-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZ/pEtqLrFG4fEvqn8uq19SZrlTYKAx0RcXDJ+mBuk9GughEh6jZIIeM6vu6RsWc Jh24C4ZGqNcdDKYH4RvZxw== 0000950152-97-005883.txt : 19970814 0000950152-97-005883.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950152-97-005883 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06249 FILM NUMBER: 97658080 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQUARE STREET 2: STE 1900 CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2167814030 MAIL ADDRESS: STREET 1: 55 PUBLIC SQUARE SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 10-Q 1 FIRST UNION REAL ESTATE EQUITY & MORTGAGE 10-Q 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------- For Quarter Ended June 30, 1997 Commission File Number 1-6249 ------------- ------ First Union Real Estate Equity and Mortgage Investments ------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-6513657 ---- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification) No.) Suite 1900, 55 Public Square Cleveland, Ohio 44113-1937 --------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 781-4030 -------------- Former name, former address and former fiscal year, if changed since last report. 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 the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 27,965,298 Shares of Beneficial Interest outstanding as of June 30, 1997 - ------------------------------------------------------------------------------- =============================================================================== Total number of pages contained in this report: 9 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The combined financial statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures contained herein are adequate to make the information presented not misleading. It is suggested that these combined financial statements be read in conjunction with the combined financial statements and the notes thereto included in the registrant's latest annual report on Form 10-K. The unaudited "Combined Balance Sheets" as of June 30, 1997 and December 31, 1996 and "Combined Statements of Income and Combined Statements of Changes in Cash" for the periods ended June 30, 1997 and 1996, of the registrant, and "Notes to Combined Financial Statements," are included herein. These financial statements reflect, in the opinion of the registrant, all adjustments (consisting of normal recurring accruals) necessary to present fairly the combined financial position and results of operations for the respective periods in conformity with generally accepted accounting principles consistently applied. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION In January 1997, the registrant sold a shopping center in Wilkesboro, NC for $9 million in cash. This sale resulted in a capital loss of $4.9 million which was previously provided for by the registrant as part of a $14 million noncash unrealized loss on the carrying value of certain assets identified for disposition recorded in December 1995. The net proceeds were used to repay short-term bank loans. In February 1997, the registrant received repayment of its wraparound mortgage loan investment secured by an apartment complex in Atlanta, GA. The registrant received $16.2 million in cash and a 10%, $1.8 million second mortgage secured by the management agreement on the apartment complex. The proceeds were used to repay $3.4 million in underlying mortgage debt and invest $12.8 million in short-term investments. In April 1997, the registrant's affiliated management company completed the acquisition of voting control of Imperial Parking LTD., (Impark) for $75 million, including the assumption of $26 million of debt. The acquisition was funded with borrowing from the registrant's bank lines of credit and by issuing approximately $10.5 million in non-voting common shares of Impark to its former owners. Due to the former owners continued economic interest in Impark, and the registrant's affiliated management company owning voting control of Impark, the financial statements of Impark are consolidated with those of the registrant's, with all asset and liability balances being recorded using carryover basis accounting. In the first six months of 1997, the registrant repaid mortgage loans totaling $11.3 million. The mortgage loans had a weighted average interest rate of 8.5% and maturity dates between 1998 and 2007. In January 1997 and June 1997 the registrant issued 3,910,000 and 6,325,000 shares of beneficial interest, respectively, resulting in net proceeds of $121 million. The net proceeds were used to repay $25.8 million in short-term bank loans, repay $11.3 million in mortgage loans and invest $39 million in Impark as noted above with the remainder invested in short-term money market investments. Except as noted above, there have been no material changes in financial condition. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations for the first six months of 1997 of approximately $13 million was approximately $7 million greater than the same period of 1996. This increase is primarily attributed to the increase in net income before the preferred dividend and an increase in accounts payable and accrued liabilities. Dividends paid in 1997 of $4.3 million to shares of beneficial interest represented 33% of net cash from operating activities. 2 3 As described above in the first quarter of 1997, the registrant received $16.2 million from the repayment of a mortgage investment and $9 million from the sale of a mall. The proceeds were used to repay mortgage debt related to the mortgage investment and repay amounts outstanding under the bank credit agreement with the balance of the proceeds being invested temporarily in short-term investments. The registrant also invested $9.1 million in its existing portfolio, primarily to complete a tenant alteration at its office technology center in Denver, CO, which is continuing with a re-tenanting and conversion from a retail center to a modern commerce center. In April 1997, the registrant's affiliated management company purchased voting control of Impark for $75 million, including the assumption of $26 million in debt. The purchase was funded through cash held in short-term investments and through short-term borrowings. The net proceeds of $121 million from the January 1997 and June 1997 share offerings were used to repay mortgage and bank loans and invest in Impark. The balance of the proceeds were invested temporarily in short-term investments. During the remaining six months of 1997, the registrant has approximately $1 million of mortgage principal payments and $10 million of tenant and building improvements to fund. These commitments will be funded through existing operations and bank credit facilities. RESULTS OF OPERATIONS Net income applicable to shares of beneficial interest for the second quarter of 1997 and 1996 was $.7 million and $1 million, respectively. Net income applicable to shares of beneficial interest for the second quarter of 1997 included the recognition of $.5 million as an increase in income from a casualty loss at one of the registrant's shopping centers. Additionally, in 1997, net income applicable to shares of beneficial interest was reduced by the accrual of a preferred dividend of $1.2 million. The preferred shares were issued in October 1996. Net income applicable to shares of beneficial interest for the first six months of 1997 and 1996 was $1.7 million and $.1 million, respectively. Net income applicable to shares of beneficial interest for 1997 included a non-cash recognition of $.7 million of income from the repayment of a wraparound mortgage investment, as the proceeds of $18 million exceeded the registrant's basis in the wraparound investment and the recognition of $.5 million in income from a casualty loss at one of the registrant's shopping centers. Net income applicable to shares of beneficial interest for 1997 included $2.4 million for the accrual of a preferred dividend for the preferred shares which were issued in October 1996. Net income applicable to shares of beneficial interest for 1996 included two non-recurring, non-cash charges totaling $1.3 million for the write-off of a tenant allowance and the termination of an employment contract. In September 1996, the registrant invested in a joint venture that owns eight shopping malls and 50% of another mall. The joint venture produced $.3 million in investment income and $.8 million in management fees for the registrant's affiliated management company in the second quarter of 1997 and $.6 million in investment income and $1.6 million in management fees for the first six months of 1997. Mortgage investment income declined when comparing 1997 to 1996 due primarily to the repayment of a wraparound mortgage investment in February 1997, as noted previously. Short-term investment income increased in 1997 as compared to 1996 due to the registrant having an average of $31 million invested in short-term securities in 1997 versus minimal short-term investments in 1996. Property net operating income, which is rental and parking revenues less property operating expenses and real estate taxes was $.6 million and $2.1 million greater when comparing the second quarter of 1997 to that of 1996 on a comparable and non-comparable basis, respectively. The comparable office property portfolio benefited from increased occupancy at a former retail center in Denver, CO which is in the process of being converted into a commerce center and a favorable real estate tax reduction at a Cleveland, OH office building. Property net operating income at the comparable retail, parking and apartment portfolios was consistent when comparing the second quarter of 1997 to that of 1996. On a non-comparable basis, the acquisition of Impark in April 1997 produced $1.5 million of property net operating income. 