-----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, N0BMscCk/yS4agm8WDE+MP2PKW5Cw8P3N6kKuRgvqf63KTmnLImBaBp586HCJYJa bzFbLhtuQZi91exqcnSEMQ== 0000950152-96-002452.txt : 19960517 0000950152-96-002452.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950152-96-002452 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 1934 Act SEC FILE NUMBER: 001-06249 FILM NUMBER: 96565078 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 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, 1996 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. 17,461,871 Shares of Beneficial Interest outstanding as of March 31, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Total number of pages contained in this report: 11 ---- 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 March 31, 1996 and December 31, 1995 and "Combined Statements of Income and Combined Statements of Changes in Cash" for the periods ended March 31, 1996 and 1995, 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 February 1996, the registrant sold two office buildings and a parking garage in Cleveland, OH for $1.8 million in cash and a $7 million, 8% note secured by the properties. This sale resulted in a capital loss of $5.6 million which was provided for by the registrant as part of a $14 million noncash unrealized loss on the carrying value of certain assets which was recorded in December 1995. Additionally, the registrant obtained a $12.5 million mortgage loan in January 1996. The mortgage loan is secured by an apartment complex in Durham, NC and is at an interest rate of 6.875%. Except as noted above, there has been no material change in the registrant's financial condition from December 31, 1995. Liquidity and Capital Resources - ------------------------------- Net cash provided by operations of $5.1 million for the first quarter of 1996 was $1.9 million less than the same period in 1995. This decline in the first quarter of 1996 is primarily attributed to the decrease in accrued liabilities when comparing the first quarter of 1996 to 1995. Dividends paid in 1996 of $2.0 million represented 40% of net cash from operating activities. As noted previously, the registrant, in 1996, received proceeds of $1.8 million from the sale of two office buildings and a parking garage in Cleveland, OH. Additionally, the registrant reinvested $8.7 million in its existing portfolio in building and tenant improvements. The expenditures were primarily made to complete the renovations of two retail properties and a retail anchor tenant building which were begun in 1995 and to begin the construction of a major office building tenant alteration. In January 1996, the registrant, as previously noted, obtained a $12.5 million mortgage loan. The proceeds were used to repay short-term bank loans. In December 1995, the registrant signed an agreement to purchase 950,000 of its shares of beneficial interest at the average 1995 trading price through December 8, 1995 of $7.50 per share from a minority shareholder. This was part of a settlement which was reached to dismiss pending litigation. The transaction occurred on January 10, 1996, but the effect of purchasing the 950,000 shares was reflected in the financial statements at December 31, 1995 as an accrued liability. The $7.1 million required for the purchase was funded in 1996 through the registrant's bank credit facilities. In March 1996, the registrant sold for $1 million an interest rate protection agreement which had a net book value of approximately $.9 million. The rate agreement had been used to protect the registrant from rising interest rates on a floating rate mortgage loan which was repaid in 1995. Subsequent to March 31, 1996, the registrant obtained two mortgage loans secured by apartment complexes in Indianapolis, IN and Cincinnati, OH. The proceeds of the mortgage loans totaled $24 million and were used to repay short-term bank loans. During the remaining nine months of 1996, the registrant has approximately $2.5 million of mortgage principal payments, a $5 million medium-term note repayment and 2 3 approximately $15 million of tenant and building improvements to fund. These requirements will be funded through available bank credit facilities of approximately $34 million (including the effect of the April 1996 mortgage financings). Results from Operations - ----------------------- For the first quarter, income before capital gains and cumulative effect of accounting change was a loss of $.9 million in 1996 compared to income of $.6 million in 1995. The amount in 1996 included two non-recurring, noncash