United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended September 30, 1998
-or-
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-12298
REGENCY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-3191743
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 356-7000
(Registrant's telephone number, including area code)
Unchanged
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
(Applicable only to Corporate Registrants)
As of November 16, 1998, there were 25,500,847 shares outstanding of the
Registrant's common stock.
Item 1. Financial Statements
REGENCY REALTY CORPORATION
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
1998 1997
---- ----
(unaudited)
Assets
Real estate investments, at cost:
Land $ 246,756,201 177,245,784
Buildings and improvements 881,513,572 622,555,583
Construction in progress - development for investment 7,220,442 13,427,370
Construction in progress - development for sale 16,727,205 20,173,039
----------------- ---------------
1,152,217,420 833,401,776
Less: accumulated depreciation 52,411,077 40,795,801
----------------- ---------------
1,099,806,343 792,605,975
Investments in real estate partnerships 24,812,813 999,730
----------------- ---------------
Net real estate investments 1,124,619,156 793,605,705
Cash and cash equivalents 18,400,723 16,586,094
Tenant receivables, net of allowance for uncollectible accounts of
$2,093,924 and $1,162,570 at September 30, 1998 and
December 31, 1997, respectively 16,564,787 9,546,584
Deferred costs, less accumulated amortization of $4,665,683 and
$3,842,914 at September 30, 1998 and December 31, 1997 5,616,341 4,252,991
Other assets 7,835,853 2,857,217
----------------- ---------------
$ 1,173,036,860 826,848,591
================= ===============
Liabilities and Stockholders' Equity
Liabilities:
Notes payable 432,747,566 229,919,242
Acquisition and development line of credit 45,931,185 48,131,185
Accounts payable and other liabilities 26,778,204 11,597,232
Tenants' security and escrow deposits 2,928,138 2,319,941
----------------- ---------------
Total liabilities 508,385,093 291,967,600
----------------- ---------------
Series A preferred units 78,800,000 -
Exchangeable operating partnership units 26,152,418 13,777,156
Limited partners' interest in consolidated partnerships 7,632,148 7,477,182
----------------- ---------------
112,584,566 21,254,338
----------------- ---------------
Stockholders' equity:
Common stock $.01 par value per share: 150,000,000 shares
authorized; 25,504,430 and 23,992,037 shares issued and
outstanding at September 30, 1998 and December 31, 1997 255,044 239,920
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
Additonal paid in capital 579,138,204 535,498,878
Distributions in excess of net income (16,992,945) (20,494,893)
Stock loans (10,358,102) (1,642,252)
----------------- ---------------
Total stockholders' equity 552,067,201 513,626,653
----------------- ---------------
Commitments and contingencies
$ 1,173,036,860 826,848,591
================= ===============
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Three Months ended September 30, 1998 and 1997
(unaudited)
1998 1997
---- ----
Revenues:
Minimum rent $ 27,162,566 19,364,235
Percentage rent 173,589 504,178
Recoveries from tenants 6,419,085 4,317,917
Management, leasing and brokerage fees 2,616,945 2,601,076
Equity in income of investments in
real estate partnerships 364,779 2,557
----------------- ---------------
Total revenues 36,736,964 26,789,963
----------------- ---------------
Operating expenses:
Depreciation and amortization 6,600,399 4,427,304
Operating and maintenance 4,605,159 3,978,209
General and administrative 3,375,878 2,545,388
Real estate taxes 3,263,624 2,450,520
----------------- ---------------
Total operating expenses 17,845,060 13,401,421
----------------- ---------------
Interest expense (income):
Interest expense 6,831,323 4,527,622
Interest income (418,671) (276,112)
----------------- ---------------
Net interest expense 6,412,652 4,251,510
----------------- ---------------
Income before minority interests and sale
of real estate investments 12,479,252 9,137,032
----------------- ---------------
Minority interest of redeemable partnership units (486,954) (172,945)
Minority interest of limited partners (189,385) (220,589)
Minority interest preferred unit distribution (1,733,333) -
Loss on sale of real estate investments (8,871) -
----------------- ---------------
Net income for common stockholders $ 10,060,709 8,743,498
================= ===============
Net income per share:
Basic $ 0.34 0.34
================= ===============
Diluted $ 0.34 0.32
================= ===============
See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Nine Months ended September 30, 1998 and 1997
(unaudited)
1998 1997
---- ----
Revenues:
Minimum rent $ 74,823,359 49,924,839
Percentage rent 1,835,450 1,612,115
Recoveries from tenants 17,057,500 11,303,821
Management, leasing and brokerage fees 8,023,313 6,288,601
Equity in income of investments in
real estate partnerships 511,189 19,694
----------------- ---------------
Total revenues 102,250,811 69,149,070
----------------- ---------------
Operating expenses:
Depreciation and amortization 17,984,954 11,501,974
Operating and maintenance 13,077,060 9,966,899
General and administrative 10,638,327 7,761,402
Real estate taxes 9,051,428 6,049,354
----------------- ---------------
Total operating expenses 50,751,769 35,279,629
----------------- ---------------
Interest expense (income):
Interest expense 19,704,693 14,748,996
Interest income (1,385,054) (728,715)
----------------- ---------------
Net interest expense 18,319,639 14,020,281
----------------- ---------------
Income before minority interests and sale
of real estate investments 33,179,403 19,849,160
----------------- ---------------
Minority interest of redeemable partnership units (1,378,777) (1,776,382)
Minority interest of limited partners (389,544) (565,731)
Minority interest preferred unit distribution (1,733,333) -
Gain on sale of real estate investments 10,737,226 -
----------------- ---------------
Net income for common stockholders 40,414,975 17,507,047
================= ===============
Net income per share:
Basic $ 1.45 0.89
================= ===============
Diluted $ 1.42 0.87
================= ===============
See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
1998 1997
Cash flows from operating activities:
Net income 40,414,975 17,507,047
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 17,984,954 11,501,974
Deferred financing cost and debt premium amortization (510,223) 674,326
Minority interest of redeemable partnership units 1,378,777 1,776,382
Minority interest preferred unit distribution 1,733,333 -
Minority interest of limited partners 389,544 565,731
Equity in income of investments in real estate partnerships (511,189) (19,694)
Gain on sale of real estate investments (10,737,226) -
Changes in assets and liabilities:
Tenant receivables (6,559,472) 736,356
Deferred leasing commissions (1,491,666) (580,641)
Other assets (6,508,924) (1,177,680)
Tenants' security deposits 608,197 386,550
Accounts payable and other liabilities 17,430,472 6,661,691
--------------- ---------------
Net cash provided by operating activities 53,621,552 38,032,042
--------------- ---------------
Cash flows from investing activities:
Acquisition and development of real estate (174,869,327) (132,952,663)
Investment in real estate partnerships (23,337,738) -
Capital improvements (4,825,026) (2,662,606)
Construction in progress for sale, net of reimbursement 3,445,834 (8,094,704)
Proceeds from sale of real estate investments 30,662,197 -
Distributions received from real estate partnership investments 35,844 50,000
--------------- ---------------
Net cash used in investing activities (168,888,216) (143,659,973)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from common stock issuance 9,733,060 208,356,926
Proceeds from issuance of partnership units 7,694 2,255,140
Distributions to partnership unit holders (1,471,599) (1,710,402)
Contributions from limited partners in consolidated partnerships 164,785 -
Net distributions to limited partners in consolidated partnerships (399,362) (160,983)
Distributions to preferred unit holders (1,733,333) -
Dividends paid to stockholders (36,913,032) (22,862,071)
Net proceeds from issuance of Series A preferred units 78,800,000 -
Net proceeds from term notes 99,758,000 -
Repayment of acquisition and development line of credit, net (2,200,000) (69,870,000)
Proceeds from mortgage loans payable 7,345,000 14,649,706
Repayment of mortgage loans payable (34,765,133) (18,727,758)
Deferred financing costs (1,244,787) (564,586)
--------------- ---------------
Net cash provided by financing activities 117,081,293 111,365,972
--------------- ---------------
Net increase in cash and cash equivalents 1,814,629 5,738,041
Cash and cash equivalents at beginning of period 16,586,094 8,293,229
--------------- ---------------
Cash and cash equivalents at end of period 18,400,723 14,031,270
=============== ===============
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
-continued-
1998 1997
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed from sellers of real estate 131,858,223 142,448,966
=============== ===============
Exchangeable operating partnership units and common
stock issued to acquire real estate 34,957,703 96,380,706
=============== ===============
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
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 interim unaudited financial statements (the
"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 96% of the
outstanding units of Regency Centers, L.P., ("RCLP" or the
"Partnership" formally known as Regency Retail Partnership, L.P.)
