SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
(Amendment No. 1)
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) November 18, 2004
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
(Exact Name of Registrant as Specified in Its Charter)
Ohio
(State or Other Jurisdiction of Incorporation)
001-06249 | | 34-6513657 |
(Commission File Number) | | (I.R.S. Employer Identification No.) |
| | |
7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts | | 02114 |
(Address of Principal Executive Offices) | | (Zip Code) |
| | |
(617) 570-4614 |
(Registrant’s Telephone Number, Including Area Code) |
| | |
n/a |
(Former Name or Former Address, if Changed Since Last Report) |
| | | | |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions
o Written communications pursuant to Rule 425 under the Securities Act (17 CFTR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets
We have filed Current Reports on Form 8-K on November 23, 2004 and November 30, 2004 with regard to the acquisitions of triple net lease properties as described in such Current Reports. The purpose of this Amendment to those Current Reports is to provide the financial information required by Article 11 of Regulation S-X.
Item 9.01 Financial Statements and Exhibits
The following financial statements and pro forma financial information are filed as part of this report.
(a) Financial Statements of Real Estate Acquired:
Statement of Revenues and Certain Expenses of the Finova Properties for the year ended December 31, 2003.
Statement of Revenues and Certain Expenses of the 5400 Westheimer Property for the year ended December 21, 2003
(b) Unaudited Pro Forma Financial Statements:
The unaudited pro forma consolidated financial statements set forth (i) the pro forma balance sheet of First Union Real Estate and Mortgage Investments (the “Company”) as of September 30, 2004, as if the acquisitions had occurred on September 30, 2004, (ii) the pro forma consolidated statement of operations for the year ended December 31, 2003, as if the acquisition had occurred on January 1, 2003, (iii) the pro forma consolidated statement of operations for the period ended September 30, 2004, as if the acquisition had occurred on January 1, 2003. The pro forma financial statements are based upon assumptions contained in the notes to thereto and should be read in conjunction with such notes.
The unaudited pro forma consolidated financial statements may not necessarily reflect the results of operations or financial position of the Company which would have actually resulted had the acquisitions occurred as of the dates and for the periods indicated, nor should they be taken as indicative of the future results of operations or the future financial position of the Company.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
First Union Real Estate Equity and Mortgage Investments:
We have audited the accompanying statement of revenues and certain expenses of the properties known as the Finova Properties (the “Properties”) for the year ended December 31, 2003. This financial statement is the responsibility of the Properties’ management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Form 8K/A of First Union Real Estate Equity and Mortgage Investments as described in Note 1 to the financial statement and is not intended to be a complete presentation of the Properties’ revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Properties for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP |
|
|
Boston, Massachusetts |
January 31, 2005 |
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FINOVA PROPERTIES
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)
Revenues: | | | |
| | | |
Rental Revenues | | $ | 14,567 | |
| | | |
Certain Expenses: | | | |
| | | |
Interest Expense | | 2,799 | |
| | | |
Revenues in Excess of Certain Expenses | | $ | 11,768 | |
See notes to the statement of revenues and certain expenses.
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FINOVA PROPERTIES
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying Statement of Revenues and Certain Expenses includes the operations of 16 triple-net leased properties containing approximately 2.5 million gross square feet (the “Finova Properties”). During the year ended December 31, 2003, the Finova Properties were owned by Finova Capital Corporation or its subsidiaries (“Finova”), an unaffiliated third party.
On November 18, 2004, FT-Fin Acquisition LLC, a Delaware limited liability company wholly-owned by First Union Real Estate Equity and Mortgage Investment (the “Company”), acquired the Finova Properties from Finova. The aggregate purchase price for the properties including closing costs was approximately $92.1 million, inclusive of the assumption of approximately $31.6 million of existing first mortgage debt on certain of the properties.
The accompanying historical financial statement information is presented in conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for inclusion in Form 8K/A of the Company. Accordingly, the financial statement is not representative of the Finova Properties’ actual operations for the year ended December 31, 2003 as certain expenses have been excluded, which may not be comparable to the expenses expected to be incurred in the future operations of the properties. Expenses excluded consist of depreciation and amortization, and other costs not directly related to the future operations of the acquired Finova Properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rental Revenues - Rental revenues are recognized on a straight line basis over the terms of the related leases.
Interest Expense - Interest expense represents interest related to the first mortgage debt assumed as part of the acquisition.
