<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT #1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the fiscal year ended 12-31-95 Commission file number 1-6249
-------- --------
First Union Real Estate 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
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- --------------------------
Shares of Beneficial Interest
(Par Value $1 Per Share) New York Stock Exchange
- ----------------------------- ---------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Yes /X/ No / /
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
As of January 31, 1996, 17,028,378 Shares of Beneficial Interest were held by
non-affiliates, and the aggregate market value of such shares was approximately
$127,713,000.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
17,485,057 Shares of Beneficial Interest were outstanding as of
January 31, 1996
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: (1) Any annual
report to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
Annual Report to Shareholders for the year ended December 31, 1995
(Parts II and IV).
Proxy Statement dated March 8, 1996 for the Annual Meeting of
Shareholders to be held on April 9, 1996 (Part III).
<PAGE> 2
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
CROSS REFERENCE SHEET PURSUANT TO ITEM G,
GENERAL INSTRUCTIONS TO FORM 10-K
<TABLE>
ITEM OF FORM 10-K LOCATION
- -------------------------------------------- --------------
(page or pages)
<S> <C> <C>
PART I
------
1. Business . . . . . . . . . . . . . . . . . . . . 3 through 5
2. Properties . . . . . . . . . . . . . . . . . . . 6 through 12
3. Legal Proceedings. . . . . . . . . . . . . . . . 13
4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . 13
PART II
-------
5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . 13; Exhibit 13, 1
6. Selected Financial Data. . . . . . . . . . . . . 13; Exhibit 13, 20
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . 13; Exhibit 13,
33 through 35
8. Financial Statements . . . . . . . . . . . . . . 14; Exhibit 13,
21 through 32
9. Changes in and disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 14
PART III
--------
10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . 14 and 15; Proxy
Statement, 1 through 5
11. Executive Compensation . . . . . . . . . . . . . 16; Proxy Statement,
6 and 10 through 16
12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . 16; Proxy Statement, 7
and 8
13. Certain Relationships and Related Transactions . 16; Proxy Statement,
8 and 9
PART IV
-------
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Financial Statements and Financial
Statement Schedules. . . . . . . . . . . . 17 and 22 through
26; Exhibit 13,
21 through 32
(b) Exhibits . . . . . . . . . . . . . . . . . . 17 and 18; Exhibit
Index, 27 through 28
(c) Reports on Form 8-K. . . . . . . . . . . . . 18
</TABLE>
2
<PAGE> 3
PART I
------
Item 1. Business.
------- ---------
The registrant is an unincorporated association in the form of a
business trust organized in Ohio under a Declaration of Trust dated August
1, 1961, as amended from time to time through July 25, 1986 (the
"Declaration of Trust"), which has as its principal investment policy the
purchase of interests in real estate equities. The registrant qualifies as
a real estate investment trust under Sections 856 through 860 of the
Internal Revenue Code.
In order to encourage efficient operation and management of its
property, and after receiving a ruling from the Internal Revenue Service
with respect to the proposed form of organization and operation, the
registrant, in 1971, caused a management company to be organized pursuant to
the laws of the State of Delaware under the name First Union Management,
Inc. (the "Management Company"), to lease property from the registrant and
to operate such property for its own account as a separate taxable entity.
At December 31, 1995, the registrant net leased 37 of its properties to the
Management Company. The shares of the Management Company are held in trust,
with the shareholders of the registrant, as exist from time to time, as
contingent beneficiaries. For financial reporting purposes, the financial
statements of the Management Company are combined with those of the
registrant.
The registrant owns regional enclosed shopping malls, apartment
complexes and large downtown office buildings. Its portfolio is diversified
by type of property, geographical location, tenant mix and rental market. As
of December 31, 1995, the registrant owned (in fee or pursuant to long-term
groundleases under which the registrant is lessee) 15 shopping malls, eight
apartment complexes, seven office properties and a 1,100-car parking garage
and a 300-car parking facility, as well as other miscellaneous properties
(see Item 2 - Properties).
Currently, the registrant intends to concentrate its portfolio in
retail and apartment properties while investments in office buildings will be
de-emphasized. Although not presently seeking new mortgage investments,
except when needed in the disposition of the registrant's office portfolio,
the registrant intends to hold its three mortgage investments to maturity.
All of the registrant's shopping malls compete for tenants on the
basis of the rent charged and location, and encounter competition from
other retail properties in their respective market areas, and some of
the registrant's shopping malls compete with other shopping malls in the
environs. However, the principal competition for the registrant's shopping
malls may come from future shopping malls locating in their market areas and
from mail order and electronic retailers. In three markets in which the
registrant competes, overbuilding of retail projects has caused occupancy
levels to be negatively impacted. Additionally, the overall economic health
of retail tenants impacts the registrant's shopping malls. Due to the
overbuilding of retail space and a demand for large, open area,
administrative service space in Denver, CO, the registrant has repositioned
a former retail mall into an office property during 1995. The registrant's
apartment complexes compete with other apartments and residential housing in
the immediate areas in which they are located and may compete with
apartments and residential housing constructed in the same areas in the
future. The registrant's office properties compete for tenants principally
with office buildings throughout the respective areas in which they are
located. In most areas where the registrant's office construction and
competition for tenants has been and continues to be intense
3
<PAGE> 4
on the basis of rent, location and age of the building. High vacancy rates in
the cities in which the registrant has properties and the age of the
registrant's office properties continue to negatively impact the registrant's
occupancy rates and its ability to raise rental rates. Additionally, these
factors also impact the ability of the registrant to dispose of its office
properties. Moreover, the registrant's parking facilities compete with other
parking facilities in the immediate areas in which they are located and may
compete with new parking facilities constructed in the same areas in the
future. Additionally, the registrant's mortgage investments are collateralized
by an office building, shopping mall, partnership units of another public real
estate investment trust and an apartment complex. Risks inherent with the
registrant's portfolio are applicable to the collateral securing the mortgage
investments. These risks may impair the realizability of the mortgage
investments.
The registrant also experiences considerable competition when attempting
to acquire equity interests in desirable real estate at operating yields below
the registrant's cost of funds. As prices for real estate acquisitions
continue to firm, purchasing properties at substantial yields above the
registrant's cost of funds requires the registrant to assume an increased level
of risk. The competition is provided by other real estate investment trusts,
insurance companies, private pension plans and private developers.
Additionally, the registrant's credit rating and leverage affect its
competitive position in the public debt and equity markets.
The federal government and a number of states have adopted handicapped
facilities and energy laws and regulations relative to the development and use
of real estate. Such laws and regulations may operate to reduce the number and
attractiveness of investment opportunities available to the registrant. The
registrant has reviewed the properties which it owns or in which it has a
leasehold interest to determine the extent and amount of capital expenditures
to comply with the requirements for handicapped facilities. While the
registrant is making and will continue to make modifications to the properties
which it owns, the expenditures are not expected to be material. The
registrant is not aware of any other requirements to make capital expenditures
to comply with such laws and regulations. Other effects upon the registrant's
investments which result from the application of such laws and regulations
cannot be predicted.
Additionally, under various federal, state and local laws, ordinances and
regulations, an owner of real estate generally is liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, its property, as well as related costs of investigation
and property damage. These laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the registrant's
ability to sell or lease a property or to borrow using such real estate as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material in poor condition in the event of remodeling or
renovation. Other statutes may require the removal of underground storage
tanks that are out of service or out of compliance.
Certain environmental laws impose liability on a previous owner of
property to the extent that hazardous or toxic substances were present during
the prior ownership period. A transfer of the property does not relieve an
owner of such liability. Thus, the registrant may have liability with respect
to properties previously sold but is not aware of any such liability.
4
<PAGE> 5
Prior to undertaking major transactions, the registrant has hired
independent environmental experts to review specific properties. Ten
properties have been reviewed and no significant environmental hazards have
been uncovered. The registrant has no reason to believe that any
environmental contamination or violation of any applicable law, statute,
regulation or ordinance governing hazardous or toxic substances has occurred
or is occurring. However, no assurance can be given that hazardous or toxic
substances are not located on any of the properties. The registrant will
also endeavor to protect itself from acquiring contaminated properties or
properties with significant compliance problems by obtaining site assessments
and property reports at the time of acquisition when it deems such
investigations to be appropriate. There is no guarantee, however, that these
measures will successfully insulate the registrant from all such liabilities.
The number of persons employed by the registrant is 43.
5
<PAGE> 6
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
The following table sets forth certain information relating to the registrant's investments at December 31, 1995:
Square Year Total
Date of Ownership feet(1) Occupancy construction cost
Direct equity investments Location acquisition percentage (000) rate(2) completed (000)
- ------------------------- -------- ----------- ---------- -------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Mountaineer Morgantown, WV 1/29/78 100% 674(4) 81% 1975 $33,798
Fingerlakes Auburn, NY 9/28/81 100 404 90 1980 26,726
Fairgrounds Square Reading, PA 9/30/81 100 529(6) 97 1980 36,752
Wilkes Wilkesboro, NC 5/04/83 100 359 69 1982 18,710
-------
115,986
-------
Midwestern
----------
Crossroads (22) St. Cloud, MN 1/01/72 100 733(9) 97 1966 29,647
Two Rivers Clarksville, TN 9/26/75 100 233 46 1968 8,341
Crossroads Fort Dodge, IA 4/22/77 100 425(11) 93 1967 11,715
Westgate Towne Centre Abilene, TX 4/22/77 100 386(12) 36(13) 1962 9,719
Kandi Willmar, MN 3/12/79 100 451 89 1973 20,111
Woodland Commons Buffalo Grove, IL 4/03/95 100 171 97 1991 21,862
-------
101,395
-------
Western
-------
Valley North Wenatchee, WA 8/30/73 100 171 93 1966 4,153
Mall 205 Portland, OR 3/01/75 100 434(14) 97 1970 13,663
Plaza 205 Portland, OR 4/26/78 100 168 87 1970 4,288
Peach Tree Marysville, CA 12/19/79 100 436 50(15) 1972 13,536
Valley Yakima, WA 5/01/80 100 426(16) 97 1972 12,187
-------
47,827
-------
265,208
-------
Apartments:
Midwestern
----------
Somerset Lakes Indianapolis, IN 11/10/88 100 360 units 97 1975 20,276
Meadows of Catalpa Dayton, OH 7/11/89 100 323 units 94 1972 10,405
Steeplechase Cincinnati, OH 6/30/95 100 272 units 95 1987 12,007
-------
42,688
-------
Southern
--------
Briarwood Fayetteville, NC 6/30/91 100 273 units 96 1968-70 8,190
Woodfield Gardens Charlotte, NC 6/30/91 100 132 units 97 1974 3,656
Windgate Place Charlotte, NC 6/30/91 100 196 units 94 1974-78 5,921
Walden Village Atlanta, GA 6/01/92 100 380 units 91 1973 13,422
Beech Lake Durham, NC 8/19/94 100 345 units 95 1986 19,670
-------
50,859
-------
93,547
-------
</TABLE>
<TABLE>
<CAPTION>
Mortgage Loans
--------------------------------------------------------------
Balance Principal
Original at repayment
balance(s) 12/31/95 for 1996 Interest Year of
Direct equity investments (000) (000) (000) rate maturity
- ------------------------- ---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Mountaineer $14,447(3) $8,985(5) $896(5) ---%(5) ---(5)
Fingerlakes --- --- --- --- ---
Fairgrounds Square --- ---(7) --- --- ---
Wilkes --- --- --- --- ---
------ ------ ---
14,447 8,985 896
------ ------ ---
Midwestern
----------
Crossroads 50,300(3) 50,205(10) 655(10) ---(10) ---(10)
Two Rivers --- --- --- --- ---
Crossroads --- ---(8) --- --- ---
Westgate Towne Centre --- --- --- --- ---
Kandi --- ---(7) --- --- ---
Woodland Commons --- --- --- --- ---
------ ------ ---
50,300 50,205 655
------ ------ ---
Western
-------
Valley North --- --- --- --- ---
Mall 205 --- --- --- --- ---
Plaza 205 1,716 586 136 8.500 1999
Peach Tree --- --- --- --- ---
Valley --- --- --- --- ---
---
------ ------ ------
1,716 586 136
------ ------ ------
66,463 59,776 1,687
------ ------ ------
Apartments:
Midwestern
----------
Somerset Lakes --- --- --- --- ---
Meadows of Catalpa 8,000(3) 7,793 76 8.750 2002
Steeplechase --- --- --- --- ---
------ ------ ---
8,000 7,793 76
------ ------ ---
Southern
--------
Briarwood 2,542 ---(8) --- --- ---
Woodfield Gardens 1,074 849 63 8.875 2005
Windgate Place 1,794 1,463(17) 94(17) ---(17) ---(17)
Walden Village --- ---(8) --- --- ---
Beech Lake --- --- --- --- ---
5,410 2,312 157
------ ------ ---
13,410 10,105 233
------ ------ ---
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Item 2. Properties
-------
-Continued
Square Year
Date of Ownership feet(1) Occupancy construction
Direct equity investments Location acquisition percentage (000) rate(2) completed
- ------------------------- ----------------- ----------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Office Buildings:
Midwestern
----------
55 Public Square Cleveland, OH 1/15/63 100% 398 92% 1959
Circle Tower Indianapolis, IN 10/16/74 100 104 69 1930
Rockwell Avenue(18) Cleveland, OH 4/30/79 100 237 45 1916
Ninth Street Plaza(18) Cleveland, OH 10/11/85 100 147 61 1981
Landmark Towers Oklahoma City, OK 10/01/77 100 259 85 1967-71
Southern
--------
Henry C. Beck Shreveport, LA 8/30/74 100 185 81 1958
Western
-------
North Valley Center (19) Denver, CO 12/03/69 100 452 72 1967
Other:
Land-Huntington Bldg. Cleveland, OH 10/25/61 100(20) --- -- ---
Parking Garage Cleveland, OH 12/31/75 100 1,100 spcs. -- 1969
Parking Facility Cleveland, OH 9/19/77 100 300 spcs. -- ---
</TABLE>
<TABLE>
<CAPTION>
Mortgage Loans
--------------------------------------------------------
Balance Principal
Total Original at repayment
cost balance(s) 12/31/95 for 1996 Interest Year of
Direct equity investments (000) (000) (000) (000) rate maturity
- ----------------------------- ---------- ---------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Office Buildings:
Midwestern
----------
55 Public Square $30,684 $ --- $ ---(7) $ --- ---% ---
Circle Tower 3,931 --- --- --- --- ---
Rockwell Avenue(18) 13,106 --- --- --- --- ---
Ninth Street Plaza(18) 7,289 --- --- --- --- ---
Landmark Towers 15,032 2,909 838 283 8.375 1998
-------- ------- ------- -------
70,042 2,909 838 283
-------- ------- ------- -------
Southern
--------
Henry C. Beck 7,660 --- --- --- --- ---
-------- ------- ------- -------
Western
-------
North Valley Center (19) 11,875 2,037 479 144 7.750 1999
-------- ------- ------- -------
89,577 4,946 1,317 427
-------- ------- ------- -------
Other:
Land-Huntington Bldg. 4,501 --- --- --- --- ---
Parking Garage 7,021 9,300(3) 8,916 218 8.550 2014
Parking Facility 2,286 --- --- --- --- ---
-------- ------- ------- -------
13,808 9,300 8,916 218
-------- ------- ------- -------
462,140 94,119 80,114 2,565
Reserve for unrealized
loss on carrying value
of real estate(21) (12,580) --- --- ---
Senior debt underlying
wraparound mortgage loan
investments --- --- 3,740 297
-------- ------- ------- -------
Total equity investments $449,560 $94,119 $83,854 $ 2,862
======== ======= ======= =======
</TABLE>
7
<PAGE> 8
Item 2. Properties
------- ----------
- Continued
NOTES
-----
(1) The square footage shown represents gross leasable area for
shopping malls and net rentable area for office buildings. The apartments
are shown as number of units. The parking garage and parking facility are
shown as number of parking spaces.
(2) Occupancy rates shown are as of December 31, 1995, and are based on
the total square feet at each property, except apartments which are based
on the number of units and average occupancy during the year.
(3) The registrant obtained mortgages on the following properties
subsequent to acquisition: Meadows of Catalpa Apartments in the amount of
$8,000,000 in 1992; Huntington Parking Garage in the amount of $9,300,000
in 1993; Mountaineer Mall in the amount of $4,600,000 in 1994 and
Crossroads Shopping Center (St. Cloud, MN) in the amount of $50,300,000 in
1995.
(4) The total mall contains 674,000 square feet; the registrant owns
616,000 square feet, the balance being ground leased to Giant Eagle
Markets, Inc.
(5) This property has two mortgages. Interest rates are 9.10% and
8.25%. The mortgages mature in 2001 and 2009. The 9.10% mortgage, in the
principal amount of $4,648,000, has a principal payment for 1996 of
$711,000. The 8.25% mortgage, in the principal amount of $4,337,000, has
principal payment for 1996 of $185,000.
(6) The total mall contains 529,000 square feet; the registrant owns
431,000 square feet, the balance being separately ground leased to Boscov
Department Store, Inc.
(7) These properties are the collateral for the registrant's $60
million revolving line of credit.
(8) These properties are the collateral for the registrant's $20
million revolving line of credit.
(9) The total mall contains 733,000 square feet; the registrant owns
625,000 square feet, the balance being separately owned by Target Stores.
(10) This property has two mortgages. Interest rates are 7% and
7.485%. The mortgages mature in 2000 and 2002, respectively. The 7%
mortgage, in the principal amount of $753,000 has a principal repayment for
1996 of $61,000. The 7.485% mortgage, in the principal amount of
$49,452,000, has a principal repayment for 1996 of $594,000.
(11) The total mall contains 425,000 square feet; the registrant owns
328,000 square feet, the balance being separately owned by an unrelated
third party with Sears, Roebuck and Co. as tenant.
(12) The total mall contains 386,000 square feet; the registrant owns
291,000 square feet, the balance being separately owned by Montgomery Ward
& Co., Incorporated.
(13) Highly competitive market conditions have made leasing space
difficult. The registrant continues to seek tenants and alternative retail
strategies for this property.
8
<PAGE> 9
Item 2. Properties
------- ----------
- Continued
(14) The total mall contains 434,000 square feet; the registrant owns
257,000 square feet, the balance being separately owned by Montgomery Ward
Development Corporation.
(15) The property was inundated by a flood which occurred in February
1986. The mall was subsequently rebuilt and re-opened in November 1986. A
temporary tenant occupied approximately 70,000 square feet as of December
31, 1995. The Trust is pursuing a mixed use strategy for this former retail
facility.
(16) The total mall contains 426,000 square feet; the registrant owns
309,000 square feet, the balance being separately ground leased to Sears,
Roebuck and Co.
(17) This property has two mortgages. Interest rates are 8.875% and
9.375%. The mortgages mature in 2005 and 2007, respectively. The 8.875%
mortgage in the principal amount of $823,000 has a principal repayment for
1996 of $62,000. The 9.375% mortgage, in the principal amount of $640,000,
has a principal repayment for 1996 of $32,000.
(18) The registrant sold these properties in February 1996.
(19) North Valley Center was repositioned from a shopping mall to an
office property during 1995.
(20) The registrant has ground leased the land until October 30, 2011,
with seven, 10-year renewal options.
(21) In December 1995, the registrant recorded a $14 million unrealized loss on
the carrying value of assets identified for disposition. Subsequent to the
disposition of one office building, this reserve is $12,580,000 as of
December 31, 1995.
(22) This property represents 11.5% of gross revenues of the registrant. The
property is located in St. Cloud, MN, which is approximately 55 miles
northwest from Minneapolis, MN. St. Cloud has a population of 168,000. The
property is a regional, enclosed shopping center of 733,000 square
feet owned in fee and was renovated in 1995. Also, the mall is the only
regional, enclosed mall in its primary trade area. The competition for the
mall is power strip centers in the primary trade area. Additionally, the
mall represents 44% of the retail square feet of its primary trade area.
Mortgage secured by the property
--------------------------------
<TABLE>
<CAPTION>
Loan 1
------
<S> <C> <C> <C>
Original amount $49,500,000 Due Date 11/28/02
Interest rate 7.49% Amortization period 27 years
Annual Debt Service $4,275,238 Amount due at maturity $44,354,533
</TABLE>
<TABLE>
<CAPTION>
Loan 2
------
<S> <C> <C> <C>
Original amount $800,000 Due Date 02/15/2000
Interest rate 7% Amortization period 10 years
Annual Debt Service $111,464 Amount due at maturity $478,385
</TABLE>
Tenants Occupying greater than 10% or more of the
-------------------------------------------------
rentable square footage of mall
-------------------------------
<TABLE>
<CAPTION>
Minimum Lease Expiration
Square Rent per Expiration of last option
Tenant Feet square foot Date period
------ ------ ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Dayton Hudson Corporation 100,000 a) Jan-27 n/a
Sears Roebuck & Company 79,859 a) May-00 May-10
Dayton Hudson Corporation 108,162 b) Jul-41 n/a
(DBA Target)
JC Penney Co. Inc. 167,652 $1.12 Jan-01 Jan-11
<FN>
a) Tenant pays percentage rent in lieu of minimum rent.
b) Tenant owns their space.
</TABLE>
Occupancy of Crossroads - St. Cloud for last 5 years
----------------------------------------------------
<TABLE>
<S> <C>
1991 99%
1992 99%
1993 99%
1994 98%
1995 97%
</TABLE>
<TABLE>
<CAPTION>
Base minimum rent per square foot of owned mall excluding anchor tenants for the last 5 years
---------------------------------------------------------------------------------------------
Per square foot
---------------
<S> <C>
1991 $ 13.98
1992 14.84
1993 15.09
1994 16.31
1995 17.95
</TABLE>
<TABLE>
<CAPTION>
Lease expirations for the next 10 years
- --------------------------------------------
# of tenants Square feet Base minimum rent % of annual base
expiring expiring Amount Per square foot rent as of 12/31/95
------------ ----------- ------------ --------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 17 27,466 $ 488,835 $ 17.80 10%
1997 12 24,711 429,426 17.38 9%
1998 12 19,634 393,225 20.03 8%
1999 11 21,905 436,697 19.94 9%
2000 12 18,697 395,580 21.16 8%
2001 13 206,467 611,523 2.96 13%
2002 9 27,373 410,896 15.01 9%
2003 6 16,344 380,394 23.27 8%
2004 3 6,502 119,255 18.34 3%
2005 6 11,959 232,759 19.46 5%
</TABLE>
<TABLE>
<CAPTION>
Depreciation of property Book Basis Tax Basis Life Method
- -------------------------- ------------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Building $ 8,302,000 $ 8,674,000 40 yrs Straight line
Building improvements 13,513,000 13,141,000 40 yrs Straight line
Tenant improvements 2,028,000 1,903,000 40 yrs Straight line
Lease costs and equipment 752,000 752,000 10 yrs Straight line
</TABLE>
Property tax rate
- --------------------------
$.06 per $1.00 of assessed value. 1995 property taxes were $2,050,000.
