SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 24, 1998
FAC REALTY TRUST, INC.
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(Exact name of registrant as specified in charter)
Maryland 1-11998 56-1819372
- ----------- -------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
11000 Regency Parkway, Suite 300, Cary, North Carolina 27511
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(Address of principal executive
offices, including zip code)
(919) 462-8787
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On February 24, 1998, FAC Realty Trust, Inc., a Maryland corporation
(the "Company"), entered into a Master Agreement by and among the Company, FAC
Properties, L.P., Konover Management South Corp. and the other parties set forth
therein (the "Master Agreement"), pursuant to which the Company has agreed to
acquire 11 community shopping centers totaling approximately 2.0 million square
feet and valued at nearly $100 million (the "Transaction"). The purchase price
includes the assumption of approximately $76 million in debt. Of the remaining
$24 million, $7 million will be paid in cash and $17 million will be in the form
of cash and/or the issuance of limited partnership interests ("Units") of FAC
Properties, L.P., the entity through which the Company conducts substantially
all of its business. The Units will be issued at $9.50 per Unit and each Unit
will be redeemable one year from its issuance for a share of common stock of the
Company or, at the Company's option, the cash value thereof. In addition, the
Master Agreement provides that the Company will issue 200,000 warrants to Mr.
Simon Konover or his related designees. One hundred thousand of the warrants
have an exercise price of $9.50 per share, and the remaining 100,000 warrants
have an exercise price of $12.50 per share. The warrants vest in 20% increments
over a five-year period and may be subject to forfeiture upon the occurrence of
certain events.
The Company intends to operate under the name "Konover Property Trust"
upon completion of the Transaction and approval of the name change by the
shareholders. In addition, Simon Konover, the founder of Konover Associates,
will become Chairman of the Board of the Company upon the acquisition of the
shopping centers. In connection with his becoming Chairman of the Board, the
Board of Directors has decided to issue an additional 200,000 warrants to Mr.
Konover or his related designees. The warrants will be exercisable one year from
issuance at a purchase price of $9.50 per share.
The closing contemplated by the Master Agreement is subject to
customary closing conditions, and no assurance can be made that the Transaction
will, in fact, close.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS.
(a) Financial statements of business acquired.
Konover and Associates South
Report of Independent Public Accountants
Combined Statement of Revenue and Certain Expenses
Notes to Combined Statement of Revenue and Certain Expenses
b) Pro forma financial information.
Unaudited Pro Forma Condensed Consolidated Financial
Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1998
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ending December 31, 1997
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the
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three month period ending March 31, 1998
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
(c) Exhibits.
The following exhibits are filed herewith:
2.1 Master Agreement by and among the FAC Realty Trust,
Inc., FAC Properties, L.P., Konover Management South
Corp. and the other parties set forth therein
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ending March 31,
1998)
23.1* Consent of Arthur Andersen LLP
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* Previously filed.
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SIGNATURE
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 hereto duly authorized.
FAC REALTY TRUST, INC.
/s/ Patrick M. Miniutti
--------------------------
Patrick M. Miniutti
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: June 30, 1998
<PAGE>
KONOVER AND ASSOCIATES SOUTH
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
FAC Realty Trust, Inc.:
We have audited the accompanying Combined Statement of Revenue and
Certain Expenses of Konover & Associates South as described in Notes 1
and 2 for the year ended December 31, 1997. This combined financial
statement is the responsibility of Konover & Associates South's
management. Our responsibility is to express an opinion on this
combined financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined financial
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the combined financial statement. An audit also includes
assessing the basis of accounting used and the significant estimates
made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was
prepared using the basis of accounting described in Note 1 for the
purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Form 8-K of FAC Realty,
Inc. and is not intended to be a complete presentation of Konover &
Associates South's revenue and expenses.