Management’s Use of Estimates - The financial statement has been prepared in conformity with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
3. OPERATING LEASES
Rental revenues are principally obtained from tenant operating leases. Future minimum base rental payments during the primary terms under all tenant operating leases as of December 31, 2003 are as follows:
Year ending December 31, | | (in thousands) | |
| | | |
2004 | | $ | 14,567 | |
2005 | | 13,972 | |
2006 | | 13,838 | |
2007 | | 13,803 | |
2008 | | 13,764 | |
Thereafter | | 30,807 | |
| | | |
Total | | $ | 100,751 | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
First Union Real Estate Equity and Mortgage Investments:
We have audited the accompanying statement of revenues and certain expenses of the property known as 5400 Westheimer (the “Property”) for the year ended December 31, 2003. This financial statement is the responsibility of the Property’s management. Our responsibility is to express an opinion on this financial statement based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing that accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Form 8K/A of First Union Real Estate Equity and Mortgage Investments as described in Note 1 to the financial statement and is not intended to be a complete presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and certain expenses of the Property for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP |
|
|
Boston, Massachusetts |
January 31, 2005 |
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5400 WESTHEIMER PROPERTY
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands)
Revenues: | | | |
Rental Revenues | | $ | 7,591 | |
| | | |
Certain Expenses: | | | |
Interest Expense | | 5,185 | |
| | | |
Revenues in Excess of Certain Expenses | | $ | 2,406 | |
| | | | | |
See notes to the statement of revenues and certain expenses.
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5400 WESTHEIMER PROPERTY
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION
On November 22, 2004 First Union Real Estate Equity and Mortgage Investment (the “Company”) made a loan to 5400 Westheimer Holding L.P. (“Holding”) in the principal amount of $7.53 million. The loan bears interest at 8% per annum and matures on March 30, 2005. The general partner of Holding is a subsidiary of the Company. The loan was made to facilitate the acquisition by Holding of an indirect 100% ownership interest in an entity that holds title to real property located at 5400 Westheimer Court, Houston, Texas (the “5400 Westheimer Property”). The 5400 Westheimer Property is triple-net leased to an affiliate of Duke Capital LLC pursuant to a lease that is scheduled to expire in 2018 subject to early termination in 2016. The interest in the 5400 Westheimer Property was acquired subject to existing first mortgage debt of approximately $76.3 million.
The accompanying historical financial statement information is presented in conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for inclusion in Form 8K/A of the Company. Accordingly, the financial statement is not representative of the actual operations for the year ended December 31, 2003 as certain expenses have been excluded, which may not be comparable to the expenses expected to be incurred in the future operations of the property. Expenses excluded consist of depreciation and amortization, and other costs not directly related to the future operations of the acquired 5400 Westheimer Property.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rental Revenues - Rental revenues are recognized on a straight line basis over the lease term.
Interest Expense – Interest expense represents interest related to the first mortgage debt assumed as part of the acquisition.
Management’s Use of Estimates - The financial statement has been prepared in conformity with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
3. OPERATING LEASE
Rental revenues are principally obtained from tenant operating leases. Future minimum base rental income under tenant operating lease as of December 31, 2003 is as follows:
Year ending December 31, | | (in thousands) | |
| | | |
2004 | | $ | 6,782 | |