9
<PAGE> 10
Item 2. Properties
------- ----------
- Continued
As of December 31, 1995, the registrant owned in fee its interests in
Crossroads Center (St. Cloud, Minnesota), Woodland Commons, Mall 205,
Crossroads Mall (Ft. Dodge, Iowa), Westgate Towne Centre, Mountaineer Mall,
Plaza 205, Peach Tree Mall, Valley Mall, Fingerlakes Mall, Fairgrounds Square
Mall, Wilkes Mall, 55 Public Square Building, Henry C. Beck Building, Landmark
Towers, Ninth Street Plaza, Somerset Lakes Apartments, Meadows of Catalpa
Apartments, Briarwood Apartments, Woodfield Gardens Apartments, Windgate Place
Apartments, Walden Village Apartments, Beech Lake Apartments, Steeplechase
Apartments, Land - Huntington Building and the Parking Facility. The
registrant holds a leasehold estate or estates, or a fee interest and one or
more leasehold estates in North Valley Center, Valley North Mall, Two Rivers
Mall, Kandi Mall, Circle Tower Building, Rockwell Avenue Building and the
Parking Garage.
10
<PAGE> 11
Item 2. Properties
------- ----------
- Continued
RENTALS FROM NET LEASES
The following table sets forth the rentals payable to the
registrant for the year ended December 31, 1995, under net leases of the
properties indicated:
<TABLE>
<CAPTION>
Annual
Property Base Rent Percentage Rents
-------- --------- ----------------
<S> <C> <C>
SHOPPING MALLS:
Eastern
-------
Mountaineer (1) $ 705,000 45% of gross receipts in excess
of $1,506,000
Fingerlakes (1) 968,000 40% of gross receipts in excess
of $2,505,000
Fairgrounds Square (1) 2,850,000 55% of gross receipts in excess
of $3,944,000
Wilkes (1) 507,000 55% of gross receipts in excess
of $931,000
Midwestern
----------
Crossroads
(St. Cloud, MN.) (1) 3,300,000 60% of gross receipts in excess
of $4,868,000(2)
Two Rivers (1) --- 5% of gross receipts
Crossroads
(Ft. Dodge, IA) (1) 736,000 55% of gross receipts in excess
of $1,302,000
Westgate Towne Centre (1) --- 10% of gross receipts
Kandi (1) 712,000 45% of gross receipts in excess
of $1,631,000
Woodland Commons (1) 1,500,000 25% of gross receipts in excess
of $1,280,000
Western
-------
Valley North (1) 543,000 55% of gross receipts in excess
of $976,000
Mall 205 (1) 1,232,000 55% of gross receipts in excess
of $2,146,000
Plaza 205 (1) 276,000 60% of gross receipts in excess
of $463,000
Peach Tree (1) 292,000 45% of gross receipts in excess
of $672,000
Valley (1) 463,000 50% of gross receipts in excess
of $898,000
</TABLE>
11
<PAGE> 12
Item 2. Properties
------- ----------
- Continued
<TABLE>
<CAPTION>
Annual
Property Base Rent Percentage Rents
<S> <C> <C>
APARTMENTS:
Midwestern
----------
Somerset Lakes (1) $971,000 55% of gross receipts in excess
of $1,744,000
Meadows of Catalpa (1) 900,000 35% of gross receipts in excess
of $2,300,000
Steeplechase (1) 600,000 50% of gross receipts in excess
of $1,200,000
Southern
--------
Briarwood (1) 335,000 35% of gross receipts in excess
of $1,000,000
Woodfield Gardens (1) 100,000 20% of gross receipts in excess
of $500,000
Windgate Place (1) 135,000 20% of gross receipts in excess
of $700,000
Walden Village (1) 850,000 55% of gross receipts in excess
of $1,545,000
Beech Lake (1) 952,000 55% of gross receipts in excess
of $1,904,000
OFFICE BUILDINGS:
Midwestern
----------
55 Public Square (1) 1,500,000 40% of gross receipts in excess
of $3,400,000 (3)
Circle Tower (1) 189,000 25% of gross receipts in excess
of $709,000
Rockwell Avenue (1) 75,000 35% of gross receipts in excess
of $1,261,000 (4)
Ninth Street Plaza (1) 322,000 25% of gross receipts in excess
of $1,288,000
Landmark Towers East (1) --- 15% of gross receipts
Landmark Towers Center (1) 56,000 15% of gross receipts in excess
of $408,000
Landmark Towers West (1) 56,000 15% of gross receipts in excess
of $347,000
Southern
--------
Henry C. Beck (1) 179,000 25% of gross receipts in excess
of $784,000
Western
-------
North Valley Center(1) --- 5% of gross receipts
OTHER:
Land-Huntington Building 170,000 First $130,000 plus 50% of all additional rental, as defined, received
by registrant as landlord under a net lease of the building and
improvements situated on the land
Parking Garage (1) 800,000 70% of gross receipts in excess
of $1,168,000
Parking Facility (1) 217,000 70% of gross receipts in excess
of $416,000
<FN>
(1) Leased to the Management Company.
(2) An additional net lease for the Stearns County Building, which is part of the Crossroads, St. Cloud, MN mall, provides for a
base rent of $14,000.
(3) An additional net lease for the 55 Public Square Building garage provides for a base rent of $281,000 and a percentage rent of
70% of gross receipts in excess of $537,000.
(4) An additional net lease for the Rockwell Avenue Building garage provides for a base rent of $316,000 and percentage rent of
70% of gross receipts in excess of $397,000.
</TABLE>
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS.
- ------- ------------------
Registrant vs. The State of California
- --------------------------------------
The registrant has pursued legal action against the State of California
associated with the 1986 flood of Peach Tree Mall. In September 1991, the court
ruled in favor of the registrant on the liability portion of this inverse
condemnation suit, which the State of California appealed. The registrant is
proceeding with its damage claim in Superior Court of the State of California.
No recognition of potential income has been made in the December 31, 1995
Combined Financial Statements.
Registrant vs. Richard M. Osborne
- ---------------------------------
During 1995, the registrant was involved in a lawsuit with a minority
shareholder. The initial lawsuit filed by the registrant alleged several
violations of the Securities and Exchange Commission rules and regulations by
the minority shareholder and other associated parties. Extensive discovery was
undertaken and numerous motions and pleadings were filed by the various parties
throughout most of 1995. All litigation was resolved on December 13, 1995 by a
settlement and standstill agreement. This agreement provides for the registrant
to purchase 950,000 shares of beneficial interest at the average 1995 trading
price through December 8, 1995 of $7.50 per share. Additionally, as part of
this agreement, the minority shareholder will not acquire additional shares of
theregistrant and will vote the remaining shares as recommended by the
registrant's management. This transaction was recorded by the registrant in
the December 31, 1995 Combined Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
None.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- -------------------------------------------------------------
MATTERS.
--------
MARKET PRICE AND DIVIDEND RECORD.
---------------------------------
"Market Price and Dividend Record" presented on page 1 of Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
- ------- ------------------------
"Selected Financial Data" presented on page 20 of Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" presented on pages 33 through 35 of Exhibit 13.
13
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS.
- ------------------------------
The "Combined Balance Sheets" as of December 31, 1995 and 1994, and the
"Combined Statements of Income, Combined Statements of Changes in Cash, Combined
Statements of Shareholders' Equity" for the years ended December 31, 1995, 1994
and 1993, of the registrant, "Notes to Combined Financial Statements" and
"Report of Independent Public Accountants" are presented on pages 21 through 32
of Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
(a) Directors.
----------
"Election of Trustees" presented on pages 1 through 5 of
registrant's 1996 Proxy Statement is incorporated herein by
reference.
(b) Executive Officers.
-------------------
<TABLE>
Period
of
Name Age Positions, Offices and Business Experience Service
---- --- ------------------------------------------ -------
<S> <C> <C> <C>
James C. Mastandrea 52 Chairman, President, Chief Executive 1993 to date
Officer and Chief Financial Officer since
February 1996. Chairman, President and
Chief Executive Officer from January 1994
to February 1996 and President and Chief
Operating Officer from July 1993 to
December 1993. President and Chief
Executive Officer of Triam Corporation,
Chicago, Illinois, an investment adviser to
various real estate investment funds, from
1991 to 1993. Chairman, President and Chief
Executive Officer of Midwest Development
Corporation, Buffalo Grove, Illinois from
1978 to 1991. Served in various capacities
in the field of commercial and real estate
lending from 1971 to 1978, including Vice
President of Continental Bank, Chicago,
Illinois, and with Mellon Bank, Pittsburgh,
Pennsylvania.
Paul F. Levin 49 Senior Vice President, General 1989 to date
Counsel and Secretary since December 1994.
Vice President, General Counsel and
Secretary since May 1989. Principal of
Schwarzwald, Robiner, Rock & Levin, a Legal
Professional Association, from 1981 to
1989. Associate of Gaines, Stern,
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Schwarzwald & Robiner Co., L.P.A.
from 1979 to 1980. Assistant Director of
Law, City of Cleveland, Ohio, from 1975 to
1978.
John J. Dee 44 Senior Vice President and Chief 1978 to date
Accounting Officer since February 1996.
Senior Vice President and Controller
from July 1992 to February 1996. Vice
President and Controller from December 1986
to July 1992, Controller from April 1981
to December 1986, Assistant Controller from
December 1979 to April 1981, Accounting
Manager from August 1978 to December 1979.
Steven M. Edelman 41 Executive Vice President, Chief 1980 to date
Investment Officer since January 1996.
Senior Vice President, Chief Investment
Officer from March 1995 to December 1995.
Senior Vice President, Asset Management
from July 1992 to February 1995. Vice
President, Acquisitions from December 1985
to June 1992. Assistant Vice President,
Acquisitions from January 1985 to November
1985. Acquisition Analyst from February
1984 to December 1985. Assistant
Controller from July 1982 to January 1984.
Internal Auditorfrom June 1980 to June
1982. Auditor with Touche Ross & Co. from
1978 to 1980.
Thomas T. Kmiecik 37 Senior Vice President,Treasurer 1984 to date
since January 1996, Vice President,
Treasurer from January 1994 to December
1995. Treasurer from May 1989 to December
1993. Assistant Controller from March 1984
to April 1989, Senior Auditor with Arthur
Young from 1980 to 1984.
</TABLE>
The above-named executive officers of the registrant hold office at the
pleasure of the Trustees of the registrant, and until their successors are
chosen and qualified.
15
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
"Compensation of Trustees" and "Executive Compensation", presented on
page 6 and pages 10 through 16, respectively, of registrant's 1996 Proxy
Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
"Security Ownership of Trustees, Officers and Others" presented on pages
7 and 8 of registrant's 1996 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
"Certain Relationships and Related Transactions" presented on pages 8
and 9 of registrant's 1996 Proxy Statement is incorporated herein by reference.
16
<PAGE> 17
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules.
-------------------------------------------------------
(1) Financial Statements:
---------------------
Combined Balance Sheets - December 31, 1995 and 1994 on page 21
of Exhibit 13.
Combined Statements of Income - For the Years Ended December
31, 1995, 1994 and 1993 on page 22 of Exhibit 13.
Combined Statements of Changes in Cash - For the Years Ended
December 31, 1995, 1994 and 1993 on page 23 of Exhibit 13.
Combined Statements of Shareholders' Equity - For the Years Ended
December 31, 1995, 1994 and 1993 on page 24 of Exhibit 13.
Notes to Combined Financial Statements on pages 25 to 31 of
Exhibit 13.
Report of Independent Public Accountants on page 32 of Exhibit 13.
(2) Financial Statement Schedules:
------------------------------
Report of Independent Public Accountants on Financial Statement
Schedules.
Schedule III - Real Estate and Accumulated Depreciation.
------------
Schedule IV - Mortgage Loans on Real Estate.
-----------
All Schedules, other than III and IV, are omitted, as the
information is not required or is otherwise furnished.
(b) Exhibits.
--------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION INCORPORATED HEREIN BY
REFERENCE TO
<S> <C> <C>
(3)(a) Declaration of Trust of Registrant Registration Statement on
dated August 1, 1961, as amended Form S-3 No. 33- 4493
through July 25, 1986
(3)(b) By-laws of Registrant, as amended Registration Statement on
Form S-3 No. 33-4493
(4)(a) Form of certificate for Shares of Registration Statement on
Beneficial Interest Form S-3 No. 33-2818
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION INCORPORATED HEREIN BY
REFERENCE TO
<S> <C> <C>
(4)(b) Form of Indenture governing Debt Registration Statement on Form S-3 No. 2-81605
Securities, dated February 1, 1983
between Registrant and Ameritrust
Company
(4)(c) Form of Debt Security Registration Statement on Form S-3 (No. 33-4493)
(4)(d) Form of Indenture governing Debt Registration Statement on Form S-3 (No. 33-68002)
Securities, dated October 1, 1993
between Registrant and Society
National Bank
(4)(e) Form of Note Registration Statement on Form S-3 (No. 33-68002)
(4)(f) Form of Indenture governing Debt Registration Statement on Form S-3 (No. 333-00953)
Securities
(4)(g) Rights Agreement between Registrant Form 8-A dated March 30, 1990 (No. 0-18411)
and National City Bank dated March 7,
1990
(10)(a) Share Purchase Agreement dated as of Registration Statement No. 2-88719
December 31, 1989 between registrant
and First Union Management, Inc.
(10)(b) First Amendment to Share Purchased Registration Statement No. 33-2818
Agreement dated as of December 10,
1985 between registrant and First
Union Management, Inc.
(10)(c) Second Amendment to Share Purchase Registration Statement No. 33-11524
Agreement dated as of December 9,
1986 between registrant and First
Union Management, Inc.
(10)(d) Third Amendment to Share Purchase Registration Statement No. 33-19812
Agreement dated as of December 2,
1987 between registrant and First
Union Management, Inc.
(10)(e) Fourth Amendment to Share Purchase Registration Statement No. 33-26758
Agreement dated as of December 7,
1988 between registrant and First
Union Management, Inc.
(10)(f) Fifth Amendment to Share Purchase Registration Statement No. 33-33279
Agreement dated as of November 29,
1989 between registrant and First
Union Management, Inc.
(10)(g) Sixth Amendment to Share Purchase Registration Statement No. 33-38754
Agreement dated as of November 28,
1990 between registrant and First
Union Management, Inc.
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION INCORPORATED HEREIN BY
REFERENCE TO
<S> <C> <C>
(10)(h) Seventh Amendment to Share Purchase Registration Statement No. 33-45355
Agreement dated as of November 27,
1991 between registrant and First
Union Management, Inc.
(10)(i) Eighth Amendment to Share Purchase Registration Statement No. 33-57756
Agreement dated as of November 30,
1992 between registrant and First
Union Management, Inc.
(10)(j) Employment and Consulting Agreement 1991 Form 10-K
with Donald S. Schofield dated
September 1, 1991
(10)(k) Employment Agreement with James C. June 30, 1994 Form 10-Q
Mastandrea dated July 13, 1994
(10)(l) Employment Agreement with Gregory D. June 30, 1994 Form 10-Q
Bruhn dated July 13, 1994
(10)(m) Credit Agreement with National City 1994 Form 10-K
Bank dated December 5, 1994
(10)(n) Credit Agreement with Society
National Bank dated March 4, 1996
(10)(o) 1981 Employee Share Option Plan 1992 Proxy Statement
(10)(p) 1994 Long Term Incentive Performance 1994 Proxy Statement
Plan
(11) Statements Re: Computation of Per
Share Earnings
(12) Statements of Ratios of Combined
Income from Operations and Combined
Net Income to Fixed Charges
(13) 1995 Annual Report to Shareholders
(18) Preferability letter for Change in
Accounting Method
(23) Consent of Independent Public Accountants
(24) Powers of Attorney
(27) Financial Data Schedule
</TABLE>
(c) Reports on Form 8-K.
--------------------
Date Subject
---- -------
December 22, 1995 Settlement and standstill
agreement with a minority
shareholder.
19
<PAGE> 20
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ James C. Mastandrea
----------------------------
James C. Mastandrea, Chairman,
President, Chief Executive
Officer and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer and Chairman, President, May 10, 1996
Principal Financial Officer Chief Executive
Officer and Chief
Financial Officer
/s/ James C. Mastandrea
-----------------------------------
James C. Mastandrea
Principal Accounting Senior Vice President- May 10, 1996
Officer Chief Accounting
Officer
/s/ John J. Dee
-----------------------------------
John J. Dee
Trustees: ) Date
*Otes Bennett, Jr. ) ----
)
*Kenneth K. Chalmers )
)
*William E. Conway ) May 10, 1996
)
*Daniel G. DeVos )
)
*Allen H. Ford )
)
*Stephen R. Hardis )
)
*E. Bradley Jones )
)
*James C. Mastandrea )
)
)
*By: /s/ Paul F. Levin )
---------------------------------- )
Paul F. Levin, Attorney-in-fact )
</TABLE>
20
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
-------------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To First Union Real Estate Equity
and Mortgage Investments:
We have audited in accordance with generally accepted auditing standards,
the combined financial statements included in the registrant's 1995 Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 5, 1996. Our audit was made for the
purpose of forming an opinion on those combined statements taken as a whole.
The schedules listed under Item 14(a)(2) on page 17 are the responsibility of
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic combined financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic combined financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic combined financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 5, 1996.
21
<PAGE> 22
Schedule III
------------
REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------
AS OF DECEMBER 31, 1995
-----------------------
(IN THOUSANDS)
--------------
<TABLE>
<CAPTION>
Cost
capitalized
Initial cost to subsequent to Gross amount at which
Registrant acquisition carried at close of
------------------ ------------- period
Buildings Land ----------------------------
Encum- and and Buildings and
Description brances Land Improvements Improvements Land Improvements Total
- ----------------------------------- ------- ---- ------------ ------------ ---- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Mountaineer, Morgantown, WV $ 8,985 $1,450 $ 12,693 $ 19,655 $ 1,615 $ 32,183 $33,798
Fingerlakes, Auburn, NY -- 1,300 23,698 1,728 1,370 25,356 26,726
Fairgrounds Square, Reading, PA -- 2,400 22,635 11,717 2,369 34,383 36,752
Wilkes, Wilkesboro, NC -- 1,168 13,891 3,651 1,168 17,542 18,710
------ ----- ------ ------ ----- ------ ------
8,985 6,318 72,917 36,751 6,522 109,464 115,986
------ ----- ------ ------ ----- ------- -------
Midwestern
----------
Crossroads, St. Cloud, MN 50,205 1,680 8,303 19,664 5,052 24,595 29,647
Two Rivers, Clarksville, TN -- -- 3,206 5,135 -- 8,341 8,341
Crossroads, Ft. Dodge, IA -- 1,151 2,792 7,772 1,328 10,387 11,715
Westgate Towne Centre, Abilene, TX -- 1,425 3,050 5,244 1,485 8,234 9,719
Kandi, Willmar, MN -- --- 5,035 15,076 -- 20,111 20,111
Woodland Commons, Buffalo Grove, IL -- 6,744 15,093 25 6,744 15,118 21,862
------ ----- ------ ------ ------ ------ -------
50,205 11,000 37,479 52,916 14,609 86,786 101,395
------ ------ ------ ------ ------ ------ -------
Western
-------
Valley North, Wenatchee, WA -- 405 2,916 832 477 3,676 4,153
Mall 205, Portland, OR -- 1,228 6,140 6,295 1,228 12,435 13,663
Plaza 205, Portland, OR 586 -- 1,677 2,611 695 3,593 4,288
Peach Tree, Marysville, CA -- 985 3,622 8,929 985 12,551 13,536
Valley, Yakima, WA -- -- 8,731 3,456 623 11,564 12,187
------ ------ ------- ------- ------ -------- --------
586 2,618 23,086 22,123 4,008 43,819 47,827
------ ------ ------- ------- ------ -------- --------
$59,776 $19,936 $133,482 $111,790 $25,139 $240,069 $265,208
======= ======= ======== ======== ======= ======== ========
Accumu- Year
lated construc-
depreci- tion Date
Description ation completed Acquired Life
- ----------------------------------- -------- --------- -------- ----
<S> <C> <C> <C> <C>
Shopping Malls:
Eastern
-------
Mountaineer, Morgantown, WV $7,445 1975 01-29-78 60
Fingerlakes, Auburn, NY 7,227 1980 09-28-81 50
Fairgrounds Square, Reading, PA 6,785 1980 09-30-81 57
Wilkes, Wilkesboro, NC 4,463 1982 05-04-83 50
-----
25,920
------
Midwestern
----------
Crossroads, St. Cloud, MN 5,985 1966 01-01-72 64
Two Rivers, Clarksville, TN 2,669 1968 09-26-75 50
Crossroads, Ft. Dodge, IA 3,277 1967 04-22-77 57
Westgate Towne Centre, Abilene, TX 2,351 1962 04-22-77 60
Kandi, Willmar, MN 5,435 1973 03-12-79 55
Woodland Commons, Buffalo Grove, IL 276 1991 04-03-95 40
------
19,993
------
Western
-------
Valley North, Wenatchee, WA 2,041 1966 08-30-73 40
Mall 205, Portland, OR 4,557 1970 03-01-75 59
Plaza 205, Portland, OR 1,265 1970 04-26-78 47
Peach Tree, Marysville, CA 3,620 1972 12-19-79 50
Valley, Yakima, WA 3,176 1972 05-01-80 54
-------
14,659
-------
$60,572
=======
</TABLE>
22
<PAGE> 23
Schedule III
------------
Continued
<TABLE>
<CAPTION>
Cost
capitalized
Initial cost to subsequent to Gross amount at which
Registrant acquisition carried at close of
------------------ ------------- period
Buildings Land -----------------------------
Encum- and and Buildings and
Description brances Land Improvements Improvements Land Improvements Total
- ----------------------------------- ------- ---- ------------ ------------ ---- ------------- -----
<S> <C> <C> <C> <C> <C>
Apartments:
Midwestern
----------
Somerset Lakes, Indianapolis, IN $ -- $ 2,172 $16,400 $1,704 $2,172 $18,104 $20,276
Meadows of Catalpa, Dayton, OH 7,793 1,270 7,955 1,180 1,270 9,135 10,405
Steeplechase, Cincinnati, OH -- 1,782 10,114 111 1,782 10,225 12,007
------ ----- ------ ----- ----- ------ ------
7,793 5,224 34,469 2,995 5,224 37,464 42,688
----- ----- ------ ----- ----- ------ ------
Southern
--------
Briarwood, Fayetteville, NC -- 495 6,614 1,081 495 7,695 8,190
Woodfield Gardens, Charlotte, NC 849 171 3,087 398 171 3,485 3,656
Windgate Place, Charlotte, NC 1,463 353 4,818 750 353 5,568 5,921
Walden Village, Atlanta, GA -- 2,768 9,288 1,366 2,768 10,654 13,422
Beech Lake, Durham, NC -- 3,760 15,707 203 3,760 15,910 19,670
------ ------ ------ ----- ------ ------ ------
2,312 7,547 39,514 3,798 7,547 43,312 50,859
------ ------ ------ ----- ------ ------ ------
10,105 12,771 73,983 6,793 12,771 80,776 93,547
====== ====== ====== ===== ====== ====== ======
Office Buildings:
Midwestern
----------
55 Public Square, Cleveland OH -- 2,500 19,055 9,129 2,500 28,184 30,684
Circle Tower, Indianapolis, IN -- 270 1,609 2,052 270 3,661 3,931
Rockwell Avenue, Cleveland, OH -- 1,964 6,160 4,982 1,969 11,137 13,106
Ninth Street Plaza, Cleveland, OH -- 710 5,718 861 710 6,579 7,289
Landmark Towers, Oklahoma City, OK 838 1,940 7,234 5,858 1,940 13,092 15,032
------ ------ ------ ------ ----- ------ ------
838 7,384 39,776 22,882 7,389 62,653 70,042
------ ----- ------ ------ ----- ------ ------
Southern
--------
Henry C. Beck, Shreveport, LA -- 717 3,906 3,037 717 6,943 7,660
----- ------ ------ ------ ----- ------ ------
Western
-------
North Valley Center, Denver, CO 479 -- 7,666 4,209 -- 11,875 11,875
----- ----- ------ ------ ----- ------ ------
1,317 8,101 51,348 30,128 8,106 81,471 89,577
===== ===== ====== ====== ===== ====== ======
Other:
Land-Huntington Bldg., Cleveland, OH -- 4,501 -- -- 4,501 -- 4,501
Parking Garage, Cleveland, OH 8,916 1,600 4,407 1,014 1,600 5,421 7,021
Parking Facility, Cleveland, OH -- 2,030 -- 256 2,286 -- 2,286
------ ------ ------- ----- ------ ----- ------
8,916 8,131 4,407 1,270 8,387 5,421 13,808
====== ====== ======= ===== ====== ===== ======
Reserve for unrealized loss on
carrying value of real estate assets -- -- -- -- -- (12,580) (12,580)
------ ------ ------- ------- ------- -------- -------
Real Estate net carrying value at
December 31, 1995 $80,114 $48,939 $263,220 $149,981 $ 54,403 $395,157 $449,560
====== ====== ======= ======= ====== ======= =======
Accumu- Year
lated construc-
depreci- tion Date
Description ation completed Acquired Life
- ----------------------------------- ------- --------- -------- ----
<S> <C> <C> <C> <C>
Apartments:
Midwestern
----------
Somerset Lakes, Indianapolis, IN $3,685 1975 11-10-88 40
Meadows of Catalpa, Dayton, OH 1,820 1972 07-11-89 40
Steeplechase, Cincinnati, OH 129 1987 06-30-95 40
-----
5,634
-----
Southern
--------
Briarwood, Fayetteville, NC 1,022 1968-70 06-30-91 40
Woodfield Gardens, Charlotte, NC 532 1974 06-30-91 40
Windgate Place, Charlotte, NC 908 1974-78 06-30-91 40
Walden Village, Atlanta, GA 1,115 1973 06-01-92 40
Beech Lake, Durham, NC 562 1986 08-19-94 40
-----
4,139
-----
9,773
=====
Office Buildings:
Midwestern
----------
55 Public Square, Cleveland OH 15,454 1959 01-15-63 63
Circle Tower, Indianapolis, IN 1,838 1930 10-16-74 40
Rockwell Avenue, Cleveland, OH 4,754 1916 04-30-79 40
Ninth Street Plaza, Cleveland, OH 1,394 1981 10-11-85 50
Landmark Towers, Oklahoma City, OK 4,189 1967-71 10-01-77 60
------
27,629
------
Southern
--------
Henry C. Beck, Shreveport, LA 3,031 1958 08-30-74 51
------
Western
-------
North Valley Center, Denver, CO 4,269 1967 12-03-69 60
------
34,929
======
Other:
Land-Huntington Bldg., Cleveland, OH -- --- 10-25-61 --
Parking Garage, Cleveland, OH 2,181 1969 12-31-75 53
Parking Facility, Cleveland, OH 246 --- 09-19-77 10
-----
2,427
=====
Reserve for unrealized loss on
carrying value of real estate assets --
------
Real Estate net carrying value at
December 31, 1995 $107,701
=======
Aggregate cost for federal tax purposes is $427,459,000.
