UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
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 001-13499
(Exact name of Registrant as specified in its charter)
| | | | | |
| | (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer identification No.) | |
| | 1600 N.E. Miami Gardens Drive North Miami Beach, FL | | | |
| | (Address of principal executive offices) | | (Zip code) | |
Registrant’s telephone number, including area code: (305) 947-1664
Securities registered pursuant to Section 12(b) of the Act:
| | Common Stock, $.01 Par Value | | | |
| | (Title of each class) | | (Name of exchange on which registered) | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
As of June 30, 2007, the aggregate market value of the Common Stock held by non-affiliates of the Registrant was $934,359,463 based upon the last reported sale price of $25.55 per share on the New York Stock Exchange on such date.
As of February 18, 2008, the number of outstanding shares of Common Stock, par value $.01 per share, of the Registrant was 73,906,174.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant’s definitive Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K to the extent stated herein are incorporated by reference in Part III hereof.
TABLE OF CONTENTS
| | | | Page |
| | | | |
| | | Part I | |
| Item 1. | | | 1 |
| Item 1A. | | | 5 |
| Item 1B. | | | 12 |
| Item 2. | | | 13 |
| Item 3. | | | 22 |
| Item 4. | | | 22 |
| | | | |
| | | Part II | |
| Item 5. | | | 23 |
| Item 6. | | | 25 |
| Item 7. | | | 28 |
| Item 7A. | | | 46 |
| Item 8. | | | 47 |
| Item 9. | | | 47 |
| Item 9A. | | | 47 |
| Item 9B. | | | 47 |
| | | | |
| | | Part III | |
| Item 10. | | | 48 |
| Item 11. | | | 48 |
| Item 12. | | | 48 |
| Item 13. | | | 48 |
| Item 14. | | | 48 |
| | | | |
| | | Part IV | |
| Item 15. | | | 49 |
| | | | 53 |
PART I
The Company
We are a real estate investment trust, or REIT, that principally owns, manages, acquires and develops neighborhood and community shopping centers. We were organized as a Maryland corporation in 1992, completed our initial public offering in May 1998, and have elected to be taxed as a REIT since 1995.
As of December 31, 2007, our property portfolio consisted of 169 properties, including 152 shopping centers comprising approximately 17.1 million square feet of gross leasable area (“GLA”), seven development/redevelopment properties, six non-retail properties and four parcels of land. As of December 31, 2007, our core shopping center portfolio was 93.2% leased and included national, regional and local tenants.
In this annual report, unless stated otherwise or unless the context requires otherwise, references to “we,” “us” or “our” mean Equity One, Inc. and our consolidated subsidiaries.
Strategy and Philosophy
Our principal business objective has been and will continue to be to maximize long-term stockholder value by generating sustainable cash flow growth and increasing the long-term value of our real estate assets. Our strategies for reaching this objective include:
| | · | Operating Strategy: Maximizing the internal growth of revenue from our shopping centers by leasing and re-leasing those properties to a diverse group of creditworthy tenants at higher rental rates and redeveloping those properties to make them more attractive to tenants or to permit additional or better uses; |
| | · | Investment Strategy: Using capital wisely to renovate or redevelop our properties and to acquire and develop additional shopping centers where expected returns meet or exceed our standards; and |
| | · | Capital Strategy: Financing our capital requirements with internally generated funds, borrowings under our existing credit facilities, proceeds from selling properties that do not meet our investment criteria and access to institutional capital and debt and equity capital markets. |
Operating Strategy. Our core operating strategy is to maximize rents and maintain high occupancy levels by attracting and retaining a strong and diverse base of tenants. Many of our properties are located in some of the most densely populated and highest growth areas of the country, including the metropolitan areas around Miami, Ft. Lauderdale, West Palm Beach, Tampa, Jacksonville and Orlando, Florida, Atlanta, Georgia, and Boston, Massachusetts. Strong trade-area demographics help our tenants generate high sales, which has enabled us to maintain high occupancy rates and increase rental rates.