2005 | | 6,901 | |
2006 | | 7,021 | |
2007 | | 7,144 | |
2008 | | 7,269 | |
Thereafter | | 74,273 | |
| | | |
Total | | $ | 109,390 | |
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
| | | | |
| | | Pro Forma Adjustments | |
(In thousands) | | Historical
September 30, 2004 | | Finova
Properties | | 5400
Westheimer
Property | | Pro Forma
September 30,
2004 | |
| | | | (a) | | (b) | | | |
Assets | | | | | | | | | |
Investment in real estate, at cost | | | | | | | | | |
Land | | $ | 1,718 | | $ | 2,166 | | $ | — | | $ | 3,884 | |
Buildings and improvements | | 6,274 | | 81,863 | | — | | 88,137 | |
| | 7,992 | | 84,029 | | — | | 92,021 | |
Less - Accumulated depreciation | | (4,405 | ) | — | | — | | (4,405 | ) |
Investments in real estate, net | | 3,587 | | 84,029 | | — | | 87,616 | |
| | | | | | | | | |
Real estate held for syndication | | — | | — | | 84,375 | | 84,375 | |
Lease intangibles | | — | | 8,048 | | — | | 8,048 | |
Cash and cash equivalents | | 1,451 | | (1,082 | ) | — | | 369 | |
Restricted cash | | 33,980 | | (33,980 | ) | — | | — | |
Loans receivable | | 5,645 | | | | — | | 5,645 | |
Accounts receivable and prepayments, net | | 1,416 | | 1,674 | | — | | 3,090 | |
Investments - available for sale | | 68,711 | | — | | (7,613 | ) | 61,098 | |
Real estate securities - available for sale | | 9,685 | | — | | — | | 9,685 | |
Other | | 588 | | 712 | | — | | 1,300 | |
Total Assets | | $ | 125,063 | | $ | 59,401 | | $ | 76,762 | | $ | 261,226 | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Mortgage loan | | $ | — | | $ | 59,223 | | $ | — | | $ | 59,223 | |
Mortgage loan on real estate held for syndication | | — | | — | | 76,762 | | 76,762 | |
Note payable | | 49 | | — | | — | | 49 | |
Accounts payable and accrued liabilities | | 6,331 | | 178 | | — | | 6,509 | |
Dividends payable | | 516 | | — | | — | | 516 | |
Deferred items | | 48 | | — | | — | | 48 | |
Liabilities of discontinued operations | | 379 | | — | | — | | 379 | |
Total Liabilities | | 7,323 | | 59,401 | | 76,762 | | 143,486 | |
| | | | | | | | | |
Shareholders’ Equity | | | | | | | | | |
Convertible preferred shares of beneficial interest | | 23,131 | | — | | — | | 23,131 | |
Common shares of beneficial interest | | 31,059 | | — | | — | | 31,059 | |
Additional paid in capital | | 207,968 | | — | | — | | 207,968 | |
Accumulated other comprehensive income | | 610 | | — | | — | | 610 | |
Accumulated distributions in excess of net income | | (145,028 | ) | — | | — | | (145,028 | ) |
Total Shareholders’ Equity | | 117,740 | | — | | — | | 117,740 | |
Total Liabilities and Shareholders’ Equity | | $ | 125,063 | | $ | 59,401 | | $ | 76,762 | | $ | 261,226 | |
| | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma financial statements
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
| | | | Pro Forma
Adjustments | | | | Pro Forma Adjustments | | | | Pro Forma
Adjustments | | | |
(In thousands, except per share data) | | | | Finova
Properties
Acquisition | | 5400 Westheimer Property
Acquisition | | Pro
Forma
Subtotal | | 5400
Westheimer
Property | | Pro
Forma | |
|
Historical | | Park Plaza
Sale | | Pro Forma |
| | | | (a) | | | | | | | | | | (f) | | | |
Revenues | | | | | | | | | | | | | | | | | |
Rents | | $ | 13,916 | | $ | (12,327 | ) | $ | 1,589 | | $ | 14,567 | (b) | $ | 7,591 | (b) | $ | 23,747 | | $ | (7,591 | ) | $ | 16,156 | |
Sales | | 1,892 | | — | | 1,892 | | — | | — | | 1,892 | | — | | 1,892 | |
Interest and dividends | | 838 | | — | | 838 | | — | | — | | 838 | | — | | 838 | |
| | 16,646 | | (12,327 | ) | 4,319 | | 14,567 | | 7,591 | | 26,477 | | (7,591 | ) | 18,886 | |
| | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | |
Property operating | | 4,965 | | (4,116 | ) | 849 | | — | | — | | 849 | | — | | 849 | |
Cost of goods sold | | 3,279 | | — | | 3,279 | | — | | — | | 3,279 | | — | | 3,279 | |
Real estate taxes | | 773 | | (809 | ) | (36 | ) | — | | — | | (36 | ) | — | | (36 | ) |
Depreciation and amortization | | 2,161 | | (1,669 | ) | 492 | | 3,388 | (c) | 2,777 | (c) | 6,657 | | (2,777 | ) | 3,880 | |
Interest | | 4,551 | | (3,667 | ) | 884 | | 5,042 | (d) | 5,185 | (e) | 11,111 | | (5,185 | ) | 5,926 | |
