-----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, RZypchNPy0CkvbPJgnCjQG2APj7LMJiCNn9TKLma44bUrWYqP2m0GCk1GCqmn9mt Qiz5nvaIbNVupSXZe/kMjA== 0000950152-97-007910.txt : 19971113 0000950152-97-007910.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950152-97-007910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE 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: SEC FILE NUMBER: 001-06249 FILM NUMBER: 97715429 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 September 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. 28,137,441 Shares of Beneficial Interest outstanding as of September 30, 1997 - -------------------------------------------------------------------------------- ================================================================================ Total number of pages contained in this report: 7 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 September 30, 1997 and December 31, 1996 and "Combined Statements of Income and Combined Statements of Changes in Cash" for the periods ended September 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. Additionally, in September 1997, the registrant sold an office building in Oklahoma City, OK for $3.8 million which approximated net book value. 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, with all asset and liability balances being recorded using carryover basis accounting. In September 1997, the registrant purchased the interests of its joint venture partners in eight shopping malls and 50% of another mall for $88 million in cash and the assumption of $203 million of debt. This transaction was recorded using purchase accounting which results in the full consolidation of the eight malls in the registrant's financial statements. The registrant is accounting for its interest in the other mall which it has a 50% interest using the equity method of accounting. The registrant funded the purchase with $50 million of cash which had been invested in short-term investments and by borrowing $38 million from the registrant's bank line of credit. The registrant entered into this joint venture in September 1996 with an initial cash investment of $30 million. 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 2 3 in short-term money market investments until the acquisition of the registrant's partners interests in the joint venture. Except as noted above, there has been no other material changes in financial condition. Liquidity and Capital Resources - ------------------------------- Net cash provided by operations for the first nine months of 1997 of approximately $21 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 $7.4 million to shares of beneficial interest represented 35% of net cash from operating activities. As described above in the first nine months of 1997, the registrant received $16.2 million from the repayment of a mortgage investment and approximately $13 million from the sale of a mall and office building. The proceeds were used to repay mortgage debt related to the mortgage investment and repay amounts outstanding under the bank credit agreement. The balance of the proceeds are being invested temporarily in short-term investments. The registrant also invested $17 million in its existing portfolio, primarily to continue tenant alterations 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. In September 1997, the registrant purchased the interests of its joint venture partners in eight shopping malls and 50% of another mall for $88 million in cash and the assumption of $203 million of mortgage debt. The purchase was funded with $38 million borrowed from the registrant's bank lines of credit and with $50 million in cash which had been invested in short-term securities. The net proceeds of $121 million from the January 1997 and June 1997 share offerings were used to repay mortgage and bank loans, invest in Impark, and acquire the interests of its partners in the joint venture investment. In September 1997, the registrant agreed to acquire a parking garage in Chicago, IL for $42 million upon completion in early 1998. The purchase will be funded through existing bank credit facilities. During the remaining three months of 1997, the registrant has approximately $.9 million of mortgage principle payments and $5 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 third quarter of 1997 and 1996 was $.7 million and $1 million, respectively. 