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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 1-6249
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First Union Real Estate Equity and Mortgage Investments
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(Exact name of registrant as specified in its charter)
Ohio 34-6513657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1900, 55 Public Square
Cleveland, Ohio 44113-1937
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 781-4030
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
28,137,441 Shares of Beneficial Interest outstanding as of September 30, 1997
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Total number of pages contained in this report: 7
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
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The combined financial statements included herein have been prepared by
the registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the registrant believes that the disclosures
contained herein are adequate to make the information presented not misleading.
It is suggested that these combined financial statements be read in conjunction
with the combined financial statements and the notes thereto included in the
registrant's latest annual report on Form 10-K.
The unaudited "Combined Balance Sheets" as of September 30, 1997 and
December 31, 1996 and "Combined Statements of Income and Combined Statements of
Changes in Cash" for the periods ended September 30, 1997 and 1996, of the
registrant, and "Notes to Combined Financial Statements," are included herein.
These financial statements reflect, in the opinion of the registrant, all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the combined financial position and results of operations for the
respective periods in conformity with generally accepted accounting principles
consistently applied.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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Financial Condition
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In January 1997, the registrant sold a shopping center in Wilkesboro,
NC for $9 million in cash. This sale resulted in a capital loss of $4.9 million
which was previously provided for by the registrant as part of a $14 million
noncash unrealized loss on the carrying value of certain assets identified for
disposition recorded in December 1995. Additionally, in September 1997, the
registrant sold an office building in Oklahoma City, OK for $3.8 million which
approximated net book value. The net proceeds were used to repay short-term bank
loans.
In February 1997, the registrant received repayment of its wraparound
mortgage loan investment secured by an apartment complex in Atlanta, GA. The
registrant received $16.2 million in cash and a 10%, $1.8 million second
mortgage secured by the management agreement on the apartment complex. The
proceeds were used to repay $3.4 million in underlying mortgage debt and invest
$12.8 million in short-term investments.
In April 1997, the registrant's affiliated management company completed
the acquisition of voting control of Imperial Parking Ltd., "Impark" for $75
million, including the assumption of $26 million of debt. The acquisition was
funded with borrowing from the registrant's bank lines of credit and by issuing
approximately $10.5 million in non-voting common shares of Impark to its former
owners. Due to the former owners continued economic interest in Impark, and the
registrant's affiliated management company owning voting control of Impark, the
financial statements of Impark are consolidated with those of the registrant,
with all asset and liability balances being recorded using carryover basis
accounting.
In September 1997, the registrant purchased the interests of its joint
venture partners in eight shopping malls and 50% of another mall for $88 million
in cash and the assumption of $203 million of debt. This transaction was
recorded using purchase accounting which results in the full consolidation of
the eight malls in the registrant's financial statements. The registrant is
accounting for its interest in the other mall which it has a 50% interest using
the equity method of accounting. The registrant funded the purchase with $50
million of cash which had been invested in short-term investments and by
borrowing $38 million from the registrant's bank line of credit. The registrant
entered into this joint venture in September 1996 with an initial cash
investment of $30 million.
In January 1997 and June 1997 the registrant issued 3,910,000 and
6,325,000 shares of beneficial interest, respectively, resulting in net proceeds
of $121 million. The net proceeds were used to repay $25.8 million in short-term
bank loans, repay $11.3 million in mortgage loans and invest $39 million in
Impark as noted above with the remainder invested
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in short-term money market investments until the acquisition of the registrant's
partners interests in the joint venture.
Except as noted above, there has been no other material changes in
financial condition.
Liquidity and Capital Resources
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Net cash provided by operations for the first nine months of 1997 of
approximately $21 million was approximately $7 million greater than the same
period of 1996. This increase is primarily attributed to the increase in net
income before the preferred dividend and an increase in accounts payable and
accrued liabilities. Dividends paid in 1997 of $7.4 million to shares of
beneficial interest represented 35% of net cash from operating activities.
As described above in the first nine months of 1997, the registrant
received $16.2 million from the repayment of a mortgage investment and
approximately $13 million from the sale of a mall and office building. The
proceeds were used to repay mortgage debt related to the mortgage investment
and repay amounts outstanding under the bank credit agreement. The balance of
the proceeds are being invested temporarily in short-term investments. The
registrant also invested $17 million in its existing portfolio, primarily to
continue tenant alterations at its office technology center in Denver, CO,
which is continuing with a re-tenanting and conversion from a retail center to
a modern commerce center.
In April 1997, the registrant's affiliated management company purchased
voting control of Impark for $75 million, including the assumption of $26
million in debt. The purchase was funded through cash held in short-term
investments and through short-term borrowings.
In September 1997, the registrant purchased the interests of its joint
venture partners in eight shopping malls and 50% of another mall for $88 million
in cash and the assumption of $203 million of mortgage debt. The purchase was
funded with $38 million borrowed from the registrant's bank lines of credit and
with $50 million in cash which had been invested in short-term securities.
The net proceeds of $121 million from the January 1997 and June 1997
share offerings were used to repay mortgage and bank loans, invest in Impark,
and acquire the interests of its partners in the joint venture investment.
In September 1997, the registrant agreed to acquire a parking garage in
Chicago, IL for $42 million upon completion in early 1998. The purchase will be
funded through existing bank credit facilities. During the remaining three
months of 1997, the registrant has approximately $.9 million of mortgage
principle payments and $5 million of tenant and building improvements to fund.
