1
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Exhibit 20
Combined Balance Sheets
June 30,
(In thousands, except shares) 2000 December 31,
(Unaudited) 1999
------------------ ---------------
ASSETS
Investments in real estate
Land $ 47,292 $ 53,028
Buildings and improvements 247,137 271,223
------------------ ---------------
294,429 324,251
Less - Accumulated depreciation (66,445) (75,161)
------------------ ---------------
Total investments in real estate 227,984 249,090
Investment in joint venture 1,671 1,786
Mortgage loans and notes receivable 2,698 5,426
Other assets
Cash and cash equivalents - unrestricted 9,305 45,005
- restricted 4,882 12,836
Accounts receivable and prepayments, net of allowances
of $749 and $496, respectively 4,782 10,386
Investments 209,461 104,013
Inventory 4,424 3,395
Unamortized debt issue costs 1,815 4,479
Other 664 1,629
Net assets of discontinued operations - 64,747
------------------ ---------------
Total assets $ 467,686 $ 502,792
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans $ 159,092 $ 195,051
Notes payable 145,117 75,628
Senior notes 12,538 12,538
Accounts payable and accrued liabilities 12,639 37,776
Deferred obligation - 10,579
Deferred items 2,675 1,510
------------------ ---------------
Total liabilities 332,061 333,082
------------------ ---------------
Shareholders' equity
Preferred shares of beneficial interest, $25 liquidation preference,
2,300,000 shares authorized, 984,800 and 1,349,000 shares
outstanding in 2000 and 1999 23,171 31,737
Shares of beneficial interest, $1 par, unlimited authorization, outstanding 42,258 42,472
Additional paid-in capital 218,595 218,831
Undistributed loss from operations (148,399) (123,322)
Deferred compensation - (8)
------------------ ---------------
Total shareholders' equity 135,625 169,710
------------------ ---------------
Total liabilities and shareholders' equity $ 467,686 $ 502,792
================== ===============
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2
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Exhibit 20
Combined Statements of Operations
Unaudited (In thousands, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ --------------
Revenues
Rents $ 11,909 $ 29,224 $ 25,849 $ 62,691
Sales 2,195 1,030 4,579 1,723
Interest - Mortgage loans 56 115 150 230
- Short-term investments 2,643 367 4,535 601
Dividends 112 - 112 -
Equity in (loss) income from joint venture (87) 17 (115) 27
Other income 63 138 179 313
------------ ------------ ------------ --------------
16,891 30,891 35,289 65,585
------------ ------------ ------------ --------------
Expenses
Property operating 3,080 9,620 7,099 20,797
Cost of goods sold 2,086 1,169 4,434 2,100
Real estate taxes 1,448 2,886 3,144 6,047
Depreciation and amortization 2,929 6,724 6,222 14,865
Interest - Mortgage loans 4,278 6,751 9,324 14,003
- Notes payable 1,704 1,593 2,632 4,131
- Senior notes 278 278 556 556
- Bank loans and other - 1,384 - 4,007
General and administrative 3,330 3,024 7,901 5,239
Unrealized loss on carrying value of assets identified for disposition
and impaired assets - 9,002 - 9,002
------------ ------------ ------------ --------------
19,133 42,431 41,312 80,747
------------ ------------ ------------ --------------
Loss before capital gains, extraordinary loss from early extinguishment
of debt, income (loss) from discontinued
operations and preferred dividend (2,242) (11,540) (6,023) (15,162)
Capital gains 59,249 27,266 59,141 27,789
Extraordinary loss from early extinguishment of debt (2,367) - (5,459) -
------------ ------------ ------------ --------------
Income before income (loss) from discontinued
operations and preferred dividend 54,640 15,726 47,659 12,627
Income (loss) from discontinued operations - 184 - (1,609)
------------ ------------ ------------ --------------
Net income before preferred dividend 54,640 15,910 47,659 11,018
Preferred dividend (708) (708) (1,416) (1,416)
------------ ------------ ------------ --------------
Net income attributable to shares of beneficial interest $ 53,932 $ 15,202 $ 46,243 $ 9,602
============ ============ ============ ==============
Per share data
Basic weighted average shares 42,469 37,582 42,470 34,536
============ ============ ============ ==============
Diluted weighted average shares 49,087 42,047 49,098 39,001
============ ============ ============ ==============
Income before extraordinary loss and income (loss) from discontinued
operations, basic $ 1.35 $ 0.40 $ 1.24 $ 0.32
Extraordinary loss from early extinguishment of debt, basic (0.06) - (0.13) -
Income (loss) from discontinued operations, basic - - - (0.04)
------------ ------------ ------------ --------------
