United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended June 30, 2002
-or-
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-12298
REGENCY CENTERS CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3191743
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
---------------------------
(Address of principal executive offices) (Zip Code)
(904) 598-7000
--------------
(Registrant's telephone number, including area code)
Unchanged
---------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
(Applicable only to Corporate Registrants)
------------------------------------------
As of August 7, 2002, there were 57,540,951 shares outstanding of the
Registrant's common stock.
REGENCY CENTERS CORPORATION
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(unaudited)
2002 2001
---- ----
Assets
Real estate investments:
Land $ 699,099,670 600,081,672
Buildings and improvements 2,061,580,923 1,914,961,155
---------------- ----------------
2,760,680,593 2,515,042,827
Less: accumulated depreciation 234,971,611 202,325,324
---------------- ----------------
2,525,708,982 2,312,717,503
Properties in development 307,984,950 408,437,476
Operating properties held for sale - 158,121,462
Investments in real estate partnerships 90,719,293 75,229,636
---------------- ----------------
Net real estate investments 2,924,413,225 2,954,506,077
Cash and cash equivalents 69,223,154 27,853,264
Notes receivable 22,209,928 32,504,941
Tenant receivables, net of allowance for uncollectible accounts
of $4,685,976 and $4,980,335 at June 30, 2002 and
December 31, 2001, respectively 36,920,445 47,723,145
Deferred costs, less accumulated amortization of $22,442,312 and
$20,402,059 at June 30, 2002 and December 31, 2001, respectively 37,717,022 34,399,242
Other assets 13,262,089 12,327,567
---------------- ----------------
$ 3,103,745,863 3,109,314,236
================ ================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 1,226,282,116 1,022,720,748
Unsecured line of credit 180,000,000 374,000,000
Accounts payable and other liabilities 69,660,898 73,434,322
Tenants' security and escrow deposits 8,775,853 8,656,456
---------------- ----------------
Total liabilities 1,484,718,867 1,478,811,526
---------------- ----------------
Preferred units 375,403,652 375,403,652
Exchangeable operating partnership units 30,676,022 32,108,191
Limited partners' interest in consolidated partnerships 4,174,996 3,940,011
---------------- ----------------
Total minority interest 410,254,670 411,451,854
---------------- ----------------
Stockholders' equity:
Series 2 cumulative convertible preferred stock and paid in capital, $.01
par value per share: 1,502,532 shares authorized; 1,487,507 shares
issued and outstanding at June 30, 2002 and December 31, 2001,
respectively; liquidation preference $20.83 per share 34,696,112 34,696,112
Common stock $.01 par value per share: 150,000,000 shares
authorized; 61,900,541 and 60,995,496 shares issued
at June 30, 2002 and December 31, 2001, respectively 619,005 609,955
Treasury stock; 3,711,492 and 3,394,045 shares held at
June 30, 2002 and December 31, 2001, respectively, at cost (71,322,035) (67,346,414)
Additonal paid in capital 1,332,308,659 1,327,579,434
Distributions in excess of net income (80,582,798) (68,226,276)
Stock loans (6,946,617) (8,261,955)
---------------- ----------------
Total stockholders' equity 1,208,772,326 1,219,050,856
---------------- ----------------
Commitments and contingencies
$ 3,103,745,863 3,109,314,236
================ ================
See accompanying notes to consolidated financial statements
2
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the Three Months ended June 30, 2002 and 2001
(unaudited)
2002 2001
---- ----
Revenues:
Minimum rent $ 70,805,363 63,657,012
Percentage rent 338,368 541,777
Recoveries from tenants 19,948,149 17,685,719
Service operations revenue 2,420,368 8,721,592
Equity in income of investments in
real estate partnerships 1,819,700 727,063
---------------- ----------------
Total revenues 95,331,948 91,333,163
---------------- ----------------
Operating expenses:
Depreciation and amortization 17,753,379 16,116,924
Operating and maintenance 13,150,748 11,481,127
General and administrative 5,228,148 4,602,583
Real estate taxes 10,147,908 9,242,518
Other expenses 350,249 1,972,290
---------------- ----------------
Total operating expenses 46,630,432 43,415,442
---------------- ----------------
Other expense (income)
Interest expense, net of interest income of $602,530
and $1,288,350 in 2002 and 2001, respectively 20,465,084 17,408,130
Gain on sale of operating properties - (1,029,647)
Provision for loss on operating properties 2,364,480 -
Other income (2,383,524) -
---------------- ----------------
Total other expense (income) 20,446,040 16,378,483
---------------- ----------------
Income before minority interests 28,255,476 31,539,238
Minority interest preferred unit distributions (8,368,752) (8,368,752)
Minority interest of exchangeable partnership units (582,240) (817,831)
Minority interest of limited partners (125,873) (42,714)
---------------- ----------------
Income from continuing operations 19,178,611 22,309,941
Discontinued operations:
Operating income from discontinued operations 942,157 1,839,065
Gain on sale of operating properties and properties in development 2,869,449 -
---------------- ----------------
Income from discontinued operations 3,811,606 1,839,065
---------------- ----------------
Net income 22,990,217 24,149,006
Preferred stock dividends (758,628) (743,754)
---------------- ----------------
Net income for common stockholders $ 22,231,589 23,405,252
================ ================
Income per common share - Basic:
Income from continuing operations $ 0.32 0.38
Discontinued operations $ 0.06 0.03
---------------- ----------------
Net income for common stockholders per share $ 0.38 0.41
================ ================
Income per common share - Diluted:
Income from continuing operations $ 0.32 0.38
Discontinued operations $ 0.06 0.03
---------------- ----------------
Net income for common stockholders per share $ 0.38 0.41
================ ================
See accompanying notes to consolidated financial statements
3
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the Six Months ended June 30, 2002 and 2001
(unaudited)
2002 2001
---- ----
Revenues:
Minimum rent $ 139,568,482 126,700,427
Percentage rent 986,625 1,651,801
Recoveries from tenants 39,779,564 36,062,697
Service operations revenue 4,134,738 14,170,939
Equity in income of investments in
real estate partnerships 2,885,210 1,892,262
---------------- ----------------
Total revenues 187,354,619 180,478,126
---------------- ----------------
Operating expenses:
Depreciation and amortization 34,477,264 31,490,752
Operating and maintenance 25,044,805 23,246,939
General and administrative 9,211,154 8,917,757
Real estate taxes 20,527,573 18,481,004
Other expenses 709,592 3,351,622
---------------- ----------------
Total operating expenses 89,970,388 85,488,074
---------------- ----------------
Other expense (income)
Interest expense, net of interest income of $1,444,168
and $3,265,651 in 2002 and 2001, respectively 40,979,555 34,309,342
Gain on sale of operating properties (1,494,225) (1,098,305)
Provision for loss on operating properties 2,364,480 -
Other income (2,383,524) -
---------------- ----------------
Total other expense (income) 39,466,286 33,211,037
---------------- ----------------
Income before minority interests 57,917,945 61,779,015
Minority interest preferred unit distributions (16,737,504) (16,737,503)
Minority interest of exchangeable partnership units (1,233,018) (1,378,499)
Minority interest of limited partners (234,985) (132,500)
---------------- ----------------
Income from continuing operations 39,712,438 43,530,513
Discontinued operations:
Operating income from discontinued operations 3,712,541 3,764,317
Gain on sale of operating properties and properties in development 4,841,901 -
---------------- ----------------
Income from discontinued operations 8,554,442 3,764,317
---------------- ----------------
Net income 48,266,880 47,294,830
Preferred stock dividends (1,517,256) (1,477,591)
---------------- ----------------
Net income for common stockholders $ 46,749,624 45,817,239
================ ================
Income per common share - Basic:
Income from continuing operations $ 0.66 0.73
Discontinued operations $ 0.15 0.07
---------------- ----------------
Net income for common stockholders per share $ 0.81 0.80
================ ================
Income per common share - Diluted:
Income from continuing operations $ 0.66 0.73
Discontinued operations $ 0.14 0.07
---------------- ----------------
Net income for common stockholders per share $ 0.80 0.80
================ ================
See accompanying notes to consolidated financial statements
4
REGENCY CENTERS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Six Months ended June 30, 2002
(unaudited)
Additional Distributions Total
Series 2 Common Treasury Paid In in Excess of Stock Stockholders'
Preferred Stock Stock Stock Capital Net Income Loans Equity
--------------- -------- ----------- ------------ ------------ ----------- -------------
Balance at
December 31, 2001 $ 34,696,112 609,955 (67,346,414) 1,327,579,434 (68,226,276) (8,261,955) 1,219,050,856
Common stock issued as
compensation or purchased by
directors or officers - 6,932 - 4,119,018 - - 4,125,950
Common stock redeemed
under stock loans - 1,736 (1,250,621) (377,823) - 1,315,338 (311,370)
Common stock issued for
partnership units exchanged - 382 - 1,020,069 - - 1,020,451
Reallocation of minority interest - - - (32,039) - - (32,039)
Repurchase of common stock - - (2,725,000) - - - (2,725,000)
Cash dividends declared:
Common stock ($1.02 per share)
and preferred stock - - - - (60,623,402) - (60,623,402)
Net income - - - - 48,266,880 - 48,266,880
------------ -------- ----------- ------------ ----------- ----------- -------------
Balance at
June 30, 2002 $ 34,696,112 619,005 (71,322,035) 1,332,308,659 (80,582,798) (6,946,617) 1,208,772,326
============ ======== =========== ============= =========== =========== =============
See accompanying notes to consolidated financial statements.
