UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE
ACT OF1934 For the fiscal year ended December 31, 1997
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from_____to_____
Commission File Number 1-12298
REGENCY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-3191743
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
121 West Forsyth Street, Suite 200 (904) 356-7000
Jacksonville, Florida 32202 (Registrant's telephone No.)
(Address of principal executive offices) (zip code)
Securities registered pursuant to Section 12(b)of the Act: None
Common Stock, $.01 par value
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section(g) of the Act: None
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 and (2) has been subject to such filing requirements for
the past 90 days. YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $302,578,000 based on the closing price on the
New York Stock Exchange for such stock on March 16, 1998. The approximate number
of shares of Registrant's Common Stock outstanding was 24,304,576 as of March
16, 1998.
Documents Incorporated by References
Portions of the Registrant's Proxy Statement in connection with its 1998 Annual
Meeting of Shareholders are incorporated by reference in Part III.
TABLE OF CONTENTS
Form 10-K
Item No. Report Page
PART I
1. Business..................................................................1
2. Properties................................................................3
3. Legal Proceedings.........................................................6
4. Submission of Matters to a Vote of Security Holders.......................6
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters.......................................................6
6. Selected Consolidated Financial Data......................................8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................9
8. Consolidated Financial Statements and Supplementary Data.................15
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................15
PART III
10 .Directors and Executive Officers of the Registrant......................15
11. Executive Compensation..................................................16
12. Security Ownership of Certain Beneficial Owners and Management..........16
13. Certain Relationships and Related Transactions..........................16
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.......16
PART I
Item 1. Business
Organization and Shopping Center Business: Regency Realty Corporation's
("Regency" or the "Company") principal business is owning, operating and
developing grocery anchored neighborhood infill shopping centers in the Eastern
Unites States. Infill refers to shopping centers within a targeted investment
market offering sustainable competitive advantages such as barriers to entry
resulting from zoning restrictions, growth management laws, or limited new
competition from development or expansions. The Company is focused on building a
platform of grocery anchored neighborhood shopping centers because grocery
stores provide convenience shopping of daily necessities and foot traffic for
adjacent local tenants, and should withstand adverse economic conditions.
The Company, a Florida corporation organized in 1993, commenced operations as a
real estate investment trust in 1993 with the completion of its Initial Public
Offering ("IPO"), and was the successor to the real estate business of The
Regency Group, Inc. which had operated since 1963.
At December 31, 1997, the Company's 89 properties contained 10 million square
feet of gross leasable area ("GLA") and were 92.8% leased. 86 of the properties
are neighborhood shopping centers, and 70 are grocery anchored. The properties
are located primarily in Florida (53% of GLA) and Georgia (25% of GLA). At
December 31, 1997, approximately 9.8%, 5.0%, 3.0%, and 2.5% of annualized total
rent is received from Publix, Winn-Dixie, Kroger, and Harris Teeter,
respectively. For more specific data and information about the properties owned
by the Company see Item 2. Properties, and Item 7. Management's Discussion and
Analysis, included elsewhere in this Form 10-K. The Company also performs
property management and leasing on approximately 4 million square feet owned by
third parties that generate fees and have the potential for creating synergistic
relationships that lead to additional acquisition, development, management and
leasing opportunities.
Operating and Investment Philosophy: The Company's key operating and investment
objectives are (1) to generate superior shareholder returns by sustaining above
average annual increases in funds from operations and long term growth in free
and clear cash flow, (2) to create the largest real estate portfolio of quality
grocery anchored neighborhood shopping centers in targeted infill markets in the
Eastern United States, (3) to build the strongest possible capital structure
through conservative financial management that will cost effectively provide the
capital to fund the Company's growth strategy, and (4) to put in place the
people and processes necessary to enable the Company to implement its Retail
Operating System, a system which incorporates research based investment
strategies and value added leasing and management systems.
Management believes that the key to successful implementation of its strategies
is to continue to exploit the Company's competitive strengths which include, its
cohesive and experienced management team, its research capabilities, its strong
capital structure, its access to competitively priced capital, its client
relationships, its market expertise in targeted markets, its growing critical
mass of quality grocery anchored neighborhood shopping centers, and its vibrant
targeted investment markets that enjoy a favorable environment for retail sales.
As of December 31, 1997, the Company has acquired 67 properties at a cost of
$646.5 million since its IPO in 1993. The Company's total market capitalization
at December 31, 1997 was $1.04 billion. At December 31, 1997, the Company's debt
to total market capitalization was 32.4%. The Company intends to continue its
emphasis on acquiring and developing grocery anchored neighborhood shopping
centers that are the most significant shopping centers serving a targeted market
that offer daily necessities and convenience.
Acquisitions and Developments: On March 7, 1997, the Company acquired, through
its partnership, Regency Retail Partnership, L.P. ("RRLP"), substantially all of
the assets of Branch Properties, L.P. ("Branch"), a privately held real estate
firm based in Atlanta, Georgia, for $232.4 million. The assets acquired from
Branch included 100% fee simple interests in 19 operating shopping centers and 1
center under development, and also partnership interests (ranging from 50% to
93%) in four partnerships with outside investors that owned 4 operating shopping
centers and 2 centers under development. At closing and during 1997, RRLP issued
3,572,427 units of limited partnership interest (the "Units") and the Company
issued 155,797 shares of common stock in exchange for the assets acquired and
the liabilities assumed from Branch. Additional Units and shares of common
stock may be issued during 1998 and 1999 based on the performance of certain
properties, limited to 722,997 Units issued in 1998 and 1,020,061 Units issued
in total during 1998 and 1999.
1
During 1997, in addition to the Branch Properties, the Company acquired 13
grocery anchored shopping centers for $163.3 million representing 1.9 million
SF, two of which are partially operating while undergoing redevelopment. During
1996, the Company acquired 13 grocery anchored shopping centers representing 1.4
million square feet for $107.1 million.
On March 11, 1998, the Company, through RRLP, acquired the real estate assets of
entities comprising the Midland Group ("Midland") consisting of 21 shopping
centers (the "Midland Properties") plus a development pipeline of 11 shopping
centers. Of the 21 centers acquired, 20 are anchored by Kroger. Eight of the
shopping centers included in the development pipeline will be owned through a
joint venture in which the Company will own less than a 50% interest upon
completion of construction. At closing and during 1998, the Company will pay
approximately $230.4 million. Subsequent to 1998, the Company expects to pay
approximately $12.7 million to acquire equity interests in the development
pipeline as the properties reach stabilization. The Company may also be required
to make payments aggregating $10.5 million through the year 2000 contingent upon
increases in net income from existing properties, the development pipeline, and
new properties developed or acquired in accordance with the contribution
agreement.
The Company finances the acquisition of shopping centers through the issuance of
Units in RRLP, the assumption of existing debt, and from its $150 million line
of credit (the "Line"). On February 24, 1998, the Company entered into a
commitment agreement with its lenders to increase the unsecured commitment
amount of the Line to $300 million, provide for a $150 million competitive bid
facility, and reduce the interest rate on the line based upon achieving an
investment grade rating from two agencies of BBB- or higher. Once ratings are
achieved, the interest rate on the Line will be reduced to Libor plus .95%, and
further reduced if the Company receives ratings better than the minimum
requirement from both agencies. During the 1st quarter of 1998, the Company
received investment grade ratings from Moody's of Baa2, and S&P of BBB-. The
Company repays the Line with proceeds from the sale of common stock.
During 1996, the Company entered into a Stock Purchase Agreement (the
"Agreement") with SC-USREALTY. Under the Agreement, the Company agreed to sell
7,499,400 shares of common stock to SC-USREALTY at a price of $17.625 per share
(the fair market value of the Company's Common Stock on the date the terms of
the Agreement were reached) representing total maximum proceeds of approximately
$132 million. During 1996, the Company sold SC-USREALTY 3,651,800 shares for
approximately $64.4 million and during 1997, the Company sold the remaining
3,847,600 shares generating proceeds of approximately $67.8 million all of which
was used to pay down the Line.
As part of the Agreement, SC-USREALTY also has participation rights entitling
them to purchase additional equity in the Company at the same price as that
offered to other purchasers in order to preserve their pro rata ownership in the
Company. In connection with the Units and shares of common stock issued in
exchange for Branch's assets on March 7, 1997, SC-USREALTY acquired 1,750,000
shares for $38.7 million.
On July 11, 1997, the Company sold 2,415,000 shares to the public at $27.25 per
share. In connection with that offering, SC-USREALTY purchased 1,785,000 shares
at $27.25 directly from the Company. On August 11, 1997, the Underwriters
exercised the over-allotment option and the Company issued an additional 129,800
shares to the public and 95,939 shares to SC-USREALTY at $27.25 per share. Total
net proceeds from the sale of common stock to the public and SC-USREALTY of
approximately $117 million were used to reduce the balance of the Line. The
unused commitment currently available under the Line for future acquisition and
development activity is approximately $101.9 million at December 31, 1997.
Matters Relating to the Real Estate Business: The Company is subject to
certain business risks arising in connection with owning real estate which
include, among others, (1) the bankruptcy or insolvency of, or a downturn in the
business of, any of its anchor tenants, (2) the possibility that such tenants
will not renew their leases as they expire, (3) vacated anchor space affecting
the entire shopping center because of the loss of the departed anchor tenant's
customer drawing power, (4) risks relating to leverage, including uncertainty
that the Company will be able to refinance its indebtedness, and the risk of
higher interest rates, (5) the Company's inability to satisfy its cash
requirements for operations and the possibility that the Company may be required
to borrow funds to meet distribution requirements in order to maintain its
qualification as a REIT, (6) potential liability for unknown or future
environmental matters and costs of compliance with the Americans with
Disabilities Act, and (7) the risk of uninsured losses. Unfavorable economic
conditions could also result in the inability of tenants in certain retail
sectors to meet their lease obligations and otherwise could adversely affect the
2
Company's ability to attract and retain desirable tenants. The Company believes
that the shopping centers are relatively well positioned to withstand adverse
economic conditions since they typically are anchored by grocery stores, drug
stores and discount department stores that offer day-to-day necessities rather
than luxury goods.
Compliance with Governmental Regulations: The Company like others in the
commercial real estate industry, is subject to numerous environmental laws and
regulations particularly as they pertain to dry cleaning plants. Although
potential liability could exist for unknown or future environmental matters, the
Company believes that dry cleaning tenants are operating in accordance with
current laws and regulations and has established procedures to monitor these
operations.
Competition: There are numerous shopping center developers, real estate
companies and other owners of real estate that operate in the Eastern United
States that compete with the Company in seeking retail tenants to occupy vacant
space, for the acquisition of shopping centers, and for the development of new
shopping centers.
Changes in Policies: The Company's Board of Directors determines the Company's
policies with respect to certain activities, including its debt capitalization,
growth, distributions, REIT status, and investment and operating policies. The
Board of Directors has no present intention to amend or revise these policies.
However, the Board of Directors may do so at any time without a vote of the
Company's stockholders.
Employees: The Company's headquarters are located in Jacksonville, Florida. The
Company presently maintains nine offices in which it conducts management and
leasing activities located in Florida, Georgia, North Carolina, Ohio, and
Missouri. As of March 16, 1998, the Company had approximately 360 employees and
believes that relations with its employees are good.
Item 2. Properties
The Company's properties summarized by state including their gross leasable
areas (GLA) follows:
Location December 31, 1997 December 31, 1996
-------- ----------------- -----------------
# Properties GLA % Leased # Properties GLA % Leased
------------------------------------------ -------------------------------------------
Florida 45 5,267,894 91.5% 34 3,958,423 94.7%
Georgia 25 2,539,507 92.4% 6 592,351 90.5%
North Carolina 6 554,332 99.0% 3 260,094 98.6%
South Carolina 1 79,743 84.3% 0 0 NA
Tennessee 3 208,386 98.5% 0 0 NA
Ohio 2 629,920 89.1% 0 0 NA
Alabama 3 516,080 99.9% 5 516,080 99.7%
Mississippi 2 185,061 96.9% 2 185,061 100.0%
---- ----------- ------- ----- ------------ -------
Total 89 9,980,923 92.8% 50 5,512,009 95.0%
==== =========== ======= ===== ============ =======
3
The following table summarizes the largest tenants occupying the Company's
shopping centers based upon percentage of total annual rent exceeding 1% at
December 31, 1997:
Summary of Principal Tenants > 1% of Annualized Total Rent
(including Properties Under Development)
% to Company % to Company # of
Tenant SF Owned GLA Rent (1) Rent (1) Stores
------ -- --------- -------- -------- ------
Publix 1,209,726 12.1% $10,079,616 9.8% 28
Winn Dixie 687,513 6.9% $5,160,365 5.0% 15
Kroger 359,456 3.6% $3,095,298 3.0% 6
Harris Teeter 184,563 1.8% $2,576,534 2.5% 4
Walgreens 177,365 1.8% $2,324,358 2.3% 13
Eckerd 197,569 2.0% $2,163,965 2.1% 20
Blockbuster 122,893 1.2% $2,063,840 2.0% 19
K-Mart 341,264 3.4% $1,975,338 1.9% 4
Wal-Mart 393,487 3.9% $1,907,608 1.9% 5
Brunos 119,840 1.2% $1,085,574 1.1% 3
AMC Theater 72,616 0.7% $1,075,485 1.0% 1
----------------------
(1) Rent includes annual base rent, percentage rent, and reimbursements for
common area maintenance, real estate taxes, and insurance as of December 31,1997
The Company's leases have lease terms generally ranging from three to five years
for tenant space under 5,000 square feet. Leases greater than 10,000 square feet
generally have lease terms in excess of five years, mostly comprised of anchor
tenants. Many of the anchor leases contain provisions allowing the tenant the
option of extending the term of the lease at expiration. The Company's leases
provide for the monthly payment in advance of fixed minimum rentals, additional
rents calculated as a percentage of the tenant's sales, the tenant's pro rata
share of real estate taxes, insurance, and common area maintenance expenses, and
reimbursement for utility costs if not directly metered. The following table
sets forth a schedule of lease expirations for the next ten years, assuming that
no tenants exercise renewal options:
Future
Percent of Minimum Percent of
Lease Total Rent Under Total
Expiration Expiring Company Expiring Minimum
Year GLA GLA Leases Rent (2)
---- --- --- ------ --------
(1) 261,091 2.9% $2,697,050 3.0%
1998 798,530 8.8% 9,027,940 10.1%
1999 859,765 9.5% 10,207,450 11.5%
2000 731,694 8.1% 9,241,225 10.4%
2001 719,133 7.9% 8,698,419 9.8%
2002 892,399 9.9% 8,555,657 9.6%
2003 487,519 5.4% 4,386,541 4.9%
2004 318,523 3.5% 2,861,126 3.2%
2005 231,293 2.6% 2,350,900 2.6%
2006 431,671 4.8% 3,926,686 4.4%
2007 435,279 4.8% 3,645,314 4.1%
------------ ------- ----------- -----
10 Yr Total 6,166,897 68.1% $65,598,308 73.7%
------------ ------- ----------- -----
(1) leased currently under month to month rent or in process
of renewal (2) total minimum rent includes current minimum
rent and future contractual rent steps for all properties, but
excludes additional rent such as percentage rent, common area
maintenance, real estate taxes and insurance reimbursements.
See the property table below and also see Item 7, Management's Discussion and
Analysis for further information about the Company's properties.