Net income applicable to shares of beneficial interest, basic $ 1.29 $ 0.40 $ 1.11 $ 0.28
============ ============ ============ ==============
Income before extraordinary loss and income (loss) from discontinued
operations, diluted $ 1.16 $ .38 $ 1.08 $ .32
Extraordinary loss from early extinguishment of debt, diluted (.05) - (0.11) -
Income (loss) from discontinued operations, diluted - - - (.04)
------------ ------------ ------------ --------------
Net income applicable to shares of beneficial interest, diluted $ 1.11 $ .38 $ .97 $ .28
============ ============ ============ ==============
Combined Statements of Comprehensive Income
Net Income $ 53,932 $ 15,202 $ 46,243 $ 9,602
Other comprehensive income
Foreign currency translation adjustment - (8) - 131
------------ ------------ ------------ --------------
Comprehensive income $ 53,932 $ 15,194 $ 46,243 $ 9,733
============ ============ ============ ===============
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3
Exhibit 20
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS
Combined Statements of Cash Flows
Unaudited (In thousands) Six Months
Ended June 30,
--------------------------
2000 1999
----------- ------------
>
Cash provided by operations
Net income before preferred dividend $ 47,659 $ 11,018
Adjustments to reconcile net income before preferred dividend
to net cash provided by operations
Depreciation and amortization 6,230 14,865
Loss from discontinued operations - 1,609
Extraordinary loss from early extinguishment of debt 5,459 -
Unrealized loss on carrying value of assets identified
for disposition and impaired assets - 9,002
Capital gains (59,141) (27,789)
Increase (decrease) in deferred items 2,131 (847)
Net changes in other assets and liabilities (276) 1,060
----------- ------------
Net cash provided by operations 2,062 8,918
----------- ------------
Cash (used for) provided by investing
Principal received from mortgage investments 2,651 28
Net proceeds from sale of real estate 2,451 123,264
Proceeds from sale of fixed assets 175 -
Purchase of investments (609,116) -
Sale of investments 503,668 -
Investments in capital and tenant improvements (4,653) (3,692)
----------- ------------
Net cash (used for) provided by investing (104,824) 119,600
----------- ------------
Cash provided by (used for) financing
Decrease in short-term loans - (101,000)
Increase (decrease) in notes payable 95,989 (77,821)
Increase in mortgage loans 42,000 -
Repayment of mortgage loans - Normal payments (770) (1,901)
- Balloon payments (1,000) -
Payment of deferred obligation (10,579) -
Deferred obligation repayment penalty (3,092) -
Payments for Impark spin-off (37,087) -
Purchase of First Union common shares (612) (233)
Purchase of First Union preferred shares (7,739) -
Income from variable stock options (666) -
Sale and employee option exercises of First Union shares - 46,654
Debt issue costs paid (340) (1,979)
Dividends paid on shares of beneficial interest (13,166) -
Dividends paid on preferred shares of beneficial interest (1,416) (1,416)
----------- ------------
Net cash provided by (used for) financing 61,522 (137,696)
----------- ------------
Decrease in cash and cash equivalents (41,240) (9,178)
Cash and cash equivalents at beginning of period 57,841 43,019
----------- ------------
Cash and cash equivalents at end of period 16,601 33,841
Change in cash from discontinued operations (2,414) 91
----------- ------------
Cash and cash equivalents at end of period, including discontinued
operations $ 14,187 $ 33,932
=========== ============
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Interest Paid $ 13,071 $ 24,476
=========== ============
Supplemental Disclosure of Non-Cash Investing and Financing Activities
- ----------------------------------------------------------------------
Discontinued operations included in accounts payable $ 1,232 $ -
=========== ============
Discontinued non-cash net assets charged to dividends paid $ 24,014 $ -
=========== ============
Transfer of mortgage loan obligations in connection with real estate sales $ 76,189 $ 49,000
=========== ============
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4
Exhibit 20
Notes to Combined Financial Statements
Accounting Policies
The Trust follows the Financial Accounting Standards Board's Emerging
Issues Task Force Bulletin 98-9 (EITF-98-9), "Accounting for Contingent Rent in
Interim Financial Periods". EIFT-98-9 requires that contingent rental income,
such as percentage rent which is dependent on sales of retail tenants, be
recognized in the period that a tenant exceeds its specified sales breakpoint.
Consequently, the Trust accrues the majority of percentage rent income in the
fourth quarter of each year in accordance with EITF-98-9.
