SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 20, 2001
EQUITY ONE, INC.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 001-13499 52-1794271
------------------------------------ -------------------------------- ---------------------------------
(State or Other Jurisdiction of (Commission File No.) (IRS Employer Identification No.)
Incorporation
1696 N.E. MIAMI GARDENS DRIVE
NORTH MIAMI BEACH, FLORIDA 33179
--------------------------------------------------
(Address of principal executive office) (Zip code)
(305) 947-1664
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former Names or Former Address, if Changed Since Last Report)
This current report on Form 8-K/A amends and supplements the current
report on Form 8-K filed by Equity One, Inc., a Maryland corporation (the
"Company"), on October 4, 2001 announcing the acquisition of Centrefund (U.S.)
Realty Corporation, a Delaware corporation ("CEFUS"), and the acquisition of
United Investors Realty Trust, a Texas real estate investment trust ("UIRT"). In
connection with the CEFUS acquisition, the Company acquired all of the
outstanding common stock of CEFUS and issued an aggregate of 10,500 shares
of its common stock to indirect subsidiaries of First Capital Realty Inc.
(formerly Centrefund Realty Corporation) in exchange for the CEFUS common stock.
Subsequent to the CEFUS acquisition, the Company completed its acquisition of
UIRT through a series of two mergers, which resulted in the issuance of 2,896
shares of its common stock and payment of approximately $32,876 in cash
consideration to former UIRT shareholders, and the assumption of approximately
$79,400 of UIRT's outstanding debt.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired.
(i) The audited consolidated balance sheets of CEFUS as of
December 31, 1999 and 2000, and the audited consolidated statements of
income and cash flows of CEFUS for the years ended December 31, 1998,
1999 and 2000 have been previously reported by the Company as exhibits
to the proxy statement/prospectus contained in the Form S-4/A
(Registration No. 333-64272) filed by the Company on August 1, 2001,
and therefore are not being reported pursuant to this Form 8-K/A.
(ii) The unaudited consolidated balance sheet of CEFUS as of
June 30, 2001, and the unaudited consolidated statements of income and
cash flows of CEFUS for the six months ended June 30, 2000 and 2001 are
attached as Exhibit 99.3 hereto and are incorporated by reference
herein.
(iii) The audited consolidated balance sheets of UIRT as of
December 31, 1999 and 2000, and the audited consolidated statements of
income and cash flows of UIRT for the years ended December 31, 1998,
1999 and 2000 have been previously reported by the Company in the
Definitive Proxy Statement on Schedule 14A filed by the Company on July
31, 2001, and therefore are not being reported pursuant to this Form
8-K/A.
(iv) The unaudited consolidated balance sheet of UIRT as of
June 30, 2001, and the unaudited consolidated statements of income and
cash flows of UIRT for the six months ended June 30, 2000 and 2001 are
attached as Exhibit 99.4 hereto and are incorporated by reference
herein.
(b) Pro Forma Financial Information.
(i) The pro forma combined condensed balance sheet, with
accompanying explanatory notes of the Company, CEFUS and UIRT is not
being reported pursuant to this Form 8-K/A because the transaction is
already reflected in the Quarterly Report on the Form 10-Q filed by the
Company on November 19, 2001.
(ii) The unaudited pro forma combined condensed statement of
income, with the accompanying explanatory notes, of the Company, CEFUS
and UIRT for the year ended December 31, 2000 has
Page 2 of 6
been previously reported by the Company in the Definitive Proxy
Statement on Schedule 14A filed by the Company on July 31, 2001, and
therefore is not being reported pursuant to this Form 8-K/A. The pro
forma combined condensed statement of income, with accompanying
explanatory notes, of the Company, CEFUS and UIRT, for the six months
ended June 30, 2001, is attached as Exhibit 99.5 hereto and is
incorporated by reference herein.
(c) Exhibits.
2.1 Stock Exchange Agreement dated May 18, 2001 among the
Company, First Capital Realty Inc. (formerly
Centrefund Realty Corporation) and First Capital
America Holding Corp. (1)*
2.2 Agreement and Plan of Merger dated June 29, 2001
among UIRT, UIRT, Ltd. (formerly UIRT, L.P.) and UIRT
Holding Corp. (2)*
2.3 Amended and Restated Agreement and Plan of Merger
dated June 29, 2001 among UIRT, UIRT Holding Corp.
and the Company. (2)*
99.1 Press Release of the Company dated and issued
September 21, 2001 with respect to the acquisition of
Centrefund (US) Realty Corporation. (3)*
99.2 Press Release of the Company dated and issued
September 21, 2001 with respect to the acquisition of
United Investors Realty Trust. (4)*
99.3 The unaudited consolidated balance sheet of CEFUS,
and the unaudited consolidated statements of income,
shareholder's equity and cash flows of CEFUS listed
in Item 7(a)(ii) above.
99.4 The unaudited consolidated balance sheet of UIRT, and
the unaudited consolidated statements of income and
cash flows of UIRT listed in Item 7(a)(iv) above.
99.5 The unaudited pro forma combined condensed statement
of income, with the accompanying explanatory notes,
of the Company, CEFUS and UIRT listed in Item
7(b)(ii) above.
* The Company hereby agrees to furnish to the Securities and Exchange
Commission, supplementally, any schedules or exhibits to such agreement
which are not filed herewith, upon the request of the Securities and
Exchange Commission.
(1) Previously filed by the Company as Appendix A to the
Definitive Proxy Statement on Schedule 14A filed on
July 31, 2001.