These commitments will be funded through existing operations and bank credit
facilities.
Results of Operations
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Net income applicable to shares of beneficial interest for the third
quarter of 1997 and 1996 was $.7 million and $1 million, respectively.
Additionally, in 1997, net income applicable to shares of beneficial interest
was reduced by the accrual of a preferred dividend of $1.2 million. The
preferred shares were issued in October 1996.
Net income applicable to shares of beneficial interest for the first
nine months was $2.4 million and $1.1 million, respectively. Net income
applicable to shares of beneficial interest for 1997 included a non-cash
recognition of $.7 million of income from the repayment of a wraparound mortgage
investment, as the proceeds of $18 million exceeded the registrant's basis in
the wraparound investment and the recognition of $.5 million in income from a
casualty loss at one of the registrant's shopping centers. Net income applicable
to shares of beneficial interest for 1997 included $3.6 million for the accrual
of a preferred dividend for the preferred shares which were issued in October
1996. Net income applicable to shares of beneficial interest for 1996 included
two non-recurring, non-cash charges totaling $1.3 million for the write-off of a
tenant allowance and the termination of an employment contract.
In September 1996, the registrant invested in a joint venture that owns
eight shopping malls and 50% of another mall. The joint venture produced an
investment loss of $.2 million and $1.1 million in management fees for the
registrant's affiliated management
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company in the third quarter of 1997 and $.4 million in investment income and
$2.7 million in management fees for the first nine months of 1997. As noted
previously, the registrant purchased the interests of the joint venture partners
in September 1997.
Mortgage investment income declined when comparing 1997 to 1996 due
primarily to the repayment of a wraparound mortgage investment in February 1997,
as noted previously.
Short-term investment income increased in 1997 as compared to 1996 due
to the registrant having an average of $37 million invested in short-term
securities in 1997 versus minimal short-term investments in 1996.
Property net operating income, which is rental and parking revenues
less property operating expenses and real estate taxes increased by $4.9 million
for the third quarter of 1997 as compared to the same period of 1996. Property
net operating income at the comparable retail, office, parking and apartment
portfolios was consistent when comparing the third quarter of 1997 to that of
1996. On a non-comparable basis, the acquisition of Impark in April 1997 and
the registrant's purchase of its partners interest in the joint venture in
September 1997 produced an additional $5.1 million of property net operating
income.
Property net operating income was $1 million and $6.5 million greater
when comparing the first nine months of 1997 to the same period of 1996 on a
comparable and non-comparable basis, respectively. The comparable office
property portfolio produced $1.0 million in increased property net operating
income when comparing 1997 to 1996 primarily due to increased occupancy at a
former retail center in Denver CO. and at office buildings in Cleveland, OH and
Indianapolis, IN and a favorable real estate tax adjustment in Cleveland, OH.
The comparable parking portfolio had a decline of $.5 million in property net
operating income primarily due to increased real estate tax expense and the
expiration of a fixed minimum rent management contract. The comparable apartment
portfolio had increased property net operating income of $.2 million when
comparing 1997 to 1996 primarily due to the increased occupancy at an apartment
complex in Durham, NC. The acquisition of Impark in April 1997 and the
registrant's purchase of its partners' interest in the joint venture in
September 1997 produced $6.7 million in property operating income on a
non-comparable basis. The acquisition of an apartment complex in December 1996
partially offsets the decline in property net operating income from the shopping
mall sold in January 1997 resulting in a decline of $.2 million in property net
operating income.
Mortgage interest expense increased when comparing the nine months of
1997 to that of 1996 due to three mortgage loans totaling $36.5 million obtained
in 1996 and the $203 million in mortgage debt assumed in September 1997 in
conjunction with the purchase of the remaining interest of the registrant's
joint venture. However, the registrant's repayment of $11.3 million of mortgage
loans during the first six months of 1997 partially offsets the full effect of
the increase in mortgage expense from the addition of the three mortgages in
1996 and the $203 million of mortgage debt assumed in September 1997.
Interest on bank loans decreased when comparing the nine months ended
September 30, 1997 to the same period of 1996. In 1997, the registrant had an
average of $11 million in bank borrowings versus $56 million in 1996. The net
proceeds from the sale of preferred shares of beneficial interest in October
1996, the proceeds from a sale of a shopping mall in January 1997 and a portion
of the net proceeds from the sale of shares of beneficial interest in January
1997 and June 1997 were used to repay short-term bank loans. However, partially
offsetting the decrease in bank loan interest and other expense is the addition,
in April 1997, of approximately $26 million in bank loans assumed in the
acquisition of Impark and the accrual of the liability associated with a put
right which is attached to the Impark common shares issued to the former owners
of Impark as part of the acquisition consideration.
Depreciation and amortization expense increased when comparing 1997 to
1996. This increase in depreciation expense is primarily attributed to the
amortization of goodwill related to the acquisition of Impark, the depreciation
of the malls acquired in September 1997 from the acquisition of the
registrant's partners interest in the joint venture, and the registrant's
capital improvement program. These increases are partially offset by the
non-recurring, non-cash $680,000 write-off of a tenant allowance which occurred
in the first quarter of 1996 when the registrant replaced an anchor tenant at
one of its malls.