5
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2002 and 2001
(unaudited)
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 48,266,880 47,294,830
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,345,863 32,768,580
Deferred loan cost and debt premium amortization 579,760 419,034
Stock based compensation 4,061,109 3,228,847
Minority interest preferred unit distribution 16,737,504 16,737,503
Minority interest of exchangeable partnership units 1,233,018 1,378,499
Minority interest of limited partners 234,985 132,500
Equity in income of investments in real estate partnerships (2,885,210) (1,892,262)
Gain on sale of operating properties (6,336,126) (1,098,305)
Provision for loss on operating properties 2,364,480 -
Other income (2,383,524) -
Distributions from operations of investments in real
estate partnerships 2,445,123 583,000
Changes in assets and liabilities:
Tenant receivables 4,846,288 7,402,336
Deferred leasing costs (5,743,087) (4,567,123)
Other assets (909,558) 2,247,251
Tenants' security and escrow deposits 492,752 108,576
Accounts payable and other liabilities (8,864,235) (12,286,052)
---------------- ---------------
Net cash provided by operating activities 89,486,022 92,457,214
---------------- ---------------
Cash flows from investing activities:
Acquisition and development of real estate (122,942,817) (126,162,470)
Proceeds from sale of real estate 152,570,119 101,336,053
Acquistion of partners' interest in investments
in real estate partnerships, net of cash acquired - 1,547,043
Investment in real estate partnerships (19,452,091) (36,144,987)
Capital improvements (8,065,785) (6,906,123)
Proceeds from sale of real estate partnerships 2,388,319 -
Repayments from notes receivable 20,042,824 14,594,060
Funding of note receivable (4,895,111) -
Distributions received from investments in real estate partnerships 5,901,647 11,360,959
---------------- ---------------
Net cash provided by (used in) investing activities 25,547,105 (40,375,465)
---------------- ---------------
Cash flows from financing activities:
Net proceeds from common stock issuance 3,500,499 38,264
Repurchase of common stock (2,725,000) (38,102)
Redemption of partnership units (83,232) -
Net distributions to limited partners in consolidated partnerships - (5,005,010)
Distributions to exchangeable partnership unit holders (1,593,543) (1,773,689)
Distributions to preferred unit holders (16,737,504) (16,737,503)
Dividends paid to common stockholders (59,106,146) (57,291,120)
Dividends paid to preferred stockholders (1,517,256) (1,477,591)
Net proceeds from fixed rate unsecured notes 249,625,000 219,707,400
Repayment of unsecured line of credit, net (194,000,000) (233,000,000)
Repayment of notes payable (46,339,199) (32,407,364)
Scheduled principal payments (2,615,870) (2,920,902)
Deferred loan costs (2,070,986) (9,036,174)
---------------- ---------------
Net cash used in financing activities (73,663,237) (139,941,791)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 41,369,890 (87,860,042)
Cash and cash equivalents at beginning of period 27,853,264 100,987,895
---------------- ---------------
Cash and cash equivalents at end of period $ 69,223,154 13,127,853
================ ===============
6
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2002 and 2001
(unaudited)
continued
2002 2001
---- ----
Supplemental disclosure of cash flow information - cash paid for
interest (net of capitalized interest of approximately
$7,870,000 and $10,086,000 in 2002 and 2001, respectively) $ 34,747,465 29,791,718
============== ==============
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed for the acquisition of real estate $ 6,400,000 5,470,479
============== ==============
Notes receivable taken in connection with sales of properties
in development $ 4,852,700 4,005,556
============== ==============
Real estate contributed as investment in real estate partnerships $ 3,887,445 9,800,012
============== ==============
See accompanying notes to consolidated financial statements.
7
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Regency Centers Corporation, its wholly owned
qualified REIT subsidiaries, and also partnerships in which it has
voting control (the "Company" or "Regency"). All significant
intercompany balances and transactions have been eliminated in the
consolidated financial statements. The Company owns approximately
98% of the outstanding common units ("Units") of Regency Centers,
L.P., ("RCLP"). Regency invests in real estate through its
partnership interest in RCLP. All of the acquisition, development,
operations and financing activity of Regency, including the
issuance of Units or preferred units, are executed by RCLP. The
equity interests of third parties held in RCLP and the majority
owned or controlled partnerships are included in the consolidated
financial statements as preferred or exchangeable operating
partnership units and limited partners' interest in consolidated
partnerships. The Company is a qualified real estate investment
trust ("REIT"), which began operations in 1993 as Regency Realty
Corporation. In February 2001, the Company changed its name to
Regency Centers Corporation.
The financial statements reflect all adjustments that are of a
normal recurring nature, and in the opinion of management, are
necessary to properly state the results of operations and
financial position. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States
of America have been condensed or omitted although management
believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read
in conjunction with the financial statements and notes thereto
included in the Company's December 31, 2001 Form 10-K/A filed with
the Securities and Exchange Commission.
(b) Revenues
The Company leases space to tenants under agreements with varying
terms. Leases are accounted for as operating leases with minimum
rent recognized on a straight-line basis over the term of the
lease regardless of when payments are due. Accrued rents are
included in tenant receivables. Minimum rent has been adjusted to
reflect the effects of recognizing rent on a straight-line basis.
Substantially all of the lease agreements contain provisions that
provide additional rents based on tenants' sales volume
(contingent or percentage rent) or reimbursement of the tenants'
share of real estate taxes and certain common area maintenance
(CAM) costs. Percentage rents are recognized when the tenants
achieve the specified targets as defined in their lease agreements
and recovery of real estate taxes and CAM costs are recognized
when earned.
Service operations revenue includes management fees, commission
income, and development-related profits from the sales of recently
developed real estate properties and land. Service operations
revenue does not include gains or losses from the sale of
operating properties or properties in development which are
included in gain or loss on the sale of operating properties or
discontinued operations.
8
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
(b) Revenues (continued)
The Company accounts for profit recognition on sales of real
estate in accordance with FASB Statement No. 66, "Accounting for
Sales of Real Estate." In summary, profits from sales will not be
recognized by the Company unless a sale has been consummated; the
buyer's initial and continuing investment is adequate to
demonstrate a commitment to pay for the property; the Company has
transferred to the buyer the usual risks and rewards of ownership;
and the Company does not have substantial continuing involvement
with the property.
(c) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct
and indirect costs clearly associated with the acquisition,
development and construction of real estate projects are
capitalized as buildings and improvements.
Maintenance and repairs that do not improve or extend the useful
lives of the respective assets are reflected in operating and
maintenance expense. The property cost includes the capitalization
of interest expense incurred during construction based on average
outstanding expenditures.
Depreciation is computed using the straight-line method over
estimated useful lives of up to forty years for buildings and
improvements, term of lease for tenant improvements, and three to
seven years for furniture and equipment.
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("Statement
144"). Prior to January 1, 2002, operating properties held for
sale included properties that no longer met the Company's
long-term investment standards, such as expected growth in revenue
or market dominance. Once identified and marketed for sale, these
properties were segregated on the balance sheet as operating
properties held for sale. The Company also develops shopping
centers and stand-alone retail stores for resale. Once completed,
these developments were also included in operating properties held
for sale.
