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SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 28, 1999
REGENCY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Florida 1-12298 59-3191743
(State or other jurisdiction Commission (IRS Employer
of incorporation) File Number) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (904)-356-7000
Not Applicable
(Former name or former address, if changed since last report)
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2
ITEM 2. ACQUISITION OF ASSETS
- ------- ---------------------
This Form 8-K is being amended to file the audited financial statements of
Pacific Retail Trust ("Pacific Retail") for December 31, 1998 and to update the
pro forma financial information previously filed as of that date.
Regency Realty Corporation ("Regency") completed its merger with Pacific Retail,
a Dallas-based private real estate company that is a leading neighborhood
shopping center company in the western United States. The merger was approved
Friday, February 26, 1999 by shareholders of both companies at special
shareholder meetings and was effective February 28, 1999.
Of the 25.5 million Regency shares authorized to vote, 84.1% was represented at
the special shareholder meeting either in person or by proxy. Of the shares
represented, 98.6% voted in favor of the merger. Of the 67.2 million Pacific
Retail shares authorized to vote, 97.0% was represented at the special
shareholder meeting either in person or by proxy. Of the shares represented,
97.3% voted in favor of the merger.
The merged company will operate under the Regency name and will continue to
trade on the New York Stock Exchange under the ticker symbol "REG". With the
completion of the merger, the company owns 200 retail properties totaling more
than 23 million square feet located in high-growth markets throughout the United
States.
Regency Centers, L.P. (the "Regency Centers") is the primary entity through
which Regency owns its properties and through which Regency intends to expand
its ownership and operation of retail shopping centers. At December 31, 1998,
Regency owned approximately 96% of the outstanding common units of Regency
Centers.
Following the merger, Regency contributed to Regency Centers substantially all
of the assets it acquired from Pacific Retail in the merger, including (1) title
to all of the properties acquired, and (2) all of the outstanding non-voting
common stock of PRT Development Corporation, Pacific Retail's non-qualified REIT
subsidiary, in exchange for Class B Partnership units.
In the merger, Regency became the general partner of Retail Properties Partners
Limited Partnership, which continues to own 8 properties that it owned prior to
the merger. Regency expects to merge these 8 properties into Regency Centers
during the second quarter of 1999 subject to the approval of the limited
partners of Retail Property Partners Limited Partnership. While Regency
believes that the merger is probable, there is no assurance that the required
consents will be obtained.
Regency and Regency Centers intend to continue to use the assets acquired in the
merger in the same manner and to conduct the same type of business as Pacific
Retail conducted prior to the merger.
3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
- ------- ------------------------------------------------------------------
REGENCY REALTY CORPORATION:
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of
December 31, 1998 ..................................................... P-2
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1998................................... P-3
Notes to Pro Forma Consolidated Statement of Operations................ P-4
PACIFIC RETAIL TRUST:
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of
December 31, 1998...................................................... P-8
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1998................................... P-9
Notes to Pro Forma Consolidated Statement of Operations................ P-10
REGENCY REALTY CORPORATION AND PACIFIC RETAIL TRUST MERGER:
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of
December 31, 1998...................................................... P-13
Notes to Pro Forma Consolidated Balance Sheet.......................... P-14
Pro Forma Consolidated Statement of Operations......................... P-15
for the year ended December 31, 1998
Notes to Pro Forma Consolidated Statement of Operations................ P-16
4
PACIFIC RETAIL TRUST:
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants...................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997........... F-2
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997............................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1998 and 1997............................. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997............................................. F-5
Notes to Consolidated Financial Statements............................. F-6
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1998................................................ S-1
C. Exhibits:
--------
2. Agreement and Plan of Merger between Regency Realty Corporation and
Pacific Retail Trust dated as of September 23, 1998 (incorporated by
reference from Annex A to Regency Realty Corporation's definitive Proxy
Statement and Prospectus dated January 28, 1999).
Exhibits to the Agreement and Plan of Merger are incorporated by
reference to Annexes D, E and F to the above-referenced Proxy Statement
and Prospectus. The following schedules have been omitted (the
Registrant agrees to furnish copies supplementally to the Securities and
Exchange Commission upon request):
Regency Realty Corporation ("East") Disclosure Schedules:
3.2(a) and (b)
(i) Commitments to Issue Securities of East or East Operating
Partnership
(ii) East Voting Agreement
(iii) East Redemption Obligations
(iv) East Registration Rights Agreements
3.2(c) Stock Ownership of East Subsidiaries
3.2(d) Commitments to Issue Securities of East Subsidiaries
3.3(b) East Required Consents
3.5 East Material Adverse Changes
3.7 East Tax Matters
3.9 East Litigation
5
3.11 East Properties
3.26 Knowledge
5.1(d) East Acquisitions, Dispositions, or Financings
7.1(i) Mandatory Required Consents
Pacific Retail Trust ("West") Disclosure Schedule
23. Consent of PricewaterhouseCoopers LLP
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 hereunto duly authorized.
REGENCY REALTY CORPORATION
(registrant)
February 28, 1999 By: /s/ J. Christian Leavitt
-----------------------------------
J. Christian Leavitt
Senior Vice President
P-1
Regency Realty Corporation
Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated financial statements are based
upon the audited historical consolidated financial statements of Regency Realty
Corporation (Regency) as of December 31, 1998, which have been included in
Regency's filing on Form 10-K as of and for the three years ended December 31,
1998. This accompanying pro forma balance sheet has no adjustments since
Regency has not had any significant acquisitions of real estate or other
transactions subsequent to December 31, 1998 which would require pro forma
adjustment, with the exception of the merger with Pacific Retail Trust, for
which separate pro forma financial statements are presented within this filing.
The pro forma consolidated statement of operations has been adjusted to present
Regency's operations as if it had 1) completed the acquisition of all
properties, 2) sold all its office buildings, and 3) completed its offerings of
debt and preferred units, as of January 1, 1998.
These unaudited pro forma consolidated financial statements should be read in
conjunction with Regency's Form 10-K as of and for the three years ended
December 31, 1998. The unaudited pro forma consolidated financial statements
are not necessarily indicative of what the actual financial position or results
of operations of Regency would have been at December 31, 1998 assuming the
transactions had been completed as set forth above, nor does it purport to
represent the financial position or results of operations of Regency in future
periods.
P-2
Regency Realty Corporation
Pro Forma Consolidated Balance Sheet
December 31, 1998
(Unaudited)
(In thousands)
Historical Adjustments Pro Forma
---------- ----------- ---------
Assets
------------------------------------------------
Real estate investments, at cost $ 1,183,184 1,183,184
Construction in progress 36,518 - 36,518
Less: accumulated depreciation 58,984 - 58,984
----------- ----------- ----------
Real estate rental property, net 1,160,718 - 1,160,718
----------- ----------- ----------
Investments in real estate partnerships 30,630 - 30,630
----------- ----------- ----------
Net real estate investments 1,191,348 - 1,191,348
----------- ----------- ----------
Cash and cash equivalents 19,920 - 19,920
Tenant receivables, net of allowance for
uncollectible accounts 16,759 - 16,759
Deferred costs, less accumulated amortization 6,872 - 6,872
Other assets 5,208 5,208
----------- ----------- ----------
Total Assets $ 1,240,107 - 1,240,107
=========== =========== ==========
Liabilities and Stockholders' Equity
------------------------------------------------
Notes payable $ 430,495 - 430,495
Acquisition and development line of credit 117,631 117,631
----------- ----------- ----------
Total debt 548,126 - 548,126
Accounts payable and other liabilities 19,936 - 19,936
Tenant's security and escrow deposits 3,110 - 3,110
----------- ----------- ----------
Total liabilities 571,172 - 571,172
----------- ----------- ----------
Series A preferred units 78,800 - 78,800
Exchangeable operating partnership units 27,834 - 27,834
Limited partners' interest in consolidated partnerships 11,559 - 11,559
----------- ----------- ----------
118,193 - 118,193
----------- ----------- ----------
Stockholders' Equity:
Common stock and additional paid in capital 570,138 - 570,138
Distributions in excess of net income (19,396) - (19,396)
----------- ----------- ----------
Total stockholders' equity 550,742 - 550,742
----------- ----------- ----------
Total liabilities and stockholders' equity $ 1,240,107 - 1,240,107
=========== =========== ==========
See accompanying notes to pro forma consolidated balance sheet.
P-3
Regency Realty Corporation
Pro Forma Consolidated Statement of Operations
(Unaudited)
(In thousands, except share and per share data)
For the Year Ended December 31, 1998
---------------------------------------------------
Acquisition Other
Historical Properties Adjustments Pro Forma
---------- ----------- ----------- ---------
Revenues:
Minimum rent $ 103,365 11,435 (a) (697) (d) 114,103
Percentage rent 3,012 183 (a) (8) (d) 3,187
Recoveries from tenants 24,110 2,265 (a) (67) (d) 26,308
Management, leasing and brokerage fees 11,863 - - 11,863
Equity in income of investments in real
estate partnerships 946 - - 946
-------- -------- ------- --------
143,296 13,883 (772) 156,407
-------- -------- ------- --------
Operating expenses:
Depreciation and amortization 25,046 2,885 (b) (453) (d) 27,478
Operating and maintenance 18,456 1,337 (a) (122) (d) 19,671
General and administrative 15,064 678 (a) (25) (d) 15,717
Real estate taxes 12,389 1,473 (a) (81) (d) 13,781
-------- -------- ------- --------
70,955 6,373 (681) 76,647
-------- -------- ------- --------
Interest expense (income):
Interest expense 28,786 7,709 (c) (2,426) (e) 34,069
Interest income (1,957) - - (1,957)
-------- -------- ------- --------
26,829 7,709 (2,426) 32,112
-------- -------- ------- --------
Income before minority interest
and gain on sale of real
estate investments 45,512 (199) 2,335 47,648
Gain on sale of real estate investments 10,726 - (9,336) (d) 1,390
Minority interest preferred unit distributions (3,358) - (3,142) (f) (6,500)
Minority interest (2,290) 8 280 (2,002)
-------- -------- ------- --------
Net income for common stockholders $ 50,590 (191) (9,863) 40,536
======== ======== ======= ========
Net income per share (note (g)):
Basic $ 1.80 $ 1.40
======== ======== ======= ========
Diluted $ 1.75 $ 1.36
======== ======== ======= ========
See accompanying notes to pro forma consolidated statement of operations.
P-4
Regency Realty Corporation
Notes to Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
(In thousands, except unit and per unit data)
(a) 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 during 1998 containing 2.2 million square feet for
approximately $220.4 million. In addition to the Midland Group, the Company
has acquired eleven other shopping centers during 1998.
The following reflects revenues and certain expenses for all acquired
properties for the period from January 1, 1998 to the respective
acquisition date of the property.
Property Acquisition Minimum Percentage Recoveries Operating and Real General and
Name Date Rent 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
------ ------ ------ ------ ------- --------
Total Midland Group 3,960 - 549 286 494 233
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 Common 10/21/98 1,289 7 379 216 148 67
Park Place 11/20/98 952 3 229 171 120 20
Queensboro 12/11/98 756 - 135 143 57 44
Beneva Village 12/22/98 1,214 - 239 166 156 102
====== ===== ====== ====== ======= ========
Total for all acquisitions $11,435 $ 183 $ 2,265 $ 1,337 $ 1,473 $ 678
====== ===== ====== ====== ======= ========
(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.
