FORM 10-Q/A
Securities and Exchange Commission
Washington, D.C. 20549
[ 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
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 1-11998
FAC REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 56-1819372
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11000 Regency Parkway
Third Floor, East Tower
Cary, North Carolina 27511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(919) 462-8787
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
------ -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Date: April 30, 1998
Number of shares outstanding: 14,276,566
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PAGE NO.
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 .................................. 4
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997................. 5
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1998................ 6
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997................. 7
Notes to Consolidated Financial Statements............................................................... 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FAC REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 DECEMBER 31, 1997
(UNAUDITED) (AUDITED)
--------------------------------------------
(IN THOUSANDS)
ASSETS
INCOME PRODUCING PROPERTIES:
Land $ 88,822 $ 81,233
Buildings and improvements 337,887 292,726
Deferred leasing and other charges 21,975 21,366
--------------------------------------------
448,684 395,325
Accumulated depreciation and amortization (53,871) (50,134)
--------------------------------------------
394,813 345,191
Properties under development 6,886 6,456
Properties held for sale 12,454 12,490
--------------------------------------------
414,153 364,137
OTHER ASSETS:
Cash and cash equivalents 11,924 4,872
Restricted cash 2,871 3,858
Tenant and other receivables 7,524 7,167
Deferred charges and other assets 13,238 8,851
Investment in joint ventures 4,438 4,283
Notes receivable 14,602 10,458
--------------------------------------------
$ 468,750 $ 403,626
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Debt on income properties $ 263,194 $ 232,575
Other unsecured notes 141 197
Capital lease obligations 1,044 1,131
Accounts payable and other liabilities 9,760 6,796
--------------------------------------------
274,139 240,699
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN OPERATING PARTNERSHIP 8,744 -
COMMON STOCK, 2,350,000 shares issued, subject to a limited put option 22,325 -
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A, 5,000,000 shares authorized,
800,000 issued and outstanding 19,162 19,162
Stock purchase warrants 9 9
Common stock, $0.01 par value, 45,000,000 shares authorized, 11,926,566
and 11,904,182 issued and outstanding , respectively 119 119
Additional paid-in capital 146,167 145,332
Accumulated deficit (1,517) (1,416)
Deferred compensation - Restricted Stock Plan (398) (279)
--------------------------------------------
163,542 162,927
============================================
$ 468,750 $ 403,626
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FAC REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
---------------------------------------------
RENTAL OPERATIONS: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Base rents $ 9,178 $ 8,723
Percentage rents 151 127
Property operating cost recoveries 3,373 2,941
Other income 1,227 131
---------------------------------------------
13,929 11,922
---------------------------------------------
Property operating costs:
Common area maintenance 1,609 1,280
Utilities 305 304
Real estate taxes 1,391 1,320
Insurance 162 191
Marketing 159 230
Other 523 148
---------------------------------------------
4,149 3,473
Depreciation and amortization 3,973 4,063
---------------------------------------------
8,122 7,536
---------------------------------------------
5,807 4,386
---------------------------------------------
OTHER EXPENSES:
General and administrative 1,527 2,288
Interest 4,381 3,534
---------------------------------------------
5,908 5,822
---------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (101) (1,436)
Extraordinary loss on early extinguishment of debt - (986)
---------------------------------------------
NET LOSS $ (101) $ (2,422)
---------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss before extraordinary item $ (0.01) $ (0.12)
Extraordinary item - (0.08)
---------------------------------------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (0.01) $ (0.20)
=============================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING $ 11,954 $ 11,836
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FAC REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
CONVERTIBLE STOCK PURCHASE ADDITIONAL PAID
PREFERRED STOCK WARRANTS COMMON STOCK IN CAPITAL
---------------------------------------------------------------------