In 2001, we classified $158.0 million of operating properties as
held for sale on the balance sheet. With the adoption of Statement
144, we determined that those assets did not meet the six criteria
set forth in Statement 144 and recharacterized them as properties
to be held and used. Subsequent to January 1, 2002, and in
accordance with Statement 144, operating properties held for sale
includes only those properties available for immediate sale in
their present condition and for which management believes that it
is probable that a sale of the property will be completed within
one year. Operating properties held for sale are carried at the
lower of cost or fair value less estimated selling costs.
Depreciation and amortization are suspended during the period held
for sale.
9
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
(c) Real Estate Investments (continued)
The Company reviews its real estate portfolio for value impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Regency
determines whether impairment has occurred by comparing the
property's carrying value to an estimate of the future
undiscounted cash flows. In the event impairment exists, assets
are written down to fair value for held and used assets and fair
value less costs to sell for held for sale assets. During the
second quarter, the Company recorded a provision for loss of $2.4
million on an operating property (Retail segment) due to the
impairment recognized as a result of the Kmart store closing,
combined with an earlier closing of an adjacent Winn-Dixie grocery
store. The fair value of the operating property was determined by
using prices for similar assets in the market.
The Company's properties have operations and cash flows that can
be clearly distinguished from the rest of the Company. In
accordance with Statement 144, the operations and gains on sales
of operating properties and properties in development sold to
third parties are reported in discontinued operations. The
operations and gains on sales of operating properties sold to real
estate partnerships in which the Company has some continuing
involvement are reported as income from continuing operations.
(d) Recent Accounting Pronouncement
In April 2002, the FASB issued SFAS No. 145, " Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13,
and Technical Corrections". This statement rescinds FASB Statement
No. 4, "Reporting Gains and Losses from Extinguishment of Debt"
which required all gains and losses from extinguishments of debt
to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. Upon adoption of Statement
145, classification of these gains and losses will be evaluated
under the criteria set forth in APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". The Company elected to adopt
the provisions related to the rescission of SFAS No. 4 during this
period, and reported a gain on early extinguishment of debt
totaling $2.4 million, which is included in other income on the
accompanying statements of operations during the period ended June
30, 2002.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The Statement
addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). "Statement No. 146 is
effective for exit and disposal activities initiated after
December 31, 2002. The Company has not yet assessed the impact of
this statement, however it does not believe it will have a
material effect on the financial statements.
(e) Reclassifications
Certain reclassifications have been made to the 2001 amounts to
conform to classifications adopted in 2002.
10
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
2. Segments
The Company was formed, and currently operates, for the purpose of 1)
operating and developing Company-owned retail shopping centers (Retail
segment), and 2) developing properties intended for sale (including
shopping centers, outparcels and build-to-suit properties) and providing
management services to third parties (Service operations segment). The
Company's reportable segments offer different products or services and
are managed separately because each requires different strategies and
management expertise. There are no inter-segment sales or transfers.
The Company assesses and measures operating results starting with net
operating income for the Retail segment and income for the Service
operations segment and converts such amounts into a performance measure
referred to as Funds From Operations ("FFO"). Net operating income for
the Retail segment and income for the Service operations segment include
gains and losses on the sale of operating properties and properties in
development, as well as, the related operating income that is reported as
discontinued operations in the accompanying consolidated statements of
operations, as required by Statement 144. The operating results for the
individual retail shopping centers have been aggregated since all of the
Company's shopping centers exhibit highly similar economic
characteristics as neighborhood shopping centers, and offer similar
degrees of risk and opportunities for growth. FFO as defined by the
National Association of Real Estate Investment Trusts consists of net
income (computed in accordance with generally accepted accounting
principles) excluding gains (or losses) from debt restructuring and sales
of income- producing property held for investment, plus depreciation and
amortization of real estate, and adjustments for unconsolidated
investments in real estate partnerships and joint ventures. In connection
with the effective date of Statement 144, the definition of FFO was
amended to include amounts reported as income/loss from the operations of
discontinued operations. The Company further adjusts FFO by distributions
made to holders of Units and preferred stock that results in a diluted
FFO amount. The Company considers diluted FFO to be the industry standard
for reporting the operations of REITs. Adjustments for investments in
real estate partnerships are calculated to reflect diluted FFO on the
same basis. While management believes that diluted FFO is the most
relevant and widely used measure of the Company's performance, such
amount does not represent cash flow from operations as defined by
accounting principles generally accepted in the United States of America,
should not be considered an alternative to net income as an indicator of
the Company's operating performance, and is not indicative of cash
available to fund all cash flow needs. Additionally, the Company's
calculation of diluted FFO, as provided below, may not be comparable to
similarly titled measures of other REITs.
The accounting policies of the segments are the same as those described
in note 1. The revenues, diluted FFO, and assets for each of the
reportable segments are summarized as follows for the three month and six
month periods ended June 30, 2002, and 2001. Assets not attributable to a
particular segment consist primarily of cash and deferred costs.
11
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
2. Segments (continued)
For the three months ended
June 30, 2002 June 30, 2001
------------- -------------
Revenues:
Retail segment $ 92,911,580 82,611,571
Service operations segment 2,420,368 8,721,592
------------------------- -------------------------
Total revenues $ 95,331,948 91,333,163
========================= =========================
Funds from Operations:
Retail segment net operating income $ 72,136,288 64,756,638
Service operations segment income 3,708,610 8,721,592
Adjustments to calculate diluted FFO:
Interest expense, net (20,465,084) (17,408,130)
Other income 2,383,524 -
General and administrative and other (5,578,397) (6,574,873)
Non-real estate depreciation (383,689) (460,816)
Minority interest of limited partners (125,873) (42,714)
Gain on sale of operating properties - (2,023,114)
Gain on sale of operating properties -
discontinued operations (1,581,208) -
Depreciation and amortization of
discontinued operations 270,552 755,740
Minority interest in depreciation
and amortization (48,866) (98,425)
Share of joint venture depreciation
and amortization 306,149 237,258
Distributions on preferred units (8,368,752) (8,368,752)
------------------------- -------------------------
Funds from Operations - diluted 42,253,254 39,494,404
------------------------- -------------------------
Reconciliation to net income for common stockholders:
Real estate related depreciation
and amortization (17,640,242) (16,411,848)
Minority interest in depreciation
and amortization 48,866 98,425
Share of joint venture depreciation
and amortization (306,149) (237,258)
Provision for loss on operating properties (2,364,480) -
Gain on sale of operating properties - 2,023,114
Gain on sale of operating properties -
discontinued operations 1,581,208 -
Minority interest of exchangeable
operating partnership units (582,240) (817,831)
------------------------- -------------------------
Net income $ 22,990,217 24,149,006
========================= =========================
12
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
2. Segments (continued)
For the six months ended
June 30, 2002 June 30, 2001
------------- -------------
Revenues:
Retail segment $ 183,219,881 166,307,187
Service operations segment 4,134,738 14,170,939
------------------------- -------------------------
Total revenues $ 187,354,619 180,478,126
========================= =========================
Funds from Operations:
Retail segment net operating income $ 146,099,689 129,441,866
Service operations segment income 5,731,219 14,170,939
Adjustments to calculate diluted FFO:
Interest expense, net (40,979,555) (34,309,342)
Other income 2,383,524 -
General and administrative and other (9,920,746) (12,269,379)
Non-real estate depreciation (858,814) (849,848)
Minority interest of limited partners (234,985) (132,500)
Gain on sale of operating properties (1,494,225) (2,091,772)
Gain on sale of operating properties -
discontinued operations (3,245,420) -
Depreciation and amortization of
discontinued operations 936,209 1,277,828
Minority interest in depreciation
and amortization (97,380) (98,424)
Share of joint venture depreciation
and amortization 637,856 371,692
Distributions on preferred units (16,737,504) (16,737,503)
------------------------- -------------------------
Funds from Operations - diluted 82,219,868 78,773,557
------------------------- -------------------------
Reconciliation to net income for common stockholders:
Real estate related depreciation
and amortization (34,554,659) (31,918,732)
Minority interest in depreciation
and amortization 97,380 98,424
Share of joint venture depreciation
and amortization (637,856) (371,692)
Provision for loss on operating properties (2,364,480) -
Gain on sale of operating properties 1,494,225 2,091,772
Gain on sale of operating properties -
discontinued operations 3,245,420 -
Minority interest of exchangeable
operating partnership units (1,233,018) (1,378,499)
------------------------- -------------------------
Net income $ 48,266,880 47,294,830
========================= =========================
June 30, 2002 December 31, 2001
------------- -----------------
Assets (in thousands):
Retail segment $ 2,575,559 2,631,592
Service operations segment 407,985 403,142
Cash and other assets 120,202 74,580
------------------------- -------------------------
Total assets $ 3,103,746 3,109,314
========================= =========================
13
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
3. Discontinued Operations and Operating Properties Held for Sale
During the first six months, the Company sold 15 operating properties for
proceeds of $129.2 million. These sales resulted in net a gain of $4.8
million, which is reflected as a gain on sale within discontinued
operations. The revenues from the properties disposed of were $6.0
million and $7.8 million for the six months ended June 30, 2002 and 2001,
respectively. The operating income from these properties was $3.7 million
and $3.8 million for the six months ended June 30, 2002 and 2001,
respectively. Discontinued operations for the Retail segment and the
Service operations segment were $7.0 million and $1.6 million,
respectively, for the six months ended June 30, 2002.