3 4 Property net operating income was $1.1 million and $2.6 million greater when comparing the first six months of 1997 to the same period of 1996 on a comparable and non-comparable basis, respectively. The comparable office property portfolio produced $1 million in increased property net operating income when comparing 1997 to 1996 primarily due to increased occupancy at a former retail center in Denver CO. and at office buildings in Cleveland, OH and Indianapolis, IN and a favorable real estate tax reduction in Cleveland, OH. The comparable retail portfolio produced an additional $.4 million in property net operating income due to increased rents generated at a mall in St. Cloud, MN and due to the addition of an anchor tenant in Morgantown, WV. The comparable parking portfolio had a decline of $.3 million in property net operating income primarily due to increased real estate tax expense and the expiration of a fixed minimum rent contract. The acquisition of Impark in April 1997 produced $1.5 million in property operating income on a non-comparable basis. Mortgage interest expense increased when comparing the six months of 1997 to that of 1996 due to three mortgage loans totaling $36.5 million obtained in 1996. However, the registrant's repayment of $11.3 million of mortgage loans during the first six months of 1997 partially offsets the full effect of the increase in mortgage expense from the addition of the three mortgages in 1996. Interest on bank loans decreased when comparing the six months ended June 30, 1997 to the same period of 1996. In 1997, the registrant had an average of $11 million in bank borrowing versus $59 million in 1996. The net proceeds from the sale of preferred shares of beneficial interest in October 1996, the proceeds from a sale of a shopping mall in January 1997 and a portion of the net proceeds from the sale of shares of beneficial interest in January 1997 and June 1997 were used to repay short-term bank loans. However, partially offsetting the decrease in bank loan interest and other expense is the addition, in April 1997, of approximately $25 million in bank loans assumed in the acquisition of Impark and the accrual of the liability associated with a put right which is attached to the Impark common shares issued to the former owners of Impark as part of the acquisition consideration. Depreciation and amortization expense increased when comparing the second quarter of 1997 to 1996. This increase in depreciation expense is primarily attributed to the amortization of goodwill related to the acquisition of Impark. Additionally, depreciation and amortization expense increased when comparing the first six months of 1997 to the same period of 1996. This increase in depreciation expense is caused primarily by the amortization of intangible assets from the acquisition of Impark and the registrant's capital improvement program. These increases are partially offset by the non-recurring, non-cash $680,000 write-off of a tenant allowance which occurred in the first quarter of 1996 when the registrant replaced an anchor tenant at one of its malls. General and administrative expenses for the second quarter and six months of 1997 increased when compared to the same periods of 1996. The increase is mainly attributed to the general and administrative expenses from the management of the nine properties acquired in a joint venture for the six months of 1997 and the acquisition of Impark in the second quarter of 1997. The increase in general and administrative expenses for the six months of 1997 was partially offset by a non-recurring, non-cash charge of $650,000 in 1996 for the termination of an employment contract of a former executive. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS: Exhibit (20) - Financial Statements (Unaudited) 4 5 Combined Balance Sheets as of June 30, 1997 and December 31, 1996 Combined Statements of Income for the Three and Six Months ended June 30, 1997 and 1996 Combined Statements of Changes in Cash for the Three and Six Months ended June 30, 1997 and 1996 Notes to Combined Financial Statements (b) REPORTS ON FORM 8-K: Report dated June 4, 1997 regarding sale of 6,325,000 shares of beneficial interest. 5 6 SIGNATURES 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. First Union Real Estate Equity and Mortgage Investments ---------------------------------- (Registrant) Date: August 13, 1997 By: /s/James C. Mastandrea ------------------------------------- James C. Mastandrea, Chairman President and Chief Executive Officer Date: August 13, 1997 By: /s/Steven M. Edelman ------------------------------------ Steven M. Edelman, Executive Vice President, Chief Financial Officer Date: August 13, 1997 By: /s/John J. Dee ----------------------------------- John J. Dee, Senior Vice President, Chief Accounting Officer 6 7 Index to Exhibits -----------------