4
The following table describes the Company's properties owned at December 31, 1997:
Gross
Year Year Leasable Percentage Grocery Grocery
Property Name Acquired Constructed Area (GLA) Leased GLA Anchor
- ------------- -------- ----------- ---------- ------ --- ------
FLORIDA
Jacksonville / North Florida
Anastasia Shopping Plaza 1993 1988 102,342 98.3% 48,555 Publix
Bolton Plaza 1994 1988 172,938 97.4% -
Carriage Gate 1994 1978 76,833 86.2% -
Courtyard 1987 1987 67,794 46.4% 66,446 Albertsons(t)
Ensley Square (j) 1997 1977 62,361 97.1% 47,786 Delchamps
Millhopper 1993 1974 84,444 88.3% 37,244 Publix
Newberry Square 1994 1986 181,006 96.2% 39,795 Publix
Old St. Augustine Plaza 1996 1990 170,220 100.0% 42,112 Publix
Palm Harbor 1996 1991 168,448 97.1% 45,254 Publix
Pine Tree Plaza (d) 1997 1998 60,488 95.5% 37,888 Publix
Regency Court 1997 1992 218,665 99.0% -
South Monroe Commons (d) 1996 1998 80,214 82.0% 48,466 Winn-Dixie
Village Commons (j) 1988 1988 105,895 91.2% -
Tampa / Orlando
Mainstreet Square 1997 1988 107,159 88.8% 56,000 Winn-Dixie
Mariner's Village 1997 1986 117,665 95.0% 45,500 Winn-Dixie
Market Place - St. Petersburg 1995 1983 90,296 100.0% 36,464 Publix
Peachland Promenade 1995 1991 82,082 97.4% 48,890 Publix
Regency Square at Brandon 1986 1986 341,751 81.1% -
Seven Springs 1994 1986 162,580 95.1% 35,000 Winn-Dixie
Terrace Walk 1990 1990 50,926 56.8% -
Town Square 1997 1986 42,969 100.0% 14,074 Kash 'N Karry
University Collections 1996 1984 106,627 97.7% 40,143 Kash N Karry (t)
Village Center-Tampa 1995 1993 181,096 98.7% 36,434 Publix
West Palm Beach / Treasure Coast
Boynton Lakes Plaza 1997 1993 130,724 89.4% 44,000 Winn-Dixie
Chasewood Plaza 1992 1986 141,034 90.1% 39,795 Publix
Chasewood Storage 1992 1986 42,810 99.9% -
East Port Plaza 1997 1991 231,656 99.4% 42,112 Publix
Martin Downs Village Center 1992 1985 121,998 92.0% -
Martin Downs Village Shoppes 1992 1988 49,235 91.5% -
Ocean Breeze 1992 1985 111,551 93.2% 36,464 Publix
Ocean East (j) 1996 1997 112,894 77.5% 38,100 Stuarts Fine Foods
Tequesta Shoppes 1996 1986 109,766 91.8% 39,795 Publix
Town Center at Martin Downs 1996 1996 64,546 100.0% 56,146 Publix
Wellington Market Place 1995 1990 178,555 91.2% 46,475 Winn-Dixie
Wellington Town Square 1996 1982 105,150 93.8% 36,464 Publix
Miami / Ft. Lauderdale
Aventura 1994 1974 102,876 92.1% 35,908 Publix
Berkshire Commons 1994 1992 106,434 100.0% 65,537 Publix
Garden Square 1997 1991 90,258 96.3% 42,112 Publix
North Miami 1993 1988 42,500 100.0% 32,000 Publix
Palm Trails Plaza (d) 1997 1998 76,067 78.3% 59,562 Winn-Dixie
Tamiami Trail 1997 1987 110,867 93.8% 42,112 Publix
University Market Place 1990 1990 129,121 63.1% 63,139 Albertsons(t)
Welleby 1996 1982 109,949 90.0% 46,779 Publix
subtotal 5,002,790 91.5%
(d) property under development or redevelopment
(j) property owned by joint venture - Regency's interest is less than 100%
(R) or last renovation
(t) tenant owns its own building
5
Drug
Property Name Store Other Anchors or Majors
- ------------- -------- -----------------------
FLORIDA
Jacksonville / North Florida
Anastasia Shopping Plaza
Bolton Plaza Wal-Mart
Carriage Gate TJ Maxx
Courtyard
Ensley Square (j)
Millhopper Eckerd
Newberry Square Kmart
Old St. Augustine Plaza Eckerd Waccamaw
Palm Harbor Eckerd Bealls
Pine Tree Plaza (d)
Regency Court CompUSA, Office Depot, Sports Authority
South Monroe Commons (d) Eckerd
Village Commons (j) Wal-Mart (t), Stein Mart
Tampa / Orlando
Mainstreet Square Walgreen's
Mariner's Village Walgreen's
Market Place - St. Petersburg Eckerd
Peachland Promenade Ace Hardware
Regency Square at Brandon TJ Maxx, AMC, Staples, Marshalls, Michaels
Seven Springs Kmart
Terrace Walk
Town Square Rite Aid
University Collections Eckerd
Village Center-Tampa Walgreen's Stein Mart
West Palm Beach / Treasure Coast
Boynton Lakes Plaza Walgreen's
Chasewood Plaza Walgreen's
Chasewood Storage
East Port Plaza Walgreen's Kmart, Sears Homelife
Martin Downs Village Center Walgreen's Coastal Care
Martin Downs Village Shoppes
Ocean Breeze Walgreen's Coastal Care
Ocean East (j) Coastal Care
Tequesta Shoppes Walgreen's
Town Center at Martin Downs
Wellington Market Place Walgreen's United Artists
Wellington Town Square Eckerd
Miami / Ft. Lauderdale
Aventura Eckerd Humana
Berkshire Commons Walgreen's
Garden Square Eckerd
North Miami Eckerd
Palm Trails Plaza (d)
Tamiami Trail Eckerd
University Market Place Linens Supermarket
Welleby Walgreen's
(d) property under development or redevelopment
(j) property owned by joint venture - Regency's interest is less than 100%
(R) or last renovation
(t) tenant owns its own building
6
Gross
Year Year Leasable Percentage Grocery Grocery
Property Name Acquired Constructed Area (GLA) Leased GLA Anchor
- ------------- -------- ----------- ---------- ------ --- ------
GEORGIA
Atlanta
Ashford Place 1997 1993 53,345 100.0% -
Braelin Village (j) 1997 1991 225,922 95.4% 63,986 Kroger
Briarcliff LaVista 1997 1962 39,201 100.0% -
Briarcliff Village 1997 1990 192,660 94.1% -
Buckhead Court 1997 1984 55,227 95.8% -
Cambridge Square 1996 1979 68,725 91.4% 32,000 Winn-Dixie
Cromwell Square 1997 1990 81,826 83.6% -
Cumming 400 1997 1994 126,899 98.9% 56,146 Publix
Dunwoody Hall 1997 1986 79,974 100.0% 34,632 A&P
Dunwoody Village (j) 1997 1975 114,657 96.3% 26,950 Bruno's
Loehmann's Plaza 1997 1986 137,635 86.5% -
Lovejoy Station 1997 1995 77,336 98.2% 47,955 Publix
Memorial Bend 1997 1995 177,278 83.6% 56,146 Publix
Orchard Square 1995 1987 85,940 89.8% 36,990 A&P
Paces Ferry Plaza 1997 1987 61,693 100.0% -
Powers Ferry Square 1997 1987 97,809 100.0% 7,216 Harry's
Powers Ferry Village 1997 1994 78,995 99.9% 47,955 Publix
Rivermont Station 1997 1996 90,323 98.0% 58,261 Harris Teeter
Roswell Village (d) 1997 1997 144,071 85.4% 37,888 Publix
Russell Ridge 1994 1995 98,556 100.0% 63,296 Kroger
Sandy Plains Village 1996 1992 168,513 75.9% 60,009 Kroger
Sandy Springs Village 1997 1997 48,245 100.0% 41,354 Kroger
Trowbridge Crossing (d) (j) 1997 1997 64,060 86.4% 37,888 Publix
Other Markets
LaGrange Marketplace 1993 1989 76,327 93.6% 46,733 Winn-Dixie
Parkway Station 1996 1983 94,290 91.4% 42,130 Kroger
subtotal 2,539,507 92.4%
NORTH CAROLINA
Charlotte
Carmel Commons 1997 1979 132,647 95.7% 14,300 Fresh Market
City View 1996 1993 77,550 100.0% 44,000 Winn-Dixie
Union Square 1996 1989 97,191 100.0% 33,000 Harris Teeter
Raleigh / Durham
Glenwood Village 1997 1983 42,864 100.0% 27,764 Harris Teeter
Woodcroft 1996 1984 85,353 100.0% 26,752 Food Lion
Asheville
Oakley Plaza 1997 1988 118,727 100.0% 42,317 Bi-Lo
subtotal 554,332 99.0%
(d) property under development or redevelopment
(j) property owned by joint venture - Regency's interest is less than 100%
(R) or last renovation
(t) tenant owns its own building
7
Property Name Drug
- ------------- Store Other Anchors or Majors
---------- -----------------------
GEORGIA
Atlanta
Ashford Place Pier 1 Imports
Braelin Village (j) Kmart
Briarcliff LaVista Drug Emporium
Briarcliff Village Eckerd TJ Maxx, Office Depot
Buckhead Court Outback Steakhouse
Cambridge Square
Cromwell Square CVS Drug Haverty's Furniture
Cumming 400 Big Lots
Dunwoody Hall Eckerd
Dunwoody Village (j)
Loehmann's Plaza Eckerd Loehmann's
Lovejoy Station
Memorial Bend TJ Maxx
Orchard Square CVS Drug
Paces Ferry Plaza
Powers Ferry Square Drugs for Less
Powers Ferry Village CVS Drug
Rivermont Station CVS Drug
Roswell Village (d) Eckerd Ace Hardware
Russell Ridge
Sandy Plains Village Ace Hardware
Sandy Springs Village
Trowbridge Crossing (d) (j)
Other Markets
LaGrange Marketplace Eckerd
Parkway Station
NORTH CAROLINA
Charlotte
Carmel Commons Eckerd Piece Goods
City View CVS Drug
Union Square CVS Drug Consolidated Theatres
Raleigh / Durham
Glenwood Village
Woodcroft Eckerd True Value
Asheville
Oakley Plaza CVS Drug Baby Superstore, Western Auto
(d) property under development or redevelopment
(j) property owned by joint venture - Regency's interest is less than 100%
(R) or last renovation
(t) tenant owns its own building
8
Gross
Year Year Leasable Percentage Grocery Grocery
Property Name Acquired Constructed Area (GLA) Leased GLA Anchor
- ------------- -------- ----------- ---------- ------ --- ------
OHIO
Cincinatti
Hyde Park Plaza 1997 1995 374,743 96.1% 138,592 Kroger,Thriftway
Columbus
Kingsdale (d) 1997 1998 255,177 78.9% 55,000 Big Bear
subtotal 629,920 89.1%
ALABAMA
Birmingham
Villages of Trussville 1993 1987 69,300 100.0% 38,380 Bruno's
West County Marketplace 1993 1987 129,155 100.0% 42,848 Food World (t)
Montgomery
Country Club 1993 1991 67,622 99.6% 35,922 Winn-Dixie
Other Markets
Bonner's Point 1993 1985 87,280 100.0% 34,700 Winn-Dixie
Marketplace - Alexander City 1993 1987 162,723 100.0% 47,668 Winn-Dixie
subtotal 516,080 99.9%
TENNESSEE
Nashville
Harpeth Village (j) 1997 1998 70,091 95.4% 54,510 Bruno's
Marketplace - Murphreesburo (j) 1997 1997 23,500 100.0% -
Peartree Village 1997 1997 114,795 100.0% 65,538 Harris Teeter
subtotal 208,386 98.5%
MISSISSIPPI
Columbia Marketplace 1993 1988 136,002 95.8% 41,895 Winn-Dixie
Lucedale Marketplace 1993 1989 49,059 100.0% 35,059 Delchamps
subtotal 185,061 96.9%
SOUTH CAROLINA
Charleston
Merchants Village (d) 1997 1997 79,743 84.3% 37,888 Publix
Total 9,980,923 92.8%
(d) property under development or redevelopment
(j) property owned by joint venture - Regency's interest is less than 100%
(R) or last renovation
(t) tenant owns its own building
9
Drug
Property Name Store Other Anchors or Majors
- ------------- -------- -----------------------
OHIO
Cincinatti
Hyde Park Plaza Walgreen's Barnes & Noble, Old Navy, Micheals
Columbus
Kingsdale (d) Stein Mart, The Limited, S&K Menswear
ALABAMA
Birmingham
Villages of Trussville CVS Drug
West County Marketplace Eckerd Wal-Mart
Montgomery
Country Club Harco
Other Markets
Bonner's Point Wal-Mart
Marketplace - Alexander City
TENNESSEE
Nashville
Harpeth Village (j)
Marketplace - Murphreesburo (j) Office Max
Peartree Village Eckerd Office Max
MISSISSIPPI
Columbia Marketplace Wal-Mart
Lucedale Marketplace Wal-Mart (t)
SOUTH CAROLINA
Charleston
Merchants Village (d)
(d) property under development or redevelopment
(j) property owned by joint venture - Regency's interest is less than 100%
(R) or last renovation
(t) tenant owns its own building
10
Item 3. Legal Proceedings
The Company is not presently involved in any litigation nor, to its knowledge,
is any litigation threatened against the Company, except for routine litigation
arising in the ordinary course of business such as "slip and fall" litigation
which is expected to be covered by insurance. In the opinion of management of
the Company, such litigation is not expected to have a material adverse effect
on the business, financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5.Market for the Registrant's Common Equity and Related Shareholder Matters
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "REG". The Company currently has approximately 3,500
shareholders. The following table sets forth the high and low prices and the
cash dividends declared on the Company's common stock by quarter for 1997 and
1996.
1997 1996
----------------------------------- -------------------------------------
Cash Cash
High Low Dividends High Low Dividends
Price Price Declared Price Price Declared
March 31 $ 28.000 25.000 .42 17.500 15.875 .405
June 30 28.125 24.875 .42 21.125 16.500 .405
September 30 28.250 24.875 .42 22.375 19.250 .405
December 31 28.000 24.250 .42 26.250 21.125 .405
On March 7, 1997, the Company acquired, through its partnership, Regency Retail
Partnership, L.P. ("RRLP"), substantially all of the assets of Branch
Properties, L.P. ("Branch"), a privately held real estate firm based in Atlanta,
Georgia, for $232.4 million. The assets acquired from Branch included 100% fee
simple interests in 19 operating shopping centers and 1 center under
development, and also partnership interests (ranging from 50% to 93%) in four
partnerships with outside investors that owned 4 operating shopping centers and
2 centers under development. At closing and during 1997, RRLP issued 3,572,427
units of limited partnership interest (the "Units") and the Company issued
155,797 shares of common stock in exchange for the assets acquired and the
liabilities assumed from Branch. The Units are redeemable on a one-for-one basis
in exchange for shares of common stock. On June 13, 1997, 3,027,080 partnership
units were converted to common stock. In connection with the Units and shares of
common stock issued in exchange for Branch's assets, SC-USREALTY acquired
1,750,000 shares during August and December, 1997 at $22.125 per share in
accordance with their rights as provided for in the Agreement.
Additional Units and shares of common stock may be issued on the fifteenth day
after the first, second and third anniversaries of the closing (each an
"Earn-Out Closing"), based on the performance of certain properties (the
"Property Earn-Out"), and additional shares of common stock may be issued at the
first and second Earn-Out Closings based on revenues earned from third party
management and leasing contracts (estimated to be approximately $750). The
formula for the Property Earn-Out provides for calculating any increases in
value on a property-by-property basis, based on any increases in net income for
certain properties in the Partnership's portfolio as of February 15 of the year
of calculation. The Property Earn-Out is limited to 722,997 Units at the first
Earn-Out Closing and 1,020,061 Units at all Earn-Out Closings (including the
first Earn-Out Closing). The acquisition of Branch is discussed further in note
2, Acquisition and Development of Real Estate, of the notes to the 1997
consolidated financial statements.
11
The Company declares quarterly cash dividends on the 2.5 million Class B common
shares outstanding. At December 31, 1997, the Class B common was owned by a
single shareholder. During 1997, a distribution of $.5140 per share was paid
quarterly. During 1996, a distribution of $.4961 per share was paid quarterly.
The 2.5 million Class B common shares are convertible into 2,975,468 common
shares, subject to certain ownership limitations.
Under the loan agreement with the lenders of the Company's acquisition and
development line of credit, distributions may not exceed 95% of Funds from
Operations ("FFO") based on the immediately preceding four quarters. FFO is
defined in accordance with the NAREIT definition as described under Item 7.,
Management's Discussion and Analysis. Also in the event of any monetary default,
the Company will not make distributions to shareholders.
Item6.Selected Consolidated Financial Data (in thousands, except per share data)
The following table sets forth Selected Financial Data on a historical basis for
the five years ended December 31, 1997, for the Company and the commercial real
estate business of The Regency Group, Inc. ("TRG" or "Regency Properties"), the
predecessor of the Company. This information should be read in conjunction with
the financial statements of the Company (including the related notes thereto)
and Management's Discussion and Analysis of the Financial Condition and Results
of Operations, each included elsewhere in this Form 10-K. The historical
Selected Financial Data for Regency Realty Corporation for the four year period
ended December 31, 1997 and for the period from July 9, 1993 to December 31,
1993, have been derived from the audited financial statements. The historical
Selected Financial Data for the Regency Properties as of November 5, 1993 has
been derived from audited financial statements.
