8-K/A 1 e500772_8ka-firstunion.txt AMENDMENT NO.1 TO 8-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A (Amendment No. 1) Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported) APRIL 19, 2005 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS ------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Ohio ---------------------------------------------- (State or Other Jurisdiction of Incorporation) 001-06249 34-6513657 ------------------------ ------------------------------------ (Commission File Number) (I.R.S. Employer Identification No.) 7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts 02114 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (617) 570-4614 -------------- (Registrant's Telephone Number, Including Area Code) n/a ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFT|R 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) INDEX Item 2.01 Completion of Acquisition or Disposition of Assets............... 3 Item 9.01 Financial Statements and Exhibits................................ 3 Signatures ................................................................. 13 2 Item 2.01 Completion of Acquisition or Disposition of Assets We have filed a Current Report on Form 8-K on April 22, 2005 with regard to the making of mezzanine loans secured by, and acquisitions of equity interests in, entities that hold title to real property located primarily in the Chicago, Illinois metropolitan and suburban area (the "Chicago Properties"), as described in such Current Report. The purpose of this Amendment to the Current Report is to provide the financial information required by Article 11 of Regulation S-X. Item 9.01 Financial Statements and Exhibits The following financial statements and pro forma financial information are filed as part of this report. (a) Financial Statements of Real Estate Acquired: Combined Statement of Revenues and Certain Expenses of the Chicago Properties for the year ended December 31, 2004. (b) Unaudited Pro Forma Financial Statements: The unaudited pro forma consolidated financial statements set forth (i) the pro forma balance sheet of First Union Real Estate Equity and Mortgage Investments (the "Company") as of March 31, 2005, as if the acquisitions had occurred on March 31, 2005, (ii) the pro forma consolidated statement of operations for the year ended December 31, 2004, as if the acquisition had occurred on January 1, 2004, and (iii) the pro forma consolidated statement of operations for the period ended March 31, 2005, as if the acquisition had occurred on January 1, 2004. The pro forma financial statements are based upon assumptions contained in the notes thereto and should be read in conjunction with such notes. The unaudited pro forma consolidated financial statements may not necessarily reflect the results of operations or financial position of the Company which would have actually resulted had the investment occurred as of the dates indicated, nor should they be taken as indicative of the future results of operations or the future financial position of the Company. Differences could result from various factors, including but not limited to changes in occupancy, rental rates and rental expenses. 3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of First Union Real Estate Equity and Mortgage Investments: We have audited the accompanying combined statement of revenues and certain expenses of the properties known as the Chicago Properties (the "Properties") for the year ended December 31, 2004. This financial statement is the responsibility of the Properties' management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Form 8-K/A of First Union Real Estate Equity and Mortgage Investments as described in Note 1 to the financial statement and is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, in accordance with standards of the Public Company Oversight Board (United States), the financial statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Properties for the year ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. TAUBER & BALSER PC Atlanta, Georgia June 25, 2005 4 CHICAGO PROPERTIES COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2004 (in thousands) Revenues: Base rental income $58,704 Operating expense recovery 2,782 Other income 2,702 ------- Total revenues 64,188 ------- Certain Expenses: Mortgage Interest 7,022 Property operating 24,688 Real estate and other taxes 10,132 Management fees and costs 5,735 ------- Total certain expenses 47,577 ------- Revenues in Excess of Certain Expenses $16,611 ======= See notes to the combined statement of revenues and certain expenses. 