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General and administrative expenses for the third quarter and nine
months of 1997 increased when compared to the same periods of 1996. The increase
is mainly attributed to the general and administrative expenses from the
management of the nine properties acquired in a joint venture for the nine
months of 1997 and the acquisition of Impark in the second quarter of 1997. The
increase in general and administrative expenses for the nine months of 1997 was
partially offset by a non-recurring, non-cash charge of $650,000 in 1996 for the
termination of an employment contract of a former executive.
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.
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None.
Item 2. Changes in Securities.
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None.
Item 3. Defaults Upon Senior Securities.
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None.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
Item 5. Other Information.
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None.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
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Exhibit (3) - First Union Real Estate Equity and
Mortgage Investments By-Laws.
Exhibit (11) - Statements Re: Computation of Per
Share Earnings
Exhibit (20) - Financial Statements (Unaudited)
Combined Balance Sheets as of
September 30, 1997 and
December 31, 1996
Combined Statements of Income
for the Three and Nine Months
ended September 30, 1997 and
1996
Combined Statements of Changes
in Cash for the Three and Nine
Months ended September 30, 1997
and 1996
Notes to Combined Financial
Statements
Exhibit (27) - Financial Data Schedule
(b) Reports on Form 8-K:
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None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Union Real Estate Equity and
Mortgage Investments
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(Registrant)
Date: November 13, 1997 By: /s/James C. Mastandrea
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James C. Mastandrea, Chairman
President and Chief Executive Officer
Date: November 13, 1997 By: /s/Steven M. Edelman
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Steven M. Edelman, Executive Vice
President, Chief Financial Officer
Date: November 13, 1997 By: /s/John J. Dee
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John J. Dee, Senior Vice
President, Chief Accounting
Officer
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Index to Exhibits
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<TABLE>
<CAPTION>
Page
Number
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<S> <C>
Exhibit (3) - First Union Real Estate Equity and Mortgage Investments
By-Laws ....................................................... 8
Exhibit (11) - Statements Re: Computation of Per Share
Earnings .............................................. 9
Exhibit (20) - Financial Statements (unaudited)
Combined Balance Sheets as of September 30, 1997
and December 31, 1996.................................. 10
Combined Statements of Income for the Three and Nine
Months ended September 30, 1997 and 1996............... 10
Combined Statements of Changes in Cash for the
Three and Nine Months ended September 30, 1997 and 1996 10
Notes to Combined Financial Statements................. 10
Exhibit (27) - Financial Data Schedule ....................................... 11
</TABLE>
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Exhibit 3
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
BY-LAWS
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ARTICLE I
MEETING OF BENEFICIARIES
SECTION 1. ANNUAL MEETING.
The annual meeting of the Beneficiaries of the Trust for the transacting of such
business as shall be specified in the notice of the meeting shall be held as
provided in the Declaration of Trust.
SECTION 2. SPECIAL MEETINGS.
Special meetings may be called at any time as provided in the Declaration of
Trust.
SECTION 3. PLACE OF MEETING.
All meetings of the Beneficiaries shall be held at the office of the Trust in
the City of Cleveland in the State of Ohio or at such other place in the State
of Ohio as may be designated, in the case of an annual meeting, by the Trustees,
or, in the case of a special meeting, by the Trustees calling such meeting or by
the person or persons requesting such meeting pursuant to the Declaration of
Trust.
SECTION 4. NOTICE OF MEETINGS.
Written notice of each annual or special meeting of the Beneficiaries, stating
the time, place and purpose thereof shall be given in accordance with the
Declaration of Trust.
SECTION 5. PROCEDURE AT MEETINGS.
At each meeting of the Beneficiaries, the Trustees shall appoint one of their
number or one of the Beneficiaries to preside thereat. The Trustees shall
appoint a Secretary for each such meeting, who shall be duly sworn to the
faithful discharge of his duties and to keep the minutes of such meeting, which
minutes shall be signed and attested by him and filed with the records of the
Trust.
SECTION 6. QUORUM.
A majority of the outstanding shares of the Trust present in person or by proxy
shall constitute a quorum for any annual or special meeting of Beneficiaries.
SECTION 7. NOMINATIONS AND BENEFICIARY BUSINESS
(a) With respect to any Annual or Special Meeting of Beneficiaries, (a
"Meeting") nominations for election to the Board of Trustees and the proposal of
matters to be considered by the Beneficiaries may be made only (I) by or at the
direction of the Board of Trustees or (ii) by any Beneficiary who was a
Beneficiary of record at the time of the giving of the notice described in this
Section 7 and at the record date for the Meeting, as defined in the Declaration
of Trust, who is entitled to vote at the Meeting and who complied with the
notice procedures set forth in this Section 7.
(b) For a nomination or proposal to be properly brought before a Meeting of
Beneficiaries, other than a shareholder proposal included in the Trust's proxy
statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as
amended, the Beneficiary must have given timely notice thereof in writing to the
Secretary of the Trust, and such Beneficiary or his representative must be
present in person at the Meeting. A Beneficiary's notice shall be timely if
delivered to, or mailed and received at, the principal executive offices of the
Trust (i) for an Annual Meeting, not less than 90 days nor more than 120 days
prior to the anniversary date of the immediately preceding Annual Meeting of
Beneficiaries, or Special Meeting held in lieu thereof AND (ii) for a special
meeting, not less than 90 days prior to the date requested for such meeting.
