-----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, HjA93Mgloo83y9YSLKygAYZDgf701U8EBRm1wpba3sbF7MzjptyIyhUnlSbQoEIb K0ODFse1L3gChZVKo6YDCg== 0000950152-99-004435.txt : 19990517 0000950152-99-004435.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950152-99-004435 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621999 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 FORM 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 March 31, 1999 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 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. 31,376,105 Shares of Beneficial Interest outstanding as of March 31, 1999 - --------------------------------------------------------------------------- ================================================================================ Total number of pages contained in this report: 12 -- 2 PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements. - ------- --------------------- The financial statements represent the combined results of First Union Real Estate Investments (the "registrant") and First Union Management Inc., ("Company"). Under a trust agreement, the shares of the Company are held for the benefit of the shareholders of the registrant. Accordingly, the financial statements of the Company and the registrant have been combined. Additionally, as the Company owns voting control of Imperial Parking Limited ("Impark"), the financial statements of Impark are consolidated with those of the Company. 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. These combined financial statements should 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/A. The "Combined Balance Sheets" as of March 31, 1999 (unaudited) and December 31, 1998 (audited) and "Combined Statements of Operations, Combined Statements of Comprehensive Income and Combined Statements of Changes in Cash" for the periods ended March 31, 1999 (unaudited) and 1998 (unaudited), 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. -------------- Restatement of Combined Financial Statements - -------------------------------------------- The registrant has restated its combined financial statements for the quarter ended March 31, 1998 as a result of changing the lives of assets used to calculate depreciation expense. Financial Condition - ------------------- The registrant in February 1999 sold a shopping center for $21.6 million resulting in net proceeds of $9.3 million after assumption of $11.5 million in mortgage debt by the purchaser. The registrant used the net proceeds to partially repay its $90 million note payable. In March 1999, the registrant sold an office building for $2.2 million resulting in net proceeds of $1.8 million. The registrant used the net proceeds to partially repay its $90 million note payable. Unrestricted cash decreased by approximately $11.7 million when comparing March 31, 1999 to the balance outstanding as of December 31, 1998. The cash was used to repay the registrant's bank credit facility. Accounts receivable and prepayments decreased by approximately $10.5 million when comparing the March 31, 1999 balance to that of December 31, 1998. The decrease was primarily caused by the collection of annual billings of tenant expense recoveries and participation rentals, the return of a deposit made in an unsuccessful attempt to secure 2 3 new debt financing and the reduction of accounts receivable from Impark's equipment division. Year 2000 - --------- In June 1998, the registrant implemented a multi-step Year 2000 Compliance Project (the "Project"). The Project is addressing the issue of computer systems and embedded computer chips that may not be able to properly recognize dates prior to, on, or after January 1, 2000. The general phases of the Project are as follows: (1) inventorying systems and equipment that may be affected by the Year 2000 issue; (2) assigning priorities to the items identified; (3) evaluating the Year 2000 compliance of items deemed to be critical to the registrant's operations; (4) testing critical items; (5) repairing or replacing critical items that are determined not to be Year 2000 compliant and (6) developing and implementing contingency plans for each location. As of December 31, 1998, the inventory and priority assessment phases of the Project were completed. Critical items are those believed by the registrant to involve a risk to the safety of individuals, or that may cause damage to property, or affect revenues. Testing of critical items was performed and was completed in the first quarter of 1999. The Project addresses three main sections: (a) Information Technology Systems; (b) Process Control and Instrumentation; and (c) Third Party Tenants, Suppliers and Customers. The Information Technology Systems section consists of all computer hardware and software. These systems are primarily used for accounting and financial reporting as well as property