charges totaling $1.3 million for the write-off of a tenant allowance and the termination of an employment contract, as discussed below. The amount in 1995 included $950,000 of proxy and litigation expenses. Net income for the first quarter of 1996 was a loss of $.9 million compared to $26.1 million in 1995, which included a capital gain of $29.9 million and a $4.3 million noncash charge for the cumulative effect of a change in accounting method. The $29.9 million capital gain in 1995 resulted from the sale of the registrant's 50% interests in two malls in Wilkes-Barre, PA and Fairmount, WV for $29.5 million in cash, a $6 million mortgage at an interest rate of 9% secured by one of the malls and also secured by partnership units of Crown American Properties L.P., and the assumption by the purchaser of $4.7 million of mortgage debt. The proceeds from this sale were invested in short-term securities until properties were acquired in 1995 in a tax-free exchange. Additionally, in 1995, the registrant recorded a noncash charge of $4.3 million for the cumulative effect of the change in accounting method for leasing costs. Previously, the registrant deferred internal leasing costs and amortized these costs over the lives of the consummated leases. This change in the method of accounting was made retroactive to January 1995 and, consequently, 1995 amounts have been restated to reflect this change. Property net operating income, which is calculated as revenue generated from rents collected and mortgage investments, less property operating expenses and real estate taxes, was $10.6 million in both the first quarters of 1996 and 1995. Mortgage investment income increased in 1996 as compared to 1995 due to the addition of two mortgages in January 1995 and February 1996, respectively. Both mortgages were the result of property sales as previously noted. Additionally, in 1995 the registrant had an average of $19 million in short-term investments from the proceeds of the sale of its 50% interest in two malls for the last two months of the first quarter of 1995. These funds were used in the last nine months of 1995 to purchase a retail property and apartment complex. Mortgage interest expense declined when comparing 1996 to 1995. The decrease was caused by the registrant refinancing four mortgage loans totaling approximately $49 million at an average interest rate of 9.28% for one mortgage loan at an interest rate of 7.49%. The approximate quarterly interest savings of $200,000 was partially offset by the new $12.5 million mortgage loan obtained in January 1996 on the Durham, NC apartment complex. Bank loans increased when comparing 1996 to 1995 due to increased borrowings on the bank credit facilities during the last half of 1995 and first three months of 1996. The borrowings were used to fund the registrant's capital improvement program and to purchase 950,000 shares of beneficial interest. In 1996, the registrant had an average of $66 million of bank lines of credit outstanding as compared to an average of $39 million in 1995. Depreciation and amortization expense increased over 1995 by approximately $1 million. This increase was caused by a non-recurring $680,000 noncash write-off of a tenant allowance due to the registrant replacing an anchor tenant at one of its malls and the registrant's capital improvement program during the last half of 1995 and first quarter of 1996. General and administrative expenses in the first three months of 1996 included a non-recurring noncash charge of $650,000 for the termination of an employment contract of a former executive. Additionally, proxy and litigation expenses of $950,000 were included in general and administrative expenses in the first quarter of 1995. 3 4 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. - ------- ---------------------------------------------------- The following matters were considered at the Annual Meeting of Shareholders held on April 9, 1996: 1. Election of Trustees --------------------
Name Total Votes For Against Abstentions ---- ----------- --- ------- ----------- Daniel G. DeVos 14,588,541 14,020,342 --- 568,199 Allen H. Ford 14,588,541 14,012,317 --- 576,224 Spencer H. Heine 14,588,541 13,989,525 --- 599,016
Continuing Term Trustees ------------------------ Kenneth K. Chalmers 1997 William E. Conway 1997 Russell R. Gifford 1997 Stephen R. Hardis 1998 E. Bradley Jones 1998 James C. Mastandrea 1998
2. Other Matters ------------- A Shareholder proposal to disallow proxy ballots which are unmarked as an affirmative vote for the issue under consideration.