(2) Previously filed by the Company as Annex A and B to
the proxy statement/prospectus contained in the Form
S-4/A (Registration No. 333-64272) filed on August 1,
2001.
(3) Previously filed by the Company as Exhibit 99.1 to
the Current Report on Form 8-K as filed with the
Securities and Exchange Commission on October 4,
2001.
Page 3 of 6
(4) Previously filed by the Company as Exhibit 99.2 to
the Current Report on Form 8-K as filed with the
Securities and Exchange Commission on October 4,
2001.
Page 4 of 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY ONE, INC.
Date: November 30, 2001 By: /s/ Howard M. Sipzner
-------------------------
Howard M. Sipzner
Chief Financial Officer
Page 5 of 6
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT TITLE
99.3 The unaudited consolidated balance sheet of CEFUS as of June 30,
2001, and the unaudited consolidated statements of income and
cash flows of CEFUS for the six months ended June 30, 2000 and
2001.
99.4 The unaudited consolidated balance sheet of UIRT as of June 30,
2001, and the unaudited statements of income and cash flows of
UIRT for the six months ended June 30, 2000 and 2001.
99.5 The unaudited pro forma combined condensed statement of income,
with the accompanying explanatory notes, of the Company, CEFUS
and UIRT for the six months ended June 30, 2001.
Page 6 of 6
EXHIBIT 99.3
------------
CENTREFUND REALTY (U.S.) CORPORATION
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2001
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
ASSETS
Shopping centres $242,973
Investments in joint ventures 8,016
Cash and cash equivalents 6,703
Amounts receivable 13,468
Other assets 6,423
Deferred income tax assets 1,041
--------
$278,624
========
LIABILITIES
Mortgages payable $166,009
Accounts payable and accrued liabilities 11,529
Due to affiliated entities 5,292
--------
182,830
SHAREHOLDER'S EQUITY 95,794
--------
$278,624
========
See accompanying notes to the condensed financial statements
Page 1 of 6
CENTREFUND REALTY (U.S.) CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
Six-months ended
----------------------------
June 30, June 30,
2001 2000
----------- -----------
(unaudited) (unaudited)
GROSS RENTAL INCOME $ 18,408 $ 20,374
PROPERTY OPERATING COSTS 6,050 6,652
-------- --------
RENTAL INCOME 12,358 13,722
INTEREST AND OTHER INCOME 665 363
-------- --------
13,023 14,085
-------- --------
INTEREST AND OTHER EXPENSES (INCOME)
Interest
Mortgages 6,077 5,375
Affiliated entities -- 1,780
Corporate expenses 357 164
Management fee to parent 1,300 2,259
Amortization 4,131 3,579
Equity income from investments in joint ventures (299) (316)
-------- --------
11,566 12,841
-------- --------
OPERATING INCOME BEFORE THE UNDERNOTED 1,457 1,244
PREVIOUS MANAGEMENT'S INCENTIVE
AND OTHER FEES -- 13,694
-------- --------
OPERATING INCOME (LOSS) BEFORE
INCOME AND OTHER TAXES 1,457 (12,450)
-------- --------
INCOME AND OTHER TAXES
Current (186) --
Deferred 682 (3,708)
-------- --------
496 (3,708)
-------- --------
NET EARNINGS (LOSS) FOR THE PERIOD $ 961 $ (8,742)
======== ========
See accompanying notes to the condensed financial statements
Page 2 of 6
CENTREFUND REALTY (U.S.) CORPORATION
Consolidated Statements of Shareholder's Equity
(in thousands of U.S. dollars, except number of shares)
- -------------------------------------------------------
Common Shares Additional Total
--------------------- Paid-In Shareholder's
Six months ended Number Amount Capital Deficit Equity
- ---------------- ------- -------- ----------- ----------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
BALANCE, JANUARY 1, 2000 117 $ 75,069 $ 10,143 $ (4,151) $ 81,061
NET LOSS -- -- -- (8,742) (8,742)
---------------------------------------------------------------------
BALANCE, JUNE 30, 2000 117 $ 75,069 $ 10,143 $(12,893) $ 72,319
=====================================================================
BALANCE, JANUARY 1, 2001 117 $ 75,069 $ 10,143 $(12,706) $ 72,506
ISSUANCE OF COMMON
SHARES 21 22,327 -- -- 22,327
NET EARNINGS -- -- -- 961 961
---------------------------------------------------------------------
BALANCE, JUNE 30, 2001 138 $ 97,396 $ 10,143 $(11,745) $ 95,794
=====================================================================
See accompanying notes to the condensed financial statements
Page 3 of 6
CENTREFUND REALTY (U.S.) CORPORATION
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
Six months ended
----------------------------
June 30, June 30,
2001 2000
---------- -----------
(unaudited) (unaudited)
NET (OUTFLOW) INFLOW OF CASH RELATED
TO THE FOLLOWING ACTIVITIES
OPERATING
Net earnings (loss) $ 961 $ (8,742)
Items not affecting cash
Amortization 4,131 3,579
Loss on sale of real estate -- 22
Deferred income taxes 682 (3,708)
Equity income from investments in joint ventures (299) (316)
Change in assets and liabilities
Amounts receivable (1,801) (1,637)
Other assets (387) (1,753)
Accounts payable and accrued liabilities (264) 5,205
-------- --------
3,023 (7,350)
-------- --------
INVESTING
Expansion and redevelopment of shopping centres (1,861) (2,672)
Proceeds on disposition of shopping centres -- 5,000
Contributions to joint ventures -- (3,799)
Advances to development partner -- (2,900)
Investment in mortgages -- 4,470
Due from affiliated entities -- (2,886)
-------- --------
(1,861) (2,787)
-------- --------
FINANCING
Due to affiliated entities (236) --
Proceeds from mortgage financings 22,234 59,050
Repayment of mortgages payable (18,482) (44,540)
-------- --------
3,516 14,510
-------- --------
INCREASE IN CASH AND
CASH EQUIVALENTS 4,678 4,373
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,025 8,429
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,703 $ 12,802
======== ========
See accompanying notes to the condensed financial statements
Page 4 of 6
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying interim condensed financial data of Centrefund Realty
(U.S.) Corporation and its subsidiaries (collectively the "Company") are
unaudited; however, in the opinion of management, the interim data
include all adjustments necessary for a fair presentation of the results
for the interim periods. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
The results of operations for the six-month period ended June 30, 2001
are not necessarily indicative of the results to be expected for the year
ended December 31, 2001. The June 30, 2001 condensed consolidated balance
sheet was derived from the audited consolidated financial statements, but
does not include all disclosures required by accounting principles
generally accepted in the United States of America.