management purposes throughout the registrant's operations. Impark uses other systems mainly for revenue control purposes at the parking facility level. Impark's accounting and financial reporting systems are not Year 2000 compliant; these systems will be replaced by a new general-purpose financial reporting and general ledger package by October 31, 1999. This system is currently being implemented and tested. Additionally, new hardware and software are being installed at various properties and subsidiaries, which is anticipated to be completed by June 30, 1999. The Process Control and Instrumentation section includes the hardware, software and associated embedded computer chips that are used in the operations of certain facilities owned by the registrant. Testing and repair of this equipment is in process. The registrant's evaluation of these items and communications with manufacturers and suppliers revealed that the majority of this equipment is mechanical in nature and is not date-sensitive, and accordingly will not require remediation or replacement to function properly in the Year 2000. Contingency planning is in process, and all repair and testing is expected to be completed by June 30, 1999. The Third Party Tenants, Suppliers and Customers section includes the process of identifying critical suppliers and customers and obtaining information from them regarding their plans and progress in addressing the Year 2000 issue. A written notice regarding the Year 2000 issue was sent to all tenants occupying space at properties owned by the registrant and to landlords of parking facilities operated by Impark. Additionally, inquiries have been forwarded to critical third parties (primarily financial institutions and utility service providers), and responses are currently being obtained and evaluated. These evaluations will be followed by the development of contingency plans. All activities for this section are expected to be completed by June 30, 1999. The total cost of required modifications to achieve Year 2000 compliance is not expected to be material to the registrant's financial position. Estimated total costs are expected to be between $1.0 million and $2.0 million, including enhancements to software programs and upgrades to hardware, some portion of which would have been done irrespective of the Year 2000 problem. 3 4 The failure to correct a material Year 2000 issue could result in the interruption or failure of certain normal business activities or operations. The most reasonable worst case scenarios for the registrant are - A significant number of tenants at shopping centers will not be able to record sales transactions using their automated equipment or accept credit card transactions, and - Electric utility companies will not be able to provide power to operate shopping centers, office buildings, or parking facilities. The most reasonable worst case scenarios for Impark are - Its financial reporting system will not work on or after January 1, 2000, and - Parking equipment that has been identified as non-compliant will not accept credit cards from parking patrons at the facilities it manages. The registrant does not have a contingency plan but is in the process of developing one upon completion of modification and testing of equipment used in operations and based on responses of critical third party suppliers and customers. Liquidity and Capital Resources - ------------------------------- Net cash provided by operations was $4.7 million as compared to $12 million when comparing the first quarter of 1999 to the same period of the prior year. The decrease is primarily caused by a reduction in accounts payable of approximately $8 million when comparing the first quarter of 1999 to that of 1998. The registrant did not pay a dividend to common shareholders of beneficial interest in the first quarter of 1999. The registrant, as noted previously, sold a shopping center and an office building in the first quarter of 1999, resulting in $11.1 million of net proceeds. The purchaser of the shopping center also assumed the $11.5 million in mortgage debt secured by the shopping center. The registrant used the net proceeds of $11.1 million to partially repay its $90 million note payable. During the first quarter of 1999, the registrant invested $1.8 million in capital and tenant improvements. The investment was made primarily for tenant improvements in the registrant's retail portfolio and to continue to tenant the former retail center in Denver, CO. which has been converted into an office technology center. As noted previously, the registrant repaid $12.2 million in borrowings under its bank credit facility from cash available as of December 31, 1998 and from cash generated from operations. The registrant was required to reduce its bank loans outstanding to $80 million by April 30, 1999 and to $50 million by June 30, 1999. The remaining balance