</TABLE>
23
<PAGE> 24
Schedule III
------------
- Continued
The following is a reconciliation of real estate assets and
accumulated depreciation for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31,
----------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Asset reconciliation:
Balance, beginning of period $436,394 $409,060 $397,493
Additions during the period:
Property acquisitions 35,424 20,017 67
Improvements 24,713 7,570 11,974
Equipment and appliances 797 787 822
Deductions during the period:
Sales of real estate (27,089) --- ( 13)
Write-off of internal leasing costs(A) ( 8,006) --- ---
Reserve for unrealized loss on carrying
value of real estate assets (12,580) --- ---
Other - write-off of assets and
certain fully depreciated
tenant alterations (93) (1,040) (1,283)
--------- -------- --------
Balance, end of period $449,560 $436,394 $409,060
======== ======== ========
Accumulated depreciation
reconciliation:
Balance, beginning of period $111,972 $101,824 $ 92,426
Additions during the period:
Depreciation 11,038 11,188 10,681
Deductions during the period:
Sales of real estate (11,535) --- --
Write-off of internal leasing costs(A) (3,681)
Write-off of assets and
certain fully depreciated
tenant alterations (93) (1,040) (1,283)
-------- -------- --------
Balance, end of period $107,701 $111,972 $101,824
======== ======== ========
</TABLE>
(A) The registrant wrote off the unamortized balance of deferred internal
leasing costs effective January 1, 1995. The registrant currently
recognizes internal leasing costs in the period incurred.
24
<PAGE> 25
<TABLE>
<CAPTION>
Schedule IV
-----------
MORTGAGE LOANS ON REAL ESTATE
-----------------------------
AS OF DECEMBER 31, 1995
-----------------------
(IN THOUSANDS, EXCEPT FOR PAYMENT TERMS AND FOOTNOTES)
Current
effective Final Face Carrying
rate on net maturity amount of amount of Prior Net
Description investment date Periodic payment terms mortgage mortgage liens investment
- ----------------- ----------- -------- ---------------------------------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage
Loan:
Secured by 10% 10-31-11 Interest calculated at stated $11,387 $19,279 $ --- $19,279
office building rate of 9.65%, with install-
in Cleveland, OH ments of principal and interest
payable monthly through maturity;
$13,013,000 due at maturity;
prepayment without penalty sub-
ject to certain conditions.
Mortgage Loan:
Secured by mall 9% 1-31-98 Interest calculated at stated 6,000 6,057 --- 6,057
in Fairmount, WV rate of 9%, with installments
and partnership of 8% interest payable monthly
units of Crown through maturity; no prepayment
American without consent of registrant.
Properties, L.P.
Wraparound Mortgage
Loan:
Secured by 13.5% 11-30-99 Monthly installments of interest 18,060 16,706 3,740 12,966
garden payable through November 1999;
apartments difference between interest paid
in Atlanta, GA and interest calculated at the
stated rate of 10% will increase
registrant's equity investment
until January 1998; equity invest-
ment and deferred interest total-
ing $22,434,000 due at maturity;
prepayment without penalty.
------- ------- ------- -------
Totals, December 31, 1995 $35,447 $42,042(A) $ 3,740 $38,302
======= ======= ======= =======
<FN>
(A) Aggregate cost for federal tax purposes is $46,465,000.
</TABLE>
25
<PAGE> 26
Schedule IV
-----------
- Continued
The following is a reconciliation of the carrying amounts of the mortgage
loans outstanding for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period $35,761 $35,550 $39,573
Additions during the period:
----------------------------
Mortgage loan on mall in
Fairmount, WV secured by the mall
and partnership units of Crown
American Properties, L.P. 6,000
Deferred interest on:
Wraparound mortgage
on garden apartments in
Atlanta, GA 384 357 401
Mortgage on mall in
Fairmount, WV 57
Deductions during the period:
-----------------------------
Collection of principal (160) (146) (4,424)
------- ------- -------
Balance, end of period $42,042 $35,761 $35,550
======= ======= =======
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Index
-------------
Exhibit Incorporated Herein by
Number Description Reference to Page
------ ----------------- ------------ ----
<S> <C> <C> <C>
(3)(a) Declaration of Trust of Registrant dated August 1, Registration Statement on Form S-3
1961, as amended through July 25, 1986 No. 33-4493
------
(3)(b) By-laws of Registrant, as amended Registration Statement on Form S-3
No. 33-4493
------
(4)(a) Form of certificate for Shares of Beneficial Interest Registration Statement on Form S-3
No. 33-2818
------
(4)(b) Form of Indenture governing Debt Securities, dated Registration Statement on Form S-3
February 1, 1983 between Registrant and Ameritrust No. 2-81605
Company
------
(4)(c) Form of Debt Security Registration Statement on Form S-3
(No. 33-4493)
------
(4)(d) Form of Indenture governing Debt Securities, dated Registration Statement on Form S-3
October 1, 1993 between Registrant and Society National (No. 33-68002)
Bank
------
(4)(e) Form of Note Registration Statement on Form S-3
(No. 33-68002)
------
(4)(f) Form of Indenture governing Debt Securities Registration Statement on Form S-3
(No. 333-00953)
------
(4)(g) Rights Agreement between Registrant and National City Form 8-A dated March 30, 1990 (No.
Bank dated March 7, 1990 0-18411)
------
(10)(a) Share Purchase Agreement dated as of December 31, 1989 Registration Statement No. 2-88719
between registrant and First Union Management, Inc.
------
(10)(b) First Amendment to Share Purchased Agreement dated as Registration Statement No. 33-2818
of December 10, 1985 between registrant and First Union
Management, Inc.
------
(10)(c) Second Amendment to Share Purchase Agreement dated as Registration Statement No. 33-11524
of December 9, 1986 between registrant and First Union
Management, Inc.
------
(10)(d) Third Amendment to Share Purchase Agreement dated as of Registration Statement No. 33-19812
December 2, 1987 between registrant and First Union
Management, Inc.
------
(10)(e) Fourth Amendment to Share Purchase Agreement dated as Registration Statement No. 33-26758
of December 7, 1988 between registrant and First Union
Management, Inc.
------
(10)(f) Fifth Amendment to Share Purchase Agreement dated as of Registration Statement No. 33-33279
November 29, 1989 between registrant and First Union
Management, Inc. ------
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Incorporated Herein by
Number Description Reference to Page
------ ------------------ ----------------------- ----
<S> <C> <C> <C>
(10)(g) Sixth Amendment to Share Purchase Agreement dated as of Registration Statement No. 33-38754
November 28, 1990 between registrant and First Union
Management, Inc.
------
(10)(h) Seventh Amendment to Share Purchase Agreement dated as Registration Statement No. 33-45355
of November 27, 1991 between registrant and First Union
Management, Inc.
------
(10)(i) Eight Amendment to Share Purchase Agreement dated as of Registration Statement No. 33-57756
November 30, 1992 between registrant and First Union
Management, Inc.
------
(10)(j) Employment and Consulting Agreement with Donald S. 1991 Form 10-K
Schofield dated September 1, 1991
------
(10)(k) Employment Agreement with James C. Mastandrea dated June 30, 1994 Form 10-Q
July 13, 1994
------
(10)(l) Employment Agreement with Gregory D. Bruhn dated July June 30, 1994 Form 10-Q
13, 1994
------
(10)(m) Credit Agreement with National City Bank dated December 1994 Form 10-K
5, 1994
------
(10)(n) Credit Agreement with Society National Bank dated March
4, 1996 X
------
(10)(o) 1981 Employee Share Option Plan 1992 Proxy Statement
------
(10)(p) 1994 Long Term Incentive Performance Plan 1994 Proxy Statement
------
(11) Statements Re: Computation of Per Share Earnings
X
------
(12) Statements of Ratios of Combined Income from Operations
and Combined Net Income to Fixed Charges
X
------
(13) 1995 Annual Report to Shareholders X
------
(18) Preferability letter for Change in Accounting Method
X
------
(23) Consent of Independent Public Accountants
X
------
(24) Powers of Attorney X
------
(27) Financial Data Schedule X
------
</TABLE>
28
<PAGE> 1
CREDIT AGREEMENT EXHIBIT 10(n)
----------------
THIS CREDIT AGREEMENT made as of March 4, 1996, by and among FIRST UNION REAL
ESTATE EQUITY AND MORTGAGE INVESTMENTS, a business trust organized and existing
under the laws of the State of Ohio ("Borrower") FIRST UNION MANAGEMENT, INC.,
a Delaware corporation ("Management") and SOCIETY NATIONAL BANK ("Bank").
SECTION 1. CROSS REFERENCE. Certain terms used herein are defined in Section
12 hereof.
SECTION 2. SUMMARY. This Credit Agreement sets forth: (a) the Bank's
commitment to extend Revolving Credit until the expiration of the term
established by subsection 3.2 below, in the form of Loans to and for Borrower
and/or Letters of Credit issued upon Borrower's account, the aggregate of all
such Revolving Credit not to exceed the principal sum of Twenty Million Dollars
($20,000,000), all upon the terms and conditions hereinafter set forth; (b)
covenants and warranties made by Borrower and Bank to induce each other to
enter into this Credit Agreement; and (c) other material provisions binding
upon Borrower and Bank.
SECTION 3. REVOLVING CREDIT. Bank hereby establishes the Revolving Credit as
follows:
3.1. AMOUNT. The aggregate principal amount of the Revolving Credit shall be
the lesser of (a) Twenty Million Dollars ($20,000,000.00) or (b) the Maximum
Amount. The Maximum Amount shall be calculated as follows: The quotient of
the Borrower's Net Operating Income shown on Borrower's most recent Borrower's
NOI Certificate divided by the product of 1.20 times the applicable mortgage
constant, which mortgage constant shall be the annual amount, expressed as a
percentage, necessary to fully amortize a mortgage loan by level monthly
payments of principal and interest over an assumed term of 22 years at an
interest rate per annum equal to 225 basis points in excess of the published
rate for U.S. Treasury securities having a maturity of ten years, as of the end
of the most recent calendar quarter to which the Borrower's NOI Certificate
applies. Said published rate shall be determined by reference to Federal
Reserve Statistical Release H:15(519) Selected Interest Rates as published by
Board of Governors of the Federal Reserve System (or any successor
publication).
3.2. TERM. The Revolving Credit shall become effective immediately as of the
date hereof, and shall remain in effect until: (a) the Revolving Credit
Termination Date; or (b) such time as the Revolving Credit is reduced to zero
pursuant to subsection 3.4 hereof; or (c) the termination thereof pursuant to
Section 9 thereof, whichever date or event shall first elapse or occur.
3.3. TERM EXTENSION. Provided that no Event of Default shall exist, and
subject to Bank's right, in its sole and exclusive discretion, to consent (or
to refrain from consenting) to such proposed extension (which decision, if Bank
shall elect to so extend, shall be conveyed to Borrower by written notice from
Bank on or before December 31, 1997; provided, however, that
<PAGE> 2
in all instances for purposes of this Section 3.3 failure by Bank to deliver
such notice shall conclusively be deemed to be decision by the Bank to refuse
consent to the proposed extension), Borrower may request to extend the
Revolving Credit Termination Date for a period of one additional year by
providing Bank with written notice of its request to do so not earlier than one
hundred twenty (120) days, nor later than sixty (60) days, prior to December
31, 1997. Thereafter, and provided that the Revolving Credit Termination Date
has theretofore been extended pursuant to this Section 3.3, Borrower may
request further extensions of the Revolving Credit Termination Date (as
previously extended aforesaid), for successive and consecutive periods of one
(1) year each, provided, as to each instance that (i) Borrower shall make such
request by providing Bank with a written notice of its request to do so not
earlier than one hundred twenty (120) days, nor later than sixty (60) days,
prior to December 31, 1998 (or, if the Revolving Credit Termination Date has
theretofore been extended to permit the same, December 31, of each successive
year thereafter during the pendency of this Agreement); (ii) no Event of
Default shall exist; and (iii) Bank shall elect, in its sole and exclusive
discretion, to consent (or to refrain from consenting) to such extension of the
Revolving Credit Termination Date (which decision, if Bank shall elect to so
extend, shall be conveyed to Borrower by written notice from Bank not later
than December 31, 1998, or December 31 of each successive calendar year
thereafter in the case of subsequent extensions of the Revolving Credit
Termination Date).
3.4. BORROWER'S REDUCTION OF REVOLVING CREDIT. Borrower shall have the
right, at all times prior to the Revolving Credit Termination Date, to
permanently reduce all or portions of the Revolving Credit by giving Bank not
less than seven (7) days written notice prior to the effective date thereof, of
the aggregate amount by which the Revolving Credit is to be reduced. A
repayment of amounts borrowed as due and without notice as provided in the
preceding sentence shall not constitute a reduction of the Revolving Credit for
the purpose of this subsection. Each such reduction shall aggregate One
Hundred Thousand Dollars ($100,000.00) or any multiple thereof, except that no
reduction shall reduce the aggregate amount of the Revolving Credit to a lesser
amount than One Million Dollars ($1,000,000.00), other than in the case of a
reduction of the Revolving Credit to zero, provided that in no event shall any
such reduction reduce the aggregate amount of the Revolving Credit to a lesser
amount than the aggregate unpaid principal balance of the Loans then
outstanding. Concurrently with each reduction, Borrower shall prepay such part
of the outstanding principal balance of the Note, as selected by it, if any, as
may be in excess of the aggregate amount of the Revolving Credit, as so
reduced, in accordance with the provisions of subsection 4.12 hereof.
Concurrently with any prepayment, Borrower shall pay all interest accrued on
the Note so prepaid.
3.5. COMMITMENT FEE AND LETTER OF CREDIT FEE. So long as the Revolving
Credit is or shall remain in effect, Bank shall be entitled to receive from
Borrower a commitment fee, which fee shall be computed (on the basis of the
actual number of days elapsed and a year of 365 or 366 days, as the case may
be), at the rate of: (a) one eighth percent (1/8%) per annum on the average
daily difference between the Revolving Credit from time to time in effect and
the aggregate unpaid principal balance of the Loans then outstanding and; (b)
whenever the aggregate unpaid principal balance of the Loans from time to time
outstanding shall be less than an amount equal to one-half (1/2) the amount of
the Revolving Credit then in effect, Bank shall be entitled to a further fee
computed at the rate of three eighths percent (3/8%) per annum on the average
daily difference between one-half (1/2) the amount of the Revolving Credit then
in effect and such
<PAGE> 3
aggregate unpaid principal balance of the Loan then outstanding. Borrower
shall pay such commitment fee to the Bank on the last day of each quarter, or
upon such earlier date as the Revolving Credit Termination Date shall occur.
Borrower shall pay to Bank on the date of issuance of each Letter of Credit and
on each annual anniversary of the date of issuance of any Letter of Credit
outstanding a fee in the amount equal to one and one-half percent (1-1/2%) per
annum, based on the face amount of such Letter of Credit.
SECTION 4. LOANS AND LETTERS OF CREDIT. Subject to the terms and conditions
of this Credit Agreement, Bank will grant to Borrower and/or issue Letters of
Credit upon Borrower's account as follows:
4.1. AVAILABILITY. Bank will grant Borrower such Loans or issue Letters of
Credit as Borrower may from time to time request, so long as all or any portion
of the Revolving Credit remains in effect (as provided in subsection 3.2), and
the aggregate unpaid principal balance of Loans and Letters of Credit
outstanding at any one time shall not exceed the amount of the Revolving
Credit.
4.2. LOAN MIX AND AMOUNT. The Loans at any one time outstanding may consist
of Prime Loans, LIBOR Loans, CD Loans, or Floating Rate Loans, or any
combination thereof, all as Borrower may from time to time duly elect:
provided, however, that no CD Loan shall extend beyond or be made after July
17, 1996. Each Loan shall be in such principal amount as the Borrower may
request, except that each Loan shall be in the principal sum of One Million
Dollars ($1,000,000.00); or (a) with respect to CD Loans or LIBOR Loans, any
greater amount that is a multiple of One Hundred Thousand Dollars
($100,000.00); (b) with respect to Prime Rate Loans or Floating Rate Loans, any
greater amount that is a multiple of Fifty Thousand Dollars ($50,000.00).
4.3. ISSUANCE OF LETTERS. Bank will from time to time issue one or more
stand-by letters of credit (each, a "Letter of Credit") on Borrower's account
to third-party beneficiaries named by Borrower subject to the following terms
and conditions: (a) no Letter of Credit shall be issued having an expiration
date occurring on or after the Revolving Credit Termination Date, and (b) the
aggregate face amount of Letters of Credit at any one time available to be
drawn shall not exceed $1,000,000.00. Any draw made upon a Letter of Credit
shall create a Loan under this Credit Agreement, such Loan shall be made
initially as a Prime Rate Loan upon conversion of the draw into a Loan, shall
no longer be considered "available to be drawn".
4.4 NOTE. Loans and any obligations to repay Letters of Credit outstanding
at any one time shall be evidenced by a Note executed and delivered by Borrower
to Bank in the form and substance of Exhibit A, with the blanks appropriately
filled. Each such Loans or Letter of Credit shall be recorded, upon the
records of the Bank, and each such record shall be prima facie evidence of the
making of the Loan or issuance of the Letter of Credit in question and the
amount and the terms thereof; provided, however, that failure to make any such
record shall in no way detract from Borrower's obligation under such Note.
<PAGE> 4
4.5 MATURITY. The maturity of the Note shall be the Revolving Credit
Termination Date, as provided in Section 12. No Interest Period or Letter of
Credit expiration date shall extend beyond the Revolving Credit Termination
Date.
4.6. INTEREST PERIODS. Each Fixed Rate Loan shall have applicable thereto an
Interest Period to be used for the purpose of computing interest thereon and to
be elected by Borrower in the Loan Request therefor as follows:
(a) The Interest Period for each LIBOR Loan shall commence on the date of
borrowing and have a duration, to be duly elected by Borrower, which ends one
(1) month, two (2) months, three (3) months, six (6) months, nine (9) months,
or twelve (12) months thereafter; and
(b) The Interest Period for each CD Loan shall commence on the date of
borrowing and have a duration, to be duly elected by Borrower, which ends
thirty (30) days, sixty (60) days, ninety (90) days, or one hundred eighty
(180) days thereafter.
(c) If the Interest Period of any Fixed Rate Loan otherwise would end on a
day not a Banking Day, it shall end on the next following Banking Day, and such
extension of time shall in each case be included in the computation of the
interest payable.