BALANCE AT JANUARY 1, 1998 $ 19,162 $ 9 $ 119 $ 145,332
Issuance of 6,530 employee stock purchase -- -- -- 39
plan shares
Issuance of 32,560 restricted shares -- -- -- 261
Cancellation of 12,922 restricted shares -- -- -- (106)
Repurchase of 3,784 restricted shares -- -- -- (30)
Compensation under stock plans -- -- -- 261
Reclass of prior years compensation under
stock plans -- -- -- 410
Net loss -- -- -- --
=========
BALANCE AT MARCH 31, 1998 $ 19,162 $ 9 $ 119 $ 146,167
=========
<CAPTION>
DEFERRED
COMPENSATION
ACCUMULATED RESTRICTED STOCK
DEFICIT PLAN TOTAL
------------------------------------------------------
BALANCE AT JANUARY 1, 1998 $ (1,416) $ (279) $ 162,927
Issuance of 6,530 employee stock purchase - - 39
plan shares
Issuance of 32,560 restricted shares - (261) 0
Cancellation of 12,922 restricted shares - 106 0
Repurchase of 3,784 restricted shares - - (30)
Compensation under stock plans - 36 297
Reclass of prior years compensation under
stock plans - - 410
Net loss (101) - (101)
======================================================
BALANCE AT MARCH 31, 1998 $ (1,517) $ (398) $ 163,542
======================================================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FAC REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (101) $ (2,422)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,973 4,063
Extraordinary loss on early extinguishment of debt - 986
Amortization of deferred financing costs 357 417
Compensation under stock plans 297 52
Net changes in:
Tenant and other receivables (357) 1,380
Deferred charges and other assets (478) (164)
Accounts payable and other liabilities 3,374 (238)
--------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,065 4,074
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in income-producing properties (1,917) (3,302)
Note receivable (155) -
Investment in joint venture (4,144) -
Acquisition of income-producing properties, net (2,281) (32,421)
Change in restricted cash 987 (12)
--------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,510) (35,735)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt on income properties 76,000 117,000
Repayment of debt on income properties (86,288) (85,036)
Deferred financing charges (1,156) (1,860)
Other debt repayments (143) -
Net proceeds from sale of common stock 19,114 7
Repurchase of restricted stock (30) -
--------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,497 30,111
--------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,052 (1,550)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,872 7,034
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,924 $ 5,484
============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest (net of interest
capitalized of $269 and $476) $ 2,781 $ 3,765
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
FAC REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
ORGANIZATION
FAC Realty Trust, Inc. (the "Company"), formerly Factory Stores of America,
Inc., was incorporated on March 31, 1993 as a self-administrated and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, ownership, and operation of community
and outlet shopping centers. The Company's revenues are primarily derived under
real estate leases with national, regional and local retailing companies.
On December 17, 1997, following shareholder approval, the Company changed
its domicile from the State of Delaware to the State of Maryland. The
reincorporation was accomplished through the merger of FAC Realty, Inc. into its
Maryland subsidiary, FAC Realty Trust, Inc. Following the reincorporation on
December 18, 1997, the Company reorganized as an umbrella partnership real
estate investment trust (an "UPREIT"). The Company then contributed to FAC
Properties, L.P., a Delaware limited partnership (the "Operating Partnership")
substantially all of its assets and liabilities, except for legal title to 18
properties which remain in a wholly owned subsidiary of the Company. In exchange
for the Company's assets, the Company received limited partnership interests
("Units") in the Operating Partnership in an amount and designation that
corresponded to the number and designation of outstanding shares of capital
stock of the Company at the time. The Company is the sole general partner of the
Operating Partnership. As additional limited partners are admitted to the
Operating Partnership in exchange for the contribution of properties, the
Company's percentage ownership in the Operating Partnership will decline. As the
Company issues additional shares of capital stock, it will contribute the
proceeds for that capital stock to the Operating Partnership in exchange for a
number of Units equal to the number of shares that the Company issues. The
Company conducts substantially all of its business and owns substantially all of
its assets (either directly or through subsidiaries) through the Operating
Partnership such that a Unit is economically equivalent to a share of the
Company's common stock.
