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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, 1995 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.
18,272,537 Shares of Beneficial Interest outstanding as of March 31, 1995
________________________________________________________________________________
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Total number of pages contained in this report: 9
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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 March 31, 1995 and
December 31, 1994 and "Selected Financial Data, Combined Statements of Income
and Combined Statements of Changes in Cash" for the periods ended March 31,
1995 and 1994, of the registrant, and "Notes to Combined Financial Statements,"
presented in the registrant's First Quarter Report, March 31, 1995, 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 January 1995, the Trust sold its 50% interests in two malls in
Wilkes-Barre, Pennsylvania and Fairmount, West Virginia for $29.5 million in
cash ($2 million was received in 1994), a $6 million mortgage note receivable
and the assumption by the purchaser of $4.7 million in mortgage debt, resulting
in a capital gain of approximately $29.9 million.
Income from operations was $1.6 million for the three months ended
March 31, 1995 and 1994.
Income from property operations, which is rents less operating expenses
and real estate taxes, increased when comparing the first three months of 1995
to the same period of 1994. This increase is primarily attributed to the
acquisition of an apartment complex in August 1994 and increased occupancy and
rental rates per unit from the apartment complexes in the portfolio for all of
1995 and 1994. However, this increase was partially offset by the property
operating income from the two properties sold in January 1995, as mentioned
above. The proceeds from this transaction were invested in short-term
securities for the last two months of the first quarter of 1995.
Depreciation and amortization expense increased when comparing the
first quarter of 1995 to that of 1994. The apartment complex acquired in
August 1994 and tenant construction costs incurred during 1994 were the primary
reasons for this increase.
Mortgage interest expense increased when comparing the first quarters
of 1995 and 1994. This increase was caused by an increase of approximately
three hundred basis points in the interest rate on a variable rate mortgage
loan secured by a shopping mall in St. Cloud, Minnesota when comparing 1995 to
1994.
Bank loan interest expense increased when comparing the first quarters
of 1995 and 1994 due to an increase of approximately three hundred basis points
in short-term interest rates from the first quarter of 1994 to that of 1995.
The increase in interest rates was partially offset by the Trust repaying $17
million under its bank lines of credit in December 1994.
General and administrative expenses increased when comparing the three
months ended March 31, 1995 to the same period of 1994. The increase was
caused by additional staffing during the last nine months of 1994 required to
execute the Trust's strategic plan, and expenses associated with the long-term
incentive performance plan which was adopted in April 1994.
2
<PAGE> 3
Litigation and proxy expenses of $950,000 were incurred during the
first quarter of 1995. These professional fees resulted from litigation and a
proxy contest with a minority shareholder. (See Part II, Item 1, Legal
Proceedings.)
Net income was $30.6 million for the first quarter of 1995 and $1.6
million for the first quarter of 1994. A capital gain of $29.9 million was
included in net income during the first quarter of 1995 from the sale of two
malls, as noted previously.
Except as noted above, there has been no material change in the Trust's
financial condition from December 31, 1994.
PART II - OTHER INFORMATION
- - - - - ---------------------------
Item 1. Legal Proceedings.
- - - - - ------- ------------------
On February 3, 1995, the registrant filed a lawsuit in the United
States District Court ("District Court") for the Northern District of Ohio (the
"Lawsuit") against, INTER ALIA, Turkey Vulture Fund XIII, Ltd. (the "Fund"),
and its Managing Partner, Richard M. Osborne ("RMO"), who claimed to
beneficially own 9.3% of the outstanding shares of the registrant according to
Amendment No. 5 to Schedule 13D filed by the Fund with the Securities and
Exchange Commission (the "Commission") on or about May 9, 1995. The Lawsuit is
described in Part I, Item 3 of the registrant's Annual Report on Form 10-K
filed with the Commission on March 30, 1995.