The Company also sold two assets to Macquarie CountryWide-Regency, LLC,
("MCWR"), a joint venture in which the Company has a 25% interest, for
proceeds of $13.3 million (see note 4). Since the Company has a
continuing involvement in these properties, the gain on the sale is
recorded as gain on sale of operating properties in the Company's
consolidated statements of operations.
4. Investments in Real Estate Partnerships
The Company accounts for all investments in which it owns 50% or less and
does not have controlling financial interest using the equity method. The
Company's combined investment in these partnerships was $90.7 million and
$75.2 million at June 30, 2002 and December 31, 2001, respectively. Net
income, which includes all operating results as well as gains and losses
on sales of properties within the joint ventures, is allocated to the
Company in accordance with the respective partnership agreements. Such
allocations of net income are recorded in equity in income of investments
in real estate partnerships in the accompanying consolidated statements
of operations.
The Company has a 25% equity interest in MCWR, a joint venture with an
affiliate of Macquarie CountryWide Trust of Australia, a Sydney,
Australia-based property trust focused on investing in grocery-anchored
shopping centers. During the first quarter of 2002, MCWR acquired two
shopping centers from the Company for $17.8 million, for which the
Company received net proceeds of $13.3 million. The Company recognized
gains on the sales of $1.5 million, which represents gain recognition on
only that portion of the sale to MCWR not owned by the Company.
The Company also has a 20% equity interest in Columbia Regency Retail
Partners, LLC ("Columbia"), a joint venture with Columbia PERFCO
Partners, L.P. ("PERFCO") that was formed for the purpose of investing in
retail shopping centers.
With the exception of Columbia and MCWR, both of which intend to continue
expanding their investment in shopping centers, the investments in real
estate partnerships represent single asset entities formed for the
purpose of developing or owning a retail shopping center.
14
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
4. Investments in Real Estate Partnerships (continued)
The Company's investments in real estate partnerships as of June 30, 2002
and December 31, 2001 consist of the following (in thousands):
Ownership 2002 2001
--------- ---- ----
Columbia Regency Retail Partners, LLC 20% $ 30,105 31,092
Macquarie CountryWide-Regency, LLC 25% 8,112 4,180
OTR/Regency Texas Realty Holdings, L.P. 30% 16,475 16,590
Regency Ocean East Partnership, L.P. 25% - 2,783
RRG-RMC Tracy, LLC 50% 17,278 12,339
Tinwood, LLC 50% 10,182 7,177
GME/RRG I, LLC 50% - 1,069
Jog Road, LLC 50% 2,432 -
Valleydale, LLC 50% 6,135 -
----------- -----------
$ 90,719 75,230
=========== ===========
Summarized financial information for the unconsolidated investments on a
combined basis, is as follows (in thousands):
June 30, December 31,
2002 2001
---- ----
Balance Sheets:
Investment property, net $ 316,374 286,096
Other assets 8,789 8,581
--------------- ------------------
Total assets $ 325,163 294,677
=============== ==================
Notes payable and other debt $ 67,619 67,489
Other liabilities 8,119 5,983
Equity and partners' capital 249,425 221,205
--------------- ------------------
Total liabilities and equity $ 325,163 294,677
=============== ==================
The revenues and expenses are summarized as follows for the six month
periods ended June 30, 2002 and 2001:
2002 2001
---- ----
Statements of Operations:
Total revenues $ 21,230 11,490
Total expenses 10,806 5,743
--------------- ------------------
Net income $ 10,424 5,747
=============== ==================
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $67.6 million at June 30, 2002 and the Company's proportionate share
of these loans was $14.6 million.
15
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
5. Notes Payable and Unsecured Line of Credit
The Company's outstanding debt at June 30, 2002 and December 31, 2001
consists of the following (in thousands):
2002 2001
---- ----
Notes Payable:
Fixed rate mortgage loans $ 202,816 240,091
Variable rate mortgage loans 18,887 21,691
Fixed rate unsecured loans 1,004,579 760,939
-------------- ---------------
Total notes payable 1,226,282 1,022,721
Unsecured line of credit 180,000 374,000
-------------- ---------------
Total $ 1,406,282 1,396,721
============== ===============
Interest rates paid on the line of credit (the "Line") at June 30, 2002
and 2001 were based on LIBOR plus .85% or 2.725% and 4.975%,
respectively. The spread that the Company pays on the Line is dependent
upon maintaining specific investment grade ratings. The Company is
required to comply, and is in compliance with, certain financial and
other covenants customary with this type of unsecured financing. The Line
is used primarily to finance the acquisition and development of real
estate, but is also available for general working capital purposes.
On January 15, 2002, the Company, through RCLP, completed a $250 million
unsecured debt offering with an interest rate of 6.75%. These notes were
priced at 99.850%, are due on January 15, 2012 and are guaranteed by the
Company. The net proceeds of these offerings were used to reduce the
balance of the Line.
Mortgage loans are secured by certain real estate properties, and may be
prepaid, but could be subject to a yield-maintenance premium. Mortgage
loans are generally due in monthly installments of interest and principal
and mature over various terms through 2019. Variable interest rates on
mortgage loans are currently based on LIBOR plus a spread in a range of
130 basis points to 175 basis points. Fixed interest rates on mortgage
loans range from 6.82% to 9.5%.
As of June 30, 2002, scheduled principal repayments on notes payable and
the Line were as follows (in thousands):
Scheduled
Principal Term Loan Total
Scheduled Payments by Year Payments Maturities Payments
-------------------------- -------------- --------------- ---------------
2002 $ 2,452 11,768 14,220
2003 4,588 22,868 27,456
2004 (includes the Line) 4,949 389,154 394,103
2005 3,754 148,029 151,783
2006 3,296 24,095 27,391
Beyond 5 Years 24,416 762,663 787,079
Unamortized debt premiums - 4,250 4,250
------------ --------------- ---------------
Total $ 43,455 1,362,827 1,406,282
============ =============== ===============
16
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
5. Notes Payable and Unsecured Line of Credit (continued)
During the period ended June 30, 2002, the Company extinguished the debt
on Worthington Park Centre for the face amount of the note, resulting in
the recognition of a gain on early extinguishment representing the
remaining unamortized premium recorded upon assumption of the debt. The
gain has been recorded in other income on the accompanying consolidated
statements of operations.
The fair value of the Company's notes payable and Line are estimated
based on the current rates available to the Company for debt of the same
remaining maturities. Variable rate notes payable and the Line are
considered to be at fair value, since the interest rates on such
instruments reprice based on current market conditions. Fixed rate loans
assumed in connection with real estate acquisitions are recorded in the
accompanying financial statements at fair value. Based on the borrowing
rates currently available to the Company for loans with similar terms and
average maturities, the fair value of long-term debt is $1.47 billion.
6. Stockholders' Equity and Minority Interest
The Company, through RCLP, has issued Cumulative Redeemable Preferred
Units ("Preferred Units") in various amounts since 1998. The issues were
sold primarily to institutional investors in private placements for
$100.00 per unit. The Preferred Units, which may be called by the
Partnership at par after certain dates, have no stated maturity or
mandatory redemption, and pay a cumulative, quarterly dividend at fixed
rates. At any time after 10 years from the date of issuance, the
Preferred Units may be exchanged for Cumulative Redeemable Preferred
Stock ("Preferred Stock") at an exchange rate of one share for one unit.
