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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended September 30, 1994 Commission File Number 1-6249
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First Union Real Estate Equity and Mortgage Investments
- - - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-6513657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1900, 55 Public Square
Cleveland, Ohio 44113-1937
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 781-4030
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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.
18,262,725 Shares of Beneficial Interest outstanding as of September 30, 1994
- - - -------------------------------------------------------------------------------
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Total number of pages contained in this report: 7
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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, 1994 and
December 31, 1993 and "Selected Financial Data, Combined Statements of Income
and Combined Statements of Changes in Cash" for the periods ended September 30,
1994 and 1993, of the registrant, and "Notes to Combined Financial Statements,"
presented in the registrant's Third Quarter Report, September 30, 1994, are
incorporated herein by reference. 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.
In August 1994, the registrant acquired a 345-unit apartment complex in
Durham, NC for $19 million in an all cash transaction. The $19 million had
been invested in short term investments.
In September 1994, the registrant contracted to sell on January 15,
1995 its 50% ownership interests in two malls located in Wilkes-Barre, PA and
Fairmount, WV for $35.5 million. The contract provides for a $2 million
payment in 1994, a $27.5 million payment to be received in January 1995 and a
note of $6 million with an interest rate of 9% due in January of 1998. The
proceeds will be net of $4.7 million of existing mortgages secured by the
properties and results in a gain of $29.9 million given the registrant's basis
of $10.3 million in the two properties. This transaction will be recorded by
the registrant in January 1995. Proceeds of this transaction will be used for
debt reduction, tenant alterations, capital improvements, and property
acquisitions.
Income from operations was $1.6 million and $2.9 million for the three
months ended September 30, 1994 and 1993, respectively, and $4.9 million and
$8.6 million for the nine months ended September 30, 1994 and 1993,
respectively.
Income from property operations, which is rents less operating expenses
and real estate taxes, for properties in the portfolio for both the three and
nine month periods of 1994 and 1993, decreased when comparing these periods.
These decreases were primarily caused by the one time recognition in 1993 of a
real estate tax refund from two office buildings. The apartment complex
acquisition in August 1994 positively impacted income from property operations
when comparing the three and nine month periods of 1994 to the same periods of
1993.
Short term investment interest income increased when comparing the same
periods of 1994 to that of 1993 because of investments in short term securities
averaging approximately $31 million during the third quarter of 1994 and $35
million for the nine months ended September 30, 1994. In 1993, the registrant
had an average of approximately $1 million invested in short term investments.
The large increase in short term investments from 1994 to 1993 was due to the
registrant borrowing $38 million under one of its lines of credit on December
31, 1993 and subsequently investing the funds in short term securities. In
August 1994, the registrant used $19 million of short term investments to
purchase the Durham, NC apartment complex.
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Mortgage interest expense increased when comparing the third quarter
and nine months of 1994 to the same periods of 1993. This increase was caused
primarily by the $35 million mortgage, secured by a shopping mall in St. Cloud,
MN. This mortgage was recorded in September 1993.
Senior notes interest expense increased in the third quarter and first
nine months of 1994 as compared to the same periods of 1993. The increase was
caused by the issuance of $100 million of 8.875% senior notes on October 1,
1993. The proceeds were primarily used to repay $45 million of 8.375% senior
notes and $37.6 million of 10.25% convertible debentures on November 1, 1993.
General and administrative costs increased when comparing the third
quarter and nine months of 1994 to the same periods of 1993. The increase in
expenses resulted from professional fees related to the registrant's
reorganization of the portfolio and management, expenses associated with the
new long term incentive performance plan and increased staffing to execute the
new strategic plan.
Net income was $1.6 million and $2.9 million for the third quarter of
1994 and 1993, respectively, and $4.9 million and $13.4 million for the nine
months ended September 30, 1994 and 1993, respectively. Capital gains included
in net income during the nine months of 1993 were $4.8 million. The majority
of the capital gains was from an installment sale of an office building in
1983.
There has been no material change in the registrant's financial
condition from December 31, 1993.
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 (11) - Statements Re: Computation of Per Share
Earnings.
Exhibit (20) - Third Quarter Report, September 30, 1994.