P-5
Regency Realty Corporation
Notes to Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
(In thousands, except unit and per unit data)
(b) 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 calculations reflect
depreciation expense on the properties from January 1, 1998 to the
respective acquisition date of the property.
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
Park Place 7,974 1988 31 236
Queensboro 6,501 1993 36 181
Beneva Village 8,851 1987 30 295
-------
$ 2,068
-------
Midland Group $ 151,636 Ranging from Ranging from
1986 to 1996 29 to 40 $ 817
-------
Total depreciation adjustment $ 2,885
=======
(c) To reflect interest expense on the Line required to complete the
acquisition of all properties at the interest rate afforded the Company at
December 31, 1998 (6.562%), and the assumption of $97.0 million of debt in
conjunction with the Midland Group. For properties under construction,
interest expense is calculated from the date the property was placed in
service through the acquisition date.
(d) During 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
1998, including the gains on the sale of the office buildings as if the
sales had been completed on January 1, 1998. 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.
(e) To reflect (i) interest expense and loan cost amortization on the $100
million debt offering on July 15, 1998 offset by (ii) the reduction of
interest expense on the Line and mortgage loans from the proceeds of the
debt offering, the issuance of $80 million of preferred units on July 15,
1998 and the proceeds from the sale of the office buildings referred to in
note (d).
(f) To adjust the preferred unit distribution to an assumed annual rate of
8.125%.
P-6
Regency Realty Corporation
Notes to Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
(In thousands, except unit and per unit data)
(g) The following summarizes the calculation of basic and diluted earnings per
unit for the year ended December 31, 1998.
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 25,150
==========
Net income for common stockholders $ 40,536
Less: dividends paid on Class B common stock 5,378
----------
Net income for Basic EPS $ 35,158
==========
Basic EPS $ 1.40
==========
Net income for Basic EPS $ 35,158
Add: minority interest of exchangeable partnership units 1,538
----------
Net income for Diluted EPS $ 36,696
==========
Diluted Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding for Basic EPS 25,150
Exchangeable operating partnership units 1,223
Incremental units to be issued under common
stock options using the Treasury method 14
Contingent units or shares for the acquisition
of real estate 511
----------
Total Diluted Shares 26,898
==========
Diluted EPS $ 1.36
==========
P-7
Pacific Retail Trust
Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated financial statements are based
upon the historical consolidated balance sheet of Pacific Retail Trust (Pacific
Retail) as of December 31, 1998. The following unaudited pro forma consolidated
statement of operations of Pacific Retail are based upon the historical
consolidated statement of operations for the year ended December 31, 1998.
These statements are presented as if Pacific Retail had acquired all of its
properties as of January 1, 1998.
The unaudited pro forma consolidated financial statements are not necessarily
indicative of what the actual financial position or results of operations of
Pacific Retail would have been at December 31, 1998 assuming the transactions
had been completed as set forth above, nor does it purport to represent the
financial position or results of operations of Pacific Retail in future
periods.
P-8
Pacific Retail Trust
Pro Forma Consolidated Balance Sheet
December 31, 1998
(Unaudited)
(In thousands)
Historical Adjustments Pro Forma
Assets ---------- ----------- ---------
-------------------------------------------------
Real estate investments, at cost $ 1,081,107 33,000 (a) 1,114,107
Construction in progress 24,975 - 24,975
Less: accumulated depreciation 41,916 - 41,916
---------- -------- ----------
Real estate rental property, net 1,064,166 33,000 1,097,166
---------- -------- ----------
Cash and cash equivalents 529 - 529
Tenant receivables, net of allowance for
uncollectible accounts 12,878 - 12,878
Deferred costs, less accumulated amortization 6,876 - 6,876
Other assets 11,025 - 11,025
---------- -------- ----------
Total Assets $ 1,095,474 33,000 $ 1,128,474
========== ======== ==========
Liabilities and Stockholders' Equity
-------------------------------------------------
Mortgage loans payable $ 101,747 - 101,747
Acquisition and development line of credit 233,600 33,000 (a) 266,600
---------- -------- ----------
Total debt 335,347 33,000 368,347
Accounts payable and other liabilities 12,570 - 12,570
Tenant's security and escrow deposits 3,536 - 3,536
---------- -------- ----------
Total liabilities 351,453 33,000 384,453
---------- -------- ----------
Minority interest 19,377 - 19,377
---------- -------- ----------
Preferred stock 31,303 - 31,303
Common stock and additional paid in capital 706,089 - 706,089
Distributions in excess of net income (12,748) - (12,748)
---------- -------- ----------
Total stockholders' equity 724,644 - 724,644
---------- -------- ----------
Total liabilities and stockholders' equity $ 1,095,474 33,000 1,128,474
========== ======== ==========
P-9
Pacific Retail Trust
Pro Forma Consolidated Statement of Operations
(Unaudited)
(In thousands, except share and per share data)
For the Year Ended December 31, 1998
------------------------------------
Acquisition
Historical Properties Pro Forma
---------- ----------- ---------
Revenues:
Minimum rent $ 97,058 7,359 (b) 104,417
Percentage rent 1,540 - 1,540
Recoveries from tenants 25,901 1,574 (b) 27,475
Management, leasing and brokerage fees 53 - 53
---------- -------- ---------
124,552 8,933 133,485
---------- -------- ---------
Operating expenses:
Depreciation and amortization 23,397 1,896 (c) 25,293
Operating and maintenance 16,208 1,502 (b) 17,710
General and administrative 9,967 283 (b) 10,250
Real estate taxes 13,997 687 (b) 14,684
---------- -------- ---------
63,569 4,368 67,937
---------- -------- ---------
Interest expense (income):
Interest expense 16,751 5,906 (d) 22,657
Interest income (852) - (852)
---------- -------- ---------
15,899 5,906 21,805
---------- -------- ---------
Income before minority interest
and gain on sale of real
estate investments 45,084 (1,341) 43,743
Gain on sale of real estate investments 837 837
Minority interest (925) 153 (772)
---------- -------- ---------
Net income 44,996 (1,188) 43,808
Preferred distributions (2,352) - (2,352)
---------- -------- ---------
Net income for common shareholders $ 42,644 (1,188) 41,456
========== ======== =========
Net income per share (note (e)):
Basic $ 0.67 $ 0.65
========== =========
Diluted $ 0.66 $ 0.64
========== =========
See accompanying notes to pro forma consolidated statements of operations.
P-10
Pacific Retail Trust
Notes to Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
(In thousands, except share and per share data)
(a) Pacific Retail acquired one shopping center, subsequent to December 31,
1998, for an aggregate purchase price of approximately $33 million which is
reflected in the pro forma balance sheet. The shopping center, Westlake
Village and Center, was acquired on February 3, 1999 using funds drawn on
the Acquisition and development line of credit.
(b) 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 December 31, 1998.
Property Acquisition Minimum Recoveries Operating and Real
Name Date Rent from Tenants Maintenance Estate Taxes
-------- ----------- ------- ------------ ------------- ------------
Twin Peaks 1/15/98 $ 231 $ 32 $ 25 $ 8
Woodman - Van Nuys 1/30/98 78 10 22 12
Pine Lake Village 3/6/98 327 62 47 24
Sammamish Highlands 3/6/98 348 100 71 31
Inglewood Plaza 3/6/98 71 19 15 6
Oakbrook Plaza 3/30/98 180 44 10 14
Diablo Plaza 5/14/98 434 191 69 76
Thomas Lake 5/21/98 400 65 26 37
Sherwood Market Center 7/15/98 700 157 97 83
Murrayhill Marketplace 7/15/98 878 93 280 51
Cherry Park Market 7/15/98 518 77 97 30
Sunnside 205 7/15/98 493 91 130 57
Westlake Plaza and Center 2/3/99 2,701 633 613 258
------ ------- ------ -----
$ 7,359 $ 1,574 $ 1,502 $ 687
====== ======= ====== =====
(c) Depreciation expense is based on an estimated life of up to forty years for
the buildings and ten years for the improvements of the properties
acquired. In addition the calculations reflect depreciation expense on the
properties from January 1, 1998 to the earlier of the respective
acquisition date of the property or December 31, 1998.
Property Building and Year Building Depreciation
Name Improvements Built/Renovated Adjustment
-------- ------------ --------------- ------------
Twin Peaks $ 24,726 1988 $ 16
Woodman - Van Nuys 5,920 1992 14
Pine Lake Village 10,326 1989 47
Sammamish Highlands 7,391 1992 36
Inglewood Plaza 1,830 1985 8
Oakbrook Plaza 5,926 1982 42
Diablo Plaza 7,362 1982 71
Thomas Lake 9,940 1998 103
Sherwood Market Center 14,860 1995 187
Murrayhill Marketplace 14,664 1988 183
Cherry Park Market 15,934 1997 201
Sunnside 205 8,585 1988 108
Westlake Village Plaza and Center 26,400 1975 880
-------
Acquisition Properties pro forma depreciation adjustment $ 1,896
=======
P-11
(d) To reflect interest expense on the Line required to complete the
acquisition of the Acquisition Properties at the interest rate afforded
Pacific Retail at December 31, 1998 (6.89%). The year ended December 31,
1998 calculation reflects interest expense on the properties from January
1, 1998 to the respective acquisition date of the property. The aggregate
purchase price for all Acquisition Properties was $212,143.
(e) The following summarizes the calculation of basic and diluted earnings per
share for the year ended December 31, 1998.
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 64,048
==========
Proforma net income for Basic EPS $ 41,456
==========
Basic EPS $ 0.65
==========
Proforma net income for Basic EPS 41,456
Add: minority interest for operating
partnership units 772
----------
Proforma net income for Diluted EPS 42,228
==========
Diluted Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding
for Basic EPS 64,048
Operating partnership units 1,636
Incremental shares to be issued under common
stock options using the Treasury method 171
----------
Total Diluted Shares 65,855
==========
Diluted EPS $ 0.64
==========
Preferred shares are not considered in the earnings per share
calculation since their effect is antidilutive.
P-12
Regency Realty Corporation and Pacific Retail Trust Merger
Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated financial statements are based
upon the pro forma financial statements of Regency Realty Corporation
(Regency), and the pro forma financial statements of Pacific Retail Trust
(Pacific Retail), both included elsewhere within this filing. The pro forma
consolidated financial statements are presented as if Regency, had completed
its merger with Pacific Retail as of January 1, 1998.
These unaudited pro forma consolidated financial statements should be read in
conjunction with the Regency's annual report filed on Form 10-K as of and for
the year ended December 31, 1998, and also in conjunction with the Pacific
Retail financial statements included elsewhere within this filing.
The unaudited pro forma consolidated financial statements are not necessarily
indicative of what the actual financial position or results of operations of
Regency would have been as of and for the year ended December 31, 1998 assuming
the transactions had been completed as set forth above, nor does it purport to
represent the financial position or results of operations of Regency in future
periods.