An UPREIT may allow the Company to offer Units in the Operating Partnership
in exchange for ownership interests from tax-motivated sellers. Under certain
circumstances, the exchange of Units for a seller's ownership interest will
enable the Operating Partnership to acquire assets while allowing the seller to
defer the tax liability associated with the sale of such assets. Effectively,
this allows the Company to use Units instead of stock to acquire properties,
which provides an advantage over non-UPREIT entities.
As of March 31, 1998, the properties owned by the Company consist of: (1)
37 community shopping centers in 15 states aggregating approximately 3,969,000
square feet; (2) 10 outlet centers in 9 states aggregating approximately
2,120,000 square feet; (3) two outlet centers aggregating approximately 150,000
square feet that are held for sale and one former factory outlet center which
has been converted to commercial office use with approximately 150,000 square
feet and sold subsequent to March 31, 1998; and (4) approximately 178 acres of
outparcel land located near or adjacent to certain of the Company's centers and
which are being marketed for lease or sale.
As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, competition, inability to rent unleased space,
failure to generate sufficient income to meet operating expenses, as well as
debt service, capital expenditures and tenant improvements, environmental
matters, financing availability and changes in real estate and zoning laws. The
success of the Company also depends upon certain key personnel, the Company's
ability to maintain its qualification as a REIT, compliance with the terms and
conditions of the debt on its income properties and other debt instruments, and
trends in the national and local economy, including income tax laws,
governmental regulations and legislation and population trends.
8
<PAGE>
FAC REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company, the Operating Partnership and its majority-owned subsidiaries. All
significant intercompany balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (primarily consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1998
are not necessarily indicative of results that may be expected for a full fiscal
year. For further information, refer to the audited financial statements and
accompanying footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIC AND DILUTED EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share". Under SFAS No. 128, basic earnings per share ("EPS") and diluted EPS
replace primary EPS and fully diluted EPS. Basic EPS is calculated by dividing
the income available to common stockholders by the weighted-average number of
common shares outstanding. Diluted EPS reflects the potential dilution that
could occur if options or warrants to purchase common shares were exercised and
preferred stock was converted into common shares ("potential common shares").
All prior periods presented have been restated. For the quarters ended March 31,
1998 and 1997, basic and diluted EPS are computed based on a weighted-average
number of shares outstanding of 11,954,000 and 11,836,000, respectively.
Potential common shares have been excluded from diluted EPS for the quarters
ended March 31, 1998 and 1997 because the effect would be antidilutive.
DIVIDENDS
There were no accrued dividends as of December 31, 1997 and no dividends
were declared during the three month period ended March 31, 1998.
RECLASSIFICATIONS
Certain 1997 financial statement amounts have been reclassified to
conform with 1998 classifications. These reclassifications had no effect on net
loss as previously reported.
9
<PAGE>
FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. ACQUISITIONS AND SIGNIFICANT TRANSACTIONS
LAZARD FRERES TRANSACTION
On February 24, 1998, Prometheus Southeast Retail, LLC ("PSR"), a real
estate investment affiliate of Lazard Freres Real Estate Investors, LLC,
entered into a definitive agreement (the "Stock Purchase Agreement") with the
Company to make a $200 million strategic investment in the Company (the
"Transaction"). PSR has committed to purchase $200 million in newly issued
common shares of the Company at a purchase price of $9.50 per share. The
investment can be made in stages, at the Company's option, through March 30,
2000 allowing the Company to obtain capital as needed to fund its future
acquisition and development plans as well as retire debt. Upon completion of
funding, PSR will own an equity interest in the Company of approximately 60%, on
a diluted basis, not including any further issuance of Operating Partnership
Units for transactions under contract or transactions into which the Company may
enter in the future.
As part of the Transaction, three representatives of Lazard will be
nominated to the Company's Board of Directors, which will have a total number of
nine directors.