The interim unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of the
condensed consolidated financial statements are identical to those
applied in the preparation of the most recent annual consolidated
financial statements.
3. NEW ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 2001, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), and the corresponding amendments under FASB Statement No. 138
("SFAS 138"). FAS 133 requires that all derivative financial instruments
be recognized in the financial statements and measured at fair value
regardless of the purpose or intent for holding them. Changes in the fair
value of derivative financial instruments are either recognized
periodically in income or shareholder's equity (as a component of
comprehensive income), depending on whether the derivative is designated
as a hedge and whether it is being used to hedge changes in fair value or
cash flows. SFAS 138 amends certain provisions of SFAS 133 to clarify
four areas causing difficulties in implementation. As of June 30, 2001
and January 1, 2001, the cumulative effect of adopting SFAS 133, as
amended by SFAS 138, did not have a material impact on the Company's
consolidated results of operations, financial position or cash flows.
Page 5 of 6
3. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 2001, the FASB approved the issuance of SFAS No. 141, BUSINESS
COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
These standards, which were issued in July 2001, established accounting
and reporting for business combinations. SFAS No. 141 requires all
business combinations entered into subsequent to June 30, 2001 to be
accounted for using the purchase method of accounting. SFAS No. 142
provides that goodwill and other intangible assets with indefinite lives
will not be amortized, but will be tested for impairment on an annual
basis. These standards are effective for fiscal years beginning after
December 15, 2001; however, early adoption is permitted. The Company does
not expect the adoption of these statements to have a material effect on
its financial statements or disclosures.
4. THE EQUITY ONE STOCK EXCHANGE AGREEMENT
On September 19, 2001, all of the issued and outstanding shares of the
Company were sold by First Capital Realty Inc. (formerly Centrefund
Realty Corporation) (the Company's ultimate parent) to Equity One, Inc.
("Equity One") (NYSE:EQY), a self-administered and self-managed U.S. real
estate investment trust ("REIT"). First Capital Realty Inc. and Equity
One are each indirectly-owned subsidiaries of Gazit-Globe (1982) Ltd.,
("Gazit"), an Israeli corporation trading on the Tel Aviv Stock Exchange.
Page 6 of 6
EXHIBIT 99.4
------------
UNITED INVESTORS REALTY TRUST
CONSOLIDATED BALANCE SHEETS
June 30, 2001
(Unaudited)
-------------
ASSETS
Investment real estate:
Land $ 44,556,678
Building and improvements 110,263,367
Property under development 613,206
------------
155,433,251
Less accumulated depreciation (12,075,262)
------------
Investment real estate, net 143,357,989
Cash and cash equivalents 181,215
Accounts and notes receivable, net of allowance 4,294,272
Prepaid expenses and other assets 5,698,484
------------
Total Assets $153,531,960
============
LIABILITIES, MINORITY INTEREST, AND COMMON
SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 48,760,829
Capital lease obligations 9,668,618
Construction note payable 4,878,132
Short-term notes and lines of credit 16,263,969
Accounts payable, accrued expenses
and other liabilities 6,520,135
-------------
Total liabilities 86,091,683
-------------
Minority interest in consolidated
partnerships 2,057,458
-------------
Commitments and contingencies
Common shareholders' equity:
Common shares of beneficial interest no par value,
500,000,000 shares authorized; 9,525,289 shares
issued; 8,650,602 and 8,652,292 shares
outstanding in 2001 and 2000, respectively 87,260,847
Accumulated deficit (15,725,065)
-------------
71,535,782
Less:
Treasury shares, at cost, 874,687 and 872,997
in 2001 and 2000, respectively (5,585,384)
Shareholder notes receivable (567,579)
-------------
Total common shareholders' equity 65,382,819
-------------
Total liabilities, minority interest and
common shareholders' equity $153,531,960
============
United Investors Realty Trust
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
30-June-01 30-June-00 30-June-01 30-June-00
------------ ------------ ------------ ------------
Revenues:
Rental $ 4,363,746 $ 4,879,453 $ 8,875,106 $ 9,819,329
Lease termination fees 74,798 380,000 541,974 380,000
Recoveries from tenants 1,186,307 1,400,298 2,465,991 2,821,831
Interest and other income 263,958 49,342 418,637 126,781
------------ ------------ ------------ ------------
Total revenues 5,888,809 6,709,093 12,301,708 13,147,941
Property operating 632,883 721,080 1,299,512 1,412,318
Property taxes 765,052 968,078 1,716,779 1,954,472
Property management fees 44,131 62,187 92,017 113,629
General and administrative 419,514 482,666 775,832 947,384
Advisory fees 267,999 302,008 481,068 614,240
Litigation expenses 593,857 -- 1,071,710 --
Expenses related to strategic
alternatives
review -- -- 250,000 --
Depreciation and amortization 1,058,652 1,146,271 2,111,356 2,266,456
Interest 1,338,182 1,934,329 3,181,839 3,855,900
Impairment loss -- 6,000,000 -- 6,000,000
------------ ------------ ------------ ------------
Total expenses 5,120,270 11,616,619 10,980,113 17,164,399
Income (loss) before minority interest,
gain on sale of real estate and
