Financing of Fluor Deal Is Disclosed
The intricate financial details surrounding the sale of Fluor Corp.’s corporate headquarters site and plans for development of its prime acreage, including a $204-million loan from Newport beach-based Pacific Mutual Life Insurance Co., have been revealed in documents filed with the Securities and Exchange Commission.
The Pacific Mutual loan will be combined with $183 million to be raised from investors to finance the sale and proposed development of Fluor Corp.’s distinctive 162-acre Irvine property, according to the documents obtained by The Times.
The Newport Beach insurance company is providing the 10-year loan at 11.85% interest as part of the $340-million sale. The additional money being raised is to be used to pay related fees and expenses. The additional $183 million in equity capital is supposed to be raised, through a syndication, by Winthrop Financial Associates, a subsidiary of First Winthrop Corp.
Selling to Partnership
Fluor, an Irvine engineering and construction company, is selling its buildings and 162 acres of land to a partnership set up by Trammell Crow Co. of Dallas and First Winthrop Corp., a Boston real estate investment banking firm. Last October, Fluor announced it would sell its headquarters and acreage along the San Diego Freeway. The Winthrop-Trammell partnership will acquire, manage and develop the property, most of which Fluor purchased for about $3.4 million 10 years ago. Fluor will lease back a portion of its buildings and retain an interest in the future development of its land.
Fluor officials said Thursday that the company will have a minuscule ownership interest--far less than 1%--in the existing buildings and 6.56% interest in any future development on the land.
Future development, however, hinges on approval by Irvine officials, who so far have objected to the plan, claiming that the Fluor property was never approved for general commercial development.
The sale of the property, due to be completed by the end of the month, apparently will not be affected by the city’s delay. The Irvine City Council will not discuss the city zoning ordinance affecting Fluor’s development plans until late summer or early fall. Terms of the deal with Trammell Crow call for Fluor to receive $305 million at the close of escrow, on or before July 31. The remaining $35 million, to be paid after July 31, 1986, is contingent on the city’s approval of plans to develop the 122 acres surrounding Fluor’s headquarters, among other conditions.
“We are confident in our position and expect to complete the transaction (sale) on schedule by the end of the month,” said William Lane Jr., managing partner of Trammell Crow’s Orange County office.
The deal calls for Fluor to remain in the buildings for 50 years, with an option to renew the lease. Fluor would pay $30 million in rent the first year. The rent will be adjusted after that depending on how much space Fluor occupies.
Fluor, which has watched its Irvine staff shrink from 5,700 about five years ago to 3,200 today, recently sublet about 300,000 square feet of its office space to the Federal Deposit Insurance Co. and Avco Financial Services. Fluor has an additional 300,000 square feet for lease.
The Winthrop Financial-Trammell Crow partnership expects lease payments from Fluor and others to exceed its annual loan payments by at least 24%, according to the SEC filings.
The sale of its headquarters property is vital to Fluor’s strategy of selling real estate and fixed assets to raise cash. Since 1983, Fluor, Orange County’s largest publicly held company, has been battered by a prolonged slump in the engineering and construction industry.
In fiscal 1984, the company earned $1 million on revenues of $4.4 billion. For the first six months of fiscal 1985, Fluor lost $72 million on revenues of $2.1 billion.
Since 1983, the company has sold $935 million worth of assets and the sale of its Irvine property would bring the total value of assets sold to about $1.2 billion.
So far, city officials have raised objections to Fluor’s development plans, saying that while Fluor can expand for its own corporate purposes, current regulations prevent the company from building a speculative commercial development.
Fluor officials insist that the company can develop the land as it wishes, within current zoning restrictions. The company contends selling and developing the land is a bona fide corporate purpose.
Although it is well known in the investment community that Winthrop Financial Associates intends to go into the private market to raise money for the Fluor project, SEC regulations prohibit the company from discussing any offering before it is formally filed with the government.