The Preferred Units and the related Preferred Stock are not convertible
into common stock of the Company. The net proceeds of these offerings
were used to reduce the Line. At June 30, 2002 and December 31, 2001 the
face value of total preferred units issued was $384 million with an
average fixed distribution rate of 8.72%.
Terms and conditions of the Preferred Units are summarized as follows:
Units Issue Issuance Distribution Callable Exchangeable
Series Issued Price Amount Rate by Company by Unitholder
- ----------------------------------------------------------------------------------------------------------------------
Series A 1,600,000 $ 50.00 $ 80,000,000 8.125% 06/25/03 06/25/08
Series B 850,000 100.00 85,000,000 8.750% 09/03/04 09/03/09
Series C 750,000 100.00 75,000,000 9.000% 09/03/04 09/03/09
Series D 500,000 100.00 50,000,000 9.125% 09/29/04 09/29/09
Series E 700,000 100.00 70,000,000 8.750% 05/25/05 05/25/10
Series F 240,000 100.00 24,000,000 8.750% 09/08/05 09/08/10
------------- ----------------
4,640,000 $ 384,000,000
============= ================
Security Capital owns approximately 58.9% of the outstanding common stock
of Regency; however, its ability to exercise voting control over these
shares is limited by the Stockholders Agreement by and among Regency,
Security Capital Holdings S.A., Security Capital U.S. Realty and The
Regency Group, Inc. dated as of July 10, 1996, as amended, including
amendments to reflect Security Capital's purchase of Security Capital
Holdings S.A. and the liquidation of Security Capital U.S. Realty (as
amended, the "Stockholders Agreement").
17
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
6. Stockholders' Equity and Minority Interest (continued)
The Stockholders Agreement provides that during the standstill period
Security Capital will vote all of its shares of Regency in accordance
with the recommendations of Regency's board of directors or
proportionally in accordance with the votes of the other holders of
Regency common stock. This broad voting restriction is subject to a
limited qualified exception pursuant to which Security Capital can vote
its shares of Regency in its sole and absolute discretion with regard to
amendments to Regency's charter or by-laws that would materially
adversely affect Security Capital and with regard to "Extraordinary
Transactions" (which include mergers, consolidations, sale of a material
portion of Regency's assets, issuances of securities in an amount which
requires a shareholder vote and other similar transactions out of the
ordinary course of business). However, the limited exception is itself
further qualified. Even with respect to charter and by-law amendments and
Extraordinary Transactions, Security Capital may only vote shares
representing ownership of 49% of the outstanding Regency common stock at
its discretion, any shares owned by Security Capital in excess of 49%
must be voted in accordance with the recommendations of Regency's board
of directions or proportionally in accordance with the votes of the other
holders of Regency common stock. With regard to Extraordinary
Transactions which require a 2/3rds vote (i.e. where Security Capital
could block the outcome if it voted 49% of the stock), Security Capital
may only vote shares representing ownership of 32% of the outstanding
Regency common stock. Security Capital may vote its shares to elect a
certain number of nominees to the Regency board of directors, however
this right is similarly limited. Security Capital has the right to
nominate the greater of three directors or the number of directors
proportionate to its ownership, however Security Capital may not nominate
more than 49% of the Regency board of directors.
The effect of these limitations is such that notwithstanding the fact
that Security Capital owns more than a majority of the currently
outstanding shares of Regency common stock, Security Capital may not, in
compliance with the standstill provisions of the Stockholders Agreement,
exercise voting control with respect to more than 49% of the outstanding
shares of Regency (and may vote those shares in its discretion only with
respect to the limited matters listed above).
Effective May 14, 2002, an indirect wholly owned subsidiary of GE Capital
merged into Security Capital with Security Capital surviving as an
indirect wholly owned subsidiary of GE Capital. On July 12, 2002,
Security Capital advised Regency that, pursuant to the terms of the
Stockholders Agreement, Security Capital has elected to cancel the
otherwise automatic extension of the standstill period effective April
10, 2003.
18
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
7. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three month periods ended June 30, 2002, and 2001 (in
thousands except per share data):
2002 2001
----- ----
Numerator:
Income from continuing operations $ 19,179 22,310
Discontinued operations 3,812 1,839
------------ ------------
Net income 22,991 24,149
Less: Preferred stock dividends 759 744
------------ ------------
Net income for common stockholders - Basic 22,232 23,405
Add: Minority interest of exchangeable operating
partnership units 582 818
------------ ------------
Net income for common stockholders - Diluted $ 22,814 24,223
============ ============
Denominator:
-------------
Weighted average common shares
outstanding for Basic EPS 58,120 57,504
Exchangeable operating partnership units 1,520 1,566
Incremental shares to be issued under
common stock using the Treasury Method 459 203
------------ ------------
Weighted average common shares outstanding
for Diluted EPS 60,099 59,273
------------ ------------
Income per common share - Basic
Income from continuing operations $ 0.32 0.38
Discontinued operations $ 0.06 0.03
------------ ------------
Net income for common stockholders
per share $ 0.38 0.41
============ ============
Income per common share - Diluted
Income from continuing operations $ 0.32 0.38
Discontinued operations $ 0.06 0.03
------------ ------------
Net income for common stockholders
per share $ 0.38 0.41
============ ============
The Series 2 preferred stock is not included in the above calculation
because its effect is anti-dilutive.
19
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
7. Earnings Per Share (continued)
The following summarizes the calculation of basic and diluted earnings
per share for the six month periods ended June 30, 2002, and 2001 (in
thousands except per share data):
2002 2001
---- ----
Numerator:
Income from continuing operations $ 39,712 43,531
Discontinued operations 8,555 3,764
------------ ------------
Net income 48,267 47,295
Less: Preferred stock dividends 1,517 1,478
------------ ------------
Net income for common stockholders - Basic 46,750 45,817
Add: Minority interest of exchangeable operating
partnership units 1,233 1,379
------------ ------------
Net income for common stockholders - Diluted $ 47,983 47,196
============ ============
Denominator:
-------------
Weighted average common shares
outstanding for Basic EPS 57,953 57,353
Exchangeable operating partnership units 1,529 1,612
Incremental shares to be issued under
common stock using the Treasury Method 425 183
------------ ------------
Weighted average common shares outstanding
for Diluted EPS 59,907 59,148
------------ ------------
Income per common share - Basic
Income from continuing operations $ 0.66 0.73
Discontinued operations $ 0.15 0.07
------------ ------------
Net income for common stockholders
per share $ 0.81 0.80
============ ============
Income per common share - Diluted
Income from continuing operations $ 0.66 0.73
Discontinued operations $ 0.14 0.07
------------ ------------
Net income for common stockholders
per share $ 0.80 0.80
============ ============
The Series 2 preferred stock is not included in the above calculation
because its effect is anti-dilutive.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto of Regency
Centers Corporation ("Regency" or "Company") appearing elsewhere within.
Organization
Regency is a qualified real estate investment trust ("REIT") which
began operations in 1993. We previously operated under the name Regency Realty
Corporation, but changed our name to Regency Centers Corporation in February
2001 to more appropriately acknowledge our brand and position in the shopping
center industry. We invest in retail shopping centers through our partnership
interest in Regency Centers, L.P., ("RCLP"), an operating partnership in which
Regency currently owns approximately 98% of the outstanding common partnership
units ("Units"). The acquisition, development, operations and financing activity
of Regency, including the issuance of Units or preferred units, is executed by
RCLP.