On March 23, 1998, the Company issued 2,350,000 shares of its common stock
to PSR for a total consideration of $22.3 million (the "Initial Purchase") as
part of the First Closing. In the event that the Second Closing does not occur
by September 30, 1998 or the Stock Purchase Agreement is terminated prior to the
Second Closing (other than as a result of PSR's material breach of the Stock
Purchase Agreement), PSR has an option under the Stock Purchase Agreement to
require that the Company repurchase the shares of Common Stock acquired in the
Initial Purchase at a price equal to the purchase price thereof, together with
any accrued dividends (the "Put Option"). The Put Option may also be exercised
at any time within two months after the earlier to occur of the date that the
Company fails to receive stockholder approval of the Transaction, the date the
Stock Purchase Agreement is terminated prior to the Second Closing and August
31, 1998. The Company does not have the right to require PSR to exercise the Put
Option. Therefore, in the event that stockholder approval of the Transaction is
not obtained and PSR does not exercise the Put Option within two months, the
shares of Common Stock issued to PSR in the Initial Purchase will remain
outstanding and the Put Option will expire.
If the stockholders approve the Transaction, PSR would have the right,
pursuant to a Contingent Value Right Agreement, to receive on January 1, 2004
payment of an aggregate amount equal to the lesser of (a) (i) 21,052,632 shares
multiplied by $19 per share ($400 million) less (ii) the dividends paid to PSR
through January 1, 2004 and less (iii) the fair market value of the shares
purchased and (b) 4,500,000 multiplied by the fair market value on such date.
Whether or not the Transaction is fully consummated, the Company will
reimburse PSR for its expenses in connection with the Transaction, including
expenses of monitoring the Company and of performing its duties under the
Transaction Documents. These expenses and Transaction expenses incurred by the
Company are estimated to aggregate approximately $3.3 million, exclusive of a
claim by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") of a
"success based" advisory fee. The Company believes that DLJ, which rendered a
fairness opinion to the Company, but was not requested to perform any other
services in connection with the Transaction, is not entitled to any additional
fees or consideration. DLJ, however, has notified the Company that it believes
it is entitled to additional "success based" advisory fees under the terms of
its engagement letter with the Company dated May 23, 1997. As of the date
hereof, there has been no resolution of the disagreement.
Provided that PSR is not in material default under the Stock Purchase
Agreement, has not breached any of its representations and warranties in any
material respect and has satisfied in all material respects its covenants
relating to the Initial Purchase, the Company will pay PSR a break-up fee of
$2,250,000 (the "Break-up Fee") in the event that the Stock Purchase Agreement
is terminated any time prior to the Second Closing. The Break-up Fee, therefore,
will be payable to PSR if the stockholders do not approve the Transaction. In
addition, in the event that a competing transaction is entered into by the
Company on any date on or prior to the one-year anniversary of the date that the
Stock Purchase Agreement is terminated, the Company will pay PSR an additional
$3,000,000 (the "Topping Fee").
10
<PAGE>
FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notwithstanding the foregoing, if a Topping Fee is payable to PSR and PSR
profits on the sale of the shares purchased in the Initial Purchase in
connection with a competing transaction, then PSR must pay the Company the
amount by which such profit, the Break-up Fee and the Topping Fee exceed
$7,750,000.
Each of the Company's and PSR's obligations to effect the Second Closing
and the Subsequent Closings are subject to various mutual and unilateral
conditions, including, without limitation, the following: (i) stockholder
approval of the Transaction; (ii) the continued qualification of the Company as
a REIT for federal income tax purposes; (iii) the receipt of an opinion of
counsel to the effect that the Company is a "domestically controlled" REIT; (iv)
the continuing correctness of the representations and warranties in the Stock
Purchase Agreement, (v) the receipt of any consents necessary for the
Transaction, and (vi) various other customary conditions. In addition, PSR is
not obligated to fund more than $100 million of the Transaction unless a
significant portion of the Konover & Associates South transaction, as described
below, is consummated.
