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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended June 30, 2000 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 Identification No.)
incorporation or organization)
551 Fifth Avenue, Suite 1416
New York, New York 10176-1499
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 905-1104
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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.
42,258,428 Shares of Beneficial Interest outstanding as of June 30, 2000
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Total number of pages contained in this report: 21
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements represent the combined results of the
registrant, First Union Real Estate Equity and Mortgage Investments (the
"Trust") and First Union Management Inc. (the "Company"). Under a trust
agreement, the common 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. Additionally, the Company owned voting control
of Imperial Parking Limited ("Impark"). In March 2000, the Trust distributed all
common stock of Impark to its shareholders and has classified Impark's financial
information as discontinued operations.
The combined financial statements included herein have been prepared by
the Trust, 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 Trust believes that the disclosures
contained herein are adequate to make the information presented not misleading.
These combined financial statements should be read in conjunction with the
combined financial statements and the notes thereto included in the Trust's
latest annual report on Form 10-K, as amended.
The "Combined Balance Sheets" as of June 30, 2000 (unaudited) and
December 31, 1999 (audited) and "Combined Statements of Operations, Combined
Statements of Comprehensive Income and Combined Statements of Cash Flows" for
the periods ended June 30, 2000 (unaudited) and 1999 (unaudited), of the Trust,
and "Notes to Combined Financial Statements," are included herein. These
financial statements reflect, in the opinion of the Trust, 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. The results of operations for the three months and six months ended
June 30, 2000 and 1999, are not necessarily indicative of the results to be
expected for the full year. Certain amounts from 1999 have been reclassified to
conform to the 2000 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Condition
In March 2000, the Trust distributed all common stock of Impark to its
shareholders. One share of Impark common stock was distributed for every 20
Trust common shares of beneficial interest held on March 20, 2000. Approximately
2.1 million shares of Impark common stock were distributed. As part of the
spin-off, the Trust repaid Impark's bank credit facility of approximately $24.2
million, contributed to Impark approximately $7.5 million of cash, its 14
Canadian parking properties and $6.7 million for a parking development located
in San Francisco, California. The Trust has also provided a secured line of
credit for $8 million to Impark. As of August 1, 2000, there were no outstanding
amounts under the line of credit. Impark's common stock is listed on the
American Stock Exchange under the symbol "IPK". The Company retained ownership
of Ventek International, Inc., a manufacturing subsidiary of Impark.
The Trust also adjusted the conversion price with respect to its Series
A Cumulative Redeemable Preferred Shares of Beneficial Interest ("Preferred
Shares"). The conversion price of the Preferred Shares has been decreased to
$5.0824 per common share (equivalent to a conversion rate of 4.92 common shares
for each Preferred Share) in connection with the distribution of the Impark
shares, in accordance with the provisions of the documents establishing the
terms of the Preferred Shares.
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For tax reporting purposes, the Trust will take a dividend deduction of
$19.375 per share for the approximate 2.1 million shares of Impark common stock
distributed to the shareholders.
The Trust amended the employment agreements of each of Messrs. Friedman
and Schonberger and Ms. Zahner (each, an "Executive"). The amended agreements
provided that after (i) the Impark spin-off and (ii) a sale or financing of Park
Plaza mall (the "Park Plaza Financing"), each Executive may terminate his/her
employment with the Trust on or after June 1, 2000, and then shall be entitled
to receive a severance payment from First Union of $1,001,000 for Mr. Friedman
and $630,000 for each of Mr. Schonberger and Ms. Zahner. The Impark spin-off and
the Park Plaza Financing have occurred and on June 1, each Executive terminated
his/her employment agreement and received the severance payment. The amended
employment agreements also provided, among other things, that the options held
by the Executives with exercise prices of $8.50 and $6.50 shall be canceled and
that each Executive may invest in other businesses, provided that the Executive
first offers such opportunity to the Trust. Finally, the amended employment
agreements provided that (A) two of the Executives, Messrs. Friedman and
Schonberger, will receive options to purchase shares of Impark and (B) the Trust
will pay Ms. Zahner an additional cash payment of $110,000.