of $50 million must be repaid by August 11, 1999. The registrant on May 5, 1999 sold four shopping centers resulting in $36.1 million of net proceeds of which $33.4 million was utilized to reduce the bank loan balance to $56.4 million based on March 31, 1999's outstanding borrowing. The remainder of the proceeds of $2.7 million, were used to partially repay the bridge loan. Although the required reduction in the bank loans was made after April 30, 1999, the registrant was not in default under the bank loan agreements. Additionally, the registrant sold eight apartment complexes on May 12, 1999 resulting in net proceeds of $46 million after the purchaser assumed $37.5 million of mortgage debt secured by four of the 4 5 apartment complexes. The net proceeds consisted of $24.9 million in cash after prorations and fees and 530,000 shares of common stock of the purchaser which is a Real Estate Investment Trust (REIT). The registrant used $24.9 million of the net cash proceeds to reduce bank borrowings to a balance of $31.5 million based on March 31, 1999's balance outstanding. The registrant intends to sell the REIT shares as market conditions allow with the proceeds from the sale of these shares used to repay the note payable and bank loans. The note payable, which had $79 million outstanding as of March 31, 1999 must be reduced to $38 million by May 15, 1999. The registrant reduced the note payable balance by $3.6 million on April 1, 1999 from the proceeds of a sale of an office building and $2.7 million on May 5, 1999 from the sale of four shopping centers. Additionally, the registrant has conducted a rights offering to raise approximately $50 million. The registrant for a fee of $1.8 million has obtained a standby commitment to purchase substantially all shares not purchased by other shareholders. The standby purchaser are Gotham Partners, L.P., Gotham Partners III, L.P., and Gotham Partners International LTD. The net proceeds of approximately $46 million from the rights offering will be used to repay approximately $9 million of bank loan borrowing and $37 million of the note payable. After completion of the rights offering, and paydown of the bank loans and note payable, the registrant will have approximately $22.5 million and $35.7 million of bank loans and note payable outstanding, respectively. The registrant intends to repay the remaining amounts outstanding under the bank loans and note payable through the sale of the common shares received in the sale of the registrant's apartment complex as noted previously, additional asset sales during the remainder of the second quarter of 1999 and obtaining approximately $40 million in mortgage financing. Results of Operations - --------------------- Net loss applicable to common shares of beneficial interest for 1999 was $5.4 million as compared to a net loss of $4.5 million in 1998. The net loss for 1999 was reduced by $.5 million in capital gains resulting from the sale of a shopping center in February 1999. Mortgage loan interest income declined by $.5 million when comparing 1999 to 1998. The decline in interest income was caused by the repayment of a mortgage investment secured by a shopping mall in Fairmount, WV, in January 1998 and the repayment of a mortgage investment secured by an office building in Cleveland, OH, in May 1998. The registrant had approximately $11.2 million invested in U.S. Treasury bills and approximately $2.0 million invested in the stock of another REIT during the first three months of 1998. The U.S. Treasury bills were purchased in April 1997 to secure the registrant's obligation under an agreement with the former owners of Impark to collaterialize $10.5 million of non-voting stock and accrued interest which the former owners of Impark received when the registrant's affiliated management company purchased voting control of Impark. The REIT stock was acquired in the third and fourth quarters of 1997 as a long-term investment. The non-voting common stock of Impark that was owned by the former owners of Impark was purchased by the registrant's affiliated management company in June 1998 allowing the registrant to divest the U.S. Treasury bills. The registrant sold its holdings in the REIT stock in April 1998 as a result of its change in investment strategy. Property net operating income, which is defined as rent less operating expenses and real estate taxes, increased by $1.5 million when comparing the first quarter of 1999 to the same period of 1998. The increase was attributed to the following: 5 6