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 nine months was $2.4 million and $1.1 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 $3.6 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 an investment loss of $.2 million and $1.1 million in management fees for the registrant's affiliated management 3 4 company in the third quarter of 1997 and $.4 million in investment income and $2.7 million in management fees for the first nine months of 1997. As noted previously, the registrant purchased the interests of the joint venture partners in September 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 $37 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 increased by $4.9 million for the third quarter of 1997 as compared to the same period of 1996. Property net operating income at the comparable retail, office, parking and apartment portfolios was consistent when comparing the third quarter of 1997 to that of 1996. On a non-comparable basis, the acquisition of Impark in April 1997 and the registrant's purchase of its partners interest in the joint venture in September 1997 produced an additional $5.1 million of property net operating income. Property net operating income was $1 million and $6.5 million greater when comparing the first nine months of 1997 to the same period of 1996 on a comparable and non-comparable basis, respectively. The comparable office property portfolio produced $1.0 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 adjustment in Cleveland, OH. The comparable parking portfolio had a decline of $.5 million in property net operating income primarily due to increased real estate tax expense and the expiration of a fixed minimum rent management contract. The comparable apartment portfolio had increased property net operating income of $.2 million when comparing 1997 to 1996 primarily due to the increased occupancy at an apartment complex in Durham, NC. The acquisition of Impark in April 1997 and the registrant's purchase of its partners' interest in the joint venture in September 1997 produced $6.7 million in property operating income on a non-comparable basis. The acquisition of an apartment complex in December 1996 partially offsets the decline in property net operating income from the shopping mall sold in January 1997 resulting in a decline of $.2 million in property net operating income. Mortgage interest expense increased when comparing the nine months of 1997 to that of 1996 due to three mortgage loans totaling $36.5 million obtained in 1996 and the $203 million in mortgage debt assumed in September 1997 in conjunction with the purchase of the remaining interest of the registrant's joint venture. 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 and the $203 million of mortgage debt assumed in September 1997. Interest on bank loans decreased when comparing the nine months ended September 30, 1997 to the same period of 1996. In 1997, the registrant had an average of $11 million in bank borrowings versus $56 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 $26 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 1997 to 1996. This increase in depreciation expense is primarily attributed to the amortization of goodwill related to the acquisition of Impark, the depreciation of the malls acquired in September 1997 from the acquisition of the registrant's partners interest in the joint venture, 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. 4 5 General and administrative expenses for the third quarter and nine 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 nine months of 1997 and the acquisition of Impark in the second quarter of 1997. The increase in general and administrative expenses for the nine 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 (3) - First Union Real Estate Equity and Mortgage Investments By-Laws. Exhibit (11) - Statements Re: Computation of Per Share Earnings Exhibit (20) - Financial Statements (Unaudited) Combined Balance Sheets as of September 30, 1997 and December 31, 1996 Combined Statements of Income for the Three and Nine Months ended September 30, 1997 and 1996 Combined Statements of Changes in Cash for the Three and Nine Months ended September 30, 1997 and 1996 Notes to Combined Financial Statements Exhibit (27) - Financial Data Schedule (b) Reports on Form 8-K: -------------------- None. 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: November 13, 1997 By: /s/James C. Mastandrea ---------------------------------- James C. Mastandrea, Chairman President and Chief Executive Officer Date: November 13, 1997 By: /s/Steven M. Edelman ---------------------------------- Steven M. Edelman, Executive Vice President, Chief Financial Officer Date: November 13, 1997 By: /s/John J. Dee ---------------------------------- John J. Dee, Senior Vice President, Chief Accounting Officer 6 7 Index to Exhibits -----------------
Page Number ------ Exhibit (3) - First Union Real Estate Equity and Mortgage Investments By-Laws ....................................................... 8 Exhibit (11) - Statements Re: Computation of Per Share Earnings .............................................. 9 Exhibit (20) - Financial Statements (unaudited) Combined Balance Sheets as of September 30, 1997 and December 31, 1996.................................. 10 Combined Statements of Income for the Three and Nine Months ended September 30, 1997 and 1996............... 10 Combined Statements of Changes in Cash for the Three and Nine Months ended September 30, 1997 and 1996 10 Notes to Combined Financial Statements................. 10 Exhibit (27) - Financial Data Schedule ....................................... 11