P-13
Regency Realty Corporation and Pacific Retail Trust Merger
Pro Forma Consolidated Balance Sheet
December 31, 1998
(Unaudited)
(In thousands)
Combined
Regency Pacific Retail Company
Pro Forma Pro Forma Adjustments Pro Forma
--------- -------------- ----------- ---------
Assets
----------------------------------------------
Real estate investments, at cost $ 1,183,184 1,114,107 4,362 (a) 2,301,653
Construction in progress 36,518 24,975 - 61,493
Less: accumulated depreciation 58,984 41,916 41,916 (a) 58,984
---------- ----------- -------- ----------
1,160,718 1,097,166 46,278 2,304,162
Investments in real estate partnerships 30,630 - - 30,630
---------- ----------- -------- ----------
Net real estate investments 1,191,348 1,097,166 46,278 2,334,792
---------- ----------- -------- ----------
Cash and cash equivalents 19,920 529 (1,844) (a) 18,605
Tenant receivables, net of allowance for
uncollectible accounts 16,759 12,878 - 29,637
Deferred costs, less accumulated amortization 6,872 6,876 (6,876) (a) 6,872
Other assets 5,208 11,025 (11,025) (a) 5,208
---------- ----------- -------- ----------
Total Assets $ 1,240,107 1,128,474 26,533 2,395,114
========== =========== ======== =========
Liabilities and Stockholders' Equity
----------------------------------------------
Notes payable $ 430,495 101,747 - 532,242
Acquisition and development line of credit 117,631 266,600 - 384,231
---------- ----------- -------- ----------
Total debt 548,126 368,347 - 916,473
Accounts payable and other liabilities 19,936 12,570 - 32,506
Tenant's security and escrow deposits 3,110 3,536 - 6,646
---------- ----------- -------- ----------
Total liabilities 571,172 384,453 - 955,625
---------- ----------- -------- ----------
Series A preferred units 78,800 - - 78,800
Exchangeable operating partnership units 27,834 19,377 (1,065) (a) 46,146
Limited partners' interest in consolidated
partnerships 11,559 - - 11,559
---------- ----------- -------- ----------
118,193 19,377 (1,065) 136,505
Preferred stock - 31,303 3,744 (a) 35,047
Common stock and additional paid in capital 570,138 706,089 11,106 (a) 1,287,333
Distributions in excess of net income (19,396) (12,748) 12,748 (a) (19,396)
---------- ----------- -------- ----------
Total stockholders' equity 550,742 724,644 27,598 1,302,984
---------- ----------- -------- ----------
Total liabilities and stockholders' equity $ 1,240,107 1,128,474 26,533 2,395,114
========== =========== ======== =========
See accompanying notes to pro forma consolidated balance sheet.
P-14
Regency Realty Corporation and Pacific Retail Trust Merger
Notes to Pro Forma Consolidated Balance Sheet
December 31, 1998
(Unaudited)
(In thousands)
(a) Merger of Pacific Retail and Regency Realty Corporation
Pacific Retail will be merged with and into Regency, with Regency being
the surviving entity. Each issued and outstanding Pacific Retail Common
Share will be exchanged for 0.48 shares of Regency Common Stock, and each
issued and outstanding Pacific Retail Preferred Share will be converted
into 0.48 shares of a corresponding series of Regency Preferred Stock.
Regency will also become the sole general partner of Pacific Retail
Partnership ("PRT Partnership"). Thereafter, PRT Partnership intends to
merge into Regency Centers, L.P. at such time as Regency determines
appropriate.
The total cost to acquire Pacific Retail is $1,156,851 based on the value
of Regency shares and partnership units expected to be issued including
the assumption of outstanding debt and liabilities, at fair value
($384,453 at December 31, 1998), of Pacific Retail, and estimated closing
costs of $1,844. The price per share and partnership unit used to
determine the purchase price is $23.325 based upon the five day average of
the closing stock price of Regency's common stock as listed on the New
York Stock Exchange immediately before, during and after the date the
terms of the merger were agreed to and announced to the public.
The following summarizes the total costs paid by Regency related to the
merger:
Pacific Retail
Shares and Regency Shares Regency
Units Exchange and Units Value Acquisition
Outstanding Ratio Issued Per Share Costs
-------------- -------- -------------- --------- -----------
Common stock 64,058 0.48 30,748 $ 23.325 717,195
Preferred stock 3,130 0.48 1,503 $ 23.325 35,047
Partnership units 1,636 0.48 785 $ 23.325 18,312
---------------- -------------- ------------
68,824 33,036 770,554
================ ==============
Pacific Retail outstanding debt and liabilities assumed at fair value
Estimated closing costs 384,453
Total acquisition costs 1,844
----------
$ 1,156,851
==========
The following summarizes the adjustment necessary to record the merger of
Pacific Retail and Regency under purchase accounting.
Assets
------
Pacific Retail assets at historical cost $ 1,128,474
Adjust Pacific Retail real estate investments
to fair value 4,362
Remove Pacific Retail accumulated depreciation 41,916
Adjust Pacific Retail deferred and other assets
under purchase accounting (17,901)
----------
Total purchase price 1,156,851
Adjust for cash paid for closing costs (1,844)
----------
$ 1,155,007
==========
Liabilites and Stockholders' Equity
-----------------------------------
Pacific Retail liabilities and stockholders'
equity at historical cost $ 1,128,474
Adjust Pacific Retail exchangeable operating
partnership units to fair value (1,065)
Exchange Pacific Retail preferred stock for
Regency preferred stock 3,744
Remove Pacific Retail distributions in excess
of net income 12,748
Reallocate common stock and additional paid
in capital 11,106
----------
$ 1,155,007
==========
P-15
Regency Realty Corporation and Pacific Retail Trust Merger
Pro Forma Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share data)
For the Year Ended December 31, 1998
------------------------------------
Regency Pacific Retail Combined
Pro Forma Pro Forma Adjustments Company
--------- -------------- ----------- --------
Revenues:
Minimum rent $ 114,103 104,417 - 218,520
Percentage rent 3,187 1,540 - 4,727
Recoveries from tenants 26,308 27,475 - 53,783
Management, leasing and brokerage fees 11,863 53 - 11,916
Equity in income of investments in real
estate partnerships 946 - - 946
-------- --------- ------- -------
156,407 133,485 - 289,892
-------- --------- ------- -------
Operating expenses:
Depreciation and amortization 27,478 25,293 1,128 (b) 53,899
Operating and maintenance 19,671 17,710 - 37,381
General and administrative 15,717 10,250 - 25,967
Real estate taxes 13,781 14,684 - 28,465
-------- --------- ------- -------
76,647 67,937 1,128 145,712
-------- --------- ------- -------
Interest expense (income):
Interest expense 34,069 22,657 - 56,726
Interest income (1,957) (852) - (2,809)
-------- --------- ------- -------
32,112 21,805 - 53,917
-------- --------- ------- -------
Income before minority interest
and gain on sale of real
estate investments 47,648 43,743 (1,128) 90,263
Gain on sale of real estate investments 1,390 837 - 2,227
Minority interest (8,502) (772) 45 (9,229)
-------- --------- ------- -------
Net income 40,536 43,808 (1,083) 83,261
Preferred distributions - (2,352) - (2,352)
-------- --------- ------- -------
Net income for common stockholders $ 40,536 $ 41,456 $ (1,083) $ 80,909
======== ========= ======= =======
Net income per share (note (c)):
Basic $ 1.40 $ 0.65 $ 1.35
======== ========= =======
Diluted $ 1.36 $ 0.64 $ 1.34
======== ========= =======
See accompanying notes to pro forma consolidated statement of operations.
P-16
Regency Realty Corporation and Pacific Retail Trust Merger
Notes to Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
(In thousands, except share and per share data)
(b) To increase depreciation expense as a result of the adjustment of real
estate investments to fair market value:
Adjustment to record real estate investments at
fair market value $ 46,278
Allocation to land (10,181)
--------
Allocation to building 36,097
Estimated useful life in years 32
--------
Depreciation expense $ 1,128
========
(c) The following summarizes the calculation of basic and diluted earnings per
share for the year ended December 31, 1998
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding
Regency 25,150
Regency Common Shares issued to Pacific Retail 30,748
--------
Adjusted weighted average common shares outstanding 55,898
========
Net income for common stockholders per Combined Pro Forma $ 80,909
Less: dividends paid on Class B common stock (5,378)
--------
Net income for Basic EPS $ 75,531
========
Basic EPS $ 1.35
========
Diluted Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding for Basic EPS 55,898
Regency exchangeable operating partnership units 1,223
Pacific Retail exchangeable operating partnership units 785
Incremental shares to be issued under common
stock options using the Treasury method 96
Contingent shares for the acquisition of real estate 511
--------
Total Diluted Shares 58,513
========
Net income for Basic EPS $ 75,531
Add: minority interest of operating partnership units 2,729
--------
Net income for Diluted EPS $ 78,260
========
Diluted EPS $ 1.34
========
Preferred shares are not considered in the earnings per share
calculation since their effect is antidilutive.
PACIFIC RETAIL TRUST
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
December 31, 1998 and 1997
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Pacific Retail Trust
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Pacific Retail Trust and its consolidated investments at December 31, 1998
and 1997 and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the responsi-
bility of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
February 5, 1999
Dallas, Texas
F-2
PACIFIC RETAIL TRUST
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
1998 1997
-------------- -------------
ASSETS
Real estate investments $ 1,106,081,526 $ 851,458,212
Less: accumulated depreciation (41,915,750) (19,680,694)
-------------- ------------
1,064,165,776 831,777,518
Cash and cash equivalents 529,156 4,496,896
Accounts receivable, net 8,230,352 7,814,026
Escrow deposits 3,080,963 2,582,250
Other assets, net 19,467,354 10,573,762
-------------- ------------
Total assets $ 1,095,473,601 $ 857,244,452
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit $ 233,600,000 $ 13,600,000
Notes payable 101,746,716 84,943,050
Accounts payable and accrued expenses 4,747,092 8,140,425
Accrued real estate taxes 7,307,298 6,859,847
Deferred income 516,722 1,820,900
Tenant security deposits 3,535,559 2,653,923
Other liabilities - 95,388
-------------- ------------
Total liabilities 351,453,387 118,113,533
Commitments and contingencies (Note 10) - -
Minority interest 19,377,418 7,681,400
Shareholders' equity:
Shares of beneficial interest, $0.01 par value;
150,000,000 shares authorized
Series A preferred shares (1,130,276 authorized,
issued and outstanding; stated liquidation preference
of $10 per share plus declared and unpaid dividends) 11,302,760 11,302,760
Series B preferred shares (6,130,276 authorized;
2,000,000 issued and oustanding; stated liquidation
preference of $10 per share plus declared and
unpaid dividends) 20,000,000 20,000,000
Common shares (64,058,119 shares issued and
outstanding at December 31, 1998; 64,022,671 shares
issued and outstanding at December 31, 1997) 640,581 640,227
Additional paid-in capital 713,883,660 713,511,243
Employee share notes (8,435,857) (7,930,780)
Distributions in excess of net earnings (12,748,348) (6,073,931)
-------------- ------------
Total shareholders' equity 724,642,796 731,449,519
-------------- ------------
Total liabilities and shareholders' equity $ 1,095,473,601 $ 857,244,452
============== ============
See accompanying notes to financial statements.