12
Item 6. Selected Consolidated Financial Data (in thousands, except per share data) - (continued)
Regency
Regency Realty Corporation Properties
------------------------------------------------------------------- -------------
Period Ended Period Ended
Year Ended December 31, Dec. 31, Nov. 5,
----------------------------------------------------
1997 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ----
(note 1)
Operating Data:
Revenues:
Rental revenues $89,306 43,433 31,555 25,673 3,094 7,375
Management, leasing and
brokerage fees 8,448 3,444 2,426 2,332 572 2,247
Equity in income of real estate
partnership investments 33 70 4 17 3 18
----------- ----------- ------------ ------------ ------------- -------------
Total revenues 97,787 46,948 33,985 28,022 3,669 9,640
----------- ----------- ------------ ------------ ------------- -------------
Operating expenses:
Operating, maintenance and real
estate taxes 22,904 12,065 8,683 7,140 862 3,365
General and administrative 9,964 6,048 4,894 4,531 736 2,835
Depreciation and amortization 16,303 8,059 5,854 5,266 679 1,564
----------- ----------- ------------ ------------ ------------- -------------
Total operating expenses 49,171 26,172 19,431 16,937 2,277 7,764
----------- ----------- ------------ ------------ ------------- -------------
Interest expense, net of income 18,667 10,811 8,969 5,701 496 3,937
----------- ----------- ------------ ------------ ------------- -------------
Income before minority interests 29,949 9,965 5,585 5,384 895 (2,061)
Minority interest of redeemable
operating partnership units (2,042) - - - - -
Minority interest of limited partners (505) - - - - 126
Equity in loss of unconsolidated
partnership - - - - - (111)
Other non-recurring income, net - - - - - 3,291
----------- ----------- ------------ ------------ ------------- -------------
Net income 27,402 9,965 5,585 5,384 895 1,245
Preferred stock dividends - 58 591 283 - -
----------- ----------- ------------ ------------ ------------- -------------
Net income for common
stockholders $27,402 9,907 4,994 5,101 895 1,245
=========== =========== ============ ============ ============= =============
Earnings per share (EPS):
Basic $1.28 0.82 0.75 0.80 0.14 n/a
Diluted $1.23 0.82 0.75 0.80 0.14 n/a
=========== =========== ============ ============ ============= =============
Other Data:
Common stock outstanding including
Class B common if converted 26,967 13,590 9,704 6,455 6,333 n/a
Redeemable partnership units 574 59 - - - -
outstanding to minority interests
Company owned gross leasable area 9,981 5,512 3,981 3,182 2,337 1,145
Number of properties (at end of period) 89 50 36 30 23 8
Balance Sheet Data:
Real estate investments at cost $834,402 393,403 279,046 217,539 152,821 -
Total assets 826,849 386,524 271,005 214,082 153,653 -
Total debt 278,050 171,607 115,617 107,998 53,521 -
Stockholders' equity 513,627 206,726 147,007 101,760 97,416 -
Note 1: Such Combined Financial Statements have been prepared to reflect the
historical combined operations of the Regency Properties associated with the
ownership of the properties and the management, leasing, acquisition,
development and brokerage business acquired by the Company from TRG on November
5, 1993 in connection with the Company's Initial Public Offering ("IPO")
completed November 5, 1993.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto of Regency Realty
Corporation (the "Company") appearing elsewhere herein. Certain statements made
in the following discussion may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve unknown risks and uncertainties of business and economic
conditions pertaining to the operation, acquisition, or development of shopping
centers including the retail business sector, and may cause actual results of
the Company in the future to significantly differ from any future results that
may be implied by such forward-looking statements.
Shopping Center Business
The Company's principal business is owning, operating and developing grocery
anchored neighborhood infill shopping centers in the Eastern Unites States.
Infill refers to shopping centers within a targeted investment market offering
sustainable competitive advantages such as barriers to entry resulting from
zoning restrictions, growth management laws, or limited new competition from
development or expansions. The Company's properties summarized by state
including their gross leasable areas (GLA) follows:
Location December 31, 1997 December 31, 1996
-------- ----------------- -----------------
# Properties GLA % Leased # Properties GLA % Leased
------------------------------- ---------------------------------
Florida 45 5,267,894 91.5% 34 3,958,423 94.7%
Georgia 25 2,539,507 92.4% 6 592,351 90.5%
North Carolina 6 554,332 99.0% 3 260,094 98.6%
South Carolina 1 79,743 84.3% - - NA
Tennessee 3 208,386 98.5% - - NA
Ohio 2 629,920 89.1% - - NA
Alabama 5 516,080 99.9% 5 516,080 99.7%
Mississippi 2 185,061 96.9% 2 185,061 100.0%
Total ----- ---------- ---- ----- --------- ------
89 9,980,923 92.8% 50 5,512,009 95.0%
===== ========== ==== ===== ========= ======
The Company is focused on building a platform of grocery anchored neighborhood
shopping centers because grocery stores provide convenience shopping of daily
necessities, foot traffic for adjacent local tenants, and should withstand
adverse economic conditions. The Company's current investment markets have
continued to offer strong stable economies, and accordingly, the Company expects
to realize growth in net income as a result of increasing occupancy in the
portfolio, increasing rental rates, development and acquisition of shopping
centers in targeted markets, and redevelopment of existing shopping centers. At
December 31, 1997, 51 of the Company's shopping centers are anchored by the 1st
or 2nd most dominant or preferred grocery store in its particular market as
measured by total market sales, based upon internal research. The following
table summarizes the four largest tenants occupying the Company's shopping
centers, the average remaining years on their current leases, and their average
annual sales per square foot in the stores that they occupy:
Average Regency All Corporate
Grocery Number of % of % of Remaining Lease Store Stores
Anchor Stores Total GLA Annual Rent Term Sales PSF Sales PSF*
------ --------- ----------- ---- --------- - ----------
Publix 28 12.1% 9.8% 12 yrs $509 $416
Winn Dixie 15 6.9% 5.0% 11 yrs $284 $278
Kroger 6 3.6% 3.0% 10 yrs $427 $403
Harris Teeter 4 1.8% 2.5% 16 yrs $433 $362
--Corporate information pertains to all stores operated by the
tenant and was acquired from publicly available data.
14
Acquisition and Development of Shopping Centers
The Company acquired 35 shopping centers during 1997 (the "1997 Acquisitions"),
5 of which are partially operating while undergoing redevelopment scheduled for
completion during 1998. The Company also completed the development of 3 shopping
centers and began development on 2 shopping centers scheduled for completion
during 1998. The following summarizes the locations of the Company's 1997
acquisition and development activity:
Completed In Process Completed In Process GLA at
Location Acquisitions Redevelopments Development Development Completion
-------- ------------ -------------- ----------- ----------- ----------
Florida 10 1 - 2 1,329,093
Georgia 19 2 - - 1,947,156
North Carolina 3 - - - 294,238
South Carolina 1 1 - - 79,743
Tennessee - - 3 - 208,386
Ohio 2 1 - - 629,920
--------- -------- -------- -------- ----------
Total 35 5 3 2 4,488,536
========= ======== ======== ======== ==========
GLA 4,123,869 603,819 208,386 156,281
========= ======== ======== ========
Total Investment
at Completion
(in thousands) $373,858 $53,399 $32,183 $15,794 $ 421,835
========= ======== ======== ======= =========
On March 7, 1997, the Company acquired, through its partnership, Regency Retail
Partnership, L.P. ("RRLP"), substantially all of the assets of Branch
Properties, L.P. ("Branch"), a privately held real estate firm based in Atlanta,
Georgia, for $232.4 million. The assets acquired from Branch included 100% fee
simple interests in 19 operating shopping centers and 1 center under
development, and also partnership interests (ranging from 50% to 93%) in four
partnerships with outside investors that owned 4 operating shopping centers and
2 centers under development. The Company also assumed the third party property
management contracts of Branch on approximately 3 million SF of shopping center
GLA that generate management fees and leasing commission revenues.
At closing and during 1997, RRLP issued 3,572,427 units of limited partnership
interest (the "Units") and the Company issued 155,797 shares of common stock in
exchange for the assets acquired and the liabilities assumed from Branch. The
Units are redeemable on a one-for-one basis in exchange for shares of common
stock. On June 13, 1997, 3,027,080 partnership units were converted to common
stock. The purchase price of Branch, as recorded in the Company's financial
statements, includes approximately $96.4 million for Units and common stock
issued (based upon $26.85, the fair market value of the Company's common stock
on the date the acquisition was publicly announced), $27.3 million in cash, $7.8
million for transaction costs and to establish reserves, and $97.2 million of
assumed debt.
Additional Units and shares of common stock may be issued on the fifteenth day
after the first, second and third anniversaries of the closing (each an
"Earn-Out Closing"), based on the performance of certain properties (the
"Property Earn-Out"), and additional shares of common stock may be issued at the
first and second Earn-Out Closings based on revenues earned from third party
management and leasing contracts (estimated to be approximately $750). The
formula for the Property Earn-Out provides for calculating any increases in
value on a property-by-property basis, based on any increases in net income for
certain properties in the Partnership's portfolio as of February 15 of the year
of calculation. The Property Earn-Out is limited to 722,997 Units at the first
Earn-Out Closing and 1,020,061 Units at all Earn-Out Closings (including the
first Earn-Out Closing).
During 1997, in addition to the Branch Properties, the Company acquired 13
grocery anchored shopping centers for $163.3 million for cash including debt
assumed of $31.4 million representing 1.9 million SF, two of which are partially
operating while undergoing redevelopment. During 1996, the Company acquired 13
grocery anchored shopping centers representing 1.4 million square feet for
$107.1 million (the "1996 Acquisitions"). These acquisitions are discussed
further in note 2, Acquisition and Development of Real Estate, of the notes to
the 1997 consolidated financial statements.
15
Liquidity and Capital Resources
Net cash provided by operating activities was $43.0 million, $16.0 million, and
$15.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively, and is the primary source of funds to pay dividends and
distributions on outstanding common stock and Units, maintain and operate the
shopping centers, and pay interest and scheduled principal reductions on
outstanding debt. Changes in net cash provided by operating activities is
further discussed below under results from operations. Net cash used in
investing activities was $188.5 million, $109.8 million, and $61.5 million,
during 1997, 1996, and 1995, respectively, as discussed above in Acquisitions of
Shopping Centers. Net cash provided by financing activities was $153.8 million,
$98.7 million, and $46.2 million during 1997, 1996, and 1995, respectively.
The Company paid dividends and distributions of $37 million, $16.2 million, and
$10.8 million, during 1997, 1996, and 1995, respectively (see Funds from
Operations below for further discussion on payment of dividends). In January
1997, the Company increased its quarterly common dividend and distribution per
Unit to $.42 per share vs. $.405 per share in 1996 and during 1997 issued
additional common shares and Units as discussed below. In January 1998, the
Company increased its quarterly common dividend and distribution per Unit to
$.44 per share, and accordingly, total dividends and distributions expected to
be paid by the Company during 1998 will increase substantially over 1997.
The Company's total indebtedness at December 31, 1997 and 1996 was approximately
$278.0 million and $171.6 million, respectively, of which $199.1 million and
$94.1 million had fixed interest rates averaging 7.3% and 7.6%, respectively.
The weighted average interest rate on total debt at December 31, 1997 and 1996
was 7.3% and 7.5%, respectively. During 1997, the Company, as part of its
acquisition activities, assumed approximately $142.4 million of debt, as
compared to $3.9 million during 1996. The cash portion of the purchase price for
the 1997 Acquisitions was financed from the Company's $150 million line of
credit (the "Line"). At December 31, 1997 and 1996, the balance of the Line was
$48.1 million and $73.7 million, respectively. The Line has a variable rate of
interest equal to the London Inter-bank Offered Rate ("Libor") plus 150 basis
points.
On February 24, 1998, the Company entered into an agreement with the various
banks that provide the Line to increase the unsecured commitment amount to $300
million, provide for a $150 million competitive bid facility, and reduce the
interest rate on the line based upon achieving an investment grade rating of
BBB- or higher from Standard & Poors (S&P) and a Baa3 rating or higher from
Moody's Investor Service (Moody's). Once ratings are achieved, the interest rate
on the Line will be reduced to Libor plus .95%, and further reduced if the
Company receives ratings better than the minimum requirement from both agencies.
During the 1st quarter of 1998, the Company received investment grade ratings
from Moody's of Baa2, and a rating of BBB- from S&P.
During 1996, the Company entered into a Stock Purchase Agreement (the
"Agreement") with SC-USREALTY. Under the Agreement, the Company agreed to sell
7,499,400 shares of common stock to SC-USREALTY at a price of $17.625 per share
(the fair market value of the Company's Common Stock on the date the terms of
the Agreement were reached) representing total maximum proceeds of approximately
$132 million. During 1996, the Company sold 3,651,800 shares to SC-USREALTY for
approximately $64.4 million and the proceeds were used to pay down the Line.
During March and June, 1997, the Company issued the remaining 3,847,600 shares
to SC-USREALTY generating proceeds of approximately $67.8 million which were
used to pay down the Line, completing the issuance of common stock under the
original commitment.
As part of the Agreement, SC-USREALTY also has participation rights entitling
them to purchase additional equity in the Company at the same price as that
offered to other purchasers in order to preserve their pro rata ownership in the
Company. In connection with the Units and shares of common stock issued in
exchange for Branch's assets on March 7, 1997, SC-USREALTY acquired 1,750,000
shares during August and December, 1997 at $22.125 per share (the fair market
value of the Company's common stock on the date the agreement to acquire Branch
was entered into) in accordance with their rights. For further discussion of the
Branch acquisition or the Agreement, see notes 2 and 6, to the Company's 1997
consolidated financial statements.
16
On July 11, 1997, the Company sold 2,415,000 shares to the public at $27.25 per
share. In connection with that offering, SC-USREALTY purchased 1,785,000 shares
at $27.25 directly from the Company. On August 11, 1997, the Underwriters
exercised the over-allotment option and the Company issued an additional 129,800
shares to the public and 95,939 shares to SC-USREALTY at $27.25 per share. Total
net proceeds from the sale of common stock to the public and SC-USREALTY of
approximately $117 million were used to reduce the balance of the Line. The
unused commitment currently available under the Line for future acquisition and
development activity is approximately $101.9 million at December 31, 1997.
The Company qualifies and intends to continue to qualify as a REIT under the
Internal Revenue Code. As a REIT, the Company is allowed to reduce taxable
income by all or a portion of its distributions to stockholders. As
distributions have exceeded taxable income, no provision for federal income
taxes has been made. While the Company intends to continue to pay dividends to
its stockholders, the Company will reserve such amounts of cash flow as it
considers necessary for the proper maintenance and improvement of its real
estate, while still maintaining its qualification as a REIT.
The Company's real estate portfolio has grown substantially during 1997 as a
result of the acquisitions and developments discussed above. In 1998, the
Company intends to exceed its 1997 level of acquisitions and development. The
Company expects to meet the related capital requirements from borrowings on the
Line, and from additional public equity and debt offerings. Because such
acquisition and development activities are discretionary in nature, they are not
expected to burden the Company's capital resources currently available for
liquidity requirements. The Company expects that cash provided by operating
activities, unused amounts available under the Line, and cash reserves are
adequate to meet liquidity requirements.
Recent Events
On March 11, 1998, the Company acquired the real estate assets of entities
comprising the Midland Group ("Midland") consisting of 21 shopping centers (the
"Midland Properties") plus a development pipeline of 11 shopping centers. Of the
21 centers acquired, 20 are anchored by Kroger. Eight of the shopping centers
included in the development pipeline will be owned through a joint venture in
which the Company will own less than a 50% interest upon completion of
construction. At closing and during 1998, the Company will pay approximately
$230.4 million for the properties and to pay transaction costs through the
issuance of units of RRLP valued at $26.58 per unit (the fair market value of
the Company's common stock on the date the terms of the acquisition were agreed
to) or cash of $47 million, the assumption of $92.5 million of debt, and $90.9
million to pay off existing secured real estate loans. The Company will incur
additional costs to establish reserves, pay severance, and prepay existing
assumed loans. Subsequent to 1998, the Company expects to pay approximately
$12.7 million to acquire equity interests in the development pipeline as the
properties reach stabilization. The Company may also be required to make
payments aggregating $10.5 million through the year 2000 contingent upon
increases in net income from existing properties, the development pipeline, and
new properties developed or acquired in accordance with the contribution
agreement.
Results from Operations
Comparison of 1997 to 1996
Revenues increased $50.8 million or 108% to $97.8 million in 1997. The increase
was due primarily to the 1997 Acquisitions and 1996 Acquisitions providing
increases in revenues of $49.8 million during 1997. At December 31, 1997, the
real estate portfolio contained approximately 10 million SF, was 92.8% leased
and had average rents of $9.34 per SF. Minimum rent increased $35.4 million or
102%, and recoveries from tenants increased $9.3 million or 121%. On a same
property basis (excluding the 1997 and 1996 Acquisitions) revenues increased
$960 or 2%, primarily due to higher percentage rents and operating expense
recoveries from tenants. Revenues from property management, leasing, brokerage,
and development services provided on properties not owned by the Company were
$8.4 million in 1997 compared to $3.4 million in 1996, the increase due to fees
earned from third property management and leasing contracts acquired as part of
the acquisition of Branch. At December 31, 1997, the Company managed shopping
centers and office buildings owned entirely by third parties containing
approximately 4.4 million SF vs. 1.2 million SF at December 31, 1996.
17
Operating expenses increased $23.0 million or 88% to $49.2 million in 1997.
Combined operating and maintenance, and real estate taxes increased $10.8
million or 89% during 1997 to $22.9 million. The increases are due to the 1997
and 1996 Acquisitions generating operating and maintenance expenses and real
estate tax increases of $10.6 million during 1997. On a same property basis,
operating and maintenance expenses and real estate taxes increased $226, or 2%.