7 EX-3 2 EXHIBIT 3 1 Exhibit 3 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS BY-LAWS 2 ARTICLE I MEETING OF BENEFICIARIES SECTION 1. ANNUAL MEETING. The annual meeting of the Beneficiaries of the Trust for the transacting of such business as shall be specified in the notice of the meeting shall be held as provided in the Declaration of Trust. SECTION 2. SPECIAL MEETINGS. Special meetings may be called at any time as provided in the Declaration of Trust. SECTION 3. PLACE OF MEETING. All meetings of the Beneficiaries shall be held at the office of the Trust in the City of Cleveland in the State of Ohio or at such other place in the State of Ohio as may be designated, in the case of an annual meeting, by the Trustees, or, in the case of a special meeting, by the Trustees calling such meeting or by the person or persons requesting such meeting pursuant to the Declaration of Trust. SECTION 4. NOTICE OF MEETINGS. Written notice of each annual or special meeting of the Beneficiaries, stating the time, place and purpose thereof shall be given in accordance with the Declaration of Trust. SECTION 5. PROCEDURE AT MEETINGS. At each meeting of the Beneficiaries, the Trustees shall appoint one of their number or one of the Beneficiaries to preside thereat. The Trustees shall appoint a Secretary for each such meeting, who shall be duly sworn to the faithful discharge of his duties and to keep the minutes of such meeting, which minutes shall be signed and attested by him and filed with the records of the Trust. SECTION 6. QUORUM. A majority of the outstanding shares of the Trust present in person or by proxy shall constitute a quorum for any annual or special meeting of Beneficiaries. SECTION 7. NOMINATIONS AND BENEFICIARY BUSINESS (a) With respect to any Annual or Special Meeting of Beneficiaries, (a "Meeting") nominations for election to the Board of Trustees and the proposal of matters to be considered by the Beneficiaries may be made only (I) by or at the direction of the Board of Trustees or (ii) by any Beneficiary who was a Beneficiary of record at the time of the giving of the notice described in this Section 7 and at the record date for the Meeting, as defined in the Declaration of Trust, who is entitled to vote at the Meeting and who complied with the notice procedures set forth in this Section 7. (b) For a nomination or proposal to be properly brought before a Meeting of Beneficiaries, other than a shareholder proposal included in the Trust's proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the Beneficiary must have given timely notice thereof in writing to the Secretary of the Trust, and such Beneficiary or his representative must be present in person at the Meeting. A Beneficiary's notice shall be timely if delivered to, or mailed and received at, the principal executive offices of the Trust (i) for an Annual Meeting, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting of Beneficiaries, or Special Meeting held in lieu thereof AND (ii) for a special meeting, not less than 90 days prior to the date requested for such meeting. 2 3 (c) A Beneficiary's notice to the Secretary shall set forth as to each nomination or proposal the Beneficiary intends to bring before the Meeting (I) as to any nomination, the name and address of any proposed nominee, the nominee's business affiliation, the information required as to nominees by Item 401 of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, all as may be amended from time to time, and a certification of the proponent that such nominee meets all the qualifications for Trustees set forth in the Declaration of Trust, including, but not limited to, Section 8.10 thereof, (ii) as to any proposal, a brief description of the proposal desired to be brought before the Meeting, a statement of the reasons for making such proposal at the Meeting and a certification of the proponent that the proposal does not conflict with or violate any provision of the Declaration of Trust, (iii) the name and address, as they appear on the Trust's share transfer books of the Beneficiary offering such nomination or proposal and of the beneficial owners (if any) of the shares registered in such Beneficiary's name and the name and address of any other Beneficiaries (or beneficial owner of shares) known by such Beneficiary to be supporting such nomination or proposal on the date of the Beneficiary's notice, (iv) the class and number of shares of the Trust's capital shares which are beneficially owned by the Beneficiary and such beneficial owners (if any) on the date of such Beneficiary's notice and by any other Beneficiaries known by such Beneficiary to be supporting such nomination or proposal on the date of such Beneficiary's notice, and (v) any financial interest of the Beneficiary or any such beneficial owner in such proposal. Nothing contained in this Subsection (e) shall be deemed to supersede the provisions of Section 7.2 of the Declaration of Trust relating to business that may be transacted at a Special Meeting. (d) If the Board of Trustees, or a designated committee thereof, determines that any Beneficiary nomination or proposal was not timely made in accordance with the provisions of this Section 7, or