F-3
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended
December 31,
1998 1997
------------ ------------
Income:
Minimum rent $ 97,058,254 $ 60,869,191
Percentage rent 1,540,006 1,233,100
Recoveries from tenants 25,901,436 16,890,346
Management, leasing and brokerage fees 52,637 391,950
------------ ------------
124,552,333 79,384,587
------------ ------------
Operating Expenses:
Operating and maintenance 16,208,322 9,727,800
Depreciation and amortization 23,397,091 14,715,334
General and administrative 9,967,234 6,541,521
Real estate taxes 13,996,484 10,011,484
------------ ------------
63,569,131 40,996,139
------------ ------------
Interest expense (income):
Interest expense 16,750,980 11,667,415
Interest income (851,775) (480,548)
------------ ------------
15,899,205 11,186,867
------------ ------------
Earnings before minority interest and gain on
sale of real estate investments 45,083,997 27,201,581
Gain on sale of real estate investments 836,584 9,621
Minority interest (925,499) (490,173)
------------ ------------
Net earnings 44,995,082 26,721,029
Less: Series A preferred share dividends 811,543 755,024
Series B preferred share dividends 1,540,000 1,440,000
------------ ------------
Net earnings attributable to common shares $ 42,643,539 $ 24,526,005
============ ============
Weighted average common shares outstanding 64,047,832 40,173,476
============ ============
Weighted average diluted common shares
outstanding 64,218,610 40,268,452
============ ============
Basic earnings per share $ .67 $ .61
Diluted earnings per share $ .66 $ .61
See accompanying notes to the financial statements.
F-4
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shares of Beneficial Interest
(150,000,000 Shares
Authorized) Retained
---------------------------------------- earnings
Series A Series B Common Additional (Distributions Total
Preferred Preferred shares Employee paid-in in excess of shareholders'
Shares Shares at par value share notes capital earnings) equity
------------ ------------ ------------ ------------ ------------- -------------- --------------
Balance at December 31, 1996 $ 11,302,760 $20,000,000 $ 239,598 $ - $240,013,905 $ (1,726,337) $ 269,829,926
Sale of shares, net 400,629 (7,934,400) 473,497,338 465,963,567
Shareholder distributions 3,620 (31,068,623) (31,065,003)
Net earnings 26,721,029 26,721,029
------------ ------------ ------------ ------------ ------------- -------------- --------------
Balance at December 31, 1997 11,302,760 20,000,000 640,227 (7,930,780) 713,511,243 (6,073,931) 731,449,519
Sale of shares 1,546 (1,909,500) 1,979,390 71,436
Redemption of shares (1,192) 1,345,263 (1,606,973) (262,902)
Shareholder distributions 59,160 (51,669,499) (51,610,339)
Net earnings 44,995,082 44,995,082
------------ ------------ ------------ ------------ ------------- -------------- --------------
Balance at December 31, 1998 $ 11,302,760 $20,000,000 $ 640,581 $(8,435,857) $713,883,660 $ (12,748,348) $ 724,642,796
============ ============ ============ ============ ============= ============== ==============
See accompanying notes to financial statements.
F-5
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Years Ended
December 31,
1998 1997
-------------- --------------
Operating activities
Net earnings $ 44,995,082 $ 26,721,029
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 23,397,091 14,715,334
Minority interest 309,986 (28,127)
Changes in operating assets and liabilities:
Accounts receivable (416,326) (4,834,426)
Escrow deposits (498,713) 14,087,417
Other assets (10,055,627) (7,105,918)
Accounts payable and accrued expenses (3,393,333) 4,158,257
Accrued real estate taxes 447,451 3,097,230
Deferred income (1,304,178) 1,153,809
Tenant security deposits 881,636 1,372,106
Other liabilities (95,388) 46,590
------------- -------------
Net cash provided by operating activities 54,267,681 53,383,301
------------- -------------
Investing activities:
Construction of and acquisition of real estate investments (217,560,036) (396,469,436)
------------- -------------
Net cash used in investing activities (217,560,036) (396,469,436)
------------- -------------
Financing activities:
Principal payments on notes payable (8,873,580) (1,369,664)
Proceeds from line of credit 220,000,000 -
Payments on lines of credit - (61,400,000)
Payments on bridge loan - (26,500,000)
Proceeds from sales of shares, net of expenses 71,436 465,963,567
Redemption of shares (262,902) -
Distributions paid to shareholders (51,610,339) (31,065,003)
------------- -------------
Net cash provided by financing activities 159,324,615 345,628,900
------------- -------------
Net (decrease) increase in cash and cash equivalents (3,967,740) 2,542,765
Cash and cash equivalents at beginning of period 4,496,896 1,954,131
------------- -------------
Cash and cash equivalents at end of period $ 529,156 $ 4,496,896
============= =============
Supplemental cash flow information:
Interest paid $ 16,925,664 $ 11,123,133
============= =============
Noncash investing and financing activities:
Acquisition of real estate for assumption of notes payable $ 25,677,246 $ 74,918,736
============= =============
Acquisition of real estate in exchange for minority interest
partnership units $ 11,386,032 $ -
============= =============
Exchange of employee share notes for shares $ 1,909,500 $ 7,934,400
============= =============
Payments on employee share notes from shareholder
distributions $ 59,160 $ 3,620
============= =============
Redemption of employee share notes $ 1,345,263 $ -
============= =============
See accompanying notes to financial statements.
F-6
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and formation
Pacific Retail Trust ("PACIFIC RETAIL") was organized as a Maryland real
estate investment trust on April 27, 1995 (originally named Southwest
Retail Trust) for the purpose of acquiring, developing, managing and
owning neighborhood infill retail properties in a nine state region of
the western United States. On August 23, 1995, the Declaration of Trust
was amended and restated to change the name to Pacific Retail Trust. At
December 31, 1998, 69.9% of PACIFIC RETAIL's outstanding shares of
beneficial interest are constructively owned by Security Capital Holdings
S.A. ("HOLDINGS"), a wholly-owned subsidiary of Security Capital U.S.
Realty ("USREALTY"). Opportunity Capital Partners Limited Partnership
("OCP"), through its partnership Madison Property I, LP (MPI), acquired
preferred shares of PACIFIC RETAIL as partial consideration for a pool of
properties sold to PACIFIC RETAIL by MPI on October 20, 1995. At December
31, 1998, OCP owned 6.1% of PACIFIC RETAIL's outstanding shares of
beneficial interest.
Principles of consolidation
The consolidated financial statements include the accounts of PACIFIC
RETAIL, its 81.9% ownership in Retail Property Partners Limited
Partnership and its 95% ownership in PRT Development Corporation (Note
4).
Revenue recognition
Minimum rents are recognized on a straight-line basis; as such, the
rental revenues for leases, which contain rent abatements and contractual
increases are recognized on a straight-line basis over the initial terms
of the related leases. Property operating cost recoveries from tenants of
common area maintenance, real estate taxes and other recoverable costs,
are recognized in the period when the recoveries are earned.
Real estate assets and related depreciation
Costs related directly to the development and improvement of real estate,
including tenant improvements, are capitalized; ordinary repairs and
maintenance are expensed as incurred. Depreciation is computed on a
straight-line basis over the expected economic useful lives, which are
principally 10 to 40 years for buildings and improvements.
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"). Under SFAS 121, PACIFIC RETAIL recognizes
impairment losses on property whenever events and changes in
circumstances indicate that the carrying amount of long-lived assets, on
an individual property basis, may not be recoverable through undiscounted
future cash flows. Such losses are determined by comparing the sum of the
expected future discounted net cash flows to the carrying amount of the
asset. Impairment losses are recognized in operating income as they are
determined. As of December 31, 1998, no impairment losses have been
incurred.
F-7
Adoption of recent accounting pronouncement
In March 1998, the Emerging Issues Task Force (EITF) finalized Issue
97-11, requiring all internal costs associated with acquiring operating
properties to be expensed as incurred. PACIFIC RETAIL has applied this
policy prospectively since March 1998.
Interest
PACIFIC RETAIL capitalizes interest as part of the cost of real
estate projects during construction periods. During the years ended
December 31, 1998 and 1997, $3,009,426 and $1,567,444, respectively, of
interest was capitalized.
Cash and cash equivalents
Cash and cash equivalents include all cash and cash equivalent
investments with original maturities of three months or less.
Reclassification
Certain reclassifications have been made to prior year financial
statements to conform to current year presentation.
Deferred loan fees
Included in other assets as of December 31, 1998 and December 31, 1997
are net costs of $2,883,460 and $1,668,710, respectively, associated with
obtaining financing. Deferred loan fees are amortized to interest expense
over the life of the loan and extensions, which is currently three years,
using the straight-line method which approximates the interest method.
Amortization of deferred loan fees for the years ended December 31, 1998
and 1997, was $769,636, and $583,334, respectively.
Income taxes
PACIFIC RETAIL elected real estate investment trust ("REIT") status
in 1995 under the Internal Revenue Code of 1986, as amended. REITs are
not required to pay federal income taxes if minimum distribution, income,
asset and shareholder tests are met and, accordingly, no provision has
been made for federal income taxes in the accompanying financial state-
ments. PRT Development Corporation and Retail Property Partners Limited
Partnership are taxed as separate entities.
Earnings per share
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), which establishes standards for computing and
presenting earnings per share (EPS). Basic EPS excludes the effect of
potentially dilutive securities while diluted EPS reflects the potential
dilution that would occur if dilutive securities or other contracts to
issue common shares were exercised, converted into, or resulted in the
issuance of common shares that then shared in the earnings of the
Company. The following tables summarize the information required under
SFAS 128:
F-8
For the year ended December 31, 1998
--------------------------------------------------
Per Share
Income Shares Amount
-------------- --------------- ---------------
Basic EPS
Net earnings attributable to common shares $ 42,643,539 64,047,832 $ 0.67
==============
Effect of Dilutive Securities
Options - 163,315
Deferred trustee shares - 7,463
------------- ---------------
Diluted EPS
Income available to common shares and
assumed conversions $ 42,643,539 64,218,610 $ 0.66
------------- --------------- --------------
For the year ended December 31, 1997
-------------------------------------------------
Per Share
Income Shares Amount
------------- --------------- ---------------
Basic EPS
Net earnings attributable to common shares $ 24,526,005 40,173,476 $ 0.61
==============
Effect of Dilutive Securities
Options - 93,583
Deferred trustee shares - 1,393
------------- ---------------
Diluted EPS
Income available to common shares and
assumed conversions $ 24,526,005 40,268,452 $ 0.61
============= =============== =============
For the nine months ended September 30, 1997
(unaudited)
-------------------------------------------------
Per Share
Income Shares Amount
------------- --------------- ---------------
Basic EPS
Net earnings attributable to common shares $ 16,502,115 37,373,491 $ 0.44
==============
Effect of Dilutive Securities
Options - 77,622
Deferred trustee shares - 594
------------- ---------------
Diluted EPS
Income available to common shares and
assumed conversions $ 16,502,115 37,451,707 $ 0.44
============= =============== ==============
The assumed conversion of Series A preferred shares of beneficial i
interest, Series B preferred shares of beneficial interest and minority
interest are not dilutive and have therefore been excluded from the
calculation of diluted EPS. Options to purchase 625,078 and 326,923
common shares at $13 per share were outstanding during the fourth quarter
of 1998 and fourth quarter of 1997, respectively, but were not included
in the computation of diluted EPS because the options' exercise price
was greater than or equal to the estimated fair market value of the
common shares. In addition, options to purchase 1,209,000 and 281,282
common shares at $12 and $11, respectively, were outstanding during the
fourth quarter of 1998 but were not included in the diluted computation
because the options' exercise price was greater than or equal to the
estimated fair market value of the common shares. The options expire
10 years from the date of grant, or earlier upon termination of employ-
ment or death.