Exhibit (27) - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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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
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(Registrant)
Date: November 14, 1994 By: /s/ Gregory D. Bruhn
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Gregory D. Bruhn, Executive
Vice President and Chief
Financial Officer
Date: November 14, 1994 By: /s/ John J. Dee
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John J. Dee, Senior Vice
President-Controller (Principal
Accounting Officer)
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Index to Exhibits
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Exhibit (11) - Statements Re: Computation of Per Share
Earnings ........................................ 6
Exhibit (20) - Third Quarter Report, September 30, 1994 ........ 7
Exhibit (27) - Financial Data Schedule .........................
</TABLE>
<PAGE> 1
Exhibit 11
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
-----------------------------------------------------------
FIRST UNION MANAGEMENT, INC.
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STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1994 1993 1994 1993
----- ----- ----- -----
<S> <C> <C> <C> <C>
Shares Outstanding:
For computation of primary net
income per share -
Weighted average 18,107 18,095 18,115 18,093
======= ======= ======= =======
For computation of fully diluted
net income per share -
Weighted average, without regard
to exercise of shares under
share option or restricted
stock plans 18,104 18,095 18,109 18,086
Weighted average of outstanding
shares issued under restricted
stock plan 6 -- 9 --
Weighted average of outstanding
shares issued under share
option plans -- -- -- 7
Weighted average of outstanding
shares repurchased (3) -- (3) --
------- ------- ------- -------
Adjusted shares outstanding 18,107 18,095 18,115 18,093
======= ======= ======= =======
Net Income $ 1,605 $ 2,901 $ 4,871 $13,394
------- ------- ------- -------
Per Share - Primary and fully diluted:
Income from operations $ .09 $ .16 $ .27 $ .48
Capital gains
.26
------- ------- ------- -------
Net income $ .09 $ .16 $ .27 $ .74
======= ======= ======= =======
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
Exhibit (20)
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SELECTED FINANCIAL DATA
-----------------------
THREE MONTHS NINE MONTHS
Unaudited (In thousands, except per share data) ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $19,326 $18,706 $56,975 $55,377
Income from operations 1,605 2,901 4,871 8,627
Net income 1,605 2,901 4,871 13,394
Funds from operations (1) 4,616 5,603 13,631 16,756
Dividends declared 1,826 3,257 5,448 9,771
PER SHARE
Income from operations $ .09 $ .16 $ .27 $ .48
Net income .09 .16 .27 .74
Funds from operations .25 .31 .75 .93
Dividends declared .10 .18 .30 .54
</TABLE>
(1) The amount of funds from operations is calculated as income from
operations plus noncash charges for depreciation and amortization.
<PAGE> 2
<TABLE>
<CAPTION>
Combined Balance Sheets
-----------------------
September 30, December 31,
Unaudited (In thousands, except shares) 1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Investments in real estate
Land $ 44,337 $ 40,284
Buildings and improvements 389,021 368,776
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433,358 409,060
Less - Accumulated depreciation (110,167) (101,824)
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Total investments in real estate 323,191 307,236
Mortgage loans receivable 35,703 35,550
Other assets
Cash and cash equivalents 24,049 38,523
Accounts receivable 4,947 4,621
Deferred charges, net 2,833 2,506
Unamortized debt issue costs 4,857 5,185
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$ 395,580 $ 393,621
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans $ 91,870 $ 92,355
Senior notes 105,000 105,000
Bank loans 60,000 60,000
Accounts payable and accrued liabilities 17,343 14,356
Deferred obligations 10,488 10,394
Deferred capital gains and other
deferred income 7,746 7,750
Shareholders' equity, including shares of
beneficial interest, $1 par, unlimited
authorization, outstanding 1994--18,262,725;
1993--18,108,725 103,133 103,766
--------- ---------
$ 395,580 $ 393,621
========= =========
</TABLE>
<PAGE> 3
COMBINED STATEMENTS OF INCOME
-----------------------------
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
Unaudited (In thousands, except per share data) ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- ------------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Rents $17,968 $17,723 $53,010 $52,297