extraordinary expense 768,539 (4,907,526) 1,321,595 (4,016,458)
Minority interest in income of
consolidated
partnerships (254) (57,950) (14,718) (86,924)
Gain on sale of real estate 1,886,581 729,899 1,890,644 851,809
------------ ------------ ------------ ------------
Net income (loss) before extraordinary
expense 2,654,866 (4,235,577) 3,197,521 (3,251,573)
Extraordinary expense 1,179,441 -- 1,179,441 --
------------ ------------ ------------ ------------
Net income (loss) $ 1,475,425 $ (4,235,577) $ 2,018,080 $ (3,251,573)
============ ============ ============ ============
Basic and diluted per share amounts:
Net income per common share $ 0.17 $ (0.47) $ 0.23 $ (0.36)
============ ============ ============ ============
Basic and diluted weighted average shares
outstanding 8,650,769 9,003,332 8,651,526 9,023,612
2
United Investors Realty Trust
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
-------------------------------
30-June-01 30-June-00
------------ ------------
Cash flows from operating activities:
Net income $ 2,018,080 $(3,251,573)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,029,363 2,180,960
Amortization 204,982 172,721
Impairment loss -- 6,000,000
Minority interest in income of consolidated partnerships 14,718 86,924
Gain on sale of real estate (1,890,644) (851,809)
Changes in operating assets and liabilities 711,036 416,199
----------- -----------
Net cash provided by operating activities 3,087,535 4,753,422
----------- -----------
Cash flows from investing activities:
Purchase of and capital improvements to investment
real estate (2,164,437) (3,430,641)
Proceeds from sale of real estate 7,538,469 2,933,228
Application of escrow deposits 200,000 --
----------- -----------
Net cash provided by (used in) investing activities 5,574,032 (497,413)
----------- -----------
Cash flows from financing activities:
Proceeds from mortgage note payable 787,500 3,650,000
Proceeds from short-term notes payable -- 2,604,800
Collections from shareholder notes receivable 27,877 39,669
Principal payments on mortgage notes payable (389,467) (400,203)
Payments on short-term notes payable (6,780,831) (1,638,000)
Payments on capital lease obligations (55,466) (1,679,810)
Principal payments on construction note payable -- (320,000)
Offering costs (20,577) (6,849)
Payment of distributions (2,249,473) (3,878,271)
Distribution to holders of minority interests (62,035) (121,324)
Payment of loan acquisition costs (35,447) (64,851)
Purchase of treasury shares -- (326,100)
----------- -----------
Net cash provided by (used in) financing activities (8,777,919) (2,140,939)
----------- -----------
Increase (decrease) in cash and cash equivalents (116,352) 2,115,070
Cash and cash equivalents at beginning of period 297,567 1,807,791
----------- -----------
Cash and cash equivalents at end of period $ 181,215 $ 3,922,861
----------- -----------
Supplemental disclosures
Cash paid for interest $ 3,339,180 $ 3,664,267
Reduction of capital lease obligation -- 78,200
Forgiveness of shareholder notes receivable -- 163,006
Accrued distributions -- 1,878,368
Seller financed note receivable 1,525,000 --
3
United Investors Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Organization
United Investors Realty Trust and Subsidiaries (the "Company"), a Texas real
estate investment trust ("REIT"), is engaged in the acquisition, development,
and management of neighborhood and community shopping centers in the Sunbelt
states. The tenants of the Company's shopping centers include national and
regional supermarkets and drug stores and other national, regional, and local
retailers that provide basic necessity and convenience goods and services to the
surrounding population.
The Company operated from 1989 until 1998 as a private REIT. On March 13, 1998,
the Company completed an initial public offering (the "IPO") of 7,600,000 common
shares of beneficial interest. In April 1998, the Company issued another
1,000,000 common shares of beneficial interest pursuant to the exercise of the
underwriters' overallotment option. Prior to the IPO, the Company had
outstanding approximately 915,000 shares.
Basis of Presentation
These unaudited consolidated financial statements include the accounts of the
Company, its subsidiaries and partnerships in which it owns controlling
interests. The accompanying consolidated financial statements have been prepared
by the Company's management in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the Company's
audited financial statements and notes thereto included in the Company's 2000
Annual Report on Form 10-K. In the opinion of management, the financial
statements contain all adjustments (which consist of normal and recurring
adjustments) necessary for a fair presentation of financial results for the
interim periods.
In January 2001, the Company's Board of Trust Managers engaged First Union
Securities, Inc. to advise it on strategic alternatives to maximize shareholder
value. First Union subsequently recommended, and the Company commenced, an
exploration of the sale of the Company or substantially all of its assets. On
May 31, 2001, the Company announced that it had entered into a definitive
agreement to merge with Equity One, Inc., another shopping center REIT. Under
the terms of the merger agreement, each of the Company's outstanding common
shares of beneficial interest will be exchanged for $7.30 consisting of
approximately 50% cash and approximately 50% common stock of Equity One in the
aggregate.