KONOVER & ASSOCIATES SOUTH TRANSACTION
On February 24, 1998, the Company entered into definitive agreements with
affiliates of Konover & Associates South, a privately held real estate
development firm based in Boca Raton, Florida, to acquire 11 community shopping
centers totaling approximately 2.0 million square feet and valued at nearly $100
million. The purchase equates to approximately $24 million in equity, consisting
of the issuance of Units, at $9.50 per Unit, and/or cash, plus the assumption of
approximately $76 million in debt. At closing, $17 million of the equity will be
paid in the form of Units or cash. The remaining $7 million will be paid in cash
over a three-year period with interest at 7.75% per annum.
As part of the transaction, the Company intends to operate under the name
"Konover Property Trust". The Company will remain listed on the New York Stock
Exchange and intends to change its ticker symbol from FAC to KPT, pending formal
approval by the shareholders in July, 1998. The Company will continue to operate
the Konover & Associates South office in Boca Raton, Florida due to its
strategic location in the Southeast.
Simon Konover, founder of both Konover & Associates South and Konover &
Associates, Inc., a $500 million plus real estate company headquartered in West
Hartford, Connecticut, will become Chairman of the Board of the Company upon
completion of the transaction. He will not become an executive officer of the
Company.
RODWELL/KANE PORTFOLIO
On October 7, 1997, the Company entered into agreements to purchase nine
shopping centers located in North Carolina and Virginia, (the "Rodwell/Kane
Properties") totaling 1.0 million square feet, and to assume third-party
management of an additional 1.2 million square feet of community shopping
centers. The centers to be purchased are owned primarily by Roy O. Rodwell,
Chairman and Co-Founder of Atlantic Real Estate Corporation ("ARC"), a privately
held real estate development company based in Durham, North Carolina and John M.
Kane, Chairman of Kane Realty Corporation, a real estate development and
brokerage company based in Raleigh, North Carolina, in a transaction valued at
$63.3 million.
As of March 31, 1998, the acquisition of seven of the nine centers
discussed above had closed. The acquisition of the eighth center closed on May
14, 1998. The ninth and final center will be managed by the Company and is
expected to be acquired in the year 2000. Its acquisition prior to the year 2000
would trigger an onerous loan assumption fee.
In exchange for their equity ownership interests in the community centers,
Mr. Rodwell, Mr. Kane and related parties will receive approximately 1.2 million
Units in the Operating Partnership and approximately $3.0 million in cash. The
number of Units to be issued to the sellers was based on a $9.50 price per share
of the Company's
11
<PAGE>
FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Common Stock. The issuance of approximately 269,000 Units and payment of $0.8
million of cash will be deferred until the completion of certain performance
requirements. As part of the purchase price, the Company will also assume
approximately $48.8 million of fixed-rate debt on the properties to be acquired.
JOINT VENTURES
On September 22, 1997, the Company and ARC jointly created a limited
liability company named Atlantic Realty LLC ("Atlantic") to develop and manage
retail community and neighborhood shopping centers in North Carolina. Atlantic
currently has plans to develop approximately one million square feet, including
outparcels, over the next several years. The Company and ARC will own Atlantic
equally, with the Company serving as managing member overseeing its operations.
As of March 31, 1998, the Company has invested $2.5 million in this joint
venture. The investment in Atlantic will be accounted for under the equity
method of accounting as major decisions must be agreed to by both the Company
and ARC. As of March 31, 1998, Atlantic had total assets of approximately $8.1
million and debt of $5.6 million. The joint venture had no other operations.
During 1997, the Company entered into a joint venture, known as Mount
Pleasant FAC LLC, with AJS Group, to develop a 425,000-square foot
retail/entertainment shopping center in Mount Pleasant, South Carolina.
Construction on the center is expected to begin May 1998, with completion
targeted for May 1999. As of March 31, 1998, the Company has invested $1.3
million in this joint venture. This 50% investment in the joint venture is
accounted for under the equity method of accounting as major decisions must be
agreed to by both the Company and the AJS Group. The joint venture had
approximately $4.8 million of assets and $3.5 of debt at March 31, 1998. The
joint venture had no other operations.