5 CHICAGO PROPERTIES NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES 1. ORGANIZATION AND BASIS OF PRESENTATION The accompanying Combined Statement of Revenues and Certain Expenses of First Union Real Estate Equity and Mortgage Investments (collectively, "First Union" or the "Company") includes the operations of 24 properties containing 3,716,467 square feet, substantially all of which are located in the Chicago metropolitan and suburban area (the "Chicago Properties"). During the year ended December 31, 2004, the Chicago Properties were owned primarily by a group of individuals (collectively "Marc") who were not affiliates of the Company. On April 19, 2005, FT-MARC Loan LLC, a wholly-owned subsidiary of First Union REIT L.P., the operating partnership of the Company, made 22 separate convertible mezzanine loans and equity investments in 22 separate entities (each a "Borrower") wholly owned by Marc in the aggregate amount of $70,306,191 (inclusive of a $980,000 subsequent advance). Each loan is secured by the applicable Borrower's ownership interest in a limited liability company (each a "Property Owner") that in turn owns an office building or complex. The aggregate value of the Property Owners' properties is approximately $355 million. Each Borrower holds a 100% interest in the applicable Property Owner other than with respect to one property, in which the Borrower holds a 75% interest in the Property Owner. Each loan bears interest at 7.65%, matures on April 18, 2012 and requires monthly payments of interest only. The amounts advanced under each loan together with the equity investment in the applicable Borrower, as described below, was equal to 49% of the difference between the agreed value of the property owned by the applicable Property Owner and the existing debt encumbering such property. Each loan may be converted into an equity interest in the applicable Borrower after one year at the request of First Union or three years at the option of the Borrower. On May 6, 2005, FT-Marc Loan made additional convertible mezzanine loans and equity investments in the amount of $5,911,968 with respect to two additional properties on the same terms as the loans made on April 19th except that the amount advanced under these loans together with the equity investment, as described below, was equal to 60% of the difference between the agreed value of the property and the existing debt encumbering the property. The two properties have a value of approximately $31 million. As part of the above transactions, First Union acquired an equity interest in each of the Borrowers. The equity interest entitles First Union to participate in capital proceeds derived from the sale or refinancing of the applicable property to the extent such proceeds generate amounts sufficient to fully satisfy all of the debt encumbering the applicable property, including its respective loan and a return to the Borrower of its deemed equity (the agreed value of the applicable property less all debt encumbering the applicable property including the loan made by First Union) plus a 7.65% per annum return thereon. Further, First Union has committed to loan an additional $6,370,000 to cover the costs of tenant improvements and capital expenditures at the 24 properties. First Union also has the right to co-invest in all other office properties acquired by Marc and their affiliates in the Chicago, Illinois metropolitan and suburban areas. The accompanying historical financial statement information is presented in conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for inclusion in Form 8-K/A of the Company. Accordingly, the financial statement is not representative of the Chicago Properties' actual operations for the year ended December 31, 2004 as certain expenses have been excluded, which may not be comparable to the expenses expected to be incurred in the future operations of the properties. Expenses excluded consist of depreciation and amortization, and other costs not directly related to the future operations of the Chicago Properties. 6 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Rental Revenues - Rental revenues are recognized on a straight line basis over the terms of the related leases. Property Operating Expense - Property operating expense consists primarily of utilities, insurance, repairs and maintenance, security and safety, cleaning, bad debts expense, and other administrative expenses. Management Fees and Costs - Management fees and costs relate to fees paid to an affiliate of Marc represent a management fee of approximately five percent of rental receipts plus reimbursement of personnel and other costs related to management of the Chicago Properties. Management's Use of Estimates - The preparation of Combined Statements of Revenues and Certain Expenses in conformity with accounting principles generally accepted in the United States of America requires First Union's management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. OPERATING LEASES Rental revenues are principally obtained from tenant operating leases. Future minimum base rental payments during the primary terms under all tenant operating leases as of December 31, 2004 are as follows: Year ending December 31, (in thousands) -------------------------------------------------------------------------------- 2005 $ 52,805 2006 43,805 2007 35,377 2008 26,624 2009 20,414 Thereafter 63,790 --------- Total $ 242,815 ========= 7 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 2005