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 RCLP and the Majority
Partnerships are included in the consolidated financial statements
as Exchangeable operating partnership units, Series A preferred
units and limited partners' interests in consolidated
partnerships, respectively. The Company is a qualified real estate
investment trust ("REIT") which began operations in 1993.
The Financial Statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission, and
reflect all adjustments which are of a normal recurring nature,
and in the opinion of management, are necessary to properly state
the results of operations and financial position. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information
presented not misleading. The Financial Statements should be read
in conjunction with the financial statements and notes thereto
included in the Company's December 31, 1997 Form 10-K filed with
the Securities and Exchange Commission.
(b) Statement of Financial Accounting Standards No. 130
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes
standards for reporting total comprehensive income in financial
statements, and requires that Companies explain the differences
between total comprehensive income and net income. Management has
adopted this statement in 1998. No differences between total
comprehensive income and net income existed in the interim
financial statements reported at September 30, 1998 and 1997.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
1. Summary of Significant Accounting Policies (continued)
(c) Statement of Financial Accounting Standards No. 131
The FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"), which is effective for fiscal years
beginning after December 15, 1997. FAS 131 establishes standards
for the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports. Management does
not believe that FAS 131 will effect its current disclosures.
(d) Emerging Issues Task Force Issue 97-11
Effective March 19, 1998, the Emerging Issues Task Force (EITF)
ruled in Issue 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions", that only internal costs of
identifying and acquiring non-operating properties that are
directly identifiable with the acquired properties should be
capitalized, and that all internal costs associated with
identifying and acquiring operating properties should be expensed
as incurred. The Company had previously capitalized direct costs
associated with the acquisition of operating properties as a cost
of the real estate. The Company has adopted EITF 97-11 effective
March 19, 1998. During 1997, the Company capitalized approximately
$1.5 million of internal costs related to acquiring operating
properties. Through the effective date of EITF 97-11, the Company
has capitalized $474,000 of internal acquisition costs. For the
remainder of 1998, the Company expects to incur $1.1 million of
internal costs related to acquiring operating properties which
will be expensed.
(e) Emerging Issues Task Force Issue 98-9
On May 22, 1998, the EITF reached a consensus on Issue 98-9
"Accounting for Contingent Rent in Interim Financial Periods". The
EITF has stated that lessors should defer recognition of
contingent rental income that is based on meeting specified
targets until those specified targets are met and not ratably
throughout the year. The Company has previously recognized
contingent rental income (i.e. percentage rent) ratably over the
year based on the historical trends of its tenants. The Company
has adopted Issue 98-9 prospectively and has ceased the
recognition of contingent rents until such time as its tenants
have achieved their specified target. The Company believes this
will affect the interim period in which percentage rent is
recognized, however it will not have a material impact on the
annual recognition of percentage rent.
(f) Reclassifications
Certain reclassifications have been made to the 1997 amounts to
conform to classifications adopted in 1998.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
2. Acquisitions of Shopping Centers
During the first nine months of 1998, the Company acquired 27 shopping
centers for approximately $317.2 million (the "1998 Acquisitions"). In
January, 1998, the Company entered into an agreement to acquire 32
shopping centers from various entities comprising the Midland Group
("Midland"). Of the 32 centers to be acquired or developed, 31 are
anchored by Kroger, or its affiliate. The Company currently owns 20 of
the shopping centers fee simple through RCLP and 12 joint ventures. All
of the shopping centers included in the development pipeline are owned
through various joint ventures in which the Company owns less than a 50%
interest (the "JV Properties"). The Company's investment in the
properties acquired from Midland is $220.4 million at September 30, 1998.
The Company expects to acquire the un-owned interests in two of the JV
Properties for approximately $20.7 million prior to year-end. During
1998, 1999 and 2000, including all payments made to date, the Partnership
will pay approximately $241 million for the properties, including the
assumption of debt, and in addition may pay contingent consideration of
up to an estimated $23 million, through the issuance of Partnership units
and the payment of cash. Whether contingent consideration will be issued,
and if issued, the amount of such consideration, will depend on the
satisfaction during 1998, 1999, and 2000 of performance criteria relating
to the assets acquired from Midland. For example, if a property acquired
as part of Midland's development pipeline satisfies specified performance
criteria at closing and when development is completed, the transferors of
the property may be entitled to additional Partnership units based on the
development cost of the properties and their net operating income.
Transferors who received cash at the initial Midland closing will receive
contingent future consideration in cash rather than units.
In March, 1997, the Company acquired 26 shopping centers from Branch
Properties ("Branch") for $232.4 million. Additional Units and shares of
common stock may be issued after the first, second and third
anniversaries of the closing with Branch (each an "Earn-Out Closing"),
based on the performance of the properties acquired. The formula for the
earn-out provides for calculating any increases in value on a
property-by-property basis, based on any increases in net income for the
properties acquired, as of February 15 of the year of calculation. The
earn-out is limited to 721,997 Units at the first Earn-Out Closing and
1,020,061 Units for all Earn-Out Closings (including the first Earn-Out
Closing). During March, 1998, the Company issued 721,997 Units and shares
valued at $18.2 million to the partners of Branch.
3. Notes Payable and Unsecured Line of Credit
The Company's outstanding debt at September 30, 1998 and December 31,
1997 consists of the following:
1998 1997
---- ----
Notes Payable:
Fixed rate mortgage loans $ 298,687,120 199,078,264
Variable rate mortgage loans 12,620,514 30,840,978
Fixed rate unsecured loans 121,439,932 -
Unsecured line of credit 45,931,185 48,131,185
----------- -----------
Total $ 478,678,751 278,050,427
=========== ===========
During March, 1998, the Company modified the terms of its unsecured line
of credit (the "Line") by increasing the commitment to $300 million,
reducing the interest rate, and incorporating a competitive bid facility
of up to $150 million of the commitment amount. Maximum availability
under
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
3. Notes Payable and Unsecured Line of Credit (continued)
the Line is subject to a pool of unencumbered assets which cannot have an
aggregate value less than 175% of the amount of the Company's outstanding
unsecured liabilities. The Line matures in May 2000, but may be extended
annually for one year periods. Borrowings under the Line bear interest at
a variable rate based on LIBOR plus a specified spread, (.875%
currently), which is dependent on the Company's investment grade rating.
The Company's ratings are currently Baa2 from Moody's Investor Service,
BBB from Duff and Phelps, and BBB- from Standard and Poors. The Company
is required to comply with certain financial covenants consistent with
this type of unsecured financing. The Line is used primarily to finance
the acquisition and development of real estate, but is available for
general working capital purposes.
On June 29, 1998, the Company through RCLP issued $80 million of 8.125%
Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units")
to an institutional investor in a private placement. The issuance involved
the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The
Series A Preferred Units, which may be called by the Partnership at par on
or after June 25, 2003, have no stated maturity or mandatory redemption,
and pay a cumulative, quarterly dividend at an annualized rate of 8.125%.
At any time after June 25, 2008, the Series A Preferred Units may be
exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred
Stock of the Company at an exchange rate of one share of Series A Preferred
Stock for one Series A Preferred Unit. The Series A Preferred Units and
Series A Preferred Stock are not convertible into common stock of the
Company. The net proceeds of the offering were used to reduce the
Partnership's bank line of credit.
On July 17, 1998 the Company through RCLP, completed a $100 million
private offering of seven year term notes at an effective interest rate
of 7.17%. The Notes were priced at 162.5 basis points over the current
yield for seven year US Treasury Bonds. The net proceeds of the offering
were used to repay borrowings under the line of credit.