Recent Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
provides that all derivative instruments be recognized as either assets or
liabilities on the balance sheet and that all derivative instruments be measured
at fair value. The effective date of SFAS No. 133 for the Company was January 1,
2001. The Company currently does not invest in derivative instruments;
therefore, the adoption of SFAS No. 133 did not impact the Company.
2. Investment in Properties
At June 30, 2001, the Company owned controlling interests in 23 shopping center
properties containing approximately 2,900,000 total square feet of gross
leaseable area ("GLA"), of which the Company owned approximately 2,100,000
square feet of GLA. In addition, at June 30, 2001, the Company owned a non-
controlling 50% interest in a partnership that owned one property. As of June
30, 2001, 25% of the Company's owned GLA was in the Houston, Texas area, 16% was
in the Dallas, Texas area, 9% was elsewhere in Texas, 29% was in Florida, 16%
was in Arizona, and 5% was in Tennessee.
On February 28, 2001, the 52,000 square foot Twin Lakes Center in Lenoir City,
Tennessee was sold in exchange for cash and a $1,525,000 note, which is included
in accounts receivable. The note bears interest at 9% per annum, is payable
monthly based on 30-year amortization schedule and is due in March 2006.
On April 3, 2001, the 83,000 square foot Centennial Shopping Center in Austin,
Texas was sold for approximately $6,300,000 in cash. The sale resulted in a gain
on sale of real estate of approximately $1,905,000.
In April 2001, the Company began redevelopment of its University Mall Shopping
Center. The redevelopment plan will include demolition of a substantial portion
of the existing buildings for the construction of new space, and the improvement
and retenanting of the remaining space. Management expects to finance the
approximately $4,000,000 in total costs through a combination of debt, ground
lease arrangements, and working capital. Approximately $117,000 of property tax
expense and approximately $273,000 of interest related to University Mall was
capitalized during the three months ended June 30, 2001.
3. Notes and Mortgages Payable
The Company's mortgage notes payable consist of fixed-rate debt with outstanding
principal balances aggregating $48,760,829 at June 30, 2001. The interest rates
range from 7.5% to 10% with a weighted average interest rate of 8.51%. The notes
mature at various times through 2010 with a weighted average term to maturity of
5.6 years.
Included in mortgage notes payable at June 30, 2001 is the $787,500 note for the
purchase of the Colony Plaza land parcel in January 2001. Interest at 10% is due
monthly until maturity on January 1, 2003 and a principal payment of $79,750 is
due on January 1, 2002.
Property under capital leases, consisting of two shopping centers, aggregated
approximately $13.9 million at June 30, 2001 and is included in investment real
estate. Depreciation of the property under capital leases is combined with
depreciation of owned properties
4
in the accompanying financial statements. Future minimum lease payments under
these capital leases total approximately $14.2 million, with annual payments due
of approximately $.8 million in each of 2001 through 2005, and $10.5 million
thereafter. The amount of these total payments representing interest is
approximately $4.5 million.
The Company has a credit agreement with a bank under which it had borrowed
approximately $16,300,000 as of June 30, 2001. Borrowings under the agreement
are collateralized by first lien mortgages on five of the Company's shopping
centers and accrue interest (payable monthly) at LIBOR plus 175 basis points.
In January 2001, the lender agreed to extend the maturity of the agreement to
July 31, 2001. The lender has indicated that it will extend the maturity to
October 31, 2001, at which time all advances will be due unless the agreement is
further extended. As part of the modification to extend the maturity, the
interest rate was increased to 175 basis points over LIBOR and collateral
release prices were increased to 100% (with certain minimums) of the proceeds of
any sale or refinancing of the collateral properties. In addition, the Company
agreed to reduce the advances by 50% of any sale or refinancing proceeds from
certain other non-collateral shopping centers, and obtain the lender's approval
before increasing its borrowings from any source.
The Company sold its Twin Lakes Shopping Center in February 2001 and used
$1,300,000 in proceeds to reduce the outstanding advances. Advances were further
reduced by $4,050,000 in April 2001 upon sale of the Centennial Shopping Center.
Management intends to continue to reduce the advances with proceeds from
possible property sales. The Company is also exploring alternative lending
sources.
Management believes that, based on discussions with representatives of the
lender, it will be able to negotiate a further extension with the bank. However,
should such an extension not be possible or desirable, management believes that
the Company has sufficient borrowing capacity and collateral value to refinance
the bank borrowings through other lenders.
In addition to the outstanding advances at June 30, 2001, the Company is also
contingently obligated under an unfunded letter of credit of approximately
$1,264,000. The letter of credit expires October 31, 2001.
4. Per Share Data
Basic earnings per share is computed based upon the weighted average number of
common shares outstanding during the period presented. Diluted earnings per
share is computed based upon the weighted average number of common shares and
dilutive common share equivalents outstanding during the periods presented. The
number of dilutive shares related to outstanding share options is computed by
application of the Treasury share method. The following table sets forth the
computation of basic and diluted earnings per share:
Three Months Six Months
Ended June 30, Ended June 30,
Weighted Average Shares 2001 2000 2001 2000
- ----------------------- ---------- ----------- ----------- -----------
Basic EPS 8,650,769 9,003,332 8,651,526 9,023,612
Effect of dilutive securities:
Employee share options -- -- -- --
---------- ---------- ---------- ----------
Diluted EPS 8,650,769 9,003,332 8,651,526 9,023,612
========== ========== ========== ==========
Distributions per share declared $ 0.13 $ 0.215 $ 0.26 $ 0.43
========== ========== ========== ==========
5
5. Advisory Agreement
The Company is managed for a fee, pursuant to an agreement (the "Advisory
Agreement") with FCA Corp, the Investment Manager. The Company's Chairman of the
Board of Trust Managers is also the principal shareholder and Chief Executive
Officer of FCA Corp. From January 1, 1998 through June 30, 1999, the advisory
fee was 6.8% of adjusted funds from operations ("AFFO"). Effective July 1, 1999,
the rate was reduced to 6.5% of AFFO. AFFO is defined in the Advisory Agreement
as net income excluding gains or losses from debt restructuring and property
sales plus real estate related depreciation and amortization and provisions for
potential losses, including impairment losses, related to depreciable operating
property, as adjusted by adding back interest expense and the advisory fee.