On April 12, 1995, the District Court granted registrant's motion
to amend its complaint. The defendants named in registrant's First Amended and
Supplemental Complaint for Injunctive Relief, Damages, and Other Relief
("Amended Complaint") are The Wolstein Group, Bert Wolstein, Scott Wolstein,
Heritage Capital Corporation, and Developers Diversified Realty Corporation
(the "Wolstein Defendants"), and RMO, the Fund, and Mark P. Escaja (all
collectively the "Defendants"). The Amended Complaint alleges that the
Defendants have, INTER ALIA, (i) filed a false and misleading Scchedule 13D and
amendments thereto, or failed to file, in violation of Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations promulgated thereunder; (ii) failed to comply with the federal and
state requirements for commencing a tender offer in violation of Sections 14(a)
and 14(d) of the Exchange Act and Section 1707.041 of the Ohio Revised Code;
(iii) manipulated the market for registrant's securities in violation of
Sections 10(b) and 14(e) of the Exchange Act and Rule 10b-5; (iv) violated
their obligations under registrant's Declaration of Trust and By-Laws, and
their obligations of good faith and fair dealing to other shareholders of
registrant; (v) disseminated false and misleading proxy statements and other
solicitation materials; (vi) that certain defendants and others dealt in
registrant's shares while in possession of material, non-public information
relating to the commencement of a tender offer in violation of Section 14(e)
of the Exchange Act; and (vii) that various Wolstein Defendants controlled
persons committing the aforementioned acts or were otherwise responsible for
such actions of other persons, in violation of Section 20(a) of the Exchange
Act and the rules and regulations promulgated thereunder. The Amended Complaint
seeks preliminary and permanent injunctive relief against the Defendants,
damages in the amount of $30 million, INTER ALIA, for causing First Union to
defend against an illegal proxy contest and distraction of management and
business disruption, and such other and further relief as may be just and
proper.
On April 27, 1995, the Fund and RMO filed amended counterclaims (the
"Osborne Amended Claims") in the Lawsuit against the registrant and its board
of trustees alleging, INTER ALIA, (i) violations of Section 14(a) under the
Exchange Act and the rules promulgated thereunder in connection with the
solicitation of proxies and the distribution of proxy materials by the
registrant relating to the registrant's annual meeting of shareholders held
April 11, 1995 (the "Annual Meeting"), and (ii) derivative claims for alleged
breach by the trustees of their fiduciary obligations. The Fund and RMO seek
relief including (a) invalidation of the results of the election of trustees at
the Annual Meeting, (b) an award of damages to the registrant from the trustees
of $5.45 million, (c) an award of damages to the Fund and RMO from registrant
and the trustees of $500,000 compensatory damages and $1 million punitive
damages, and (d) invalidation of the 9.8% ownership limit contained in the
registrant's by-laws and the registrant's Rights Plan.
On May 8, 1995, the Wolstein Defendants filed amended counterclaims
(the "Wolstein Amended Claims") against the registrant and James C. Mastandrea
alleging tort claims including defamation. The Wolstein Defendants seek
compensatory damages in amounts not less than $10 million for defendant
Developers Diversified Realty Corporation ("DDRC") and $1 million for each
of the other Wolstein Defendants and punitive damages in an amount not less
than $20 million for defendant DDRC and $5 million for each of the other
Wolstein Defendants.
The registrant denies that any of the counterclaims are entitled to
relief, has filed motions to dismiss the Wolstein Defendants' counterclaims,
and is vigorously defending against all counterclaims.
3
<PAGE> 4
Item 2. Changes in Securities.
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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 11, 1995:
1. Election of Trustees
--------------------
<TABLE>
<CAPTION>
Name Total Votes For Against Abstentions
---- ----------- --- ------- -----------
<S> <C> <C> <C> <C>
Stephen R. Hardis 7,929,616 7,579,808 ----- 349,808
E. Bradley Jones 7,929,616 7,272,931 ----- 656,685
James C. Mastandrea 7,929,616 7,648,507 ----- 281,109
Steven A. Calabrese 5,139,822 5,117,542 ----- 22,280
Richard M. Osborne 5,584,097 5,561,817 ----- 22,280
James R. Webb 5,139,822 5,117,542 ----- 22,280
</TABLE>
The three nominees proposed for re-election by the Board of Trustees of
First Union Real Estate Investments -- Stephen R. Hardis, E. Bradley Jones and
James C. Mastandrea -- were re-elected for three-year terms.
Continuing Term Trustees
------------------------
<TABLE>
<CAPTION>
Name Expiration of Term
---- ------------------
<S> <C>
Otes Bennett, Jr. 1996
Allen H. Ford 1996
Daniel G. DeVos 1996
Kenneth K. Chalmers 1997
William E. Conway 1997
Russell R. Gifford 1997
</TABLE>
2. Other Matters
-------------
A shareholder proposed to disallow proxy ballots
which are unmarked as an affirmative vote for the
issue under consideration.
<TABLE>
<CAPTION>
Total Votes For Against Abstentions
----------- --- ------- -----------
<S> <C> <C> <C>
13,069,438 2,991,305 6,826,184 3,251,949
</TABLE>
Item 5. Other Information.