Mortgage loans are secured by certain real estate properties, but
generally may be prepaid subject to a prepayment of a yield-maintenance
premium. Mortgage loans are generally due in monthly installments of
interest and principal and mature over various terms through 2018.
Variable interest rates on mortgage loans are currently based on LIBOR
plus a spread in a range of 125 basis points to 150 basis points.
Fixed interest rates on mortgage loans range from 7.04% to 9.8%.
During the first nine months of 1998, the Company assumed mortgage loans
with a face value of $120,414,970 related to the acquisition of shopping
centers. The Company has recorded the loans at fair value which created
debt premiums of $11,443,253 related to assumed debt based upon the above
market interest rates of the debt instruments. Debt premiums are being
amortized over the terms of the related debt instruments.
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $74,905,055 at September 30, 1998, and the Company's share of these
loans was $31,250,636.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
3. Notes Payable and Unsecured Line of Credit (continued)
As of September 30, 1998, scheduled principal repayments on notes payable
and the unsecured line of credit were as follows:
1998 $ 8,643,469
1999 23,208,035
2000 107,025,255
2001 43,935,827
2002 46,819,743
Thereafter 238,970,935
-----------
Subtotal 468,603,264
Net unamortized debt premiums 10,075,487
-----------
Total $ 478,678,751
===========
4. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three months ended, September 30, 1998 and 1997 (in
thousands except per share data):
1998 1997
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 25,457 21,741
Net income for common stockholders $ 10,061 8,743
Less: dividends paid on Class B common stock 1,344 1,285
----- -----
Net income for Basic EPS $ 8,717 7,458
===== =====
Basic EPS $ .34 .34
=== ===
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding for Basic EPS 25,457 21,741
Exchangeable operating partnership units 1,307 574
Incremental shares to be issued under common
stock options using the Treasury method - 83
Contingent units or shares for the acquisition
of real estate 493 1,139
------ ------
Total diluted shares 27,257 23,537
====== ======
Net income for Basic EPS $ 8,717 7,458
Add: minority interest of Exchangeable partnership units
487 173
--- ---
Net income for Diluted EPS $ 9,204 7,631
===== =====
Diluted EPS $ .34 .32
=== ===
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
4. Earnings Per Share (continued)
The following summarizes the calculation of basic and diluted earnings
per share for the nine months ended, September 30, 1998 and 1997 (in
thousands except per share data):
1998 1997
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 25,045 15,379
Net income for common stockholders $ 40,415 17,507
Less: dividends paid on Class B common stock 4,033 3,855
----- -----
Net income for Basic EPS $ 36,382 13,652
====== ======
Basic EPS $ 1.45 .89
==== ===
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding for Basic EPS 25,045 15,379
Exchangeable operating partnership units 1,193 1,469
Incremental shares to be issued under common
stock options using the Treasury method - 87
Contingent units or shares for the acquisition
of real estate 418 886
------ ------
Total diluted shares 26,656 17,821
====== ======
Net income for Basic EPS $ 36,382 13,652
Add: minority interest of Exchangeable partnership units 1,379 1,776
----- -----
Net income for Diluted EPS $ 37,761 15,428
====== ======
Diluted EPS $ 1.42 .87
==== ===
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollar amounts in thousands).
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 in this Form 10-Q, and with the
Company's Form 10-K dated December 31, 1997. 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. These forward-looking statements
are based on current expectations, estimates and projections about the industry
and markets in which the Company operates, management's beliefs and assumptions
made by management.
Organization
The Company is a qualified real estate investment trust ("REIT") which began
operations in 1993. The Company invests in real estate primarily through its
general partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership")
an operating partnership in which the Company currently owns approximately 96%
of the outstanding partnership units ("Units"). Of the 125 properties included
in the Company's portfolio at September 30, 1998, 104 properties were owned
either fee simple or through partnerships interests by RCLP. At September 30,
1998, the Company had an investment in real estate, at cost, of approximately
$1.2 billion of which $967 million or 82% was owned by RCLP.
Shopping Center Business
The Company's principal business is owning, operating and developing grocery
anchored neighborhood infill shopping centers. 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:
September 30, 1998 December 31, 1997
Location # Properties GLA % Leased # Properties GLA % Leased
Florida 46 5,737,147 91.5% 45 5,267,894 91.5%
Georgia 27 2,714,759 91.1% 25 2,539,507 92.4%
North Carolina 12 1,241,784 97.7% 6 554,332 99.0%
Ohio 12 1,696,027 92.7% 2 629,920 89.1%
Alabama 5 517,880 99.5% 5 516,080 99.9%
Texas 5 451,227 89.4% - - -
Colorado 5 447,663 84.3% - - -
Tennessee 4 295,257 98.7% 3 208,386 98.5%
Kentucky 1 205,060 95.6% - - -
South Carolina 1 79,723 100.0% 1 79,743 84.3%
Virginia 2 197,324 99.5% - - -
Michigan 1 85,478 99.0% - - -
Delaware 1 232,752 95.5% - -
Missouri 1 82,498 99.8% - - -
Mississippi 2 185,061 99.1% 2 185,061 96.9%
----------- ---------- ------ ------- --------- -----
Total 125 14,169,640 92.7% 89 9,980,923 92.8%
=========== ========== ======= ======= ========= =====
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. The
following table summarizes the four largest tenants occupying the Company's
shopping centers:
Average
Grocery Anchor Number of % of % of Annual Remaining Lease
Stores Total GLA Base Rent Term
Kroger * 36 15.3% 14.2% 20 yrs
Publix 33 10.0% 7.2% 12 yrs
Winn Dixie 17 5.5% 4.1% 11 yrs
Harris Teeter 4 1.3% 1.7% 16 yrs
*includes properties under development scheduled for opening in 1998
and 1999. Excluding development properties, Kroger would represent
12.9% of GLA and 11.8% of annual base rent.
Acquisition and Development of Shopping Centers
During the first nine months of 1998, the Company acquired 27 shopping centers
for approximately $317.2 million (the "1998 Acquisitions"). In January, 1998,
the Company entered into an agreement to acquire 32 shopping centers from
various entities comprising the Midland Group ("Midland"). Of the 32 centers to
be acquired or developed, 31 are anchored by Kroger, or its affiliate. The
Company currently owns 20 of the shopping centers fee simple through RCLP and 12
through joint ventures. All of the shopping centers included in the development
pipeline are owned through various joint ventures in which the Company owns less
than a 50% interest (the "JV Properties"). The Company's investment in the
properties acquired from Midland is $220.4 million at September 30, 1998. The
Company expects to acquire the un-owned interests in two of the JV Properties
for approximately $20.7 million prior to year-end. During 1998, 1999 and 2000,
including all payments made to date, the Partnership will pay approximately $241
million for the properties, including the assumption of debt, and in addition
may pay contingent consideration of up to an estimated $23 million, through the
issuance of Partnership units and the payment of cash. Whether contingent
consideration will be issued, and if issued, the amount of such consideration,
will depend on the satisfaction during 1998, 1999, and 2000 of performance
criteria relating to the assets acquired from Midland. For example, if a
property acquired as part of Midland's development pipeline satisfies specified
performance criteria at closing and when development is completed, the
transferors of the property will be entitled to additional Partnership units
based on the development cost of the properties and their net operating income.
Transferors who received cash at the initial Midland closing may receive
contingent future consideration in cash rather than units.
The Company acquired 35 shopping centers during 1997 (the "1997 Acquisitions")
for approximately $395.7 million. The 1997 Acquisitions include the acquisition
of 26 shopping centers from Branch Properties ("Branch") for $232.4 million in
March, 1997. The real estate acquired from Branch included 100% fee simple
interests in 20 shopping centers, and also partnership interests (ranging from
50% to 93%) in four partnerships with outside investors that owned six shopping
centers. The Company was also assigned 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. Additional Units and
shares of common stock may be issued after the first, second and third
anniversaries of the closing with Branch (each an "Earn-Out Closing"), based on
the performance of the properties acquired. The formula for the earn-out
provides for calculating any increases in value on a property-by-property basis,
based on any increases in net income for the properties acquired, as of February
15 of the year of calculation. The earn-out is limited to 721,997 Units at the
first Earn-Out Closing and 1,020,061 Units for all Earn-Out Closings (including
the first Earn-Out Closing). During March, 1998, the Company issued 721,997
Units and shares valued at $18.2 million to the partners of Branch.
