SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
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First Union Real Estate Equity and Mortgage Investments
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(Name of Registrant as Specified in Its Charter)
Gotham Partners, L.P.
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(Name of Person Filing Proxy Statement)
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GOTHAM PARTNERS, L.P.
110 East 42nd Street, 18th Fl.
New York, NY 10017
(212) 286-0300
May 8, 1998
Dear Shareholder:
Ever since Gotham presented its shareholder proposals to First Union,
the Board of Trustees and the Company's management have stopped at nothing
to prevent shareholders from considering our proposals at the upcoming
special meeting.
. Management and the Board of Trustees have attempted unsuccessfully to
deny you the right to vote for an alternative board slate by bringing
State and Federal litigation against Gotham.
. Management and the Board of Trustees have presided over the
destruction of shareholder value and have missed enormous
opportunities because of their stubborn unwillingness to consider a
sale or merger of the Company until the value of the Company's
paired-share structure was rendered worthless.
. Management and the Board of Trustees' actions have led to a dramatic
decline in the Company's fundamental economic performance.
. Management and the Board of Trustees, realizing that their time at the
helm was likely to come to an end, put in force golden parachutes
which will award millions of dollars to senior management in the event
Gotham is successful and the Board does not approve Gotham's nominees.
IS THIS THE MANAGEMENT TEAM AND BOARD OF TRUSTEES THAT YOU WANT TO
REPRESENT YOUR INTERESTS?
We believe First Union shareholders deserve better. By signing and
returning the enclosed White and Blue proxy card, you can help Gotham and
its nominees bring dynamic leadership and a brighter future to First Union.
MANAGEMENT'S RECORD TO DATE
1. Five Years of Woeful Performance
First and foremost is the woeful performance of the Company's existing
management, led by the current Chairman, President and CEO, James
Mastandrea. First Union's stock price is actually lower today ($10 3/8 at
the close on 5/7/98) than it was on the day Mr. Mastandrea signed his
extremely lucrative employment contract ($10 1/2 at the close on 7/19/93).
By comparison, the S&P 500 Index has more than doubled (up 145%) during
this period. Even more glaring is the outperformance of the other
paired-share REITs during this period. The stock price of Starwood Hotels &
Resorts has risen 544%. The stock price of Patriot American Hospitality has
risen 362%. Don't think Mr. Mastandrea has made up for this lack of stock
price performance through dividend growth - the Company's dividend has
actually declined 39% during Mr. Mastandrea's tenure.
2. Current Management Never Took Advantage of the Company's Paired-Share
Structure. The Cost to Shareholders is Potentially Hundreds of Millions of
Dollars.
The Board of Directors of every other paired-share REIT, when they
became aware of the potential value of the paired-share structure, did the
right thing. They hired a well-regarded investment bank and sought
proposals from potential merger partners, creating tremendous value for
shareholders. To give you one example, Santa Anita Realty Company
shareholders received a more than $200 million premium to the value of the
company's net assets for their paired-share structure. Before First Union's
three dilutive equity offerings, that $200 million would have meant an
$11.00 premium to shareholders on top of the Company's net asset value,
which at the time we estimated to be approximately $10 per share.
Today legislation was approved in the Senate that if enacted would
substantially limit the utility of the paired-share structure. As a result,
it is probably too late to realize significant value from the structure.
Gotham is incredulous that this opportunity has slipped through the fingers
of the Company's leadership, and believes that the current board and
management must be held accountable.
3. Recently Announced 1st Qtr. Results Show a Continuation of Poor
Performance
The Company's First Quarter 1998 Funds From Operations (FFO) declined
50% when compared with the same period last year. Management blamed the
decline on the proxy fight with Gotham. Even excluding the proxy costs,
however, FFO declined 35% when comparing the quarterly results. We believe
it is unlikely for this trend to improve with Mr. Mastandrea in charge.
One notable issue made public in First Union's results was that the
manufacturing division of the Company's parking subsidiary lost nearly
$1,000,000 in the first quarter. For a business that had revenues of
approximately $5,000,000 last year, this is an extraordinarily large
number. When questioned about this loss on a recent Company conference
call, management acknowledged that they know little about managing an
equipment business. The Company later was forced to disclose that the CEO
of the manufacturing subsidiary was Russell Gifford, a Trustee of the
Company and head of the Company's "independent special committee." Mr.