Simultaneously with the execution of the amended employment agreements,
the Trust entered into an asset management agreement (as amended, the
"Agreement") with Radiant Partners, LLC (the "Management Company"), which is
owned and controlled by the Executives. The Agreement became effective upon the
termination of employment of the Executives and the Trust became externally
managed. The Agreement has a two year term, but the Trust will have the option
of (i) extending the term for an additional year and (ii) terminating the
Agreement (A) for default, (B) in the event of a merger, consolidation or other
similar business combination transaction, and (C) in the event that the
remaining equity of the Trust has a fair market value of less than $20,000,000.
While the Agreement is in effect, the Management Company will be responsible
for conducting and overseeing the business and financial affairs of the Trust.
As compensation for its services, the Management Company will receive an annual
fee of $1,500,000 and an incentive fee equal to 10% of (A) the aggregate of all
distributions, other than the Impark spin-off, in respect of a single common
share of the Trust, first made after March 1, 2000, which exceeds $4.60 per
share, multiplied by (B) the number of the Trust common shares in respect of
which such distributions are made. If the Trust terminates the Agreement, then
the Management Company will also receive a termination payment of between
$500,000 and $750,000. However, if the Agreement is terminated for default or
by either party giving notice prior to September 1, 2000 of its intention to
terminate the Agreement, the Agreement will terminate 30 days later and the
Trust will not be responsible for any incentive fee or termination payments
otherwise provided under the Agreement.
The interim Chief Financial Officer of the Trust, Brenda Mixson,
submitted her resignation effective August 18, 2000 in order to pursue other
business opportunities. Neil H. Koenig has assumed the position of interim
Chief Financial Officer. Mr. Koenig is currently the managing member of the
Real Estate Systems Implementation Group, LLC, a company assisting First Union
with financial reporting and advisory services. Mr. Koenig is also a partner of
Imowitz Koenig & Co., LLP, a certified public accounting firm.
In June 2000, the Trust signed a non-binding (except in certain
respects as noted below) letter of intent ("Letter of Intent") outlining the
terms of a potential transaction involving the sale (and the assumption of
certain liabilities) of a significant portion of the Trust's real estate assets
(the "Purchase Assets") to the Management Company. The potential transaction
outlined in the Letter of Intent contemplates the sale of the Purchase Assets
for approximately $205.0 million (approximately $79.9 million in cash and
approximately $125.1 million in assumed mortgage debt).
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The assets to be purchased by the Management Company would include:
- 55 Public Square Office Building - Cleveland, Ohio
- 55 Public Square Garage - Cleveland, Ohio
- North Valley Tech Center - Thornton, Colorado
- Two Rivers Business Center - Clarksville, Tennessee
- Westgate Shopping Center - Abilene, Texas
- Pecanland Mall - Monroe, Louisiana
- Huntington Garage - Cleveland, Ohio
- Long Street Garage - Columbus, Ohio
- Madison and Wells Garage - Chicago, Illinois
- Printers Alley Garage - Nashville, Tennessee
- 5th and Marshall Garage - Richmond, Virginia
- West Third Street Parking Lot - Cleveland, Ohio
- Club Associates' note receivable
- Ancillary assets including FF&E, and reserve and escrow
accounts of the Purchase Assets
- NOI from all of the Purchase Assets from June 1, 2000 less
capital expenditures committed subsequent to May 9, 2000
further reduced by 66.6% of asset management fees paid to
the Management Company from June 1, 2000 until the closing
of the transaction
The Trust would retain ownership of the following assets:
- Unrestricted cash and Treasury bills
- Convertible preferred investment in HQ Global Workplaces
- Severance and prior trustees escrow account
- Park Plaza Mall - Little Rock, Arkansas
- Circle Tower - Indianapolis, Indiana
- VenTek International, Inc. - Petaluma, California, subject
to a 20% contingent ownership to the Management Company
- Peachtree Mall legal claim
The Trust will remain liable for the following obligations:
- 8.2% convertible preferred shares
- 8.875% Publicly-traded senior notes
- Dallas management office lease (the Trust has sub-leased this
space)
- Certain liabilities relating to the Purchase Assets arising
prior to June 1, 2000, except for certain potential
liabilities of the Westgate Shopping Center
- Corporate expenses and liabilities not related to the
Purchase Assets
- Property level mortgage debt on retained assets
- Other ordinary course liabilities
The Management Company would continue to manage the Trust's remaining
assets for $250,000 per year. The Management Company would also receive, as an
additional management fee, a 20% interest in VenTek International contingent
upon the Trust's release from various performance bonds and subject to the
Company's board approval. This interest will be subordinate to a $2.5 million
line of credit the Trust has made available to VenTek.
