Mortgage-Backed Securities
During the first half of 1998, the Fund purchased mortgage-backed
securities of the Government National Mortgage Association ("GNMA"). The
securities had a par value of $2,717,000 and were purchased at a $15,000
discount for a net purchase price of $2,702,000. In accordance with FAS 115
and Management's intentions, the Fund's investment in mortgage-backed
securities is classified as "available-for-sale securities" and reported at
fair value with unrealized gains and losses reported as a net amount in a
separate component of Shareholder's Equity. In the first nine months of
1998, the Fund had a $77,000 unrealized holding gain on investment in
mortgage-backed securities. Fair values of mortgage-backed securities at
September 30, 1998 were as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Holding Holding Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
GNMA ......... $2,588,000 $ 77,000 $ 0 $2,665,000
========== ========== ========== ==========
The coupon rate of the securities is 6.5% per annum and the repayment
period terminates in 2024.
For the first nine months of 1997, sales proceeds from mortgage-backed
securities were $6,698,000 resulting in gross realized gains of $244,000
and gross realized losses of $18,000. Specific identification was used to
determine amortized cost in computing the gains and losses. $2,036,000 of
the proceeds was not received until the fourth quarter of 1997 and was
recorded as a receivable at September 30, 1997.
Page 9 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This item should be read in conjunction with Consolidated Financial Statements
and other Items contained elsewhere in this Report.
Properties
A description of the properties in which the Fund or its subsidiary has held an
ownership interest follows:
METRIC INCOME TRUST SERIES, INC.,
a California corporation
PROPERTY AND OCCUPANCY SUMMARY
Occupancy Rate %
at September 30,
Date of ----------------
Size Purchase 1998 1997
-------------- -------- ---- ----
Pearle Express Store
Morrow, Georgia .................. 5,800 sq. ft. 11/89 -- 100
National Convenience Stores (1) ...... 3,100 sq. ft. 11/89 100 100
Wickes Furniture Store
Torrance, California ............. 51,000 sq. ft. 01/90 -- 100
Haverty's Furniture Store
Plano, Texas ..................... 55,000 sq. ft. 12/94 -- 100
________________
(1) To date the Fund has sold all but one of its original portfolio of nineteen
convenience stores. For details of individual properties, see Part I, Items
2 of the Form 10-K Report filed for 1997.
Results of Operations
Income before net gain (loss) on sale of properties and before the impairment
provision for real estate held for sale recorded in the second quarter of 1997
and partially reversed in the third quarter of 1997, decreased $2,622,000 and
$1,090,000, respectively, in the first nine months and third quarter of 1998
compared to the same periods in 1997 primarily due to the sale of fifteen of the
Fund's properties and the mortgage-backed securities portfolio in 1997. As a
result of the sale of fifteen of the Fund's properties in 1997 and the Pearle
Express Store located in Morrow, Georgia on March 3, 1998, lease income
decreased by $2,311,000 and $735,000, respectively, in the first nine months and
third quarter of 1998 compared to the same periods in 1997. Interest on
mortgage-backed securities decreased by $323,000 and $87,000, respectively, in
the first nine months and third quarter of 1998 compared to the same periods in
1997 due to the sale of the Fund's entire mortgage-backed securities portfolio
in the third quarter of 1997 and the Fund's purchase of a much smaller portfolio
which did not earn interest until the second quarter of 1998. Interest and other
income decreased by $75,000 and $93,000, respectively, in the first nine months
and third quarter of 1998 compared to the same periods in 1997 due primarily to
the receipt in the third quarter of 1997 of $76,000 towards settlement of the
Fund's claim in conjunction with the bankruptcy and subsequent reorganization of
NCS.
There was no depreciation expense in the first nine months of 1998 compared to
$128,000 for the same period in 1997 as no depreciation has been recorded since
the second half of 1997 due to the sale of assets or reclassification of assets
to Real Estate Held for Sale (See Note 7 to the consolidated financial
statements).
General and Administrative expenses decreased by $185,000 and $51,000,
respectively, in the first nine months and third quarter of 1998 compared to the
same periods in 1997, primarily due to the fact that no advisory or securities
management fees were paid for the first quarter of 1998 (see Note 3 to the
consolidated financial statements) and that advisory fees, securities management
fees and reimbursement of administrative expenses have all been lower due to the
Fund's reduced assets.
As discussed in Note 6 to the consolidated financial statements, the Fund sold
the Pearle Express Store in Morrow, Georgia in March 1998 resulting in a loss on
sale of $14,000 and paid additional expenses of sale for properties sold in
December 1997, resulting in a loss on sale recognized in the second quarter of
1998 of $11,000.
Page 10 of 13
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The Fund's operations have been primarily dependent upon the overall financial
condition and creditworthiness of the lessees of its real estate properties. The
Fund's single remaining property, operated as a Circle K store, experiences
competition from other similar establishments in its market.
Circle K currently makes lease payments for the Fund's remaining store which it
operates as the result of an exchange transaction in the second quarter of 1994;
however, NCS remains financially liable for the lease. Diamond Shamrock, Inc.
("DSI") purchased the outstanding stock of NCS in December 1995 and NCS became a
wholly-owned subsidiary of DSI. In late 1996 DSI merged with Ultramar
Corporation to form Ultramar Diamond Shamrock Corporation ("UDS").