Gifford was forced to step down from this role when his involvement was
publicly disclosed.
4. More of the Same Tired Plans for the Future
What is current management's plan? It seems from the Company's public
statements that current management believes it can keep on purchasing and
managing parking lots despite the tax law change. Management has indicated
that it expects it can get a "carve out" from Congress, allowing First
Union to continue to make parking asset and management acquisitions. We
believe it is unlikely that First Union will get any such special
exemption. While we believe that the selected purchase of parking lots and
parking companies can be good acquisitions for a properly structured REIT
and management company working together, First Union management's history
of overpayment and poor execution is likely only to lead to further
shareholder value destruction.
5. Management Will Stop at Nothing to Preserve Their Lucrative Employment
Management has made clear that it will do everything possible to
maintain their employment regardless of the cost to shareholders. In a
lawsuit brought against Gotham in Ohio state court, the Company attempted
to take away Gotham's right to make a shareholder proposal, its right to
receive dividends, and its right to vote its shares. If First Union had
been successful in their litigation, you would have no alternative to
management's slate and proposals.
Even the Ohio court, which denied the Company's attempt to enjoin
Gotham from presenting its proposal and nominations to the shareholders,
recognized that senior management's efforts against Gotham were primarily
motivated by a desire to keep their jobs. In the ruling against the
Company, the court made the following statement:
. . . the efforts of First Union's management following Gotham's
July 14, 1997 letter were primarily motivated by a desire to
derail Gotham's efforts to change the Company's course and
replace top management. First Union's management's efforts to
disenfranchise Gotham do not appear to be designed to protect
First Union's REIT status but rather management.
And, just in case the litigation did not work, senior management has
obtained lucrative compensation agreements or modifications to existing
agreements. For instance, changes to Mr. Mastandrea's compensation package
enacted approximately one week before the trial court issued its ruling
against First Union could potentially cost the Company, in the event it is
sold, an additional $8 Million.
GOTHAM HAS PROPOSED A BUSINESS PLAN
CAREFULLY DESIGNED TO REVITALIZE THE COMPANY
We have presented in our proxy statement a detailed business plan for
the Company that we believe will maximize value for all shareholders. Some
of the highlights of our plan are as follows:
. Replace current senior management with capable, intelligent, and
entrepreneurial managers with substantial real estate investment and
operating experience as well as an extensive background in the capital
markets, including public and private equity investing.
. Create a compensation system that aligns management with shareholders.
Senior-level management will be compensated based on their
contribution to improvements in the Company's per-share economic
performance in contrast to the current system which gives management
incentives to increase the total number of shares outstanding and
total FFO without regard to the dilution caused to shareholders.
. Change the Company's corporate structure to permit shareholders to
participate in the purchase of real estate and operating businesses
even if the proposed paired-share legislation becomes law.
. Acquire private family real estate businesses at sensible prices
through carefully structured acquisitions which offer sellers tax-free
execution, employment for members of their existing management team,
and the benefits associated with share ownership in a Company run for
the benefit of its owners.
. Partner with entrepreneurs who control real estate and
real-estate-intensive operating businesses. Acquire their assets for
UPREIT or stock consideration and form exclusive joint venture
arrangements to pursue future business opportunities taking advantage
of these entrepreneurs' skills and local market knowledge.
Our plan, which is more fully presented in our Proxy Statement, contains
other details on pages four to eight. We encourage you to read our proxy
statement for a more complete description of our proposal.
VOTE TODAY FOR GOTHAM AND AGAINST THE CURRENT BOARD BY COMPLETING, SIGNING
AND DATING THE ENCLOSED WHITE AND BLUE PROXY CARD. VOTE IN FAVOR OF
GOTHAM'S PROPOSAL AND NOMINEES AND VOTE AGAINST THE COMPANY'S PROPOSAL.
Above, we have expressed our views regarding Management and the
Board's performance and our plans for the future. If you have any
questions, please feel free to call us at (212) 286-0300. Ask for Bill
Ackman or David Berkowitz. If you have any questions regarding the voting
of your proxies, please call our proxy solicitor, Beacon Hill Partners, at
(800) 755-5001.
Sincerely,
GOTHAM PARTNERS, L.P.