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(c) A Beneficiary's notice to the Secretary shall set forth as to each
nomination or proposal the Beneficiary intends to bring before the Meeting (I)
as to any nomination, the name and address of any proposed nominee, the
nominee's business affiliation, the information required as to nominees by Item
401 of Regulation S-K under the Securities Act of 1933 and the Securities
Exchange Act of 1934, all as may be amended from time to time, and a
certification of the proponent that such nominee meets all the qualifications
for Trustees set forth in the Declaration of Trust, including, but not limited
to, Section 8.10 thereof, (ii) as to any proposal, a brief description of the
proposal desired to be brought before the Meeting, a statement of the reasons
for making such proposal at the Meeting and a certification of the proponent
that the proposal does not conflict with or violate any provision of the
Declaration of Trust, (iii) the name and address, as they appear on the Trust's
share transfer books of the Beneficiary offering such nomination or proposal and
of the beneficial owners (if any) of the shares registered in such Beneficiary's
name and the name and address of any other Beneficiaries (or beneficial owner of
shares) known by such Beneficiary to be supporting such nomination or proposal
on the date of the Beneficiary's notice, (iv) the class and number of shares of
the Trust's capital shares which are beneficially owned by the Beneficiary and
such beneficial owners (if any) on the date of such Beneficiary's notice and by
any other Beneficiaries known by such Beneficiary to be supporting such
nomination or proposal on the date of such Beneficiary's notice, and (v) any
financial interest of the Beneficiary or any such beneficial owner in such
proposal. Nothing contained in this Subsection (e) shall be deemed to supersede
the provisions of Section 7.2 of the Declaration of Trust relating to business
that may be transacted at a Special Meeting.
(d) If the Board of Trustees, or a designated committee thereof, determines that
any Beneficiary nomination or proposal was not timely made in accordance with
the provisions of this Section 7, or that any proposed nominee does not meet the
qualifications set forth in the Declaration of Trust, or that any proposal
conflicts with or violates a provision of the Declaration of Trust, then such
nomination or proposal shall not be presented for action at the Meeting in
question. If the Board of Trustees, or a designated committee thereof,
determines that the information provided in the Beneficiary's notice does not
satisfy the informational requirements of this section in any material respect,
the Secretary of the Trust shall promptly notify such Beneficiary of the
deficiency in the notice. Such Beneficiary shall have the opportunity to cure
such deficiency by providing additional information to the Secretary within the
period of time, not to exceed five (5) days from the date such deficiency notice
is given to such Beneficiary, determined by the Board or such committee. If the
deficiency is not cured within such period, or if the Board of Trustees or such
committee determines that the additional information provided by the
Beneficiary, together with the information previously provided, does not satisfy
the requirements of this Section 7 in any material respect, then such nomination
or proposal shall not be presented for action at the Meeting in question.
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(e) Notwithstanding the procedure set forth in the preceding paragraph, if
neither the Board of Trustees nor such committee makes a determination as to the
compliance of any Beneficiary nomination or proposal with the provisions of this
Section 7, as set forth above, the presiding Officer of the Meeting shall
determine and declare at the Meeting whether the Beneficiary nomination or
proposal was made in compliance with the provisions of this Section 7, and if
such presiding Officer determines and declares that such nomination or proposal
was not made in compliance with such provisions, such nomination or proposal
shall not be acted upon at the Meeting.
ARTICLE II
SECTION 1. REGULAR MEETINGS.
Regular meetings of the Trustees may be held at such times and places within the
State of Ohio as may be provided for in resolution adopted by the Trustees.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the Trustees may be held at any time or place within the
State of Ohio upon call of any two of the Trustees at the time and place
designated in the notice of meeting.
SECTION 3. NOTICE OF MEETINGS.
Notice of each meeting, regular or special, shall be given by mailing or by
sending to each Trustee (addressed to the address last furnished to the Trust by
the Trustee) a letter at least 4 days before the meeting, or a telegram at least
24 hours before the meeting. Notice of any special or regular meeting, as
provided in the Declaration of Trust, may be waived in writing or by telegram by
any Trustee either before or after such meeting, and such notice shall be deemed
to have been waived by the Trustees attending such meeting. Except as provided
in Article V hereof, unless otherwise indicated in the notice thereof, any
business may be transacted at any regular or special meeting.
SECTION 4. QUORUM.
At any meeting a majority of the Trustees then in office shall constitute a
quorum.
SECTION 5. COMPENSATION OF TRUSTEES.
The Trustees are authorized to fix a reasonable retainer for members of the
Board of Trustees and the Chairman and a reasonable fee for attendance at
meetings. In addition to such compensation there shall be reimbursement for
expenses for traveling to and from such meetings.
SECTION 6. COMMITTEES OF THE BOARD OF TRUSTEES.
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The Trustee may elect from their members committees of the Board and give them
any or all powers of the Trustees during intervals between the meetings of the
Trustees, except that such committees shall not be empowered to declare
dividends or fill vacancies in the Board of Trustees or committees. All actions
of such committees shall be reported to the Trustees at their next meeting and
shall be subject to approval by the Trustees, provided that no right of any
third person shall be affected by such alteration.
SECTION 7. QUALIFICATIONS OF NOMINEES - AGE.