Page Number ------ Exhibit (11) - Statements Re: Computation of Per Share Earnings .............................................. 8 Exhibit (20) - Financial Statements (unaudited) Combined Balance Sheets as of June 30, 1997 and December 31, 1996.................................. 9 Combined Statements of Income for the Three and Six Months ended June 30, 1997 and 1996................... 9 Combined Statements of Changes in Cash for the Three and Six Months ended June 30, 1997 and 1996..... 9 Notes to Combined Financial Statements................. 9 Exhibit (27) - Financial Data Schedule.................................... 10
7 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND FIRST UNION MANAGEMENT, INC. STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Shares Outstanding: For computation of primary net income per share - Weighted average 23,103 17,171 21,504 17,167 Share equivalents - Options 436 428 - Restricted shares 213 60 210 65 ------- ------- ------- ------- Adjusted shares outstanding 23,752 17,231 22,142 17,232 ======= ======= ======= ======= For computation of fully diluted net income per share - Weighted average, without regard to, exercise under share option plans, or purchase of outstanding shares 23,103 17,171 21,504 17,167 Assumption of exercise under share option plans 471 471 Weighted average of restricted shares granted 225 60 225 65 ------- ------- ------- ------- Adjusted shares outstanding 23,799 17,231 22,200 17,232 ======= ======= ======= ======= Net Income: Net income applicable to shares of beneficial interest (used for computing primary and fully diluted net income per share) $ 727 $ 973 $ 1,697 $ 96 ======= ======= ======= ======= Net income per share of beneficial interest(1): Primary and fully diluted Net income $ .03 $ .06 $ .08 $ .01 ======= ======= ======= =======
(1) The proforma basic earnings per share for the three months and six months ended June 30, 1997 was $.03 and $.08 per share, respectively, in accordance with SFAS 128 (earnings per share). EX-20 3 EXHIBIT 20 1 EXHIBIT 20 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Combined Balance Sheets
Unaudited (In thousands, except shares) June 30, December 31, 1997 1996 ----------------- ------------------ ASSETS Investments in real estate Land $ 56,866 $ 52,891 Buildings and improvements 401,908 406,672 --------- --------- 458,774 459,563 Less - Accumulated depreciation (113,461) (112,614) --------- --------- Total investments in real estate 345,313 346,949 Investment in joint venture 31,396 30,776 Mortgage loans receivable 26,962 42,266 Other assets Cash and cash equivalents 70,959 2,951 Accounts receivable and prepayments 16,125 8,440 Intangible assets 35,565 Management and lease agreements 11,873 Deferred charges, net 10,199 5,225 Unamortized debt issue costs 4,361 3,923 Other assets 8,993 --------- --------- $ 561,746 $ 440,530 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgage loans $ 119,452 $ 129,068 Senior notes 100,000 100,000 Bank loans 22,513 25,800 Accounts payable and accrued liabilities 35,868 14,549 Deferred obligations 10,816 10,825 Deferred capital gains and other deferred income 9,361 7,735 Other liabilities 10,495 Shareholders' equity, including preferred shares of beneficial interest, $25 liquidation preference, 2,300,000 shares authorized and outstanding and shares of beneficial interest, $1 par, unlimited authorization, outstanding 1997 - 27,965,298; 1996 - 17,621,799 253,241 152,553 --------- --------- $ 561,746 $ 440,530 ========= =========
2 EXHIBIT 20 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Combined Statements of Income