In order to effectively achieve our operating strategy, we seek to:
| | · | actively manage and maintain the high standards and physical appearance of our assets while maintaining competitive tenant occupancy costs; |
| | · | maintain a diverse tenant base in order to limit exposure to any one tenant’s financial condition; |
| | · | develop strong, mutually beneficial relationships with creditworthy tenants, particularly our anchor tenants, by consistently meeting or exceeding their expectations; |
| | · | increase rental rates upon the renewal of expiring leases or as we lease space to new tenants while minimizing vacancy and down-time; and |
| | · | evaluate renovation or redevelopment opportunities that will make our properties more attractive for leasing or re-leasing to tenants, take advantage of under-utilized land or existing square footage; or re-configure properties for better uses. |
Investment Strategy. Our investment strategy is to deploy capital in projects that are expected to generate returns that exceed our cost of capital. Our investments primarily fall into one of the following three categories:
| | · | re-developing, renovating, expanding, reconfiguring and/or re-tenanting our existing properties; |
| | · | selectively acquiring shopping centers that will benefit from our active management and leasing strategies; and |
| | · | selectively developing new shopping centers to meet the needs of expanding retailers. |
In the past, we have also made investments in the securities of other companies, whose assets or markets are consistent with our investment strategy. These investment decisions are made in the same manner as other investments by us and are subject to the gross income and asset tests necessary to maintain our REIT qualification.
In evaluating potential redevelopment, acquisition and development opportunities, we also consider such factors as:
| | · | the expected returns in relation to our cost of capital, as well as the anticipated risks we will face in achieving the expected returns; |
| | · | the current and projected cash flow of the property and the potential to increase that cash flow; |
| | · | the tenant mix at the property, tenant sales performance and the creditworthiness of those tenants; |
| | · | economic, demographic, regulatory and zoning conditions in the property’s local and regional market; |
| | · | competitive conditions in the vicinity of the property, including competition for tenants and the potential that others may create competing properties through redevelopment, new construction or renovation; |
| | · | the level and success of our existing investments in the relevant market; |
| | · | the current market value of the land, buildings and other improvements and the potential for increasing those market values; |
| | · | the physical configuration of the property, its visibility, ease of entry and exit, and availability of parking; and |
| | · | the physical condition of the land, buildings and other improvements, including the structural and environmental conditions. |
Capital Strategy. We intend to grow and expand our business by using cash flows from operations, by borrowing under our existing credit facilities, reinvesting proceeds from selling properties that do not meet our investment criteria or, if appropriate market conditions exist, by accessing capital from institutional partners or the capital markets to issue equity, debt or a combination thereof. Our capital strategy is to maintain a strong balance sheet and sufficient flexibility to fund our operating and investment activities in a cost-efficient way. Our strategy includes:
| | · | maintaining a prudent level of overall leverage and an appropriate pool of unencumbered properties that is sufficient to support our unsecured borrowings; |
| | · | managing our exposure to variable-rate debt; |
| | · | taking advantage of market opportunities to refinance existing debt, reduce interest costs and manage our debt maturity schedule; and |
| | · | using joint venture arrangements to access less expensive capital, mitigate capital risk, or to capitalize on the expertise of local real estate partners. |
While we generally hold our properties for investment and for the production of rental income, we also recycle our capital. Over time, when our assets no longer meet our investment criteria, asset type or geographic focus, we may sell or otherwise dispose of those assets. By identifying these opportunities, we are able to recycle our capital and reinvest the proceeds in more attractive properties or markets.
Change in Policies
Our board of directors establishes the policies that govern our operating, investment and capital strategies, including, among others, the development and acquisition of shopping centers, tenant and market focus, debt and equity financing policies, quarterly distributions to our stockholders and the REIT status. The board may amend these policies at any time, without a vote of our stockholders.
We elected to be taxed as a real estate investment trust for federal income tax purposes beginning with our taxable year ended December 31, 1995. As a REIT, we are generally not subject to federal income tax on REIT taxable income that we distribute to our stockholders. Under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, REITs are subject to numerous organizational and operational requirements, including the requirement to distribute at least 90% of REIT taxable income (excluding net capital gains) each year. We will be subject to federal income tax on our taxable income (including any applicable alternative minimum tax) at regular corporate rates if we fail to qualify as a REIT for tax purposes in any taxable year, or to the extent we distribute less than 100% of REIT taxable income. We will also not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Even if we qualify as a REIT for federal income tax purposes, we may be subject to certain state and local income and franchise taxes and to federal income and excise taxes on our undistributed REIT taxable income.
We have elected to treat certain of our subsidiaries as taxable REIT subsidiaries, each of which we refer to as a TRS. In general, a TRS may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Code. A TRS is subject to federal and state income taxes. The sales of certain land parcels, our investment in DIM Vastgoed N.V. and certain other real estate and other activities are being conducted through our TRS entities. Our current TRS activities are limited and they have not incurred any significant income taxes to date.