General and administrative | | 6,873 | | — | | 6,873 | | — | | — | | 6,873 | | — | | 6,873 | |
| | 22,602 | | (10,261 | ) | 12,341 | | 8,430 | | 7,962 | | 28,733 | | (7,962 | ) | 20,771 | |
| | | | | | | | | | | | | | | | | |
(Loss)/income from continuing operations | | $ | (5,956 | ) | $ | (2,066 | ) | $ | (8,022 | ) | $ | 6,137 | | $ | (371 | ) | $ | (2,256 | ) | $ | 371 | | $ | (1,885 | ) |
| | | | | | | | | | | | | | | | | |
Per share data – Basic and Diluted: | | | | | | | | | | | | | | | | | |
Loss from continuing operations applicable to common shares of beneficial interest | | $ | (0.19 | ) | | | | | | | | | | | | | $ | (0.06 | ) |
| | | | | | | | | | | | | | | | | |
Basic and diluted weighted average Common Shares | | 30,885 | | | | | | | | | | | | | | 30,885 | |
See notes to unaudited pro forma financial statements
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30. 2004
| | | | Pro Forma
Adjustments | | | | Pro Forma Adjustments | | | | Pro Forma
Adjustments | | | |
(In thousands, except per share data) | | Historical | | Park Plaza
Sale | | Pro Forma | | Finova
Properties
Acquisition | | 5400
Westheimer
Property
Acquisition | | Pro
Forma
Subtotal | | 5400
Westheimer
Property | | Proforma | |
| | | | (a) | | | | | | | | | | (f) | | | |
REVENUES | | | | | | | | | | | | | | | | | |
Rents | | $ | 1,100 | | $ | — | | $ | 1,100 | | $ | 10,925 | (b) | $ | 5,693 | (b) | $ | 17,718 | | $ | (5,693 | ) | $ | 12,025 | |
Sales | | 3,195 | | — | | 3,195 | | — | | — | | 3,195 | | — | | 3,195 | |
Interest and dividends | | 1,936 | | — | | 1,936 | | — | | — | | 1,936 | | — | | 1,936 | |
Insurance recoveries | | 1,244 | | — | | 1,244 | | — | | — | | 1,244 | | — | | 1,244 | |
Gain on sale of security available for sale | | 1,040 | | — | | 1,040 | | — | | — | | 1,040 | | — | | 1,040 | |
| | 8,515 | | — | | 8,515 | | 10,925 | | 5,693 | | 25,133 | | (5,693 | ) | 19,440 | |
| | | | | | | | | | | | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | |
Property operating | | 570 | | — | | 570 | | — | | — | | 570 | | — | | 570 | |
Cost of goods sold | | 2,376 | | — | | 2,376 | | — | | — | | 2,376 | | — | | 2,376 | |
Real estate taxes | | 45 | | — | | 45 | | — | | — | | 45 | | — | | 45 | |
Depreciation and amortization | | 312 | | — | | 312 | | 2,541 | (c) | 2,082 | (c) | 4,935 | | (2,082 | ) | 2,853 | |
Interest | | 17 | | — | | 17 | | 3,719 | (d) | 3,819 | (e) | 7,555 | | (3,819 | ) | 3,736 | |
General and administrative | | 2,990 | | — | | 2,990 | | — | | — | | 2,990 | | — | | 2,990 | |
| | 6,310 | | — | | 6,310 | | 6,260 | | 5,901 | | 18,471 | | (5,901 | ) | 12,570 | |
| | | | | | | | | | | | | | | | | |
(Loss)/income from continuing operations | | $ | 2,205 | | $ | — | | $ | 2,205 | | $ | 4,665 | | $ | (208 | ) | $ | 6,662 | | $ | 208 | | $ | 6,870 | |
| | | | | | | | | | | | | | | | | |
Per share data - Basic: | | | | | | | | | | | | | | | | | |
Income from continuing operations applicable to common shares of beneficial interest | | $ | 0.07 | | | | | | | | | | | | | | $ | 0.22 | |
| | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | |
Income from continuing operations applicable to common shares of beneficial interest | | $ | 0.06 | | | | | | | | | | | | | | $ | 0.19 | |
| | | | | | | | | | | | | | | | | |
Basic weighted average Common Shares | | 31,059 | | | | | | | | | | | | | | 31,059 | |
Convertible Preferred Shares | | 4,837 | | | | | | | | | | | | | | 4,837 | |
Stock Options | | 25 | | | | | | | | | | | | | | 25 | |
Diluted weighted average Common Shares | | 35,921 | | | | | | | | | | | | | | 35,921 | |
See notes to unaudited pro forma financial statements
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Basis of presentation
On November 18, 2004, FT-Fin Acquisition LLC (“FT-Fin”), a Delaware limited liability company wholly-owned by First Union Real Estate Equity and Mortgage Investment (the “Company”), acquired the Finova Properties (the “Finova Properties”). The Finova Properties consist of 16 triple-net lease buildings containing a total of approximately 2.5 million gross square feet and was acquired by the Company from Finova Capital Corporation, an unrelated third party.