4.7. INTEREST AND PRINCIPAL PAYMENTS. Each Loan shall bear interest and be
payable as follows:
(a) Subject to the provisions of Subsection (e) and (f) below, prior to the
Revolving Credit Termination Date, interest on Prime Loans shall accrue at the
Prime Rate plus one-half percent (1/2%) until July 17, 1996 and thereafter at
the Prime Rate plus three-quarters percent (3/4%), and shall be payable in
arrears on the last day of each calendar quarter.
(b) Subject to the provisions of Subsection (e) and (f) below, prior to the
Revolving Credit Termination Date, interest on LIBOR Loans shall accrue at the
Adjusted LIBOR Rate plus one and three-quarters percent (1 3/4%) until July 17,
1996 and thereafter at the Adjusted LIBOR Rate plus two percent (2%), and shall
be payable on the last day of the Interest Period applicable thereto, or in the
case of any Interest Period longer than three months, shall be payable
quarterly.
(c) Subject to the provisions of Subsection (e) and (f) below, prior to the
Revolving Credit Termination Date, interest on all CD Loans shall accrue at the
CD Rate plus one and three-quarters (1 3/4%) until July 17, 1996 and shall be
payable on the last day of the Interest Period applicable thereto, and in the
case of any one hundred eighty (180) day Interest Period, three months and six
months, after the first day of the applicable Interest Period.
(d) Interest on any Floating Rate Loan shall accrue at the Floating Rate plus
two percent (2%) until July 17, 1996 and thereafter at the Floating Rate plus
two and one quarter percent (2 1/4%), and shall be payable on the last day of
each calendar quarter.
<PAGE> 5
(e) Notwithstanding the provisions of subparts (b) and (c) above, in the
event that on or after July 17, 1996 (i) if Borrower shall notify Bank in
writing that the Credit Rating of Borrower has been adjusted to "Investment
Grade" then effective as of the first day of the month following receipt of
such notice and continuing for so long as such Credit Rating of Investment
Grade shall remain in effect the interest rate(s) on the Loans outstanding
shall be, as to LIBOR Loans, the Adjusted LIBOR Rate plus one and
three-quarters percent (1 3/4%); as to Prime Rate Loans, the Prime Rate plus
one-half percent (1/2%); and; as to the Floating Rate Loans, the Floating Rate
plus two percent (2%).
(f) Notwithstanding the provisions of subparts (b), (c) and (d) above, if at
any time on or after July 17, 1996 the Credit Rating of Borrower shall be less
than BB+ as established by S&P and less than B1 as established by Moody's, then
from the date of such reduction in the Credit Rating until the first day of the
first calendar month following receipt by Bank from Borrower of written notice
that such Credit Ratings have been upgraded/restored (to BB+ and B1 or better,
respectively) then interest on all LIBOR Loans shall accrue at the Adjusted
LIBOR Rate plus two and one-quarter percent (2 1/4%); interest on all Prime
Rate Loans shall accrue at the Prime Rate plus one percent (1.00%), and
interest on all Floating Rate Loans shall accrue at the Floating Rate plus two
and one-half percent (2 1/2%).
(g) After an Event of Default under this Credit Agreement shall have
occurred, interest on all Loans shall accrue in arrears at a rate per annum of
two percent (2%) in excess of the rate which would otherwise be chargeable on
the Loan under sub-parts (a), (b), (c), (d), (e) or (f) above.
(h) Interest shall be computed on Prime Rate Loans and Floating Rate Loans on
the basis of the actual number of days elapsed and a 365 or 366 day year, as
the case may be, and on LIBOR Loans and CD Loans on the basis of the actual
number of days elapsed and a 360-day year.
(i) Subject to Section 4.8, the principal of each Fixed Rate Loan shall be
paid in full on the last day of each Interest Period applicable thereto,
whether the payment is made in whole or in part from the proceeds of a new Loan
or otherwise. If Borrower shall fail to pay in full the principal of a Fixed
Rate Loan on the last day of the applicable Interest Period, Borrower shall in
each case be deemed to have delivered to the Bank a timely Loan Request that on
the last day of the Interest Period, a Prime Loan be made (and it shall be
made) in an aggregate principal amount equal to the then unpaid principal of
the Fixed Rate Loan in question, and the proceeds of the Prime Rate Loan shall
be applied in its entirety to the payment of the Fixed Rate Loan in question.
(j) The principal of each Cost of Fund Loan shall be paid in full on the
following Business Day, whether the payment is made in whole or in part from
the proceeds of a new Loan or otherwise. If Borrower shall fail to pay in full
the principal of a Floating Rate Loan, Borrower shall in each case be deemed to
have delivered to the Bank a timely Loan Request that another Floating Rate
Loan be made (and it shall be made) in an aggregate principal amount equal to
the then unpaid principal of the Floating Rate Loan in question, and the
<PAGE> 6
proceeds of the new Floating Rate Loan shall be applied in its entirety to the
payment of the previous Floating Rate Loan in question.
4.8. REQUEST AS A CONDITION.
(a) Subject to Section 4.7(i) and to Section 4.7(j) whenever Borrower desires
to obtain a Loan pursuant to this Credit Agreement (including, without
limitation, any Loan the proceeds of which are used to make a payment on the
Fixed Rate Loan at the end of the Interest period applicable thereto, or to
prepay the Prime Rate Loans in whole or in part), Borrower shall give Bank a
Loan Request: (i) The Loan Request shall: (A) specify the Loan desired, the
date of borrowing, the amount thereof and the elected Interest Period for any
Fixed Rate Loan; (B) represent and warrant to Bank, both at the delivery of the
Loan Request and immediately after the disbursement of the proceeds of the Loan
in question, that no Event of Default under this Credit Agreement then exists;
(C) imply that the representations and warranties contained in Section 7 hereof
continue to be true and correct in all material respects with the same force
and effect as if made on and as of the date of such borrowing except to the
extent that any thereof expressly relate to an earlier date; and (D) contain
such other information as Bank may reasonably request; (ii) The notice shall:
(A) be irrevocable; (B) be given to Bank not later than 2:00 p.m. on the date
of any requested Prime Rate Loan, CD Loan or Floating Rate Loan, and not later
than 11:00 a.m. two (2) London Banking Days prior to the date of any requested
LIBOR Loan; and (C) if not originally given in writing, be confirmed in writing
by Borrower, if requested by Bank.
(b) Whenever Borrower desires to obtain the issuance of a Letter of Credit
pursuant to this Credit Agreement, Borrower must give a Letter of Credit
Request to Bank, which Letter of Credit Request shall: (a) specify the name and
address of the beneficiary thereof, the date of issuance, the amount, and the
expiration date thereof; (b) represent and warrant to Bank, both at the
delivery of the Letter of Credit Request and immediately after the issuance of
the Letter of Credit in question, that no Event of Default under this Credit
Agreement then exists; (c) imply that the representations and warranties
contained in Section 7 hereof continue to be true and correct in all natural
respects with the same force and effect as if made on and as of the date of the
issuance of such Letter of Credit, except to the extent that any thereof
expressly relate to an earlier date; and (d) contain such other information as
Bank may reasonably request. The Letter of Credit Request shall, if not
originally given in writing, be confirmed in writing by Borrower, if requested
by Bank.
4.9. NO DEFAULT AS A CONDITION. Borrower shall not be entitled to obtain any
Loan or Letter of Credit if any Event of Default under this Credit Agreement
shall then exist or would exist immediately thereafter.
4.10. LOAN DISBURSEMENT. Each Loan may be disbursed from any office of Bank,
shall be delivered to Borrower in immediately available funds not later than
2:00 p.m. Cleveland time on the specified Banking Day, and in accordance with
Borrower's instructions in the applicable Loan Request.
<PAGE> 7
4.11. PAYMENTS. All payments (including prepayments) of commitment fees,
Letter of Credit fees, the principal of, and interest on, the Loans, or the
repayment of any amounts drawn under any Letter of Credit, shall be delivered
in immediately available funds. Any payment received by Bank after 2:00 p.m.
Cleveland time shall be deemed to have been made and received on the next
following Banking Day. Whenever any payment to be made hereunder shall be
stated to be due on the day which is not a Banking Day, such payment shall be
made on the next succeeding Banking Day and such extension of time shall in
each case be included in the computation of the interest payable on such Note.
4.12. PREPAYMENTS. Borrower may from time to time prepay the principal of
the Loans in whole or in part, subject to the following conditions:
(a) Except in the case of any payment of the entire principal balance of any
Fixed Rate Loan on the last day of the Interest Period applicable thereto (in
which case no prior notice need be given), Borrower shall give Bank a timely
notice of each prepayment, which notice, if not originally given in writing
shall be confirmed in writing. The original notice shall be given: (i) not
later than the Banking Day next preceding any prepayment of any CD Loans; and
(ii) not later than two (2) Banking Days prior to the date of any prepayment of
any LIBOR Loan.
(b) Each prepayment shall be in the principal amount of One Hundred Thousand
Dollars ($100,000.00), or any multiple thereof, or an amount equal to the then
aggregate unpaid principal balance outstanding plus accrued interest.
(c) No prepayment shall be subject to any penalty or premium except in the
case of a prepayment made in respect of any Fixed Rate Loans on any day other
than the last day of the Interest period applicable thereto, in which case
Borrower agrees (i) with respect to LIBOR Loans, if the LIBOR Adjusted Rate as
determined as of 11:00 a.m. London time two London Banking Days prior to the
date of prepayment of any LIBOR Loans (hereinafter "Prepayment LAR") shall be
lower than the LIBOR Adjusted Rate applicable to the LIBOR Loan being prepaid
(hereafter "Actual LAR"), Borrower shall, upon written notice from Bank,
promptly pay to Bank in immediately available funds, a prepayment premium based
on the amount of principal being prepaid and computed at a rate equal to the
difference between the Actual LAR and the Prepayment LAR, for the period from
the date of prepayment to the end of the Interest Period in question. In
determining the Prepayment LAR, Bank shall apply a rate equal to the Adjusted
LIBOR Rate for a deposit approximately equal to the principal being prepaid and
of a duration as nearly equal as practicable to the time remaining in the
Interest Period in question; or (ii) with respect to CD Loans, if the CD
Pre-Margin Rate as determined as of 11:00 a.m. Cleveland time, two Banking
Days prior to the date of prepayment of any CD Loans, (hereinafter "Prepayment
CDP-M Rate") shall be lower than the CD Pre-Margin Rate applicable to the CD
Loans being (hereinafter "Actual CDP-M Rate"), Borrower shall, upon written
notice from Bank, promptly pay to Bank, in immediately available funds, a
prepayment premium based on the amount of principal being prepaid and computed
at a rate equal to the difference between the Actual CDP-M Rate and the
Prepayment CDP-M Rate, for the period from the date of prepayment to the end of
the Interest Period in question. In determining the Prepayment CDP-M Rate,
Bank shall apply a rate equal to the CD Pre-Margin Rate for a deposit
<PAGE> 8
approximately equal to the principal being prepaid and of a duration as nearly
equal as practicable to the time remaining in the Interest Period in question.
Notwithstanding the provisions for determining the prepayment premiums set
forth in clauses (i) and (ii) above, in the event that Borrower is obligated to
pay to Bank aprepayment premium, Bank shall use its best efforts to determine
the lowest possible prepayment premium.
(d) No prepayment shall, of itself, reduce the Revolving Credit.
4.13. FIXED RATE LOANS: UNAVAILABILITY. If at any time:
(a) Bank shall determine in its sole judgment, reasonably exercised, that
dollar deposits of the relevant amount for the relevant Interest Period are not
available in any eurodollar market (in the case of LIBOR Loans) or in the U.S.
domestic money market (in the case of CD Loans) for the purpose of funding any
Fixed Rate Loan; or
(b) Bank shall determine in its sole judgment, reasonably exercised, that
circumstances affecting the relevant market makes it impracticable for Bank to
ascertain the rate applicable to any Fixed Rate Loan; or
(c) Any governmental authority shall assert that it is unlawful for Bank to
fund to make any Fixed Rate Loan;
then and in each such case Bank shall, by written notice to Borrower: (x)
Convert the Fixed Rate Loans in question into Prime Loans as of the end of the
respective Interest Periods applicable thereto; and (y) Suspend Borrower's
right thereafter to obtain Fixed Rate Loans of the kind in question, which
suspension shall remain in effect until such time, if any, as Bank may give
written notice to Borrower that the conditions giving rise to the suspension no
longer prevail.
4.14. FIXED RATE LOANS: ADDITIONAL COST: IF -
(a) There shall be effectively changed any treaty, statute, regulation or
other law, or there shall be any change in the interpretation or administration
thereof by any governmental authority charged with the administration or
interpretation thereof, or there shall be made any requirement of any central
bank or other lawful governmental authority having jurisdiction over Bank or
any Fixed Rate Loan, which change or requirement shall: (i) impose, modify,
increase, decrease, or deem applicable any reserve or special deposit
requirements against assets held by or deposits in or loans by Bank; or (ii)
subject Bank to any tax, duty, fee, deduction or withholding; or (iii) change
the basis of taxation of payments due from Borrower (otherwise than by a change
in taxation of the overall net income of Bank); or (iv) impose on Bank any
penalty or increased cost in respect of any Fixed Rate Loan; and (v) impose on
Bank any penalty or increased cost as a result of, or arising out of Bank's
commitment to extend Revolving Credit; and
(b) Any such event increases the cost to Bank of making, funding or
maintaining any Fixed Rate Loan, or increases the cost to Bank of being
committed to extend
<PAGE> 9
Revolving Credit or reduces the amount of principal or interest received by
Bank in respect of any Fixed Rate Loan;
Then, upon Bank's written demand, Borrower shall pay to Bank from time to
time such additional amounts as will compensate Bank for such increased cost or
reduced amount. Each demand shall be accompanied by Bank's certificate setting
forth the amount to be paid by Borrower and the computations used in
determining the amount, which certificate shall be presumed to be correct as to
the matters set forth therein in the absence of manifest error. In determining
any such amount, Bank may use any reasonable averaging and attribution methods.
Bank shall use its best efforts to avoid or minimize, as the case may be,
Borrower's payment of any additional amount under this subsection or the
subjecting of any payment by Borrower to any withholding tax. Bank shall give
Borrower, as promptly as practicable, notice of the existence of any event
which requires any such payment or withholding. If Bank shall make any such
demand for compensation (or if Borrower shall become subject to any withholding
tax as aforesaid) then, notwithstanding subsection 4.11, Borrower may, upon at
least one (1) Banking Day's prior written notice to Bank, prepay the affected
Fixed Rate Loan in full before the last day of the Interest Period applicable
thereto; provided, that upon any such prepayment Borrower shall compensate Bank
for any loss, cost or expense suffered or incurred by Bank as a result of such
prepayment, including (without limitation) any loss of profit, and any loss,
cost of expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by Bank to fund or maintain the affected Fixed
Rate Loan, or the relending or reinvesting of such deposits or amounts paid or
prepaid to Bank.
4.15. FUNDING INDEMNITY. In the event the Bank shall incur any loss, cost or
expense (including, without limitation, any loss of profit and any loss, cost
or expense incurred by reason of the liquidation or redeployment of deposits,
or other funds acquired by the Bank to fund or maintain any Fixed Rate Loan or
the relending or reinvesting of such deposits or amounts paid or prepaid to the
Bank) as a result of: (a) any failure by Borrower to borrow pursuant to a Loan
Request given under subsection 4.8; or (b) any payment of any Fixed Rate Loan
that shall have become due by acceleration of maturity; or (c) any default in
payment when due of any amount due hereunder in respect of any Fixed Rate Loan;
then, upon the demand of the Bank, Borrower shall pay to the Bank such loss,
cost or expense. When making such a claim for compensation, the Bank shall
provide to Borrower a statement or other information establishing the amount of
the loss, cost or expense.
4.16. CHANGE OF CONTROL.
(a) In the event that there shall occur any Change of Control, Bank shall
have the right, at its option exercisable at any time within six months
following the Change Date, to require Borrower to repay the Bank's Loans (and
to terminate in whole the Revolving Credit) on the Repayment Date in an amount
(the "Repayment Amount") which shall be equal to the sum of (i) the respective
principal amounts of such Loans then outstanding, plus (ii) any and all accrued
and unpaid interest on such Loans on the Repayment Date, plus (iii) all other
amounts, if any, owed by Borrower to Bank under this Credit Agreement.
<PAGE> 10
(b) Borrower shall give the Bank written notice of the occurrence of a Change
of Control within five (5) Banking Days following the Change Date. No failure
of Borrower to give notice of a Change of Control will limit the right of Bank
to require repayment and to terminate in whole the Revolving Credit.
(c) Bank may exercise its option hereunder to require repayment and to
terminate in whole Bank's Revolving Credit by delivering to Borrower at any
time within six months after the Change Date written notice of such exercise
specifying the Repayment Date.
(d) In the event of the exercise by Bank of its option under this Section
Borrower shall pay on the Repayment Date, the Repayment Amount in immediately
available funds.
SECTION 5. OPENING COVENANTS. Prior to or concurrently with the execution
and delivery of this Credit Agreement, Borrower shall furnish to Bank the
following:
5.1. RESOLUTIONS. A copy of the resolutions of the Board of Trustees of
Borrower evidencing approval of the execution of this Credit Agreement and the
execution and delivery of the Note and the Security Instruments as provided for
herein, certified by the Borrower's Secretary.
5.2. LEGAL OPINION. A favorable opinion of counsel for Borrower as to the
matters referred to in Section 7.1, 7.2 and 7.3 of this Credit Agreement and
such other matters as the Bank may reasonably request.
5.3. CERTIFICATE OF INCUMBENCY. A certificate of the Secretary or Assistant
Secretary of Borrower certifying the names of the officers of Borrower
authorized to sign the Credit Agreement, the Note, and the Security
Instruments, together with the true signatures of such officers.
5.4. MORTGAGED PROPERTY. A Mortgage, a loan policy of title insurance,
survey, and other documentation in respect of each Base Property, as more fully
described below:
(a) In respect of each real property location which is a Base Property as of
the date of execution and delivery of this Credit Agreement, Borrower and the
Management Company shall duly execute and cause to be filed for record in the
real property records of the county in which the affected real property
encumbered thereby is located, a Mortgage (or deed of trust), an assignment of
rents and such Uniform Commercial Code financing statements as shall be
necessary or appropriate to create and/or perfect a first lien in favor of Bank
in the real and personal property described therein.
(b) Borrower shall accompany the Mortgage and other documents described in
subsection (a) above with (i) an original loan policy of title insurance issued
by a title insurance company reasonably satisfactory to Bank insuring, in
amounts and on other terms as Bank reasonably may require, that each such
Mortgage is a valid first lien upon the real property encumbered thereby,
eliminating any standard exception for survey and mechanics' liens and
<PAGE> 11
otherwise subject only to such exceptions or matters affecting title as Bank
may approve in writing; and (ii) a current as-built survey, certified to Bank
and the title insurance company prepared by a registered surveyor acceptable to
the title insurance company, depicting all improvements (including proposed
improvements for which site approval has been issued), building lines,
easements, streets, access ways to public streets and rights of way and
encroachments, and otherwise in such detail as shall be necessary to eliminate
any and all "survey exceptions" from the title insurance policy described in
(i) above.
(c) Borrower shall deliver to Bank Phase I environmental site assessment
report with wetlands certification prepared by an environmental consultant
acceptable to Bank and certified to Bank as a co-client, respecting the Base
Property.
(d) Borrower shall deliver to Bank a real estate appraisal establishing the
fair market value of the Base Property, prepared by an appraiser who is a
Member of the Institute of Real Estate Appraisers (or has a corresponding
professional designation acceptable to Bank).
(e) Borrower shall pay all costs and expenses in connection with the actions
taken in this Section 5.4, including, but not limited to, all mortgage,
intangible, or similar taxes or fees, all expenses and premiums of the title
insurance company in connection with the issuance of such policies of title
insurance, all expenses required for the recording of the Mortgages (or deeds
of trust) or any other loan documents in the appropriate public records, and
the fees and expenses of the environmental consultant and real estate
appraiser.
(f) Subject to the terms and conditions set forth in this Section 5.4(f),
Borrower may, from time to time, supplement the Base Properties by causing
certain real property owned by Borrower to become additional or substitute Base
Properties, as the case may be, and in accordance with the following
provisions;
(i) If Borrower shall desire to cause real property owned by
Borrower to become a Base Property hereunder in addition to one or
more existing Base Properties, Borrower shall so notify Bank. Such
notice shall include (a) a description of the real property which
Borrower would propose to become a Base Property (the "Additional
Property"), including historical operating results and occupancy levels
of such Additional Property; (b) an appraisal, Survey, and Phase I
environmental site assessment with respect to such property as required
by subsections (b), (c) and (d) of this Section; (c) a commitment for
the issuance of a loan policy of title insurance as required by
subsection (b)(i) of this Section; and (d) a statement, showing in
detail and with substantiating information reasonably acceptable to
Bank, the Property NOI for the Additional Property for not less than one
(1) full calendar year prior to the date for which such information is
furnished. If Bank shall approve the inclusion of the Additional
Property as a Base Property, Bank shall so notify Borrower and it shall
be deemed a Base Property for purposes of determining the Maximum Amount
of the Revolving Credit, as set forth in Section 3.1. Promptly after
its receipt of such notice, Borrower shall execute a Mortgage and such
other Security Documents with respect to such Additional Property as
required by subsection 5.4(a) hereof, and will cause the title company
which issued the title
<PAGE> 12
commitment described above to issue a loan policy of title insurance to
Bank, containing such coverages and endorsements as Bank may require.
(ii) If Borrower shall desire to cause certain real property owned
by Borrower to become Base Property in substitution for a property
which is then a Base Property hereunder, Borrower shall so notify Bank.
Such notice shall include: (1) the identity of the Base Property for
which Borrower intends to make such substitution, and a description of
the property which Borrower would propose to become a Base Property (the
"Substitute Property"), including historical operating results and
occupancy levels of such Substitute Property; (2) an appraisal, Survey,
and Phase I environmental site assessment with respect to such property
as required by subsections (b), (c), and (d) of this Section; (3) a
commitment for the issuance of a loan policy of title insurance as
required by subsection (b)(i) of this Section; and (4) a statement,
showing in detail and with substantiating information reasonably
acceptable to Bank, the Property NOI for the Substitute Property for not
less than one (1) full calendar year prior to the date of the notice
with which such information is furnished. If Bank shall approve the
proposed substitution of the Substitute Property as a Base Property,
Bank shall so notify Borrower and such property shall be deemed a Base
Property for purposes of calculating the Maximum Amount as set forth in
section 3.1. Promptly after its receipt of such notice, Borrower shall
execute a Mortgage and such other Security Documents with respect to
such Additional Property as required by subsection 5.4(a) hereof, and
will cause the title company which issued the title commitment described
above to issue a loan policy of title insurance to Bank, containing such
coverages and endorsements as Bank may require. Concurrently therewith,
Bank shall execute and deliver to Borrower a release of the Mortgage
encumbering the Base Property for which such substitution was made,
together with a release of all other Security Documents in favor of Bank
which pertain to such property (without thereby releasing or affecting
any Mortgage or Security Documents affecting any other Base Property).