Interest - Mortgage loans 985 981 2,941 3,051
- Investment interest 373 2 1,024 29
------- ------- ------- -------
19,326 18,706 56,975 55,377
------- ------- ------- -------
Expenses
Property operating 6,435 6,495 19,176 18,633
Real estate taxes 2,011 1,799 5,945 5,673
Depreciation and amortization 3,011 2,702 8,760 8,129
Interest - Mortgage loans 1,809 1,389 5,356 4,121
- Senior notes 2,327 1,050 6,979 3,149
- Convertible debentures 964 2,893
- Bank loans and other 1,223 1,035 3,362 3,107
General and administrative 905 371 2,526 1,045
------- ------- ------- -------
17,721 15,805 52,104 46,750
------- ------- ------- -------
Income from operations 1,605 2,901 4,871 8,627
Capital gains 4,767
------- ------- ------- -------
Net income $ 1,605 $ 2,901 $ 4,871 $13,394
======= ======= ======= =======
Per share
Income from operations $ .09 $ .16 $ .27 $ .48
Capital gains .26
------- ------- ------- -------
Net income $ .09 $ .16 $ .27 $ .74
======= ======= ======= =======
Dividends declared $ .10 $ .18 $ .30 $ .54
======= ======= ======= =======
Adjusted shares of beneficial interest 18,107 18,095 18,115 18,093
======= ======= ======= =======
</TABLE>
Notes to Combined Financial Statements
--------------------------------------
1. Income per share of beneficial interest has been computed based on weighted
average shares and share equivalents outstanding for the applicable
periods. The shares issuable upon conversion of the convertible
subordinated debentures were not included in the per share computation
because they were not dilutive.
2. Capital gains recognized included $4.7 million for nine months ended
September 30, 1993, from an installment sale which occurred in 1983. The
final installment from this sale was received in June 1993. Capital gains
for the nine months ended September 30, 1993 also included $71,000 from the
sale of a small land parcel.
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Combined Statements of Changes in Cash
--------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Unaudited (In thousands) Ended September 30, Ended September 30,
--------------------------- ----------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash provided by (used for) operations
Net income $ 1,605 $ 2,901 $ 4,871 $ 13,394
Adjustments to reconcile net income to net
cash provided by operations --
Depreciation and amortization 3,011 2,702 8,760 8,129
Capital gains (4,767)
Increase in deferred charges, net (477) (204) (820) (423)
Increase in deferred interest on
mortgage investments, net (93) (108) (261) (299)
Increase in deferred obligations 33 28 94 81
Recognition of deferred income, net (2) (1) (4) (81)
Net changes in other assets and liabilities 3,693 884 4,127 1,052
-------- -------- -------- --------
Net cash provided by operations 7,770 6,202 16,767 17,086
-------- -------- -------- --------
Cash provided by (used for) investing
Principal received from mortgage investments 37 33 108 4,390
Investments in properties (21,161) (4,166) (23,878) (10,398)
Proceeds from sale of properties, net 71
-------- -------- -------- --------
Net cash used for investing (21,124) (4,133) (23,770) (5,937)
-------- -------- -------- --------
Cash provided by (used for) financing
Increase in mortgage loans 35,000 4,600 35,000
Decrease in short term loans (30,365) (31,305)
Repayment of mortgage loans - Normal payments (947) (786) (2,860) (2,400)
- Balloon payments (2,225)
Dividends paid (1,811) (3,257) (6,881) (9,769)
Debt issue costs paid 30 (2,107) (16) (2,465)
Purchase of First Union securities (23) (57)
Other (9) 2 (32) (28)
-------- -------- -------- --------
Net cash used for financing (2,760) (1,513) (7,471) (10,967)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents (16,114) 556 (14,474) 182
Cash and cash equivalents at beginning of period 40,163 618 38,523 992
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 24,049 $ 1,174 $ 24,049 $ 1,174
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 24,049,000
<SECURITIES> 0
<RECEIVABLES> 40,650,00
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,690,000
<PP&E> 433,358,000
<DEPRECIATION> (110,167,000)
<TOTAL-ASSETS> 395,580,000
<CURRENT-LIABILITIES> 35,577,000
<BONDS> 256,870,000
<COMMON> 103,133,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 395,580,000
<SALES> 53,010,000
<TOTAL-REVENUES> 56,975,000
<CGS> 0
<TOTAL-COSTS> 25,121,000
<OTHER-EXPENSES> 11,286,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,697,000
<INCOME-PRETAX> 4,871,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,871,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,871,000
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