In our opinion, the combined financial statement referred to above
presents fairly, in all material respects, the revenue and certain
expenses described in Notes 1 and 2 of Konover & Associates South for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Raleigh, North Carolina,
April 24, 1998
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KONOVER AND ASSOCIATES SOUTH
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND THE YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
(Unaudited)
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RENTAL INCOME $3,272 $12,528
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CERTAIN EXPENSES:
Repairs and maintenance 332 1,240
Utilities 71 344
Insurance 75 294
Real estate taxes 363 1,508
Ground rent expense 7 27
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Total certain expenses 848 3,413
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Revenue in excess of certain expenses $2,424 $ 9,115
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</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
<PAGE>
KONOVER AND ASSOCIATES SOUTH
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND THE YEAR ENDED
DECEMBER 31, 1997
1. DESCRIPTION OF PROPERTIES:
The Konover & Associates South (Konover) properties consist of eleven
community shopping centers located in Florida, North Carolina,
Virginia, Alabama and Georgia and contain approximately 1,955,000
square feet. At March 31, 1998, the properties were approximately 92%
leased.
2. BASIS OF PRESENTATION:
Konover is not a legal entity but rather a combination of the
operations of certain real estate properties expected to be acquired by
FAC Realty Trust, Inc. The accompanying Combined Statement of Revenue
and Certain Expenses includes the accounts of the community shopping
center properties, each of which is wholly owned by various parties not
affiliated with FAC Realty Trust, Inc.
In accordance with Rule 3-14 of Regulation S-X, the accompanying
combined financial statement is not representative of the actual
operations for the periods presented as certain revenue and expenses,
which may not be comparable to those expected to be incurred by FAC
Realty Trust, Inc. in the proposed future operations of the
aforementioned properties, have been excluded. Interest income has been
excluded from revenue. Expenses excluded consist of depreciation and
amortization, management fees, general and administrative and interest
expenses not directly related to future operations. Management is not
aware of any other material factors that would cause the accompanying
Combined Statement of Revenue and Certain Expenses to not be indicative
of the future operations of Konover.
3. SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Minimum rental income is recognized on a straight-line basis over the
term of the lease. Certain lease agreements contain provisions which
provide for rents based on a percentage of sales and certain leases
provide for additional rents based on a percentage of sales volume
above a specified breakpoint and reimbursement of real estate taxes,
insurance, advertising, utilities and certain common area maintenance
(CAM) costs. These additional rents are reflected on the accrual basis.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined
financial statement and accompanying notes. Actual results could differ
from those amounts.
INTERIM AUDITED FINANCIAL INFORMATION
The accompanying unaudited financial information for the three months
ended March 31, 1998, has been prepared consistent with the rules and
regulations of the Securities and Exchange Commission governing the
preparation of the amounts for the year ended December 31, 1997.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, necessary to present fairly the Combined Statement of Revenue
and Certain Expenses for the three months ended March 31, 1998, have
been included. The results of operations for the three-month period
ended March 31, 1998, are not necessarily indicative of the results for
the full year.
4. LEASES:
The Konover properties are being leased to tenants under operating
leases that will expire through 2033.
Expected future minimum rents to be received over the next five years
and thereafter from tenants for leases in effect at December 31, 1997,
are as follows (in thousands):
1998 $ 12,350
1999 11,150
2000 10,100
2001 9,240
2002 8,100
Thereafter 56,515
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$107,455
=========
Konover leases the land for one shopping center. Annual expense related
to this lease is approximately $27,000 through 2026.
<PAGE>
PRO FORMA INFORMATION
The following sets forth unaudited pro forma financial information for
FAC Realty Trust, Inc. (the Company) as of March 31, 1998 and December
31, 1997, after giving effect to the acquisition of community shopping
centers from Konover (the Transaction) as described in Note 1 hereto.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if the Transaction had occurred on December 31, 1997. The
unaudited Pro Forma Condensed Consolidated Statements of Operations for
the three months ended March 31, 1998 and for year ended December 31,
1997 is presented as if the Transaction had occurred as of the
beginning of each period presented.