General and administrative expense increased 64.7% during 1997 to $10.0 million
due to the hiring of new employees and related office expenses necessary to
manage the 52 shopping centers acquired during 1996 and 1997, as well as, the 44
shopping centers that the Company began managing for third parties during 1997.
Depreciation and amortization increased $8.2 million during 1997 or 102%
primarily due to the 1997 and 1996 Acquisitions generating $7.7 million in
depreciation and amortization.
Interest expense increased to $19.7 million in 1997 from $11.5 million in 1996
or 71% due primarily to increased average outstanding loan balances related to
the financing of the 1997 and 1996 Acquisitions on the Line and the assumption
of debt, as discussed under Acquisition and Development of Shopping Centers and
Liquidity and Capital Resources.
Net income for common stockholders was $27.4 million in 1997 vs. $9.9 million in
1996, a $17.5 million or 177% increase for the reasons previously described.
Diluted earnings per share in 1997 was $1.23 vs. $0.82 in 1996, an increase of
50% due to the increase in net income combined with the dilutive impact from the
increase in weighted average common shares and equivalents of 12.4 million
primarily due to the Acquisition of the Branch Properties, the issuance of
shares to SC-USREALTY, and the public offering discussed previously (see notes
2, 6 and 7, to the 1997 consolidated financial statements for related
discussions).
Comparison of 1996 to 1995
Revenues increased $13 million or 38% to $46.9 million in 1996. The increase was
due primarily to the 1996 Acquisitions discussed above, and 6 shopping centers
purchased during 1995 for $53.3 million ("1995 Acquisitions"), providing
increases in revenues of $10 million during 1996. At December 31, 1996, the real
estate portfolio contained approximately 5.5 million SF, was 95.4% leased and
had average rents of $8.73 per SF. Minimum rent increased $9.7 million or 39%,
and recoveries from tenants increased $1.9 million or 32%. On a same property
basis (excluding the 1996 and 1995 Acquisitions) revenues increased $3 million
or 10%, primarily due to increased based rent from 3 new anchor tenants who
opened during 1996 at 3 of the Company's shopping centers (the "1995 Anchor
Expansions"). Revenues from property management, leasing, brokerage, and
development services provided on properties not owned by the Company were $3.4
million in 1996 compared to $2.4 million in 1995, the increase due to fees
earned on build to suit development activity. At December 31, 1996 and 1995, the
Company managed shopping centers and office buildings owned entirely by third
parties containing approximately 1.2 million SF.
Operating expenses increased $6.7 million or 29% to $26.2 million in 1996.
Combined operating and maintenance, and real estate taxes increased $3.4 million
or 39% during 1996 to $12.1 million. The increases are due to the 1996 and 1995
Acquisitions generating operating and maintenance expenses and real estate tax
increases of $2.7 million during 1996. On a same property basis, operating and
maintenance expenses and real estate taxes increased $651, or 11% primarily due
to the 1995 Anchor Expansions. General and administrative expense increased 24%
during 1996 to $6 million due to the hiring of new employees and related office
expenses necessary to manage the 20 shopping centers acquired during 1995 and
1996. Depreciation and amortization increased $2.2 million during 1996 or 38%
primarily due to the 1996 and 1995 Acquisitions and the 1995 Anchor Expansions.
Net interest expense increased to $10.1 million in 1996 from $8.4 million in
1995 or 21% due primarily to increased average outstanding loan balances related
to the 1996 and 1995 Acquisitions. Outstanding debt at December 31, 1996 was
$171.6 million vs. $115.6 million in 1995. Preferred stock dividends declined as
a result of the full conversion of the remaining Series A preferred stock into
common stock during 1996.
Net income for common stockholders was $9.9 million in 1996 vs. $5 million
in 1995, a $4.9 million or 98% increase for the reasons previously described.
Diluted earnings per share in 1996 was $0.82 vs. $0.75 in 1995, an increase
18
of 9.3% due to the increase in net income combined with the dilutive impact from
the increase in weighted average common shares and equivalents of 722 due to the
issuance of shares to SC-USREALTY discussed previously (see notes 2, 6 and 7, to
the 1997 consolidated financial statements for related discussions).
Funds from Operations
The Company considers funds from operations ("FFO"), as defined by the National
Association of Real Estate Investment Trusts as net income (computed in
accordance with generally accepted accounting principles) excluding gains (or
losses) from debt restructuring and sales of income producing property held for
investment, plus depreciation and amortization of real estate, and after
adjustments for unconsolidated investments in real estate partnerships and joint
ventures, to be the industry standard for reporting the operations of real
estate investment trusts ("REITs"). Adjustments for investments in real estate
partnerships are calculated to reflect FFO on the same basis. While management
believes that FFO is the most relevant and widely used measure of the Company's
performance, such amount does not represent cash flow from operations as defined
by generally accepted accounting principles, should not be considered an
alternative to net income as an indicator of the Company's operating
performance, and is not indicative of cash available to fund all cash flow
needs. Additionally, the Company's calculation of FFO, as provided below, may
not be comparable to similarly titled measures of other REITs.
FFO increased by 149% from 1996 to 1997 as a result of the acquisition activity
discussed above under "Results of Operations". FFO for the periods ended
December 31, 1997 and 1996 are summarized in the following table:
1997 1996 1995
---- ---- ----
Net income for common stockholders $ 27,402 9,907 4,994
Add (subtract):
Real estate depreciation and amortization, net 15,671 8,049 5,833
Gain on sale of office building (451) - -
Minority interests in net income of
Redeemable partnership units 2,042 - -
------ ------ ------
Funds from operations $ 44,663 17,956 10,827
====== ====== ======
Cash flow provided by (used by):
Operating activities $ 43,044 16,004 15,892
Investing activities (188,533) (109,842) (61,504)
Financing activities 153,782 98,730 46,153
Environmental Matters
The Company like others in the commercial real estate industry, is subject to
numerous environmental laws and regulations and the operation of dry cleaning
plants at the Company's shopping centers is the principal environmental concern.
The Company believes that the dry cleaners are operating in accordance with
current laws and regulations and has established procedures to monitor their
operations. Based on information presently available, no additional
environmental accruals were made and management believes that the ultimate
disposition of currently known matters will not have a material effect on the
financial position, liquidity, or operations of the Company. See note 11 of the
consolidated financial statements for further discussion.
19
Inflation
Inflation has remained relatively low during the past three years and has
had a minimal impact on the operating performance of the shopping centers,
however, substantially all of the Company's long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such provisions include
clauses enabling the Company to receive percentage rentals based on tenants'
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. Such
escalation clauses are often related to increases in the consumer price index or
similar inflation indices. In addition, many of the Company's leases are for
terms of less than ten years, which permits the Company to seek increased rents
upon re-rental at market rates. Most of the Company's leases require the tenants
to pay their share of operating expenses, including common area maintenance,
real estate taxes, insurance and utilities, thereby reducing the Company's
exposure to increases in costs and operating expenses resulting from inflation.
Year 2000 System Conversions
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" problem and is in
process of resolving the issue. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time sensitive software
may recognize a date using "00" as the year 1900 rather than 2000. This could
result in major system failure and miscalculations. During 1997, the Company
converted its operating system, and its general accounting and lease
administration software systems to versions containing modifications that
corrected for the Year 2000 problem. Both suppliers have received ITAA 2000
certification from The Information Technology Association of America, the
industry's century date change certification program. The Company will continue
to assess its other internal systems and reprogram or upgrade as necessary. The
Company is also reviewing the Year 2000 system conversions of other companies of
which it does business in order to determine their compliance.
Item 8. Consolidated Financial Statements and Supplementary Data
The Consolidated Financial Statements and supplementary data included in this
Report are listed in Part IV, Item 14(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors of the Company is incorporated herein by
reference to the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this Form 10-K with respect to its 1998 Annual Meeting of
Shareholders.
20
The following table provides information concerning the executive officers of
the Company, several of which were officers of TRG for five years or more prior
to the Company's acquisition of TRG's real estate business in November, 1993.
- ---------------------------------- ---------------------------------------------------------------
Position with the Company;
Name Principal Occupations During
(Age) Past Five Years
- ---------------------------------- ---------------------------------------------------------------
Martin E. Stein, Jr. (45) Chairman, Chief Executive Officer and Director of the
Company, and President, Chief Executive Officer and Director
of TRG
- ---------------------------------- ---------------------------------------------------------------
Bruce M. Johnson (50) Managing Director and Chief Financial Officer of the Company,
and previously Vice President of Investment Management and
Acquisitions of TRG.
- ---------------------------------- ---------------------------------------------------------------
Robert C. Gillander, Jr. (44) Managing Director of Investments for the Company, and
previously Vice President of Development of TRG
- ---------------------------------- ---------------------------------------------------------------
James D. Thompson (42) Managing Director of Operations for the Company, and
previously Vice President of Asset Management in North and
Central Florida regions of TRG.
- ---------------------------------- ---------------------------------------------------------------
Lee S. Wielansky (46) Managing Director of Investments of the Company, and
previously President and Chief Executive Officer of Midland
Development Group from 1993 to 1998.
- ---------------------------------- ---------------------------------------------------------------
Item 11. Executive Compensation
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the fiscal year covered by this Form 10-K with respect to its 1998 Annual
Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owner and Management
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the fiscal year covered by this Form 10-K with respect to its 1998 Annual
Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission within 120 days after the
end of the fiscal year covered by this Form 10-K with respect to its 1998 Annual
Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules:
The Company's 1997 financial statements and financial statement schedule,
together with the report of KPMG Peat Marwick LLP dated February 3, 1998, except
for Note 12 as to which the date is March 1, 1998, are listed on the index
immediately preceding the financial statements at the end of this report.
(b) Reports on Form 8-K:
None
21
(c) Exhibits:
3. Articles of Incorporation
# (i) Restated Articles of Incorporation of Regency Realty Corporation as
amended to date.
#(ii) Restated Bylaws of Regency Realty Corporation.
4. See exhibits 3(i) and 3(ii) for provisions of the Articles of
Incorporation and Bylaws of Regency Realty Corporation defining
rights of security holders.
10.Material Contracts
~*(a) Regency Realty Corporation 1993 Long Term Omnibus Plan
~*(b) Form of Stock Purchase Award Agreement
~*(c) Form of Management Stock Pledge Agreement, relating to the Stock
Purchase Award Agreement filed as Exhibit 10(b)
~*(d) Form of Promissory Note, relating to the Stock Purchase Award Agreement
filed as Exhibit 10(b)
~*(e) Form of Option Award Agreement for Key Employees
~*(f) Form of Option Award Agreement for Non-Employee Directors
~*(g) Annual Incentive for Management Plan
~*(h) Form of Director/Officer Indemnification Agreement
~*(i) Form of Non-Competition Agreement between Regency Realty Corporation
and Joan W. Stein, Robert L. Stein, Richard W. Stein,the Martin E.
Stein Testamentary Trust A and the Martin E. Stein Testamentary Trust B.
- -------------------------
~ Management contract or compensatory plan or arrangement filed pursuant to
S-K 601(10)(iii)(A).
# Included as an exhibit to the Company's Form 10-Q filed August 11, 1997
and incorporated herein by reference.
* Included as an exhibit to the Pre-effective Amendment No. 2 to the
Company's S-11 filed October 5, 1993, and incorporated herein by reference
** Included as an exhibit to the Company's Form 10-Q filed December 13, 1993,
and incorporated herein by reference
*** Included as an exhibit to the Company's Form 10-Q filed November 14, 1996,
and incorporated herein by reference
+ Included as an exhibit to the Company's Form 10-Q filed May 12, 1994, and
incorporated herein by reference
++ Filed as appendices to the Company's definitive proxy statement dated
August 2, 1996 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's Form 8-K report filed March 14, 1997
and incorporated herein by reference.
@ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and
incorporated herein by reference.
@@ Included as an exhibit to the Company's Form 10-Q filed May 15, 1997 and
incorporated herein by reference.
@@@ Included as an exhibit to the Company's Form 8-K/A report filed
March 19, 1998 and incorporated herein by reference.
22
~*(j) Form of Employment Agreement with Martin E. Stein, Jr.
~*** (k) Form of Employment Agreements entered into with the following
executive officers:
(i) Bruce M. Johnson
(ii) Robert C. Gillander, Jr.
(iii) James D. Thompson
(l) The following documents, all dated November 5, 1993,
relating to a $51 million loan from Salomon Brothers
Inc. to corporations and subsidiaries wholly owned by the Company.
** (i) Loan Agreement between RSP IV Criterion, Ltd., Regency
Rosewood Temple Terrace, Ltd., Treasure Coast Investors,
Ltd., Landcom Regency Mandarin, Ltd., RRC FL SPC, Inc.,
RRC AL SPC, Inc., RRC MS SPC, Inc.,and RRC GA SPC, Inc.
(as borrowers) and RRC Lender, Inc.(as lender)
** (ii) Promissory Note in the original principal amount of $51
million
** (iii) Undertaking executed by the Registrantand RRC FL SPC,Inc.
RRC AL SPC, Inc., RRC MS SPC, Inc., and RRC GA SPC, Inc.
** (iv) Certificate Purchase Agreement between RRC Lender,
Inc. (as seller) and Salomon Brothers, Inc.
(as lender)
(m) The following documents relating to the purchase by Security Capital
U.S. Realty and Security Capital Holdings, S.A. of up to 45% of the
Registrant's outstanding common stock:
++ (i) Stock Purchase Agreement dated June 11, 1996.
++ (ii) Stockholders' Agreement dated July 10, 1996.
- --------------------------
~ Management contract or compensatory plan or arrangement filed pursuant to
S-K 601(10)(iii)(A).
# Included as an exhibit to the Company's Form 10-Q filed August 11, 1997
and incorporated herein by reference.
* Included as an exhibit to the Pre-effective Amendment No. 2 to the
Company's S-11 filed October 5, 1993, and incorporated herein by reference
** Included as an exhibit to the Company's Form 10-Q filed December 13, 1993,
and incorporated herein by reference
*** Included as an exhibit to the Company's Form 10-Q filed November 14, 1996,
and incorporated herein by reference
+ Included as an exhibit to the Company's Form 10-Q filed May 12, 1994, and
incorporated herein by reference
++ Filed as appendices to the Company's definitive proxy statement dated
August 2, 1996 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's Form 8-K report filed March 14, 1997
and incorporated herein by reference.
@ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and
incorporated herein by reference.
@@ Included as an exhibit to the Company's Form 10-Q filed May 15, 1997 and
incorporated herein by reference.
@@@ Included as an exhibit to the Company's Form 8-K/A report filed
March 19, 1998 and incorporated herein by reference.
23
+++ (A) First Amendment of Stockholders' Agreement dated
February 10, 1997.
++ (iii) Registration Rights Agreement dated July 10, 1996.
+(n) Stock Grant Plan adopted on January 31, 1994 to grant stock to
employees.
~@(o) Criteria for Restricted Stock Awards under 1993 Long Term Omnibus Plan.
~@(p) Form of 1996 Stock Purchase Award Agreement.
~@(q) Form of 1996 Management Stock Pledge Agreement relating
to the Stock Purchase Award Agreement filed as Exhibit 10(p).
~@(r) Form of Promissory Note relating to 1996 Stock Purchase Award Agreement
filed as Exhibit 10(p).
@@ (s) Revolving Line of Credit Agreement dated May 30,1994 between RRC GA ONE,
Inc., as Borrower and Wachovia Bank of Georgia, N.A., as Lender.
@@ (t) First Modification to Revolving Line of Credit Agreement
dated April 30, 1995 between RRC GA ONE, Inc., as Borrower and
Wachovia Bank of Georgia, N.A., as Lender.
@@ (u) Second Modification to Revolving Line of Credit Agreement dated
December 19, 1995 between RRC GA ONE, Inc., as Original Borrower,
Regency Realty Group, Inc. and New Borrower and Regency Realty
Corporation, Inc., as Guarantor, and Wachovia Bank of Georgia, N.A.,
as Lender.
@@ (v) Third Modification to Revolving Line of Credit Agreement dated April
30, 1996 between Regency Realty Group,Inc. as Borrower, and Wachovia
Bank of Georgia, N.A., as Lender.
@@ (w) Fourth Modification to Revolving Line of Credit Agreement dated
November 1, 1996 between Regency Realty Group,Inc. as Borrower, and
Wachovia Bank of Georgia, N.A., as Lender.
@@ (x) Fifth Modification to Revolving Line of Credit Agreement dated
December 31, 1996 between Regency Realty Group,Inc. as Borrower, and
Wachovia Bank of Georgia, N.A., as Lender.
- --------------------------
~ Management contract or compensatory plan or arrangement filed pursuant to
S-K 601(10)(iii)(A).
# Included as an exhibit to the Company's Form 10-Q filed August 11, 1997
and incorporated herein by reference.