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In July 2000, the Management Company received a mezzanine financing
commitment from PW Real Estate Investments, Inc. ("PWRE"), an affiliate of Paine
Webber Real Estate Securities, Inc., for approximately $31.0 million. The
mezzanine financing commitment from PWRE is subject to various conditions,
including, without limitation, PWRE's completion of satisfactory due diligence
and other customary closing conditions. In accordance with the Letter of Intent,
the Trust has agreed not to solicit or initiate any competing transaction
proposals for 45 days. During these 45 days, the Trust and the Management
Company expect to negotiate a definitive purchase and sale agreement while the
Management Company endeavors to secure the equity financing necessary for it to
close the proposed transaction. If the Trust enters into a definitive agreement
in connection with a competing transaction proposal with respect to at least
$30.0 million of assets, the Trust has agreed to reimburse the Management
Company for certain of its reasonable fees and expenses up to $750,000.
The Letter of Intent is not a definitive agreement with respect to the
proposed transaction with the Management Company and there can be no assurance
that a definitive agreement will be successfully negotiated, that the Management
Company will obtain financing for the proposed transaction or that the proposed
transaction will close after execution of a definitive agreement. In addition,
the transaction will require the approval of the Trust's shareholders.
In connection with the Letter of Intent concerning a possible
transaction with the Management Company involving the sale of a significant
portion of the Trust's real estate assets, an entity called Brickell Partners
commenced a proposed class action lawsuit on June 22, 2000 in state court in New
York City against the Trust, all of its trustees, two former officers and the
Management Company. The complaint, which seeks preliminary and permanent
injunctive relief against the transaction, as well as unspecified damages, costs
and attorneys' fees, alleges that the terms of the proposed transaction are
unfair to the Trust's stockholders and represent a breach by the defendant
trustees of their fiduciary duties. A similar lawsuit was also brought on July
12, 2000, in the Court of Common Pleas in Cuyahoga County, Ohio. The Trust views
both lawsuits as being without merit and plans to defend the matters vigorously.
In April 2000, the Trust sold Crossroads Center Mall for $80.1 million,
of which approximately $78.1 million was applied against a loan payable to the
purchaser, the assumption of the first mortgage debt and other liabilities of
the mall. The Trust recognized a gain on the sale of approximately $59 million,
less an extraordinary loss on extinguishment of debt of approximately $2.4
million.
In August 2000, the Trust received approximately $2.4 million
representing its 50% non-controlling ownership interest in the net proceeds from
the sale of Temple Mall. The Trust accounts for its interest in Temple Mall as
an investment in joint venture using the equity method of accounting. The Trust
will recognize a gain from the investment in the joint venture of approximately
$.7 million during the third quarter of 2000. Temple Mall was sold for
approximately $25.7 million, of which approximately $19.5 million was applied
against the first mortgage debt on the mall. In addition, Temple Mall repaid its
$1.2 million note payable to the Trust.