Liquidity and Capital Resources
Management anticipates that cash generated from operating activities will
provide the necessary funds on a short-term basis for its operating expenses,
interest expense and scheduled principal payments on outstanding indebtedness,
recurring capital expenditures necessary to properly maintain the shopping
centers, and distributions to unit holders. Net cash provided by operating
activities was $53.6 million and $38 million for the nine months ended September
30, 1998 and 1997. The Company paid dividends and distributions of $40.5 million
and $24.7 million, during 1998 and 1997, respectively. In 1998, the Company
increased its quarterly dividend per share and distribution per unit to $.44 vs
$.42 in 1997, had more outstanding shares and units in 1998 vs. 1997; and
accordingly, expects dividends and distributions paid during 1998 to increase
substantially over 1997.
Management expects to meet long-term liquidity requirements for debt maturities,
and acquisition, renovation and development of shopping centers from: (i) excess
cash generated from operating activities, (ii) working capital reserves, (iii)
additional debt borrowings, and (iv) additional equity raised in the public
markets. Net cash used in investing activities was $168.9 million and $143.7
million, during 1998 and 1997, respectively, as discussed above in Acquisitions
and Development of Shopping Centers. Net cash provided by financing activities
was $117.1 million and $111.4 million during 1998 and 1997, respectively. At
September 30, 1998, the Company had 14 shopping centers under construction or
undergoing major renovations. Total committed costs necessary to complete the
properties under development is estimated to be $35.1 million and will be
expended through August 1999.
The Company's outstanding debt at September 30, 1998 and December 31, 1997
consists of the following:
1998 1997
---- ----
Notes Payable:
Fixed rate mortgage loans $ 298,687 199,078
Variable rate mortgage loans 12,621 30,841
Fixed rate unsecured loans 121,440 -
Unsecured line of credit 45,931 48,131
-------- -------
Total $ 478,679 278,050
======== =======
The weighted average interest rate on total debt at September 30, 1998 and 1997
was 7.4%, respectively. The Company's debt is typically cross-defaulted, but not
cross-collateralized, and includes usual and customary affirmative and negative
covenants.
The Company is a party to a credit agreement dated as of March 27, 1998,
providing for an unsecured line of credit (the "Line") from a group of lenders
currently consisting of Wells Fargo Bank, National Association, First Union
National Bank, Wachovia Bank, N.A., NationsBank, N.A., AmSouth Bank, Commerzbank
AG, Atlanta Branch, PNC Bank, National Association, and Star Bank, N.A. This
credit agreement modified the terms of the Company's prior line of credit by
increasing the commitment to $300 million, reducing the interest rate, and
incorporating a competitive bid facility of up to $150 million of the commitment
amount. Maximum availability under the Line is based on the discounted value of
a pool of eligible unencumbered assets (determined on the basis of capitalized
net operating income) less the amount of the Company's outstanding unsecured
liabilities. The Line matures in May 2000, but may be extended annually for one
year periods. Borrowings under the Line bear interest at a variable rate based
on LIBOR plus a specified spread, (.875% currently), which is dependent on the
Company's investment grade rating. The Company's ratings are currently Baa2 from
Moody's Investor Service, BBB from Duff and Phelps, and BBB- from Standard and
Poors. The Company is required to comply with certain financial and other
covenants customary with this type of unsecured financing. These financial
covenants include (i) maintenance of minimum net worth, (ii) ratio of total
liabilities to gross asset value, (iii) ratio of secured indebtedness to gross
asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to
debt service and reserve for replacements, and (vi) ratio of unencumbered net
operating income to interest expense on unsecured indebtedness. The Line is used
primarily to finance the acquisition and development of real estate, but is
available for general working capital purposes.
On June 29, 1998, the Company through RCLP issued $80 million of 8.125%
Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to
an institutional investor in a private placement. The issuance involved the sale
of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A
Preferred Units, which may be called by the Company at par on or after June
25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative,
quarterly dividend at an annualized rate of 8.125%. At any time after June 25,
2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series
A Cumulative Redeemable Preferred Stock of the Company at an exchange rate of
one share of Series A Preferred Stock for one Series A Preferred Unit. The
Series A Preferred Units and Series A Preferred Stock are not convertible into
common stock of the Company. The net proceeds of the offering were used to
reduce the Partnership's bank line of credit.
On July 17, 1998 the Company, through RCLP, completed a $100 million private
offering of term notes at an effective interest rate of 7.17%. The Notes were
priced at 162.5 basis points over the current yield for seven year US Treasury
Bonds. The net proceeds of the offering were used to reduce the balance of the
Line.
Mortgage loans are secured by certain real estate properties, but generally may
be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage
loans are generally due in monthly installments of interest and principal and
mature over various terms through 2018. Variable interest rates on mortgage
loans are currently based on LIBOR plus a spread in a range of 125 basis points
to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to
9.8%.
During the first nine months of 1998, the Company assumed mortgage loans with a
face value of $120.4 million related to the acquisition of shopping centers. The
Company has recorded the loans at fair value which created debt premiums of
$11.4 million related to assumed debt based upon the above market interest rates
of the debt instruments. Debt premiums are being amortized over the terms of the
related debt instruments.
Unconsolidated partnerships and joint ventures had mortgage loans payable of
$74.9 million at September 30, 1998, and the Company's share of these loans was
$31.2 million.
As of September 30, 1998, scheduled principal repayments on notes payable and
the unsecured line of credit were as follows:
1998 $ 8,643
1999 23,208
2000 107,025
2001 43,936
2002 46,820
Thereafter 238,972
-------
Subtotal 468,604
Net unamortized debt premiums 10,075
-------
Total $ 478,679
=======
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, it also 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 1998 as a
result of the acquisitions discussed above. The Company intends to continue to
acquire and develop shopping centers during 1998, and 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.
Results from Operations
Comparison of the Nine Months Ended September 30, 1998 to 1997
Revenues increased $33.1 million or 47.9% to $102.3 million in 1998. The
increase was due primarily to the 1998 and 1997 Acquisitions providing increases
in revenues of $28.2 million during 1998. At September 30, 1998, the real estate
portfolio contained approximately 14.2 million SF, was 92.7% leased and had
average rents of $9.18 per SF. Minimum rent increased $24.9 million or 50%, and
recoveries from tenants increased $5.8 million or 51%. On a same property basis
(excluding the 1998 and 1997 Acquisitions) gross rental revenues decreased $.5
million or 1%, primarily due to the sale of the office properties. Revenues from
property management, leasing, brokerage, and development services provided on
properties not owned by the Company were $8 million in 1998 compared to $6.3
million in 1997, the increase due primarily to fees earned from third party
property management and leasing contracts acquired as part of the acquisition of
Branch and Midland. During 1998, the Company sold four office buildings and a
parcel of land for $ 30.7 million, and recognized a gain on the sale of $10.7
million. As a result of these transactions the Company's real estate portfolio
is comprised entirely of neighborhood shopping centers. The proceeds from the
sale were applied toward the purchase of the 1998 acquisitions.
Operating expenses increased $15.5 million or 44% to $50.8 million in 1998.
Combined operating and maintenance, and real estate taxes increased $6.1 million
or 38% during 1998 to $22.1 million. The increases are due to the 1998 and 1997
Acquisitions generating operating and maintenance expenses and real estate tax
increases of $6.9 million during 1998. On a same property basis, operating and
maintenance expenses and real estate taxes decreased $.8 or 8% due to the sale
of the four office properties. General and administrative expenses increased 37%
during 1998 to $10.6 million due to the hiring of new employees and related
office expenses necessary to manage the shopping centers acquired during 1998
and 1997, as well as, the shopping centers the Company began managing for third
parties during 1998 and 1997. Depreciation and amortization increased $6.5
million during 1998 or 56% primarily due to the 1998 and 1997 Acquisitions
generating $10.2 million in depreciation and amortization.