In August 1996 the Board of Directors approved a sales strategy for the Fund's
remaining convenience stores and in November 1996 the Fund sold the Circle K
store in Rancho Cucamonga, California, followed by the Stop N Go Store in
Houston, Texas in December. In February 1997 the Stop N Go Store in Clute, Texas
was sold, followed by the Stop N Go Stores in Sealy, Dallas, and Texas City,
Texas in March 1997, and the Stop N Go Store located in Arlington (Green Oaks
Blvd.), Texas in July 1997 (see Note 5 to the consolidated financial
statements). In December 1997 the Fund sold the stores located in Marietta,
Georgia; Placentia and Fontana, California; Fort Worth, Grand Prairie, Arlington
(Kennedale), and San Antonio (Babcock Road and Fredericksburg Blvd. locations),
Texas. The Fund remains the owner of one convenience store property operated as
Circle K. In connection with the marketing of its properties, MITS commissioned
Phase I Environmental Site Assessments, which revealed that Circle K, the tenant
of the Rubidoux property, had reported hydrocarbon contaminants to regulatory
authorities in April 1994. Per the terms of the lease, the lessee was required
to notify MITS at the time of discovery and to promptly remediate the property
but no such action was taken. The Fund subsequently negotiated the specific
terms of an indemnification with Circle K, and is in receipt of an Indemnity
Letter executed by Circle K. The Fund continues marketing efforts to effect a
sale of this remaining property.
In the second quarter of 1997 the Board of Directors approved a sales strategy
for the Fund's Haverty's Furniture Store in Plano, Texas and the remaining
Pearle Express Store in Morrow, Georgia, and in the third quarter approved
remarketing the Wickes Furniture Store in Torrance, California. Haverty's was
sold in October 1997 and Wickes was sold in December 1997. The Pearle Express -
Morrow, Georgia location was sold in March 1998.
As previously reported, in September 1997, the Advisor was instructed by the
Board of Directors to liquidate the Fund's holdings in mortgage-backed
securities. These securities were sold in the third quarter of 1997. During the
first half of 1998, the Fund invested cash reserved from sales in the fourth
quarter of 1997 and the bulk of the proceeds from the sale of the Pearle Express
- - Morrow, Georgia location in mortgage-backed securities.
Fund Liquidity and Capital Resources
The Fund intends to meet its cash needs from cash flow generated by its
remaining property and securities that it acquires and holds. In order to
continue to qualify as a REIT for income tax purposes, the Fund is required,
among other things, to distribute 95 percent of its REIT taxable income to its
Shareholders annually. The level of cash distributions to Shareholders through
1998 will be sustained by cash provided from net operating activities, from the
principal repayments on the mortgage-backed securities, from capital gains from
the sale of securities, and from property sale proceeds.
First Three Quarters of 1998
The Fund, after taking into account lease income, other interest income and
general and administrative expenses, experienced negative results from
operations for the period.
As presented in the Consolidated Statement of Cash Flows, cash was provided by
investing activities, from proceeds from sale of a property, and from principal
payments received on mortgage-backed securities, and used for expenses incurred
in the sales of properties and for the purchase of mortgage-backed securities.
Cash was used by financing activities for dividends paid to Shareholders.
As approved by the Board of Directors in the third quarter of 1995, the Fund
marketed for sale the Pearle Express location in Morrow, Georgia through the
second quarter of 1996; however, due to the short term of the existing lease, no
viable offers were received and the property was removed from the market.
Subsequently, the Advisor successfully negotiated an extension to the lease, and
in March 1997 Pearle, Inc. signed an amendment providing for an extension of
eight years in exchange for a blending of the remaining lease obligations with
current market rates. Pursuant to a decision by the Board of Directors, the
Page 11 of 13
<PAGE>
Advisor again marketed the property for sale in the third quarter of 1997. On
March 3, 1998 the property was sold for $1,005,000. After the payment of the
expenses of sale of $103,000 (including real estate commissions of $80,000 paid
to outside brokers), the proceeds to the Fund were $902,000. The carrying value
at the time of sale was $916,000 (net of the $42,000 provision for impairment of
value recognized in 1997), resulting in a net loss on sale of $14,000.
The Advisor anticipates that the Fund will have sufficient resources to meet its
capital and operating requirements through its dissolution.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Fund (or any of its
subsidiaries) is a party or of which any of their property is the subject.
Item 6. Exhibits and Reports on Form 8-K.
a) No reports on Form 8-K were required to be filed during the
last quarter of the period covered by this Report.
Page 12 of 13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRIC INCOME TRUST SERIES, INC.,
a California corporation
By: /s/ William A. Finelli
----------------------
William A. Finelli
Director, Vice President,
Chief Financial Officer,
and Treasurer
Date: November 13, 1998
-----------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 282,000
<SECURITIES> 2,665,000
<RECEIVABLES> 73,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 828,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,923,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 3,888,000
<TOTAL-LIABILITY-AND-EQUITY> 3,923,000
<SALES> 0
<TOTAL-REVENUES> 256,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 278,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (22,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,000)
<DISCONTINUED> (25,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