that any proposed nominee does not meet the qualifications set forth in the Declaration of Trust, or that any proposal conflicts with or violates a provision of the Declaration of Trust, then such nomination or proposal shall not be presented for action at the Meeting in question. If the Board of Trustees, or a designated committee thereof, determines that the information provided in the Beneficiary's notice does not satisfy the informational requirements of this section in any material respect, the Secretary of the Trust shall promptly notify such Beneficiary of the deficiency in the notice. Such Beneficiary shall have the opportunity to cure such deficiency by providing additional information to the Secretary within the period of time, not to exceed five (5) days from the date such deficiency notice is given to such Beneficiary, determined by the Board or such committee. If the deficiency is not cured within such period, or if the Board of Trustees or such committee determines that the additional information provided by the Beneficiary, together with the information previously provided, does not satisfy the requirements of this Section 7 in any material respect, then such nomination or proposal shall not be presented for action at the Meeting in question. 3 4 (e) Notwithstanding the procedure set forth in the preceding paragraph, if neither the Board of Trustees nor such committee makes a determination as to the compliance of any Beneficiary nomination or proposal with the provisions of this Section 7, as set forth above, the presiding Officer of the Meeting shall determine and declare at the Meeting whether the Beneficiary nomination or proposal was made in compliance with the provisions of this Section 7, and if such presiding Officer determines and declares that such nomination or proposal was not made in compliance with such provisions, such nomination or proposal shall not be acted upon at the Meeting. ARTICLE II SECTION 1. REGULAR MEETINGS. Regular meetings of the Trustees may be held at such times and places within the State of Ohio as may be provided for in resolution adopted by the Trustees. SECTION 2. SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time or place within the State of Ohio upon call of any two of the Trustees at the time and place designated in the notice of meeting. SECTION 3. NOTICE OF MEETINGS. Notice of each meeting, regular or special, shall be given by mailing or by sending to each Trustee (addressed to the address last furnished to the Trust by the Trustee) a letter at least 4 days before the meeting, or a telegram at least 24 hours before the meeting. Notice of any special or regular meeting, as provided in the Declaration of Trust, may be waived in writing or by telegram by any Trustee either before or after such meeting, and such notice shall be deemed to have been waived by the Trustees attending such meeting. Except as provided in Article V hereof, unless otherwise indicated in the notice thereof, any business may be transacted at any regular or special meeting. SECTION 4. QUORUM. At any meeting a majority of the Trustees then in office shall constitute a quorum. SECTION 5. COMPENSATION OF TRUSTEES. The Trustees are authorized to fix a reasonable retainer for members of the Board of Trustees and the Chairman and a reasonable fee for attendance at meetings. In addition to such compensation there shall be reimbursement for expenses for traveling to and from such meetings. SECTION 6. COMMITTEES OF THE BOARD OF TRUSTEES. 4 5 The Trustee may elect from their members committees of the Board and give them any or all powers of the Trustees during intervals between the meetings of the Trustees, except that such committees shall not be empowered to declare dividends or fill vacancies in the Board of Trustees or committees. All actions of such committees shall be reported to the Trustees at their next meeting and shall be subject to approval by the Trustees, provided that no right of any third person shall be affected by such alteration. SECTION 7. QUALIFICATIONS OF NOMINEES - AGE. No nominee for Trustee shall be more than 72 years of age at the time of his election as Trustee, nor shall any Trustee nominated for a subsequent term be more than 72 years of age at the time of his election for such subsequent term, provided that any Trustee elected prior to attaining age 72 may continue to serve the remainder of his term despite attaining the age of 72 before the expiration of his term. ARTICLE III OFFICERS - ----------- SECTION 1. DESIGNATION OF OFFICERS. The Trustees shall elect a Chairman of the Board, a President, a Secretary, a Treasurer, and such Vice Presidents and other officers, or assistant officers, as they shall deem advisable. Each officer and assistant officer shall have such functions and duties as the Trustees shall from time to time designate, and, in the absence of such designation, such duties as are usually associated with such office. Except as otherwise determined by the Trustees, any two or more offices may be held by the same person. SECTION 2. TENURE OF OFFICE. The officers of the Trust shall hold office at the pleasure of the Trustees, and until successors are chosen and qualified. A vacancy in any office, however created, may be filled by election by the Trustees. SECTION 3. DELEGATION OF DUTIES. The Trustees may delegate the duties of any officer to any other officer and generally may control the action of the officers and require the performance of duties in addition to those mentioned herein. SECTION 4. COMPENSATION. The Trustees are authorized to determine or to provide the method of determining the compensation of officers. SECTION 5. SIGNING CHECKS AND OTHER INSTRUMENTS. 