<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
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OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________________ to ____________________
Commission file number 0-23917
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Chastain Capital Corporation
(Exact name of registrant as specified in its governing instrument)
<TABLE>
<CAPTION>
Georgia 58-2354416
<S> <C>
(State of Organization) (I.R.S. Employer Identification No.)
</TABLE>
3424 Peachtree Road N.E., Suite 800, Atlanta, Georgia 30326
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (404)848-8850
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date. 8,980,778 shares of common
--------------------------
stock outstanding as of June 3, 1998
- ------------------------------------
<PAGE> 2
CHASTAIN CAPITAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 (Unaudited)
Consolidated Statement of Income for the three months
ended March 31, 1998 (Unaudited)
Consolidated Statement of Cash Flows for the three
months ended March 31, 1998 (Unaudited)
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
- ------ -------- -----------
<S> <C> <C>
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
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STOCKHOLDERS' EQUITY
- --------------------
Preferred stock, $0.01 par value. Authorized 25,000,000 shares, no
shares issued
Common stock, $0.01 par value. Authorized 200,000,000 shares,
100 shares issued and outstanding $ 1 $ 1
Paid-in capital 999 999
------ ------
Total stockholders' equity $1,000 $1,000
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</TABLE>
See accompanying Notes to Consolidated Financial Statements.
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Net Income $ 0
======
Net Income per common share $ 0.00
======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Cash and cash equivalents, beginning of period $1,000
------
Cash and cash equivalents, end of period $1,000
======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1- ORGANIZATION
Chastain Capital Corporation (the "Company") was incorporated in Georgia on
December 16, 1997 and was initially capitalized on such date through the sale of
100 shares of Common Stock for an aggregate purchase price of $1,000. The
Company will seek to originate commercial and multifamily mortgage loans
("Mortgage Loans") for the purpose of issuing collateralized mortgage
obligations ("CMOs") collateralized by its Mortgage Loans and retaining the
Mortgage Loans subject to the CMO debt. As a result of such transactions, the
Company will retain a "first loss" subordinated equity ownership interest in the
Mortgage Loans that has economic characteristics similar to those of
subordinated interests in commercial mortgage-backed securities ("CMBS"). The
Company also intends to acquire subordinated interests in CMBS, originate and
acquire investments in real property that are subordinated to first lien
Mortgage Loans ("Mezzanine Investments") and acquire real property and other
real estate related assets.
Through March 31, 1998, the Company had no operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of the Company and its wholly owned subsidiaries. All material intercompany
accounts have been eliminated in consolidation.
Income Taxes
The Company is organized as a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986, as amended. As a REIT,
the Company must distribute to its shareholders at least 95% of its taxable
income and is not subject to federal income tax to the extent income is
distributed.
Income Recognition
Income and expenses are to be recorded on the accrual basis of accounting.
NOTE 3 - SUBSEQUENT EVENTS
On April 23, 1998, the Company consummated an initial public offering
("IPO") of 7,380,000 shares of its Common Stock, with gross proceeds of
$110,700,000 and net proceeds to the Company of $102,951,000.
The Company also issued, pursuant to two separate private placements, an
aggregate of 897,678 shares of Common Stock to ERE Yarmouth Holdings, Inc., an
indirect wholly-owned subsidiary of Lend Lease Corporation Limited ("Lend
Lease"), and 700,000 shares of Common Stock to FBR Asset Investment Corporation,
an affiliate of Friedman, Billings, Ramsey & Co., Inc., each of which closed
concurrently with the closing of the IPO, at $13.95 per share, with total
proceeds to the Company of $22,287,608.
The Company entered into a Management Agreement (the "Management
Agreement") with ERE Yarmouth, Inc. (the "Manager"), an indirect wholly-owned
subsidiary of Lend Lease, under which the Manager will advise the Company on
various facets of its business and manage its day-to-day operations, subject to
the supervision of the Company's Board of Directors.
<PAGE> 5
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
Pursuant to the Management Agreement, the Company will pay the Manager a
quarterly base management fee equal to the following:
<TABLE>
<S> <C>
For the first four fiscal quarters..... 1.00% per annum of the Average Invested Assets 1 of the
Company
During each fiscal quarter
thereafter........................ 0.85% per annum of the Average Invested Assets up to $1 billion
0.75% per annum of the Average Invested Assets from $1 billion to
$1.25 billion
0.50% per annum of the Average Invested Assets in excess of $1.25
billion
</TABLE>
The Management Agreement also provides for a quarterly incentive management
fee equal to the product of (A) 25% of the dollar amount by which (1) (a) Funds
From Operations 2 (before the incentive fee) of the Company for the applicable
quarter per weighted average number of shares of Common Stock outstanding plus
(b) gains (or minus losses) from debt restructuring or sales of assets not
included in Funds From Operations of the Company for such quarter per weighted
average number of shares of Common Stock outstanding, exceed (2) an amount equal
to (a) the weighted average of the price per share at initial offering and the
prices per share at any secondary offerings by the Company multiplied by (b) 25%
of the sum of the Ten-Year U.S. Treasury Rate plus four percent, and (B) the
weighted average number of shares of Common Stock outstanding.