No nominee for Trustee shall be more than 72 years of age at the time of his
election as Trustee, nor shall any Trustee nominated for a subsequent term be
more than 72 years of age at the time of his election for such subsequent term,
provided that any Trustee elected prior to attaining age 72 may continue to
serve the remainder of his term despite attaining the age of 72 before the
expiration of his term.
ARTICLE III
OFFICERS
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SECTION 1. DESIGNATION OF OFFICERS.
The Trustees shall elect a Chairman of the Board, a President, a Secretary, a
Treasurer, and such Vice Presidents and other officers, or assistant officers,
as they shall deem advisable. Each officer and assistant officer shall have such
functions and duties as the Trustees shall from time to time designate, and, in
the absence of such designation, such duties as are usually associated with such
office. Except as otherwise determined by the Trustees, any two or more offices
may be held by the same person.
SECTION 2. TENURE OF OFFICE.
The officers of the Trust shall hold office at the pleasure of the Trustees, and
until successors are chosen and qualified. A vacancy in any office, however
created, may be filled by election by the Trustees.
SECTION 3. DELEGATION OF DUTIES.
The Trustees may delegate the duties of any officer to any other officer and
generally may control the action of the officers and require the performance of
duties in addition to those mentioned herein.
SECTION 4. COMPENSATION.
The Trustees are authorized to determine or to provide the method of determining
the compensation of officers.
SECTION 5. SIGNING CHECKS AND OTHER INSTRUMENTS.
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The Trustees shall determine or provide the method of determining how checks,
notes, bills of exchange and similar instruments issued by or on behalf of the
Trust shall be signed, countersigned, or endorsed.
SECTION 6. CONTROL BY TRUSTEES.
Nothing contained herein shall be interpreted to relieve the Trustees, in any
manner, of their duty to control and manage the Trust property.
ARTICLE IV
SHARES IN TRUST
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SECTION 1. ISSUE OF CERTIFICATE OF BENEFICIAL OWNERSHIP
The Chairman shall cause to be issued to each Beneficiary one or more
certificates, under the seal of the Trust, signed as provided in Article III,
Section 5 hereof, certifying the number of shares owned by such Beneficiary in
the Trust. Such certificates shall be countersigned by the Transfer Agent and
registered by the Registrar and shall be transferable on the books of the Trust
as provided in the Declaration of Trust.
ARTICLE V
AMENDMENTS
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SECTION 1. AMENDMENT OF BY-LAWS.
The Trustees, by the affirmative vote of a majority, may at any meeting,
provided the substance of the proposed amendment shall have been stated in a
notice of the meeting, alter, change, or amend in any respect, or supersede by
new by-laws, in whole or in part, any of these by-laws.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR.
The fiscal year of the Trust shall be as determined from time to time by the
Trustees.
SECTION 2. NOTICE AND WAIVER OF NOTICE.
Whenever any notice is required by these by-laws to be given, personal notice is
not required unless expressly so stated; and any notice so required shall be
deemed to be sufficient if given by depositing the same in a post-office box in
a sealed post-paid wrapper, addressed to the person entitled thereto (at his
last known post-office address as shown by the register of the Trust) and such
notice shall be deemed to have been given on the day of such mailing.
SECTION 3. CHECKS FOR MONEY.
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All checks, drafts or orders for the payment of money shall be signed by the
Treasurer or Assistant Treasurer or by such other officer, officers, Trustee or
Trustees as the Trustees may from time to time designate.
SECTION 4. FORM OF CERTIFICATE OF BENEFICIAL INTEREST.
The form of certificate of beneficial interest representing shares of $1 par
value shall be substantially as follows:
No. Shares
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FIRST UNION
Real Estate Equity and Mortgage Investments
THIS CERTIFIES THAT ________________________ is the registered holder of ______
Fully Paid and Non-assessable Share of Beneficial Interest, $1 Par Value. in
FIRST UNION
Real Estate Equity and Mortgage Investments
a Trust established in business trust from under the laws of the State of Ohio
under a Declaration of Trust dated as of August 1, 1961, as amended from time to
time, a copy of which is on file with the Transfer Agents of the Trust by all
the terms and provisions of which the holder or transferee hereof by accepting
this certificate agrees to be bound. The Trust is not a bank or trust company
and does not and will not solicit, receive or accept deposits as a business. The
shares represented hereby are transferable on the records of the Trust only by
the registered holder hereof or by his agent duly authorized in writing on
delivery to a Transfer Agent of the Trust of this certificate properly endorsed
or accompanied by duly executed instrument of transfer together with such
evidence of the genuineness thereof and such other matters as may reasonably be
required. The transferability of the shares represented hereby is subject to
such regulation. as may from time to time be adopted by the Trustees of the
Trust and set forth in the By-Laws to which reference is hereby made to prevent
transfers of shares which would result in disqualification of the Trust for
taxation as a real estate investment trust under the Internal Revenue Code an
amended.
This certificate is not valid unless countersigned by a Transfer Agent and
registered by a Registrar of the Trust.
IN WITNESS WHEREOF, the Trustees of this Trust have caused this certificate to
be signed by facsimile signatures.
[ON REVERSE SIDE]
The By-Laws of the Trust provide, among other things, that no person may acquire
Trust securities (including these securities) if, thereafter, he would
beneficially own more than 9.8% of the Trust's shares of beneficial interest. In
applying this restriction, convertible securities of the Trust beneficially
owned by such person (including convertible securities) are to be treated as if
already converted into shares of beneficial
7
<PAGE> 8
interest. A copy of the By-Laws and information about the limitation on
ownership may be obtained from the Secretary of the Trust.
