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) APRIL 19, 2005
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
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(Exact Name of Registrant as Specified in Its Charter)
Ohio
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(State or Other Jurisdiction of Incorporation)
001-06249 34-6513657
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(Commission File Number) (I.R.S. Employer Identification No.)
7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts 02114
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(Address of Principal Executive Offices) (Zip Code)
(617) 570-4614
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(Registrant's Telephone Number, Including Area Code)
n/a
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(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
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFT|R 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
INDEX
Item 2.01 Completion of Acquisition or Disposition of Assets............... 3
Item 9.01 Financial Statements and Exhibits................................ 3
Signatures ................................................................. 13
2
Item 2.01 Completion of Acquisition or Disposition of Assets
We have filed a Current Report on Form 8-K on April 22, 2005 with regard to the
making of mezzanine loans secured by, and acquisitions of equity interests in,
entities that hold title to real property located primarily in the Chicago,
Illinois metropolitan and suburban area (the "Chicago Properties"), as described
in such Current Report. The purpose of this Amendment to the Current Report 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:
Combined Statement of Revenues and Certain Expenses of the Chicago
Properties for the year ended December 31, 2004.
(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 Equity and Mortgage
Investments (the "Company") as of March 31, 2005, as if the acquisitions
had occurred on March 31, 2005, (ii) the pro forma consolidated statement
of operations for the year ended December 31, 2004, as if the acquisition
had occurred on January 1, 2004, and (iii) the pro forma consolidated
statement of operations for the period ended March 31, 2005, as if the
acquisition had occurred on January 1, 2004. The pro forma financial
statements are based upon assumptions contained in the notes 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 investment occurred as
of the dates indicated, nor should they be taken as indicative of the
future results of operations or the future financial position of the
Company. Differences could result from various factors, including but not
limited to changes in occupancy, rental rates and rental expenses.
3
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 combined statement of revenues and certain
expenses of the properties known as the Chicago Properties (the "Properties")
for the year ended December 31, 2004. 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 8-K/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, in accordance with standards of the Public Company Oversight
Board (United States), 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, 2004 in conformity with accounting
principles generally accepted in the United States of America.
TAUBER & BALSER PC
Atlanta, Georgia
June 25, 2005
4
CHICAGO PROPERTIES
COMBINED STATEMENT OF REVENUES AND
CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2004
(in thousands)
Revenues:
Base rental income $58,704
Operating expense recovery 2,782
Other income 2,702
-------
Total revenues 64,188
-------
Certain Expenses:
Mortgage Interest 7,022
Property operating 24,688
Real estate and other taxes 10,132
Management fees and costs 5,735
-------
Total certain expenses 47,577
-------
Revenues in Excess of Certain Expenses $16,611
=======
See notes to the combined statement of revenues and certain
expenses.
5
CHICAGO PROPERTIES
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying Combined Statement of Revenues and Certain Expenses of First
Union Real Estate Equity and Mortgage Investments (collectively, "First Union"
or the "Company") includes the operations of 24 properties containing 3,716,467
square feet, substantially all of which are located in the Chicago metropolitan
and suburban area (the "Chicago Properties"). During the year ended December 31,
2004, the Chicago Properties were owned primarily by a group of individuals
(collectively "Marc") who were not affiliates of the Company.
On April 19, 2005, FT-MARC Loan LLC, a wholly-owned subsidiary of First Union
REIT L.P., the operating partnership of the Company, made 22 separate
convertible mezzanine loans and equity investments in 22 separate entities (each
a "Borrower") wholly owned by Marc in the aggregate amount of $70,306,191
(inclusive of a $980,000 subsequent advance). Each loan is secured by the
applicable Borrower's ownership interest in a limited liability company (each a
"Property Owner") that in turn owns an office building or complex. The aggregate
value of the Property Owners' properties is approximately $355 million. Each
Borrower holds a 100% interest in the applicable Property Owner other than with
respect to one property, in which the Borrower holds a 75% interest in the
Property Owner. Each loan bears interest at 7.65%, matures on April 18, 2012 and
requires monthly payments of interest only. The amounts advanced under each loan
together with the equity investment in the applicable Borrower, as described
below, was equal to 49% of the difference between the agreed value of the
property owned by the applicable Property Owner and the existing debt
encumbering such property. Each loan may be converted into an equity interest in
the applicable Borrower after one year at the request of First Union or three
years at the option of the Borrower.
On May 6, 2005, FT-Marc Loan made additional convertible mezzanine loans and
equity investments in the amount of $5,911,968 with respect to two additional
properties on the same terms as the loans made on April 19th except that the
amount advanced under these loans together with the equity investment, as
described below, was equal to 60% of the difference between the agreed value of
the property and the existing debt encumbering the property. The two properties
have a value of approximately $31 million.
As part of the above transactions, First Union acquired an equity interest in
each of the Borrowers. The equity interest entitles First Union to participate
in capital proceeds derived from the sale or refinancing of the applicable
property to the extent such proceeds generate amounts sufficient to fully
satisfy all of the debt encumbering the applicable property, including its
respective loan and a return to the Borrower of its deemed equity (the agreed
value of the applicable property less all debt encumbering the applicable
property including the loan made by First Union) plus a 7.65% per annum return
thereon.