5 6 The Trustees shall determine or provide the method of determining how checks, notes, bills of exchange and similar instruments issued by or on behalf of the Trust shall be signed, countersigned, or endorsed. SECTION 6. CONTROL BY TRUSTEES. Nothing contained herein shall be interpreted to relieve the Trustees, in any manner, of their duty to control and manage the Trust property. ARTICLE IV SHARES IN TRUST - --------------- SECTION 1. ISSUE OF CERTIFICATE OF BENEFICIAL OWNERSHIP The Chairman shall cause to be issued to each Beneficiary one or more certificates, under the seal of the Trust, signed as provided in Article III, Section 5 hereof, certifying the number of shares owned by such Beneficiary in the Trust. Such certificates shall be countersigned by the Transfer Agent and registered by the Registrar and shall be transferable on the books of the Trust as provided in the Declaration of Trust. ARTICLE V AMENDMENTS - ---------- SECTION 1. AMENDMENT OF BY-LAWS. The Trustees, by the affirmative vote of a majority, may at any meeting, provided the substance of the proposed amendment shall have been stated in a notice of the meeting, alter, change, or amend in any respect, or supersede by new by-laws, in whole or in part, any of these by-laws. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall be as determined from time to time by the Trustees. SECTION 2. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these by-laws to be given, personal notice is not required unless expressly so stated; and any notice so required shall be deemed to be sufficient if given by depositing the same in a post-office box in a sealed post-paid wrapper, addressed to the person entitled thereto (at his last known post-office address as shown by the register of the Trust) and such notice shall be deemed to have been given on the day of such mailing. SECTION 3. CHECKS FOR MONEY. 6 7 All checks, drafts or orders for the payment of money shall be signed by the Treasurer or Assistant Treasurer or by such other officer, officers, Trustee or Trustees as the Trustees may from time to time designate. SECTION 4. FORM OF CERTIFICATE OF BENEFICIAL INTEREST. The form of certificate of beneficial interest representing shares of $1 par value shall be substantially as follows: No. Shares ------------------------------------------------- FIRST UNION Real Estate Equity and Mortgage Investments THIS CERTIFIES THAT ________________________ is the registered holder of ______ Fully Paid and Non-assessable Share of Beneficial Interest, $1 Par Value. in FIRST UNION Real Estate Equity and Mortgage Investments a Trust established in business trust from under the laws of the State of Ohio under a Declaration of Trust dated as of August 1, 1961, as amended from time to time, a copy of which is on file with the Transfer Agents of the Trust by all the terms and provisions of which the holder or transferee hereof by accepting this certificate agrees to be bound. The Trust is not a bank or trust company and does not and will not solicit, receive or accept deposits as a business. The shares represented hereby are transferable on the records of the Trust only by the registered holder hereof or by his agent duly authorized in writing on delivery to a Transfer Agent of the Trust of this certificate properly endorsed or accompanied by duly executed instrument of transfer together with such evidence of the genuineness thereof and such other matters as may reasonably be required. The transferability of the shares represented hereby is subject to such regulation. as may from time to time be adopted by the Trustees of the Trust and set forth in the By-Laws to which reference is hereby made to prevent transfers of shares which would result in disqualification of the Trust for taxation as a real estate investment trust under the Internal Revenue Code an amended. This certificate is not valid unless countersigned by a Transfer Agent and registered by a Registrar of the Trust. IN WITNESS WHEREOF, the Trustees of this Trust have caused this certificate to be signed by facsimile signatures. [ON REVERSE SIDE] The By-Laws of the Trust provide, among other things, that no person may acquire Trust securities (including these securities) if, thereafter, he would beneficially own more than 9.8% of the Trust's shares of beneficial interest. In applying this restriction, convertible securities of the Trust beneficially owned by such person (including convertible securities) are