EFFECT ON PROPERTY NET OPERATING INCOME --------------------- (Millions of dollars) - Parking assets acquired in first and second quarter of 1998 $ .8 - Improvement in Impark's property net operating income primarily from reduced losses at its equipment subsidiaries .4 - Increased rental rates and occupancy at apartment complexes .4 - Comparable retail properties owned in 1998 and 1999 primarily from increased rental income in St. Cloud, MN, Abilene, TX, and Clarksville, TN .7 - Increases in results of parking assets in portfolio for both 1999 and 1998 due primarily to new contracts with third party operator which began in November 1998 .2 - Leasing of North Valley Tech Center .2 - Effect of adoption of Emerging Issues Task Force 98-9 "Accounting For Contingent Rent in Interim Financial Periods" which delays recognition of participation rentals until the fourth quarter of 1999 (.7) - Sale of shopping center and office building in first quarter of 1999 (.4) - Decrease in occupancy at office building in Cleveland, Ohio (.1) ---- $1.5 ====
Mortgage loan interest expense increased in the first three months of 1999 as compared to the same period of 1998 due to approximately $34 million of mortgage loans obtained or assumed in conjunction with the acquisition of three U.S. parking facilities during the first six months of 1998. Senior note interest expense declined by $1.9 million and note payable interest expense increased by $2.5 million when comparing the first quarter of 1999 to the same period of 1998. The decline in senior note interest expense and increase in notes payable interest expense was caused by the registrant, in August 1998, repaying $87.5 million of senior notes with a $90 million note payable that currently bear interest at 12% per annum. Bank loan interest expense increased by $.3 million when compared to 1998. The increase was caused primarily by increased borrowing under the registrant's bank lines of credit. The weighted average balances outstanding under the bank credit facility was $87.8 million in 1999 versus $80.5 million in 1998. Additionally, the registrant paid $.3 6 7 million to its bank loan lenders to extend the bank loan facility reduction date from March 31, 1999 to April 30, 1999 at which time the bank loan commitment was reduced to $80 million from $105 million. The aforementioned increase in bank loans interest expense was partially offset by the reduction in interest expense associated with the put-right attached to the Impark common shares which had been retained by Impark's former owners. The shares were repurchased in June 1998. Depreciation and amortization expense, increased primarily due to the amortization of deferred finance costs associated with the $90 million, 12% note payable when comparing 1999 to 1998. Also contributing to the increase in depreciation and amortization was the amortization of finance costs associated with the registrant's bank credit facility and the depreciation related to four U.S. parking facilities acquired during the first half of 1998. The registrant accrued $.9 million of expense for litigation and proxy solicitation costs during the first quarter of 1998 as a result of the proxy contest and the change in majority of its Board of Trustees which occurred in May 1998. General and administrative expenses increased by $.2 million when comparing 1999 to 1998. The increase was caused primarily by $.5 million in severance expense for terminations during the first quarter of 1999 and $.3 million in legal fees primarily for renegotiation of the $90 million note payable and the registrant's credit facilities. Consequently, general and administrative expenses, after deducting the severance and legal expense, declined by $.6 million when comparing 1999 to 1998. The decline is attributed primarily to attrition of personnel of the registrant. Certain statements contained in this Form 10-Q that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, changes in local real estate conditions and markets, actions by competitors, interest rate movements and general economic conditions. Further information about these matters can be found in the registrant's Annual Report filed with the SEC on Form 10K/A. Item 3. - ------- Quantitative and Qualitative Disclosures of Market Risk - ------------------------------------------------------- Interest Rate Risk - ------------------ The registrant and Impark have entered into certain financing arrangements that require interest payments based on variable interest rates. As such, the combined financial statements are subject to changes in the market rate of interest. To reduce the exposure to changes in the market rate of interest, the registrant has entered into a rate guarantee contract (also known as an interest rate cap) for a portion of its floating rate financing arrangements. The registrant does not enter into rate guarantee contracts for trading purposes. The table below provides information about the registrants and Impark's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including the interest rate cap and debt obligations. Weighted average variable rates are based on the rates in effect at March 31, 1999. No assumptions have been made about the future interest rates. The Canadian dollar denominated obligation is presented in U.S. dollar equivalents, which is the registrant's reporting currency. 7 8