Shopping Center Business
We are a national owner, operator and developer of grocery-anchored
neighborhood retail shopping centers. Our shopping centers summarized by state
and in order by largest holdings including their gross leasable areas (GLA)
follows:
June 30, 2002 December 31, 2001
------------- -----------------
Location # Properties GLA % Leased * # Properties GLA % Leased *
------------ --------- ---------- ------------ ----------- ----------
Florida 55 6,358,348 93.2% 56 6,535,254 92.0%
California 38 4,814,302 99.1% 39 4,879,051 98.8%
Texas 35 4,373,356 93.4% 36 4,579,263 92.8%
Georgia 24 2,429,924 94.6% 26 2,556,471 93.3%
Ohio 14 1,878,356 90.6% 14 1,870,079 93.5%
North Carolina 13 1,302,751 98.0% 13 1,302,751 98.1%
Colorado 12 1,195,412 98.2% 12 1,188,480 99.2%
Washington 8 932,271 98.9% 9 1,095,457 98.1%
Oregon 8 827,031 91.7% 8 740,095 93.2%
Alabama 8 783,711 94.3% 7 665,440 95.3%
Arizona 8 586,772 86.4% 9 627,612 98.6%
Virginia 7 477,250 98.4% 6 408,368 97.6%
Tennessee 7 455,142 97.9% 10 493,860 99.4%
Missouri 2 370,572 96.5% 2 370,176 92.9%
South Carolina 6 350,164 100.0% 5 241,541 100.0%
Kentucky 5 325,682 93.6% 5 321,689 94.2%
Illinois 2 300,536 98.5% 2 300,162 91.6%
Michigan 3 279,265 93.7% 3 275,085 89.5%
Delaware 2 240,418 99.5% 2 240,418 99.3%
Mississippi 2 185,061 98.9% 2 185,061 98.3%
New Jersey 2 99,901 100.0% 3 112,640 100.0%
Wyoming 1 86,883 100.0% 1 87,777 100.0%
Pennsylvania 1 6,000 100.0% 1 6,000 100.0%
Maryland - - - 1 6,763 -
--------------- --------------- ---------------- -------------- -------------- --------------
Total 263 28,659,108 95.0% 272 29,089,493 94.9%
=============== =============== ================ ============== ============== ==============
* Excludes pre-stabilized properties under development
21
We are focused on building a portfolio of grocery-anchored
neighborhood shopping centers that should withstand adverse economic conditions
by providing convenient shopping for daily necessities and foot traffic for
adjacent local tenants. Regency's current investment markets have continued to
offer stable economies, and accordingly, we expect to realize growth in net
income as a result of increasing occupancy in the portfolio, increasing rental
rates, development and acquisition of shopping centers in targeted markets, and
redevelopment of existing shopping centers.
The following table summarizes the four largest grocery tenants
occupying our shopping centers at June 30, 2002:
Percentage of Percentage of
Grocery Number of Company- Annualized Average Remaining
Anchor Stores (a) (b) owned GLA (b) Base Rent (b) Lease Term
------ -------------- ------------- ------------- ----------
Kroger 57 11.1% 8.7% 15 yrs
Publix 52 8.3% 5.9% 13 yrs
Safeway 45 5.8% 4.5% 11 yrs
Albertsons 25 3.0% 2.6% 15 yrs
(a) Includes grocery tenant owned stores
(b) Includes properties owned through joint ventures
On January 22, 2002, Kmart Corporation, a tenant in four of our
shopping centers, filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. Under Chapter 11 bankruptcy protection, Kmart has the ability to reject
pre-petition lease agreements and cease the payment of rent. Effective June 30,
2002, Kmart rejected two leases representing $0.942 million of annual base rent
and closed both stores. We have two other leases with Kmart representing $0.883
million of annual base rent. Both of these stores are open and operating,
however, there can be no assurance that Kmart will be able to continue rental
payments on these two stores in the future.
As a result of the Kmart store closing at one of our shopping centers,
combined with an earlier closing of an adjacent Winn-Dixie grocery store, we
determined that the value of this shopping center had been permanently impaired;
and accordingly, recorded a provision for loss on operating properties of $2.4
million.
Acquisition and Development of Shopping Centers
- -----------------------------------------------
We have implemented a growth strategy dedicated to developing and
acquiring high-quality shopping centers. Our development program makes a
significant contribution to our overall growth. Development is customer-driven,
meaning we generally have an executed lease from the anchor before we begin
construction. Developments serve the growth needs of our grocery and specialty
retail customers, result in modern shopping centers with 20-year leases from the
grocer anchors, and produce either attractive returns on invested capital or
profits from sale. This development process can require 12 to 36 months from
initial land or redevelopment acquisition through construction and lease-up and
finally stabilized income, depending upon the size and type of project.
Generally, anchor tenants begin operating their stores prior to construction
completion of the entire center, resulting in rental income during the
development phase.
At June 30, 2002, we had 30 projects under construction or undergoing
major renovations, which, when complete will represent an investment of $461.0
million before reimbursement of certain tenant-related costs and expected sale
proceeds from adjacent land and outparcels. Total costs necessary to complete
these developments are estimated to be
22
$146.0 million and will be expended through 2005. These developments are
approximately 68% complete and 74% pre-leased.
Regency has a 20% equity interest in Columbia Regency Retail Partners,
LLC ("Columbia"), a joint venture with Columbia PERFCO Partners, L.P. ("PERFCO")
that was formed for the purpose of investing in retail shopping centers. At June
30, 2002, Columbia owned nine shopping centers with total GLA of 1,606,026 sq.
ft. and a net book value of $192.0 million.
Regency has a 25% equity interest in Macquarie CountryWide-Regency,
LLC, ("MCWR") a joint venture with an affiliate of Macquarie CountryWide Trust
of Australia, a Sydney, Australia-based property trust focused on investing in
grocery-anchored shopping centers. During the first quarter, MCWR acquired two
shopping centers from the Company for $17.8 million, for which the Company
received net proceeds of $13.3 million. The Company recognized gains on the
sales of these centers of $1.5 million, which represents gain recognition on
only that portion of the sales to MCWR not owned by the Company. At June 30,
2002, MCWR owned seven shopping centers with total GLA of 560,624 sq. ft. and a
net book value of $54.5 million.
Columbia and MCWR intend to continue to acquire retail shopping
centers, some of which may be acquired directly from Regency. For those
properties acquired from third parties, Regency is required to provide its pro
rata share of the purchase price.
Liquidity and Capital Resources
- -------------------------------
We expect that cash generated from revenues will provide the necessary
funds on a short-term basis to pay our operating expenses, interest expense,
scheduled principal payments on outstanding indebtedness, recurring capital
expenditures necessary to maintain our shopping centers properly, and
distributions to share and unit holders. Net cash provided by operating
activities was $89.5 million and $92.5 million for the six months ended June 30,
2002 and 2001, respectively. During the first six months of 2002 and 2001,
respectively, we incurred capital expenditures of $8.1 million and $6.9 million
to improve our shopping center portfolio, paid scheduled principal payments of
$2.6 million and $2.9 million to our lenders, and paid dividends and
distributions of $79.0 million and $77.3 million to our share and unit holders.
Although no tenant represents more than 10% of our annual base rental
revenues, and base rent is supported by long-term lease contracts, tenants who
file bankruptcy have the right to cancel their leases and close the related
stores. In the event that a tenant with a significant number of leases in our
shopping centers filed bankruptcy and cancelled its leases, it could cause a
significant reduction to our revenues. We are not currently aware of any current
or pending bankruptcy of any of our tenants that would cause a significant
reduction to our revenues.
We expect to meet long-term capital requirements for maturing debt, the
acquisition of real estate, and the renovation or development of shopping
centers from: (i) cash generated from operating activities after the payments
described above, (ii) proceeds from the sale of real estate, (iii) joint
venturing of real estate, (iv) increases in debt, and (v) equity raised in the
private or public markets. Proceeds from the sale of real estate includes the
sale of out-parcels and developments as well as the sale of low-growth shopping
centers. Our commitment to maintaining a high-quality portfolio dictates that we
continually assess the value of all of our properties and sell those that no
longer meet our long-term investment standards to third parties. Joint venturing
of assets provides Regency with a capital source for new development and
acquisitions, while earning market based fees as the asset manager. During the
first six months of 2002 and 2001, proceeds from the sale of real estate to
third parties and joint ventures were $152.6 million and $101.3 million,
respectively.
Net cash provided by investing activities was $25.5 million for the six
months ended June 30, 2002. Net cash used in investing activities was $40.4 for
the six months ended June 30, 2001, primarily for the purposes discussed under
Acquisition and Development of Shopping
23
Centers. These amounts are net of the proceeds from sales of real estate
discussed above. Net cash used in financing activities was $73.7 million and
$139.9 million for the six months ended June 30, 2002 and 2001, respectively.