(iii) All costs and expenses incurred or payable by Bank with respect
to or in connection with Borrower's exercise of its options under
this Section 5.4(f) (including, without limitation, reasonable
attorney's fees and further including any and all taxes, costs, fees,
and recording expenses in connection with the implementation of the
rights set forth in this provision) shall be paid by Borrower on demand.
SECTION 6. COVENANTS. Borrower agrees that so long as the Revolving
Credit remains in effect, and thereafter until the principal of, and interest
on all Loans, and all commitment fees shall have been paid in full, Borrower
will perform and observe all of the following provisions, namely:
6.1. FINANCIAL STATEMENTS. Borrower will furnish to Bank:
(a) Within forty-five (45) days after the end of each of the
first three quarters of each calendar year (and, in any event, in each case, as
soon as prepared), a copy of Borrower's Form 10-Q quarterly report as filed
with the Securities and Exchange Commission or other
<PAGE> 13
similar report containing, among other things, the combined financial
statements of Borrower and the Management Company for such quarter;
(b) Within ninety (90) days after the end of each calendar
year (and, in any event, in each case, as soon as available), a copy of
Borrower's Form 10-K Annual Report as filed with the Securities and Exchange
Commission or other similar report containing, among other things, the combined
financial statements of Borrower and the Management Company for such year;
(c) As soon as available, copies of any amendment to
Borrower's Declaration of Trust, certified as true and correct by the Secretary
of Borrower, and copies of all reports, proxy statements and other similar
documents furnished by Borrower to its shareholders, debenture holders, or to
any indenture trustee, the New York Stock Exchange or to the Securities and
Exchange Commission, or any similar Federal agency having regulatory
jurisdiction over the issuance of Borrower's securities;
(d) Not later than forty-five (45) days after the end of each
calendar quarter of each year, a certificate, (a "Borrower's NOI Certificate")
certified as to its accuracy by the Chief Financial Officer of Borrower,
showing the Net Operating Income of the Base Properties for the period of the
immediately preceding twelve months; and
(e) Forthwith, upon the Bank's written request, such other
information, certified by an appropriate officer of Borrower, concerning the
financial condition, properties and operations of Borrower as the Bank may from
time to time reasonably request.
6.2. INSURANCE. Borrower will (a) keep itself and all of its insurable
properties insured at all times to such extent, by such insurers, and against
such hazards and liabilities as is generally and prudently done by like
businesses, it being understood that Borrowers insurance coverage at the date
of this Credit Agreement meets the standards contemplated by this Section, (b)
give Bank prompt written notice of each material change in Borrowers insurance
coverage and the details of the change and (c) forthwith upon Bank's written
request, furnish to Bank such information about Borrower's insurance as Bank
may from time to time reasonably request, which information shall be prepared
in form and detail satisfactory to Bank and certified by an officer of
Borrower.
6.3. MONEY OBLIGATIONS. Borrower will pay in full as to all Base
Properties, prior in each case to the date when penalties would attach, all
taxes, assessments and governmental charges and levies (except only those so
long as and to the extent that the same shall be contested in good faith by
appropriate and timely proceedings) for which it may be or become liable or to
which such properties may be or become subject. As to all other properties
other than Base Properties, Borrower will pay all obligations calling for the
payment of money (except only those so long as and to the extent that the same
shall be contested in good faith) in accordance with the requirements of
Section 8.4.
<PAGE> 14
6.4. FINANCIAL RECORDS. Borrower will (a) at all times maintain true and
complete records and books of account, and (b) at all reasonable times permit
Bank to examine Borrower's books and records.
6.5. REIT STATUS OF OPERATION. Borrower will preserve and maintain its
qualified status as a "real estate investment trust" under sections 856 and 860
(both inclusive) of the Internal Revenue Code and any amendments thereto.
Borrower is presently doing, and shall continue to do, business in accordance
with the terms of the Declaration of Trust.
6.6. NOTICE. Borrower will promptly notify Bank whenever any Default
shall exist hereunder or any other representation or warranty made in Section 7
hereof or elsewhere in this Credit Agreement or in any Related Writing may for
any reason cease in any material respect to be true and complete.
6.7. LEVERAGE. Borrower will not suffer or permit the combined
liabilities of it and the Management Company (including any obligations of any
nature of any party, the performance of which in whole or in part is guaranteed
by Borrower, but excluding Subordinated indebtedness and any Mortgage
Indebtedness other than Recourse Mortgage Indebtedness) to exceed at any time
an amount equal to two and one-half (2 1/2) times the then amount of the
combined Net Worth of it and the Management Company.
6.8. NET WORTH. Borrower will not permit the combined Net Worth of it and
the Management Company at any time to fall below Eighty Million Dollars
($80,000,000.00).
6.9. TRANSFERS. Borrower will not, without the written approval of the
Bank:
(a) purchase or otherwise acquire all or substantially all of
the assets and business of another business trust, corporation or other
business entity if the gross assets so acquired would exceed One Hundred Fifty
Million Dollars ($150,000,000.00) or if the consideration to be paid is cash,
in whole or in part, any such cash portion, is in excess of the fair market
value of the underlying net assets being so acquired; or
(b) lease (other than to an independent management company or
other contractor for the purpose of complying with the Internal Revenue Code
provisions referred to in subsection 6.5 above), sell or otherwise transfer all
or substantially all of its assets.
6.10. BORROWINGS. Borrower will not create, assume or have outstanding at
any time any indebtedness for money borrowed or Funded Indebtedness, except:
(a) Short-term unsecured borrowings obtained by Borrower from
a banking institution, or in the commercial paper market, provided, that the
aggregate of any such borrowings plus any amounts available under this Credit
Agreement or the National City Agreement shall not exceed the maximum principal
amount of Eighty Million Dollars ($80,000,000.00) at any one time outstanding
until such time as this Credit Agreement and the National City Agreement (upon
approval of the Banks) are combined into one Agreement ("Combined Agreement")
at which time the aggregate of any such borrowing under the
<PAGE> 15
Combined Agreement shall not exceed the maximum principal sum of One Hundred
Million Dollars ($100,000,000.00) at any one time outstanding;
(b) Mortgage Indebtedness now existing or hereafter created,
incurred or assumed by Borrower, provided, that Borrower's aggregate Recourse
Mortgage Indebtedness shall at no time exceed One Hundred Sixty Million Dollars
($160,000,000.00);
(c) Funded Indebtedness, other than Mortgage Indebtedness, now
existing or hereafter created, incurred or assumed by Borrower to finance the
purchase or holding of any real estate investments, which Funded Indebtedness
in each case shall not exceed the cost of the real estate in question to
Borrower as reflected from time to time in Borrower's financial records;
(d) Any Subordinated indebtedness.
6.11. FUNDS FROM OPERATIONS. Borrower will not during any calendar year
permit the combined Funds from Operations of it and the Management Company to
be less than Fifteen Million Dollars ($15,000,000.00).
6.12. ENVIRONMENTAL COMPLIANCE. Borrower will comply in all material
respects with any and all Environmental Laws including, without limitation, all
Environmental Laws in jurisdictions in which Borrower owns or operates a
facility or site, arranges for disposal or treatment of hazardous substances,
solid waste or other wastes, accepts for transport any hazardous substances,
solid waste or other wastes or holds any interest in real property or
otherwise. Borrower will furnish to the Bank promptly after receipt thereof a
copy of any notice Borrower may receive from any governmental authority, or
entity that any litigation or proceeding pertaining to any environmental,
health or safety matter has been filed or is threatened against Borrower, any
real property in which Borrower holds any interest or any past or present
operation of Borrower. Borrower will not allow the release or disposal of
hazardous waste, solid waste or other wastes on, under or to any real property
in which Borrower holds any interest or performs any of its operations, in
violation of any Environmental Law. Borrower will notify Bank of any actual
knowledge of any act or event having occurred in violation of any Environmental
Law. As used in this subsection "litigation or proceeding" means any demand,
claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry brought by any governmental authority or entity.
Borrower shall defend, indemnify and hold the Bank harmless against all costs,
expenses, claims, damages, penalties and liabilities of every kind or nature
whatsoever (including attorneys fees) arising out of or resulting from the
noncompliance of Borrower with any Environmental Law.
6.13. LOAN-TO-VALUE RATIO. The Loan-To-Value Ratio shall at no time be
greater than seventy percent (70%).
6.14. DEBT SERVICE COVERAGE RATIO. Borrower shall, as of the final day
of any fiscal quarter of Borrower, maintain a ratio of EBITDA to all required
payments of principal (other than balloon payments) and interest on
indebtedness for borrowed money, in each case with respect to such fiscal
quarter, of not less than (i) one and three-tenths (1.30) to one (1.00) for the
period of from the date of this Credit Agreement until and including December
31, 1997 and (ii)
<PAGE> 16
if Borrower shall extend the Revolving Credit Termination Date in accordance
with Section 3.3 of this Credit Agreement, one and four-tenths (1.40) to one
(1.00) after January 1, 1998. For the purposes of this Section 6.14,
Borrower's EBITDA shall be adjusted to reflect any acquisitions of real
property made by Borrower during the applicable fiscal period on a PRO FORMA
basis acceptable to the Bank, assuming an occupancy rate with respect to the
acquired real property equal to the lesser of 90% or the actual rate of
occupancy.
6.15. INTEREST COVERAGE RATIO. Borrower shall, as of the final day of any
fiscal quarter of Borrower, maintain a ratio of EBITDA to all required payments
of interest on indebtedness for borrowed money, in each case with respect to
such fiscal quarter, of not less than (i) one and five-tenths (1.50) to one
(1.00) for the period of from the date of this Credit Agreement until and
including December 31, 1997 and (ii) if Borrower shall extend the Revolving
Credit Termination Date in accordance with Section 3.3 of this Credit
Agreement, one and six-tenths (1.60) to one (1.00) after January 1, 1998. For
the purposes of this Section 6.15, Borrower's EBITDA shall be adjusted to
reflect any acquisitions of real property made by Borrower during the
applicable fiscal period on a PRO FORMA basis acceptable to the Bank, assuming
an occupancy rate with respect to the acquired real property equal to the
lesser of 90% or the actual rate of occupancy.
6.16. LEVERAGE RATIO. Borrower shall, as of the final day of any fiscal
quarter of Borrower, maintain a ratio of Borrower's total liabilities to
EBITDA, in each case with respect to the preceding four fiscal quarters of
Borrower, of not more than eight (8.00) to one (1.00) for the period from the
date of this Credit Agreement until and including December 31, 1998. For the
purposes of this Section 6.16, (i) Borrower's EBITDA shall be adjusted to
reflect any acquisitions of real property made by Borrower during the
applicable fiscal period on a PRO FORMA basis acceptable to the Bank, assuming
an occupancy rate with respect to the acquired real property equal to the
lesser of 90% or the actual rate of occupancy and (ii) Borrower's total
liabilities shall be adjusted to exclude any deferred obligations, deferred
capital gains and other deferred income. Further, in the event that Borrower
shall make any equity offerings during the pendancy of this Credit Agreement,
the ratio of total liabilities to EBITDA shall be reduced (from 8.00) by
three-tenths (0.3) for each thirty million dollars ($30,000,000) raised by
Borrower until the ratio is reduced to six (6.00) to one (1.00) at which time
the ratio required shall remain constant for the remaining pendancy of this
Credit Agreement.
SECTION 7. WARRANTIES. Borrower represents and warrants as follows:
7.1. EXISTENCE. Borrower is a real estate investment trust duly
organized and validly existing under and is in good standing by virtue of the
laws of the State of Ohio and is duly qualified to do business and is in good
standing in all other jurisdictions in which the conduct of its operations or
the ownership of its properties requires such qualification.
7.2. RIGHT TO ACT. No registration with or approval of any
governmental agency of any kind is required for the due execution and delivery
or for the enforceability of this Credit Agreement and the Note issued pursuant
to this Credit Agreement. Borrower has legal power and right to execute and
deliver this Credit Agreement, the Note, and the Security Instruments, and to
perform and observe the provisions of this Credit Agreement, the Security
Instruments, and the Note. The officers executing and delivering this Credit
Agreement on behalf of
<PAGE> 17
Borrower have been duly authorized to do so, and this Credit Agreement, the
Security Instruments and the Note, when executed, are legally binding upon
Borrower in every respect.
7.3. LITIGATION. Except as set forth upon Schedule 7.3 attached
hereto, no litigation or proceeding is pending or threatened which in the
opinion of Borrower's counsel might, if successful, adversely affect the
Borrower to a material extent. The Internal Revenue Service has not alleged
any default by any company in the payment of any tax or threatened to make any
assessment in respect thereof.
7.4. ENVIRONMENTAL COMPLIANCE. Borrower is in substantial compliance
with any and all Environmental Laws including, without limitation, all
Environmental Laws in all jurisdictions in which Borrower owns or operates, or
has owned or operated, a facility or site, arranges or has arranged for
disposal or treatment of hazardous substances, solid waste or other wastes,
accepts or has accepted for transport any hazardous substances, solid waste or
other wastes or holds or has held any interest in real property or otherwise.
No litigation or proceeding arising under, relating to or in connection with
any Environmental Law is pending or threatened against Borrower, any real
property in which Borrower holds or has held an interest or any past or present
operation of Borrower. No release, threatened release or disposal of hazardous
waste, solid waste or other wastes is occurring, or has occurred, on, under or
to any real property in which Borrower holds any interest or performs any of
its operations, in violation of any Environmental Law. As used in this
subsection, "litigation or proceeding" means any demand, claim, notice, suit,
suit in equity, action, administrative action, investigation or inquiry whether
brought by any governmental authority, private person or entity or otherwise.
7.5. FINANCIAL STATEMENTS. Since December 31, 1995, there has been no
material adverse change in Borrower's financial condition, properties or
business, except as previously disclosed to the Bank regarding the $14 million
asset reserve recorded at December 31, 1995, and the Stand-still Share Purchase
Agreement dated December 14, 1995 between Borrower and Richard M. Osborne.
7.6. DEFAULTS. No Event of Default will exist immediately after the
execution and delivery of this Credit Agreement.
SECTION 8. EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default hereunder:
8.1. PAYMENTS. If the principal of, or interest on, any of Borrower's
Loans shall not be paid in full promptly when due and payable and shall remain
unpaid for ten (10) calendar days after the receipt of written notice by
Borrower from Bank of such nonpayment.
8.2. WARRANTIES. If any representation, warranty or statement made in
or pursuant to this Credit Agreement, or any Related Writing, or any other
material information furnished by Borrower to the Bank shall when made be false
or erroneous in any material respect and shall remain so for five (5) calendar
days after the receipt of written notice by Borrower from Bank of such falsity
or error.
<PAGE> 18
8.3. COVENANTS. If Borrower shall fail or omit to perform and observe
any agreement or other provision (other than those referred to in subsections
8.1 or 8.5 hereof) contained or referred to in this Credit Agreement, or any
Related Writing to be performed or observed by Borrower and such failure shall
not have been fully corrected within thirty (30) days after the giving of
written notice thereof to Borrower by Bank that the specified failure on the
part of Borrower is to be remedied.
8.4. CROSS DEFAULT. If Borrower defaults in any payment of principal
or interest due and owing upon any obligation in excess of Seven Million
Dollars ($7,000,000.00) for money borrowed (except those that shall be
contested in good faith), including any Funded Indebtedness, and such default
continues beyond any period of grace provided with respect thereto, or in the
performance of any other agreement, covenant, term or condition contained in
any agreement under which such obligation is created, if the effect of such
default is to accelerate the maturity of such indebtedness and Borrower fails
to cure such default within five (5) calendar days after the receipt of written
notice by Borrower from Bank of Bank's knowledge of such default.
8.5. BORROWER'S SOLVENCY. If Borrower shall (a) discontinue business,
or (b) make a general assignment for the benefit of creditors, or (c) apply for
or consent to the appointment of a receiver, a trustee or liquidator of itself
or of all or a substantial part of its assets, or (d) be adjudicated a bankrupt
or insolvent or (e) file a voluntary petition in bankruptcy or file a petition
or an answer seeking reorganization or an arrangement with creditors or seeking
to take advantage of any other law (whether federal or state) relating to
relief of debtors, or admit (by answer, by default or otherwise) the material
allegations of a petition filed against it in any bankruptcy, reorganization,
insolvency or other proceeding (whether federal or state) relating to relief of
debtors, or (f) suffer or permit to continue unstayed and in effect for thirty
(30) consecutive days any judgment, decree or order entered by a court or
governmental commission of competent jurisdiction, which assumed custody or
control of Borrower, approves a petition seeking reorganization of Borrower or
any other judicial modification of the rights of its creditors, or appoints a
receiver, trustee, or liquidator for Borrower or of all or a substantial part
of its assets, or (g) take, or omit to take, any action in order thereby to
effect any of the foregoing.
SECTION 9. REMEDIES UPON DEFAULT. Notwithstanding any contrary provision
of inference herein or elsewhere,
9.1. OPTIONAL DEFAULTS. If any Event of Default referred to in Section
8.1, 8.2, 8.3, or 8.4 shall occur, the Bank may, by written notice to Borrower,
accelerate the maturity of all of Borrower's Debt to the Bank (if it be not
already due and payable), whereupon all of the Borrower's Debt to the Bank
shall become due and thereafter be immediately due and payable in full without
any presentment or demand and without any further or other notice of any kind
all of which are hereby waived by Borrower.
9.2. AUTOMATIC DEFAULTS. If any Event of Default referred to in
Section 8.5 hereof shall occur, the principal of and interest on the Note, then
outstanding, and all of Borrower's other Debt to the Bank shall thereupon
become and thereafter be immediately due and payable in
<PAGE> 19
full (if it be not already due and payable), all without any presentment,
demand or notice of any kind, which are hereby waived by Borrower.
SECTION 10. INTERPRETATION. Each right, power or privilege specified or
referred to in Section 9 or elsewhere in this Credit Agreement or in any
Related Writing is in addition to any other rights, powers or privileges that
the Bank may otherwise have or acquire by operation of law, by other contract
or otherwise. No course of dealing in respect of, nor any omission or delay in
the exercise of, any right, power or privilege by Bank shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
further or other exercise thereof or of any other, as each right, power or
privilege may be exercised independently or concurrently with others and as
often and in such order as Bank may deem expedient. It is of the essence to
Bank's granting the financial accommodations contemplated by this Credit
Agreement that Borrower duly perform and observe every covenant, condition,
restriction or agreement on its part to be complied with under this Credit
Agreement or any Related Writing and that every representation, warranty or
certification made in or pursuant to this Credit Agreement be true and complete
in every material respect. The Bank in its discretion may from time to time
grant Borrower waivers and consents in respect of this Credit Agreement and the
Related Writings in accordance herewith, but no such waiver or consent shall
bind Bank unless specifically granted in writing, which writing shall be
strictly construed. The relationship between Borrower and the Bank with
respect to this Credit Agreement, the Note and any Related Writing is and shall
be solely that of debtor and creditor, respectively, and the Bank has no
fiduciary obligation toward Borrower with respect to any such documents or the
transactions contemplated thereby. Any provision of this Credit Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to different sections and subsections of
this Credit Agreement are inserted for convenience only and shall be ignored in
interpreting the provisions hereof. This Credit Agreement, the Note, and each
Related Writing shall be interpreted in accordance with Ohio law, without
regard to principles of conflict of laws, and the respective rights and
obligations of Bank and Borrower shall be governed by Ohio law.
SECTION 11. MISCELLANEOUS.
11.1. AMENDMENTS; CONSENTS. No amendment, modification, termination, or
waiver of any provision of this Credit Agreement or of the Note nor consent to
any variance therefrom, shall be effective unless the same shall be in writing
and signed by the Bank and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
11.2 NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be in writing and, if to Borrower, mailed or
delivered to it, or sent by telephonic facsimile and the original thereafter
mailed or delivered, addressed to it at the address specified on the signature
pages of this Credit Agreement, if to the Bank, mailed or delivered to it, or
sent by telephonic facsimile and the original thereafter mailed or delivered,
address to the address of the Bank specified on the signature pages of this
Credit Agreement. All notices, statements,
<PAGE> 20
requests, demands and other communications provided for hereunder shall be
deemed to be given or made when delivered or forty-eight (48) hours after being
deposited in the mails with postage prepaid by registered or certified mail or
delivered to a telegraph company, addressed as aforesaid.
11.3. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand (i)
all costs and expenses of the Bank, incurred in connection with the original
preparation of this Credit Agreement and any Related Writings provided,
however, that the cost of all appraisals performed for the initial Base
Properties shall not exceed $25,000.00 and (ii) all costs and expenses,
including reasonable attorney's fees, in connection with the restructuring or
enforcement of this Credit Agreement or any Related Writing. In addition,
Borrower shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution and delivery of this
Credit Agreement or the Note, and the other instruments and documents to be
delivered hereunder, and agrees to save the Bank harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes or fees.
11.4. CAPITAL ADEQUACY. If the Bank shall have determined, after
the date hereof, that the adoption of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank (or its lending office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on the Bank's capital (or
the capital of its holding company) as a consequence of its obligations
hereunder to a level below that which the Bank (or its holding company) could
have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies or the policies of its holding company with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then from time to time, within 15 days after demand by the Bank, the Borrower
shall pay to the Bank such additional amount or amounts as will compensate the
Bank (or its holding company) for such reduction. The Bank will designate a
different lending office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of the Bank, be
otherwise disadvantageous to the Bank. A certificate of the Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, the Bank may use any reasonable
averaging and attribution methods. Failure on the part of the Bank to demand
compensation for any reduction in return on capital with respect to any period
shall not constitute a wavier of the Bank's rights to demand compensation for
any reduction in return on capital in such period or in any other period. The
protection of this Section shall be available to each Bank regardless of any
possible contention of the invalidity or inapplicability of the law, regulation
or other condition which shall have been imposed.
11.5. EXECUTION IN COUNTERPARTS. This Credit Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same agreement.
<PAGE> 21
11.6. BINDING EFFECT; ASSIGNMENT. This Credit Agreement shall become
effective when it shall have been executed by Borrower and the Bank and
thereafter shall be binding upon and inure to the benefit of Borrower and the
Bank and their respective successors and assigns, except that Borrower shall
not have the right to assign its right hereunder or any interest herein without
the prior written consent of all of the Bank. No person, other than the Bank,
shall have or acquire any obligation to grant Borrower any loans hereunder.
Bank shall have the sole and exclusive right to sell one or more (but not more
than three) participations (consisting of no more than 75% of the Maximum
Amount) and/or assign any portion of its commitment to make any Loans under
this Credit Agreement; provided, however, that Bank shall at all times keep not
less than twenty five percent (25%) of the direct obligation to make Loans
hereunder.