AS OF MARCH 31, 1999 ------------------------------------------------------------------ EXPECTED MATURITY DATES (AMOUNTS IN MILLIONS) ------------------------------------------------------------------ FAIR 1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE ---- ---- ---- ---- ---- ---------- ----- ----- LIABILITIES - ---------------------------- Bank loans at variable rates - ---------------------------- Registrant $89.8 $89.8 $89.8 Weighted average interest rate 8.00% Impark ($US) $24.2 $24.2 $24.2 Weighted average interest rate 7.00% Mortgage loans - -------------- Fixed rate $4.1 $4.4 $4.8 $52 $5.3 $228 $298.6 $298.6 Average interest rate 8.68% 8.80% 8.81% 9.10% 9.08% 8.83% Variable rate (based on LIBOR) 34.0 $34.0 $34.0 Weighted average interest rate 6.75% Senior notes - ------------ Fixed rate $12.5 $12.5 $12.5 Interest rate 8.875% Notes payable - ------------- Note payable $78.9 $78.9 $78.9 Interest rate 12%
Interest Rate Derivatives - ------------------------- The registrant owns an interest rate October cap that protects it from increases in LIBOR above 7% on a notional amount of $63.5 million, decreasing to $33.5 million in October 1999 and expiring in October 2000. Exchange Rate Risk - ------------------ Impark operates internationally and enters into transactions denominated mainly in Canadian currency. As a result, the registrant and its affiliated management company are subject to the variability that arises from exchange rate movements. The registrant and its affiliated management company do not hedge risks in foreign currency exchange rate movements and do not intend to do so in the foreseeable future. The only Canadian denominated debt obligation that is sensitive to foreign currency exchange rates is the Impark bank loan. The table above presents its principal cash flow, weighted average interest rate and maturity date for this bank loan. The weighted average variable rate is based on the rate in effect at March 31, 1999. No assumptions have been made about future interest rates. The information is presented in U.S. dollar equivalents, which is the registrant's reporting currency. 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 8 9 Item 5. Other Information. - ------- ------------------ None. Item 6. Exhibits and Reports on Form 8-K. - ------- --------------------------------- (a) Exhibits: --------- Exhibit (20) - Financial Statements Combined Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 (audited). Combined Statements of Operations for the Three Months ended March 31, 1999 (unaudited) and 1998 (restated and unaudited). Combined Statements of Comprehensive Income for the Three Months ended March 31, 1999 (unaudited) and 1998 (restated and unaudited). Combined Statements of Changes in Cash for the Three Months ended March 31, 1999 and 1998 (restated and unaudited). Notes to Combined Financial Statements. (b) Reports on Form 8-K: --------------------- February 2, 1999 - Amendment No. 2, dated as of January 8, 1999, to Amended and Restated Credit Agreement, dated as of November 1, 1997, among First Union Real Estate Equity and Mortgage Investments, as Borrower, First Union Management, Inc., and National City Bank, Bankers Trust Company, Key Bank National Associates, The Huntington National Bank, Mellon Bank, N.A. and First Merit Bank, as Lenders. First Amendment to Fixed Rate Loan Agreement between First Union Real Estate Equity and Mortgage Investments, as Borrower; and Blackacre Bridge Capital, L.L.C., Gotham Partners, L.P., Gotham Partners III, L.P. and Elliott Associates, L.P. as Lenders, dated January 8, 1999. Letter Agreement between First Union Real Estate Equity and Mortgage Investments, as Borrower; and Blackacre Bridge Capital, L.L.C., Gotham Partners, L.P., Gotham Partners III, L.P. and Elliott Associates, L.P., as Lenders, dated January 8, 1999. 9 10 First Amendment to Fixed Rate Loan Agreement between First Union Real Estate Equity and Mortgage Investments, as Borrower; and BankBoston, N.A., Wellsford Capital and Bankers Trust Company, as Lenders, dated January 8, 1999. Letter Agreement between First Union Real Estate Equity and Mortgage Investments, as Borrower; and BankBoston, N.A., Wellsford Capital and Bankers Trust Company, as Lenders, dated January 8, 1999. Second Amendment, dated as of December 23, 1998, to the Amended and Restated Credit Agreement dated as of April 17, 1997 between Imperial Parking Limited, as Borrower, Impark Services Limited, as Guarantor, and HongKong Bank of Canada and BT Bank of Canada, as Lenders. March 29, 1999 Item 5 - Registrant's intention to sell certain assets. Item 7b) - Proforma Financial Information - Proforma combined balance sheet as of December 31, 1998. - Proforma combined statements of operations for the twelve months ended December 31, 1998.