On November 22, 2004 the Company made a loan to 5400 Westheimer Holding L.P. (“Holding”) in the principal amount of $7.53 million. The loan bears interest at 8% per annum and matures on March 30, 2005. The general partner of Holding is a subsidiary of the Company. The loan was made to facilitate the acquisition by Holding of an indirect 100% ownership interest in an entity that holds title to real property located at 5400 Westheimer Court, Houston, Texas (the “5400 Westheimer Property”). The 5400 Westheimer Property is triple-net leased to an affiliate of Duke Capital LLC pursuant to a lease that is scheduled to expire in 2018 subject to early termination in 2016.
2. Unaudited Pro Forma Consolidated Balance Sheet
The unaudited pro forma balance sheet as of September 30, 2004, is based on the historical balance sheet for the Company presented in its Quarterly Report on Form 10-Q as of September 30, 2004. Significant pro forma adjustments in the unaudited pro forma consolidated balance sheet include the following:
(a) Adjustments to reflect the purchase of the Finova Properties for approximately $92.1 million, including closing costs and inclusive of the assumption of approximately $31.6 million of existing first mortgage debt on certain of the properties. This acquisition was funded from the proceeds of a $27 million loan as well as $33.5 million in net proceeds realized from the sale of the Park Plaza property in June 2004 previously reported on Form 8-K on July 2, 2004, which were being held by a qualified intermediary to enable First Union to acquire the properties in a 1031 Tax-Free exchange. The Company has allocated the purchase price to real estate and lease intangibles, based on their relative fair values.
(b) Adjustments to reflect the purchase of the 5400 Westheimer Property. This property is considered real estate held for syndication. On January 3, 2005, Holding completed an equity offering which reduced the Company’s investment to investor loans receivable aggregating $1.3 million, a 1% general partner interest ($80,000) and a 7% limited partner interest ($562,000).
3. Unaudited Pro Forma Consolidated Statements of Operations
The unaudited pro forma consolidated statement of operations for the year ended December 31, 2003, includes adjustments assuming that the acquisition of the Finova Properties and the 5400 Westheimer Property occurred as of January 1, 2003, and is based on the historical statement of operations for the Company presented in its Annual Report on Form 10-K for the year ended December 31, 2003. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2004, includes adjustments assuming that the acquisition of the Finova Properties and the 5400 Westheimer Property occurred as of January 1, 2003, and is based on the historical statement of operations for the Company presented in its Quarterly Report of Form 10-Q for the period ended September 30, 2004. Significant pro forma adjustments in the unaudited pro forma consolidated statements of operations include the following:
(a) Adjustment to reflect sale of Park Plaza property on June 22, 2004.
(b) Adjustment to reflect the historical net lease rental revenues for the Finova Properties and the 5400 Westheimer Property.
(c) Adjustment to reflect depreciation on the Finova Properties and the 5400 Westheimer Property, based on the allocated cost of the acquisition to depreciable assets. The Company uses the straight-line method for depreciation and estimated useful life of 40 years for the properties. Allocated costs assigned to leases in place are amortized over the remaining lease life.
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(d) Adjustment to reflect interest expense related to the non-recourse first mortgage loans assumed in the amount of $31.6 million (fixed stated interest rates ranging from 6.45% - 11.05%) and a new loan of $27.0 million at an effective fixed interest rate at 8.55%.
(e) Adjustment to interest expense related to the non-recourse first mortgage loan assumed in the amount of $76.1 million (fixed interest rates ranging from 5.22% - 7.5% on three different tranches).
(f) Adjustment to remove the operations of the 5400 Westheimer Property from continuing operations as this property is considered real estate held for syndication and, accordingly, its operations will be classified as discontinued operations. On January 3, 2005, the Company completed an equity offering which reduced the Company’s investment to investor loans receivable aggregating $1.3 million, a 1% general partner interest ($80,000) and a 7% limited partner interest ($562,000).
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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 hereunto duly authorized on this 1st day of February, 2005.
| | | | | | FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS |
| | | | | | | |
| | | | | | By: | | /s/ Thomas Staples | |
| | | | | | | Thomas Staples |
| | | | | | | Chief Financial Officer |
| | | | | | | | | |
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