* Included as an exhibit to the Pre-effective Amendment No. 2 to the
Company's S-11 filed October 5, 1993, and incorporated herein by reference
** Included as an exhibit to the Company's Form 10-Q filed December 13, 1993,
and incorporated herein by reference
*** Included as an exhibit to the Company's Form 10-Q filed November 14, 1996,
and incorporated herein by reference
+ Included as an exhibit to the Company's Form 10-Q filed May 12, 1994, and
incorporated herein by reference
++ Filed as appendices to the Company's definitive proxy statement dated
August 2, 1996 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's Form 8-K report filed March 14, 1997
and incorporated herein by reference.
@ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and
incorporated herein by reference.
@@ Included as an exhibit to the Company's Form 10-Q filed May 15, 1997 and
incorporated herein by reference.
@@@ Included as an exhibit to the Company's Form 8-K/A report filed
March 19, 1998 and incorporated herein by reference.
24
@@(y) Third Amendment to Credit Agreement dated March 7, 1997
between Regency Realty Corporation as Borrower, each of the
Guarantors signatory hereto, each of the Lenders signatory
hereto, and Wells Fargo Bank, N.A. and successor in interest
to Wells Fargo Realty Advisors Funding, Inc., as Agent.
@@(z) Fourth Amendment to Credit Agreement dated March 24, 1997
between Regency Realty Corporation as Borrower, each of the
Guarantors signatory hereto, each of the Lenders signatory
hereto, and Wells Fargo Bank, N.A. and successor in interest
to Wells Fargo Realty Advisors Funding, Inc., as Agent.
@@@ (aa) Second Amended and Restated Agreement of Limited Partnership of Regency
Centers, L.P.
21. Subsidiaries of the Registrant
23. Consent of KPMG Peat Marwick LLP
27. Financial Data Table
________________________
~ Management contract or compensatory plan or arrangement filed pursuant to
S-K 601(10)(iii)(A).
# Included as an exhibit to the Company's Form 10-Q filed August 11, 1997
and incorporated herein by reference.
* Included as an exhibit to the Pre-effective Amendment No. 2 to the
Company's S-11 filed October 5, 1993, and incorporated herein by reference
** Included as an exhibit to the Company's Form 10-Q filed December 13, 1993,
and incorporated herein by reference
*** Included as an exhibit to the Company's Form 10-Q filed November 14, 1996,
and incorporated herein by reference
+ Included as an exhibit to the Company's Form 10-Q filed May 12, 1994, and
incorporated herein by reference
++ Filed as appendices to the Company's definitive proxy statement dated
August 2, 1996 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's Form 8-K report filed March 14, 1997
and incorporated herein by reference.
@ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and
incorporated herein by reference.
@@ Included as an exhibit to the Company's Form 10-Q filed May 15, 1997 and
incorporated herein by reference.
@@@ Included as an exhibit to the Company's Form 8-K/A report filed
March 19, 1998 and incorporated herein by reference.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REGENCY REALTY CORPORATION
Date: March 20, 1998 By: /s/ Martin E. Stein, Jr.
------------------------
Martin E Stein, Jr.,
Chairman of the Board
and Chief Executive Officer
Date: March 20,1998 By: /s/ Bruce M. Johnson
-------------------------
Bruce M. Johnson,
Managing Director and
Principal Financial Officer
Date: March 20, 1998 By: /s/ J. Christian Leavitt
------------------------
J. Christian Leavitt,
Vice President,
Treasurer, Secretary and
PrincipalAccounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: March 20, 1998 /s/ Martin E. Stein, Jr.
------------------------
Martin E. Stein, Jr.,
Chairman of the Board
and Chief Executive Officer
Date: March 20, 1998 /s/ Joan W. Stein
-------------------------
Joan W. Stein, Chairman Emeritus
and Director
Date: March 20, 1998 /s/ Edward L. Baker
--------------------------
Edward L. Baker, Director
Date: March 20, 1998
--------------------------
Raymond L. Bank, Director
Date: March 20, 1998 /s/ J. Alexander Branch, III
---------------------------
J. Alexander Branch, Director
Date: March 20, 1998 /s/ A. R. Carpenter
----------------------------
A. R. Carpenter, Director
Date: March 20, 1998 /s/ J. Dix Druce, Jr.
----------------------------
J. Dix Druce, Jr., Director
Date: March 20, 1998 /s/ Albert D. Ernest, Jr.
----------------------------
Albert D. Ernest, Jr., Director
Date: March 20, 1998 /s/ Douglas S. Luke
----------------------------
Douglas S. Luke, Director
26
Date: March 20, 1998 /s/ Mary Lou Rogers
----------------------------
Mary Lou Rogers, Director
Date: March 20, 1998 /s/ Jonathan L. Smith
----------------------------
Jonathan L. Smith, Director
Date: March 20, 1998 /s/ Richard W. Stein
-----------------------------
Richard W. Stein, Director
Date: March 20, 1998 /s/ Lee S. Wielansky
----------------------------
Lee S. Wielansky, Director
27
REGENCY REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
Regency Realty Corporation
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 F-8
Notes to Consolidated Financial Statements F-10
Financial Statement Schedule
Independent Auditors' Report on Financial Statement Schedule S-1
Schedule III - Regency Realty Corporation Combined Real Estate and
Accumulated Depreciation - December 31, 1997 S-2
All other schedules are omitted because they are not applicable or
because information required therein is shown in the financial
statements or notes thereto.
F-1
Independent Auditors' Report
The Shareholders and Board of Directors
Regency Realty Corporation:
We have audited the accompanying consolidated balance sheets of Regency Realty
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Regency Realty
Corporation as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
---------------------------
KPMG Peat Marwick LLP
Jacksonville, Florida
February 3, 1998, except for Note 12,
as to which the date is March 1, 1998
F-2
REGENCY REALTY CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
Assets
Real estate investments, at cost (notes 2, 4, 5 and 9):
Land $ 177,245,784 84,186,483
Buildings and improvements 622,555,583 304,820,998
Construction in progress - development for investment 13,427,370 1,665,144
Construction in progress - development for sale 20,173,039 1,695,062
------------ -----------
833,401,776 392,367,687
Less: accumulated depreciation 40,795,801 26,213,225
------------ -----------
792,605,975 366,154,462
Investments in real estate partnerships (note 3) 999,730 1,035,107
------------ -----------
Net real estate investments 793,605,705 367,189,569
Cash and cash equivalents (note 4) 16,586,094 8,293,229
Tenant receivables, net of allowance for
uncollectible accounts of $1,162,570
and $832,091 at December 31, 1997 and
1996, respectively 9,546,584 5,281,419
Deferred costs, less accumulated amortization
of $3,842,914 and $2,519,019 at December 31,
1997 and 1996, respectively 4,252,991 3,961,439
Other assets 2,857,217 1,798,393
------------ -----------
$ 826,848,591 386,524,049
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Mortgage loans payable (note 4) 229,919,242 97,906,288
Acquisition and development line of credit (note 5) 48,131,185 73,701,185
Accounts payable and other liabilities 11,597,232 6,300,640
Tenants' security and escrow deposits 2,319,941 1,381,673
------------ -----------
Total liabilities 291,967,600 179,289,786
------------ -----------
Redeemable operating partnership units (notes 2 and 6) 13,777,156 508,486
Limited partners' interest in consolidated partnerships (note 2) 7,477,182 -
------------ -----------
21,254,338 508,486
------------ -----------
Stockholders' equity (notes 2, 6, 7 and 8)
Common stock $.01 par value per share:
150,000,000 shares authorized; 23,992,037
and 10,614,905 shares issued and outstanding
at December 31, 1997 and 1996, respectively 239,920 106,149
Special common stock - 10,000,000 shares authorized:
Class B $.01 par value per share, 2,500,000
shares issued and outstanding 25,000 25,000
Additional paid in capital 535,498,878 223,080,831
Distributions in excess of net income (20,494,893) (13,981,770)
Stock loans (1,642,252) (2,504,433)
------------- ------------
Total stockholders' equity 513,626,653 206,725,777
------------- ------------
Commitments and contingencies (notes 9,11 and 12)
$ 826,848,591 386,524,049
============= ===========
See accompanying notes to consolidated financial statements.
F-3
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Revenues:
Minimum rent (note 9) $ 70,102,765 34,705,905 25,044,201
Percentage rent 2,151,379 997,981 672,986
Recoveries from tenants 17,051,827 7,729,404 5,837,773
Management, leasing and brokerage fees 8,447,615 3,444,287 2,425,733
Equity in income of investments in
real estate partnerships (note 3) 33,311 69,990 4,226
----------- ---------- ----------
Total revenues 97,786,897 46,947,567 33,984,919
----------- ---------- ----------
Operating expenses:
Depreciation and amortization 16,303,159 8,058,643 5,853,730
Operating and maintenance 14,212,555 7,655,934 5,682,967
General and administrative (note 10) 9,963,926 6,048,140 4,894,432
Real estate taxes 8,691,576 4,409,460 3,000,557
----------- ---------- ----------
Total operating expenses 49,171,216 26,172,177 19,431,686
----------- ---------- ----------
Interest expense (income):
Interest expense 19,667,483 11,476,555 9,422,738
Interest income (1,000,227) (666,031) (454,207)
----------- ---------- ----------
Net interest expense 18,667,256 10,810,524 8,968,531
----------- ---------- ----------
Income before minority interests 29,948,425 9,964,866 5,584,702
----------- ---------- ----------
Minority interest of redeemable partnership units 2,041,823 - -
Minority interest of limited partners' 504,947 - -
----------- ---------- ----------
Total minority interests 2,546,770 - -
----------- ---------- ----------
Net income 27,401,655 9,964,866 5,584,702
Preferred stock dividends - 57,721 590,904
----------- ---------- ----------
Net income for common stockholders $ 27,401,655 9,907,145 4,993,798
=========== ========== ==========
Net income per share (note 7):
Basic $ 1.28 .82 .75
=========== =========== ===========
Diluted $ 1.23 .82 .75
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
REGENCY REALTY CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
Additional Distributions
Preferred Common Class B Paid In in excess of
Stock Stock Common Stock Capital Net Income
----- ----- ------------ ------- ----------
Balance at December 31, 1994 $ 5,748,835 64,546 - 101,069,294 (2,719,738)
Common stock issued as compensation - 516 - 831,083 -
Series B Preferred stock issued (note 6) 18,250,000 - - - -
Series B Preferred stock converted
to Class B common stock (18,250,000) - 9,125 18,240,875 -
Class B common stock issued (note 6) - - 15,875 31,734,125 -
Series A Preferred stock converted
to common stock (3,832,567) 2,225 - 3,830,342 -
Partial forgiveness of stock loans (note 8) - - - - -
Cash dividends declared:
Preferred stock - - - - (590,904)
Common stock, $1.58 per share - - - - (10,347,248)
Stock issuance costs - - - (484,478) -
Net income - - - - 5,584,702
----------- --------- ------------- ----------- ---------
Balance at December 31, 1995 $ 1,916,268 67,287 25,000 155,221,241 (8,073,188)
Common stock issued to SC-USREALTY(note 6) - 36,518 - 63,373,745 -
Common stock purchased by executive
officers (note 8) - 800 - 1,339,200 -
Common stock issued as compensation - 532 - 1,091,375 -
Common stock purchased by directors - 69 - 139,931 -
Series A Preferred stock converted
to common stock (1,916,282) 943 - 1,915,339 -
Series A Preferred stock converted -
partial share payment 14 - - - -
Partial forgiveness of stock loans (note 8) - - - - -
Cash dividends declared:
Preferred stock - - - - (57,721)
Common stock, $1.62 per share - - - - (15,815,727)
Net income - - - - 9,964,866
----------- --------- ------------- ----------- ------------
Balance at December 31, 1996 $ - 106,149 25,000 223,080,831 (13,981,770)
Common stock issued to SC-USREALTY(note 6) - 75,135 - 158,475,802 -
Common stock issued in secondary
offering, net (note 6) - 25,448 - 65,487,586 -
Common stock issued as compensation,
purchased by directors or officers,
or issued under stock options - 1,359 - 3,026,241 -
Common stock issued for partnership
units redeemed (note 2) - 30,271 - 81,246,827 -
Common stock issued to acquire real
estate (note 2) - 1,558 - 4,181,591 -
Partial forgiveness or repayment of
stock loans (note 8) - - - - -
Cash dividends declared:
Common stock, $1.68 per share - - - - (33,914,778)
Net income - - - - 27,401,655
----------- --------- ------------- ----------- ----------
Balance at December 31, 1997 $ - 239,920 25,000 535,498,878 (20,494,893)
=========== ========= ============= =========== ============
See accompanying notes to consolidated financial statements.
F-5
REGENCY REALTY CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
Total
Stock Stockholders'
Loans Equity
----- ------
Balance at December 31, 1994 $ (2,402,978) 101,759,959
Common stock issued as compensation - 831,599
Series B Preferred stock issued (note 6) - 18,250,000
Series B Preferred stock converted
to Class B common stock - -
Class B common stock issued (note 6) - 31,750,000
Series A Preferred stock converted
to common stock - -
Partial forgiveness of stock loans (note 8) 252,944 252,944
Cash dividends declared:
Preferred stock - (590,904)
Common stock, $1.58 per share - (10,347,248)
Stock issuance costs - (484,478)
Net income - 5,584,702
-------------- -------------
Balance at December 31, 1995 $ (2,150,034) 147,006,574
Common stock issued to SC-USREALTY,(note 6) - 63,410,263
Common stock purchased by executive
officers (note 8) (1,273,000) 67,000
Common stock issued as compensation - 1,091,907
Common stock purchased by directors - 140,000
Series A Preferred stock converted
to common stock - -
Series A Preferred stock converted -
partial share payment - 14
Partial forgiveness of stock loans (note 8) 918,601 918,601
Cash dividends declared:
Preferred stock - (57,721)
Common stock, $1.62 per share - (15,815,727)
Net income - 9,964,866
-------------- -------------
Balance at December 31, 1996 $ (2,504,433) 206,725,777
Common stock issued to SC-USREALTY(note 6) - 158,550,937
Common stock issued in secondary
offering, net (note 6) 65,513,034
Common stock issued as compensation,
purchased by directors or officers,
or issued under stock options - 3,027,600
Common stock issued for partnership
units redeemed (note 2) - 81,277,098
Common stock issued to acquire real
estate (note 2) - 4,183,149
Partial forgiveness or repayment of
stock loans (note 8) 862,181 862,181
Cash dividends declared:
Common stock, $1.68 per share - (33,914,778)
Net income - 27,401,655
-------------- --------------
Balance at December 31, 1997 $ (1,642,252) 513,626,653
============== ==============
See accompanying notes to consolidated financial statements.
F-6
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 27,401,655 9,964,866 5,584,702
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,303,159 8,058,643 5,853,730
Deferred financing cost amortization 907,224 699,424 582,362
Minority interest of redeemable partnership units 2,041,823 - -
Minority interest of limited partners 504,947 - -
Equity in income of investments in real estate
partnerships (33,311) (69,990) (4,226)
Gain on sale of office building (450,902) - -
Changes in assets and liabilities:
(Increase) decrease in tenant receivables (3,596,964) (2,660,656) 9,879
Increase in deferred leasing commissions (1,120,184) (585,889) (479,454)
Increase in other assets (1,641,108) (1,019,637) (619,800)
Increase in tenants' security deposits 480,743 405,158 304,378
Increase in accounts payable and other liabilities 2,247,138 1,212,000 4,660,370
------------ ----------- ----------
Net cash provided by operating activities 43,044,220 16,003,919 15,891,941
------------ ----------- ----------
Cash flows from investing activities:
Acquisition and development of real estate (162,244,207) (102,933,980) (59,537,217)
Investment in real estate partnership - (881,309) -
Capital improvements (5,226,138) (2,898,250) (1,978,643)
Construction in progress for resale (23,776,953) (3,360,206) -
Proceeds from sale of property 2,645,229 - -
Distributions received from real
estate partnership investments 68,688 231,581 12,146
------------ ------------ -----------
Net cash used in investing activities (188,533,381) (109,842,164) (61,503,714)
------------ ------------ -----------
Cash flows from financing activities:
Net proceeds from common stock issuance 225,094,980 63,617,263 (484,478)
Series B preferred stock issued - - 18,250,000
Class B common stock issued - - 31,750,000
Proceeds from issuance of redeemable
partnership units 2,255,140 - -
Distributions to redeemable partnership unit holders (1,954,375) (16,846) -
Distributions to limited partners
in consolidated partnerships (1,124,480) - -
Dividends paid to stockholders (33,914,778) (16,179,518) (10,760,237)
(Repayment) or proceeds from acquisition and
development line of credit, net (25,570,000) 51,361,382 (18,736,629)
Proceeds from mortgage loans payable 15,972,920 1,518,331 26,773,540
Repayments of mortgage loans payable (26,408,932) (808,068) (417,851)
Deferred financing costs (568,449) (762,771) (221,708)
------------ ------------- -------------
Net cash provided by financing activities 153,782,026 98,729,773 46,152,637
------------ ------------- ------------
Net increase in cash and cash equivalents 8,292,865 4,891,528 540,864
------------ ------------- ------------
Cash and cash equivalents at beginning of period 8,293,229 3,401,701 2,860,837
------------ ------------- ------------
Cash and cash equivalents at end of period $ 16,586,094 8,293,229 3,401,701
=========== ============= ============
F-7
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
-continued-
1997 1996 1995
---- ---- ----
Supplemental disclosure of cash flow information
cash paid for interest (including capitalized interest
of approximately $1,896,000, $381,000, and $285,000
in 1997, 1996 and 1995, respectively) $ 20,527,091 10,979,841 9,147,175
=========== =========== ==========
Supplemental disclosure of non cash transactions:
Mortgage loans assumed from sellers of real estate $142,448,966 3,918,752 -
============ =========== ==========
Redeemable operating partnership units and
common stock issued to sellers of real estate $ 96,380,706 525,332 -
============ =========== ==========
See accompanying notes to consolidated financial statements.