(c) Financial Data Schedules - Three months ended March 31, 1999 (unaudited). - Three months ended March 31, 1998, as restated (unaudited). 10 11 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: May 14, 1999 By: /s/Brenda J. Mixson -------------------------------- Brenda J. Mixson, Interim Chief Financial Officer Date: May 14, 1999 By: /s/Gregory C. Scott -------------------------------- Gregory C. Scott Controller 11 12 Index to Exhibits ----------------- Page Number ------ Exhibit (20) - Financial Statements Combined Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 (audited)........................ ____ Combined Statements of Operations for the Three Months ended March 31, 1999 (unaudited) and 1998 (restated and unaudited)............................... ____ Combined Statements of Comprehensive Income for the Three Months ended March 31, 1999 (unaudited) and 1998 (restated and unaudited) ......................... ____ Combined Statements of Changes in Cash for the Three Months ended March 31, 1999 (unaudited) and 1998 (restated and unaudited).......................... ____ Notes to Combined Financial Statements................. ____ Exhibit (27) - Financial Data Schedules Three months ended March 31, 1999 (unaudited). Three months ended March 31, 1998, as restated (unaudited). EX-20 2 EXHIBIT 20 1 Exhibit 20 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS - ------------------------------------------------------- Combined Balance Sheets
Unaudited (In thousands, except shares) March 31, December 31, 1999 1998 --------- --------- ASSETS Investments in real estate Land $ 122,937 $ 130,340 Buildings and improvements 657,465 676,519 --------- --------- 780,402 806,859 Less - Accumulated depreciation (165,466) (165,357) --------- --------- Total investments in real estate 614,936 641,502 Investment in joint venture 1,733 1,722 Mortgage loans and notes receivable 5,493 5,508 Other assets Cash and cash equivalents - unrestricted 16,947 28,654 - restricted 15,561 16,526 Accounts receivable and prepayments 11,189 21,809 Inventory 2,839 2,798 Goodwill, net 45,806 45,379 Management and lease agreements, net 1,288 1,852 Deferred charges and other, net 6,978 6,864 Unamortized debt issue costs 8,239 7,758 Other 6,246 6,312 --------- --------- Total assets $ 737,255 $ 786,684 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgage loans $ 332,569 $ 345,042 Notes payable 79,039 94,996 Senior notes 12,538 12,538 Bank loans 114,014 125,821 Accounts payable and accrued liabilities 40,407 42,659 Deferred obligations 10,597 10,602 Deferred capital gains and other deferred income 1,811 3,283 --------- --------- Total liabilities 590,975 634,941 --------- --------- Minority interest 1,047 1,047 Shareholders' equity Preferred shares of beneficial interest, $25 liquidation preference, 2,300,000 shares authorized and 1,349,000 outstanding 31,737 31,737 Shares of beneficial interest, $1 par, unlimited authorization, outstanding 31,376 31,416 Paid-in capital 190,486 190,679 Undistributed loss from operations (121,337) (115,968) Undistributed capital gains 14,949 14,949 Accumulated other comprehensive income Foreign currency translation adjustment (1,978) (2,117) --------- --------- Total shareholders' equity 145,233 150,696 --------- --------- $ 737,255 $ 786,684 ========= =========
2 Exhibit 20 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS - ------------------------------------------------------- Combined Statements of Operations
Unaudited (In thousands, except per share data) Three Months Ended March 31, ------------------------- Restated 1999 1998 -------- -------- Revenues Rents $ 78,879 $ 79,104 Interest - Mortgage loans 115 619 - Short-term investments 234 229 - Investments - 190 Equity in income from joint venture 10 24 Management fees 94 98 Other income 81 90 -------- -------- 79,413 80,354 -------- -------- Expenses Property operating 55,386 57,286 Real estate taxes 3,160 2,998 Depreciation and amortization 9,489 7,556 Interest - Mortgage loans 7,252 6,868 - Notes payable 2,539 - Senior notes 278 2,219 - Bank loans and other 3,105 2,815 General and administrative 3,723 3,437 Foreign currency gain (333) (177) Litigation and proxy expenses - 931 -------- -------- 84,599 83,933 -------- -------- Loss before capital gain (5,186) (3,579) Capital gain 523 - -------- -------- Loss before preferred dividend (4,663) (3,579) -------- -------- Preferred