Total Votes For Against Abstentions ----------- --- ------- ----------- 9,220,548 2,215,752 6,528,301 476,495
Item 5. Other Information. - ------- ------------------ None. Item 6. Exhibits and Reports on Form 8-K. - ------- --------------------------------- (a) Exhibits: --------- Exhibit (11) - Statements Re: Computation of Per Share Earnings. Exhibit (20) - Financial Statements (Unaudited) Combined Balance Sheets as of March 31, 1996 and December 31, 1995 Combined Statements of Income, for the Three Months ended March 31, 1996 and 1995 Combined Statements of Changes in Cash, for the Three Months ended March 31, 1996 and 1995 Notes to Combined Financial Statements Exhibit (27) - Financial Data Schedule (b) Reports on Form 8-K: -------------------- None. 4 5 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, 1996 By: /s/ James C. Mastandrea ---------------------------------- James C. Mastandrea, Chairman President, Chief Executive Officer and Chief Financial Officer Date: May 14, 1996 By: /s/ John J. Dee ----------------------------------- John J. Dee, Senior Vice President, Chief Accounting Officer 5 6 Index to Exhibits Page Number Exhibit (11) - Statements Re: Computation of Per Share Earnings.......................................... 7 Exhibit (20) - Financial Statements (unaudited) Combined Balance Sheets as of March 31, 1996 and December 31, 1995............................. 8 Combined Statements of Income, for the Three Months ended March 31, 1996 and 1995.............. 9 Combined Statements of Changes in Cash, for the Three Months ended March 31, 1996 and 1995........ 10 Notes to Combined Financial Statements............ 10 Exhibit (27) - Financial Data Schedule............................... 11 6 EX-11 2 EXHIBIT 11 1 Exhibit 11 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS Statements Re: Computation of Per Share Earnings (In thousands, except per share data)
Three Months Ended March 31, ----------------------- 1996 1995 ------ ------ Shares Outstanding For computation of primary net income per share - Weighted average 17,262 18,145 ------- ------- For computation of fully diluted net income per share - Weighted average, without regard to exercise of shares under share option, restricted stock or employee incentive plans 17,194 18,100 Weighted average of outstanding shares issued under restricted stock plan 64 42 Weighted average of shares issued under employee incentive plan 4 3 ------- ------- Adjusted shares outstanding 17,262 18,145 ======= ======= Net Income (loss): Net income (loss) applicable to shares of beneficial interest (used for computing primary and fully diluted net income per share): $ (877) $26,112(1) ======= ======= Net Income (loss) per share of beneficial interest -- primary and fully diluted: Income (loss) before cumulative effect of accounting change $(.05) $1.67 Cumulative effect of change in accounting for internal leasing costs -- (.24) ------- ------- Net Income (loss) $ (.05) $ 1.43 ======= ======= (1) 1995 Net Income has been restated to reflect the change in accounting method for internal leasing costs which was adopted retroactively to the first quarter of 1995.
EX-20 3 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, 1996 1995 --------- --------- ASSETS Investments in real estate Land $ 51,740 $ 54,403 Buildings and improvements 390,732 395,157 --------- --------- 442,472 449,560 Less - Accumulated depreciation (104,063) (107,701) --------- --------- Total investments in real estate 338,409 341,859 Mortgage loans receivable 49,096 42,042 Other assets Cash and cash equivalents 4,906 3,402 Accounts receivable and prepayments 4,556 4,536 Deferred charges and other, net 5,320 4,873 Unamortized debt issue costs 3,901 4,287 --------- --------- $ 406,188 $ 400,999 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgage loans $ 95,634 $ 83,854 Senior notes 105,000 105,000 Bank loans 69,700 69,600 Accounts payable and accrued liabilities 17,703 21,779 Deferred obligations 10,710 10,670 Deferred capital gains and other deferred income 7,741 7,741 Shareholders' equity, including shares of beneficial interest, $1 par, unlimited authorization, outstanding 1996--17,461,871; 1995--17,485,057 99,700 102,355 --------- --------- $ 406,188 $ 400,999 ========= =========
2 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS - ------------------------------------------------------- Combined Statements of Income Unaudited (In thousands, except per share data)