Interest expense increased to $19.7 million in 1998 from $14.7 million in 1997
or 34% due to increased average outstanding loan balances related to the
financing of the 1998 and 1997 Acquisitions on the Line and the assumption of
debt.
Net income for common stockholders was $40.4 million in 1998 vs. $17.5 million
in 1997, a $22.9 million or 131% increase for the reasons previously described.
Diluted earnings per share in 1998 was $1.42 vs. $.87 in 1997 due to the
increase in net income combined with the dilutive impact from the increase in
weighted average common shares and equivalents of 8.8 million primarily due to
the acquisition of Branch and Midland, the issuance of shares to SC-USREALTY
during 1997, and the public offering completed in July, 1997.
Comparison of the Three Months Ended September 30, 1998 to 1997
Revenues increased $9.9 million or 37.1% to $36.7 million in 1998. The increase
was due primarily to the 1998 and 1997 Acquisitions providing increases in
revenues of $8.7 million during 1998. Minimum rent increased $7.8 million or
40%, and recoveries from tenants increased $2.1 million or 49%. On a same
property basis (excluding the 1998 and 1997 Acquisitions) gross rental revenues
decreased $.3 million or 2%, primarily due to the sale of the office properties.
Revenues from property management, leasing, brokerage, and development services
provided on properties not owned by the Company were $2.6 million in 1998 and
1997.
Operating expenses increased $4.4 million or 33% to $17.8 million in 1998.
Combined operating and maintenance, and real estate taxes increased $1.4 million
or 22% during 1998 to $7.9 million. The increases are due to the 1998 and 1997
Acquisitions generating operating and maintenance expenses and real estate tax
increases of $1.8 million during 1998. On a same property basis, operating and
maintenance expenses and real estate taxes decreased $.4 or 10% due to the sale
of the office properties. General and administrative expenses increased 33%
during 1998 to $3.4 million due to the hiring of new employees and related
office expenses necessary to manage the shopping centers acquired during 1998
and 1997, as well as, the shopping centers the Company began managing for third
parties during 1998 and 1997. Depreciation and amortization increased $2.2
million during 1998 or 49% primarily due to the 1998 and 1997 Acquisitions
generating $4.1 million in depreciation and amortization.
Interest expense increased to $6.8 million in 1998 from $4.5 million in 1997 or
51% due to increased average outstanding loan balances related to the financing
of the 1998 and 1997 Acquisitions on the Line and the assumption of debt.
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 63% from 1997 to 1998 as a result of the acquisition activity
discussed above under "Results of Operations". FFO for the nine months ended
September 30, 1998 and 1997 are summarized in the following table:
1998 1997
---- ----
Net income for common stockholders $ 40,415 17,507
Add (subtract):
Real estate depreciation and amortization 17,582 11,090
Gain on sale of operating property (9,835) -
Minority interests in net income of
Exchangeable partnership units 1,378 1,776
------ ------
Funds from operations $ 49,540 30,373
====== ======
Cash flow provided by (used in):
Operating activities $ 53,621 38,032
Investing activities (168,888) (143,660)
Financing activities 117,081 111,366
New Accounting Standards and Accounting Changes
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"),
which is effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting total comprehensive income in financial
statements, and requires that Companies explain the differences between total
comprehensive income and net income. Management has adopted this statement in
1998. No differences between total comprehensive income and net income existed
in the interim financial statements reported at September 30, 1998 and 1997.
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which is effective for fiscal years beginning after December 15, 1997.
FAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Management does not believe that FAS 131
will effect its current disclosures.
Effective March 19, 1998, the Emerging Issues Task Force (EITF) ruled in Issue
97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions", that only internal costs of identifying and acquiring
non-operating properties that are directly identifiable with the acquired
properties should be capitalized, and that all internal costs associated with
identifying and acquiring operating properties should be expensed as incurred.
The Company had previously capitalized direct costs associated with the
acquisition of operating properties as a cost of the real estate. The Company
has adopted EITF 97-11 effective March 19, 1998. During 1997, the Company
capitalized approximately $1.5 million of internal costs related to acquiring
operating properties. Through the effective date of EITF 97-11, the Company has
capitalized $474,000 of internal acquisition costs. For the remainder of 1998,
the Company expects to incur $1.1 million internal costs related to acquiring
operating properties which will be expensed.
On May 22, 1998, the EITF reached a consensus on Issue 98-9 "Accounting for
Contingent Rent in Interim Financial Periods". The EITF has stated that lessors
should defer recognition of contingent rental income that is based on meeting
specified targets until those specified targets are met and not ratably
throughout the year. The Company has previously recognized contingent rental
income (i.e. percentage rent) ratably over the year based on the historical
trends of its tenants. The Company has adopted Issue 98-9 prospectively and has
ceased the recognition of contingent rents until such time as its tenants have
achieved their specified target. The Company believes this will effect the
interim period in which percentage rent is recognized, however it will not have
a material impact on the annual recognition of percentage rent.
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.
Inflation
Inflation has remained relatively low during 1998 and 1997 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 Compliance
Management recognizes the potential effect Year 2000 may have on the Company's
operations and, as a result, has implemented a Year 2000 Compliance Project. The
term "Year 2000 compliant" means that the software, hardware, equipment, goods
or systems utilized by, or material to the physical operations, business
operations, or financial reporting of an entity will properly perform date
sensitive functions before, during and after the year 2000.
The Company's Year 2000 Compliance Project includes an awareness phase, an
assessment phase, a renovation phase, and a testing phase of our data processing
network, accounting and property management systems, computer and operating
systems, software packages, and building management systems. The project also
includes surveying our major tenants and financial institutions. Total costs
incurred to date associated with the Company's Year 2000 compliance project have
been reflected in the Company's income statement throughout 1997 and 1998, and
were approximately $250,000.
The Company's computer hardware, operating systems, general accounting and
property management systems and principal desktop software applications are Year
2000 compliant as certified by the various vendors. We are currently testing
these systems, and expect to complete the testing phase by December 31, 1998.
Based on initial testing, Management does not anticipate any Year 2000 issues
that will materially impact operations or operating results.
An assessment of the Company's building management systems has been completed.
This assessment has resulted in the identification of certain lighting,
telephone, and voice mail systems that may not be Year 2000 compliant. While we
have not yet begun renovations, Management believes that the cost of upgrading
these systems will not exceed $500,000. It is anticipated that the renovation
and testing phases will be complete by June 30, 1999.
The Company has surveyed its major tenants and financial institutions to
determine the extent to which the Company is vulnerable to third parties'
failure to resolve their Year 2000 issues. The Company will be able to more
adequately assess its third party risk when responses are received from the
majority of the entities contacted.
Management believes its planning efforts are adequate to address the Year 2000
Issue and that its risk factors are primarily those that it cannot directly
control, including the readiness of its major tenants and financial
institutions. Failure on the part of these entities to become Year 2000
compliant could result in disruption in the Company's cash receipt and
disbursement functions. There can be no guarantee, however, that the systems of
unrelated entities upon which the Company's operations rely will be corrected on
a timely basis and will not have a material adverse effect on the Company.
The Company does not have a formal contingency plan or a timetable for
implementing one. Contingency plans will be established, if they are deemed
necessary, after the Company has adequately assessed the impact on operations
should third parties fail to properly respond to their Year 2000 issues.
PART II
Item 1. Legal Proceedings
None
Item 5. Other Information
Regency Realty Corporation
Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated balance sheet is based
upon the historical consolidated balance sheet of Regency Realty Corporation
(the Company) as of September 30, 1998 as if the Company had completed the
acquisition of one additional shopping center subsequent to period end. The
following unaudited pro forma consolidated statements of operations of the
Company are based upon the historical consolidated statements of operations for
the nine-month period ended September 30, 1998 and the year ended December 31,
1997. These statements are presented as if the Company had acquired all of its
properties as of January 1, 1997. These unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the
Company's Form 10-K as of and for the three years ended December 31, 1997 and
Form 10-Q filed for the period September 30, 1998.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations of the Company would have been at September 30, 1998 or December 31,
1997 assuming the transactions had been completed as set forth above, nor does
it purport to represent the financial position or results of operations of the
Company in future periods.