dividend (708) (875) -------- -------- Net loss applicable to shares of beneficial interest $ (5,371) $ (4,454) ======== ======== Per share data Basic weighted average shares 31,376 29,230 Stock options, treasury method - 345 Restricted shares, treasury method - 180 -------- -------- Diluted weighted average shares 31,376 29,755 ======== ======== Loss applicable to shares of beneficial interest before capital gain $ (.19) $ (.15) ======== ======== Net loss applicable to shares of beneficial interest, basic and diluted $ (.17) $ (.15) ======== ======== Combined Statements of Comprehensive Income Net Loss $ (5,371) $ (4,454) Other comprehensive income Available for sale securities - 14 Foreign currency translation adjustment 139 (10) -------- -------- Comprehensive loss $ (5,232) $ (4,450) ======== ========
3 Exhibit 20 Combined Statements of Changes in Cash
(In thousands) Three Months Ended March 31, ------------------------- 1999 1998 -------- -------- Restated Cash provided by operations Net loss before preferred dividend $ (4,663) $ (3,579) Adjustments to reconcile net loss before preferred dividend to net cash provided by operations -- Depreciation and amortization 9,489 7,556 Capital gains, net (523) Foreign currency gain (333) (177) Increase in deferred charges and other, net (388) (980) Decrease in deferred income (1,472) (1,022) Increase in deferred interest on mortgage investments (6) Decrease in deferred obligations (5) (5) Net changes in other assets and liabilities 2,566 10,204 -------- -------- Net cash provided by operations 4,671 11,991 -------- -------- Cash provided by (used for) investing Repayment of mortgage investment and note receivable 6,206 Principal received from mortgage investments 15 82 Proceeds from sale of properties 11,092 Purchase of investments (146) Investments in properties (60,440) Deposit for property acquisitions (2,680) Investments in capital and tenant improvements (1,861) (7,262) -------- -------- Net cash provided by (used for) investing 9,246 (64,240) -------- -------- Cash (used for) provided by financing Decrease in short-term loans (12,208) 60,533 Decrease in note payable (11,092) Repayment of mortgage loans - Normal payments (1,003) (946) Purchase of First Union shares (233) Sale and employee option exercises of First Union shares 401 Debt issue costs paid (1,345) (108) Dividends paid to shares of beneficial interest (3,099) Dividends paid to preferred shares of beneficial interest (708) (1,207) -------- -------- Net cash (used for) provided by financing (26,589) 55,574 -------- -------- Increase (decrease) in cash and cash equivalents (12,672) 3,325 Cash and cash equivalents at beginning of period 45,180 16,864 -------- -------- Cash and cash equivalents at end of period $ 32,508 $ 20,189 ======== ========
Notes to the Combined Financial Statements - ------------------------------------------ The registrant sold a shopping center in February 1999 for $21.6 million resulting in net proceeds of $9.3 million after assumption of $11.5 million of mortgage debt by the purchaser. The capital gain recognized from the sale of the shopping center was $.5 million. The registrant in March also sold an office building for $2.2 million resulting in net proceeds of $1.8 million. The registrant restated its 1998 combined financial statements as a result of changing the estimated useful lives used to calculate depreciation expense. The registrant adopted EITF 98-9, "Accounting for Contingent Rent in Interim Financial Periods", prospectively in the fourth quarter of 1998. Consequently, percent rent recorded in the first quarter of 1999 decreased by $.7 million when comparing the first quarter of 1999 to 1998. EX-27.1 3 EXHIBIT 27.1
5 0000037008 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 32,508,000 0 11,189,000 0 2,839,000 46,536,000 780,402,000 165,466,000 737,255,000 40,407,000 411,608,000 0 31,737,000 31,376,000 82,120,000 145,233,000 0 79,413,000 0 58,546,000 12,879,000 0 13,174,000 0 0 (5,186,000) 0 0 0 (5,371,000) (.17) (.17)
EX-27.2 4 EXHIBIT 27.2
5 0000037008 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 20,189,000 0 21,097,000 0 41,287,000 825,978,000 (147,811,000) 848,955,000 43,568,000 544,645,000 0 31,736,000 31,618,000 228,018,000 848,955,000 0 80,354,000 0 60,284,000 11,747,000 0 11,902,000 0 0 (3,579,000) 0 0 0 (4,454,000) (.15) (.15)
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