In management's opinion, all material adjustments necessary to reflect
the transaction described above are presented in the pro forma
adjustments columns, which are further described in the notes to the
unaudited pro forma financial information.
The unaudited Pro Forma Condensed Consolidated Balance Sheet and the
unaudited Pro Forma Condensed Consolidated Statements of Operations
should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto. The unaudited Pro Forma
Condensed Consolidated Balance is not necessarily indicative of what
the actual financial position of the Company would have been at March
31, 1998, nor does it purport to represent the future financial
position of the Company. The unaudited Pro Forma Condensed Consolidated
Statements of Operations are not necessarily indicative of what the
actual results of operations of the Company would have been assuming
the aforementioned transactions had been consummated as of the
beginning of the respective periods, nor does it purport to represent
the results of operations for future periods.
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FAC Realty
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(In Thousands)
As of March 31, 1998
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Pro Forma Adjustments
-----------------------------------------------------
Acquired Properties Probable Acquisition
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Rodwell/ Pro Forma
Historical (A) Konover (B) Kane (C) Consolidated
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(Unaudited) (Unaudited) (Unaudited)
Income Producing Properties, net 394,813 99,763 (1) 9,584 (6) 504,160
Properties Under Development 6,886 6,886
Properties Held for Sale 12,454 12,454
Investments in Joint Ventures 4,438 4,438
Other Assets 50,159 (7,015) (4) (3,247) (7) 39,897
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468,750 92,748 6,337 567,835
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Debt on income producing properites 263,194 75,799 (2) 5,777 (8) 344,770
Other Liabilities 10,945 6,750 (5) 17,695
Minority Interest 8,744 10,199 (3) 560 (9) 19,503
Common Stock subject to
put option 22,325 22,325
Convertible Preferred Stock 19,162 19,162
Warrants 9 9
Common Stock 119 119
APIC 146,167 146,167
Deferred Compensation (398) (398)
Retained Deficit (1,517) (1,517)
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468,750 92,748 6,337 567,835
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Adjustments (dollars in thousands):
(A) Reflects the Company's historical condensed consolidated balance sheet as of
March 31, 1998
(B) Reflects the following pro forma adjustments related to the acquired
properties from Konover:
(1) total acquisition costs of $99,763
(2) the assumption of existing debt of $75,799
(3) the proposed issuance of 1,073,584 operating partnership units
(4) the proposed use of cash
(5) the issuance of a note payable of $6,750
(C) Reflects the pro forma adjustments related to the acquired properties from
Rodwell/Kane:
(6) total acquisition costs of $9,584
(7) proposed use of cash
(8) the assumption of existing debt of $5,777
(9) the proposed issuance of 58,937 operating partnership units
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FAC Realty
Unaudited Pro Forma Condensed Consolidated Statement of Income
(In thousands)
Year Ending December 31, 1997
Pro Forma Adjustments
---------------------------------------------------------
Acquired Properties Probable Acquisition
--------------------------------- --------------------
Rodwell/ Pro Forma
Historical (A) Kane (B) Konover (C) Consolidated
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(Unaudited) (Unaudited) (Unaudited)
Revenues 53,726 6,939 (1) 12,528 (6) 73,193
Property Operating Expenses 15,671 1,189 (1) 3,413 (6) 20,273
General and Administrative 6,397 200 (2) 320 (7) 6,917
Depreciation and Amortization 15,652 1,465 (3) 2,076 (8) 19,173
Interest Expense 16,436 3,500 (4) 6,280 (9) 26,216
Extraordinary loss on extinguishment of debt 986 0 986
Minority Interest (63) (5) (72) (10) (135)
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Net income (loss) (1,416) 648 511 (257)
======================================================================================
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Loss per share (0.01)
========
</TABLE>
Adjustments:
(A) Reflects the Company's historical condensed consolidated statements of
operations for the year ended December 31, 1997
(B) Reflects the unaudited pro forma adjustments for the purchase of the