Regency Realty Corporation
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
(in thousands)
Historical Adjustments Pro Forma
Assets
Real estate investments, at cost $ 1,128,270 19,200 (a) 1,147,470
Construction in progress 23,947 - 23,947
Less: accumulated depreciation 52,411 - 52,411
------------ ------------ ------------
Real estate rental property, net 1,099,806 19,200 1,119,006
------------ ------------ ------------
Investments in real estate partnerships 24,813 - 24,813
------------ ------------ ------------
Net real estate investments 1,124,619 19,200 1,143,819
------------ ------------ ------------
Cash and cash equivalents 18,401 - 18,401
Tenant receivables, net of allowance for
uncollectible accounts 16,565 - 16,565
Deferred costs, less accumulated amortization 5,616 - 5,616
Other assets 7,836 7,836
------------ ------------ ------------
Total Assets $ 1,173,037 19,200 1,192,237
============ ============ ============
Liabilities and Stockholders' Equity
Notes payable $ 432,748 - 432,748
Acquisition and development line of credit 45,931 19,200 (a) 65,131
------------ ------------ ------------
Total debt 478,679 19,200 497,879
Accounts payable and other liabilities 26,778 - 26,778
Tenant's security and escrow deposits 2,928 - 2,928
------------ ------------ ------------
Total liabilities 508,385 19,200 527,585
------------ ------------ ------------
Series A preferred units 78,800 - 78,800
Exchangeable operating partnership units 26,153 - 26,153
Limited partners' interest in consolidated partnerships 7,632 - 7,632
------------ ------------ ------------
112,585 - 112,585
Common stock and additional paid in capital 569,060 - 569,060
Distributions in excess of net income (16,993) - (16,993)
------------ ------------ ------------
Total stockholders' equity 552,067 - 552,067
------------ ------------ ------------
Total liabilities and stockholders' equity $ 1,173,037 19,200 1,192,237
============ ============ ============
See accompanying notes to pro forma condensed consolidated balance sheet.
Regency Realty Corporation
Notes to Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
(In thousands)
(a) Acquisitions of Shopping Centers:
In January 1998, the Company entered into an agreement to acquire 32
shopping centers from various entities comprising the Midland Group. The Company
has acquired 20 Midland shopping centers fee simple and 12 through joint
ventures prior to September 30, 1998 containing 2.2 million square feet for
approximately $220.4 million. Those shopping centers are included in the
Company's September 30, 1998 balance sheet.
Subsequent to September 30, 1998, the Company expects to acquire the
unonwned interests in two of the joint venture properties under development for
$20.7 million. In addition, during 1998, the Company expects to pay $4.6 million
in additional costs related to joint venture investments and other transaction
costs related to acquiring the various shopping centers from Midland, and during
1999 and 2000 expects to pay contingent consideration of $23.0 million. The
following table represents the properties under development which the Company
expects to acquire from Midland upon completion of construction during 1998.
These properties are not included in these pro forma condensed consolidated
financial statements.
Expected
Acquisition Purchase
Date Price
--------------- -------------
Nashboro December-98 $ 7,260
Crooked Creek December-98 13,471
------------
$ 20,731
=============
In addition, the Company acquired one other shopping center for an
aggregate purchase price of $19.2 million which is reflected in the pro
forma balance sheet. The shopping center, Hinsdale Lake Commons, was
acquired on October 21, 1998 using funds drawn on the Line.
Regency Realty Corporation
Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended September 30, 1998
and the Year Ended December 31, 1997
(Unaudited)
(In thousands, except share and per share data)
For the Nine Month Period Ended September 30, 1998
Midland Acquisition Other
Historical Properties Properties Adjustments Pro Forma
(c) (d)
Revenues:
Minimum rent $ 74,823 3,960 4,553 (697) (h) 82,639
Percentage rent 1,836 - 180 (8) (h) 2,008
Recoveries from tenants 17,058 549 1,113 (67) (h) 18,653
Management, leasing and brokerage fees 8,023 - - - 8,023
Equity in income of investments in real
estate partnership 511 - - - 511
------------- ---------- ---------- ----------- -------
102,251 4,509 5,846 (772) 111,834
------------- ---------- ---------- ----------- -------
Operating expenses:
Depreciation and amortization 17,985 817 (e) 1,356 (e) (453) (h) 19,705
Operating and maintenance 13,077 286 571 (122) (h) 13,812
General and administrative 10,638 233 279 (25) (h) 11,125
Real estate taxes 9,051 494 646 (81) (h) 10,110
------------- ---------- ---------- ----------- -------
50,751 1,830 2,852 (681) 54,752
------------- ---------- ---------- ----------- -------
Interest expense (income):
Interest expense 19,705 2,646 (f) 3,238 (g) (4,830) (i) 20,759
Interest income (1,385) - - - (1,385)
------------- ---------- ---------- ----------- -------
18,320 2,646 3,238 (4,830) 19,374
------------- ---------- ---------- ----------- -------
Income before minority interest
and gain on sale of real
estate investments 33,180 33 (244) 4,739 37,708
Gain on sale of real estate investments 10,737 - - (9,336) (h) 1,401
Minority interest preferred unit distributions (1,733) - - (3,142) (j) (4,875)
Minority interest (1,769) (1) (6) 202 (1,574)
------------- ---------- ---------- ----------- -------
Net income for common stockholders $ 40,415 32 (250) (7,537) 32,660
============= ========== ========== =========== =======
Net income per share (note (l)):
Basic $ 1.45 $ 1.14
============= =======
Diluted $ 1.42 $ 1.13
============= =======
See accompanying notes to pro forma consolidated statements of operations.
Regency Realty Corporation
Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended September 30, 1998
and the Year Ended December 31, 1997
(Unaudited)
(In thousands, except share and per share data)
For the Year Ended December 31, 1997
Branch Midland Acquisition Other
Historical Properties Properties Properties Adjustments Pro Forma
(b) (c) (d)
Revenues:
Minimum rent $ 70,103 3,596 16,482 18,873 (4,136) (h) 104,918
Percentage rent 2,151 167 - 505 - 2,823
Recoveries from tenants 17,052 751 2,240 4,412 (548) (h) 23,907
Management, leasing and
brokerage fees 7,997 1,060 - - - 9,057
Equity in income of investments
in real estate partnerships 33 - - - - 33
----------- ------------- ---------- ---------- ----------- ---------
97,336 5,574 18,722 23,790 (4,684) 140,738
----------- ------------- ---------- ---------- ----------- ---------
Operating expenses:
Depreciation & amortization 16,303 972 2,994 (e) 4,856 (e) (855) (h) 24,270
Operating and maintenance 14,212 595 1,194 2,598 (1,260) (h) 17,339
General and administrative 9,964 683 1,042 1,173 (49) (h) 12,813
Real estate taxes 8,692 404 1,635 2,650 (447) (h) 12,934
----------- ------------- ---------- ---------- ----------- ---------
49,171 2,654 6,865 11,277 (2,611) 67,356
----------- ------------- ---------- ---------- ----------- ---------
Interest expense (income):
Interest expense 19,667 1,517 10,353 (f) 13,030 (g) (6,439) (i) 38,128
Interest income (1,000) (33) - - - (1,033)
----------- ------------- ---------- ---------- ----------- ---------
18,667 1,484 10,353 13,030 (6,439) 37,095
----------- ------------- ---------- ---------- ----------- ---------
Income before minority interest
and gain on sale of real
estate investments 29,498 1,436 1,504 (517) 4,366 36,287
Gain on sale of real estate investments 451 - - - (451) (h) -
Minority interest preferred
unit distributions - - - - (6,500) (j) (6,500)
Minority interest (2,547) 1,010 (38) (27) (142) (1,744)
----------- ------------- ---------- ---------- ----------- ---------
Net income for common stockholders $ 27,402 2,446 1,466 (544) (2,727) 28,043
=========== ============= ========== ========== =========== =========
Net income per share (note (l)):
Basic $ 1.28 $ 1.31
=========== =========
Diluted $ 1.23 $ 1.22
=========== =========
See accompanying notes to pro forma consolidated statements of operations.