During the three months and six months ended June 30, 2001, the Company incurred
advisory fee expense of approximately $268,000 and $481,000, respectively.
Included in these amounts was loan forgiveness of $16,500 and $33,000,
respectively, as described below in note 6. In addition to the advisory fee, the
Company reimburses the Investment Manager for the salaries, benefits, and
occupancy costs of certain employees who perform property management, leasing,
accounting, and other operational duties for the Company. The amounts of these
reimbursements were approximately $148,000 and $288,000 for the three months and
six months ended June 30, 2001. For the corresponding periods in 2000, the
advisory fees were approximately $302,000 and $614,000 including $16,500 and
$33,000 of loan forgiveness expense. The reimbursed salaries, benefits, and
occupancy costs were approximately $189,000 and $418,000.
As a result of a shareholder derivative lawsuit filed in August 2000, the Board
established a Special Litigation Committee (the "SLC") to investigate, among
other matters, whether the reimbursement of such salaries, benefits, and other
costs was in accordance with the terms of the Advisory Agreement (see Note 9).
On March 22, 2001, the SLC delivered its report regarding the claims asserted in
the lawsuit wherein the SLC concluded that the Investment Manager had charged
the Company for a portion of the salaries, benefits, and other costs of
employees that, in accordance with the terms of the Advisory Agreement, should
have been borne by the Investment Manager. During the second quarter of 2001,
the Company determined that the aggregate amount of such excess charges was
approximately $90,000.
In accordance with the Equity One merger agreement, the Company gave notice of
termination to the Investment Manager on June 15, 2001. The Advisory Agreement
will terminate no later than at the expiration of the required six month notice
period (December 15, 2001). Under the terms of the Advisory Agreement, the
Investment Manager is to be paid a termination fee equal to the product of the
(i) average of the advisory fee paid or payable to the Investment Manager for
the three calendar months immediately preceding the effective date of
termination and (ii) twelve, less any sums paid or payable to the Investment
Manager for the calendar months, up to a maximum of six, following the giving of
the termination notice, but prior to the effective date of such termination.
Based on estimates of these amounts, management has recorded a termination fee
of $630,000 as of June 15, 2001. The amount actually paid may differ because
actual advisory fees may be more or less than management has estimated.
6. Incentive Share Option Plan
During 1998, the Company granted options to purchase 337,000 common shares to
certain officers, employees, Trust Managers, and the Investment Manager. The
recipients become eligible to exercise 25% of their options each January 1,
beginning in 1999. The exercise price is $10.00 per share, up to 100% of which
may be borrowed from the Company. Such loans are included in shareholder notes
receivable. Loans are repayable over four years and require annual payments of
25% of the initial principal and interest calculated at the Applicable Federal
Rate published by the IRS. The Applicable Federal Rate as of January 1, 1999 was
4.64%.
With respect to options that became exercisable on January 1, 1999, the Board of
Trust Managers elected to forgive 80% of the borrowed amount. The loan will be
forgiven in equal annual installments over a four-year period, at the rate of
20% per year, conditioned upon continued employment by the Company or the
Investment Manager. Included in general and administrative expenses for the
three months ended June 30, 2001 and 2000 is $24,251 and for the six months
ended June 30, 2001 and 2000 is $48,503, which represents the recognition of
such loan forgiveness with respect to loans made to the Company's officers and
employees. Included in advisory fees for the three months ended June 30, 2001
and 2000 is $16,500, which represents the recognition of such loan forgiveness
with respect to loans made to the Investment Manager.
The unpaid balance of these loans was approximately $395,000 as of June 30,
2001. Upon a "change in control," which will occur upon approval of the Equity
One merger by UIRT's shareholders, all outstanding amounts under these loans
will be forgiven pursuant to the terms of the notes. In addition, there are
approximately 254,000 common shares of beneficial interest reserved for issuance
upon the exercise of additional options under the share incentive plan. If those
options are exercised, the holders may issue additional notes pursuant to the
plan. The amounts outstanding under these additional notes will also be forgiven
upon the change in control.
6
7. Property Operating Expenses
The Company classifies as property operating expenses those direct expenses that
are specifically identifiable with particular properties. Certain other expenses
incurred by the Company that are necessary to maintain the physical quality of
and revenue from the properties, but that are not specifically identifiable with
particular properties, are classified as general and administrative expenses.
These other expenses (see note 8 below) include the salaries, benefits and
travel expenses of leasing, property management and certain accounting
personnel.