F-9
Use of estimates
PACIFIC RETAIL has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities, and related revenues and expenses, to prepare
these financial statements in accordance with generally accepted
accounting principles. Actual results could differ from those estimates.
Fair value
PACIFIC RETAIL has estimated the fair value of its financial instruments
at December 31, 1998 and 1997 as required by Statement of Financial
Accounting Standards No. 107. The Company believes the carrying values of
the Company's financial instruments are reasonable estimates of their
fair values.
2. REAL ESTATE INVESTMENTS
As of December 31, 1998, PACIFIC RETAIL owned seventy-five properties.
Twenty-two properties are located in three major metropolitan markets in
Texas: the Dallas-Fort Worth metroplex, Austin and Houston. Shopping
centers in the Dallas-Fort Worth metroplex generated approximately 24% of
the total revenues of the portfolio for the year ended December 31, 1998.
Thirty-three shopping centers are located in California and comprise
approximately 48% of the total revenues for the year ended December 31,
1998. The remaining properties are located in Arizona, Colorado,
Washington, and Oregon.
The following summarizes real estate investments:
December 31, December 31,
1998 1997
----------------- -----------------
Improved land $ 290,879,900 $ 215,860,610
Land held for development 2,643,679 1,062,657
Land under development 28,660,080 12,544,434
Buildings and improvements 685,481,307 540,192,993
Land improvements and parking lots 54,347,757 44,151,075
Construction in process 24,974,632 13,165,378
Redevelopment properties 19,094,171 24,481,065
---------------- ----------------
Total real estate investments 1,106,081,526 851,458,212
Less accumulated depreciation (41,915,750) (19,680,694)
---------------- ----------------
Net real estate investments $ 1,064,165,776 $ 831,777,518
=============== ================
F-10
Land held for development
In March 1996, PACIFIC RETAIL acquired Harwood Hills Shopping Center in
Bedford, Texas. Between March and November of 1996, PACIFIC RETAIL
completed the construction of an additional 20,300 square feet of retail
space at a cost of approximately $1,857,000. As of December 31, 1998 and
1997, approximately 2.9 acres of land remained for additional
development.
In January 1997, PACIFIC RETAIL acquired Plaza de Hacienda in La Puenta,
California. Associated with this shopping center were approximately 3.63
acres of land for additional development. As of December 31, 1998 and
1997, no development has taken place.
In November 1998, PRT Development Corporation acquired Tarrant Parkway
Plaza, which consists of 5.5 acres of land in North Richland Hills, Texas
for development into a grocery anchored shopping center. As of December
31, 1998, no development has taken place.
Land under development
In August 1997, PACIFIC RETAIL acquired Prestonwood Park, which consists
of 24.55 acres of land in Dallas, Texas for future development into a
grocery anchored shopping center. As of December 31, 1998, construction
has not commenced.
In November 1997, PRT Development Corporation acquired Hebron Parkway
Plaza, which consists of 7.77 acres of land in Carrollton, Texas for
development into a grocery anchored shopping center. As of December 31,
1998, construction has not commenced.
In January 1998, PRT Development Corporation acquired MacArthur Park,
which consists of 38.2 acres of land in Irving, Texas for development
into a shopping center. As of December 31, 1998, PRT Development
Corporation has incurred $6,664,927 in design and construction costs
associated with the development, which is included in construction in
process.
In March 1998, PACIFIC RETAIL acquired Hawthorne Plaza in Hawthorne,
California, which consists of 10.4 acres of land and an existing shopping
center. PACIFIC RETAIL plans to demolish the existing structure and
rebuild a grocery anchored shopping center. As of December 31, 1998,
PACIFIC RETAIL has incurred $1,727,450 in development costs associated
with the development, which is included in construction in process.
In October 1998, PRT Development Corporation acquired La Crescenta, which
consists of 1.79 acres of land in La Crescenta, California. The
Development Corporation plans to develop the existing space for a new
tenant. As of December 31, 1998, PACIFIC RETAIL has incurred $249,785 in
development costs associated with the development, which is included in
construction in process.
F-11
Redevelopment properties
In July 1996, PACIFIC RETAIL acquired Hancock Center in Austin, Texas for
the purpose of redeveloping it as a grocery anchored infill shopping
center. PACIFIC RETAIL immediately embarked upon the redevelopment
program. As of December 31, 1997, PACIFIC RETAIL had incurred $8,447,883,
in design and demolition costs and construction associated with the
redevelopment. On April 1, 1998, a portion of the project representing
$7,322,949 in redevelopment costs was completed and capitalized. As of
December 31, 1998, $9,233,708 in design and demolition costs and
construction associated with the redevelopment remained in construction
in process.
In November 1997, PACIFIC RETAIL acquired Bristol & Warner Shopping
Center in Santa Ana, California. During 1998, significant rehabilitation
work began on the property. As of December 31, 1998, PACIFIC RETAIL has
incurred $3,810,111 in design, demolition and construction costs.
In October 1998, PACIFIC RETAIL purchased Crossroads Plaza, which
consists of 5.04 acres of land and an existing building in Pico Rivera,
California. The Company plans to develop the space for a new tenant.
3. BORROWINGS
Lines of credit - secured
On December 27, 1995, PACIFIC RETAIL entered into a credit agreement with
a group of lenders to provide a secured line of credit up to a maximum of
$50 million. On July 17, 1996, the credit agreement was amended to
increase the secured line of credit to a maximum of $75 million. The
lenders determine the secured net borrowing base by using the lesser of
65% of the lenders' appraised value on ten of the properties or the
permanent loan estimate for each property. As of December 31, 1997, the
secured net borrowing base was $75 million. On November 14, 1997, the
secured line of credit agreement was amended. Under the amended credit
agreement, borrowings bear interest at the greater of prime or federal
funds rate plus .50% or, at PACIFIC RETAIL's option, LIBOR plus a margin
of 1.25%, if the ratio of total liabilities to gross asset value is less
than .35 to one, or 1.40% if the ratio of total liabilities to gross
asset value is greater than or equal to .35 to one. Additionally, there
is a fee of .125% per annum of the average daily unfunded line of credit
balance, or a fee of .25% per annum of the average daily unfunded line of
credit balance if the average daily balance for both the secured and
unsecured lines of credit is greater than $100 million. Interest is paid
monthly based on the unpaid principal balance. On May 18, 1998, the
credit agreement was amended; the secured line of credit was paid in full
and terminated through the use of funds from the unsecured line of
credit. The weighted averaged interest rates for the period from
January 1, 1998 to May 18, 1998 and the year ended December 31, 1997 were
7.1% and 7.4%, respectively. The interest rate at December 31, 1997 was
8.5%.
F-12
Lines of credit - unsecured
On March 28, 1997, PACIFIC RETAIL entered into a credit agreement with a
group of lenders to provide an unsecured line of credit up to a maximum
of $75 million. On November 14, 1997, the unsecured line of credit was
increased to a maximum of $125 million. On May 18, 1998, the credit
agreement was amended and the unsecured line of credit was increased to
$350 million. On December 7, 1998, the credit agreement was amended to
reduce the unsecured line to $325 million. In addition, a bridge line of
credit of $100 million was approved with identical provisions to the
unsecured line of credit. Borrowings bear interest at the greater of
prime or federal funds rate plus .50% or, at PACIFIC RETAIL's option,
LIBOR plus a margin of 1.25%, if the ratio of total liabilities to gross
asset value is less than .35 to one, or 1.40% if the ratio of total
liabilities to gross asset value is greater than or equal to .35 to one
and less than .5 to one. Additionally, there is a fee of .125% per annum
of the average daily unfunded line of credit balance, or a fee of .25%
per annum of the average daily unfunded line of credit balance if the
average daily balance is greater than $175 million. Interest is paid
monthly based on the unpaid principal balance. The weighted average
interest rate for the year ended December 31, 1998 and the period from
March 28, 1997 to December 31, 1997 were 6.88% and 7.7%, respectively.
There were no borrowings outstanding under the unsecured line of credit
at December 31, 1997. The interest rate at December 31, 1998 was 6.89%.
The termination date of the amended credit agreement is March 28, 2000,
but it may be extended for successive one-year periods, if acceptable to
the lenders, for a .10% extension fee. All debt incurrences are subject
to covenants, as more fully described in the credit agreement. PACIFIC
RETAIL has utilized the unsecured line of credit to help finance the
acquisition of neighborhood shopping centers and for general working
capital purposes during the years ended December 31, 1998 and 1997.
Notes payable
Notes payable consisted of the following at December 31, 1998 and 1997:
Principal Principal
Interest Maturity Payments/ Balance At Balance At
Market Rate Date Period 12/31/98 12/31/97
--------- ---------- --------- ----------- ------------ ------------
Mortgage Notes Payable:
Harwood Hills Village Texas 8.58% 7/1/98 $ 49,335 (1) $ - $ 6,900,000
Shopping Center
Paseo Village Arizona 7.50 5/1/01 38,668 (2) 4,220,915 4,362,548
Mills Pointe & (4) Texas 7.23 7/1/00 264,578 (2) 31,096,048 31,987,449
Preston Park Village
Plaza de Hacienda California 9.00 6/10/12 57,128 (2) 6,683,992 6,764,017
Market at Round Rock Texas 8.63 12/31/05 63,059 (2) 7,410,496 7,522,739
North Hills Town Center Texas 7.37 1/1/14 76,974 (2) 8,938,999 9,193,610
Friar's Mission California 9.50 6/10/05 152,006 (2) 16,653,096 16,901,320
Woodman Van-Nuys California 8.80 9/15/15 57,745 (2) 6,061,268 -
Sunnyside 205 Oregon 9.38 1/15/00 52,401 (2) 5,770,679 -
Murrayhill Marketplace Oregon 8.05 5/1/19 69,762 (2) 8,364,524 -
West Hills Plaza Oregon 7.99 12/10/08 38,303 (2) 5,225,000 -
Municipal Tax Bonds Payable:
Friar's Mission California 7.30-7.90 9/2/15 161,177- (3) 1,321,699 1,311,367
168,131
------------ ------------
$101,746,716 $ 84,943,050
============ ============
(1) Payments are interest only payable monthly with the full principal
balance due at maturity.
(2) Payments are interest and principal payable monthly.
(3) Annual payments of principal and interest payable in two semiannual
installments. Amount disclosed is the applicable annual payment
range.