- - - - - ------- ------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
- - - - - ------- ---------------------------------
4
<PAGE> 5
(a) Exhibits:
---------
Exhibit (11) - Statements Re: Computation of Per Share
Earnings.
Exhibit (20) - First Quarter Report, March 31, 1995.
Exhibit (27) - Financial Data Schedule
(b) Reports on Form 8-K:
--------------------
None.
5
<PAGE> 6
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Union Real Estate Equity and
Mortgage Investments
----------------------------------
(Registrant)
Date: May 15, 1995 By: /s/ Gregory D. Bruhn
----------------- ----------------------------
Gregory D. Bruhn, Executive
Vice President and Chief
Financial Officer
Date: May 15, 1995 By: /s/ John J. Dee
----------------- ----------------------------
John J. Dee, Senior Vice
President-Controller (Principal
Accounting Officer)
6
<PAGE> 7
Index to Exhibits
-----------------
Page
Number
------
Exhibit (11) - Statements Re: Computation of Per Share
Earnings ......................................... 8
Exhibit (20) - First Quarter Report, March 31, 1995 ............. 9
Exhibit (27) - Financial Data Schedule
7
<PAGE> 1
Exhibit 11
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
-----------------------------------------------------------
FIRST UNION MANAGEMENT, INC.
----------------------------
STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Shares Outstanding:
For computation of primary net
income per share -
Weighted average 18,145 18,109
====== ======
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 18,100 18,109
Weighted average of outstanding
shares issued under restricted
stock plan 42 ---
Weighted average of shares
issued under employee
incentive plan 3 ---
------ -------
Adjusted shares outstanding 18,145 18,109
====== =======
Net Income $30,560 $ 1,612
------- -------
Per Share - Primary and fully diluted:
Income after litigation and
proxy expenses(1) $ .04 $ .09
Capital gains(2) 1.64
------- -------
Net income $ 1.68 $ .09
======= =======
<FN>
(1) In the three months ended March 31, 1995, the registrant incurred
professional fees of $950,000, or $0.05 per share, in regard to litigation
and a proxy contest with a minority shareholder.
(2) In January 1995, the Trust sold its 50% interests in two shopping malls
resulting in a gain of approximately $29.9 million.
</TABLE>
8
<PAGE> 1
Exhibit 20
----------
SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
THREE MONTHS
Unaudited (In thousands, except per share data) ENDED MARCH 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
OPERATING RESULTS
Revenues $ 19,347 $ 18,917
Income from operations 1,640 1,612
Litigation and proxy expenses 950
Income after litigation and proxy expenses
and before capital gains 690 1,612
Capital gains (1) 29,870
Net income 30,560 1,612
Funds from operations (2) 3,777 4,453
Dividends declared 1,827 1,811
PER SHARE
Income from operations $ .09 $ .09
Income after litigation and proxy expenses
and before capital gains .04 .09
Capital gains 1.64
Net income 1.68 .09
Funds from operations .21 .25
Dividends declared .10 .10
<FN>
(1) In January 1995, the Trust sold its 50% interests in two malls
located in Wilkes-Barre, Pennsylvania and Fairmount, West
Virginia resulting in a capital gain of approximately $29.9
million.
(2) The amount of funds from operations is calculated as income from
operations less litigation and proxy expenses plus noncash
charges for depreciation and amortization.