Outstanding debt at June 30, 2002 and December 31, 2001 consists of the
following (in thousands):
2002 2001
---- ----
Notes Payable:
Fixed rate mortgage loans $ 202,816 240,091
Variable rate mortgage loans 18,887 21,691
Fixed rate unsecured loans 1,004,579 760,939
-------------- ------------
Total notes payable 1,226,282 1,022,721
Unsecured line of credit 180,000 374,000
-------------- ------------
Total $ 1,406,282 1,396,721
============== ============
Mortgage loans are secured by certain real estate properties, and may
be prepaid, but could be subject to a yield-maintenance premium. Mortgage loans
are generally due in monthly installments of interest and principal and mature
over various terms through 2019. Variable interest rates on mortgage loans are
currently based on LIBOR plus a spread in a range of 130 basis points to 175
basis points. Fixed interest rates on mortgage loans range from 6.82% to 9.5%.
Interest rates paid on the Line at June 30, 2002 and 2001 were based on
LIBOR plus .85%, or 2.725% and 4.975%, respectively. The spread that we pay on
the Line is dependent upon maintaining specific investment grade ratings. We are
also required to comply, and are in compliance, with certain financial and other
covenants customary with this type of unsecured financing. The Line is used
primarily to finance the acquisition and development of real estate, but is also
available for general working capital purposes.
On January 15, 2002, the Company, through RCLP completed a $250 million
unsecured debt offering with an interest rate of 6.75%. These notes were priced
at 99.850%, are due on January 15, 2012 and are guaranteed by the Company. The
net proceeds of these offerings were used to reduce the balance of the Line.
As of June 30, 2002, scheduled principal repayments on notes payable
and the Line were as follows (in thousands):
Scheduled
Principal Term Loan Total
Scheduled Payments by Year Payments Maturities Payments
-------------------------- ------------- --------------- ---------------
2002 $ 2,452 11,768 14,220
2003 4,588 22,868 27,456
2004 (includes the Line) 4,949 389,154 394,103
2005 3,754 148,029 151,783
2006 3,296 24,095 27,391
Beyond 5 Years 24,416 762,663 787,079
Unamortized debt premiums - 4,250 4,250
------------- --------------- ---------------
Total $ 43,455 1,362,827 1,406,282
============= =============== ===============
Unconsolidated partnerships and joint ventures in which we have an
investment also had mortgage loans payable of $67.6 million at June 30, 2002 and
the Company's proportionate share of these loans is $14.6 million.
24
The fair value of our notes payable and the Line are estimated based on
the current rates available to us for debt of the same remaining maturities.
Variable rate notes payable and the Line are considered to be at fair value
since the interest rates on such instruments reprice based on current market
conditions. Fixed rate loans assumed in the connection with real estate
acquisitions are recorded in the accompanying financial statements at fair
value. Based on the borrowing rates currently available to us for loans with
similar terms and average maturities, the fair value of long-term debt is $1.47
billion.
RCLP has issued Cumulative Redeemable Preferred Units ("Preferred
Units") in various amounts since 1998. The issues were sold primarily to
institutional investors in private placements. The Preferred Units, which may be
called by RCLP at par after certain dates ranging from 2003 to 2005, have no
stated maturity or mandatory redemption, and pay a cumulative, quarterly
dividend at fixed rates ranging from 8.125% to 9.125%. At any time after 10
years from the date of issuance, the Preferred Units may be exchanged for
Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of
one share for one unit. The Preferred Units and the related Preferred Stock are
not convertible into Regency common stock. The net proceeds of these offerings
were used to reduce the Line. At June 30, 2002 and 2001 the face value of total
preferred units issued was $384 million with an average fixed distribution rate
of 8.72%.
We intend to continue to grow our portfolio through acquisitions and
development, either directly or through our joint venture relationships. Because
acquisition and development activities are discretionary in nature, they are not
expected to burden our capital resources currently available for liquidity
requirements. Regency expects that cash provided by operating activities, unused
amounts available under the Line, and cash reserves are adequate to meet
liquidity requirements.
Results from Operations
- -----------------------
Comparison of the six months ended June 30, 2002 to 2001
Revenues increased $6.9 million or 4% to $187.4 million in 2002. The
increase was due primarily to revenues from newly completed developments that
only partially operated during 2001, and from growth in rental rates of the
operating properties. Minimum rent increased $12.9 million or 10%, and
recoveries from tenants increased $3.7 million or 10%. At June 30, 2002, we were
operating or developing 263 shopping centers. We identify our shopping centers
as either development properties or stabilized properties. Development
properties are defined as properties that are in the construction and initial
lease-up process that are not yet fully leased (fully leased generally means
greater than 90% leased) and occupied. Stabilized properties are all properties
not identified as development. At June 30, 2002, we had 233 stabilized shopping
centers that were 95.0% leased. In 2002, rental rates grew by 9.3% from renewal
leases and new leases replacing previously occupied spaces in the stabilized
properties.
Service operations revenue includes management fees, commission income,
and development-related profits from the sales of recently developed real estate
properties and land. Service operations revenue does not include gains or losses
from the sale of operating properties or properties in development which are
included in gain or loss on the sale of operating properties or discontinued
operations. The Company accounts for profit recognition on sales of real estate
in accordance with FASB Statement No. 66, "Accounting for Sales of Real Estate."
Profits from sales of real estate will not be recognized by the Company unless a
sale has been consummated; the buyer's initial and continuing investment is
adequate to demonstrate a commitment to pay for the property; the Company has
transferred to the buyer the usual risks and rewards of ownership; and the
Company does not have substantial continuing involvement with the property.
Service operations revenue decreased by $10.0 million to $4.1 million in 2002,
or 71%. The decrease was due to a $7.8 million reduction in development profits
resulting from the sale of fewer developments during 2002 compared to 2001, a
$2.7 million decrease in gains from the sale of
25
land and outparcels, and the adoption of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets ("Statement 144") which requires
$1.5 million of sales to be presented under discontinued operations. Operating
expenses increased $4.5 million or 5% to $90.0 million in 2002. Combined
operating and maintenance, and real estate taxes increased $3.8 million or 9%
during 2002 to $45.6 million. The increase was primarily due to expenses
incurred by newly completed developments that only partially operated during
2001, and general increases in operating expenses on the stabilized properties.
General and administrative expenses were $9.2 million during 2002 vs. $8.9
million in 2001. Depreciation and amortization increased $3.0 million during
2002 or 9% primarily due to developments that only partially operated during
2001 and the recharacterization of operating properties previously classed as
held for sale that no longer meet the criteria under Statement 144.
We review our real estate portfolio for value impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Regency determines whether impairment has occurred by
comparing the property's carrying value to an estimate of the future
undiscounted cash flows. In the event impairment exists, assets are written down
to fair value for held and used assets and fair value less costs to sell for
held for sale assets. During the second quarter, we recorded a provision for
loss on an operating property of $2.4 million.
Net interest expense increased to $41.0 million in 2002 from $34.3
million in 2001 or 19%. The increase was primarily due to a reduction in
capitalized interest related to the completion of developments during 2002 and a
higher percentage of outstanding debt with fixed interest rates, which are
higher than variable interest rates. Regency had $1.4 billion of outstanding
debt at June 30, 2002 and June 30, 2001. On June 30, 2002, 86% of outstanding
debt had fixed interest rates vs. 80% on June 30, 2001.
Income from discontinued operations was $8.6 million in 2002 compared
to $3.8 million in 2001 primarily due to gains recognized on the sale of
operating properties and properties in development in 2002 of $4.8 million.
Net income for common stockholders was $46.7 million in 2002 vs. $45.8
million in 2001, or a 2% increase. Diluted earnings per share were $0.80 in both
2002 and 2001.
Comparison of the three months ended June 30, 2002 to 2001
Revenues increased $4.0 million or 4% to $95.3 million for the three
months ended June 30, 2002. The increase was due primarily to revenues from
newly completed developments that only partially operated during 2001, and from
growth in rental rates of the operating properties. Minimum rent increased $7.1
million or 11%, and recoveries from tenants increased $2.3 million or 13%.
Service operations revenue includes management fees, commission income,
and development-related profits from the sales of recently developed real estate
properties and land. Service operations revenue does not include gains or losses
from the sale of operating properties or properties in development which are
included in gain or loss on the sale of operating properties or discontinued
operations. Service operations revenue decreased by $6.3 million to $2.4 million
in 2002, or 72%. The decrease was due to a $5.6 million reduction in development
profits resulting from the sale of fewer developments during 2002 compared to
2001, a $0.8 million decrease in gains from the sale of land and outparcels, and
the adoption of Statement 144 which requires $1.3 million of sales to be
presented under discontinued operations.