Unaudited (In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, ------------------------ -------------------- 1997 1996 1997 1996 ----------- ---------- --------- -------- Revenues Rents $ 56,200 $ 18,086 $ 75,203 $ 36,549 Interest - Mortgage loans 642 1,266 1,573 2,471 - Short-term investments 460 2 808 9 Equity in income from joint venture 247 584 Management fees 840 1,607 Other 557 9 1,293 231 -------- -------- -------- -------- 58,946 19,363 81,068 39,260 -------- -------- -------- -------- Expenses Property operating 41,792 6,010 48,706 13,176 Real estate taxes 2,277 2,046 4,616 4,066 Depreciation and amortization 4,218 3,013 7,448 6,766 Interest - Mortgage loans 2,264 2,240 4,690 4,065 - Senior notes 2,218 2,325 4,437 4,652 - Bank loans and other 1,420 1,349 2,031 2,916 General and administrative 2,823 1,407 5,028 3,523 -------- -------- -------- -------- 57,012 18,390 76,956 39,164 -------- -------- -------- -------- Net income before preferred dividend 1,934 973 4,112 96 Preferred dividend (1,207) (2,415) -------- -------- -------- -------- Net income applicable to shares of beneficial interest $ 727 $ 973 $ 1,697 $ 96 ======== ======== ======== ======== Per share Net income applicable to shares of beneficial interest $ .03 $ .06 $ .08 $ .01 ======== =======- ======== ======== Adjusted shares of beneficial interest 23,752 17,231 22,142 17,232 ======== ======== ======== ========
3 EXHIBIT 20 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Combined Statements of Changes in Cash
Unaudited (In thousands) Three Months Six Months Ended June 30, Ended June 30, ----------------------------- ------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Cash provided by (used for) operations Net income before preferred dividend $ 1,934 $ 973 $ 4,112 $ 96 Adjustments to reconcile net income to net cash provided by operations -- Depreciation and amortization 4,218 3,013 7,448 6,766 Increase in deferred charges, net (3,234) (245) (3,547) (574) Increase in deferred interest on mortgage investments, net (18) (97) (83) (193) (Decrease) increase in deferred obligations (5) 42 (9) 82 Increase in deferred income 789 789 Net changes in other assets and liabilities 2,250 (3,045) 4,346 (459) --------- --------- --------- --------- Net cash provided by operations 5,934 641 13,056 5,718 --------- --------- --------- --------- Cash provided by (used for) investing Repayment of mortgage investment 7,000 16,200 7,000 Principal received from mortgage investments 55 44 102 86 Proceeds from sale of properties 8,988 1,825 Advance deposit for property acquisitions (3,480) (3,480) Investment in Impark (36,574) (36,574) Investment in capital and tenant improvements (4,946) (4,784) (9,089) (13,446) --------- --------- --------- --------- Net cash used for investing (41,465) (1,220) (20,373) (8,015) --------- --------- --------- --------- Cash provided by (used for) financing Increase in mortgage loans 2,737 24,000 2,737 36,500 Decrease in short-term loans (18,030) (25,800) (17,930) Repayment of mortgage loans - Normal payments (485) (802) (1,207) (1,522) - Balloon payments (5,534) (13,835) Dividends paid to shares of beneficial interest (2,379) (1,920) (4,302) (3,948) Dividends paid to preferred shares of beneficial interest (1,207) (2,455) Debt issue costs paid (788) (166) (811) (777) Purchase of First Union shares (7,125) Sale of First Union shares 74,533 2 120,998 81 Sale of interest rate protection agreement 1,025 Other (8) (6) --------- --------- --------- --------- Net cash provided by financing 66,877 3,076 75,325 6,298 --------- --------- --------- --------- Increase in cash and cash equivalents 31,346 2,497 68,008 4,001 Cash and cash equivalents at beginning of period 39,613 4,906 2,951 3,402 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 70,959 $ 7,403 $ 70,959 $ 7,403 ========= ========= ========= ========= Notes to Combined Financial Statements 1. Income per share of beneficial interest has been computed on weighted average shares and share equivalents outstanding for the applicable periods. 2. In April 1997, the Trust's affiliated management company purchased voting control of Imperial Parking Ltd. (Impark) for $75 million including the assumption of $26 million in debt and the issuance of $10.5 million of non-voting common stock in Impark to its former owners. 3. In January 1997, the Trust sold a shopping center in Wilkesboro, North Carolina for $9 million in cash resulting in a loss of $4.9 million. In February 1996, the Trust sold two office buildings in Cleveland, Ohio for $1.8 million in cash and a $7 million mortgage note, which was subsequently repaid, resulting in a loss of $5.6 million. Both losses had been previously recognized during the fourth quarter of 1995 as part of a $14 million unrealized loss on carrying value of assets identified for disposition.
EX-27 4 EXHIBIT 27
5 0000037008 FIRST UNION REAL ESTATE INVESTMENTS 1 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 70,959,000 0 16,125,000 0 0 87,084,000 458,774,000 113,461,000 561,746,000 35,868,000 241,965,000 27,965,000 0 54,109,000 171,167,000 561,746,000 75,203,000 81,068,000 0 53,322,000 12,476,000 0 11,158,000 0 0 1,697,000 0 0 0 1,697,000 .08 .08
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