F-8
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
Regency Realty Corporation (the Company) was formed for the
purpose of managing, leasing, brokering, acquiring, and developing
shopping centers. The Company also provides management, leasing,
brokerage and development services for real estate not owned by
the Company.
The accompanying consolidated financial statements include the
accounts of the Company, its wholly owned qualified REIT
subsidiaries, and its majority owned subsidiaries and
partnerships. All significant intercompany balances and
transactions have been eliminated in the consolidated financial
statements. The Company owns approximately 91% of the outstanding
units of Regency Retail Partnership, L.P., ("RRLP") and
partnership interests ranging from 51% to 93% in four majority
owned real estate partnerships (the "Majority Partnerships"). The
equity interests of third parties held in RRLP and the Majority
Partnerships are included in the consolidated financial statements
as redeemable operating partnership units, and limited partners'
interests in consolidated partnerships.
(b) Revenues
The Company leases space to tenants under agreements with varying
terms. Leases are accounted for as operating leases with minimum
rent recognized on a straight-line basis over the term of the
lease regardless of when payments are due. Accrued rents are
included in tenant receivables. Minimum rent has been adjusted to
reflect the effects of recognizing rent on a straight line basis.
Substantially all of the lease agreements contain provisions which
provide additional rents based on tenants' sales volume or
reimbursement of the tenants' share of real estate taxes and
certain common area maintenance (CAM) costs. These additional
rents are reflected on the accrual basis. Management, leasing,
brokerage and development fees are recognized as revenue when
earned.
(c) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct
and indirect costs clearly associated with the acquisition,
development and construction of real estate projects owned by the
Company are capitalized as buildings and improvements, while
maintenance and repairs which do not improve or extend the useful
lives of the respective assets are reflected in operating and
maintenance expense. The property cost includes the capitalization
of interest expense incurred during construction in accordance
with generally accepted accounting principles.
Depreciation is computed using the straight line method over
estimated useful lives up to forty years for buildings and
improvements, term of lease for tenant improvements, and five to
seven years for furniture and equipment.
F-9
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(d) Income Taxes
The Company qualifies and intends to continue to qualify as a REIT
under the Internal Revenue Code. As a REIT, the Company is allowed
to reduce taxable income by all or a portion of its distributions
to stockholders. As distributions have exceeded taxable income, no
provision for federal income taxes has been make in the
accompanying consolidated financial statements.
Earnings and profits, which determine the taxability of dividends
to stockholders, differ from net income reported for financial
reporting purposes primarily because of different depreciable
lives and bases of rental properties and differences in the timing
of recognition of earnings upon disposition of properties.
Regency Realty Group, Inc. and Regency Realty Group II, Inc. file separate
tax returns and are subject to Federal and State income taxes. The two
Management Companies had combined taxable income of $277,227 and $150,674 for
the years ended December 31, 1997 and 1996, respectively, and incurred a taxable
loss for the year ended December 31, 1995. Regency Realty Group, Inc. had a net
operating loss carryforward of $1,057,644 at December 31, 1997, and accordingly
paid no income tax in 1997. No income tax benefit has been recorded for the net
operating loss carryforwards. Regency Realty Group II, Inc. paid $330,441 in
Federal and State income tax in 1997, and had no operations prior to 1997.
At December 31, 1997, the net book basis of real estate assets
exceeds the tax basis by approximately $39.6 million, primarily
due to the difference between the cost basis of the assets
acquired and their carryover basis recorded for tax purposes. At
December 31, 1996, the tax basis of real estate assets exceeds the
net book basis by approximately $1.9 million primarily due to
higher depreciation expense for book purposes.
The following summarizes the tax status of dividends paid during
the years ended December 31:
1997 1996 1995
---- ---- ----
Dividend per Share $1.68 1.62 1.58
Ordinary Income 85% 77% 64%
Capital Gain - - -
Return of Capital 15% 23% 36%
(e) Deferred Costs
Deferred costs consist of internal and external commissions
associated with leasing the rental property and loan costs
incurred in obtaining financing which are limited to initial
direct and incremental costs. The net leasing commission balance
was $1,738,701 and $1,108,374 at December 31, 1997 and 1996,
respectively. The net loan cost balance was $2,514,290 and
$2,853,065 at December 31, 1997 and 1996, respectively. Such costs
are deferred and amortized using the straight-line method over the
terms of the respective leases and loans.
(f) Fair Value of Financial Instruments
The fair value of the Company's mortgage loans payable and
acquisition and development line of credit are estimated based on
the current rates available to the Company for debt of the same
remaining maturities. Therefore, the Company considers their
carrying value to be a reasonable estimation of their fair value.
(g) Earnings Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128,"Earnings per Share", on
December 31, 1997. This statement governs the computation, pre
sentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held
F-10
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(g) Earnings per Share (continued)
common stock. Effective December 31, 1997 the Company has
calculated EPS in accordance with SFAS No. 128 and all periods
presented have been restated.
Net income per share of common stock is computed based upon the
weighted average number of common shares and share equivalents
outstanding during the year. When dilutive, stock options,
redeemable partnership units, and Class B common stock are
included as share equivalents (see note 7 for the calculation of
earnings per share).
(h) Cash and Cash Equivalents
Any instruments which have an original maturity of ninety days or
less when purchased are considered cash equivalents.
(i) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's
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.
(j) Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", on January 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Adoption of
this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(k) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation", which requires
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(l) Reclassifications
Certain reclassifications have been made to the 1995 and 1996
amounts to conform to classifications adopted in 1997.
F-11
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
2. Acquisitions of Shopping Centers
On March 7, 1997, the Company acquired, through its partnership, Regency
Retail Partnership, L.P. ("RRLP"), substantially all of the assets of
Branch Properties, L.P. ("Branch"), a privately held real estate firm
based in Atlanta, Georgia, for $232.4 million. The assets acquired from
Branch included 100% fee simple interests in 19 operating shopping
centers and 1 center under development, and also partnership interests
(ranging from 50% to 93%) in four partnerships with outside investors
that owned 4 operating shopping centers and 2 centers under development.
The Company also assumed the third party property management contracts of
Branch on approximately 3 million SF of shopping center gross leasable
area ("GLA") that generate management fees and leasing commission
revenues.
At closing and during 1997, RRLP issued 3,572,427 units of limited
partnership interest (the "Units") and the Company issued 155,797 shares
of common stock in exchange for the assets acquired and the liabilities
assumed from Branch. The Units are redeemable on a one-for-one basis in
exchange for shares of common stock. On June 13, 1997, 3,027,080
partnership units were converted to common stock. The purchase price of
Branch, as recorded in the Company's consolidated financial statements,
includes approximately $96.4 million for Units and common stock issued
(based upon $26.85, the fair market value of the Company's common stock
on the date the acquisition was publicly announced), $27.3 million in
cash, $7.8 million for transaction costs and to establish reserves, and
$97.2 million of assumed debt. Limited partners' interest in consolidated
partnerships of $7.9 million was recorded for the four partnerships with
outside investors. For purposes of determining minority interest, the
Company owned 32.6% of the outstanding Units in the Partnership until the
approval by the Company's shareholders at its annual meeting on June 12,
1997, at which time 3,027,080 of the outstanding Units held by Unit
Holders were redeemed for Common Stock. At completion of the redemption,
the Company owned approximately 91% of the outstanding Units of the
Partnership.
Additional Units and shares of common stock may be issued on the
fifteenth day after the first, second and third anniversaries of the
closing (each an "Earn-Out Closing"), based on the performance of the
properties acquired (the "Property Earn-Out"). The formula for the
Property Earn-Out provides for calculating increases in value on a
property-by-property basis, based on increases in net income of the year
of calculation. The Property Earn-Out is limited to 721,997 units at the
first Earn-Out Closing and 1,020,061 units at all Earn-Out Closings
(including the first Earn-Out Closing).
Including the acquisition of the properties from Branch, the Company
acquired or completed development of 38 shopping centers in 1997 and 13
shopping centers in 1996 (the "Acquisitions") accounted for as purchases,
at cost totaling approximately $406.9 million and $107.1 million,
respectively, through the issuance of common stock, partnership units,
assumed mortgage loans and cash. The operating results are included in
the Company's consolidated financial statements from the date each
property was acquired. The following unaudited pro forma information
presents the consolidated results of operations as if the Acquisitions
had occurred on January 1, 1996, after giving effect to certain
adjustments including depreciation expense, additional general and
administration costs, interest expense on new debt incurred, and an
increase in the weighted average common shares outstanding for common
stock, operating partnership units, and Class B common stock issued to
acquire the shopping centers as if shares and units had been issued on
January 1, 1996. Pro forma revenues would have been $112.9 million and
$102.4 million in 1997 and 1996, respectively. Pro forma net income for
common stockholders would have been $27.8 million and $10.5 million in
1997 and 1996, respectively. Pro forma basic net income per share would
have been $1.20 and $.63 in 1997 and 1996, respectively. Pro forma
diluted net income per share would have been $1.17 and $.60,
respectively. This data does not purport to be indicative of what would
have occurred had the Acquisitions been made on January 1, 1996, or of
results which may occur in the future.
F-12
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
3. Investments In Real Estate Partnerships
The Company accounts for all investments in which it owns less than 50%
using the equity method. The Company has a 10% investment in Village
Commons Shopping Center and during 1996 acquired a 25% investment in
Ocean East Mall. The Company's combined investment in these two
partnerships was $999,730 and $1,035,107 at December 31, 1997 and 1996,
respectively. Net income is allocated in accordance with each of the
partnership agreements.
4. Mortgage Loans Payable
Mortgage loans payable secured by real estate rental property are as
follows:
1997 1996
---- ----
6.72%mortgage loan, held by a trust created for
the benefit of investors who purchased mortgage
pass-through certificates, non recourse to the
Company, interest only paid monthly, due in full
November 5, 2000 $ 51,000,000 51,000,000
7.04%to 7.97% mortgage notes, payable in monthly
installments of $206,108 including principal and
interest, maturing from December 15, 2000
to December 15, 2010 29,064,254 -
8.52% mortgage note, interest only, payable monthly
maturing December 15, 2001 24,750,000 -
7.60%to 8.01% mortgage notes payable in monthly principal
installments of $39,646 maturing from June 28, 2001
to August 17, 2002 22,005,752 22,465,410
7.92% to 8.95% mortgage notes, payable in monthly
installments of $117,628, including principal
and interest, maturing from October 1, 2005
to August 1, 2009 13,282,672 -
8.40%mortgage note, payable in monthly installments of
$102,646 including principal and interest, maturing
on June 1, 2017 12,916,746 -
7.84% mortgage note, payable in monthly
installments of $92,119 including principal
and interest, maturing on September 1, 2005 12,490,525 -
9.50% mortgage note, payable in monthly
installments of $78,633 including principal
and interest, maturing on March 1, 2002 8,713,253 8,823,403
9.80% mortgage note, payable in monthly
installments of $73,899, including principal
and interest, maturing on February 1, 1999 7,892,935 8,000,421
F-13
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
4. Mortgage Loans Payable (continued)
7.94% mortgage note, payable in monthly
installments of $52,214 including principal
and interest, maturing on December 21, 2002 6,612,868 -
9.75% mortgage note, payable in monthly
installments of $55,630 including principal
and interest, maturing on January 1, 1998 5,864,972 -
8.625% mortgage note, payable in monthly
installments of $23,225 including principal
and interest, maturing on June 1, 2003 2,295,238 -
7.90%to 8.10% mortgage notes, payable in monthly
installments of $21,595, including principal and
interest, maturing from April 1, 2012
to June 1, 2017 2,189,049 -
6.987% to 7.863% (Libor + 1.25%) mortgage notes,
interest only, payable monthly maturing
from November 30, 1998 to June 12, 2000 24,122,500 -
Construction notes payable, interest only
payable monthly at Libor + 1.5% and Prime +1/4% 4,682,835 1,518,331
maturing December, 2001
7.375% (Libor + 1.5%) mortgage note, payable in
monthly principal installments of $4,438,
maturing on August 1, 1998 2,035,643 -
8.28%mortgage note, payable in monthly installments
of $37,598 including principal and interest, paid in
full during 1997 - 3,801,821
8.72% mortgage note, rate adjusts annually,
payable in monthly installments of $23,105
including principal and interest, paid in
full during 1997 - 2,296,902
----------- ----------
Total mortgage loans payable $ 229,919,242 97,906,288
============ ==========
Principal maturities on the mortgage loans are as follows:
Year Amount
1998 27,168,334
1999 9,518,649
2000 64,633,229
2001 39,361,601
2002 26,759,455
Thereafter 62,477,974
------------
Total 229,919,242
As part of their borrowing arrangements, the Company is expected to
maintain escrow balances for the payment of real estate taxes on the
mortgaged properties, and in the case of the $51,000,000 mortgage loan,
also maintain interest, insurance and specified capital improvement
escrows. Escrow balances recorded as cash and cash equivalents were
$3,292,325 and $1,069,337 at December 31, 1997 and 1996, respectively.
F-14
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
5. Acquisition and Development Line of Credit
The Company has a $150 million unsecured revolving line of credit which
is used to finance real estate acquisitions and developments. The
interest rate is based upon LIBOR plus 1.5% with interest only for two
years, and if then terminated, becomes a two year term loan maturing in
May, 2000 with principal due in seven equal quarterly installments. The
borrower may request a one year extension of the interest only revolving
period annually in May of each year.
On February 24, 1998, the Company entered into a commitment agreement
with the various banks that provide the Line to increase the unsecured
commitment amount to $300 million, provide for a $150 million competitive
bid facility, and reduce the interest rate on the line based upon
achieving an investment grade rating of BBB- or higher. Once ratings are
achieved, the interest rate on the Line will be reduced to Libor plus
.95%, and further reduced if the Company receives ratings better than the
minimum requirement from two agencies. During the 1st quarter of 1998,
the Company received investment grade ratings from Moody's of Baa2 and
S&P of BBB-.
6. Stockholders' Equity
On June 11, 1996, the Company entered into a Stockholders Agreement (the
"Agreement") with SC-USREALTY granting it certain rights such as
purchasing common stock, nominating representatives to the Company's
Board of Directors, and subjecting SC-USREALTY to certain restrictions
including voting and ownership restrictions. The Agreement primarily
granted SC-USREALTY (i) the right to acquire 7,499,400 shares for
approximately $132 million and also participation rights entitling it to
purchase additional equity in the Company, at the same price as that
offered to other purchasers, each time that the Company sells additional
shares of capital stock or options or other rights to acquire capital
stock, in order to preserve SC-USREALTY's pro rata ownership position;
and (ii) the right to nominate a proportionate number of directors on the
Company's Board, rounded down to the nearest whole number, based upon
SC-USREALTY's percentage ownership of outstanding common stock (but not
to exceed 49% of the Board). As of December 31, 1997, SC-USREALTY has
acquired all of the 7,499,400 shares related to the Agreement. In
connection with the Units and shares of common stock issued in exchange
for Branch's assets (see note 2, Acquisitions of Shopping Centers),
SC-USREALTY acquired 1,750,000 shares during August and December, 1997 at
$22.125 per share in accordance with their rights as provided for in the
Agreement.
For a period of at least five years (subject to certain exceptions),
SC-USREALTY is precluded from, among other things, (i) acquiring more
than 45% of the outstanding common stock on a diluted basis, (ii)
transferring shares without the Company's approval in a negotiated
transaction that would result in any transferee beneficially owning more
than 9.8% of the Company's capital stock, or (iii) acting in concert with
any third parties as part of a 13D group. Subject to certain exceptions,
SC-USREALTY is required to vote its shares either as recommended by the
Board of Directors or proportionately in accordance with the vote of the
other shareholders.