to be treated as if already converted into shares of beneficial 7 8 interest. A copy of the By-Laws and information about the limitation on ownership may be obtained from the Secretary of the Trust. SECTION 5. REGULATIONS ON TRANSFER OF SHARES TO PREVENT DISCLAIM Notification of the Trust Under the Internal Revenue Code. The Chief Executive Officer of the Trust or an officer designated by him shall: a) From time to time cause to be prepared a list of holders of record (with their holdings) of shares of the Trust (preferred and common) and shall designate those holders which the officer acting shall have reason to believe are not also the beneficial owners of the holdings of record in their respective names; b) Review the list with counsel and impose such restrictions on transfer of shares as counsel shall advise should be imposed to prevent disqualification of the Trust as a Real Estate Investment Trust under Section 856 et seq. of the Internal Revenue Code. SECTION 6. RESTRICTIONS ON ISSUANCE AND TRANSFER OF SECURITIES. a) No person may own more than 9.8% of the outstanding Shares (the Limit), and no Securities shall be issued or transferred to any person if, following such issuance or transfer, such person's ownership of Shares would exceed the Limit. For purposes of computing the Limit, Convertible Securities owned by such person shall be treated as if the Convertible Securities owned by such person had been converted into Shares. b) If any Securities in excess of the Limit are issued or transferred to any person in violation of Paragraph a) hereof (the "Excess Securities"), such issuance or transfer shall be valid only with respect to such amount of Securities as does not result in a violation of Paragraph a) hereof, and such issuance or transfer shall be null and void with respect to such Excess Securities. If the last clause of the foregoing sentence is determined to be invalid by virtue of any legal decision, statute, rule or regulation, such person shall be conclusively deemed to have acted as an agent on behalf of the Trust in acquiring the Excess Securities and to hold such Excess Securities on behalf of the Trust. As the equivalent of treasury Securities for such purposes, the Excess Securities shall not be entitled to any voting rights; shall not be considered to be outstanding for quorums or voting purposes; and shall not be entitled to receive dividends. interest or any other distribution with respect to the Securities. Any person who receives dividends, interest or any other distribution in respect to Excess Securities shall hold the same as agent for the Trust and (following a permitted transfer) for the transferee thereof. Notwithstanding the foregoing, any holder of Excess Securities may transfer the same (together with any distributions thereon) to any person who, following such transfer, would not own Shares (within the meaning of Paragraph a) in excess of the Limit. Upon such permitted transfer, the Trust shall pay or distribute to the transferee any distributions on the Excess Securities not previously paid or distributed. 8 9 c) Ownership of Securities is conditional upon the owner or prospective owner having provided to the Trust definitive written information respecting his ownership of Securities. Failure to provide such information, upon reasonable request shall result in the Securities so owned being treated as Excess Securities pursuant to Paragraph b) for so long as such failure continues. d) For purposes of this Section 6: (i) Person. includes an individual, corporation, partnership, association, joint stock company, trust, unincorporated association or other entity. (ii) Shares. means Shares of Beneficial Interest, par value $1 per share. (iii) Convertible Securities. means any securities of the Trust that are convertible into Shares. (iv) Securities. means Shares and Convertible Securities. (v) Ownership. means beneficial ownership. Beneficial ownership, for this purpose, may be determined on the basis of the beneficial ownership rules applicable under the Securities Exchange Act of 1934, as amended, or such other basis as management reasonably determines to be appropriate to effectuate the purposes hereof. e) Nothing herein contained shall limit the ability of the Trust to impose, or to seek judicial or other imposition of additional restrictions if deemed necessary or advisable to protect the Trust and the interests of its security holders by preservation of the Trust's status as a qualified real estate investment trust under the Code. f) These restrictions on issuance and transfer of Securities shall be applied only on a prospective basis. Accordingly, Paragraphs a) and b) hereof shall not apply to Shares in excess of the limit that were owned (within the meaning of Paragraph a) by any person at the close of business on June 3, 1981, but Paragraph a) and b) shall prospectively apply to the transfer of such Shares and to further acquisitions of Securities by any such person. Similarly, Paragraphs a) and b) shall not apply to the conversion of Convertible Securities that were owned by any