Operating expenses increased $3.2 million or 7% to $46.6 million in
2002. Combined operating and maintenance, and real estate taxes increased $2.6
million or 12% during 2002 to $23.3 million. The increase was primarily due to
expenses incurred by newly completed developments that only partially operated
during 2001, and general increases in operating
26
expenses on the stabilized properties. General and administrative expenses were
$5.2 million during 2002 vs. $4.6 million in 2001. Depreciation and amortization
increased $1.6 million during 2002 or 10% primarily due to developments that
only partially operated during 2001.
We review our real estate portfolio for value impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Regency determines whether impairment has occurred by
comparing the property's carrying value to an estimate of the future
undiscounted cash flows. In the event impairment exists, assets are written down
to fair value for held and used assets and fair value less costs to sell for
held for sale assets. During the three month period ended June 30, 2002, we
recorded a provision for loss on an operating property of $2.4 million.
Net interest expense increased to $20.5 million in 2002 from $17.4
million in 2001 or 18%. The increase was primarily due to a reduction in
capitalized interest related to the completion of developments during 2002 and a
higher percentage of outstanding debt with fixed interest rates, which are
higher than variable interest rates.
Income from discontinued operations was $3.8 million in 2002 compared
to $1.8 million in 2001 primarily due to gains recognized on the sale of
operating properties and properties in development in 2002 of $2.9 million.
Net income for common stockholders was $22.2 million in 2002 vs. $23.4
million in 2001, or a 5% decrease. Diluted earnings per share were $0.38 in
2002 vs. $0.41 in 2001, or 7% lower as a result of the decrease in net income.
Stock Purchase Loans
- --------------------
In previous years, as part of its long-term incentive compensation program, the
Company structured a stock purchase plan whereby executives could acquire common
stock at fair market value by investing their own capital in combination with
loans provided by Regency. These full recourse loans are secured by stock, which
is held as collateral by Regency, and have fixed interest rates of 6% and 7.8%.
As part of the loan program, executives have been granted annual loan
forgiveness over a vesting period. The Company ceased making these types of
loans in 1998 and has not originated any new personal loans to its employees
since that date. The Company continues to carry these existing stock loans in
its financial statements as a reduction to stockholder's equity and charges loan
forgiveness to compensation expense as it vests.
Environmental Matters
- ---------------------
Regency, like others in the commercial real estate industry, is subject
to numerous environmental laws and regulations. The operation of dry cleaning
plants at our shopping centers is the principal environmental concern. We
believe that the tenants who operate these plants do so in accordance with
current laws and regulations and have established procedures to monitor their
operations. Additionally, we use all legal means to cause tenants to remove dry
cleaning plants from our shopping centers. Where available, we have applied and
been accepted into state-sponsored environmental programs. We have a blanket
environmental insurance policy that covers Regency against third party
liabilities and remediation costs on shopping centers that currently have no
known environmental contamination. We have also placed environmental insurance
on specific properties with known contamination in order to mitigate Regency's
environmental risk. We believe that the ultimate disposition of currently known
environmental matters will not have a material effect on the financial position,
liquidity, or operations of Regency.
27
Inflation
- ---------
Inflation has remained relatively low and has had a minimal impact on
the operating performance of the shopping centers; however, substantially all of
our long-term leases contain provisions designed to mitigate the adverse impact
of inflation. Such provisions include clauses enabling us to receive percentage
rentals based on tenants' gross sales, which generally increase as prices rise,
and/or escalation clauses, which generally increase rental rates during the
terms of the leases. Such escalation clauses are often related to increases in
the consumer price index or similar inflation indices. In addition, many of our
leases are for terms of less than ten years, which permits us to seek increased
rents upon re-rental at market rates. Most of our leases require the tenants to
pay their share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing our exposure to
increases in costs and operating expenses resulting from inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
- -----------
Regency is exposed to interest rate changes primarily as a result of
the Line and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of Regency's real estate investment portfolio and
operations. Regency's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives Regency borrows primarily at
fixed rates and may enter into derivative financial instruments such as interest
rate swaps, caps and treasury locks in order to mitigate its interest rate risk
on a related financial instrument. Regency has no plans to enter into derivative
or interest rate transactions for speculative purposes, and at June 30, 2002,
Regency did not have any borrowings hedged with derivative financial
instruments.
Regency's interest rate risk is monitored using a variety of
techniques. The table below presents the principal cash flows (in thousands),
weighted average interest rates of remaining debt, and the fair value of total
debt (in thousands), by year of expected maturity to evaluate the expected cash
flows and sensitivity to interest rate changes.
Fair
2002 2003 2004 2005 2006 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Fixed rate debt 14,106 17,893 204,893 151,783 27,391 787,079 1,203,145 1,273,971
Average interest rate 7.62% 7.60% 7.64% 7.64% 7.64% 7.63% - -
Variable rate debt 114 9,563 189,210 - - - 198,887 198,887
Average interest rate 2.71% 2.68% - - - - - -
As the table incorporates only those exposures that exist as of June
30, 2002, it does not consider those exposures or positions, which could arise
after that date. Moreover, because firm commitments are not presented in the
table above, the information presented therein has limited predictive value. As
a result, Regency's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the period,
Regency's hedging strategies at that time, and interest rates.
28
Part II
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting for Regency Centers Corporation was held on May 7, 2002. The
only matter to be acted on was the election of three Class III Directors. Each
of the nominees was elected with total outstanding votes received of 52.3
million shares of the 59.6 million common and preferred shares entitled to vote.
The number of shares voted for or withheld as to each nominee was as follows:
Election of three Class III Directors
Nominee For Withheld
------- --- --------
John T. Kelley, III 51,958,476 380,864
John C. Schweitzer 52,048,103 291,237
Thomas G. Wattles 52,047,520 291,820
The terms of the following directors continue until the annual meeting in the
year indicated:
Class I Directors (term expiring 2003)
Mary Lou Fiala
C. Ronald Blankenship
Douglas S. Luke
Terry N. Worrell
Class II Directors (term expiring 2004)
Martin E. Stein, Jr.
Raymond L. Bank
A. R. Carpenter
J. Dix Druce
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Regency Centers Corporation's Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
99.2 Certification of Regency Centers Corporation's Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002)
99.3 Certification of Regency Centers Corporation's President and
Chief Operating Officer Pursuant to 18 U.S.C. Section 1350
(as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
(b) Reports on Form 8-K
None
29
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 2002 REGENCY CENTERS CORPORATION
By: /s/ J. Christian Leavitt
---------------------------------
Senior Vice President,
and Chief Accounting Officer
30
EXHIBIT 99.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. ss.1350
Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned
Chairman and Chief Executive Officer of Regency Centers Corporation, the general
partner of Regency Centers, L.P. (the "Partnership"), hereby certify, based on
my knowledge, that the Quarterly Report on Form 10-Q of the Partnership for the
quarter ended June 30, 2002 (the "Report") fully complies with the requirements
of Section 13(a) of the Securities Exchange Act of 1934 and that information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Partnership.
/s/ Martin E. Stein, Jr.
- -----------------------------
Martin E. Stein, Jr.
August 9, 2002
Exhibit 99.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. ss.1350
Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned
Managing Director and Chief Financial Officer of Regency Centers Corporation,
the general partner of Regency Centers, L.P. (the "Partnership"), hereby
certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the
Partnership for the quarter ended June 30, 2002 (the "Report") fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934
and that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
/s/ Bruce M. Johnson
- --------------------------
Bruce M. Johnson
August 9, 2002
Exhibit 99.3
Written Statement of the Chief Operating Officer
Pursuant to 18 U.S.C. ss.1350
Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned
President and Chief Operating Officer of Regency Centers Corporation, the
general partner of Regency Centers, L.P. (the "Partnership"), hereby certify,
based on my knowledge, that the Quarterly Report on Form 10-Q of the Partnership
for the quarter ended June 30, 2002 (the "Report") fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 and that
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Partnership.
/s/ Mary Lou Fiala
- --------------------------
Mary Lou Fiala
August 9, 2002