In addition, the Management Agreement provides for a termination fee equal
to the sum of the base management fee and incentive management fee, if any,
earned during the immediately preceding four fiscal quarters.
The Company adopted a stock option plan to provide incentive compensation
for the Company's executive officers and the Manager, whereby the Manager was
granted an option to purchase 1,166,667 shares of Common Stock of the Company
exercisable at the initial public offering price. One-fourth of the Manager's
options will be exercisable on each of the first four anniversaries of the
closing date of the IPO.
The underwriters sold 79,586 shares of Common Stock that were purchased in
the IPO to directors and officers of the Company and the Manager for $15.00 per
share. Pursuant to the Company's Directed Share Program, such individuals were
granted an option to purchase one share of Common Stock for each share of Common
Stock purchased in the IPO. One-fifth of the options were exercisable
immediately, and one-fifth of the options will be exercisable on each of the
first four anniversaries of the closing date of the IPO. The individuals who
bought shares of Common Stock pursuant to such reservation were required to
agree not to offer or sell or contract to sell or otherwise dispose of any
Common Stock of the Company without the prior consent of the underwriters'
representatives for a period of one year from the date of the IPO.
1 The term "Average Invested Assets" for any period means the average of the
aggregate book value of the assets of the Company, including a proportionate
amount of the assets of all of its direct and indirect subsidiaries, before
reserves for depreciation or bad debts or other similar noncash reserves less
(i) uninvested cash balances and (ii) the book value of the Company's CMO
liabilities, computed by dividing (a) the sum of such values for each of the
three months during such quarter (based on the book value of such assets as of
the last day of each month) by (b) three.
2 The term "Funds From Operations" as defined by the National Association of
Real Estate Investment Trusts, Inc. means net income (computed in accordance
with generally accepted accounting principles ("GAAP")) excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization on real estate assets, and after deduction of preferred stock
dividends, if any, and similar adjustments for unconsolidated partnerships and
joint ventures. Funds From Operations does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company was incorporated in Georgia on December 16, 1997 for the
purpose of investing in multifamily and commercial Mortgage Loans, CMBS
interests, Mezzanine Investments and Real Property. The Company expects to
generate income for distribution to its shareholders primarily from the net
income derived from its investments in real estate related assets. The Company
intends to operate in a manner that permits it to elect, and it intends to
elect, to be subject to tax as a real estate investment trust for federal income
tax purposes. On April 23, 1998, the Company commenced its operations upon
consummation of a public offering of 7,380,000 shares of its Common Stock. The
Company had not conducted any operations as of March 31, 1998.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
<PAGE> 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities and Use of Proceeds
On April 23, 1998, the Securities and Exchange Commission (the
"Commission") declared effective the Company's Registration Statement on Form
S-11 (File No. 333-42629) (the "Registration Statement") relating to the initial
public offering of 7,380,000 shares of its Common Stock at an initial public
offering price of $15.00 per share. In addition to the Company's initial public
offering, 897,687 shares of the Company's Common Stock were sold to ERE Yarmouth
Holdings, Inc. and 700,000 shares of the Company's Common Stock were sold to FBR
Asset Investment Corporation, in each case for $13.95 per share in sales exempt
from registration under the Securities Act of 1933, as amended (the "Act")
pursuant to Section 4(2) of the Act. Both ERE Yarmouth Holdings, Inc. and FBR
Asset Investment Corporation are "accredited investors" as that term is defined
in Rule 501(a) promulgated by the Commission under the Act. On April 28, 1998,
the Company completed (i) the offering of 7,380,000 shares of Common Stock, with
gross proceeds of $110,000,000 and net proceeds (after subtracting underwriting
discounts and commissions) to the Company of $102,951,000; (ii) the sale of
897,687 shares of Common Stock to ERE Yarmouth Holdings, Inc. with net proceeds
to the Company of $12,522,608; and (iii) the sale of 700,000 shares of Common
Stock to FBR Asset Investment Corporation with net proceeds to the Company of
$9,765,000. The managing underwriters of the initial public offering were
Friedman, Billings, Ramsey & Co., Inc. and EVEREN Securities, Inc.
Item 3. Default Upon Senior Securities
Response: None
Item 4. Submission of matters to a Vote of Security Holders
On February 11, 1998, by unanimous written consent of the sole
stockholder in lieu of a meeting of stockholders, the Company's 1998 Stock
Option Plan was approved in the form adopted by the Board of Directors.
On February 27, 1998, by unanimous written consent of the sole
stockholder in lieu of a meeting of stockholders, the Company's Articles of
Incorporation were amended and restated in the form adopted by the Board of
Directors.
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response:
a) Exhibit
27 Financial Data Schedule (for SEC filing purposes only)
b) Reports
None
<PAGE> 8
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, thereunto duly authorized.
Chastain Capital Corporation
By: /s/Steve Grubenhoff
-------------------------
Steve Grubenhoff
Chief Financial Officer
Date: June 5, 1998
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- --------------------------------------------------------
<S> <C>
27 Financial Data Schedule (for SEC filing purposes only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHASTAIN CAPITAL CORPORATION FOR THE PERIOD ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 999
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