person at the close of business on such date or to the resultant Shares owned by such person, but Paragraph a) and b) shall prospectively apply to such Shares and to such person. g) Notwithstanding any other provision of this Section 6, a lower percentage (the Temporary Limit) shall operate in place of the 9.81 ownership Limit set forth in Paragraph a) hereof for so long as there are outstanding Securities excepted from the restrictions of this Section 6 pursuant to Paragraph f) hereof ("Exempt Securities"). The Temporary Limit shall initially be 6%, but upon the transfer of Exempt Securities the Temporary Limit shall be fixed by the Trustees from time to time but shall in no event exceed an amount equal to 25% of the difference between (i) 49% of the Shares outstanding and (ii) the number of Shares owned by any person who owns Exempt Securities. For purposes of this calculation, Convertible Securities owned by such person shall be treated as if the Convertible Securities owned by such person had been converted into Shares. 9 10 h) If any provision of this Section 6 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issue, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. 10 11
INDEX PAGE ---- ARTICLE I - MEETING OF BENEFICIARIES Section 1. Annual Meeting 35 Section 2. Special Meetings 35 Section 3. Place of Meetings 35 Section 4. Notice of Meetings 35 Section 5. Procedure at Meetings 35 Section 6. Quorum 35 Section 7. Nominations and Beneficiary Business 35 ARTICLE II - TRUSTEES Section 1. Regular Meetings 35 Section 2. Special Meetings 36 Section 3. Notice of Meetings 36 Section 4. Quorum 36 Section 5. Compensation of Trustees 36 Section 6. Committees of the Board of Trustees 36 Section 7. Qualifications of Nominees-Age 36 ARTICLE III OFFICERS Section 1. Designation of Officers 37 Section 2. Tenure of Office 37 Section 3. Delegation of Duties 37 Section 4. Compensation 37 Section 5. Signing Checks and Other Instruments 37 Section 6. Control by Trustees 37 ARTICLE IV SHARES IN TRUST Section 1. Issue of Certificate of Beneficial Ownership 37 ARTICLE V AMENDMENTS Section 1. Amendment of By-Laws 38 ARTICLE VI MISCELLANEOUS PROVISIONS Section 1. Fiscal Year 38 Section 2. Notice and Waiver of Notice 38 Section 3. Checks for Money 38 Section 4. Form of Certificate of Beneficial Interest 38 Section 5. Regulations on Transfer of Shares to Prevent Disclaim 39 Section 6. Restrictions on Issuance and Transfer Of Securities 40
EX-11 3 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Shares Outstanding: For computation of primary net income per share - Weighted average 27,337 17,168 23,522 17,168 Share equivalents - Options 419 423 - Restricted shares 211 56 213 69 ------- ------- ------- ------- Adjusted shares outstanding 27,967 17,224 24,158 17,237 ======= ======= ======= ======= For computation of fully diluted net income per share - Weighted average, without regard to, exercise under share option plans, or purchase of outstanding shares 27,337 17,168 23,515 17,160 Assumption of exercise under share option plans 444 444 Weighted average of restricted shares granted 225 56 225 69 Weighted average of shares issued under employees incentive plan 7 8 ------- ------- ------- ------- Adjusted shares outstanding 28,006 17,224 24,191 17,237 ======= ======= ======= ======= Net Income: Net income applicable to shares of beneficial interest (used for computing primary and fully diluted net income per share) $ 738 $ 1,044 $ 2,435 $ 1,140 ======= ======= ======= ======= Net income per share of beneficial interest(1): Primary and fully diluted $ .03 $ .06 $ .10 $ .07 ======= ======= ======= ======= (1) The proforma basic earnings per share for the three months and nine months ended September 30, 1997 was $.03 and $.10 per share, respectively, in accordance with SFAS 128 (earnings per share).
EX-20 4 EXHIBIT 20 1 Exhibit 20 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS - ------------------------------------------------------- Combined Balance Sheets
Unaudited (In thousands, except shares) September 30, December 31, 1997 1996 --------- --------- ASSETS Investments in real estate Land $ 110,269 $ 52,891 Buildings and improvements 659,167 406,672 --------- --------- 769,436 459,563 Less - Accumulated depreciation (115,174) (112,614) --------- --------- Total investments in real estate 654,262 346,949 Investment in joint venture 1,497 30,776 Mortgage loans receivable 28,125 42,266 Other assets Cash and cash equivalents 21,312 2,951 Short- term investments, at cost 12,651 Accounts receivable and prepayments 20,008 8,440 Intangibles 35,366 Management and lease agreements 11,729 Deferred charges, net 11,020 5,225 Unamortized debt issue costs 7,788 3,923 Other 12,321 --------- --------- $ 816,079 $ 440,530 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgage loans $ 322,114 $ 129,068 Senior notes 100,000 100,000 Bank loans 65,944 25,800 Accounts payable and accrued liabilities 46,326 14,549 Deferred obligations 10,812 10,825 Deferred capital gain and other deferred income 9,568 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 - 28,137,441; 1996 - 17,621,799 250,820 152,553 --------- --------- $ 816,079 $ 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 Nine Months Ended September 30, September 30, ------------------------ --------------------- 1997 1996 1997 1996 -------- --------- -------- ------- Revenues Rents $ 70,440 $ 18,553 $145,643 $55,102 Interest - Mortgage loans 648 1,129 2,221 3,600 - Short-term investments 812 1,620 9 Equity in (loss) income from joint venture (172) 412 Management fees 1,099 2,706 Other 308 53 1,601 284 -------- --------- -------- ------- 73,135 19,735 154,203 58,995 -------- --------- -------- ------- Expenses Property operating 52,989 6,341 101,695 19,517 Real estate taxes 2,490 2,132 7,106 6,198 Depreciation and amortization 5,276 3,092 12,724 9,858 Interest - Mortgage loans 3,799 2,303 8,489 6,368 - Senior notes 2,219 2,219 6,656 6,871 - Bank loans and other 1,307 1,358 3,338 4,274 General and administrative 3,110 1,246 8,138 4,769 -------- --------- -------- ------- 71,190 18,691 148,146 57,855 -------- --------- -------- ------- Net income before preferred dividend 1,945 1,044 6,057 1,140 Preferred dividend (1,207) (3,622) -------- --------- -------- ------- Net income applicable to shares of beneficial interest $ 738 $ 1,044 $ 2,435 $ 1,140 -------- --------- -------- ------- Per share Net income applicable to shares of beneficial interest $ .03 $ .06 $ .10 $ .07 -------- --------- -------- ------- Adjusted shares of beneficial interest 27,967 17,224 24,158 17,237 -------- --------- -------- -------
3 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS - ------------------------------------------------------- Exhibit 20 Combined Statements of Changes in Cash
Unaudited (In thousands) Three Months Nine Months Ended September 30, Ended September 30, ------------------------- -------------------------- 1997 1996 1997 1996 ----------- ---------- ---------- --------- Cash provided by (used for) operations Net income before preferred dividend $ 1,945 $ 1,044 $ 6,057 $ 1,140 Adjustments to reconcile net income to net cash provided by operations -- Depreciation and amortization 5,276 3,092 12,724 9,858 Increase in deferred charges, net (1,084) (280) (4,631) (854) Increase in deferred interest on mortgage investments, net (19) (102) (102) (295) (Decrease) increase in deferred obligations (4) 44 (13) 126 Increase in deferred income 207 996 Net changes in other assets and liabilities 1,452 7,772 5,798 3,833 -------- --------- --------- -------- Net cash provided by operations 7,773 11,570 20,829 13,808 -------- --------- --------- -------- Cash provided by (used for) investing Repayment of mortgage investment 16,200 7,000 Investment in short-term investments (12,651) (12,651) Principal received from mortgage investments 57 45 159 131 Proceeds from sale of properties 4,023 13,011 1,825 Advance deposit for property acquisitions (2,000) (2,000) Acquisition of joint venture interests, net of cash aquired (72,900) (72,900) Investment in joint venture (30,000) (30,000) Investment in Impark (36,574) Investment in capital and tenant improvements (7,857) (3,132) (16,946) (16,578) -------- --------- --------- -------- Net cash used for investing (91,328) (33,087) (111,701) (37,622) -------- --------- --------- -------- Cash provided by (used for) financing Increase in mortgage loans 12,000 2,737 48,500 Increase (decrease) in short-term loans 38,975 12,270 13,175 (5,660) Repayment of mortgage loans - Normal payments (632) (847) (1,839) (2,369) - Balloon payments (13,835) Dividends paid to shares of beneficial interest (3,076) (1,921) (7,378) (5,869) Dividends paid to preferred shares of beneficial interest (1,208) (3,663) Debt issue costs paid (202) (536) (1,013) (1,313) Purchase of First Union shares (7,125) Sale of First Union shares 51 121,049 81 Sale of interest rate protection agreement 1,025 Repayment of Medium Term Notes (5,000) (5,000) Other (6) -------- --------- --------- -------- Net cash provided by financing 33,908 15,966 109,233 22,264 -------- --------- --------- -------- (Decrease) increase in cash and cash equivalents (49,647) (5,551) 18,361 (1,550) Cash and cash equivalents at beginning of period 70,959 7,403 2,951 3,402 -------- --------- --------- -------- Cash and cash equivalents at end of period $ 21,312 $ 1,852 $ 21,312 $ 1,852 -------- --------- --------- --------
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 September 1997, the Trust purchased the interests of its joint venture partners in eight shopping malls and a 50% interest in another mall for $88 million in cash and the assumption of $203 million in debt. The Trust accounted for its purchase of the joint venture interests using purchase accounting. EX-27 5 EXHIBIT 27
5 0000037008 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 21,312,000 12,651,000 20,008,000 0 0 53,971,000 769,436,000 (115,174,000) 816,079,000 46,326,000 422,114,000 0 54,109,000 28,137,000 168,574,000 816,079,000 0 154,203,000 0 108,801,000 20,862,000 0 18,483,000 0 0 2,435,000 0 0 0 2,435,000 .10 .10
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