7
Property operating expenses include the following:
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
30-June-01 30-June-00 30-June-01 30-June-00
---------------- ---------------- ---------------- ----------------
Repairs and maintenance $142,521 $142,122 $ 276,101 $ 294,711
Utilities 154,804 171,076 322,953 338,242
Landscaping 80,994 85,796 148,825 194,710
Waste disposal 46,511 47,123 98,168 93,371
Insurance 100,578 87,995 204,375 176,653
Ground lease 33,545 33,741 67,636 67,892
Bad debt expense 2,249 63,290 23,452 84,612
Other 71,681 89,937 158,002 162,127
-------- -------- ---------- ----------
Total $632,883 $721,080 $1,299,512 $1,412,318
======== ======== ========== ==========
8. General and Administrative Expenses
General and administrative expenses include the following:
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
30-June-01 30-June-00 30-June-01 30-June-00
---------------- ---------------- ---------------- ----------------
Salaries and benefits $ 64,176 $179,095 $206,561 $395,999
Professional fees 215,333 160,216 311,036 274,161
Rent and office administration 22,500 34,113 45,000 70,404
Travel and entertainment 16,743 19,748 31,101 50,409
Other 100,762 89,494 182,134 156,411
-------- -------- -------- --------
Total $419,514 $482,666 $775,832 $947,384
======== ======== ======== ========
9. Litigation
The Company is a nominal defendant in a shareholder derivative action (the
"Lawsuit") brought by Southwest Securities, Inc. ("Southwest"), which is pending
in the District Court of Dallas County, Texas (the "Court"). The Lawsuit was
originally filed on August 14, 2000, seeking an injunction to prevent the sale
by UIRT of one of its properties, the University Park Shopping Center ("UPSC"),
to UIRT Investors, L.P. ("Investors"), an entity representing a group of
shareholders of UIRT. Southwest named as defendants in the Lawsuit: FCA Corp.
("FCA"), which serves as the Company's Investment Manager pursuant to the
Advisory Agreement; all of the then-members of UIRT's Board of Trust Managers;
certain UIRT officers; the UIRT subsidiary that owned University Park; and
Investors and two affiliated entities.
Upon filing the Lawsuit, Southwest obtained a temporary restraining order to
prevent the sale of University Park. Thereafter, on August 28, 2000, a temporary
injunction hearing was held in the Dallas District Court. Following this
hearing, the Court denied the requested temporary injunction, and the sale of
University Park closed on September 29, 2000.
On September 27, 2000, Southwest amended its petition to additionally allege
that the Investment Manager had charged excessive fees for its services to the
Company, had charged the Company for salaries and other expenses that should
have been paid by the Investment Manager, and that the Investment Manager and
the officers and certain trust managers of UIRT had mismanaged the Company's
assets. Southwest seeks recission of the Advisory Agreement and the sale of
UPSC, a declaration that the Advisory Agreement and sale of UPSC are void, an
accounting, a constructive trust, inspection of the Company's books and records,
injunctive relief or, alternatively, unspecified compensatory damages alleged to
be not less than $10,000,000 and punitive damages in an amount not less than
$20,000,000, attorneys' fees and costs.
On December 12, 2000, three new members were named to the Company's Board of
Trust Managers ("Board"). Thereafter, these three new Board members were
appointed to serve as a special litigation committee (the "SLC") to investigate
the allegations made by
8
Southwest in the Lawsuit. The SLC retained independent counsel to assist it in
this investigation, and the SLC's counsel has retained an economic consulting
firm to serve as consultants.
On December 8, 2000, the Court stayed further proceedings in the Lawsuit for 60
days to allow the SLC to complete its investigation, which stay was subsequently
extended to March 21, 2001. On February 19, 2001, between the expiration of the
original stay and the extension granted by the Court, Southwest filed its
Plaintiff's Second Amended Petition and Application for Permanent Injunction
("Petition").
Pursuant to the Texas Business Corporation Act, the SLC is composed of three
"independent" and "disinterested" Trust Managers, who have been charged with
determining whether the continuation of the Lawsuit is "in the best interests"
of the Company's shareholders. The SLC must make this determination "in good
faith, after conducting a reasonable inquiry and based on the factors [the SLC]
deems appropriate under the circumstances." Accordingly, the SLC has attempted,
in general terms, to consider (1) the potential benefits and costs associated
with pursuing the claims in the Lawsuit, and (2) the available alternative to
litigation, including internal corrective action.
Based on its investigation and analysis, the SLC determined that continuation of
the Lawsuit was not in the best interests of the Company's shareholders. The SLC
concluded that, under the applicable legal standards, a finding of liability on
the part of any of the defendants was very unlikely. Indeed, in the case of
several of the defendants, the SLC found no evidence of even slight culpability.
The SLC concluded that the Investment Manager charged the Company for some
salaries, benefits, and other costs of employees that, in accordance with the
Advisory Agreement, should have been borne by the Investment Manager. However,
the SLC believed that the amount of any potential recovery did not appear to
justify the substantial costs of litigation (especially given the Company's
obligation to indemnify a number of the defendants) or the disruption of the
Company's business activities. Based on the findings of the SLC, the Company
filed a motion with the court to dismiss the lawsuit, and on May 29, 2001, the
court indicated that it will grant the motion. On May 31, 2001, Southwest and
the Company agreed to stay the Lawsuit and a separate proceeding that Southwest
had initiated until the earlier of (a) the closing of the Equity One merger, (b)
the termination of the Equity One merger agreement, or (c) December 1, 2001.
Also on May 31, Equity One notified Company management that it had reached an
agreement with Southwest Securities to settle the lawsuit subsequent to
completion of the Equity One merger.
As a result of Court's indication that it will dismiss the lawsuit, the stay of
further proceedings or appeals, and the settlement agreement between Equity One
and Southwest, management believes that no further material costs will be
incurred with respect to the Lawsuit.