On July 11, 1997, the Company sold 2,415,000 shares to the public at
$27.25 per share. In connection with that offering, SC-USREALTY purchased
an additional 1,785,000 shares at $27.25 directly from the Company. On
August 11, 1997, the Underwriters exercised the over-allotment option and
the Company issued an additional 129,800 shares to the public and 95,939
shares to SC-USREALTY at $27.25 per share. Total proceeds from the sale
of common stock to the public and SC-USREALTY of approximately $117
million net of offering expenses was used to reduce the balance of the
Company's line of credit.
In connection with the purchase of a shopping center on February 28,
1996, the Company issued 28,848 Partnership Operating Units to a limited
partner convertible on a one for one basis into shares of common stock
after the first anniversary of the issuance date.
F-15
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
6. Stockholders' Equity (continued)
The Company completed a $50,000,000 private placement by issuing
2,500,000 shares of non-voting Class B common stock to a single investor
on December 20, 1995 (the "Private Placement"). The proceeds from the
Private Placement were used to acquire five shopping centers. The Company
initially issued $18,250,000 of
Series B preferred stock on October 26, 1995 to fund the acquisition of a
shopping center. These shares were subsequently converted into Class B
common stock. The Class B common stock is convertible into 2,975,468
shares of common stock beginning on the third anniversary of the issuance
date, subject to certain limitations defined in the agreement. The
dividend on each share of Class B common is payable when and if declared
by the Board of Directors pari passu with any dividend on the common
stock of the Company.
7. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the years ended, December 31, 1997, 1996, and 1995 (in
thousands except per share data):
Basic Earnings Per Share (EPS) Calculation: 1997 1996 1995
------------------------------------------- ---- ---- ----
Weighted average common shares outstanding 17,424 7,331 6,630
======= ====== =====
Net income for common stockholders $ 27,402 9,907 4,994
Less: dividends paid on Class B common stock 5,140 3,879 -
------- ------ -----
Net income for Basic EPS 22,262 6,028 4,994
======= ===== =====
Basic EPS 1.28 0.82 0.75
======= ===== =====
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding for Basic EPS 17,424 7,331 6,630
Redeemable operating partnership units 1,243 18 -
Incremental shares to be issued under common
stock options using the Treasury method 80 3 -
Contingent units or shares for the acquisition
of real estate
955 - -
------- ----- -----
Total diluted shares 19,702 7,352 6,630
======= ===== =====
Net income for Basic EPS $ 22,262 6,028 4,994
Add: minority interest of redeemable partnership units 2,042 - -
------- ----- -----
Net income for Diluted EPS 24,304 46,028 4,994
======= ====== =====
Diluted EPS 1.23 0.82 0.75
$ ======= ====== =====
Class B common stock is not included in the above calculation because it
is anti-dilutive.
F-16
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
8. Long-term Stock Incentive Plans
In 1993, the Company adopted a Long Term Omnibus Plan (the "Plan")
pursuant to which the Board of Directors may grant stock and stock
options to officers, directors and other key employees. The Plan provides
for the issuance of up to 12% of the Company's common shares outstanding
not to exceed 3 million shares of authorized but unissued common stock.
Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. All stock options granted have
ten year terms, and with respect to officers and other key employees,
become fully exercisable after five years from the date of grant, and
with respect to directors, become fully exercisable after one year.
At December 31, 1997, there were approximately 1.3 million shares
available for grant under the Plan. The per share weighted-average fair
value of stock options granted during 1997 and 1996 was $3.26 and $3.04
on the date of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions: 1997 - expected dividend
yield 6.3%, risk-free interest rate of 6.3%, expected volatility 21%, and
an expected life of 5.7 years; 1996 - expected dividend yield 6.6%,
risk-free interest rate of 5.9%, expected volatility 21%, and an expected
life of five years. The Company applies APB Opinion No. 25 in accounting
for its Plan and, accordingly, no compensation cost has been recognized
forits stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's
net income for common stockholders would have been reduced to the pro
forma amounts indicated below (in thousands except per share data):
Net income for
common stockholders 1997 1996 1995
------------------- ---- ---- ----
As reported $27,402 9,907 4,994
Net income per share:
Basic 1.28 0.82 0.75
Diluted 1.23 0.82 0.75
Pro forma 25,777 9,897 4,994(*)
Net income per share:
Basic 1.18 0.82 0.75
Diluted 1.15 0.82 0.75
-------------------
* The options granted during 1995 were issued on December 31,
1995 and accordingly had no effect to income.
Pro forma net income for common stockholders reflects only options
granted in 1997, 1996 and 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected
in the pro forma net income for common stockholders amounts presented
above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to January 1, 1995
is not considered.
F-17
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
8. Long-term Stock Incentive Plans (continued)
Stock option activity during the periods indicated is as follows:
Number of Weighted-Average
Shares Exercise Price
Outstanding, December 31, 1994 191,000 $19.16
Granted 6,000 17.25
Forfeited (11,000) 19.25
----------
Outstanding, December 31, 1995 186,000 19.09
Granted 12,000 24.67
----------
Outstanding, December 31, 1996 198,000 19.43
----------
Granted 1,252,276 25.39
Forfeited (7,000) 23.54
Exercised (124,769) 19.25
----------
Outstanding, December 31, 1997 1,318,507 $25.08
=========
The following table presents information regarding all options outstanding at
December 31, 1997.
Weighted
Average Weighted
Number of Remaining Range of Average
Options Contractual Exercise Exercise
Outstanding Life Prices Price
61,231 6.1 years $ 16.75 - 19.25 $ 18.77
1,155,800 9.0 years 25.25 25.25
101,476 6.8 years 26.25 - 27.75 26.99
------------ --------- ------------------ -------------
1,318,507 8.7 years $ 16.75 - 27.75 $ 25.08
=========== =========== ================== =============
The following table presents information regarding options currently exercisable
at December 31, 1997.
Weighted
Number of Range of Average
Options Exercise Exercise
Exercisable Prices Price
61,231 $ 16.75 - 19.25 $ 18.77
240,500 25.25 - 26.25 25.27
76,476 26.88 26.88
--------- ---------------- --------
378,207 $ 16.75 - 26.88 $ 24.54
========= ================ ========
F-18
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
Also as part of the Plan, in 1993 and 1996, certain officers purchased common
stock at fair market value directly from the Company, of which 90% and 95%,
respectively, was financed by a stock purchase loan provided by the Plan. These
recourse loans are fully secured by stock, bear interest at fixed rates of 7.34%
to 7.79% and mature after ten years. The Board of Directors may authorize the
forgiveness of all or a portion of the principal balance based on the Company's
achievement of specified financial objectives, and total stockholder return
performance targets. During 1997, 1996, and 1995, $601,516, $646,598 and
$379,418 was forgiven, respectively, and is included as a charge to income on
the consolidated statements of operations. The Company also has a performance
based restricted stock plan for officers whereby a portion of the shares
authorized under the Plan may be granted upon the achievement of certain total
stockholder return performance targets. Shares granted under the plan become
fully vested by January 1, 2000. During 1997 and 1996, the Company charged
$259,600 and $809,400 to income on the consolidated statement of operations
related to the restricted stock plan.
9. Operating Leases
The Company's properties are leased to tenants under operating leases
with expiration dates extending to the year 2041. Future minimum rent
under noncancelable operating leases as of December 31,1997, excluding
tenant reimbursements of operating expenses and excluding additional
contingent rentals based on tenants' sales volume are as follows:
Year ending December 31, Amount
1998 $ 82,113,717
1999 73,918,555
2000 65,821,489
2001 53,281,014
2002 45,529,249
Thereafter 306,007,382
-----------
Total $626,671,406
At December 31, 1997, the real estate portfolio as a whole was
approximately 92.8% leased.
The shopping centers' tenant base includes primarily national and
regional supermarkets, drug stores, discount department stores and other
retailers and, consequently, the credit risk is concentrated in the
retail industry. There were no tenants which individually represented 10%
or more of the Company's combined minimum rent. The combined annualized
rent from the Company's four largest retail tenants represented
approximately 20% of annualized minimum rent at December 31, 1997.
10. Related Party Transactions
The Company provides management, leasing, and brokerage services for
certain commercial real estate properties of The Regency Group, Inc. and
its affiliates ("TRG"), a corporation wholly-owned by certain officers
and stockholders of the Company. Fees for such services are charged to
TRG based on current market rates. From time to time, certain personnel
of the Company may provide administrative services to TRG, pursuant to an
agreement. The cost of such services are reimbursed by TRG based on
percentage allocations of management time and general overhead made in
compliance with applicable regulations of the Internal Revenue Service.
11. Contingencies
The Company like others in the commercial real estate industry, is
subject to numerous environmental laws and regulations and the operation
of dry cleaning plants at the Company's shopping centers is the principal
environmental concern. The Company believes that the dry cleaners are
operating in accordance with current laws and regulations and has
established procedures to monitor their operations. While the Company has
registered the plants located in Florida under a state funded program
designed to substantially fund the clean up, if necessary, of any
environmental issues, the owner or operator is not relieved from the
ultimate responsibility for clean up. The Company also has established
F-19
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
due diligence procedures to identify and evaluate potential environmental
issues on properties under consideration for acquisition. In connection
with acquisitions during 1997 and 1996, the Company established
environmental reserves of $1,944,633 and $600,000, respectively. While it
is not possible to predict with certainty, management believes that the
reserves are adequate to cover future clean-up costs related to these
sites. The Company's policy is to accrue environmental clean-up costs
when it is probable that a liability has been incurred and that amount is
reasonably estimable. Based on information presently available, no
additional environmental accruals were made and management believes that
the ultimate disposition of currently known matters will not have a
material effect on the financial position, liquidity, or operations of
the Company.
12. Subsequent Event
On March 11, 1998, the Company acquired the real estate assets of
entities comprising the Midland Group ("Midland") consisting of 21
shopping centers (the "Midland Properties") plus a development pipeline
of 11 shopping centers. Of the 21 centers acquired, 20 are anchored by
Kroger and King Soopers, a Kroger subsidiary. Eight of the shopping
centers included in the development pipeline will be owned through a
joint venture in which the Company will own less than a 50% interest upon
completion of construction.
At closing and during 1998, the Company will pay approximately $230.4
million for the 21 properties and pay transaction costs through the
issuance of units of RRLP interest valued at $26.58 per unit or cash to
$47 million, the assumption of $92.5 million of debt, and $90.9 million
to pay off existing secured real estate loans. The Company will incur
additional costs to establish reserves, pay severance, and prepay
existing assumed loans. Subsequent to 1998, the Company expects to pay
approximately $12.7 million to acquire equity interests in the
development pipeline as the properties reach stabilization. The Company
may also be required to make payments aggregating $10.5 million through
the year 2000 contingent upon increases in net income from existing
properties, the development pipeline, and new properties developed or
acquired in accordance with the contribution agreement.
13. Market and Dividend Information (Unaudited)
The Company trades on the New York Stock Exchange under the symbol "REG".
The Company currently has approximately 3,500 shareholders. The following
table sets forth the high and low prices and the cash dividends declared
on the Company's common stock by quarter for 1997 and 1996.
1997 1996
----------------------------------- -------------------------------------
Cash Cash
High Low Dividends High Low Dividends
Price Price Declared Price Price Declared
March 31 $ 28.000 25.000 .42 17.500 15.875 .405
June 30 28.125 24.875 .42 21.125 16.500 .405
September 30 28.250 24.875 .42 22.375 19.250 .405
December 31 28.000 24.250 .42 26.250 21.125 .405
F-20
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
14. Summary of Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data
for the years ended December 31, 1997 and 1996.
First Second Third Fourth
Quarter Quarter Quarter Quarter
(amounts in thousands, except per share data)
1997:
Revenues $ 17,733 24,626 26,790 28,638
Net income for common stockholders 4,037 4,727 8,743 9,895
Net income per share:
Basic .25 .26 .34 .37
Diluted .25 .26 .32 .35
1996:
Revenues $ 10,501 10,952 12,030 13,464
Net income for common stockholders 2,576 2,597 3,025 1,709
Net income per share:
Basic .24 .24 .26 .09
Diluted .24 .24 .26 .09
F-21
Independent Auditors' Report
On Financial Statement Schedule
The Shareholders and Board of Directors
Regency Realty Corporation
Under date of February 3, 1998, except for Note 12 as to which the date is March
1, 1998, we reported on the consolidated balance sheets of Regency Realty
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, as contained in the
annual report on Form 10-K for the year 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying index on page
F-1 of the annual report on Form 10-K for the year 1997. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Jacksonville, Florida
February 3, 1998
S-1
REGENCY REALTY CORPORATION Schedule III
Combined Real Estate and Accumulated Depreciation
December 31, 1997
Initial Cost Total Cost
----------------------- Cost Capitalized ----------------------------------
Building & Subsequent to Building &
Land Improvements Acquistion Land Improvements Total
---- ------------ ---------- ---- ------------ -----
Anastasia Shopping Plaza 1,072,451 3,617,493 112,404 1,072,451 3,729,897 4,802,348
Ashford Place 2,803,998 9,943,994 79,313 2,803,998 10,023,307 12,827,305
Aventura 2,751,094 9,317,790 117,291 2,751,094 9,435,081 12,186,175
Berkshire Commons 2,294,960 8,151,236 36,131 2,294,960 8,187,367 10,482,327
Bolton Plaza 2,660,227 6,209,110 1,168,755 2,634,663 7,403,429 10,038,092
Bonner's Point 859,854 2,878,641 129,319 859,854 3,007,960 3,867,814
Boynton Lakes 2,783,000 10,043,027 - 2,783,000 10,043,027 12,826,027
Braelin Village 4,191,214 12,389,585 29,000 4,191,214 12,418,585 16,609,799
Briarcliff LaVista 694,120 2,462,819 - 694,120 2,462,819 3,156,939
Briarcliff Village 4,597,018 16,303,813 - 4,597,018 16,303,813 20,900,831
Buckhead Court 1,737,569 6,162,941 101,703 1,737,569 6,264,644 8,002,213
Cambridge Square 792,000 2,916,034 9,503 792,000 2,925,537 3,717,537
Carmel Commons 2,466,200 8,903,187 394,450 2,466,200 9,297,637 11,763,837
Carriage Gate 740,960 2,494,750 973,938 740,960 3,468,688 4,209,648
Chasewood Plaza 1,675,000 11,390,727 4,316,793 2,476,486 14,906,034 17,382,520
City View 1,207,204 4,341,304 23,534 1,207,204 4,364,838 5,572,042
Columbia Marketplace 1,280,158 4,285,745 147,651 1,280,158 4,433,396 5,713,554
Country Club 1,105,201 3,709,452 71,058 1,105,201 3,780,510 4,885,711
Courtyard 1,761,567 4,187,039 194,673 1,761,567 4,381,712 6,143,279
Cromwell Square 1,771,892 6,285,288 - 1,771,892 6,285,288 8,057,180
Cumming 400 2,374,562 8,420,776 1,506 2,374,562 8,422,282 10,796,844
Dunwoody Hall 1,819,209 6,450,922 13,824 1,819,209 6,464,746 8,283,955
Dunwoody Village 2,326,063 7,216,045 107,404 2,326,063 7,323,449 9,649,512
East Port Plaza 3,257,023 11,611,363 98,247 3,257,023 11,709,610 14,966,633
Ensley Square 915,493 3,120,928 - 915,493 3,120,928 4,036,421
Garden Square 2,073,500 7,614,748 5,250 2,073,500 7,619,998 9,693,498
Glenwood Village 1,194,198 4,235,476 48,930 1,194,198 4,284,406 5,478,604
Harpeth Village 2,283,874 5,559,498 - 2,283,874 5,559,498 7,843,372
Hyde Park Plaza 9,240,000 33,340,181 2,650 9,240,000 33,342,831 42,582,831
Kingsdale 3,866,500 14,019,614 - 3,866,500 14,019,614 17,886,114
LaGrange Marketplace 983,923 3,294,003 92,936 983,923 3,386,939 4,370,862
Loehmann's Plaza 3,981,525 14,117,891 - 3,981,525 14,117,891 18,099,416
Lovejoy Station 1,540,000 5,581,468 1,654 1,540,000 5,583,122 7,123,122
Lucedale Marketplace 641,565 2,147,848 54,535 641,565 2,202,383 2,843,948
Mainstreet Square 1,274,027 4,491,897 9,666 1,274,027 4,501,563 5,775,590
Mariner's Village 1,628,000 5,907,835 106,970 1,628,000 6,014,805 7,642,805
Marketplace - Alexander City 1,211,605 4,056,242 2,827,753 1,758,433 6,337,167 8,095,600
Marketplace - Murphreesburo 2,432,942 1,755,643 1,813,070 2,432,942 3,568,713 6,001,655
Market Place - St. Petersburg 1,287,000 4,662,740 145,115 1,287,000 4,807,855 6,094,855
Martin Downs Shoppes 700,000 1,207,861 865,494 817,135 1,956,220 2,773,355
Martin Downs Village Center 2,000,000 5,133,495 2,419,646 2,437,664 7,115,477 9,553,141
Memorial Bend 3,256,181 11,546,660 - 3,256,181 11,546,660 14,802,841
Merchants Village 1,054,306 3,162,919 - 1,054,306 3,162,919 4,217,225
Millhopper 1,073,390 3,593,523 142,278 1,073,390 3,735,801 4,809,191
(*) The year acquired or year constructed is in Item 2. Properties in the Company's Form 10-K.