(4) Mills Pointe & Preston Park Village are subject to one mortgage note
payable.
F-13
Principal repayments of notes payable are due approximately as follows:
1999 $ 2,182,652
2000 37,315,577
2001 5,281,298
2002 1,467,643
2003 1,610,476
2004 and after 53,889,070
------------
$ 101,746,716
============
4. MINORITY INTEREST
Minority interest represents limited partners' interests in Retail
Property Partners Limited Partnership (the Partnership), a limited
partnership controlled by PACIFIC RETAIL, and PRT Development Corporation
(PRT Development), a Delaware corporation controlled by PACIFIC RETAIL.
Retail Property Partners Limited Partnership
In September 1996, PACIFIC RETAIL formed the Partnership by contributing
cash to the Partnership in exchange for a 50.2% controlling general
partnership interest in the Partnership, which invested in two retail
centers in Dallas, Texas. On December 1, 1996, PACIFIC RETAIL contributed
the Blossom Valley Shopping Center in Mountain View, California to the
Partnership. The assets and liabilities of Blossom Valley were
transferred at book value as the transfer was between entities under
common control. The value of the contributed property was $17,354,543,
which increased PACIFIC RETAIL's investment in the Partnership to 76.6%.
On July 31, 1997, PACIFIC RETAIL contributed $8.9 million to the
Partnership. With this contribution, PACIFIC RETAIL's investment in the
Partnership increased to 81.6%. The Partnership used this contribution to
purchase the Heritage Plaza land. On May 21, 1998, PACIFIC RETAIL
contributed $14,273,244 to the Partnership. With this contribution,
PACIFIC RETAIL's investment in the Partnership increased to 84.2%. The
Partnership used this contribution to purchase the Thomas Lake property
in May 1998.
F-14
On July 10, 1998, PACIFIC RETAIL contributed $37,026,419 to the
Partnership. The partnership purchased the Sherwood Market Center,
Murrayhill Marketplace, Cherry Park Market and Sunnyside 205 properties
with PACIFIC RETAIL's contribution and additional issues of partnership
units in July 1998. PACIFIC RETAIL's investment in the Partnership at
December 31, 1998 was 81.9%.
Limited partners are entitled to exchange each partnership unit for one
common share of beneficial interest in PACIFIC RETAIL beginning in August
1998. As of December 31, 1997, there were 765,000 limited partnership
units outstanding in the Partnership. On May 21, 1998, an additional
115,385 partnership units were issued in association with the acquisition
of Thomas Lake. On July 10, 1998, an additional 760,464 partnership units
were issued in association with the acquisitions of the Sherwood Market
Center, Murrayhill Marketplace, Cherry Park Market and Sunnyside 205
properties. The limited partners' interests will be reflected as minority
interest in the consolidated financial statements until the units are
exchanged for PACIFIC RETAIL shares.
On July 10, 1998, the Partnership formed a limited liability company
called PRT Sunnyside LLC for the purpose of owning, holding, managing,
operating, leasing, or selling the property commonly referred to as
Sunnyside 205. The property was purchased by the Partnership and then
conveyed to PRT Sunnyside LLC subject to a note payable in the amount of
$5,806,994.
PRT Development Corporation
On November 20, 1997, PRT Development Corporation was organized as a
Delaware corporation for the purpose of acquiring land and developing and
selling the developed property. The authorized capital of PRT Development
consists of 2,000,000 shares of common stock. 100,000 of the shares will
be issued as Class A voting shares. The remaining 1,900,000 shares will
be Class B nonvoting. As of December 31, 1998 and December 31, 1997,
33,892 and 3,250 shares, respectively, of Class A common stock were
issued and outstanding. All of the Class A common stock is constructively
owned by USREALTY, and is represented in minority interest. PACIFIC
RETAIL owned 643,958 and 61,750 shares of Class B common stock issued and
outstanding at December 31, 1998 and December 31, 1997, respectively. The
Class B common stock is generally entitled to 95% of all distributions
made by PRT Development, and the Class A common stock is generally
entitled to 5% of all distributions made by PRT Development. PACIFIC
RETAIL has consolidated the operations of PRT Development based on the
control exerted in the ordinary course of business over the operating
decisions of PRT Development.
5. SHAREHOLDERS' EQUITY
Offerings
Between October 20, 1995 and July 16, 1996, PACIFIC RETAIL closed on a
series of private offerings to HOLDINGS which resulted in the sale of 20
million common shares of beneficial interest at $10 per share for a total
amount of $200 million.
On October 20, 1995, as a partial acquisition price for five properties
acquired from OCP, PACIFIC RETAIL issued 1,130,276 Series A preferred
shares of beneficial interest to MPI at a stated liquidation preference
of $10 per share plus declared and unpaid dividends resulting in
outstanding Series A Preferred shares valued at $11,302,760.
On December 22, 1995, PACIFIC RETAIL completed an offering of 100,000
common shares at a price of $10 per share. Net proceeds, after offering
costs, to PACIFIC RETAIL were $982,000.
On August 6, 1996, OCP acquired 2,000,000 shares of Series B preferred
shares of beneficial interest at a stated liquidation preference of $10
per share plus declared and unpaid dividends resulting in Series B
preferred shares valued at $20 million.
On August 30, 1996, OCP acquired 1,000,000 common shares of beneficial
interest in PACIFIC RETAIL at $10 per share for a total of $10 million.
F-15
On August 31, 1996, PACIFIC RETAIL completed a private offering of
18,182,305 common shares of beneficial interest at $11 per share
resulting in a total equity investment of $200,005,350. The first funding
call took place on September 16, 1996 resulting in 2,860,197 shares being
issued for net proceeds of $29,414,529. On January 9, 1997 and January
27, 1997, two funding calls took place resulting in a total of 10,214,738
shares being issued for net proceeds of $112,355,838. The final funding
call took place on May 15, 1997 resulting in 5,107,370 shares being
issued for net proceeds of $56,181,060.
On April 30, 1997, PACIFIC RETAIL completed a private offering of
12,500,000 common shares of beneficial interest at $12 per share
resulting in a total expected equity investment of $150,000,000. The
first funding call took place on May 15, 1997 resulting in 1,898,100
shares being issued for net proceeds of $21,277,205. The second funding
call took place on September 18, 1997 resulting in 3,180,570 shares being
issued for net proceeds of $38,158,904. On October 1, November 11, and
November 28, three funding calls took place resulting in a total of
4,342,300 shares being issued for net proceeds of $52,107,598. The final
funding call took place on December 26, 1997 resulting in 3,079,030
shares being issued for net proceeds of $36,948,358.
On December 29, 1997, PACIFIC RETAIL completed and fully funded a private
offering of 11,538,462 common shares of beneficial interest at $13 per
share for net proceeds of $148,474,528.
Trustee compensation
On March 11, 1997, PACIFIC RETAIL granted 4,305 shares to the board of
trustees as part of their compensation.
Effective March 14, 1997, PACIFIC RETAIL adopted the Deferred Fee Plan
for nonemployee trustees. Under this plan, trustees can defer receipt of
cash and equity compensation otherwise payable to the trustee by PACIFIC
RETAIL. Interest and dividends are earned on the deferred compensation.
An election must be made by each trustee to defer their compensation, and
this election shall remain in effect until modified or revoked by the
trustee. Each trustee must specify when the payment of deferred compensa-
tion is to take place. The compensation may be deferred to a specific
date of at least two years past the time the compensation is earned, or
the compensation may become payable on the last day of the calendar year
in which the trustee terminates service with PACIFIC RETAIL, or the
compensation can become payable on the earlier of such dates.
As of December 31, 1998 and 1997, 9,668 and 4,825 shares, respectively,
have been deferred under this plan.
Shares of beneficial interest
As of December 31, 1998 and 1997, 150,000,000 shares of beneficial
interest, $.01 par value per share, were authorized. PACIFIC RETAIL's
board of trustees is authorized to issue, from the authorized but
unissued shares of PACIFIC RETAIL, preferred shares in series and to
establish from time to time the number of preferred shares to be included
in such series and to fix the designation and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption's of
the shares of such series.
F-16
Common shares
The outstanding common shares ("Shares") do not have redemption or
conversion rights or the benefit of any sinking fund. In the event of
liquidation, dissolution or winding up of PACIFIC RETAIL, the holders of
Shares are entitled to receive ratably the assets remaining after
satisfaction of all liabilities and payment of preferences and accrued
dividends, if any, on PACIFIC RETAIL's shares ranking senior to the
Shares (including the preferred shares). The rights of holders of
Shares are subject to the rights and preferences established by PACIFIC
RETAIL's board of trustees for any preferred shares, which have been or
may subsequently be issued.
Preferred shares
The Series A preferred shares, the Series B preferred shares (together
referred to as "Preferred Shares") and Shares vote together as a single
class with respect to all matters presented to PACIFIC RETAIL's
shareholders for a vote. If twelve consecutive quarterly dividends on the
Preferred Shares are in arrears, the holders of Preferred Shares will be
entitled to nominate and elect an additional trustee until such time as
all arrearages have been paid. The Preferred Shares are entitled to a
liquidation preference of $10 per share plus an amount equal to all
dividends declared but unpaid to the date of final distribution. PACIFIC
RETAIL may redeem the Preferred Shares any time after October 20, 2010 at
a price of $10 per share, plus all declared but unpaid dividends.
Series A preferred shares
Series A preferred shares are convertible into Series B preferred shares
on a one-for-one basis and contain provisions for adjustment to prevent
dilution. For fiscal years beginning before January 1, 1997, the Series A
preferred shares were entitled to a quarterly dividend in an amount equal
to the greater of (i) $0.10 per share or (ii) $0.013 less than the
dividend on the Shares. For fiscal years beginning on or after January 1,
1997, Series A preferred shares are entitled to quarterly dividends in an
amount equal to the greater of (i) $0.10 per share, (ii) 65% of the
highest funds from operations per Share for any preceding fiscal year and
(iii) $0.013 less than the dividend on the Shares. Dividends on the
Series A preferred shares are cumulative from the original issue date.
PACIFIC RETAIL is restricted from paying any dividends on any Shares or
shares ranking on a parity with, or ranking junior to, the Series A
preferred shares, unless all cumulative dividends are simultaneously paid
on the Series A preferred shares.
Series B preferred shares
The board of trustees has authorized up to 6,130,276 Series B preferred
shares for issuance. Series B preferred shares are convertible into
Shares on a one-for-one basis and contain provisions for adjustment to
prevent dilution. For fiscal years beginning before January 1, 1997, the
Series B preferred shares were entitled to a quarterly dividend in an
amount equal to the greater of (i) $0.10 per share or (ii) the dividend
on the Shares. For fiscal years beginning on and after January 1, 1997,
Series B preferred shares are entitled to quarterly dividends in an
amount equal to the greater of (i) $0.10 per share, (ii) 65% of the
highest funds from operations per Share for any preceding fiscal year or
(iii) the dividend on the Shares. Dividends on the Series B preferred
shares are cumulative from the original issue date. PACIFIC RETAIL is
restricted from paying any dividends on any Shares or shares ranking on a
parity with, or ranking junior to, the Series B preferred shares, unless
all cumulative dividends are simultaneously paid on the Series B
preferred shares.