acquired properties from Rodwell/Kane:
(1) the historical operating activity of the acquired properties less
management fee of $286 earned by the Company for the year ended
December 31, 1997
(2) the increase in general and administrative costs associated with the
management and operations of the acquired properties
(3) the depreciation expense based on the new accounting basis of the
properties based on a 39 year life
(4) Reflects the additional interest expense on debt of $44,397 at interest
rates ranging between 7.4% and 10.7% and a weighted average interest rate
of 8.2% at December 31, 1997
(5) the minority interests in earnings
(C) Reflects the unaudited pro forma adjustments for the purchases of the
acquired properties from Konover:
(6) the historical operating activitiy of the acquired properties
(7) the increase in general and administrative costs associated with the
management and operations of the acquired properties
(8) the depreciation expense based on the new accounting basis of the
properties based on a 39 year life
(9) Reflects the additional interest expense on debt of $75,800 at
interest rates ranging between 6% and 9.2% and a weighted average interest
rate of 8.3% at December 31, 1997
(10) the minority interests in earnings
<PAGE>
<TABLE>
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FAC Realty
Unaudited Pro Forma Condensed Consolidated Statement of Income
(In thousands)
Three Month Period Ending March 31, 1998
Pro Forma Adjustments
---------------------------------------------------------
Acquired Properties Probable Acquisition
--------------------------------- --------------------
Rodwell/ Pro Forma
Historical (A) Kane (B) Konover (C) Consolidated
--------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Rental Revenues 13,929 1,138 (1) 3,272 (7) 18,339
Property Operating Expenses 4,149 350 (2) 848 (7) 5,347
General and Administrative 1,527 9 (3) 80 (8) 1,616
Depreciation and Amortization 3,973 366 (4) 520 (9) 4,859
Interest Expense 4,381 875 (5) 1,575 (10) 6,831
Minority Interest (17) (6) (51) (11) (68)
--------------------------------------------------------------------------------------
Net income (loss) (101) (445) 300 (246)
======================================================================================
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Loss per share (0.01)
========
</TABLE>
Adjustments:
(A) Reflects the Company's historical condensed consolidated statements of
operations for the three months ended March 31, 1998
(B) Reflects the unaudited pro forma adjustments for the purchases of the
acquired properties from Rodwell/Kane:
(1) the historical operating activity of the acquired properties less
management fee income earned by the Company of $666 for the management of
the Rodwell/Kane properties for the three months ended March 31, 1998
(2) the historical operating activity of the acquired properties
(3) the increase in general and administrative costs associated with the
management and operations of the acquired properties
(4) the depreciation expense based on the new accounting basis of the
properties based on a 39 year life
(5) Reflects the additional interest expense on assumed debt of $44,397
at interest rates ranging between 7.4% and 10.7% and a weighted average
interst rate of 8.2% at March 31, 1998
(6) the minority interests in earnings
(C) Reflects the unaudited pro forma adjustments for the purchases of the
acquired properties from Konover:
(7) the historical operating activity of the acquired properties
(8) the increase in general and administrative costs associated with the
management and operations of the acquired properties
(9) the depreciation expense based on the new accounting basis of the
properties based on a 39 year life
(10) Reflects the additional interest expense on debt of $75,800 at
interest rates ranging between 6% and 9.2% and a weighted average interest
rate of 8.3% at March 31, 1998
(11) the minority interests in earnings
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying Unaudited Condensed Consolidated Pro Forma Financial
Statements of FAC Realty Trust, Inc. (the Company) have been prepared
in accordance with the instructions to Form 8-K and do not include all
of the information and notes required by generally accepted accounting
principals for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation have been included. For further information, refer to the
consolidated financial statements and notes thereto for the year
December 31, 1997, included in the Company's form 10-K dated April 15,
1998.