SECTION 12. DEFINITIONS. As used herein,
"ACTUAL CDP-M RATE" shall be as defined in Section 4.12(c) hereof;
"ACTUAL LAR" shall be as defined in Section 4.12(c) hereof;
"ADJUSTED LIBOR" means a rate per annum equal to the quotient obtained
(rounded upwards, if necessary, to the nearest 1/100th of 1%) by dividing (i)
the applicable LIBOR rate by (ii) 1.00 minus the Reserve Percentage (provided
such reserves are actually maintained);
"BANK" means Society National Bank, its successors and assigns;
"BANKING DAY" means: (a) in the case of a LIBOR Loan, a London Banking
Day; and (b) in the case of a Prime Loan, CD Loan, or Floating Rate Loan, any
day other than a Saturday, Sunday, or a public holiday (or other day on which
banking institutions in Cleveland, Ohio are authorized or obligated to close,
except that, in the case of a CD Loan, it shall also be a day in which New York
certificate of deposit dealers of recognized standing shall be open for
business;
"BASE PROPERTIES" shall mean the real property described in the Security
Instruments;
"BORROWER" means First Union Real Estate Equity and Mortgage Investments,
and its successors and assigns;
"BORROWER'S NOI CERTIFICATE" shall be as defined in Section 6.1(d) hereof;
"CD ASSESSMENT RATE" means the gross annual assessment rate (rounded
upwards, if necessary, to the next higher 1/100 of 1%) actually incurred to the
Federal Deposit Insurance Corporation (or any successor) by Bank for insurance
on deposits in United States dollars at Bank's main office. The CD Pre-Margin
Rate shall be automatically adjusted on and as of the effective date of any
change in the CD Assessment Rate;
"CD PRE-MARGIN RATE" means a rate per annum (rounded upwards, if necessary,
to the next 1/100 of 1%) equal to the sum of:
<PAGE> 22
(a) the CD Assessment Rate; plus
(b) a fraction, the numerator of which is the applicable CD Rate, and
the denominator of which is the difference between one hundred percent (100%)
and the CD Reserve Percentage.
"CD RATE" means the offered rate per annum (rounded upwards, if necessary,
to the next higher (1/100 of 1%), as determined by Bank, which two New York
certificate of deposit dealers of recognized standing, selected by Bank, quote
to Bank at 10:00 a.m. Cleveland time on the first day of the Interest Period in
question (or as soon thereafter as practicable) for the purchase at face value
of Bank's certificates of deposit for a period and in an amount comparable to
the term and principal amount of the CD Loan in question;
"CD RESERVE PERCENTAGE" means the percentage which for any given day (as
determined by Bank) Regulation D of the Board of Governors of the Federal
Reserve System (or any successor) prescribes for determining the maximum
reserve requirement (including, without limitation, any marginal, emergency or
supplemental reserve equipment) for member Banks of the Federal Reserve System
in Cleveland, Ohio, with deposits exceeding One Billion Dollars
($1,000,000,000.00) in respect of liabilities consisting of or including
nonpersonal time deposits in the United States where the amount of the
liability is One Hundred Thousand Dollars ($100,000) or more and the maturity
is comparable to the applicable Interest Period. The CD Pre-Margin Rate shall
be adjusted automatically and as of the effective date of any change in the CD
Reserve Percentage;
"CHANGE DATE" means the date on which any Change of Control shall be deemed
to have occurred; provided, that, if Borrower shall fail to give timely notice
of the occurrence of a Change of Control to the Bank as provided in Subsection
(b) of Section 4.16 hereof, for the purpose of determining the duration of the
option of the Bank granted under Section 4.16. "Change Date" shall mean the
earlier of (i) the date on which notice of a change of control is duly given by
Borrower to the Bank or (ii) the date on which the Bank obtains actual
knowledge of the Change of Control.
"CHANGE OF CONTROL" means when, and shall be deemed to have occurred at
such time as, a "person" or "group" (within the meaning of Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than thirty five percent (35%) of the
then outstanding Voting Stock of Borrower;
"COST OF FUNDS LOAN" shall mean any loan described in Section 4 hereof on
which the Borrowing shall pay interest at a rate based on the Cost of Funds;
"CREDIT RATING" means the publicly announced rating on public senior
unsecured long-term debt of the Borrower give by Moody's or S&P.
"DEBT" means, collectively, every liability now or hereafter owing by
Borrower to Bank, under this Credit Agreement;
<PAGE> 23
"DECLARATION OF TRUST" means Borrower's Amended Declaration of Trust dated
August 1, 1961, as amended from time to time through December 31, 1995, and as
it may hereafter be amended from time to time;
"EBITDA" shall mean, for any fiscal quarter of Borrower, Borrower's Net
Operating Income for such fiscal quarter, increased by the sum of such period
of interest expense, income and franchise tax expense, and amortization and
depreciation (in each case as determined in accordance with generally accepted
accounting principles) deducted in determining Net Operating Income for such
period.
"ENVIRONMENTAL LAWS" means all provisions of law, statues, ordinances,
rules, regulations, permits, licenses, judgments, writs, injunctions, decrees,
orders, awards and standards promulgated by the government of the United States
of America or by any state or municipality thereof or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning health, safety and protection of, or regulation of the discharge of
substances into, the environment;
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time;
"EVENT OF DEFAULT" under this Credit Agreement means an event, condition,
or thing which has occurred or exists that constitutes, or which upon the lapse
of any applicable grace period, or the giving of notice, or both, would
constitute an Event of Default referred to in Section 8 and which has not been
appropriately waived in writing in accordance with this Credit Agreement or
corrected to Bank's full satisfaction;
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
any successor federal statute.
"FIXED RATE LOAN" means a CD Loan or a LIBOR Loan;
"FLOATING RATE" means a floating rate per annum for each day from time to
time equal to the fluctuating rate per annum for each day equal to the
effective overnight Federal funds rate for the day immediately preceding such
day, as published in the Federal Reserve Statistical Release H.15(519) Selected
Interest Rates as published by the Board of Governors of the Federal Reserve
System (or any successor publication);
"FUNDED INDEBTEDNESS" means indebtedness which matures or which (including
any renewal or extension, if any, in whole or in part) remains unpaid more than
twelve months after the date on which originally incurred, it being understood
that in the case of any indebtedness payable in installments, the last of which
on the date of occurrence was due more than twelve months after such date,
including sinking fund payment, those payments maturing within twelve months
after the date of determination shall nevertheless be considered Funded
Indebtedness;
"FUNDS FROM OPERATIONS" means, for any fiscal period of Borrower,
Borrower's Net Income plus depreciation and amortization expenses and other
extraordinary charges;
<PAGE> 24
"INTEREST PERIOD" shall be as defined in subsection 4.6 hereof;
"INVESTMENT GRADE" means(i) with respect to Moody's, a Credit Rating of
Baa3 or higher and (ii) with respect to S&P, a Credit Rating of BBB- or
higher.
"LETTER OF CREDIT" shall be as defined in Section 4.3 hereof;
"LETTER OF CREDIT REQUEST" means a written notice delivered by Borrower to
Bank pursuant to subsection 4.8(b);
"LIBOR" means the average (rounded upward to the nearest 1/16th of 1%) of
the per annum rates at which deposits in immediately available funds in United
States dollars for the relevant Interest Period and in the amount of the LIBOR
Loan to be disbursed or to remain outstanding during such Interest Period, as
the case may be, are offered to the Bank by prime banks in any Eurodollar
market reasonably selected by the Bank, determined as of 11:00 a.m. London time
(or as soon thereafter as practicable), two (2) London banking days prior to
the beginning of the relevant Interest Period pertaining to a LIBOR Loan
hereunder;
"LIBOR LOANS" means those loans described in Section 4.2 hereof on which
the Borrower shall pay interest at a rate based on LIBOR;
"LOAN" means any loan obtained by Borrower under this Credit Agreement and
includes, without limitation, any Prime Loan, LIBOR Loan, CD Loan, or Floating
Rate Loan;
"LOAN REQUEST" means a written notice or a telephonic notice confirmed in
writing, in either case delivered by Borrower to Bank pursuant to subsection
4.8(a);
"LOAN-TO-VALUE-RATIO" means the quotient (expressed as a decimal
percentage) obtaining by dividing the Maximum Amount by the aggregate fair
market value(s) of all of the Base Properties;
"LONDON BANKING DAY" means a day on which banks are open for business in
London, England, and quoting deposit rates for dollar deposits;
"MANAGEMENT COMPANY" means First Union Management, Inc.;
"MAXIMUM AMOUNT" shall be as defined in Section 3.1 hereof;
"MOODY'S" means Moody's Investor Services;
"MORTGAGE" means the mortgage(s) and/or deed(s) of trust granted by
Borrower to Bank, as more specifically described in Exhibit B attached hereto;
<PAGE> 25
"MORTGAGE INDEBTEDNESS" means any obligation incurred by Borrower with
respect to the mortgaging or assigning of any real property and any income or
increments relating thereto owned by Borrower;
"NATIONAL CITY AGREEMENT" shall mean that certain loan agreement dated by
and between Borrower and National City Bank (Cleveland, Ohio) dated December 5,
1994 (as amended).
"NET OPERATING INCOME" shall mean the total of all rents, profits, and
other income derived or received from the operation of any of the Base
Properties minus all reasonable and customary expenses incurred in connection
therewith (but excluding depreciation, amortization, interest and taxes other
than real estate taxes);
"NET WORTH" means, the excess of the net book value (after deducting all
applicable reserves and without consideration of any re-appraisal or write-up
of assets) of the Borrower's assets (other than good will and similar
intangibles) over its total liabilities (other than any capital items and
liabilities Subordinated) as determined in accordance with generally accepted
accounting principles applied on a basis consistent with Borrower's present
accounting procedures;
"NOTE" means the Note executed and delivered pursuant to Section 4.4
hereof;
"PREPAYMENT CDP-M RATE" shall be as defined in Section 4.12(c) hereof;
"PREPAYMENT LAR" shall be as defined in Section 4.12(c) hereof;
"PRIME RATE" shall mean that interest rate established from time to time by
the Bank as the Bank's Prime Rate, whether or not such rate is publicly
announced; the Prime Rate may not be the lowest interest rate charged by the
Bank for commercial or other extensions of credit;
"PRIME RATE LOANS" shall mean those loans described in Section 4 hereof on
which the Borrower shall pay interest at a rate based on the Prime Rate;
"RECOURSE MORTGAGE INDEBTEDNESS" means any obligation of Borrower secured
by a mortgage, deed of trust, or assignment of real property owned by Borrower
wherein the party to whom Borrower is obligated may look not only to the
property so mortgaged, transferred, or assigned by Borrower, but to all of
Borrower's assets and which represents a general obligation of Borrower; but
excluding, however, any indebtedness arising under this Credit Agreement or
under the National City Agreement;
"RELATED WRITING" means the Note or any assignment, mortgage, security
agreement, guaranty agreement, subordination agreement, financial statement,
audit report or other writing furnished by Borrower or any of its officers to
the Banks pursuant to or otherwise in connection with this Credit Agreement,
including, without limitation, the Security Instruments;
<PAGE> 26
"REPAYMENT DATE" means the date on which Borrower, shall repay pursuant to
the exercise by such Bank of its option under this Section pursuant to a notice
given to Borrower in accordance with Subsection (c) of Section 4.16 which date
shall be a Banking Day not less than 90 nor more than 120 days after the date
such Bank gives Borrower, as the case may be, written notice of such exercise.
"RESERVE PERCENTAGE" shall mean for any day that percentage (expressed as a
decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustment or other scheduled changes in reserve requirements) for
a member bank of the Federal Reserve System in Cleveland, Ohio, in respect of
"Eurocurrency Liabilities". The Adjusted LIBOR shall be adjusted automatically
on and as of the effective date of any change in the Reserve Percentage as and
when such change is posted on Bank's books;
"REVOLVING CREDIT" means the revolving credit established by Section 3
hereof;
"REVOLVING CREDIT TERMINATION DATE" means December 31, 1998, unless
extended pursuant to Section 3.3;
"SECURITY INSTRUMENTS" means a Mortgage or any other instrument executed
and delivered by Borrower to Bank for the purpose of granting a security
interest to Bank in any real or personal property of Borrower;
"S&P" means Standard & Poor's Investor Services, Inc.;
"SUBORDINATED" as applied to indebtedness, means that the indebtedness has
been subordinated (by written terms or agreement being in form and substance
satisfactory to Bank) in favor of the prior payment in full of all Debt of
Borrower to Bank;
"VOTING STOCK" means shares of beneficial interest the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of the Board of Trustees.
Any accounting term not covered by a specific definition in this Section 12
shall have the meaning ascribed thereto in accordance with generally accepted
accounting principles not inconsistent with Borrower's present accounting
procedures. The foregoing definitions shall be applicable to the singulars and
plurals of the foregoing defined terms.
SECTION 13. ENTIRE AGREEMENT. This Credit Agreement, the Note, and any
Related Writing integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral representations and negotiations and
prior writings with respect to the subject matter hereof.
SECTION 14. LIABILITY OF BORROWER'S TRUSTEES, ETC. Notwithstanding any
provision of this Agreement to the contrary, this Agreement has been executed
and delivered by a duly authorized officer of Borrower for and on behalf of
Borrower's
<PAGE> 27
trustees. Bank acknowledges that neither the trustees of Borrower, nor any
additional or successor trustees of Borrower, nor any beneficiary, officer,
employee or agent of Borrower, shall have any personal, individual liability
hereunder or under any of the Loan Documents. Bank agrees to look solely to
the property and assets of Borrower (and where so provided herein, or in any of
the Loan Documents, to the property and assets of the Management Company) for
the satisfaction of all claims of any nature arising under or in connection
with this Agreement.
Address: 55 Public Square FIRST UNION REAL ESTATE EQUITY
Suite 1900 AND MORTGAGE INVESTMENTS
Cleveland, Ohio 44113
By: /S/ THOMAS T. KMIECIK
-------------------------------
Title: /S/ SENIOR VP TREASURER
----------------------------
Address: 55 Public Square FIRST UNION MANAGEMENT, INC.
Suite 1916
Cleveland, Ohio 44113 By: /S/ JOSEPH W. KEARNEY
-------------------------------
Title: /S/ ASST. VP - RETAIL OPERATIONS
---------------------------------
Address: 127 Public Square SOCIETY NATIONAL BANK
Cleveland, Ohio 44114-1306
By: /S/ JOSEPH GONZALES
----------------------------------
Title: /S/ ASST. VP
-------------------------------
<PAGE> 28
PROMISSORY NOTE
---------------
$20,000,000.00 Cleveland, Ohio
As of March 4, 1996
FOR VALUE RECEIVED, the undersigned, FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS (the "Borrower") promises to pay to the order of SOCIETY
NATIONAL BANK (the "Bank") at the Main Office of the Bank, 127 Public Square,
Cleveland, Ohio 44114 the principal sum of TWENTY MILLION DOLLARS
($20,000,000.00) or the aggregate unpaid principal amount of all Loans
evidenced by this note made by the Bank to the Borrower pursuant to Section 3
of the Credit Agreement hereinafter referred to, whichever is less, in lawful
money of the United States of America. Capitalized terms used herein shall
have the meaning ascribed to them in said Credit Agreement.
The Borrower promises also to pay interest on the unpaid principal amount
of each Loan from time to time outstanding from the date of such loan until the
payment in full thereof at the rates per annum which shall be determined in
accordance with the provisions of Section 4.7 of the Credit Agreement. Said
interest shall be payable on each date provided for in said Section 4.7;
provided, however, that interest on any principal portion which is not paid
when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
Prime Rate Loans, CD Loans, LIBOR Loans and Floating Rate Loans, and payments
of principal of any thereof, will be shown on the records of the Bank by such
method as the Bank may generally employ; PROVIDED, however, that failure to
make any such entry shall in no way detract from the Borrower's obligations
under this note.
If this note shall not be paid at maturity, whether such maturity occurs by
reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement hereinafter referred to, the
principal hereof and the unpaid interest thereon shall bear interest, until
paid, for Prime Rate Loans, LIBOR Loans, CD Loans and Floating Rate Loans at a
rate per annum which shall be two per cent (2%) in excess of the Prime Rate
from time to time in effect, provided, however, that in no event shall interest
accrue at a lesser rate than that which is in effect until the end of any
interest Period then existing. All payments of principal of and interest on
this note shall be made in immediately available funds.
This note is the Note referred to in the Credit Agreement dated as of even
date herewith, 1996, between the Borrower and the Bank. Reference is made to
such Credit Agreement for a description of the right of the Borrower to
anticipate payments hereof, the right of the holder hereof to declare this note
due prior to its stated maturity, and other terms and conditions upon which
this note is issued.
<PAGE> 29
Notwithstanding anything herein to the contrary contained, this Note is
made and executed on behalf of borrower by its officers on behalf of the
trustees thereof, and none of the trustees, nor any additional or successor
trustee hereafter appointed, nor any beneficiary, officer, employee, or agent
of Borrower shall have any liability in his person or individual capacity, but
instead, the holder hereof shall look solely to the property and assets of
Borrower for satisfaction of claims of any nature arising under or in
connection with this note.
Address: 55 Public Square FIRST UNION REAL ESTATE EQUITY
Suite 1900 AND MORTGAGE INVESTMENT
Cleveland, Ohio 44113
By: /S/ THOMAS T. KMIECIK
--------------------------------
Title: /S/ SENIOR VP TREASURER
-----------------------------
<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>
Years Ended December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Shares Outstanding:
For computation of primary net
income per share -
Weighted average 18,059 18,105 18,086 18,086 18,098
Share equivalents - Options -- -- 10 -- --
- Restricted shares 57 15 -- -- --
------ ------ ------ ------ ------
Adjusted shares outstanding 18,116 18,120 18,096 18,086 18,098
====== ====== ====== ====== ======
For computation of fully diluted
net income per share -
Weighted average, without regard to,
exercise under share option plans,
or purchase of outstanding shares 18,100 18,109 18,086 18,086 18,133
Assumption of exercise under share
option plans -- -- 10 -- --
Weighted average of shares
issued under long-term
incentive plan 8 -- -- -- --
Weighted average of restricted
shares granted 57 15 -- -- --
Weighted average
of outstanding
shares purchased and retired (49) (4) -- -- (35)
------ ------ ------ ------ ------
Adjusted shares outstanding 18,116 18,120 18,096 18,086 18,098
====== ====== ====== ====== ======
Net Income:
Net income applicable to shares
of beneficial interest (used
for computing primary and
fully diluted net income per
share) $ 13,891 $ 6,485 $ 13,984 $ 18,432 $ 18,236
====== ====== ====== ====== ======
Net income per share of beneficial
interest:
Primary and fully diluted
Income before extraordinary
loss from early extinguishment
of debt and cumulative effect
of accounting change $ 1.06 $ .36 $ .84 $ 1.02 $ 1.01
Extraordinary loss from early
extinguishment of debt .05 --- .07 -- --
Cumulative effect of change in
accounting for internal leasing
costs .24 -- -- -- --
------ ------ ------ ------ ------
Net income $ .77 $ .36 $ .77 $ 1.02 $ 1.01
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 12
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
-----------------------------------------------------------
FIRST UNION MANAGEMENT, INC.
----------------------------
STATEMENTS OF RATIOS OF COMBINED INCOME FROM
-----------------------------------------------
OPERATIONS AND COMBINED NET
---------------------------
INCOME TO FIXED CHARGES
-----------------------
(IN THOUSANDS, EXCEPT RATIOS)
-----------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before capital gain or loss,
extraordinary loss and cumulative
effect of accounting change $ 3,256 $ 6,485 $10,276 $12,657 $13,330
Add fixed charges, exclusive of
construction interest capitalized 22,987 21,865 19,103 19,469 21,513
------- ------- ------- ------- -------
Income from operations, as defined 26,243 28,350 29,379 32,126 34,843
Capital gains 29,870 --- 4,948 5,775 4,906
Reduction for unrealized loss on
carrying value of assets identified
for disposition (14,000)
------- ------- ------- ------- -------
Net income, as defined $42,113 $28,350 $34,327 $37,901 $39,749
======= ======= ======= ======= =======
Fixed charges:
Interest
- Mortgage loans $ 7,670 $ 7,335 $ 5,777 $ 6,182 $ 6,493
- Senior notes 9,305 9,305 5,779 4,199 4,199
- 10.25% debentures --- --- 3,214 3,858 3,858
- Bank loans and other 5,422 4,640 3,747 4,694 6,221
- Capitalized interest 169 --- --- --- ---
Amortization of debt issue costs 184 168 162 122 95
Rents (1) 406 417 424 414 647
------- ------- ------- ------- -------
Fixed charges, as defined $23,156 $21,865 $19,103 $19,469 $21,513
======= ======= ======= ======= =======
Ratio of income from operations, as
defined, to fixed charges 1.13 1.30 1.54 1.65 1.62
======= ======= ======= ======= =======
Ratio of net income, as defined, 1.82 1.30 1.80 1.95 1.85
to fixed charges ====== ======= ======= ======= =======
- -----------
<FN>
(1) The interest portion of rentals is assumed to be one-third of all ground rental and
net lease payments.
</TABLE>
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years ended December 31, (In thousands, except per share data)
1995 1994
<S> <C> <C>
Revenues $79,205 $76,339
Income from operations 4,832 6,485
Income before capital gain
or loss, extraordinary loss
and cumulative effect of
accounting change(1) 3,256 6,485
Net income(2) 13,891 6,485
Funds from operations(3) 16,733 17,040
Dividends declared 7,542 7,273
Per share
Income before capital
gain or loss, extraordinary
loss and cumulative effect
of accounting change(1) .18 .36
Net income(2) .77 .36
Dividends declared .41 .40
</TABLE>
MARKET PRICE AND DIVIDEND RECORD
<TABLE>
<CAPTION>
Dividends
1995 Quarters Ended High Low Declared
<S> <C> <C> <C>
December 31 $7 5/8 $6 7/8 $.11
September 30 7 7/8 7 1/8 .10
June 30 8 7 .10
March 31 8 5/8 6 1/2 .10
-----
$.41
=====
1994 Quarters Ended
December 31 $8 1/8 $6 3/8 $.10
September 30 7 1/4 6 1/8 .10
June 30 8 6 3/8 .10
March 31 10 1/4 7 3/8 .10
-----
$.40
=====
</TABLE>
The Trust's shares are traded on the New York Stock Exchange (Ticker Symbol:
FUR). As of December 31, 1995, there were 5,031 recordholders of the Trust's
shares of beneficial interest. The Trust estimates the number of beneficial
owners at approximately 18,000.
(1) During 1995, the Trust incurred $1.6 million of litigation and proxy
expenses related to a minority shareholder lawsuit and proxy contest.
(2) In 1995, the Trust recognized a capital gain of $29.9 million, a $14 million
noncash unrealized loss on the carrying value of certain assets identified
for disposition, $910,000 of unamortized costs and prepayment premiums
related to the early repayment of mortgage debt and a $4.3 million noncash
charge for the cumulative effect of a change in accounting method.