In April 2000, the Company's former President and Chief Executive Officer filed
a lawsuit against UIRT, the Investment Manager, and the Company's Chairman and
Chief Executive Officer, who is also the Investment Manager's Chief Executive
Officer. In June 2000, an individual who claims to be a client of the Investment
Manager's individual financial planning business amended a lawsuit originally
filed in July 1999 to include UIRT as a defendant. The Investment Manager had
indemnified the Company against any loss from these actions, and in June 2001,
both of these lawsuits were settled at no cost to the Company.
The Company is a party to other legal proceedings that arise in the normal
course of business, which matters are generally covered by insurance. The
resolution of these matters cannot be predicted with certainty. However, in the
opinion of management, based upon currently available information, any
liabilities under such proceedings, either individually or in the aggregate,
will not have a materially adverse affect on the consolidated financial
statements taken as a whole.
10. Subsequent Events
Subsequent to June 30, 2001, the Company distributed a definitive proxy and
registration statement to its shareholders soliciting proxies for approval of
the Equity One merger. If the merger is approved by UIRT's shareholders,
management believes it will become effective on or about September 21, 2001.
11. Extraordinary Item
The Company has incurred substantial expenses that have been paid or will be
paid upon the merger with Equity One. These expenses are classified as
extraordinary items in the second quarter of 2001 and include the following:
Legal Fees $ 299,441
Estimated termination fee payable to the Investment Manager 630,000
Investment banking fees 250,000
----------
$1,179,441
==========
Upon completion of the merger, the Company will incur additional investment
banking fees of approximately $1,350,000.
9
EXHIBIT 99.5
------------
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CEFUS UIRT
Proforma Proforma
Equity Adjustments Adjustments
One CEFUS Increase UIRT Increase Combined
Historical Historical (Decrease) Historical (Decrease) Pro Forma
---------- ---------- ----------- ---------- ----------- ---------
REVENUES
Rental Income $ 18,340 $ 18,408 $ 11,883 $ (273) i $ 48,358
Management Fee Income 1,116 (559) a 557
Dividend & Interest Income 303 665 419 1,387
-------------------------------------- ----------------------- --------
Total Revenues 19,759 19,073 (559) 12,302 (273) 50,302
EXPENSES
Operating Expenses 5,410 7,350 (375) a 3,108 (91) i 14,102
(1,300) b
Depreciation & Amortization 2,408 4,131 (703) c 2,111 (736) c 7,221
10 d
Interest Expense & Fee Amortization 4,281 6,077 (132) e 3,182 765 h 14,137
(36) i
General & Administrative 1,370 357 (184) a 776 2,319
Advisory Fee 481 (481) j 0
Litigation Expense 1,072 (1,072) j 0
Strategic Alternative Review Expense 250 (250) j 0
-------------------------------------- ----------------------- --------
Total Expenses 13,469 17,915 (2,684) 10,980 (1,901) 37,779
Income before Gain/(Loss) on Sale of Real
Estate, Equity in Income/(Loss)
of Unconsolidated Entities, Minority
Interest in Earnings of Consolidated
Subsidiary, and Income Taxes and
extraordinary expense 6,290 1,158 2,125 1,322 1,628 12,523
Gain/(Loss) on Sale of Real Estate 1,890 (1,890) i 0
Equity in Income/(Loss) of
Unconsolidated Entities 299 299
Minority Interest in Earnings of
Consolidated Entity (49) (15) (64)
Income Tax Credit/(Expense)
Current 186 (186) f 0
Deferred (682) 682 f 0
-------------------------------------- ----------------------- --------
Net Income before extraordinary expense 6,241 961 2,621 3,197 (262) 12,758
Extraordinary expense 1,179 (1,179) j 0
-------------------------------------- ----------------------- --------
NET INCOME $ 6,241 $ 961 $ 2,621 $ 2,018 $ 917 $ 12,758
====================================== ======================= ========
Per share
Basic $ 0.49 $6,963.77 $ 0.23 $ 0.47
Diluted $ 0.48 $6,963.77 $ 0.23 $ 0.47
Weighted Average Shares Outstanding
Basic 12,707 0.138 10,500 g 8,652 (4,831) k 27,028
Diluted 13,326 0.138 10,500 g 8,652 (4,831) k 27,647
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
a To eliminate asset and property management fees earned by Equity One
from CEFUS.
b To eliminate mamagement fees incurred by CEFUS.
c To adjust depreciation to reflect the purchase adjusted basis of
rental property and depreciation policies of Equity One.
d To amortize goodwill relating to the purchase transaction.
e To eliminate interest expense on certain loans payable to a company
under common control which will be restructured to eliminate any net
inter-company debt and will become direct obligations of the
underlying third-party lenders.
f To eliminate CEFUS income tax provisions, due to Equity One's REIT
status.
g To eliminate 0.138 CEFUS shares and reflect the issuance of 10,500
Equity One shares issued in the acquisiton of CEFUS.
h To increase interest expense to reflect $24,821 in net borrowings
under a new Equity One credit agreement to fund the cash portion of
the UIRT purchase price.
i To eliminate gain on sale and eliminate revenue and expenses on
properties sold prior to Equity One's acquisition of UIRT.
j To eliminate non-recurring expenses incurred by UIRT.
k To eliminate 8,652 UIRT shares and reflect the issuance of 3,821
Equity One share representing the sum of 925 shares issued under a
commitment with Alony Hetz Properties and Investment,Ltd. And 2,896
shares issued to UIRT shareholders in connection with the merger.