Curtain Ready to Lower on Fleming

Core-Mark will launch with a holding company in charge of a real estate portfolio with 19,500 convenience stores and 22 distribution centers in 38 US states and five Canadian provinces. Over the past year, Fleming's real estate has been hawked in mostly one-off transactions by Keen Consultants LLC of Great Neck, NY, reaping close to $27.3 million for 65 properties. Harold J. Bordwin, Keen's president, says the sell-off is down to an 8.5-acre tract at the intersection of East Shelby Drive and Germantown Road in Memphis that will change hands in August.

Henry Hautau, vice president of the successor company Core-Mark Newco, tells GlobeSt.com that he heard the Lewisville, TX headquarters at 1945 Lakepointe Dr. was vacated a month ago and temporary space leased for the few employees left to turn off the lights. "We believe it's going to be a smooth transition," he says. "We are looking forward to being able to operate without a bankruptcy cloud hanging over us."

Hautau says the entire executive team--with J. Michael Walsh as president and CEO--is from the Core-Mark side, none from Fleming, which fell from grace as the nation's largest grocery distribution network within six months of its primary customer, Kmart Corp., filing a Chapter 11. Hautau says the new Core-Mark will hit the streets as a publicly traded firm instead of the private operation sold in 2002 to Fleming by an investment group owner for $430 million. At that time, the portfolio consisted of 22 distribution centers and 30,000 convenience stores.

The publicly traded status is "something that the court wanted," Hautau says. "We are going with the Toronto Exchange initially primarily to get listed as soon as possible. We can get listed more quickly than with either the New York Stock Exchange or Nasdaq."

Core-Mark salvaged the convenience store and distribution network, but the US Bankruptcy Court of Delaware rejected most leases and some were sold and assigned to third parties. In July 2003, Fleming collected about $400 million for the wholesale business from C&S Wholesale Grocers Inc. of Brattleboro, VT. Keen's end of the disposition brought sales for 52 acres of vacant land, 210,000 sf of retail holdings and 520,000 sf of industrial assets.

Bordwin says the portfolio ranged from two residential lots in Des Moines to "swampland in Florida" to a crown jewel, the 105,210-sf, four-year-old Chouteau Crossings at 4372 NE Chouteau Trafficway in Kansas City, MO. The mixed bag of real estate, he says, "is not so unusual. It was an older company that acquired various companies over the years. That's what happens ... and then you get a mixed portfolio. And for some reason, it stays in the portfolio."

Bordwin says Chouteau Crossings was Fleming's one and only effort to develop grocery-anchored shopping centers to build in demand for its supply chain. Fleming owned 51% of the class A center in partnership with a Kansas City developer.

Marc Reinisch, managing principal of Chicago-based Rushmore Properties, says it took five months to close the sale due to a complicated structuring in which Fleming was majority owner and the grocery anchor tenant with its Festival Foods brand. To make the close, Fleming had to buy out the JV partner. He says "the attractive price" of $10.7 million and infill shadow space to a Super Target made the deal worth pursuing despite the complications. Rushmore's only Kansas City property, bought at roughly $300,000 below the ask, was 93% leased when it rolled in February.

According to Fleming's reorganization plan approved two days ago by the Delaware court, the fallen giant has paid more than $450 million to senior lenders and "tens of millions of dollars to various taxing authorities." The plan provides for "full satisfaction of the balance of the senior lenders' $699 million in secured claims and claims held by various taxing authorities and administrative claimants" plus it has long-term exit financing waiting in the wings. General Electric Capital Corp. of Stamford, CT has committed to a $240-million revolving credit facility and a $10-million term loan. Sankaty Advisors LLC, the fixed-income affiliate of Boston-based Bain Capital, agreed to a $70-million term loan.