Regency Realty Corporation
Notes to Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended
September 30, 1998 and the
Year ended December 31, 1997
(Unaudited)
(In thousands, except unit and per unit data)
(b) Reflects pro forma results of operations for the Branch Properties for the
period from January 1, 1997 to March 7, 1997 (acquisition date).
(c) Reflects revenues and certain expenses for the Midland Properties for the
period from January 1, 1998 to the earlier of the respective acquisition
date of the property or September 30, 1998 and for the year ended December
31, 1997.
For the period ended September 30, 1998
Property Acquisition Minimum Recoveries Operating and Real General and
Name Date Rent from Tenants Maintenance Estate Taxes Administrative
---- ---------- ---------- ------------ ------------- ------------ ---------------
Garner Festival (1) 9/30/98 $ - $ - $ - $ - $ -
Windmiller Farms 7/15/98 621 97 37 77 34
Franklin Square 4/29/98 414 56 52 31 32
St. Ann Square 4/17/98 217 44 18 35 12
East Point Crossing 4/29/98 268 52 16 35 17
North Gate Plaza 4/29/98 234 33 18 27 10
Worthington Park 4/29/98 281 68 22 40 19
Beckett Commons 3/1/98 113 7 6 14 4
Cherry Grove Plaza 3/1/98 239 11 13 22 21
Bent Tree Plaza 3/1/98 137 11 7 59 8
West Chester Plaza 3/1/98 130 12 13 42 7
Brookville Plaza 3/1/98 95 5 5 8 4
Lake Shores Plaza 3/1/98 123 10 5 16 6
Evans Crossing 3/1/98 116 4 5 8 6
Statler Square 3/1/98 164 15 13 1 8
Kernersville Plaza 3/1/98 120 4 8 8 8
Maynard Crossing 3/1/98 272 38 13 15 15
Shoppes at Mason 3/1/98 116 27 15 33 6
Lake Pine Plaza 3/1/98 152 13 10 8 9
Hamilton Meadows 3/1/98 148 42 10 15 7
---------- ------------ ----------- ------------ ---------------
$ 3,960 $ 549 $ 286 $ 494 $ 233
========== =========== ========== ============ ===============
For the year ended December 31, 1997
Property Acquisition Minimum Recoveries Operating and Real General and
Name Date Rent from Tenants Maintenance Estate Taxes Administrative
---- ---------- ---------- ------------ ------------- ----------- --------------
Garner Festival (1) 9/30/98 $ - $ - $ - $ - $ -
Windmiller Farms 7/15/98 1,157 181 69 143 64
Franklin Square 4/29/98 1,270 171 158 94 98
St. Ann Square 4/17/98 741 149 60 119 42
East Point Crossing 4/29/98 821 159 50 107 51
North Gate Plaza 4/29/98 718 100 56 84 32
Worthington Park 4/29/98 862 208 67 124 59
Beckett Commons 3/1/98 687 140 38 83 47
Cherry Grove Plaza 3/1/98 1,445 175 85 131 105
Bent Tree Plaza 3/1/98 786 130 64 59 48
West Chester Plaza 3/1/98 807 70 72 84 45
Brookville Plaza 3/1/98 571 42 34 50 30
Lake Shores Plaza 3/1/98 759 156 55 96 32
Evans Crossing 3/1/98 613 84 34 50 33
Statler Square 3/1/98 913 76 43 54 60
Kernersville Plaza 3/1/98 605 58 29 51 33
Maynard Crossing 3/1/98 1,367 133 78 95 104
Shoppes at Mason 3/1/98 644 56 61 65 38
Lake Pine Plaza 3/1/98 827 93 54 51 46
Hamilton Meadows 3/1/98 889 59 87 95 75
---------- ----------- ---------- --------------- ---------------
$ 16,482 $ 2,240 $ 1,194 $ 1,635 $ 1,042
========== =========== ========== =============== ===============
(1) The property was under development until the date of acquisition,
thus there are no revenues and expenses to be recorded in the statement
of operations.
Regency Realty Corporation
Notes to Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended
September 30, 1998 and the
Year ended December 31, 1997
(Unaudited)
(In thousands, except unit and per unit data)
(d) Reflects revenues and certain expenses for the Acquisition Properties for
the period from January 1, 1998 to the earlier of the respective
acquisition date of the property or September 30, 1998 and for the year
ended December 31, 1997.
For the period ended September 30, 1998
Property Acquisition Minimum Percentage Recoveries Operating and Real General and
Name Date Rent Rent from Tenants Maintenance Estate Taxes Administrative
---- ---------- ---------- ----------- ------------- -------------- ------------- --------------
Delk Spectrum 1/14/98 $ 48 $ - $ 5 $ 2 $ 3 $ 2
Bloomingdale Square 2/11/98 214 6 53 25 24 21
Silverlake 6/3/98 346 - 60 36 36 18
Highland Square 6/17/98 516 51 86 46 79 60
Shoppes @104 6/19/98 620 - 133 72 79 28
Fleming Island 6/30/98 348 - 289 39 194 36
Pike Creek 8/4/98 1,172 116 108 135 83 47
Hinsdale Lake Commons 10/21/98 1,289 7 379 216 148 67
---------- ----------- ---------- --------------- --------------- -----------
$ 4,553 $ 180 $ 1,113 $ 571 $ 646 $ 279
========== =========== ========== =============== =============== ===========
For the year ended December 31, 1997
Property Acquisition Minimum Percentage Recoveries Operating and Real General and
Name Date Rent Rent from Tenants Maintenance Estate Taxes Administrative
---- ---------- ---------- ----------- ------------ ------------ ------------- --------------
Oakley Plaza 3/14/97 $ 142 $ - $ 14 $ 13 $ 13 $ 8
Mariner's Village 3/25/97 185 6 37 45 33 7
Carmel Commons 3/28/97 297 11 63 38 35 22
Mainstreet Square 4/15/97 193 - 34 42 30 15
East Port Plaza 4/25/97 543 - 107 96 65 33
Hyde Park Plaza 6/6/97 1,702 118 339 144 265 84
Rivermont Station 6/30/97 642 - 124 65 56 34
Lovejoy Station 6/30/97 306 - 63 36 29 9
Tamiami Trails 7/10/97 508 - 163 124 66 30
Garden Square 9/19/97 671 - 232 144 99 50
Kingsdale 10/10/97 1,334 - 300 325 221 75
Boynton Lakes Plaza 12/1/97 1,159 - 391 267 250 80
Pinetree Plaza 12/23/97 279 - 51 50 37 21
Delk Spectrum 1/14/98 1,355 10 145 57 88 46
Bloomingdale Square 2/11/98 1,863 43 459 215 209 184
Silverlake 6/3/98 819 - 142 85 85 43
Highland Square 6/17/98 1,122 111 187 99 171 130
Shoppes @104 6/19/98 1,332 - 285 154 170 60
Fleming Island 6/30/98 698 - 581 79 388 72
Pike Creek 8/4/98 1,980 196 182 228 140 80
Hinsdale Lake Commons 10/21/98 1,743 10 513 292 200 90
---------- ----------- ---------- --------------- --------------- -----------
$ 18,873 $ 505 $ 4,412 $ 2,598 $ 2,650 $ 1,173
========== =========== ========== =============== =============== ===========
Regency Realty Corporation
Notes to Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended
September 30, 1998 and the
Year ended December 31, 1997
(Unaudited)
(In thousands, except unit and per unit data)
(e) Depreciation expense is based on the estimated useful life of the
properties acquired. For properties under construction, depreciation
expense is calculated from the date the property is placed in service
through the end of the period. In addition, the nine month period ended
September 30, 1998 and year ended December 31, 1997 calculations reflect
depreciation expense on the properties from January 1, 1997 to the earlier
of the respective acquisition date of the property or September 30, 1998.