S-2
Schedule III
-continued-
Total Cost,
Net of
Accumulated Accumulated
Depreciation Depreciation Mortgages
------------ ------------ ---------
Anastasia Shopping Plaza 454,375 4,347,973 -
Ashford Place 270,924 12,556,381 4,737,136
Aventura 1,635,974 10,550,201 8,713,253
Berkshire Commons 833,858 9,648,469 7,892,935
Bolton Plaza 703,549 9,334,543 -
Bonner's Point 427,867 3,439,947 1,613,000
Boynton Lakes - 12,826,027 -
Braelin Village 303,120 16,306,679 12,490,525
Briarcliff LaVista 59,584 3,097,355 1,667,855
Briarcliff Village 438,272 20,462,559 13,439,036
Buckhead Court 150,456 7,851,757 -
Cambridge Square 72,374 3,645,163 -
Carmel Commons 173,087 11,590,750 -
Carriage Gate 544,405 3,665,243 2,377,489
Chasewood Plaza 2,187,169 15,195,351 8,000,000
City View 162,095 5,409,947 -
Columbia Marketplace 543,836 5,169,718 2,586,000
Country Club 453,904 4,431,807 2,264,000
Courtyard 1,097,497 5,045,782 1,378,000
Cromwell Square 168,957 7,888,223 4,518,368
Cumming 400 226,366 10,570,478 6,489,309
Dunwoody Hall 173,531 8,110,424 -
Dunwoody Village 138,770 9,510,742 5,864,972
East Port Plaza 221,661 14,744,972 -
Ensley Square 60,018 3,976,403 -
Garden Square 47,723 9,645,775 6,612,868
Glenwood Village 102,842 5,375,762 2,295,238
Harpeth Village - 7,843,372 4,682,835
Hyde Park Plaza 496,340 42,086,491 24,750,000
Kingsdale 86,841 17,799,273 -
LaGrange Marketplace 409,552 3,961,310 1,645,000
Loehmann's Plaza 379,505 17,719,911 10,000,000
Lovejoy Station 69,796 7,053,326 -
Lucedale Marketplace 269,896 2,574,052 1,390,000
Mainstreet Square 89,814 5,685,776 -
Mariner's Village 111,949 7,530,856 -
Marketplace - Alexander City 677,302 7,418,298 4,933,946
Marketplace - Murphreesburo 76,255 5,925,400 2,035,643
Market Place - St. Petersburg 245,981 5,848,874 -
Martin Downs Shoppes 278,923 2,494,432 1,313,000
Martin Downs Village Center 1,056,091 8,497,050 4,150,000
Memorial Bend 279,358 14,523,483 8,545,536
Merchants Village 67,584 4,149,641 -
Millhopper 739,083 4,070,108 2,401,000
(*) The year acquired or year constructed is in Item 2. Properties in the Company's Form 10-K.
S-3
Schedule III
-continued-
Initial Cost Total Cost
----------------------------- Cost Capitalized ---------------------------------------
Building & Subsequent to Building &
Land Improvements Acquistion Land Improvements Total
---- ------------ ---------- ---- ------------ -----
Newberry Square 2,341,460 8,466,651 671,840 2,341,460 9,138,491 11,479,951
North Miami Shopping Center 603,750 2,021,250 85,432 603,750 2,106,682 2,710,432
Oakley Plaza 1,772,540 6,406,975 20,481 1,772,540 6,427,456 8,199,996
Ocean Breeze 1,250,000 3,341,199 2,358,464 1,527,400 5,422,263 6,949,663
Old St. Augustine Plaza 2,047,151 7,355,162 36,833 2,047,151 7,391,995 9,439,146
Orchard Square 1,155,000 4,135,353 248,460 1,155,000 4,383,813 5,538,813
Paces Ferry Plaza 2,811,522 9,967,557 222,957 2,811,522 10,190,514 13,002,036
Palm Harbour 2,899,928 10,998,230 315,287 2,899,928 11,313,517 14,213,445
Paragon Cable Building 570,000 2,472,537 - 570,000 2,472,537 3,042,537
Parkway Station 1,123,200 4,283,917 115,856 1,123,200 4,399,773 5,522,973
Peachland Promenade 1,284,562 5,143,564 58,119 1,284,562 5,201,683 6,486,245
Peartree Village 5,196,653 8,732,711 4,408,150 5,196,653 13,140,861 18,337,514
Pine Tree Plaza 539,000 1,995,927 - 539,000 1,995,927 2,534,927
Powers Ferry Square 3,607,647 12,790,749 6,762 3,607,647 12,797,511 16,405,158
Powers Ferry Village 1,190,822 4,223,606 - 1,190,822 4,223,606 5,414,428
Quadrant 2,342,823 15,541,967 1,315,295 2,343,699 16,856,386 19,200,085
Regency Square at Brandon 577,975 18,156,719 7,307,792 4,491,461 21,551,025 26,042,486
Regency Court 3,571,337 12,664,014 3,480 3,571,337 12,667,494 16,238,831
Rivermont Station 2,887,213 10,445,109 - 2,887,213 10,445,109 13,332,322
Roswell Village 2,304,345 6,777,200 - 2,304,345 6,777,200 9,081,545
Russell Ridge 2,153,214 - 6,546,957 2,215,341 6,484,830 8,700,171
Sandy Plains Village 2,906,640 10,412,440 1,635 2,906,640 10,414,075 13,320,715
Sandy Springs Village 733,126 2,565,411 65,000 733,126 2,630,411 3,363,537
Seven Springs 1,737,994 6,290,048 1,424,083 1,757,441 7,694,684 9,452,125
Tamiami Trails 2,046,286 7,462,646 - 2,046,286 7,462,646 9,508,932
Tequesta Shoppes 1,782,000 6,426,042 120,447 1,782,000 6,546,489 8,328,489
Terrace Walk 1,196,286 2,935,683 92,305 1,196,286 3,027,988 4,224,274
Town Center at Martin Downs 1,364,000 4,985,410 7,903 1,364,000 4,993,313 6,357,313
Town Square 438,302 1,555,481 - 438,302 1,555,481 1,993,783
Trowbridge Crossing 910,263 1,914,551 - 910,263 1,914,551 2,824,814
Union Square 1,578,654 5,933,889 108,926 1,578,654 6,042,815 7,621,469
University Collection 2,530,000 8,971,597 90,249 2,530,000 9,061,846 11,591,846
University Marketplace 3,250,562 7,044,579 2,209,804 3,532,046 8,972,899 12,504,945
Village Center 3,885,444 10,799,316 295,220 3,885,443 11,094,537 14,979,980
Villages of Trussville 973,954 3,260,627 88,634 973,954 3,349,261 4,323,215
Welleby Plaza 1,496,000 5,371,636 253,171 1,496,000 5,624,807 7,120,807
Wellington Market Place 5,070,384 13,308,972 222,784 5,070,384 13,531,756 18,602,140
Wellington Town Square 1,914,000 7,197,934 574,179 1,914,000 7,772,113 9,686,113
West County Marketplace 1,491,462 4,993,155 123,569 1,491,462 5,116,724 6,608,186
Westland One 198,344 1,747,391 60,445 198,344 1,807,836 2,006,180
Woodcroft Shopping Center 1,419,000 5,211,981 312,251 1,419,000 5,524,232 6,943,232
------------- ------------ ---------- ----------- ------------ -----------
170,813,416 582,552,737 46,435,214 177,245,784 622,555,583 799,801,367
============= ============ =========== =========== ============ ===========
(*) The year acquired or year constructed is in Item 2. Properties in the Company's Form 10-K.
S-4
Schedule III
-continued-
Total Cost,
Net of
Accumulated Accumulated
Depreciation Depreciation Mortgages
------------ ------------ ---------
Newberry Square 1,072,541 10,407,410 6,656,968
North Miami Shopping Center 488,954 2,221,478 1,160,000
Oakley Plaza 126,236 8,073,760 -
Ocean Breeze 748,808 6,200,855 2,805,000
Old St. Augustine Plaza 209,150 9,229,996 -
Orchard Square 219,788 5,319,025 -
Paces Ferry Plaza 269,031 12,733,005 5,065,000
Palm Harbour 393,904 13,819,541 -
Paragon Cable Building 242,120 2,800,417 -
Parkway Station 206,224 5,316,749 -
Peachland Promenade 420,484 6,065,761 4,280,979
Peartree Village 196,402 18,141,112 12,916,746
Pine Tree Plaza - 2,534,927 -
Powers Ferry Square 309,526 16,095,632 -
Powers Ferry Village 102,184 5,312,244 2,949,686
Quadrant 4,356,804 14,843,281 -
Regency Square at Brandon 5,449,050 20,593,436 12,000,000
Regency Court 306,445 15,932,386 5,732,000
Rivermont Station 130,374 13,201,948 -
Roswell Village 125,446 8,956,099 -
Russell Ridge 445,001 8,255,170 6,403,370
Sandy Plains Village 368,719 12,951,996 -
Sandy Springs Village 56,976 3,306,561 -
Seven Springs 868,180 8,583,945 -
Tamiami Trails 77,983 9,430,949 -
Tequesta Shoppes 216,001 8,112,488 -
Terrace Walk 545,763 3,678,511 683,000
Town Center at Martin Downs 135,242 6,222,071 -
Town Square 37,632 1,956,151 1,525,500
Trowbridge Crossing 36,818 2,787,996 1,800,000
Union Square 211,085 7,410,384 -
University Collection 270,068 11,321,778 -
University Marketplace 1,553,812 10,951,133 -
Village Center 577,869 14,402,111 -
Villages of Trussville 427,292 3,895,923 1,775,000
Welleby Plaza 336,416 6,784,391 -
Wellington Market Place 767,986 17,834,154 -
Wellington Town Square 292,551 9,393,562 -
West County Marketplace 683,268 5,924,918 3,190,000
Westland One 391,646 1,614,534 -
Woodcroft Shopping Center 135,538 6,807,694 -
---------- ----------- ------------
40,795,801 759,005,566 227,730,193
========== =========== ============
(*) The year acquired or year constructed is in Item 2. Properties in the Company's Form 10-K.
S-5
Schedule III
-continued-
Depreciation and amortization of the Company's investment in buildings and
improvements reflected in the statement of operations is calculated over the
estimated useful lives of the assets as follows:
Buildings and improvements up to 40 years
The aggregate cost for Federal income tax purposes was approximately
$719,377,653 at December 31, 1997.
The changes in total real estate assets for the period ended December 31, 1997
and 1996:
1997 1996
-------------------- ------------------
Balance, beginning of period 389,007,481 278,731,167
Developed or acquired properties 408,475,251 107,378,064
Sale of property (2,907,503) -
Improvements 5,226,138 2,898,250
-------------------- ------------------
Balance, end of period $ 799,801,367 389,007,481
==================== ==================
The changes in accumulated depreciation for the period ended December 31, 1997
and 1996:
1997 1996
-------------------- ------------------
Balance, beginning of period 26,213,225 18,631,310
Sale of property (713,176) -
Depreciation for period 15,295,752 7,581,915
-------------------- ------------------
Balance, end of period $ 40,795,801 26,213,225
==================== ==================
S-6
Equity Ownership of
Subsidiaries of Regency Realty Corporation
March 23, 1998
NATURE OF % OF
ENTITY JURISDICTION OWNER(S) INTEREST OWNERSHIP
- ------------------------------------ --------------- ------------------------------ -------------------- ---------------
Regency Realty Group, Inc. Florida The Regency Group, Inc. Common Stock 93%
(formerly Regency Regency Centers, L.P. Common Stock 7%
Realty Group II, Inc.) Regency Centers, L.P. Preferred Stock 100%
RRC Lender, Inc. Florida Regency Realty Group, Inc. Common Stock 100%
Village Commons Shopping Center Florida Regency Realty Group, Inc. General Partnership** 10%
Chestnut Powder LLC Georgia Regency Realty Group, Inc. Member
Marietta Outparcel, Inc. Georgia Regency Realty Group, Inc. Common Stock 100%
Barnett Shoales, LLC Georgia Regency Realty Group, Inc. Member
Edmunson Orange Corp. Tennessee Regency Realty Group, Inc. Common Stock 100%
RRC FL SPC, Inc. Florida Regency Realty Corporation Common Stock 100%
RRC GA SPC, Inc. Georgia Regency Realty Corporation Common Stock 100%
RRC AL SPC, Inc. Alabama Regency Realty Corporation Common Stock 100%
RRC MS SPC, Inc. Mississippi Regency Realty Corporation Common Stock 100%
RRC General SPC, Inc. Florida Regency Realty Corporation Common Stock 100%
RRC Limited SPC, Inc. Florida Regency Realty Corporation Common Stock 100%
RRC FL Five, Inc. Florida Regency Realty Corporation Common Stock 100%
RRC FL Seven, Inc. Florida Regency Realty Corporation Common Stock 100%
RRC Acquisitions, Inc. Florida Regency Realty Corporation Common Stock 100%
RRC Acquisitions Two, Inc. Florida Regency Realty Corporation Common Stock 100%
Regency Office Partnership, L.P. Delaware Regency Centers, L.P. General Partnerhsip** 50%
Regency Realty Corporation Limited Partnership 50%
Regency Centers, L.P. Delaware Regency Realty Corporation General Partnership** %
Regency Realty Corporation Limited Partnership %
Outside Investors Limited Partnership 1 %
Equiport Associates, L.P. Georgia Regency Centers, L.P. General Partnership** 55%
Branch/HOP Associates, L.P. Georgia Regency Centers, L.P. General Partnership** 50.01%
Old Fort Associates, L.P. Georgia Regency Centers, L.P. General Partnership** 66.70%
Fieldstone Associates, L.P. Georgia Regency Centers, L.P. General Partnership** 70%
Roswell Village, Ltd. Georgia Regency Centers L.P. General Partnership** 100%
Treasure Coast Investors, Ltd. Florida RRC General SPC, Inc. General Partnership** 99%
RRC Limited SPC, Inc. Limited Partnership 1%
Regency Rosewood Temple Terrace, Florida RRC General SPC, Inc. General Partnership** 99%
Ltd. RRC Limited SPC, Inc. Limited Partnership 1%
Landcom Regency Mandarin, Ltd. Florida RRC General SPC, Inc. General Partnership** 99%
RRC Limited SPC, Inc. Limited Partnership 1%
RSP IV Criterion, Ltd. Florida RRC General SPC, Inc. General Partnership** 99%
RRC Limited SPC, Inc. Limited Partnership 1%
RRC Operating Partnership of Georgia Regency Centers, L.P. General Partnership** 16%
Georgia L.P.
Regency Ocean East Partnership Florida Regency Centers, L.P. General Partnership** 25%
Limited
Regency Retail Centers of Ohio, Ohio Regency Realty Corporation Common Stock 100%
Inc.
Hyde Park Partners, L.P. Ohio Regency Retail Centers of General Partnership** 98.95%
Ohio, Inc.
Midland Hyde Park Partners, General Partnership** 1.00%
L.P.
Midland Hyde Park Partners, Limited Partnership .05%
L.P.
R&M Western Partnership, L.P. Delaware Regency Realty Group, Inc. General Partnership** 1.00%
Regency Centers, L.P. Limited Partnership 24.00%
Delk Spectrum, L.P. Georgia Regency Realty Corporation General Partnership** 6.21%
Outside Investors Limited Partnership 93.79%
- -----------------
** General Partner has liability for debts of the Partnership
1 Redeemable for shares of Regency Realty Corporation Common Stock
Independent Auditors' Consent
The Board of Directors
Regency Realty Corporation:
We consent to incorporation by reference in the registration statements, (No.
33-86886, No. 333-930, No. 333-2546, and No. 333-31077, and No. 333-37911) on
Form S-3 and (No. 333-24971) on Form S-8, of Regency Realty Corporation of our
reports dated February 3, 1998, except for note 12 as to which the date is March
1, 1998, relating to the consolidated balance sheets of Regency Realty
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, and related schedule,
which reports appear in the December 31, 1997 annual report of Form 10-K of
Regency Realty Corporation.
KPMG PEAT MARWICK LLP
Jacksonville, Florida
March 23, 1998
5
0000910606
REGENCY REALTY CORPORATION
1
12-MOS
DEC-31-1997
DEC-31-1997
16,586,094
0
10,709,154
1,162,570
0
0
834,401,506
40,795,801
826,848,591
0
0
0
0
239,920
513,386,733
826,848,591
0
97,786,897
0
22,904,131
16,303,159
0
19,667,483
27,401,655
0
27,401,655
0
0
0
27,401,655
1.28
1.23