Further, First Union has committed to loan an additional $6,370,000 to cover the
costs of tenant improvements and capital expenditures at the 24 properties.
First Union also has the right to co-invest in all other office properties
acquired by Marc and their affiliates in the Chicago, Illinois metropolitan and
suburban areas.
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 8-K/A of the Company. Accordingly, the
financial statement is not representative of the Chicago Properties' actual
operations for the year ended December 31, 2004 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 Chicago Properties.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rental Revenues - Rental revenues are recognized on a straight line basis over
the terms of the related leases.
Property Operating Expense - Property operating expense consists primarily of
utilities, insurance, repairs and maintenance, security and safety, cleaning,
bad debts expense, and other administrative expenses.
Management Fees and Costs - Management fees and costs relate to fees paid to an
affiliate of Marc represent a management fee of approximately five percent of
rental receipts plus reimbursement of personnel and other costs related to
management of the Chicago Properties.
Management's Use of Estimates - The preparation of Combined Statements of
Revenues and Certain Expenses in conformity with accounting principles generally
accepted in the United States of America requires First Union's management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting 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, 2004 are as follows:
Year ending December 31, (in thousands)
- --------------------------------------------------------------------------------
2005 $ 52,805
2006 43,805
2007 35,377
2008 26,624
2009 20,414
Thereafter 63,790
---------
Total $ 242,815
=========
7
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
Pro
Historical Chicago Forma
March 31, Properties March 31,
2005 Investment 2005
---------- ---------- ---------
(In thousands) (a)
Assets
Investment in real estate, at cost
Land $ 3,929 $ -- $ 3,929
Buildings and improvements 87,977 -- 87,977
--------- --------- ---------
-- 91,906
91,906
Less - Accumulated depreciation (5,362) -- (5,362)
--------- --------- ---------
Investments in real estate, net -- 86,544
86,544
Real estate held for sale 1,382 -- 1,382
Lease intangibles, net 6,898 -- 6,898
Cash and cash equivalents 172,096 (76,716) 95,380
Restricted cash 81 -- 81
Loans receivable 6,737 -- 6,737
Accounts receivable and prepayments, net 7,204 -- 7,204
Unamortized debt issue costs, net 1,198 -- 1,198
Real estate securities - available for sale 22,512 -- 22,512
Preferred equity investment -- 76,716 76,716
Equity investment in limited partnership 618 -- 618
--------- --------- ---------
TOTAL ASSETS $ 305,270 $ $ 305,270
========= ========= =========
LIABILITIES
Mortgage loans payable $ 86,721 $ -- $ 86,721
Loan payable 39 -- 39
Accounts payable and accrued liabilities 3,843 -- 3,843
Dividends payable 1,026 -- 1,026
Deferred items 61 -- 61
Liabilities of real estate held for sale and discontinued
operations 2,159 -- 2,159
--------- --------- ---------
TOTAL LIABILITIES 93,849 -- 93,849
--------- --------- ---------
SHAREHOLDERS' EQUITY
Series A Cumulative Convertible Redeemable Preferred Shares
of Beneficial Interest, $25 per share liquidating
preference, 2,300,000 shares authorized, 983,082 outstanding 23,131 -- 23,131
Series B-1 Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, $25 per share liquidating
preference, 3,640,000 shares authorized and outstanding 85,875 -- 85,875
Common Shares of Beneficial Interest, $1 par, unlimited
authorized, 32,058,913 outstanding 32,059 -- 32,059
Additional paid in capital 210,945 -- 210,945
Accumulated other comprehensive income 4,015 -- 4,015
Accumulated distributions in excess of net income (144,604) -- (144,604)
--------- --------- ---------
Total Shareholders' Equity 211,421 -- 211,421
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 305,270 $ -- $ 305,270
========= ========= =========
See notes to unaudited pro forma financial statements
8
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Pro Forma
(In thousands, except per share data) Adjustments
Chicago
Properties Pro
Historical Investment Forma
---------- ---------- -------
(a)
Revenues
Rents $ 3,390 $ -- 3,390
Interest and dividends 2,528 -- 2,528
------- ------- -------
5,918 -- 5,918
------- ------- -------
Expenses
Property operating 786 -- 786
Real estate taxes 66 -- 66
Depreciation and amortization 735 -- 735
Interest 698 -- 698
General and administrative 4,104 -- 4,104
------- ------- -------
6,389 -- 6,389
------- ------- -------
Other Income
Insurance recoveries 1,254 -- 1,254
Gain on sale of securities
available-for-sale 1,153 -- 1,153
Equity in earnings of preferred
equity investment -- 5,748 5,748
------- ------- -------
2,407 -- 8,155
------- ------- -------
Income from continuing operations $ 1,936 $ 5,748 7,684
======= ======= =======
Per share data - Basic and Diluted:
Income from continuing operations
applicable to common shares of
beneficial interest $ 0.00 -- 0.18
======= =======
Basic and diluted weighted average
Common Shares 31,059 -- 31,059
======= =======
See notes to unaudited pro forma financial statements
9
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
Pro Forma
(In thousands, except per share data) Adjustments
Chicago
Properties Pro
Historical Investment Forma
---------- ---------- --------
(b)
Revenue
Rents $ 3,862 $ -- $ 3,862
Interest and dividends 1,037 -- 1,037
--------------------- --------
4,899 -- 4,899