SECTION 5. REGULATIONS ON TRANSFER OF SHARES TO PREVENT DISCLAIM
Notification of the Trust Under the Internal Revenue Code.
The Chief Executive Officer of the Trust or an officer designated by him shall:
a) From time to time cause to be prepared a list of holders of record (with
their holdings) of shares of the Trust (preferred and common) and shall
designate those holders which the officer acting shall have reason to believe
are not also the beneficial owners of the holdings of record in their respective
names;
b) Review the list with counsel and impose such restrictions on transfer of
shares as counsel shall advise should be imposed to prevent disqualification of
the Trust as a Real Estate Investment Trust under Section 856 et seq.
of the Internal Revenue Code.
SECTION 6. RESTRICTIONS ON ISSUANCE AND TRANSFER OF SECURITIES.
a) No person may own more than 9.8% of the outstanding Shares (the Limit), and
no Securities shall be issued or transferred to any person if, following such
issuance or transfer, such person's ownership of Shares would exceed the Limit.
For purposes of computing the Limit, Convertible Securities owned by such person
shall be treated as if the Convertible Securities owned by such person had been
converted into Shares.
b) If any Securities in excess of the Limit are issued or transferred to any
person in violation of Paragraph a) hereof (the "Excess Securities"), such
issuance or transfer shall be valid only with respect to such amount of
Securities as does not result in a violation of Paragraph a) hereof, and such
issuance or transfer shall be null and void with respect to such Excess
Securities.
If the last clause of the foregoing sentence is determined to be invalid by
virtue of any legal decision, statute, rule or regulation, such person shall be
conclusively deemed to have acted as an agent on behalf of the Trust in
acquiring the Excess Securities and to hold such Excess Securities on behalf of
the Trust. As the equivalent of treasury Securities for such purposes, the
Excess Securities shall not be entitled to any voting rights; shall not be
considered to be outstanding for quorums or voting purposes; and shall not be
entitled to receive dividends. interest or any other distribution with respect
to the Securities. Any person who receives dividends, interest or any other
distribution in respect to Excess Securities shall hold the same as agent for
the Trust and (following a permitted transfer) for the transferee thereof.
Notwithstanding the foregoing, any holder of Excess Securities may transfer the
same (together with any distributions thereon) to any person who, following such
transfer, would not own Shares (within the meaning of Paragraph a) in excess of
the Limit. Upon such permitted transfer, the Trust shall pay or distribute to
the transferee any distributions on the Excess Securities not previously paid or
distributed.
8
<PAGE> 9
c) Ownership of Securities is conditional upon the owner or prospective owner
having provided to the Trust definitive written information respecting his
ownership of Securities. Failure to provide such information, upon reasonable
request shall result in the Securities so owned being treated as Excess
Securities pursuant to Paragraph b) for so long as such failure continues.
d) For purposes of this Section 6:
(i) Person. includes an individual, corporation, partnership, association, joint
stock company, trust, unincorporated association or other entity.
(ii) Shares. means Shares of Beneficial Interest, par value $1 per share.
(iii) Convertible Securities. means any securities of the Trust that are
convertible into Shares.
(iv) Securities. means Shares and Convertible Securities.
(v) Ownership. means beneficial ownership. Beneficial ownership, for this
purpose, may be determined on the basis of the beneficial ownership rules
applicable under the Securities Exchange Act of 1934, as amended, or such other
basis as management reasonably determines to be appropriate to effectuate the
purposes hereof.
e) Nothing herein contained shall limit the ability of the Trust to impose, or
to seek judicial or other imposition of additional restrictions if deemed
necessary or advisable to protect the Trust and the interests of its security
holders by preservation of the Trust's status as a qualified real estate
investment trust under the Code.
f) These restrictions on issuance and transfer of Securities shall be applied
only on a prospective basis. Accordingly, Paragraphs a) and b) hereof shall not
apply to Shares in excess of the limit that were owned (within the meaning of
Paragraph a) by any person at the close of business on June 3, 1981, but
Paragraph a) and b) shall prospectively apply to the transfer of such Shares and
to further acquisitions of Securities by any such person. Similarly, Paragraphs
a) and b) shall not apply to the conversion of Convertible Securities that were
owned by any person at the close of business on such date or to the resultant
Shares owned by such person, but Paragraph a) and b) shall prospectively apply
to such Shares and to such person.
g) Notwithstanding any other provision of this Section 6, a lower percentage
(the Temporary Limit) shall operate in place of the 9.81 ownership Limit set
forth in Paragraph a) hereof for so long as there are outstanding Securities
excepted from the restrictions of this Section 6 pursuant to Paragraph f) hereof
("Exempt Securities"). The Temporary Limit shall initially be 6%, but upon the
transfer of Exempt Securities the Temporary Limit shall be fixed by the Trustees
from time to time but shall in no event exceed an amount equal to 25% of the
difference between (i) 49% of the Shares outstanding and (ii) the number of
Shares owned by any person who owns Exempt Securities. For purposes of this
calculation, Convertible Securities owned by such person shall be treated as if
the Convertible Securities owned by such person had been converted into Shares.