Liquidity and Capital Resources
Unrestricted and restricted cash decreased by approximately $43.6
million (from $57.8 million to $14.2 million) when comparing June 30, 2000 to
the balance at December 31, 1999. The decrease in cash was primarily related to
the Impark transaction.
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The Trust's net cash provided by operating activities of $2.1 million
and net cash provided by financing activities of $61.5 million was more than
offset by the $104.8 million utilized for investing activities. Net cash
provided by financing activities included $96.0 million borrowed pursuant to
reverse repurchase agreements which were utilized to purchase U.S. Treasury
bills and to invest in HQ Global Workplaces. The Trust invests its excess cash
primarily in U.S. Treasury bills. The Trust also obtained a $42 million
non-recourse mortgage loan secured by the Trust's Park Plaza Mall property. Net
cash used in financing activities included $37.1 million of payments related to
the Impark spin-off, $14.6 million of cash dividends, $10.6 million to pay a
deferred obligation relating to the Huntington Garage, a $3.1 million penalty to
prepay the deferred obligation, a mortgage payment of $1.0 million, $.8 million
of mortgage amortization and $8.4 million to repurchase common and preferred
shares. Net cash utilized by investing activities consisted of the receipt of
$2.7 million of principal on two mortgage investments, proceeds from the sale of
fixed assets of $.2 million and net proceeds from sale of real estate of $2.5
million, which was offset by the excess of purchases over sales of U.S. Treasury
bills of $95.0 million, an investment in HQ Global Workplaces for $10 million
and $4.7 million of improvements to properties.
The Trust declared a dividend of $.7 million ($.525 per share) to
Series A Cumulative Preferred Shareholders in the second quarter of 2000. The
dividend was payable July 31, 2000 to shareholders of record at the close of
business on June 30, 2000. In addition, the Trust paid a dividend for the first
quarter of 2000 of $6.6 million ($.155 per share) to common shareholders and $.7
million ($.525 per share) to preferred shareholders in the second quarter of
2000 and paid 1999 dividends of the same amounts in the first quarter of 2000.
No cash dividend for the second quarter was declared with respect to
the common shares. The Board of Trustees determined that, as of the end of the
second quarter, it is anticipated that based upon the Trust activities to date,
the Trust will have made sufficient distributions to meet the real estate
investment trust (REIT) qualification requirements with respect to distributions
provided in the Internal Revenue Code for year 2000 taxable income, excluding
gains from the contemplated sale of properties to the Management Company.
During the first six months of 2000, the Trust invested $4.7 million in
capital and tenant improvements. The investment was made primarily for tenant
improvements to continue to tenant the former retail center located near Denver,
Colorado (North Valley Tech Center), which has been converted into an office
technology center. In addition, the Trust incurred capital and tenant
improvements at the 55 Public Square office building in Cleveland, Ohio and to
complete an anchor tenant store at Westgate Shopping Mall in Abilene, Texas.
In January 2000, the Trust received $2.5 million from the Richmond
Redevelopment and Housing Authority (the "Authority") to expand the Trust's
garage located in Richmond, Virginia. If the Trust is unable to successfully
complete the renovation or does not continue to provide an easement for a period
of 84 years, all or a portion of the $2.5 million must be returned to the
Authority.
In April 2000, the Trust obtained a $42 million first mortgage loan
secured by the Park Plaza Mall. The loan is non-recourse, has a 10 year term and
a fixed interest rate of 8.69% payable on a 30 year amortization schedule. The
Trust received proceeds, net of closing costs and escrow deposits, of $41.4
million. The loan requires monthly payments of approximately $397,000 for
principal, interest and escrow deposits. Prepayment of the loan is permitted
(after an initial lockout period of three years or two years from
securitization), only with
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yield maintenance or defeasance, as defined in the loan agreement. The Trust
purchased a $100 million U.S. Treasury bill with $35 million of the loan
proceeds and an additional $65 million of borrowings utilizing a reverse
repurchase agreement (the "Reverse Repo") with the U.S. Treasury bill as
collateral. At June 30, 2000, the Trust owned $200 million in face value of U.S.