--------------------- --------
Expenses
Property operating 185 -- 185
Real estate taxes 21 -- 21
Depreciation and amortization 842 -- 842
Interest 1,700 -- 1,700
General and administrative 1,000 -- 1,000
--------------------- --------
3,748 -- 3,748
--------------------- --------
Other Income
Gain on the sale of real estate
securities available for sale 142 -- 142
Gain on the sale of real estate
held for syndication 169 -- 169
Equity in earnings of preferred
equity investment -- 1,437 1,437
Equity in (loss) of investment
in limited partnership (24) -- (24)
-------- -------- --------
287 1,437 1,724
-------- -------- --------
Income from continuing
operations $ 1,438 $ 1,437 $ 2,875
======== ======== ========
Per share data - Basic:
Income from continuing
operations applicable to common
shares of beneficial interest $ 0.01 $ -- $ 0.06
======== ========
Diluted:
Income from continuing
operations applicable to
common shares of beneficial
interest $ 0.01 $ -- $ 0.06
======== ========
Basic weighted average Common
Shares 31,537 -- 31,537
Stock Options 46 -- 46
-------- --------
Diluted weighted average Common
Shares 31,583 -- 31,583
======== ========
See notes to unaudited pro forma financial statements
10
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On April 19, 2005, FT-MARC Loan LLC, a wholly-owned subsidiary of First Union
REIT L.P., the operating partnership of First Union Real Estate Equity and
Mortgage Investments (collectively, "First Union" or the "Company"), made 22
separate convertible mezzanine loans and equity investments in 22 separate
entities (each a "Borrower") wholly owned by Marc in the aggregate amount of
$70,306,191 (inclusive of a $980,000 subsequent advance). Each loan is secured
by the applicable Borrower's ownership interest in a limited liability company
(each a "Property Owner") that in turn owns an office building or complex. The
aggregate value of the Property Owners' properties is approximately $355
million. Each Borrower holds a 100% interest in the applicable Property Owner
other than with respect to one property, in which the Borrower holds a 75%
interest in the Property Owner. Each loan bears interest at 7.65%, matures on
April 18, 2012 and requires monthly payments of interest only. The amounts
advanced under each loan together with the equity investment in the applicable
Borrower, as described below, was equal to 49% of the difference between the
agreed value of the property owned by the applicable Property Owner and the
existing debt encumbering such property. Each loan may be converted into an
equity interest in the applicable Borrower after one year at the request of
First Union or three years at the option of the Borrower.
On May 6, 2005, FT-Marc Loan made additional convertible mezzanine loans and
equity investments in the amount of $5,911,968 with respect to two additional
properties on the same terms as the loans made on April 19th except that the
amount advanced under these loans together with the equity investment, as
described below, was equal to 60% of the difference between the agreed value of
the property and the existing debt encumbering the property. The two properties
have a value of approximately $31 million.
As part of the above transactions, First Union acquired an equity interest in
each of the Borrowers. The equity interest entitles First Union to participate
in capital proceeds derived from the sale or refinancing of the applicable
property to the extent such proceeds generate amounts sufficient to fully
satisfy all of the debt encumbering the applicable property, including its
respective loan and a return to the Borrower of its deemed equity (the agreed
value of the applicable property less all debt encumbering the applicable
property including the loan made by First Union) plus a 7.65% per annum return
thereon.
Further, First Union has committed to loan an additional $6,370,000 to cover the
costs of tenant improvements and capital expenditures at the 24 properties.
First Union also has the right to co-invest in all other office properties
acquired by Marc and their affiliates in the Chicago, Illinois metropolitan and
suburban areas.
2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The unaudited pro forma balance sheet as of March 31, 2005, is based on the
historical balance sheet for the Company presented in its Quarterly Report on
Form 10-Q as of March 31, 2005. Significant pro forma adjustments in the
unaudited pro forma consolidated balance sheet include the following:
(a) Represents the initial investment in the Chicago Properties.
11
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 2004, includes adjustments assuming that the equity investment in
the Chicago Properties occurred as of January 1, 2004, 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, 2004. The unaudited pro
forma consolidated statement of operations for the three months ended March 31,
2005, includes adjustments assuming that the equity investment in the Chicago
Properties occurred as of January 1, 2004, 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 March 31, 2005. Significant pro forma adjustments
in the unaudited pro forma consolidated statements of operations include the
following:
(a) Represents the pro forma income earned from January 1, 2004 through
December 31, 2004.
(b) Represents the pro forma income earned from January 1, 2005 through March
31, 2005.
12
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 July 2005.
FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
By: /s/ Thomas Staples
------------------------------
Thomas Staples
Chief Financial Officer
13