Three Months Ended March 31, ----------------------- 1996 1995 ------- ------- Revenues Rents $18,685 $17,989 Interest - Mortgage loans 1,205 1,072 - Short-term investments 7 286 ------- ------- 19,897 19,347 ------- ------- Expenses Property operating 7,166 6,299 Real estate taxes 2,020 1,998 Depreciation and amortization 3,753 2,775 Interest - Mortgage loans 1,825 1,989 - Senior notes 2,326 2,326 - Bank loans and other 1,568 1,129 General and administrative 2,116 2,264 ------- ------- 20,774 18,780 ------- ------- Income (loss) before capital gains and cumulative effect of accounting change (877) 567 Capital gains -- 29,870 ------- ------- Income (loss) before cumulative effect of accounting change for internal leasing costs (877) 30,437 Cumulative effect of change in accounting for internal leasing costs -- (4,325) ------- ------- Net income (loss) $ (877) $26,112 ======= ======= Dividends declared $ 1,921 $ 1,827 ======= ======= Per share Income (loss) before cumulative effect of accounting change $ (.05) $ 1.67 Cumulative effect of change in accounting for internal leasing costs (.24) ------- ------- Net income (loss) $ (.05) $ 1.43 ======= ======= Dividends declared $ .11 $ .10 ======= ======= Adjusted shares of beneficial interest 17,262 18,145 ======= =======
3 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS - ------------------------------------------------------- Combined Statements of Changes in Cash Unaudited (In thousands)
Three Months Ended March 31, ------------------------ 1996 1995 ------- -------- Cash provided by (used for) operations Net income $ (877) $ 26,112 Adjustments to reconcile net income to net cash provided by operations -- Depreciation and amortization 3,753 2,775 Cumulative effect of change in accounting for internal leasing costs 4,325 Capital gains (29,870) Increase in deferred charges, net (329) (669) Increase in deferred interest on mortgage investments, net (96) (90) Increase in deferred obligations 40 35 Net changes in other assets and liabilities 2,586 4,349 ------- -------- Net cash provided by operations 5,077 6,967 ------- -------- Cash provided by (used for) investing Principal received from mortgage investments 42 38 Proceeds from sale of properties 1,825 27,500 Investments in capital and tenant improvements (8,662) (2,898) ------- -------- Net cash provided by (used for) investing (6,795) 24,640 ------- -------- Cash provided by (used for) financing Increase in mortgage loans 12,500 Increase in short-term loans 100 1,152 Repayment of mortgage loans (720) (955) Sale of First Union shares 79 75 Dividends paid (2,028) (1,826) Debt issue costs paid (611) Sale of interest rate protection agreement 1,025 Purchase of First Union shares (7,125) Other 2 (17) ------- -------- Net cash provided by (used for) financing 3,222 (1,571) ------- -------- Increase in cash and cash equivalents 1,504 30,036 Cash and cash equivalents at beginning of period 3,402 2,975 ------- -------- Cash and cash equivalents at end of period $ 4,906 $ 33,011 ======= ========
Notes to Combined Statements of Income 1. Income per share of beneficial interest has been computed on weighted average shares and share equivalents outstanding for the applicable periods. 2. In 1995, the Trust changed its accounting method to directly expense internal leasing costs and recorded a $4.3 million charge for the cumulative effect of the accounting change retroactive to January 1, 1995. Previously, the Trust deferred and amortized these costs over the lives of consummated lease transactions. Depreciation and amortization, general and administrative expenses, income before capital gains and cumulative effect of accounting change, net income and earnings per share on the 1995 Combined Statements of Income and investment in properties on the 1995 Combined Statements of Changes in Cash have been restated to reflect the change in accounting. 3. In February 1996, the Trust sold two office buildings in Cleveland, Ohio for $1.8 million in cash and a $7 million mortgage note resulting in a loss of $5.6 million. This loss had been previously recognized during the fourth quarter of 1995. In January 1995, the Trust sold its 50% interests in two malls in Wilkes-Barre, Pennsylvania and Fairmount, West Virginia for a $2 million cash payment which was received in 1994, a tax-free exchange of these properties for $27.5 million of cash that was deposited into a tax intermediary escrow account, a $6 million mortgage note receivable and the assumption by the purchaser of $4.7 million in mortgage debt, resulting in a capital gain for financial reporting purposes of approximately $29.9 million. EX-27 4 EXHIBIT 27
5 0000037008 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 1 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 4,906,000 0 4,566,000 0 0 9,462,000 0 (104,063,000) 406,188,000 17,703,000 270,334,000 99,700,000 0 0 0 406,188,000 0 19,897,000 0 9,186,000 5,869,000 0 5,719,000 (877,000) 0 (877,000) 0 0 0 (877,000) (.05) (.05)
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