(3) The amount of funds from operations is calculated as income from operations
plus noncash charges for depreciation and amortization. A new definition of
FFO, proposed by the National Association of Real Estate Investment Trusts,
excludes depreciation and amortization of debt issue costs and other
corporate assets. First Union has chosen to add back all expenses included
in depreciation and amortization. FFO does not replace net income
(determined in accordance with generally accepted accounting principles) as
a measure of performance or net cash flows as a measure of liquidity. FFO
should be considered a supplemental measure of operating performance used by
real estate investment trusts. The funds from operations for 1994 have been
restated for the change in accounting method on a basis comparable to 1995.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 2
SELECTED FINANCIAL DATA
For the years ended December 31, (In thousands, except per share data)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $74,941 $74,567 $74,339 $76,339 $79,205
Income from operations 13,330 12,657 10,276 6,485 4,832
Income before capital gain or loss,
extraordinary loss and cumulative
effect of accounting change(1) 13,330 12,657 10,276 6,485 3,256
Unrealized loss on carring value of
assets identified for disposition (14,000)
Capital gains 4,906 5,775 4,948 29,870
Income before extraordinary loss and
cumulative effect of accounting change 18,236 18,432 15,224 6,485 19,126
Extraordinary loss from early
extinguishment of debt(2) (1,240) (910)
Cumulative effect of change in
accounting method(3) (4,325)
Net income 18,236 18,432 13,984 6,485 13,891
Dividends declared 16,827 13,022 13,031 7,273 7,542
- ---------------------------------------------------------------------------------------------------------------------------
Per share of beneficial interest
Income before capital gain or loss,
extraordinary loss and cumulative
effect of accounting change(1) .74 .70 .57 .36 .18
Income before extraordinary loss and
cumulative effect of accounting change 1.01 1.02 .84 .36 1.06
Extraordinary loss from early
extinguishment of debt(2) (.07) (.05)
Cumulative effect of change in
accounting method(3) (.24)
Net income 1.01 1.02 .77 .36 .77
Dividends declared .93 .72 .72 .40 .41
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets $377,276 $353,455 $393,621 $376,189 $400,999
Long-term obligations(4) 119,049 109,733 257,355 238,296 258,454
Total equity 97,188 102,672 103,766 102,940 102,355
- ---------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Net cash provided by or (used for)
Operations $ 19,892 $ 21,591 $ 19,649 $ 19,053 $ 12,989
Investing 1,100 1,662 (6,911) (26,507) (28,345)
Financing (14,156) (35,621) 24,793 (28,094) 15,783
Funds from operations(5) 21,398 21,836 20,039 17,040 16,733
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
This selected financial data should be read in conjunction with the Combined
Financial Statements and notes thereto.
(1) Included in income before capital gain or loss, extraordinary loss and
cumulative effect of accounting change in 1995 was $1.6 million of
litigation and proxy expenses related to a minority shareholder lawsuit and
proxy contest.
(2) In November 1993, the Trust repaid prior to their maturity dates $45
million of senior notes and $37.6 million of convertible debentures
resulting in a $1.2 million charge for the write-off of unamortized issue
costs and payment of a redemption premium. In November 1995, the Trust
repaid approximately $36 million of mortgage debt resulting in a $910,000
charge for the write-off of unamortized costs and prepayment premiums.
(3) In December 1995, First Union changed its method to directly expense
internal leasing costs and recorded a $4.3 million noncash charge for the
cumulative effect of the accounting change as of the beginning of 1995.
Funds from operations for previous years have been restated for the change
in accounting method on a basis comparable to 1995.
(4) Includes senior notes and mortgage loans, including the current portion
for all years. Beginning in 1993, also includes bank loans.
(5) The amount of funds from operations (FFO) is calculated as income from
operations plus noncash charges for depreciation and amortization. A new
definition of FFO, proposed by the National Association of Real Estate
Investment Trusts excludes depreciation and amortization of debt issue
costs and other corporate assets. First Union has chosen to add back all
expenses included in depreciation and amortization. FFO does not replace
net income (determined in accordance with generally accepted accounting
principles) as a measure of performance or net cash flows as a measure of
liquidity. FFO should be considered a supplemental measure of operating
performance used by real estate investment trusts.
</TABLE>
FIRST UNION REAL ESTATE INVESTMENTS
20
<PAGE> 3
COMBINED BALANCE SHEETS
As of December 31, (In thousands)
<TABLE>
<CAPTION>
1995 1994
ASSETS
<S> <C> <C>
INVESTMENTS IN REAL ESTATE
Land $54,403 $44,594
Buildings and improvements 395,157 391,800
--------- ---------
449,560 436,394
Less - Accumulated depreciation (107,701) (111,972)
--------- ---------
Total investments in real estate 341,859 324,422
MORTGAGE LOANS RECEIVABLE,
including current portion of $176,000 42,042 35,761
OTHER ASSETS
Cash and cash equivalents 3,402 2,975
Accounts receivable and prepayments 4,536 4,594
Deferred charges and other, net 4,873 3,488
Unamortized debt issue costs 4,287 4,949
--------- ---------
$400,999 $376,189
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans, including current portion of $2,862,000 83,854 $90,796
Senior notes, including current portion of $5,000,000 105,000 105,000
Bank loans 69,600 42,500
Accounts payable and accrued liabilities 21,779 16,686
Deferred obligations 10,670 10,522
Deferred capital gains and other deferred income 7,741 7,745
--------- ---------
298,644 273,249
--------- ---------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, $1 par, unlimited
authorization, outstanding 17,485 18,263
Additional paid-in capital 53,098 59,254
Undistributed income from operations 16,823 19,944
Undistributed capital gains 14,949 5,479
--------- ---------
Total shareholders' equity 102,355 102,940
--------- ---------
$400,999 $376,189
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 4
COMBINED STATEMENTS OF INCOME
For the years ended December 31, (In thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
REVENUES
Rents $74,349 $71,200 $70,131
Interest- Mortgage loans 4,447 3,928 4,033
- Short-term investments 409 1,211 175
------- ------- -------
79,205 76,339 74,339
------- ------- -------
EXPENSES
Property operating 25,982 25,318 24,887
Real estate taxes 8,555 7,930 7,726
Depreciation and amortization 11,901 10,555 9,763
Interest- Mortgage loans 7,670 7,335 5,777
- Senior notes 9,305 9,305 5,779
- Convertible debentures 3,214
- Bank loans and other 5,422 4,640 3,747
General and administrative 5,538 4,771 3,170
------- ------- -------
74,373 69,854 64,063
------- ------- -------
INCOME FROM OPERATIONS 4,832 6,485 10,276
Litigation and proxy expenses (1,576)
------- ------- -------
INCOME BEFORE CAPITAL GAIN OR LOSS,
EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 3,256 6,485 10,276
Unrealized loss on carrying value of assets
identified for disposition (14,000)
Capital gains 29,870 4,948
------- ------- -------
INCOME BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 19,126 6,485 15,224
Extraordinary loss from early
extinguishment of debt (910) (1,240)
Cumulative effect of change in
accounting for internal lease costs (4,325)
------- ------- -------
NET INCOME $13,891 $6,485 $13,984
------- ------- -------
PER SHARE DATA
Income before capital gain or loss,
extraordinary loss and cumulative
effect of accounting change $.18 $.36 $.57
------- ------- -------
Income before extraordinary loss and
cumulative effect of accounting change $1.06 $.36 $.84
Extraordinary loss from early
extinguishment of debt (.05) (.07)
Cumulative effect of change in
accounting for internal lease costs (.24)
------- ------- -------
Net income $.77 $.36 $.77
------- ------- -------
ADJUSTED SHARES OF BENEFICIAL INTEREST 18,116 18,120 18,096
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 5
COMBINED STATEMENTS OF CHANGES IN CASH
For the years ended December 31, (In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income $13,891 $6,485 $13,984
Adjustments to reconcile net income to net
cash provided by operations -
Depreciation and amortization 11,901 10,555 9,763
Extraordinary loss from early
extinguishment of debt 910 1,240
Cumulative effect of change in
accounting for internal lease costs 4,325
Capital gains (29,870) (4,948)
Unrealized loss on carrying value of assets
identified for disposition 14,000
Increase in deferred charges and other, net (1,711) (1,608) (96)
Increase in deferred interest on mortgage
investments, net (441) (357) (401)
Increase in deferred obligations 148 128 110
Recognition of deferred income, net (4) (5) (82)
Net changes in other assets and liabilities (160) 3,855 79
------- ------- -------
Net cash provided by operations 12,989 19,053 19,649
------- ------- -------
CASH PROVIDED BY (USED FOR) INVESTING
Principal received from mortgage investments 160 146 4,424
Investments in properties (35,424) (19,050)
Investments in capital and tenant improvements (24,881) (7,603) (11,601)
Proceeds from sales of properties 31,800 266
------- ------- -------
Net cash used for investing (28,345) (26,507) (6,911)
------- ------- -------
CASH PROVIDED BY (USED FOR) FINANCING
Increase (decrease) in bank loans 27,100 (17,500) (7,000)
Issuance of senior notes 100,000
Repayment of senior notes (45,000)
Repayment of convertible debentures (37,591)
Increase in mortgage loans 49,500 4,600 44,300
Repayment of mortgage loans - Normal payments (3,651) (3,934) (3,245)
- Balloon payments (48,967) (2,225) (8,433)
Sale (purchase) of First Union securities 75 (57)
Debt issue costs paid (656) (226) (4,913)
Dividends paid (7,341) (8,707) (13,026)
Other (277) (45) (299)
------- ------- -------
Net cash provided by (used for) financing 15,783 (28,094) 24,793
------- ------- -------
Increase (decrease) in cash and cash equivalents 427 (35,548) 37,531
Cash and cash equivalents at beginning of year 2,975 38,523 992
------- ------- -------
Cash and cash equivalents at end of year $3,402 $2,975 $38,523
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 6
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except footnotes)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL UNDISTRIBUTED UNDISTRIBUTED
BENEFICIAL PAID-IN INCOME FROM CAPITAL
INTEREST CAPITAL(1) OPERATIONS(2) GAINS
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1992 $18,086 $59,328 $19,358 $5,900
Net income 9,036 4,948
Dividends paid or accrued ($.72/share) (7,662) (5,369)
Shares issued -
Under share option agreements 21 174
Upon conversion of debentures, net 2 47
Other (103)
------- ------- ------- ------
BALANCE DECEMBER 31, 1993 18,109 59,446 20,732 5,479
Net income 6,485
Dividends paid or accrued ($.40/share) (7,273)
Restricted shares issued 162 873
Deferred compensation
related to restricted shares
net of amortization (971)
Shares purchased (8) (49)
Other (45)
------- ------- ------- ------
BALANCE DECEMBER 31, 1994 18,263 59,254 19,944 5,479
Net income (1,979) 15,870
Dividends paid or accrued ($.41/share) (1,142) (6,400)
Shares purchased (950) (6,175)
Shares sold under long-term
incentive ownership plan 10 65
Restricted shares issued 162 1,097
Deferred compensation
related to restricted shares,
net of amortization (1,012)
Other (131)
------- ------- ------- ------
BALANCE DECEMBER 31, 1995 $17,485 $53,098(3) $16,823 $14,949
------- ------- ------- ------
</TABLE>
(1) Includes cumulative balance of unamortized compensation related to
restricted shares of $971,000 and $1,983,000 at December 31, 1994 and
1995, respectively.
(2) Includes the balance of cumulative undistributed net loss of First Union
Management, Inc. of $73,000, $71,000, $1,071,000 and $5,825,000 as of
December 31, 1992, 1993, 1994 and 1995, respectively.
(3) Cumulative distributions in excess of the Trust's net income from
inception are $11,330,000.
The accompanying notes are an integral part of these statements.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 7
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
First Union Real Estate Investments ("Trust") and First Union Management,
Inc., ("Company") are in the real estate industry and do not have
operations outside this industry. The accounting policies of the Trust and
Company conform to generally accepted accounting principles and give
recognition, as appropriate, to common practices within the real estate
industry.
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting periods.
Under a trust agreement, the shares of the Company are held for the
benefit of the shareholders of the Trust. Accordingly, the financial
statements of the Company and the Trust have been combined.
The Trust's properties are currently leased to the Company except for
one. That remaining property is leased to another party under a net lease
with original terms expiring in 2011 and with renewal options available
thereafter.
At December 31, 1995 and 1994, buildings and improvements included
equipment and appliances of $5.3 million and $4.5 million, respectively.
Tenant leases generally provide for billings of certain operating
costs, and retail tenant leases generally provide for percentage rentals,
in addition to fixed minimum rentals. The Company accrues the recovery of
operating costs based on actual costs incurred and accrues percentage
rentals based on current estimates of each retail tenant's sales. For the
years ended December 31, 1995, 1994 and 1993, such additional income
approximated $16.1 million, $16.9 million and $17.5 million, respectively.
Depreciation for financial reporting purposes is computed using the
straight-line method. Buildings and improvements are depreciated over their
estimated useful lives of 40 to 64 years and equipment and appliances over
five to 10 years. Routine maintenance and repairs, including replacements,
are charged to expense; however, replacements which improve or extend the
lives of existing properties are capitalized.
Net income per share of beneficial interest has been computed based on
weighted average shares and share equivalents outstanding for the
applicable period.
The Trust, in 1996, will adopt SFAS No. 121 (Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed)
and SFAS No. 123 (Accounting for Stock-Based Compensation) as required by
the Financial Accounting Standards Board. For SFAS No. 123, the registrant
will continue to apply Accounting Principles Board Opinion No. 25 and
therefore disclose in the Notes to the Combined Financial Statements the pro
forma net income and earnings per share as if the fair value method had been
used to account for stock-based compensation cost. Adoption of these two new
financial accounting standards is not expected to have a material impact on
the financial statements.
2. Combined Statements of Changes in Cash
The Trust considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
The Trust paid interest expense of $22.3 million, $21.1 million and
$17.9 million in 1995, 1994 and 1993, respectively. During 1995, $169,000
of interest related to construction projects was capitalized.
3. Capital Gains and Unrealized Loss on Carrying Value of Assets Identified for
Disposition
In January 1995, the Trust sold its 50% interests in two malls located
in Wilkes-Barre, PA and Fairmount, WV for $35.5 million and the assumption
by the purchaser of $4.7 million of existing mortgage loans on the
properties. Proceeds from the transaction were received as a $2 million
cash payment in 1994, $27.5 million of cash in 1995 that was deposited into
a tax intermediary escrow account and a $6 million note with an interest
rate of 9% due in January 1998. The $27.5 million of proceeds were
subsequently used in 1995 to acquire a retail center and an apartment
complex in a tax-free exchange. The capital gain recognized for financial
reporting purposes was $29.9 million.
Management reviews the net realizable value of the Trust's portfolio
periodically to determine whether an allowance for possible losses is
necessary. The carrying value of the Trust's investments in real estate are
evaluated on an individual property basis. In December 1995, the Trust
recorded a $14 million noncash unrealized loss on the carrying value of
certain assets which have been identified for disposition. The noncash
adjustment represents the difference between the estimated fair value and
net book value of the assets. Assets identified for disposition had a net
book value of $37.1 million, net of the $12.6 million remaining balance of
the asset reserve at December 31, 1995.
In December 1995, the Trust sold an office building in Pittsburgh, PA
for $4.3 million in cash resulting in a capital loss of $1.4 million which
was provided in the $14 million noncash unrealized loss on the carrying
value of certain assets identified for disposition.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 8
In 1993, the Trust recognized capital gains of $4.7 million from an
installment sale which occurred in a prior year. The final portion of the
capital gain from the prior year installment sale was recognized during 1993.
Also, in 1993, the Trust recognized approximately $250,000 from sales of small
land parcels.
4. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD
Prior to 1995, the Company accounted for internal leasing costs by
deferring and amortizing such costs as part of depreciation and
amortization expense over the life of consummated leases. In the fourth
quarter of 1995, the Company changed this method of accounting to
recognize internal leasing costs in the period in which they are
incurred. Accordingly, the Company wrote off the balance of its deferred
internal leasing costs of $4.3 million effective January 1, 1995 and
expensed those leasing costs that were deferred throughout 1995. The
effect of this change in accounting method decreased income from
operations by $0.6 million in 1995 as a result of reducing depreciation
and amortization expense $1.4 million and increasing general and
administrative expense $2 million. A reclassification has been made
between depreciation and amortization and general and administrative
expense for 1994 and 1993 so that the prior year amounts are on a
comparable basis to 1995.
The proforma retroactive application of this accounting change
on income from operations, net income and the related per share amount
is not material for 1994 and 1993.
Management has adopted the accounting method to focus on
controlling costs associated with tenant leases and to eliminate
detailed recordkeeping.
5. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
In November 1995, the Trust repaid prior to their maturity dates three
mortgage loans totaling approximately $36 million resulting in
prepayment premiums and the write-off of unamortized mortgage costs of
$910,000.
In November 1993, the Trust repaid prior to their maturity
dates $45 million of 8.375% senior notes at par and $37.6 million of
10.25% convertible subordinated debentures at a premium of 1.025%. The
maturity date of the senior notes was December 1994 and the convertible
debentures was July 2009. The early extinguishment of debt resulted in
an extraordinary charge in 1993 of $1.2 million for the write-off of
unamortized issue costs and payment of a redemption premium.
6. INVESTMENTS IN MORTGAGE LOANS
As of December 31, 1995, the Trust had the following investments in
mortgage loans (dollar amounts in thousands):
<TABLE>
<CAPTION>
CURRENT
EFFECTIVE
RATE ON NET LOAN PRIOR NET
INVESTMENT AMOUNT LIENS INVESTMENT
<S> <C> <C> <C> <C>
Mortgage loan secured by a mall in
Fairmount, WV, maturing in 1998 and
partnership units of Crown
American Properties, L.P. 9% $ 6,057 $ 6,057
First mortgage loan secured by an
office building in Cleveland, OH,
maturing in 2011. 10% 19,279 19,279
Wraparound mortgage loan secured
by an apartment complex in Atlanta,
GA, maturing in 1999. 13.5% 16,706 $3,740 12,966
------- ------ -------
$42,042 $3,740 $38,302
======= ====== =======
</TABLE>
The fair value of the mortgage investments at December 31, 1995 is
approximately $42 million based on current interest rates and market
conditions.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 9
7. Bank Loans
As of December 31, 1995, there was $51 million outstanding under a fully
secured $60 million credit agreement at an interest rate of 7.81%. This
credit agreement matures on December 31, 1997. Interest under this
agreement is calculated, at the option of the Trust, based on LIBOR or the
lender's prime lending rate. The Trust also has entered into an agreement
to extend the termination date to December 1998 from July 1996 and to fully
secure the $20 million revolving credit agreement with another bank,
pending the completion of loan documentation. As of December 31, 1995,
there was $18.6 million outstanding under this credit agreement at an
interest rate of 7.74%. Interest under this agreement may be calculated
based on various alternatives, at the option of the Trust, including the
lender's base rate, LIBOR, certificate of deposit rate or current bank cost
of funds. The weighted average interest rate under the credit agreements
was 7.79% for 1995. As the bank loans are at market interest rates, the
fair value is the carrying amount of the loans.
Commitment fees not greater than 3/8% per annum are payable on the
unused portion of the revolving credits. These agreements contain certain
requirements including maintaining minimum funds from operations (income
from operations plus depreciation and amortization), net worth, leverage,
fixed charges and earnings before interest and depreciation and
amortization ratios, as defined. The Trust was in compliance with all the
above requirements as of December 31, 1995.
The Trust currently has a rate guarantee contract in the notional
amount of approximately $34 million which is tied to LIBOR and has a
maximum rate of 7.43%. This rate contract is used by the Trust to reduce
the impact of changes in interest rates on its floating rate bank loans.
The contract expires in October 2003 and the cost is being amortized over
the life of the contract. As of December 31, 1995 and 1994, the unamortized
rate guarantee contract amounted to $883,000 and $997,000, respectively.
8. Mortgage Loans Payable
As of December 31, 1995, the Trust had outstanding $83.9 million of
mortgage loans due in installments extending to the year 2014. Interest
rates on fixed rate mortgages range from 7% to 9.375%. Principal payments
due during the five years following December 31, 1995, are $2.9 million,
$3.1 million, $5.2 million, $3 million and $3.5 million, respectively. The
fair value of the mortgage loans payable at December 31, 1995 is
approximately $85.6 million based on current market interest rates and
market conditions. Management intends to repay these mortgage loans as
they become due.
9. Senior Notes
As of December 31, 1995, the Trust had $105 million in senior notes
outstanding. The interest rate is 8.875% on $100 million maturing in
October 2003 and 8.6% on $5 million maturing in July 1996. The $100 million
senior notes are noncallable, limit future borrowings by the Trust and
require maintenance of a minimum net worth. The Trust was in compliance
with all requirements as of December 31, 1995. The fair value of the senior
notes at December 31, 1995 is the carrying value based on market quotations
for the $100 million, 8.875% senior notes and the near term maturity of the
$5 million, 8.6% senior notes.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 10
10. SHARE OPTIONS
The Trust has the following share option plans for key personnel.
1981 STOCK OPTION PLAN
This plan provides that option prices be at the fair market value of
the shares at the date of grant and that option rights granted expire
ten years after the date granted. Adopted in 1981, the plan originally
reserved 624,000 shares for the granting of incentive and nonstatutory
share options. Subsequently, the shareholders approved amendments to
the plan reserving an additional 200,000 shares, for a total of
824,000 shares, for the granting of options and extending the
expiration date to December 31, 1996. The amendments do not affect
previously issued options.
The activity of the plan is summarized for the years ended
December 31 in the following table:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Granted - 75,000 25,000
Exercised - - 20,925
Canceled 28,910 121,317 9,500
Available 314,837 285,927 239,610
</TABLE>
As of December 31, 1995, options on 362,670 shares were
outstanding at prices ranging from $7.375 to $24.76 per share.
Separately, the Trust and Company have an agreement whereby, as
of December 31, 1995, the Company may purchase up to 70,300 shares from
the Trust at prices ranging from $8.25 to $24.76 per share to satisfy
the Company's obligations to deliver shares to certain of its key
employees pursuant to options previously granted. The option agreements
with the Company's employees provide that option prices be at the fair
market value of the Trust shares at the date of grant and that option
rights granted expire ten years after the date granted.
1994 LONG-TERM INCENTIVE OWNERSHIP PLAN
This plan, adopted in 1994, reserved 1,629,785 shares for the granting
of incentive and nonstatutory share options and restricted shares. The
share options expire eight years after being granted. The price of the
options is the fair market value of the shares at the date of grant.
The restricted shares receive dividends and have voting rights but may
not be sold or transferred until the restriction period lapses after
eight years from the date of grant, or earlier if the Trust's share
price equals or exceeds $21 for 20 consecutive days or upon a change in
control as defined in the plan. Additional restricted shares will be
granted when defined levels of funds from operations and net capital
gains are achieved during any four consecutive calendar quarters.