</TABLE>
<PAGE> 2
COMBINED BALANCE SHEETS
-----------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
Unaudited (In thousands, except shares) 1995 1994
------------ -----------
<S> <C> <C>
ASSETS
INVESTMENTS IN REAL ESTATE
Land $ 44,994 $ 44,594
Buildings and improvements 377,018 391,800
------------ -----------
422,012 436,394
Less--Accumulated depreciation (106,484) (111,972)
------------ -----------
Total investments in real estate 315,528 324,422
MORTGAGE LOANS RECEIVABLE 41,813 35,761
OTHER ASSETS
Cash and cash equivalents 33,011 2,975
Accounts receivable 3,462 4,594
Deferred charges, net 3,989 3,488
Unamortized debt issue costs 4,815 4,949
------------ -----------
$ 402,618 $ 376,189
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans $ 86,018 $ 90,796
Senior notes 105,000 105,000
Bank loans 43,652 42,500
Accounts payable and accrued liabilities 17,869 16,686
Deferred obligations 10,557 10,522
Deferred capital gains and other
deferred income 7,743 7,745
Shareholders' equity, including shares of
beneficial interest, $1 par, unlimited
authorization, outstanding 1995--18,272,537;
1994--18,262,725 131,779 102,940
------------ -----------
$ 402,618 $ 376,189
============ ===========
</TABLE>
<PAGE> 3
COMBINED STATEMENTS OF INCOME
-----------------------------
<TABLE>
<CAPTION>
Unaudited (In thousands, except per share data) THREE MONTHS
ENDED MARCH 31,
--------------------------
1995 1994
----------- ----------
<S> <C> <C>
REVENUES
Rents $ 17,989 $ 17,651
Interest - Mortgage loans 1,072 975
- Short term investments 286 291
----------- ----------
19,347 18,917
----------- ----------
EXPENSES
Property operating 6,299 6,591
Real estate taxes 1,998 2,021
Depreciation and amortization 3,087 2,841
Interest--Mortgage loans 1,989 1,788
--Senior notes 2,326 2,327
--Bank loans and other 1,129 1,010
General and administrative 879 727
----------- ----------
17,707 17,305
----------- ----------
INCOME FROM OPERATIONS 1,640 1,612
Litigation and proxy expenses 950
----------- ----------
Income after litigation and proxy expenses
and before capital gains 690 1,612
CAPITAL GAINS 29,870
----------- ----------
NET INCOME $ 30,560 $ 1,612
=========== ==========
PER SHARE
Income from operations $ .09 $ .09
=========== ==========
Income after litigation and proxy expenses
and before capital gains .04 $ .09
Capital gains 1.64
----------- ----------
Net income $ 1.68 $ .09
=========== ==========
Dividends declared $ .10 $ .10
=========== ==========
ADJUSTED SHARES OF BENEFICIAL INTEREST 18,145 18,109
=========== ==========
<FN>
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.
(2) In January 1995, the Trust sold its 50% intertests in two malls
located in Wilkes-Barre, Pennsylvania and Fairmount, West
Virginia for $29.5 million in cash ($2 million was received in
1994), a $6 million mortgage note receivable and the assumption
by the purchaser of $4.7 million in mortgage debt, resulting in
a capital gain of approximately $29.9 million.
(3) The Trust incurred certain professional fees in regard to
litigation and a proxy contest with a minority shareholder.
</TABLE>
<PAGE> 4
COMBINED STATEMENTS OF CHANGES IN CASH
--------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
Unaudited (in thousands) ENDED MARCH 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income $ 30,560 $ 1,612
Adjustments to reconcile net income to net
cash provided by operations --
Depreciation and amortization 3,087 2,841
Capital gains (29,870)
(Increase) decrease in deferred charges, net (669) 51
Increase in deferred interest on
mortgage investments, net (90) (81)
Increase in deferred obligations 35 30
Net changes in other assets and liabilities 4,349 2,550
---------- ----------
Net cash provided by operations 7,402 7,003
---------- ----------
CASH PROVIDED BY (USED FOR) INVESTING
Principal received from mortgage investments 38 35
Proceeds from sale of properties 27,500
Investments in properties (3,333) (1,343)
---------- ----------
Net cash provided by (used for) investing 24,205 (1,308)
---------- ----------
CASH PROVIDED BY (USED FOR) FINANCING
Increase in short term loans 1,152
Repayment of mortgage loans - Normal payments (955) (910)
- Balloon payments (2,225)
Issue of First Union Shares 75
Dividends paid (1,826) (3,260)
Other (17) (22)
---------- ----------
Net cash used for financing (1,571) (6,417)
---------- ----------
Increase (decrease) in cash and cash equivalents 30,036 (722)
Cash and cash equivalents at beginning of period 2,975 38,523
---------- ----------
Cash and cash equivalents at end of period $ 33,011 $ 37,801
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000037008
<NAME> FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 33,011,000
<SECURITIES> 0
<RECEIVABLES> 45,275,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,473,000
<PP&E> 422,012,000
<DEPRECIATION> (106,484,000)
<TOTAL-ASSETS> 402,618,000
<CURRENT-LIABILITIES> 17,869,000
<BONDS> 234,670,000
<COMMON> 131,779,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 402,618,000
<SALES> 17,989,000
<TOTAL-REVENUES> 19,347,000
<CGS> 0
<TOTAL-COSTS> 8,297,000
<OTHER-EXPENSES> 4,916,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,444,000
<INCOME-PRETAX> 690,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 690,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,560,000
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