F-17
Investor agreement
On October 20, 1995, HOLDINGS, and PACIFIC RETAIL entered into an
investor agreement whereby HOLDINGS agreed to purchase up to 20 million
Shares at $10 per share, net of the original shares purchased, before
October 20, 1997. As of December 31, 1996, HOLDINGS had completed the
purchase of 20 million Shares. As long as HOLDINGS owns at least 25% of
the outstanding common shares of PACIFIC RETAIL it will have certain
rights regarding appointment of trustees to the board of trustees and
regarding approval of budgets, property operations, property
acquisitions, changes in executive officers and sales of shares.
Shareholders' agreement
On October 20, 1995, OCP entered into a shareholders' agreement with
HOLDINGS and PACIFIC RETAIL. Among other provisions of the agreement, OCP
was to acquire two million shares of Series B preferred shares at $10 per
share at its own request or if required by PACIFIC RETAIL. On August 6,
1996, OCP purchased the two million shares of Series B preferred shares.
As part of the August 9, 1996 amendment to the shareholders' agreement,
HOLDINGS and OCP shall each have the right to participate pro rata, based
upon percentage ownership of the Shares on a fully diluted basis, in any
offerings by PACIFIC RETAIL of any capital shares or securities
convertible into capital shares on the same terms and at the same time as
other offerees. The respective rights terminate at such time as the
holder shall own less than 10% of the Shares on a fully diluted basis.
Shareholder ownership limitations
PACIFIC RETAIL's Declaration of Trust seeks to preserve its REIT status
by restricting any shareholder from owning more than 9.8% of PACIFIC
RETAIL's shares of beneficial interest, other than HOLDINGS or OCP.
PACIFIC RETAIL intends to adopt a shareholder rights plan pursuant to
which one purchase right will be issued as a dividend for each
outstanding Share. Each purchase right will entitle the holder to
purchase one share at a fixed exercise price and, under certain
circumstances, to purchase at the exercise price shares or securities of
an acquiring company having a market value equal to some multiple of the
exercise price. The purchase rights would be exercisable only upon the
occurrence of certain triggering events and purchase rights held by the
acquiring person would not be exercisable. HOLDINGS and OCP would be
exempted from this shareholder rights plan.
6. MERGER
On September 23, 1998, PACIFIC RETAIL entered into a merger agreement
with Regency Realty Corporation (REGENCY), a publicly owned real estate
investment trust. The merger, already approved by the board of trustees
of PACIFIC RETAIL and the board of directors of REGENCY, would result in
the acquisition of PACIFIC RETAIL by REGENCY with REGENCY being the
surviving entity. Shareholders' meetings for REGENCY and PACIFIC RETAIL
are scheduled for February 26, 1999 to vote on the merger. The merger is
expected to become effective on February 28, 1999. Each outstanding
Common and Preferred share of PACIFIC RETAIL would be converted into 0.48
shares of REGENCY Common and Preferred stock, respectively.
REGENCY commenced operations as a real estate investment trust in 1993
with the completion of its initial public offering. It succeeded to the
real estate business operations of The Regency Group, Inc., which began
operations in 1963. REGENCY acquires, owns, develops and manages
neighborhood shopping centers in targeted infill markets primarily in the
eastern half of the United States. The merged company would have a total
market capitalization of approximately $2.2 billion, owning over 195
shopping centers, consisting of approximately 22.5 million square feet in
22 states and Washington, D.C., including 13 shopping centers under
development.
USREALTY is the largest shareholder of REGENCY, owning approximately
46.0% of the outstanding REGENCY Common Stock. USREALTY has already
approved the merger and will vote for the merger when both companies have
their respective shareholder meetings. After the merger USREALTY will own
approximately 59.4% of the outstanding REGENCY Common Stock (52.3% on a
fully diluted basis). It is anticipated that after the merger REGENCY
will continue to be taxed as a real estate investment trust under the
Internal Revenue Code and continue to be organized as a corporation under
the laws of the state of Florida. REGENCY's headquarters are in
Jacksonville, Florida.
F-18
7. INCENTIVE STOCK PROGRAMS
PACIFIC RETAIL has authorized 1,875,000 shares for a share incentive plan
(the "Plan"). On September 24, 1997, the Plan was amended to increase the
number of shares authorized to 5,250,000. Additionally, the Plan was
amended to award "dividend equivalent units" with all option grants
(other than matching options). Participants who are awarded dividend
equivalent units will be credited with these units annually based on a
calculated dividend yield, multiplied by the number of options
outstanding. Matching options and a loan provision have also been added
to the common share purchase portion of the Plan. This provision allows
the compensation committee to award, for each common share purchased, one
or more matching options. Matching options do not receive dividend
equivalent units. Further, PACIFIC RETAIL may offer participants loans
for the entire purchase price of any common shares purchased under the
share purchase program. Any loans will be fully recourse to the
participant and be for a maximum of 10 years, subject to an acceleration
in the event of termination of employment or sale of the common shares.
Participants will be required to pledge any common shares to secure the
loan from PACIFIC RETAIL. Under all plans, the option exercise price
represents the estimated fair market value at the date of grant. Vesting
of the options commences no more than two years from grant date and
options are fully vested no more than five years from grant date. Options
expire in 10 years from the date of grant or earlier upon termination of
employment or death.
On August 6, 1996, the board of trustees adopted the 1996 Trustees Plan
(the "Trustees Plan"). Under the Trustees Plan, nonemployee trustees
received options to purchase Shares at an exercise price equal to the
market price on the date of the grant. Options granted under the Trustees
Plan are immediately vested. These options expire in five years from the
date of grant or earlier upon resignation from the board of trustees or
death.
PACIFIC RETAIL applies APB Opinion No. 25 and related Interpretations in
accounting for both the Trustees Plan and the employee share incentive
plan. No compensation has been recognized for the plans as PACIFIC RETAIL
has issued the options at an exercise price, which represents the fair
market value at the date of grant. Had compensation cost for the plans
been determined based on the fair market value at the grant dates for
awards, consistent with the method provided by Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), the Company's pro forma net
earnings for the years ended December 31, 1998 and 1997 would have been:
F-19
For the For the
year ended year ended
December 31, December 31,
1998 1997
---------------- ----------------
Net earnings As reported $ 44,995,082 $ 26,721,029
Pro forma (unaudited) $ 43,955,131 $ 26,641,918
Per share net earnings As reported $ .67 $ .61
attributable to common shares Pro forma (unaudited) $ .65 $ .61
Diluted per share net earnings As reported $ .66 $ .61
attributable to common shares Pro forma (unaudited) $ .65 $ .61
The fair value of each option grant is estimated on the date of grant
using the "minimum value" calculation stipulated by SFAS No. 123 for
nonpublic companies. PACIFIC RETAIL has assumed the following in
estimating the fair value of the options: expected lives of five years,
dividend yield of 5%, expected volatility of 0%, and risk-free interest
rates ranging from 6.56% to 4.53%.
The following table summarizes activity under all programs:
Weighted
Average
Exercise Number of
Price Options
-------------- --------------
Outstanding at December 31, 1997 $ 11.73 2,463,872
Granted 11.63 849,091
Exercised - -
Cancelled (11.87) (386,668)
------------- ----------
Outstanding at December 31, 1998 $ 11.67 2,926,295
------------- ----------
Options exercisable at December 31, 1998 $ 10.44 151,282
------------- ----------
Weighted average fair value of options granted during 1998 $ 1.59
------------- ----------
F-20
8. OPERATING LEASES
PACIFIC RETAIL receives rental income from the properties under operating
leases with terms ranging from less than one year to 24 years. The
minimum future rentals under operating leases as of December 31, 1998 are
as follows:
1999 98,815,752
2000 88,113,982
2001 76,324,315
2002 66,086,260
Thereafter 402,863,701
-------------
$ 732,204,010
=============
9. COMMITMENTS AND CONTINGENCIES
PACIFIC RETAIL is subject to environmental regulations related to the
ownership, operation, development and acquisition of real estate
properties. As part of due diligence procedures, PACIFIC RETAIL has
obtained or conducted Phase I environmental assessments on each property
prior to acquisition. PACIFIC RETAIL is not aware of any environmental
condition on any of its properties which is likely to have a materially
adverse effect on PACIFIC RETAIL's financial condition or results of
operations.
10. SUBSEQUENT EVENTS
In January 1999, PACIFIC RETAIL acquired 13.59 acres of land in Keller,
Texas for a purchase price of $2,145,019.
On January 11, 1999, PACIFIC RETAIL sold Totem Hill Plaza for a sales
price of $4,825,000 at a cost of $4,042,587 resulting in a net gain on
the sale.
On January 20, 1999, PRT Development Corporation formed a limited
liability company called Fountain Valley, LLC for the purpose of owning,
holding, managing, operating, leasing, or selling the property commonly
referred to as Fountain Valley Plaza. Using proceeds of a loan obtained
from PACIFIC RETAIL, Fountain Valley, LLC purchased Fountain Valley Plaza
at a price of $10,163,300, subject to a note payable of $5,858,884.
On February 3, 1999, primarily using proceeds from the line of credit,
PACIFIC RETAIL purchased Westlake Village Plaza and Center in Thousand
Oaks, California for a purchase price of approximately $33 million.