Treasury bills and owed $145 million in Reverse Repos. The U.S. Treasury bills
are classified as held to maturity. The interest rate on the Reverse Repos was
6.35% at June 30, 2000. The Reverse Repo outstanding at June 30, 2000 is
included in notes payable.
In May 2000, the Trust made a $10 million investment in convertible
preferred stock issued by HQ Global Workplaces ("HQ"). The convertible
preferred stock accrues a 13.5% "pay-in-kind" dividend which increases
annually. The shares and accrued dividends are convertible into common shares,
if and when HQ conducts an initial public offering. In addition, the Trust
received warrants to purchase shares of common stock for a nominal strike
price.
In June 2000, the Trust repurchased, in a private transaction, an
aggregate of 364,200 shares of its Series A cumulative redeemable preferred
shares of beneficial interest from three institutional investors at a purchase
price of $21.25 per share, for an aggregate cash consideration of $7,739,250. As
a result of this transaction, there are presently 984,800 shares of Series A
cumulative redeemable preferred shares of beneficial interest outstanding. The
Trust also resumed its previously authorized common share repurchase program and
began to repurchase shares of common stock. As of June 30, 2000, the Trust
repurchased 213,301 shares for $611,749. As a result of these transactions,
there are 42,258,428 common shares of beneficial interest outstanding at June
30, 2000. During July 2000, the Trust repurchased an additional 144,600 common
shares for $391,939.
Results of Operations
Net income applicable to common shares before discontinued operations
for the six months ended June 30, 2000 was $46.2 million as compared to net
income before discontinued operations of $11.2 million for the six months ended
June 30, 1999. Net income before discontinued operations for the six months
ended June 30, 2000 included a capital gain of $59.1 million compared to a
capital gain of $27.8 million in the comparable period of 1999. Capital gains
for the six months ended June 30, 2000 included $59.0 million related to the
sale of Crossroads Mall and $.2 million from the sale of a parcel of land. The
capital gains for the six months ended June 30, 1999 included $8.7 million from
the sale of eight apartment complexes and $19.1 million from the sale of six
shopping malls and one shopping center. The net income for the six months ended
June 30, 2000 included a $3.1 million extraordinary loss from early
extinguishment of debt relating to the payoff of the Trust's deferred obligation
of $10.6 million and a $2.4 million loss from early extinguishment of debt
relating to the first mortgage debt which was assumed as part of the sale of the
Crossroads Mall. Net income for the six months ended June 30, 1999 included a $9
million unrealized loss on the carrying value of assets identified for sale.
Net income before discontinued operations for the three months ended
June 30, 2000 was $53.9 million as compared to net income of $15.0 million for
the comparable period of 1999. The three months ended June 30, 2000 included
capital gains of $59.0 million from the sale of Crossroads and $.2 million from
the sale of a parcel of land and $2.4 million loss from the early extinguishment
of debt. The net income for the three months ended June 30, 1999 included a $9
million impairment loss, $8.7 million of capital gains from the sale of eight
apartment complexes and $18.6 million in capital gains from the sale of five
shopping malls.
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Mortgage loan investment income declined for the three and six months
ended June 30, 2000 as compared to the comparable periods of 1999, due to the
collection of a note receivable during the first quarter of 2000.
Short term investment income increased significantly during the three
and six months ended June 30, 2000, as compared to the comparable periods of
1999, due to the investment of proceeds received from the 1999 property sales
and the leveraged purchase of Treasury bills utilizing reverse repurchase
agreements.
Property net operating income, which is defined as rent less operating
expenses and real estate taxes, decreased for the six months ended June 30, 2000
to $15.6 million from $35.8 million in 1999. The decrease was attributable to
the sale of properties in 1999 and the sale of Crossroads Mall in 2000.