9
<PAGE> 10
h) If any provision of this Section 6 or any application of any such provision
is determined to be invalid by any federal or state court having jurisdiction
over the issue, the validity of the remaining provisions shall not be affected
and other applications of such provision shall be affected only to the extent
necessary to comply with the determination of such court.
10
<PAGE> 11
<TABLE>
<CAPTION>
INDEX
PAGE
----
<S> <C> <C>
ARTICLE I - MEETING OF BENEFICIARIES
Section 1. Annual Meeting 35
Section 2. Special Meetings 35
Section 3. Place of Meetings 35
Section 4. Notice of Meetings 35
Section 5. Procedure at Meetings 35
Section 6. Quorum 35
Section 7. Nominations and Beneficiary Business 35
ARTICLE II - TRUSTEES
Section 1. Regular Meetings 35
Section 2. Special Meetings 36
Section 3. Notice of Meetings 36
Section 4. Quorum 36
Section 5. Compensation of Trustees 36
Section 6. Committees of the Board of Trustees 36
Section 7. Qualifications of Nominees-Age 36
ARTICLE III OFFICERS
Section 1. Designation of Officers 37
Section 2. Tenure of Office 37
Section 3. Delegation of Duties 37
Section 4. Compensation 37
Section 5. Signing Checks and Other Instruments 37
Section 6. Control by Trustees 37
ARTICLE IV SHARES IN TRUST
Section 1. Issue of Certificate of Beneficial
Ownership 37
ARTICLE V AMENDMENTS
Section 1. Amendment of By-Laws 38
ARTICLE VI MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year 38
Section 2. Notice and Waiver of Notice 38
Section 3. Checks for Money 38
Section 4. Form of Certificate of Beneficial Interest 38
Section 5. Regulations on Transfer of Shares to
Prevent Disclaim 39
Section 6. Restrictions on Issuance and Transfer
Of Securities 40
</TABLE>
<PAGE> 1
EXHIBIT 11
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
FIRST UNION MANAGEMENT, INC.
STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares Outstanding:
For computation of primary net
income per share -
Weighted average 27,337 17,168 23,522 17,168
Share equivalents - Options 419 423
- Restricted shares 211 56 213 69
------- ------- ------- -------
Adjusted shares outstanding 27,967 17,224 24,158 17,237
======= ======= ======= =======
For computation of fully diluted
net income per share -
Weighted average, without regard to,
exercise under share option plans,
or purchase of outstanding shares 27,337 17,168 23,515 17,160
Assumption of exercise under share
option plans 444 444
Weighted average of restricted
shares granted 225 56 225 69
Weighted average of shares issued
under employees incentive plan 7 8
------- ------- ------- -------
Adjusted shares outstanding 28,006 17,224 24,191 17,237
======= ======= ======= =======
Net Income:
Net income applicable to shares
of beneficial interest (used
for computing primary and
fully diluted net income per
share) $ 738 $ 1,044 $ 2,435 $ 1,140
======= ======= ======= =======
Net income per share of beneficial interest(1):
Primary and fully diluted $ .03 $ .06 $ .10 $ .07
======= ======= ======= =======
<FN>
(1) The proforma basic earnings per share for the three months and nine
months ended September 30, 1997 was $.03 and $.10 per share,
respectively, in accordance with SFAS 128 (earnings per share).
</TABLE>
<PAGE> 1
Exhibit 20
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS
- -------------------------------------------------------
Combined Balance Sheets
<TABLE>
<CAPTION>
Unaudited (In thousands, except shares) September 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Investments in real estate
Land $ 110,269 $ 52,891
Buildings and improvements 659,167 406,672
--------- ---------
769,436 459,563
Less - Accumulated depreciation (115,174) (112,614)
--------- ---------
Total investments in real estate 654,262 346,949
Investment in joint venture 1,497 30,776
Mortgage loans receivable 28,125 42,266
Other assets
Cash and cash equivalents 21,312 2,951
Short- term investments, at cost 12,651
Accounts receivable and prepayments 20,008 8,440
Intangibles 35,366
Management and lease agreements 11,729
Deferred charges, net 11,020 5,225
Unamortized debt issue costs 7,788 3,923
Other 12,321
--------- ---------
$ 816,079 $ 440,530
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans $ 322,114 $ 129,068
Senior notes 100,000 100,000
Bank loans 65,944 25,800
Accounts payable and accrued liabilities 46,326 14,549
Deferred obligations 10,812 10,825
Deferred capital gain and other deferred income 9,568 7,735
Other liabilities 10,495
Shareholders' equity, including preferred shares of beneficial interest, $25
liquidation preference, 2,300,000 shares authorized and outstanding and shares
of beneficial interest, $1 par, unlimited
authorization, outstanding 1997 - 28,137,441; 1996 - 17,621,799 250,820 152,553
--------- ---------
$ 816,079 $ 440,530
--------- ---------
</TABLE>
<PAGE> 2
Exhibit 20
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS
- -------------------------------------------------------
Combined Statements of Income
<TABLE>
<CAPTION>
Unaudited (In thousands, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ---------------------
1997 1996 1997 1996
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Revenues
Rents $ 70,440 $ 18,553 $145,643 $55,102
Interest - Mortgage loans 648 1,129 2,221 3,600
- Short-term investments 812 1,620 9
Equity in (loss) income from joint venture (172) 412
Management fees 1,099 2,706
Other 308 53 1,601 284