Pro Historical Chicago Forma March 31, Properties March 31, 2005 Investment 2005 ---------- ---------- --------- (In thousands) (a) Assets Investment in real estate, at cost Land $ 3,929 $ -- $ 3,929 Buildings and improvements 87,977 -- 87,977 --------- --------- --------- -- 91,906 91,906 Less - Accumulated depreciation (5,362) -- (5,362) --------- --------- --------- Investments in real estate, net -- 86,544 86,544 Real estate held for sale 1,382 -- 1,382 Lease intangibles, net 6,898 -- 6,898 Cash and cash equivalents 172,096 (76,716) 95,380 Restricted cash 81 -- 81 Loans receivable 6,737 -- 6,737 Accounts receivable and prepayments, net 7,204 -- 7,204 Unamortized debt issue costs, net 1,198 -- 1,198 Real estate securities - available for sale 22,512 -- 22,512 Preferred equity investment -- 76,716 76,716 Equity investment in limited partnership 618 -- 618 --------- --------- --------- TOTAL ASSETS $ 305,270 $ $ 305,270 ========= ========= ========= LIABILITIES Mortgage loans payable $ 86,721 $ -- $ 86,721 Loan payable 39 -- 39 Accounts payable and accrued liabilities 3,843 -- 3,843 Dividends payable 1,026 -- 1,026 Deferred items 61 -- 61 Liabilities of real estate held for sale and discontinued operations 2,159 -- 2,159 --------- --------- --------- TOTAL LIABILITIES 93,849 -- 93,849 --------- --------- --------- SHAREHOLDERS' EQUITY Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, $25 per share liquidating preference, 2,300,000 shares authorized, 983,082 outstanding 23,131 -- 23,131 Series B-1 Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, $25 per share liquidating preference, 3,640,000 shares authorized and outstanding 85,875 -- 85,875 Common Shares of Beneficial Interest, $1 par, unlimited authorized, 32,058,913 outstanding 32,059 -- 32,059 Additional paid in capital 210,945 -- 210,945 Accumulated other comprehensive income 4,015 -- 4,015 Accumulated distributions in excess of net income (144,604) -- (144,604) --------- --------- --------- Total Shareholders' Equity 211,421 -- 211,421 --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 305,270 $ -- $ 305,270 ========= ========= =========
See notes to unaudited pro forma financial statements 8 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 Pro Forma (In thousands, except per share data) Adjustments Chicago Properties Pro Historical Investment Forma ---------- ---------- ------- (a) Revenues Rents $ 3,390 $ -- 3,390 Interest and dividends 2,528 -- 2,528 ------- ------- ------- 5,918 -- 5,918 ------- ------- ------- Expenses Property operating 786 -- 786 Real estate taxes 66 -- 66 Depreciation and amortization 735 -- 735 Interest 698 -- 698 General and administrative 4,104 -- 4,104 ------- ------- ------- 6,389 -- 6,389 ------- ------- ------- Other Income Insurance recoveries 1,254 -- 1,254 Gain on sale of securities available-for-sale 1,153 -- 1,153 Equity in earnings of preferred equity investment -- 5,748 5,748 ------- ------- ------- 2,407 -- 8,155 ------- ------- ------- Income from continuing operations $ 1,936 $ 5,748 7,684 ======= ======= ======= Per share data - Basic and Diluted: Income from continuing operations applicable to common shares of beneficial interest $ 0.00 -- 0.18 ======= ======= Basic and diluted weighted average Common Shares 31,059 -- 31,059 ======= ======= See notes to unaudited pro forma financial statements 9 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 Pro Forma (In thousands, except per share data) Adjustments Chicago Properties Pro Historical Investment Forma ---------- ---------- -------- (b) Revenue Rents $ 3,862 $ -- $ 3,862 Interest and dividends 1,037 -- 1,037 --------------------- -------- 4,899 -- 4,899 --------------------- -------- Expenses Property operating 185 -- 185 Real estate taxes 21 -- 21 Depreciation and amortization 842 -- 842 Interest 1,700 -- 1,700 General and administrative 1,000 -- 1,000 --------------------- -------- 3,748 -- 3,748 --------------------- -------- Other Income Gain on the sale of real estate securities available for sale 142 -- 142 Gain on the sale of real estate held for syndication 169 -- 169 Equity in earnings of preferred equity investment -- 1,437 1,437 Equity in (loss) of investment in limited partnership (24) -- (24) -------- -------- -------- 287 1,437 1,724 -------- -------- -------- Income from continuing operations $ 1,438 $ 1,437 $ 2,875 ======== ======== ======== Per share data - Basic: Income from continuing operations applicable to common shares of beneficial interest $ 0.01 $ -- $ 0.06 ======== ======== Diluted: Income from continuing operations applicable to common shares of beneficial interest $ 0.01 $ -- $ 0.06 ======== ======== Basic weighted average Common Shares 31,537 -- 31,537 Stock Options 46 -- 46 -------- -------- Diluted weighted average Common Shares 31,583 -- 31,583 ======== ======== See notes to unaudited pro forma financial statements 10 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION On April 19, 2005, FT-MARC Loan LLC, a wholly-owned subsidiary of First Union REIT L.P., the operating partnership of First Union Real Estate Equity and Mortgage Investments (collectively, "First Union" or the "Company"), made 22 separate convertible mezzanine loans and equity investments in 22 separate entities (each a "Borrower") wholly owned by Marc in the aggregate amount of $70,306,191 (inclusive of a $980,000 subsequent advance). Each loan is secured by the applicable Borrower's ownership interest in a limited liability company (each a "Property Owner") that in turn owns an office building or complex. The aggregate value of the Property Owners' properties is approximately $355 million. Each Borrower holds a 100% interest in the applicable Property Owner other than with respect to one property, in which the Borrower holds a 75% interest in the Property Owner. Each loan bears interest at 7.65%, matures on April 18, 2012 and requires monthly payments of interest only. The amounts advanced under each loan together with the equity investment in the applicable Borrower, as described below, was equal to 49% of the difference between the agreed value of the property owned by the applicable Property Owner and the existing debt encumbering such property. Each loan may be converted into an equity interest in the applicable Borrower after one year at the request of First Union or three years at the option of the Borrower. On May 6, 2005, FT-Marc Loan made additional convertible mezzanine loans and equity investments in the amount of $5,911,968 with respect to two additional properties on the same terms as the loans made on April 19th except that the amount advanced under these loans together with the equity investment, as described below, was equal to 60% of the difference between the agreed value of the property and the existing debt encumbering the property. The two properties have a value of approximately $31 million. As part of the above transactions, First Union acquired an equity interest in each of the Borrowers. The equity interest entitles First Union to participate in capital proceeds derived from the sale or refinancing of the applicable property to the extent such proceeds generate amounts sufficient to fully satisfy all of the debt encumbering the applicable property, including its respective loan and a return to the Borrower of its deemed equity (the agreed value of the applicable property less all debt encumbering the applicable property including the loan made by First Union) plus a 7.65% per annum return thereon. Further, First Union has committed to loan an additional $6,370,000 to cover the costs of tenant improvements and capital expenditures at the 24 properties. First Union also has the right to co-invest in all other office properties acquired by Marc and their affiliates in the Chicago, Illinois metropolitan and suburban areas. 2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET The unaudited pro forma balance sheet as of March 31, 2005, is based on the historical balance sheet for the Company presented in its Quarterly Report on Form 10-Q as of March 31, 2005. Significant pro forma adjustments in the unaudited pro forma consolidated balance sheet include the following: (a) Represents the initial investment in the Chicago Properties. 11 3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS The unaudited pro forma consolidated statement of operations for the year ended December 31, 2004, includes adjustments assuming that the equity investment in the Chicago Properties occurred as of January 1, 2004, and is based on the historical statement of operations for the Company presented in its Annual Report on Form 10-K for the year ended December 31, 2004. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2005, includes adjustments assuming that the equity investment in the Chicago Properties occurred as of January 1, 2004, and is based on the historical statement of operations for the Company presented in its Quarterly Report of Form 10-Q for the period ended March 31, 2005. Significant pro forma adjustments in the unaudited pro forma consolidated statements of operations include the following: (a) Represents the pro forma income earned from January 1, 2004 through December 31, 2004. (b) Represents the pro forma income earned from January 1, 2005 through March 31, 2005. 12 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 hereunto duly authorized on this 1st day of July 2005. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS By: /s/ Thomas Staples ------------------------------ Thomas Staples Chief Financial Officer 13