Property net operating income for the properties in the portfolio for
the six months ended June 30, 2000 and 1999 increased by $.4 million. The
increase was attributable to an increase in revenues of $.8 million, which was
partially offset by an increase in operating expenses of $.2 million and in real
estate taxes of $.2 million. Revenues increased by $.8 million for properties in
the portfolio for the six months ended June 30, 2000 and 1999, primarily due to
an increase in rental rates at Park Plaza and Two Rivers and an increase in
occupancy at Westgate, Two Rivers and North Valley, which was partially offset
by a decrease in occupancy at 55 Public Square. The increase in revenues was
partially offset by an increase in operating expenses at North Valley and Park
Plaza and an increase in real estate taxes, primarily at Westgate.
Property net operating income decreased for the three months ended June
30, 2000 to $7.4 million from $16.7 million in 1999. The decrease was
attributable to the sale of properties in 1999 and the sale of the Crossroads
Mall in 2000. Property net operating income for properties in the portfolio for
the three months ended June 30, 2000 and 1999 increased by $.2 million.
Depreciation and amortization and mortgage loan interest expense
decreased when comparing the three and six months ended June 30, 2000 to the
comparable periods in 1999 primarily due to the sale of properties and the
repayment of debt in 1999. With respect to the remaining properties,
depreciation and amortization expense increased slightly due to the effect of
improvements to properties. Mortgage interest expense declined with respect to
the remaining properties, primarily due to the amortization of mortgage
principal balances.
Interest expense relating to bank loans and notes payable decreased due
to the payoff of debt with the proceeds from property sales, which was partially
offset by borrowings against U.S. Treasury bills utilizing reverse repurchase
agreements.
General and administrative expenses increased when comparing the three
and six months ended June 30, 2000 and the comparable periods in 1999 primarily
due to severance expenses incurred during the 2000 period. Included in general
and administrative expenses for the six months ended June 30, 2000 are
approximately $2.7 million of stay bonuses and severance expense.
In addition, sales and income improved at the Company's manufacturing
facility. Operations remained relatively constant at the Trust's parking
facilities.
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Certain statements contained in this Form 10-Q that are forward-looking
are based on current expectations that are subject to a number of uncertainties
and risks, and actual results may differ materially. The uncertainties and risks
include, but are not limited to, changes in market activity, changes in local
real estate conditions and markets, actions by competitors, interest rate
movements and general economic conditions. Further information about these
matters can be found in the Trust's Annual Report filed with the SEC on Form
10K/A.
Item 3.
Quantitative and Qualitative Disclosures of Market Risk
Interest Rate Risk
The Trust has entered into certain financing arrangements that require
interest payments based on variable interest rates. As such, the combined
financial statements are subject to changes in the market rate of interest. To
reduce the exposure to changes in the market rate of interest, the Trust has
entered into a rate guarantee contract (also known as an interest rate cap) for
a portion of its floating rate financing arrangements. The Trust does not enter
into rate guarantee contracts for trading purposes.
The table below provides information about the Trust's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including the interest rate cap and debt obligations. Weighted
average variable rates are based on the rates in effect at June 30, 2000. No
assumptions have been made about future interest rates.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
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EXPECTED MATURITY DATES (AMOUNTS IN MILLIONS)
--------------------------------------------------
2000 2001 2002 2003 2004
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LIABILITIES
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Mortgage loans
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<S> <C> <C> <C> <C> <C>
- Fixed rate $ .6 $ 1.4 $ 1.5 $ 2.3 $ 1.8
Average interest rate 9.3% 9.3% 9.3% 9.3% 9.5%
- Variable rate (based on LIBOR) $33.0 $37.1
Weighted average interest rate 7.9% 9.2%
Senior notes
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- Fixed rate $ 12.5
Interest rate 8.875%
Notes payable (Reverse Repo)
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- Note payable $ 145.0
Interest rate 6.35%
</TABLE>
<TABLE>
<CAPTION>
FAIR
THEREAFTER TOTAL VALUE
---------- ----- -----
LIABILITIES
-----------------------------------------
Mortgage loans
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<S> <C> <C> <C>
- Fixed rate $ 81.3 $88.9 $92.0
Average interest rate 9.5%
- Variable rate (based on LIBOR) $70.1 $92.0
Weighted average interest rate
Senior notes
------------
- Fixed rate $12.5 $12.5
Interest rate
Notes payable (Reverse Repo)
----------------------------
- Note payable $ .1 $ 145.1 $145.1
Interest rate 7.5%
</TABLE>
Interest Rate Derivatives
The Trust owns two interest rate caps that protect it from increases in
LIBOR. The interest rate caps have notional amounts of approximately $16 million
and $21 million covering the variable rate loans maturing in 2002.