Deferred compensation of $1.3 million in 1995 and $1 million in 1994
was recorded in connection with the issuance of the restricted shares
and is being amortized over an eight-year period on a straight-line
basis. Amortization of $248,000 and $65,000, respectively, was
recognized in 1995 and 1994.
The activity of this plan is summarized for the years ended
December 31 in the following table:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Share options granted 242,450 229,850
Share options canceled 11,300 16,000
Restricted shares granted 162,500 162,500
Shares purchased by employees 9,812 -
Exercised 20 -
Available share options
and restricted shares 849,973 1,253,435
</TABLE>
As of December 31, 1995, options on 444,980 shares at prices ranging
from $6.375 to $7.875 and 325,000 restricted shares were outstanding.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 11
11. Shareholder Rights Plan
In March 1990, the Board of Trustees declared a dividend consisting of one
right to purchase one share of beneficial interest of the Trust with
respect to each share of beneficial interest.
The rights may be exercised only if a person or group acquires 15% or
more of the outstanding shares of beneficial interest, makes a tender offer
for at least 15% of the outstanding shares of beneficial interest, or is
declared to be an "adverse person." The exercise price of each right is
$50.
If a person or group acquires 15% or more of the outstanding shares of
beneficial interest (except in a tender offer approved by the Board of
Trustees), is declared to be an "adverse person," or engages in certain
self-dealing transactions with the Trust ("flip-in events"), each right
(other than rights owned by a 15% owner of an "adverse person") entitles
the holder to purchase one share of beneficial interest of the Trust for
par value (now $1 per share). If the Trust is acquired in a merger or other
business combination ("flip-over events"), each right entitles the holder
to purchase, for $1, shares of the acquiring company having a market value
equal to the market value of one share of beneficial interest of the Trust.
The rights may be redeemed by the Trust at a price of $0.01 per right
at any time prior to the earlier of a "flip-in" or "flip-over" event or the
expiration of the rights on March 30, 2000.
12. Federal Income Taxes
No provision for current or deferred income taxes has been made by the
Trust on the basis that it qualified under Sections 856-860 of the Internal
Revenue Code as a real estate investment trust and has distributed all of
its taxable income to shareholders.
In accordance with Section 1031 of the Internal Revenue Code, the Trust
is treating the sale of its 50% interest in two malls in Wilkes-Barre, PA
and Fairmount, WV as a like-kind exchange for Woodland Commons Shopping
Center and Steeplechase Apartments. As a result, the Trust is deferring for
tax purposes the capital gain realized in the transaction except for $6
million related to the mortgage note received as part of the sale and the
$2 million payment received in 1994.
The Trust and Company treat certain items of income and expense
differently in determining net income reported for financial reporting and
tax purposes. Such items resulted in a net decrease in income for tax
reporting purposes of approximately $5 million for 1995 and a net increase
of approximately $.5 million for 1994 and a net decrease in income for tax
reporting purposes of approximately $2.9 million for 1993.
As of December 31, 1995, net investments in real estate for financial
reporting purposes were approximately $67 million greater than for tax
purposes.
The 1995 quarterly allocation of cash dividends per share for
individual shareholders' income tax purposes was as follows:
<TABLE>
<CAPTION>
LONG-TERM ORDINARY TOTAL
DATE PAID CAPITAL GAINS INCOME PAID
<S> <C> <C> <C>
February 2, 1995 $0.082 $0.018 $.10
April 28, 1995 0.082 0.018 .10
July 31, 1995 0.081 0.019 .10
October 30, 1995 0.081 0.019 .10
------ ------ ----
$0.326 $0.074 $.40
</TABLE>
For the year ended December 31,1994, the cash dividends paid of $0.48
were ordinary income, and for the year ended December 31, 1993, $0.232 were
long-term capital gains and $0.488 were ordinary income.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 12
13. LEGAL CONTINGENCY
The Trust has pursued legal action against the State of California
associated with the 1986 flood of Peach Tree Mall. In September 1991,
the court ruled in favor of the Trust on the liability portion of this
inverse condemnation suit, which the State of California appealed. The
Trust is proceeding with its damage claim. No recognition of potential
income has been made in the accompanying financial statements.
14. LITIGATION AND PROXY EXPENSE
During 1995, the Trust was involved in a lawsuit and proxy contest
with a minority shareholder. The initial lawsuit filed by the Trust
alleged several violations of Securities and Exchange Commission rules
and regulations by the minority shareholder and other associated
parties. Extensive discovery was undertaken and numerous motions and
pleadings were filed by the various parties throughout most of 1995.
Certain professional fees related to the litigation and proxy contest
of $1.6 million were incurred and are presented as a separate line
item in the accompanying Combined Financial Statements. All litigation
was resolved on December 13, 1995 by a settlement and standstill
agreement. This agreement provides for the Trust to purchase 950,000
shares of beneficial interest at the average 1995 trading price
through December 8, 1995 of $7.50 per share. Additionally, as part of
this agreement, the minority shareholder will not acquire additional
shares of the Trust and will vote the remaining shares as recommended
by the Trust's management.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 13
15. Quarterly Results of Operations (Unaudited)
The following is an unaudited condensed summary of the combined results of
operations by quarter for the years ended December 31, 1995 and 1994. In
the opinion of the Trust and Company, all adjustments (consisting of normal
recurring accruals) necessary to present fairly such interim combined
results in conformity with generally accepted accounting principles have
been included. The first three quarters have been restated to reflect the
change in accounting method for internal leasing costs.
<TABLE>
<CAPTION>
(In thousands, except per share data) QUARTERS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
1995
Revenues $ 19,347 $ 19,576 $ 19,871 $ 20,411
-------- -------- -------- --------
Income from operations 1,517 1,462 645 1,208
Litigation and proxy expenses (950) (150) (320) (156)
-------- -------- -------- --------
Income before capital gain or loss,
extraordinary loss and cumulative
effect of accounting change 567 1,312 325 1,052
Unrealized loss on carrying value of
assets identified for disposition (14,000)
Capital gains 29,870
-------- -------- -------- --------
Income (loss) before extraordinary
loss and cumulative effect of
accounting change 30,437 1,312 325 (12,948)
Extraordinary loss from early
extinguishment of debt (910)
Cumulative effect of
change in accounting method (4,325)
-------- -------- -------- --------
Net income (loss) $ 26,112 $ 1,312 $ 325 $(13,858)
-------- -------- -------- --------
Per share
Income before capital gain or loss,
extraordinary loss and cumulative
effect of accounting change $ .03 $ .07 $ .02 $ .06
-------- -------- -------- --------
Income (loss) before extraordinary
loss and cumulative effect of
accounting change 1.67 .07 .02 (.72)
Extraordinary loss from early
extinguishment of debt (.05)
Cumulative effect of
change in accounting method (.24)
-------- -------- -------- --------
Net income (loss) $ 1.43 $ .07 $ .02 $ (.77)
-------- -------- -------- --------
As previously reported:
Net income $ 30,560 $ 1,470 $ 520
Net income per share $ 1.68 $ .08 $ .03
1994
Revenues $ 18,917 $ 18,732 $ 19,326 $ 19,364
-------- -------- -------- --------
Income from operations 1,612 1,654 1,605 1,614
-------- -------- -------- --------
Net income $ 1,612 $ 1,654 $ 1,605 $ 1,614
-------- -------- -------- --------
Per share
Income from operations $ .09 $ .09 $ .09 $ .09
-------- -------- -------- --------
Net income $ .09 $ .09 $ .09 $ .09
-------- -------- -------- --------
</TABLE>
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 14
Report of Independent Public Accountants
TO THE SECURITYHOLDERS AND TRUSTEES OF FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS: We have audited the accompanying combined balance sheets
of First Union Real Estate Equity and Mortgage Investments (an unincorporated
Ohio business trust, also known as First Union Real Estate Investments) and
First Union Management, Inc. (a Delaware corporation) as of December 31, 1995
and 1994, and the related combined statements of income, shareholders' equity
and changes in cash for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of First Union Real
Estate Equity and Mortgage Investments and First Union Management, Inc. as of
December 31, 1995 and 1994, and the results of their operations and their
changes in cash for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As explained in Note 4 to the combined financial statements, effective
January 1, 1995, First Union changed its method of accounting for internal
leasing costs.
Cleveland, Ohio,
February 5, 1996. ARTHUR ANDERSEN LLP
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
In January 1995, the Trust sold its 50% interests in two malls in Wilkes-Barre,
PA and Fairmount, WV 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. The proceeds were invested in short-term
securities until properties were acquired in a tax-free exchange in April 1995
and June 1995. The $6 million note earns interest at 9% and is secured by one
of the malls and 750,000 partnership units in Crown American Properties, L.P.
In April 1995, the Trust acquired Woodland Commons Shopping Center in
Buffalo Grove, IL, an upscale suburb of Chicago, with $21 million in cash.
Additionally, the Trust acquired Steeplechase Apartments in Cincinnati, OH for
$11.9 million in cash on June 30, 1995. The purchases were funded with the cash
from the sale of the two malls and with bank loans under the Trust's revolving
credit agreement. In accordance with provisions of the Internal Revenue Code,
the Trust treated the sales and purchases as "like-kind exchanges." The net
result of the sale and tax-free exchange was an annualized increase of $200,000
in funds from operations (income from operations before litigation and proxy
expenses plus non-cash charges for depreciation and amortization).
During 1995, the Trust renovated Crossroads Center Mall in St. Cloud, MN and
Fairgrounds Square Mall in Reading, PA. In addition to the renovation at
Fairgrounds Square, a 107,000 square foot Montgomery Ward store was
constructed. These major projects and other tenant alterations and building
improvements of $25 million were funded through borrowings from the Trust's
bank credit facilities.
In December 1995, the Trust recorded a $14 million noncash unrealized loss
on the carrying value of certain assets which have been identified for
disposition. The noncash adjustment represents the difference between the
estimated fair value and net book value of the assets. In December 1995, the
Trust sold an office building in Pittsburgh, PA for $4.3 million in cash
resulting in a capital loss of $1.4 million which was provided for in the $14
million noncash adjustment.
Liquidity and Capital Resources
Net cash provided by operations of $13 million in 1995 was less than 1994
by approximately $6 million. The decrease was primarily attributed to $1.6
million of litigation and proxy expenses incurred in 1995, a $2 million payment
received in 1994 in connection with the sale of two malls (which was completed
in 1995) and approximately $1.6 million less in income from operations (see
below for a discussion of results from operations). Dividends paid in 1995 of
$7.3 million represented 56% of net cash from operating activities.
During 1995, proceeds of $31.8 million were received from the sales of an
office building in Pittsburgh, PA and two malls in Wilkes Barre, PA and
Fairmount, WV. Also during 1995, the Trust purchased a retail center in Buffalo
Grove, IL for $21 million and an apartment complex in Cincinnati, OH for $11.9
million. The sales and acquisitions were all cash transactions except for a $6
million note received as additional proceeds from the sale of the two malls.
During 1995, the Trust reinvested in its existing properties approximately $25
million for tenant and building improvements. These expenditures were made to
renovate two malls, expand a mall to add a major tenant and make other
improvements to the Trust's portfolio.
During 1995, net cash provided by financing activities was obtained by
borrowing on the Trust's credit facilities for $27.1 million and a $49.5
million mortgage loan. The borrowings under the credit facilities were
primarily used to fund the previously mentioned capital improvement program.
The proceeds from the mortgage loan were used to repay other mortgage loans of
approximately $48 million at a weighted average interest rate of 9.25%. The
Trust increased its financing capacity by using a single property to secure the
debt that was previously secured by three properties and lowered the interest
rate to 7.49% on the new debt outstanding.
During the fourth quarter of 1995, the Trust renegotiated and extended its
$20 million unsecured credit agreement from July 1996 to December 1998 pending
completion of loan documentation. The credit line is now fully secured.
In December 1995, the Trust 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 Trust's bank credit facilities.
Additionally, in January 1996, the Trust obtained $12.5 million mortgage
loan at an interest rate of 6.87% secured by an apartment complex in Durham,
NC. The proceeds were used to reduce bank loans, which were outstanding at
higher variable rates in 1995.
During 1996, the Trust has approximately $2.9 million of mortgage principal
payments, a $5 million senior note repayment and an estimated $22 million in
building improvement and tenant construction costs to be funded. These items
will be financed through cash flow from operations, mortgaging unencumbered
properties, unused credit facilities of $18 million (including the effect of
the January 1996 mortgage loan proceeds and share purchase), and the public and
private capital markets, as market conditions allow.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 16
Results From Operations
Income from operations was $4.8 million in 1995 as compared to $6.5 million in
1994. Net income of $13.9 million in 1995 included a $29.9 million capital gain,
a $14 million noncash unrealized loss on the carrying value of assets identified
for disposition and litigation and proxy expenses of $1.6 million. Also reducing
net income for 1995 was an extraordinary loss from the early extinguishment of
debt of $910,000 and a $4.3 million noncash charge for the cumulative effect of
a change in accounting method. Net income of $6.5 million in 1994 did not
include any comparable special items.
Litigation and proxy expenses of $1.6 million were incurred during 1995.
These professional fees resulted from litigation and a proxy contest with a
minority shareholder. The litigation was resolved in December 1995 by a
settlement and standstill agreement.
The extraordinary loss of $910,000 primarily represented the write-off of
unamortized mortgage costs and prepayment premiums from the repayment of
mortgage loans prior to their maturity dates in conjunction with the $49.5
million refinancing of Crossroads Center in St. Cloud, MN.
The cumulative effect of $4.3 million resulted from a change in the method
of accounting to directly expense internal leasing costs rather than continue
to capitalize and amortize these costs over the term of office and retail
tenant leases. The effect of this change will be to lower depreciation and
amortization and increase general and administrative expenses. A
reclassification between these two expense items has been made so that prior
year amounts are on a comparable basis to 1995.
Income from property operations, which is rents less property operating
expenses and real estate taxes, increased by $1.9 million when comparing 1995
to 1994. The retail properties in the portfolio for all 12 months of 1995 and
1994 increased income from property operations by $.4 million when comparing
1995 to 1994 primarily due to increased occupancy. The comparable apartment
portfolio income from operations increased $.6 million primarily due to
increased rental rates. The office property portfolio increased income from
operations by approximately $.4 million from real estate tax refunds in 1995.
The parking portfolio produced an additional $.4 million in income from
operations due to an increase in the guaranteed rent paid by the operator of
the parking facilities and reduced real estate tax expense when comparing 1995
to 1994. The apartment complexes acquired in June 1995 and August 1994 and the
shopping center acquired in April 1995 increased income from operations when
comparing 1995 to 1994. However, this increase was offset by the sale of the
two malls in January 1995.
Income from property operations when comparing 1994 to 1993 increased by $.4
million. This increase was primarily the result of the apartment complex
purchased in August 1994. However, this increase was partially offset by
favorable real estate tax settlements recorded during 1993 in the office
property portfolio causing income from property operations to decline when
comparing 1994 to 1993. The comparable apartment and retail portfolios income
from operations was approximately the same when comparing 1994 to 1993.
Short-term investment income declined when comparing 1995 to 1994 because
short-term investments averaged $6.4 million in 1995 as compared to $30 million
in 1994. During the first quarter of 1995, the Trust had $29.5 million in
proceeds from the sale of two malls invested in short-term securities until it
purchased the Woodland Commons Shopping Center in April 1995 and the
Steeplechase Apartments in June 1995. When comparing 1994 to 1993, short-term
investment income increased because short-term investments averaged $30 million
in 1994 as compared to an average of $6 million in 1993. The large increase in
short-term investments from 1993 to 1994 was due to the Trust borrowing $38
million under one of its lines of credit which had converted to a term loan on
December 31, 1993, and subsequently investing the funds in short-term
securities. In August 1994, the Trust used $19 million of short-term
investments to purchase Beech Lake Apartments in Durham, NC. In December 1994,
the Trust repaid $17 million under its bank lines of credit with short-term
investments.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 17
Mortgage investment income increased when comparing 1995 to 1994 due to the
$6 million mortgage note receivable which was part of the consideration
received in January 1995 from the sale of the two malls.
The increase in depreciation and amortization expense when comparing 1995 to
1994 and 1994 to 1993 was primarily the result of the newly acquired shopping
center and apartment complexes in 1995 and 1994 and additional tenant
improvements.
Mortgage interest expense increased when comparing 1994 to 1993. This
increase was primarily caused by the $35 million mortgage obtained in September
1993, which was secured by a shopping mall in St. Cloud, MN.
Senior notes interest expense increased in 1994 as compared to 1993 because
of the issuance of $100 million of 8.875% senior notes on October 1, 1993. The
proceeds were used primarily to repay $45 million of 8.375% senior notes and
$37.6 million of 10.25% convertible debentures on November 1, 1993. Because of
the one month difference between the receipt of proceeds from the issuance of
$100 million of 8.875% senior notes and the repayment of the $45 million senior
notes and the $37.6 million convertible debentures (due to 30-day call
provisions in the indentures of the retired debt), nonrecurring interest
expense of $435,000, net of short-term investment income and reduced interest
expense on bank loans, was incurred in 1993.
Interest on bank loans increased when comparing 1995 to 1994 due to an
increase of approximately 260 basis points in short-term interest rates. The
Trust's interest rates on its bank lines of credit fluctuate based on
short-term market rates. The increase in interest rates was partially offset by
a decrease in borrowings during 1995. During 1995, the Trust's weighted average
interest rate was 7.8% on an average outstanding balance of $50.8 million.
Interest expense on bank loans increased when comparing 1994 to 1993 due to the
increase of approximately 130 basis points in interest rates from 1993 to 1994.
The Trust's weighted average borrowing rate during 1994 was 5.2% on an average
outstanding balance of $59 million. Short-term interest rates increased during
1994 so that the $42.5 million of outstanding bank loans at the end of 1994 was
at a weighted average borrowing rate of 7.4%.
General and administrative costs increased when comparing 1995 to 1994 and
1994 to 1993. Expenses increased in 1995 as a result of changing the method of
accounting to directly expense internal leasing costs rather than continue to
capitalize and amortize these costs over the term of tenant leases and an
increase in leasing personnel. The increase in expense between 1994 and 1993
resulted from professional fees related to the Trust's reorganization of the
portfolio and management, expenses from the new long-term incentive program and
increased staffing to execute the Trust's new strategic plan.
FUNDS FROM OPERATIONS AND DIVIDENDS DECLARED
Funds from operations (FFO) is calculated as income from operations plus
noncash charges for depreciation and amortization. A new definition of FFO,
proposed by the National Association of Real Estate Investment Trusts, excludes
depreciation and amortization of debt issue costs and other corporate assets.
FFO presented by First Union adds back the entire amount of depreciation and
amortization including $866,000 for debt issue costs and other corporate assets
for the year ended December 31, 1995.
Although FFO does not replace net income (determined in accordance with
generally accepted accounting principles) as a measure of performance or net
cash flows as a measure of liquidity, it is often used by real estate
investment trusts as a supplemental measure of operating performance.
The table below shows the calculation of FFO, dividends declared to holders
of shares of beneficial interest and the payout ratio.
<TABLE>
<CAPTION>
(Amounts in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income $ 13,891 $ 6,485 $13,984
Depreciation and amortization 11,901 10,555 9,763
Cumulative effect of accounting change 4,325
Extraordinary loss from debt extinguishment 910 1,240
Litigation and proxy expenses 1,576
Unrealized loss on carrying value of assets
identified for disposition 14,000
Capital gains (29,870) (4,948)
-------- ------- -------
Funds from operations $ 16,733 $17,040 $20,039
Dividends declared $ 7,542 $ 7,273 $13,031
Payout ratio of dividends to FFO 45% 43% 65%
</TABLE>
In the fourth quarter of 1995, the Trust raised its quarterly dividend by
10%, which is a payout ratio of 48% on an annualized basis.
FIRST UNION REAL ESTATE INVESTMENTS
<PAGE> 1
Exhibit 18
----------
February 5, 1996
First Union Real Estate Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113
RE: Form 10-K Report for the Year Ended December 31, 1995
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
As of January 1, 1995, First Union changed from capitalizing and amortizing
internal leasing costs to expensing them in the year incurred. According to
the management of First Union, this change was made to increase the focus on
controlling costs associated with tenant leases and to eliminate detailed
recordkeeping requirements.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our opinion
stated below is based on our determination made in this manner.
We are of the opinion that First Union's change in method of accounting is to
an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under
the circumstances in this particular case. In arriving at this opinion, we
have relied on the business judgment and business planning of your management.
Very truly yours,
Arthur Andersen LLP
<PAGE> 1
Exhibit 23
----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this
Form 10-K/A, into the registrant's previously filed Registration Statements on
Form S-3 (Registration Nos. 2-88719, 33-2818, 33-11524, 33-19812, 33-26758,
33-33279, 33-38754, 33-45355, and 33-57756).
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 10, 1996.
<PAGE> 1
Exhibit 24
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
-------------------------------------------------------
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
Power of Attorney of Officers and Trustees
------------------------------------------
The undersigned, an Officer or Trustee or both an Officer and Trustee
of First Union Real Estate Equity and Mortgage Investments, an Ohio business
trust (the "Trust") which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1995 (hereinafter called the "Form 10-K"), does hereby constitute
and appoint James C. Mastandrea and Paul F. Levin, and either of them, with
full power of substitution and resubstitution, as attorneys or attorney to sign
for him and in his name the Form 10-K and any and all amendments and exhibits
thereto, and any and all other documents to be filed with the Securities and
Exchange Commission pertaining to the Form 10-K, with full power and authority
to do and perform any and all acts and things whatsoever required or necessary
to be done in the premises, as fully to all intents and purposes as he could do
if personally present, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day
of March, 1996. ----
/S/ Otes Bennett, Jr.
- ----------------------------
/S/ Kenneth K. Chalmers
- ----------------------------
/S/ William E. Conway
- ----------------------------
/S/ Daniel G. DeVos
- ----------------------------
/S/ Allen H. Ford
- ----------------------------
/S/ Stephen R. Hardis
- ----------------------------
/S/ E. Bradley Jones
- ----------------------------
/S/ James C. Mastandrea
- ----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000037008
<NAME> FIRST UNION REAL ESTATE EQUITY AND MORTAGE INVESTMENTS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,402,000
<SECURITIES> 0
<RECEIVABLES> 4,536,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,938,000
<PP&E> 449,560,000
<DEPRECIATION> (107,701,000)
<TOTAL-ASSETS> 400,999,000
<CURRENT-LIABILITIES> 21,799,000
<BONDS> 258,454,000
<COMMON> 102,355,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 400,999,000
<SALES> 74,349,000
<TOTAL-REVENUES> 79,205,000
<CGS> 0
<TOTAL-COSTS> 74,373,000
<OTHER-EXPENSES> 51,976,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,397,000
<INCOME-PRETAX> 4,832,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,832,000
<DISCONTINUED> 0
<EXTRAORDINARY> (910,000)
<CHANGES> (4,325,000)
<NET-INCOME> 13,891,000
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