For the period ended September 30, 1998
Property Building and Year Building Depreciation
Name Improvements Built/Renovated Useful Life Adjustment
------------- --------------- ----------- ---------------
Delk Spectrum $ 10,417 1991 34 $ 11
Bloomingdale Square 13,189 1987 30 51
Silverlake Shopping Center 7,584 1988 31 103
Highland Square 9,049 1960 20 208
Shoppes @104 6,439 1990 33 91
Fleming Island 4,773 1994 37 64
Pike Creek 18,082 1981 24 446
Hinsdale Lake Commons 14,976 1986 29 382
---------------
Acquisition Properties pro forma depreciation adjustment $ 1,356
===============
Midland Properties $ 151,636 Ranging from Ranging from
1986 to 1996 29 to 40 $ 817
===============
For the year ended December 31, 1997
Property Building and Year Building Depreciation
Name Improvements Built/Renovated Useful Life Adjustment
------------- --------------- ----------- -------------
Oakley Plaza $ 6,428 1988 31 $ 41
Mariner's Village 5,979 1986 29 47
Carmel Commons 9,335 1979 22 101
Mainstreet Square 4,581 1988 31 43
Hyde Park Plaza 33,734 1995 38 382
East Port Plaza 8,179 1991 34 76
Rivermont Station 9,548 1996 39 121
Lovejoy Station 5,560 1995 38 73
Tamiami Trails 7,598 1987 30 133
Garden Square 7,151 1991 34 151
Kingsdale 10,023 1997 27 288
Boynton Lakes Plaza 9,618 1993 36 244
Pinetree Plaza 3,057 1982 25 120
Delk Spectrum 10,417 1991 34 306
Bloomingdale Square 13,189 1987 30 440
Silverlake Shopping Center 7,584 1988 31 245
Highlands Square 9,049 1960 20 452
Shoppes @104 6,439 1990 33 195
Fleming Island 4,773 1994 37 129
Pike Creek 18,082 1981 24 753
Hinsdale Lake Commons 14,976 1986 29 516
---------------
Acquisition Properties pro forma depreciation adjustment $ 4,856
===============
Midland Properties 151,636 Ranging from Ranging from
1986 to 1996 29 to 40 $ 2,994
===============
Regency Realty Corporation
Notes to Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended
September 30, 1998 and the
Year ended December 31, 1997
(Unaudited)
(In thousands, except unit and per unit data)
(f) To reflect interest expense on the Line required to complete the
acquisition of the Midland Properties at the interest rate afforded the
Company at September 30, 1998 (6.525%) and the assumption of $97.0 million
of debt. For properties under construction, interest expense is calculated
from the date the property is placed in service through the end of the
period.
Pro forma interest adjustment for
the nine month period ended September 30, 1998 $ 2,646
===============
Pro forma interest adjustment for
the year ended December 31, 1997 $ 10,353
===============
(g) To reflect interest expense on the Line required to complete the
acquisition of the Acquisition Properties at the interest rate afforded the
Company at September 30, 1998 (6.525%). The nine month period ended
September 30, 1998 and year ended December 31, 1997 calculation reflects
interest expense on the properties from January 1, 1997 to the respective
acquisition date of the property.
Pro forma interest adjustment for
the nine-month period ended September 30, 1998 $ 3,238
===============
Pro forma interest adjustment for
the year ended December 31, 1997 $ 13,030
===============
(h) In December, 1997, the Company sold one office building for $2.6 million
and recognized a gain on the sale of $451,000. During the first quarter of
1998, the Company sold three office buildings and a parcel of land for
$26.7 million, and recognized a gain on the sale of $9.3 million. The
adjustments to the pro forma statements of operations reflect the reversal
of the revenues and expenses from the office buildings generated during
1997 and 1998, including the gains on the sale of the office buildings as
if the sales had been completed on January 1, 1997. The Company believes
that excluding the results of operations and gains related to the office
buildings sold is necessary for an understanding of the continuing
operations of the Company.
(i) To reflect (i) interest expense and loan cost amortization on the $100
million debt offering offset by (ii) the reduction of interest expense on
the Line and mortgage loans from the proceeds of the debt offering, the
issuance of the preferred units and the proceeds from the sale of the
office buildings referred to in note (h).
Pro forma interest adjustment for
the nine-month period ended September 30, 1998 $ (4,830)
===============
Pro forma interest adjustment for
the year ended December 31, 1997 $ (6,439)
===============
(j) To reflect the distribution on the offering of preferred units at an
assumed annual rate of 8.125% for the nine-month period ended September 30,
1998 and year ended December 31, 1997.
Regency Realty Corporation
Notes to Pro Forma Consolidated Statements of Operations
For the Nine Month Period Ended
September 30, 1998 and the
Year ended December 31, 1997
(Unaudited)
(In thousands, except unit and per unit data)
(k) The following summarizes the calculation of basic and diluted earnings per
unit for the nine-month period ended September 30, 1998 and the
year ended December 31, 1997:
For the Nine For the year
Months Ended Ended
September 30, 1998 December 31, 1997
------------------ --------------------
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 25,045 17,424
=============== ===============
Net income for common stockholders $ 32,660 28,043
Less: dividends paid on Class B common stock 4,033 5,140
--------------- ---------------
Net income for Basic EPS $ 28,627 22,903
=============== ===============
Basic EPS $ 1.14 1.31
=============== ===============
Net income for Basic EPS 28,627 22,903
Add: minority interest of exchangeable partnership units 1,379 1,214
--------------- ---------------
Net income for Diluted EPS 30,006 24,117
=============== ===============
Diluted Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding for Basic EPS 25,045 17,424
Exchangeable operating partnership units 1,193 1,243
Incremental units to be issued under common
stock options using the Treasury method - 80
Contingent units or shares for the acquisition
of real estate 418 955
--------------- --------------
Total Diluted Shares 26,656 19,702
=============== ===============
Diluted EPS $ 1.13 1.22
=============== ===============
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Item 10. Material contracts
10.1 Indenture dated as of July 20, 1998 among Regency
Centers, L.P., the Guarantors named therein (including the
Company) and First Union National Bank, as trustees, is
incorporated by reference to Exhibit 10.2 to Regency Centers,
L.P.'s Registration Statement on Form 10 (registration no.
0-24763).
10.2 The Company's Guarantee of Regency Centers, L.P.'s 7-1/8%
Notes due 2005 is included in the Indenture referenced in
Exhibit 10.1 above and is incorporated herein by reference to
Exhibit 10.2 to Regency Centers, L.P.'s Registration Statement
on Form 10 (registration no.
0-24763).
Reports on Form 8-K:
A report on Form 8-K was filed on October 7, 1998 reporting
under Item 5. Acquisition of Pike Creek Shopping Center to
include audited Statement of Revenues and Certain Expenses as
of December 31, 1997, as well as, pro forma condensed
consolidated financial statements of operations for the six
months ended June 30, 1998 and the year ended December 31,
1997.
27. Financial Data Schedule
September 30, 1998
Restated September 30, 1997
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 16, 1998 REGENCY REALTY CORPORATION
By: /s/ J. Christian Leavitt
Vice President, Treasurer
and Secretary
5
0000910606
REGENCY REALTY CORPORATION
1
9-MOS
DEC-31-1998
SEP-30-1998
18,400,723
0
18,658,711
2,093,924
0
0
1,177,030,233
52,411,077
1,173,036,860
0
0
0
0
255,044
551,812,157
1,173,036,860
0
102,250,811
0
22,128,488
17,984,954
0
19,704,693
40,414,975
0
40,414,975
0
0
0
40,414,975
1.45
1.42
5
0000910606
REGENCY REALTY CORPORATION
1
9-MOS
DEC-31-1997
SEP-30-1997
14,031,270
0
6,633,926
1,420,662
0
0
789,712,022
37,129,650
778,649,771
0
0
0
0
232,507
497,823,728
778,649,771
0
69,149,070
0
16,016,253
11,501,974
0
14,748,996
17,507,047
0
17,507,047
0
0
0
17,507,047
0.89
0.87