During 1998 and subsequently amended in 1999 and 2000, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement requires companies to
recognize all derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivatives
and whether they qualify for hedge accounting. This Statement is effective for
fiscal years beginning after June 15, 2000. The Trust believes that the effect
of SFAS 133 on its financial statements will be immaterial.
Business Segments
The Trust's and Company's business segments include ownership of
shopping centers, office buildings, parking facilities, mortgage investments and
parking and transit ticket equipment manufacturing. Management evaluates
performance based upon net operating income which is income before depreciation,
amortization, interest and non-operating items. The apartment portfolio was sold
in May 1999 and during 1999, the Trust sold 16 shopping centers, two office
facilities and a parking lot. Impark and the Trust's Canadian parking facilities
are shown as discontinued operations because they were spun off to the Trust's
shareholders in March 2000. During the six months ended June 30, 2000, the Trust
sold one shopping mall. Property net operating income is property rent and sales
revenue less property operating expense, cost of goods sold and real estate
taxes. Corporate interest expense consists of the Trust's senior notes, and
borrowings collateralized by U.S. Treasury bills. Corporate depreciation and
amortization consist primarily of the amortization of deferred issue costs on
non-recourse debt and the leasehold improvements for its former corporate
office. Corporate assets consist primarily of cash and cash equivalents, and
deferred issue costs for non-recourse debt and senior notes. All intercompany
transactions between segments have been eliminated (see table of business
segments).
Contingent Liability
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. The receipt of the $2.5 million has been recorded as a deferred item
at June 30, 2000.
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5
Deferred Obligation
In January 2000, the Trust repaid a $10.6 million deferred obligation
relating to the purchase of the Huntington garage resulting in a prepayment
penalty of $3.1 million.
Distribution of Impark
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. 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.
Mortgage Loan
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 yield maintenance or defeasance, as defined in the
loan agreement.
Sale of Property
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 on the mall and other
liabilities. 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.
Investment
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.
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6
Repurchase of Shares
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, these 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 common 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.
Subsequent Event
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 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.
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7
Business Segments Exhibit 20
Six Months Ended June 30,
----------------------------
2000 1999
------------- --------------
Rents and Sales
Shopping Centers $ 14,318 $ 44,170
Apartments - 6,042
Office Buildings 6,136 6,708
Parking Facilities 5,224 5,232
Ventek 4,579 1,723
Corporate 171 539
------------- --------------
$ 30,428 $ 64,414
Less - Operating Expenses and
Costs of Goods Sold
Shopping Centers 4,061 14,668
Apartments - 2,317
Office Buildings 2,685 2,969
Parking Facilities 360 416
Ventek 4,434 2,100
Corporate (7) 427
------------- --------------
$ 11,533 $ 22,897
Less - Real Estate Taxes
Shopping Centers 1,497 4,127
Apartments - 339
Office Buildings 696 573
Parking Facilities 951 1,008
------------- --------------
$ 3,144 $ 6,047
Property - Net Operating Income (Loss)
Shopping Centers 8,760 25,375
Apartments - 3,386
Office Buildings 2,755 3,166
Parking Facilities 3,913 3,808
Ventek 145 (377)
Corporate 178 112
------------- --------------
$ 15,751 $ 35,470
20
Business Segments (Continued)
8
Six Months Ended June 30,
-----------------------------
2000 1999
------------- --------------
Less - Depreciation and Amortization $ 6,222 $ 14,865
Less - Interest Expense 12,512 22,697
Mortgage Investment Income 150 230
Corporate Income (Expense)
Short-term investment income 4,647 601
Other income 64 340
General and administrative (7,901) (5,239)
Unrealized loss on carrying value of real estate - (9,002)
------------- --------------
Loss before Capital Gains, Discontinued Operations,
Extraordinary Loss and Preferred Dividend $ (6,023) $ (15,162)
============= ==============
Capital Expenditures
Shopping Centers $ 700 $ 2,019
Apartments - 260
Office Buildings 3,909 1,401
Parking Facilities 20 12
Ventek 24 -
------------- --------------
$ 4,653 $ 3,692
============= ==============
June 30,
-----------------------------
2000 1999
------------- --------------
Identifiable Assets
Shopping Centers $ 136,482 $ 384,001
Apartments - -
Office Buildings 52,275 39,548
Parking Facilities 73,027 70,327
Mortgages 2,698 5,478
Ventek 6,704 2,975
Corporate 196,500 24,784
------------- --------------
Total Assets (net of discontinued operations) $ 467,686 $ 527,113
============= ==============
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