S-1
PACIFIC RETAIL TRUST
SCHEDULE III - REAL STATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
Costs
Initial Costs Capitalized
----------------------------- Subsequent
Encum- Buildings & to
Properties brances Land Improvements Acquisition
- ---------------------------------- ---------- ----------- -------------- -------------
Operating Properties
Austin, Texas Area:
Market @ Round Rock $ 7,410 $ 2,000 $ 8,978 $ 33
North Hills 8,939 4,900 18,484 62
Dallas/Ft. Worth Area:
Arapaho Village South 837 7,082 595
Casa Linda Plaza 4,515 23,190 6,512
Cooper Street Plaza 2,079 10,419 78
Harwood Hills Phase I & II 2,618 6,475 2,252
Hillcrest Village 1,600 1,752
Market @ Preston Forest 4,400 10,643 2
Mills Pointe 5,908 2,000 11,432 198
Mockingbird Commons 3,000 9,335 139
Northview Plaza 1,957 7,999 432
Preston Park Village 25,188 6,400 45,957 89
Ridglea Plaza 1,675 12,609 81
Southpark Center 3,078 8,720 499
Valley Ranch Phase I, II & III 2,593 6,276 4,658
The Village 522 6,809 76
Denver Area:
Boulevard Center 3,659 9,382 66
Buckley Square 3,270 4,248 (209) (b)
Leetsdale Center 3,420 9,150 539
Littleton Square 2,030 8,060 61
Houston Area:
Champion Forest 2,666 7,943 524
Los Angeles County Area:
Crossroads 3,514 2,538
El Camino 7,600 9,672 30
Oakbrook Plaza 4,000 5,919 152
Plaza de Hacienda 6,684 4,230 9,744 4
Plaza Hermosa 4,200 9,255 19
Redondo Village 1,313 3,810 135
Ventura Village 4,300 6,135 36
Woodman - Van Nuys 6,061 5,500 5,920 3
Orange County Area:
Heritage Plaza 9,205 25,450 676
Morningside Plaza 4,300 12,819 84
Newland Center 12,500 11,693 124
Rona Plaza 1,500 4,239 50
Santa Ana Downtown Plaza 4,240 7,105 14
Phoenix Area:
Paseo Village 4,221 2,550 6,652 943
Pima Crossing 5,800 24,208 342
Portland Area:
Walker Center 3,840 6,244 28
Cherry Park Market 2,400 15,934 71
Murrayhill Marketplace 8,365 2,600 14,664 17
Sherwood Market Center 3,475 13,985 24
Sunnyside 205 5,771 1,200 8,582
West Hills Plaza 5,225 1,200 6,974
Sacramento Area:
Arden Square 3,140 7,275 48
The Promenade 2,526 12,244 68
San Diego County Area:
Costa Verde 12,740 21,992 902
El Norte Parkway Plaza 2,834 6,121 47
Friars Mission 17,975 6,660 25,770 43
Twin Peaks 2,496 14,911 49
Twin Peaks Target 2,704 9,824
San Francisco Bay Area:
Blossom Valley 7,804 9,848 199
S-2
Country Club Village 3,000 11,117 392
Diablo Plaza 5,300 7,362 10
Encina Grande 5,040 10,117 96
Loehmann's Plaza 5,420 8,045 328
San Leandro 1,300 7,689 44
Sequoia Station 9,100 17,709 19
Strawflower Village 4,060 6,867 224
Tassajara Crossing 8,560 14,526 110
Westpark Plaza 5,840 4,398 406
Woodside Central Plaza 3,500 8,624 85
Seattle Area:
Inglewood Plaza 1,300 1,830 7
Lake Meridian Marketplace 6,510 11,557 228
Pine Lake 6,300 10,326 43
Sammamish Highlands 9,300 7,391 16
South Point Plaza 5,000 9,697 62
Southcenter Plaza 1,300 12,022 77
Thomas Lake 6,000 9,917 212
Totem Hill Plaza 1,100 3,124 15
-------- -------- -------- -------
Total Operating Properties 101,747 277,520 716,788 23,169
-------- -------- -------- -------
Redevelopment Properties
Austin, Texas Area:
Hancock Center 8,232 4,150 7,363
Orange County Area:
Bristol and Warner 5,000 7,094 487
-------- -------- -------- -------
Total Redevelopment Properties - 13,232 11,244 7,850
-------- -------- -------- -------
Land Under Development
Dallas/Ft. Worth Area:
Hebron Parkway Plaza 2,378 (281) (c)
MacArthur Park 9,692 (569) (d)
Prestonwood Park 10,171 34
Los Angeles Area:
LaCrescenta 1,327
Hawthorne Plaza 5,905 3
-------- -------- -------- -------
Total Land Under Development - 29,473 - (813)
-------- -------- -------- -------
Land Held For Development
Dallas/Ft. Worth Area:
Harwood Hills 234 1
Tarrant Parkway Plaza 1,582
Los Angeles Area:
Plaza de Hacienda 770 57
-------- -------- -------- -------
Total Land Held for Development - 2,586 - 58
-------- -------- -------- -------
GRAND TOTAL $101,747 $ 322,811 $ 728,032 $ 30,264
======== ======== ======== =======
Gross Amount at Which Carried
at December 31, 1998
------------------------------------------ Year
Buildings & Accumulated Constructed/
Properties Land Improvements Total Depreciation Acquired
- ---------------------------------- --------- ------------- ---------- -------------- ------------
Operating Properties
Austin, Texas Area:
Market @ Round Rock $ 2,000 $ 9,011 $ 11,011 $ (523) 1997
North Hills 4,900 18,546 23,446 (956) 1997
Dallas/Ft. Worth Area:
Arapaho Village South 837 7,677 8,514 (918) 1995
Casa Linda Plaza 4,515 29,702 34,217 (2,016) 1996
Cooper Street Plaza 2,079 10,497 12,576 (1,018) 1995
Harwood Hills Phase I & II 2,618 8,727 11,345 (1,117) 1996,1996
Hillcrest Village 1,600 1,752 3,352 (114) 1996
Market @ Preston Forest 4,400 10,645 15,045 (545) 1997
Mills Pointe 2,000 11,630 13,630 (713) 1997
Mockingbird Commons 3,000 9,474 12,474 (702) 1996
S-3
Northview Plaza 1,957 8,431 10,388 (912) 1995
Preston Park Village 6,400 46,046 52,446 (2,391) 1997
Ridglea Plaza 1,675 12,690 14,365 (1,437) 1995
Southpark Center 3,078 9,219 12,297 (987) 1995
Valley Ranch Phase I, II & III 3,021 10,506 13,527 (724) 1996,1996,1998
The Village 522 6,885 7,407 (766) 1995
Denver Area:
Boulevard Center 3,659 9,448 13,107 (630) 1996
Buckley Square 2,970 4,339 7,309 (355) 1996
Leetsdale Center 3,420 9,689 13,109 (751) 1996
Littleton Square 2,030 8,121 10,151 (492) 1996
Houston Area:
Champion Forest 2,666 8,467 11,133 (533) 1997
Los Angeles County Area:
Crossroads 3,514 2,538 6,052 (15) 1998
El Camino 7,600 9,702 17,302 (433) 1997
Oakbrook Plaza 4,000 6,071 10,071 (132) 1998
Plaza de Hacienda 4,230 9,748 13,978 (699) 1997
Plaza Hermosa 4,200 9,274 13,474 (247) 1998
Redondo Village 1,313 3,945 5,258 (395) 1996
Ventura Village 4,300 6,171 10,471 (531) 1996
Woodman - Van Nuys 5,500 5,923 11,423 (152) 1998
Orange County Area:
Heritage Plaza 9,205 26,126 35,331 (1,137) 1997
Morningside Plaza 4,300 12,903 17,203 (601) 1997
Newland Center 12,500 11,817 24,317 (347) 1997
Rona Plaza 1,500 4,289 5,789 (148) 1997
Santa Ana Downtown Plaza 4,240 7,119 11,359 (630) 1996
Phoenix Area:
Paseo Village 2,550 7,595 10,145 (512) 1996
Pima Crossing 5,800 24,550 30,350 (936) 1997
Portland Area:
Walker Center 3,840 6,272 10,112 (361) 1997
Cherry Park Market 2,400 16,005 18,405 (219) 1998
Murrayhill Marketplace 2,600 14,681 17,281 (220) 1998
Sherwood Market Center 3,475 14,009 17,484 (179) 1998
Sunnyside 205 1,200 8,582 9,782 (113) 1998
West Hills Plaza 1,200 6,974 8,174 - 1998
Sacramento Area:
Arden Square 3,140 7,323 10,463 (326) 1997
The Promenade 2,526 12,312 14,838 (1,017) 1996
San Diego County Area:
Costa Verde 12,740 22,894 35,634 (1,978) 1996
El Norte Parkway Plaza 2,834 6,168 9,002 (659) 1996
Friars Mission 6,660 25,813 32,473 (985) 1997
Twin Peaks 2,496 14,960 17,456 (399) 1998
Twin Peaks Target 2,704 9,824 12,528 (268) 1998
San Francisco Bay Area:
Blossom Valley 7,804 10,047 17,851 (744) 1996
Country Club Village 3,000 11,509 14,509 (741) 1996
Diablo Plaza 5,300 7,372 12,672 (124) 1998
Encina Grande 5,040 10,213 15,253 (618) 1997
Loehmann's Plaza 5,420 8,373 13,793 (277) 1997
San Leandro 1,300 7,733 9,033 (276) 1997
Sequoia Station 9,100 17,728 26,828 (499) 1997
Strawflower Village 4,060 7,091 11,151 (513) 1996
Tassajara Crossing 8,560 14,636 23,196 (1,319) 1996
Westpark Plaza 5,840 4,804 10,644 (286) 1997
Woodside Central Plaza 3,500 8,709 12,209 (443) 1997
Seattle Area:
Inglewood Plaza 1,300 1,837 3,137 (42) 1998
Lake Meridian Marketplace 6,510 11,785 18,295 (731) 1996
Pine Lake 6,300 10,369 16,669 (239) 1998
Sammamish Highlands 9,300 7,407 16,707 (179) 1998
South Point Plaza 5,000 9,759 14,759 (486) 1997
Southcenter Plaza 1,300 12,099 13,399 (720) 1996
Thomas Lake 6,000 10,129 16,129 (186) 1998
Totem Hill Plaza 1,100 3,139 4,239 (212) 1997
-------- -------- --------- -------
Total Operating Properties 277,648 739,829 1,017,477 (40,874)
-------- -------- --------- -------
Redevelopment Properties
Austin, Texas Area:
Hancock Center 8,232 11,513 19,745 (798) 1996
Orange County Area:
Bristol and Warner 5,000 7,581 12,581 (244) 1997
-------- -------- --------- -------
S-4
Total Redevelopment Properties 13,232 19,094 32,326 (1,042)
-------- -------- --------- -------
Land Under Development
Dallas/Ft. Worth Area:
Hebron Parkway Plaza 2,097 2,097 1997
MacArthur Park 9,123 9,123 1998
Prestonwood Park 10,205 10,205 1997
Los Angeles Area:
LaCrescenta 1,327 1,327 1998
Hawthorne Plaza 5,905 3 5,908 1998
-------- -------- --------- -------
Total Land Under Development 28,657 3 28,660 -
-------- -------- --------- -------
Land Held For Development
Dallas/Ft. Worth Area:
Harwood Hills 235 235 1996
Tarrant Parkway Plaza 1,582 1,582 1998
Los Angeles Area:
Plaza de Hacienda 827 827 1997
-------- -------- --------- -------
Total Land Held for Development 2,644 - 2,644 -
-------- -------- --------- -------
GRAND TOTAL $ 322,181 $ 758,926 $1,081,107 $(41,916)
======== ======== ========= =======
(a) Reconciliation of total cost to balance sheet caption at December 31, 1998
(in thousands):
Total per Schedule III $ 1,081,107
Construction in process 24,975
Total real estate $ 1,106,082
(b) Pad site was sold in 1997 to the tenant under a right of first refusal
existing at time center was purchased. Sales price was $300,000 which was
equal to the cost of the pad site.
(c) Pad site was sold in 1998 at a cost of $301,180.
(d) Pad site was sold in 1998 at a cost of $568,546.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus constitut-
ing part of the Registration Statement on Form S-3 (No. 33-86886), Form S-3
(No. 333-930), Form S-3 (No. 333-37911), Form S-3 (No. 333-52089) and Form S-8
(No. 333-24971) of Regency Realty Corporation and Form S-4 (No. 333-63723) and
Form S-3 (No. 333-72899) of Regency Centers, L.P. of our report dated
February 5, 1999 relating to the financial statements of Pacific Retail Trust
for the years ended December 31, 1998 and 1997 which appears in the Current
Report on Form 8-K/A of Regency Realty Corporation dated February 28, 1999.
PricewaterhouseCoopers LLP
Dallas, Texas
March 22, 1999