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Exchange Rate Risk
The Trust and the Company do not have any foreign exchange rate risk as
a result of the spin-off of Impark and the Canadian parking facilities in March
2000.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In connection with the Letter of Intent concerning a possible
transaction with the Management Company involving the sale of a
significant portion of the Trust's real estate assets, an entity
called Brickell Partners commenced a proposed class action lawsuit on
June 22, 2000 in state court in New York City against the Trust, all
of its trustees, two former officers and the Management Company. The
complaint, which seeks preliminary and permanent injunctive relief
against the transaction, as well as unspecified damages, costs and
attorneys' fees, alleges that the terms of the proposed transaction
are unfair to the Trust's stockholders and represent a breach by the
defendant trustees of their fiduciary duties. A similar lawsuit was
also brought on July 12, 2000, in the Court of Common Pleas in
Cuyahoga County, Ohio. The Trust views both lawsuits as being without
merit and plans to defend the matters vigorously.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit (20) - Financial Statements
Combined Balance Sheets as of June
30, 2000 (unaudited) and December
31, 1999 (audited).
Combined Statements of Operations
for the Three and Six Months ended
June 30, 2000 (unaudited) and 1999
(unaudited).
Combined Statements of Comprehensive
Income for the Three and Six Months
ended June 30, 2000 (unaudited)
and 1999 (unaudited).
Combined Statements of Cash Flows
for the Six Months ended June 30,
2000 (unaudited) and 1999
(unaudited).
Notes to Combined Financial
Statements.
Exhibit (27) - Financial Data Schedule
Six months ended June 30, 2000
(unaudited).
(b) Reports on Form 8K:
May 11, 2000
Item 2 - The Trust announced the sale of
Crossroads Center Mall and the
financing of Park Plaza Mall.
Item 7(b) - Proforma financial information.
Proforma combined balance sheet as
of December 31, 1999.
Proforma combined statement of
operations for the twelve months
ended December 31, 1999.
Notes to combined proforma financial
statements.
June 7, 2000
Item 5 - The Trust announced that the asset
management agreement with Radiant
Partners, LLC became effective and
that the Trust became an externally
managed REIT.
June 30, 2000
Item 5 - The Trust announced a Letter of
Intent for a significant asset sale
to Radiant Partners, LLC.
- The Trust announced a lawsuit by a
shareholder regarding the Letter of
Intent with Radiant Partners.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Trust 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
----------------------------------------
(Trust)
Date: 08/14/ , 2000 By: /s/ Daniel P. Friedman
---------------- -------------------------------------
Daniel P. Friedman
President and Chief Executive Officer
Date: 08/14/ , 2000 By: /s/ Brenda J. Mixson
---------------- -------------------------------------
Brenda J. Mixson,
Interim Chief Financial Officer
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Index to Exhibits
Exhibit (20) - Financial Statements
Combined Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 (audited)
Combined Statements of Operations for the Three and
Six Months ended June 30, 2000 (unaudited) and 1999
(unaudited)
Combined Statements of Comprehensive Income for the
Three and Six Months ended June 30, 2000
(unaudited) and 1999 (unaudited)
Combined Statements of Cash Flows for the Six
Months ended June 30, 2000 (unaudited) and 1999
(unaudited)
Notes to Combined Financial Statements
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