During 1998, the Company entered into a joint venture, known as Wakefield
Commercial LLC, primarily to develop two community shopping centers. The two
retail centers, one approximately 200,000 square feet and the other
approximately 300,000 square feet, will be located on 65 acres within a 500-acre
parcel of land zoned for commercial use. The Company will perform all leasing,
property management and marketing functions for the two centers. The Company
will hold a 50% interest in the venture, which is accounted for under the equity
method of accounting as major decisions must be agreed to by both the Company
and its venture partner. As of March 31, 1998, the Company had invested $0.6
million in this joint venture and had advanced the joint venture $4.7 million.
The advances carry interest at 11% per annum. The joint venture had no other
operations.
The acquisition and development of the above properties are subject to,
among other things, completion of due diligence and various contingencies,
including those inherent in development projects, such as zoning, leasing and
financing. There can be no assurance that all of the above transactions will be
consummated.
OTHER
On January 7, 1998, the Company completed the purchase of a 55,909-square
foot shopping center located in Danville, Virginia. This Food Lion-anchored
center was purchased for $3.1 million in cash, net of $2.3 million in debt
assumed.
4. PRO FORMA INFORMATION
NORTH HILLS PORTFOLIO
On March 27, 1997, the Company purchased five community centers located in
the Raleigh, North Carolina area for $32.4 million. Pro forma results of
operations for the three months ended March 31, 1997 are set forth below and
assume the acquisition of the five properties, aggregating approximately 606,000
square feet of retail and office space, had been completed as of January 1,
1997. The pro forma condensed statements of operations are not necessarily
indicative of what actual results of operations of the Company would have been
assuming such transaction had been completed as of January 1, 1997, nor do they
purport to represent results of operations of future periods (in thousands,
except for per share data).
12
<PAGE>
FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
PRO FORMA THREE MONTHS ENDED
MARCH 31, 1997
----------------------------
(Unaudited)
Revenues $ 13,215
Property operating costs 3,809
Depreciation and amortization 4,265
General and administrative 2,313
Interest 4,160
----------------------------
Loss before extraordinary item $ (1,332)
============================
LOSS BEFORE EXTRAORDINARY ITEM PER COMMON SHARE $ (0.09)
============================
RODWELL/KANE PROPERTIES
On March 31, 1998, the Company closed on seven of the nine Rodwell/Kane
Properties described above for a purchase price of approximately $47.6 million
consisting of loan assumption of $38.6 and Operating Partnership Units valued at
$8.7 million. Pro forma results of operations for the three months ended March
31, 1998 and 1997 are set forth below and assume the acquisition of the seven
properties, aggregating approximately 825,000 square feet, had been completed as
of January 1, 1997.
The pro forma condensed statements of operations are not necessarily
indicative of what actual results of operations of the Company would have been
assuming such transaction had been completed as of January 1, 1997, nor do they
purport to represent results of operations of future periods (in thousands
except for per share data).
<TABLE>
<CAPTION>
<S> <C>
PRO FORMA THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
----------------------------- ---------------------------
(Unaudited) (Unaudited)
Revenues $ 14,908 $ 13,365
Property operating costs 4,452 3,609
Depreciation and amortization 4,278 4,368
General and administrative 1,536 2,361
Interest 5,048 4,315
---------------------------------------------------------
Loss before extraordinary item $ (406) $ (1,288)
=========================================================
LOSS BEFORE EXTRAORDINARY ITEM PER COMMON SHARE $ (0.03) $ (0.09)
=========================================================
</TABLE>
5. DEBT ON INCOME PROPERTIES
On March 11, 1998, the Company closed on a $75 million, 15-year permanent
credit facility secured by 11 properties previously securing a $150 million
revolving credit facility. The loan is at an effective rate of 7.73% and is
amortized on a 338-month basis. The proceeds were used to pay down certain
balances outstanding on the $150 million Nomura credit facility obtained by the
Company in 1997.
13
<PAGE>
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.
FAC REALTY TRUST, INC.
Date: June 30, 1998 By /S/ Patrick M. Miniutti
-------------------------------------------
Patrick M. Miniutti, Executive Vice
President, Chief Financial Officer
and Director
14