-------- --------- -------- -------
73,135 19,735 154,203 58,995
-------- --------- -------- -------
Expenses
Property operating 52,989 6,341 101,695 19,517
Real estate taxes 2,490 2,132 7,106 6,198
Depreciation and amortization 5,276 3,092 12,724 9,858
Interest - Mortgage loans 3,799 2,303 8,489 6,368
- Senior notes 2,219 2,219 6,656 6,871
- Bank loans and other 1,307 1,358 3,338 4,274
General and administrative 3,110 1,246 8,138 4,769
-------- --------- -------- -------
71,190 18,691 148,146 57,855
-------- --------- -------- -------
Net income before preferred dividend 1,945 1,044 6,057 1,140
Preferred dividend (1,207) (3,622)
-------- --------- -------- -------
Net income applicable to shares of beneficial interest $ 738 $ 1,044 $ 2,435 $ 1,140
-------- --------- -------- -------
Per share
Net income applicable to shares of beneficial interest $ .03 $ .06 $ .10 $ .07
-------- --------- -------- -------
Adjusted shares of beneficial interest 27,967 17,224 24,158 17,237
-------- --------- -------- -------
</TABLE>
<PAGE> 3
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS
- -------------------------------------------------------
Exhibit 20
Combined Statements of Changes in Cash
<TABLE>
<CAPTION>
Unaudited (In thousands) Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
1997 1996 1997 1996
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash provided by (used for) operations
Net income before preferred dividend $ 1,945 $ 1,044 $ 6,057 $ 1,140
Adjustments to reconcile net income to net
cash provided by operations --
Depreciation and amortization 5,276 3,092 12,724 9,858
Increase in deferred charges, net (1,084) (280) (4,631) (854)
Increase in deferred interest on
mortgage investments, net (19) (102) (102) (295)
(Decrease) increase in deferred obligations (4) 44 (13) 126
Increase in deferred income 207 996
Net changes in other assets and liabilities 1,452 7,772 5,798 3,833
-------- --------- --------- --------
Net cash provided by operations 7,773 11,570 20,829 13,808
-------- --------- --------- --------
Cash provided by (used for) investing
Repayment of mortgage investment 16,200 7,000
Investment in short-term investments (12,651) (12,651)
Principal received from mortgage investments 57 45 159 131
Proceeds from sale of properties 4,023 13,011 1,825
Advance deposit for property acquisitions (2,000) (2,000)
Acquisition of joint venture interests, net of cash aquired (72,900) (72,900)
Investment in joint venture (30,000) (30,000)
Investment in Impark (36,574)
Investment in capital and tenant improvements (7,857) (3,132) (16,946) (16,578)
-------- --------- --------- --------
Net cash used for investing (91,328) (33,087) (111,701) (37,622)
-------- --------- --------- --------
Cash provided by (used for) financing
Increase in mortgage loans 12,000 2,737 48,500
Increase (decrease) in short-term loans 38,975 12,270 13,175 (5,660)
Repayment of mortgage loans - Normal payments (632) (847) (1,839) (2,369)
- Balloon payments (13,835)
Dividends paid to shares of beneficial interest (3,076) (1,921) (7,378) (5,869)
Dividends paid to preferred shares of beneficial interest (1,208) (3,663)
Debt issue costs paid (202) (536) (1,013) (1,313)
Purchase of First Union shares (7,125)
Sale of First Union shares 51 121,049 81
Sale of interest rate protection agreement 1,025
Repayment of Medium Term Notes (5,000) (5,000)
Other (6)
-------- --------- --------- --------
Net cash provided by financing 33,908 15,966 109,233 22,264
-------- --------- --------- --------
(Decrease) increase in cash and cash equivalents (49,647) (5,551) 18,361 (1,550)
Cash and cash equivalents at beginning of period 70,959 7,403 2,951 3,402
-------- --------- --------- --------
Cash and cash equivalents at end of period $ 21,312 $ 1,852 $ 21,312 $ 1,852
-------- --------- --------- --------
</TABLE>
Notes to Combined Financial Statements
1. Income per share of beneficial interest has been computed on weighted
average shares and share equivalents outstanding for the applicable
periods.
2. In April 1997, the Trust's affiliated management company purchased voting
control of Imperial Parking Ltd. (Impark) for $75 million including the
assumption of $26 million in debt and the issuance of $10.5 million of
non-voting common stock in Impark to its former owners.
3. In September 1997, the Trust purchased the interests of its joint venture
partners in eight shopping malls and a 50% interest in another mall for $88
million in cash and the assumption of $203 million in debt. The Trust
accounted for its purchase of the joint venture interests using purchase
accounting.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000037008
<NAME> FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,312,000
<SECURITIES> 12,651,000
<RECEIVABLES> 20,008,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,971,000
<PP&E> 769,436,000
<DEPRECIATION> (115,174,000)
<TOTAL-ASSETS> 816,079,000
<CURRENT-LIABILITIES> 46,326,000
<BONDS> 422,114,000
0
54,109,000
<COMMON> 28,137,000
<OTHER-SE> 168,574,000
<TOTAL-LIABILITY-AND-EQUITY> 816,079,000
<SALES> 0
<TOTAL-REVENUES> 154,203,000
<CGS> 0
<TOTAL-COSTS> 108,801,000
<OTHER-EXPENSES> 20,862,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,483,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,435,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,435,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