Governmental Regulations Affecting Our Properties
We and our properties are subject to a variety of federal, state and local environmental, health, safety and similar laws, including:
| | · | the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, which we refer to as CERCLA; |
| | · | the Resource Conservation & Recovery Act; |
| | · | the Federal Clean Water Act; |
| | · | the Federal Clean Air Act; |
| | · | the Toxic Substances Control Act; |
| | · | the Occupational Safety & Health Act; and |
| | · | the Americans with Disabilities Act. |
Environmental Regulations. The application of these laws to a specific property that we own depends on a variety of property-specific circumstances, including the current and former uses of the property, the building materials used at the property and the physical layout of the property. Under certain environmental laws, principally CERCLA, we, as the owner or operator of properties currently or previously owned, may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at the property. We may also be held liable to a federal, state or local governmental entity or third parties for property damage, injuries resulting from the contamination and for investigation and clean up costs incurred in connection with the contamination, whether or not we knew of, or were responsible for, the contamination. Such costs or liabilities could exceed the value of the affected real estate. The presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as collateral. We have several properties that will require or are currently undergoing varying levels of environmental remediation as a result of contamination from on-site uses by current or former owners or tenants, such as gas stations or dry cleaners.
Americans with Disabilities Act. Our properties are subject to the Americans with Disabilities Act of 1990. Under this act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages.
Although we believe that we are in substantial compliance with existing regulations, including environmental and ADA regulations, we cannot predict the impact of new or changed laws or regulations on properties we currently own or may acquire in the future. Other than as part of our development or redevelopment projects, we have no current plans for substantial capital expenditures with respect to compliance with environmental, health, safety and similar laws, and we carry environmental insurance which covers a number of environmental risks for most of our properties.
There are numerous commercial developers, real estate companies, REITs and other owners of real estate in the areas in which our properties are located that compete with us with respect to the leasing of our properties and in seeking land for development or properties for acquisition. Some of these competitors have substantially greater resources than we have, although we do not believe that any single competitor or group of competitors in any of the primary markets where our properties are located are dominant in that market. This level of competition may reduce the number of properties available for development or acquisition, increase the cost of development or acquisition or interfere with our ability to attract and retain tenants.
All of our existing properties are located in developed areas that include other shopping centers and other retail properties. The number of retail properties in a particular area could materially adversely affect our ability to lease vacant space and maintain the rents charged at our existing properties. We believe that the principal competitive factors in attracting tenants in our market areas are location, price, anchor tenants and maintenance of properties. Our retail tenants also face competition from other retailers, outlet stores and discount shopping clubs. This competition could contribute to lease defaults and insolvency of our tenants.
Our headquarters are located at 1600 N.E. Miami Gardens Drive, North Miami Beach, Florida 33179. At December 31, 2007, we had 155 full-time employees and we believe that our relationships with our employees are good.
The internet address of our website is www.equityone.net. In the Investor Relations section of our website you can obtain, free of charge, a copy of our annual report on Form 10-K, our quarterly reports on Form 10-Q, our Supplemental Information Packages, our current reports on Form 8-K, and any amendments to those or other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file or furnish such reports or amendments with the SEC. Also available in the corporate governance section of our website, free of charge, are copies of our Corporate Governance Guidelines, Code of Conduct and Ethics and the charters for our audit committee, compensation committee and nominating and corporate governance committee. We intend to provide any amendments or waivers to our Code of Conduct and Ethics that apply to any of our executive officers or our senior financial officers on our website within four business days following the date of the amendment or waiver. The reference to our website address does not constitute incorporation by reference of the information contained on our website and should not be considered a part of this report.
You may also obtain printed copies of any of the foregoing materials from us, free of charge, by contacting our Investor Relations Department at:
| | Equity One, Inc. | |
| | 1600 N.E. Miami Gardens Drive | |
| | North Miami Beach, Florida 33179 | |
| | Attn: Investor Relations Department | |
| | (305) 947-1664 | |
You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, or you may obtain information by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information which you may obtain free of charge.
This annual report on Form 10-K and the information incorporated by reference herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are forward-looking statements and can be identified by the use of forward-looking terminology such as “may,” “will,” “might,” “would,” “expect,” “anticipate,” “estimate,” “would,” “could,” “should,” “believe,” “intend,” “project,” “forecast,” “target,” “plan,” or “continue” or the negative of these words or other variations or comparable terminology. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Some specific risk factors that could impair forward looking statements are set forth below.
These risks factors are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may affect our business. Investors should also refer to our quarterly reports on Form 10-Q and current reports on Form 8-K for future periods for updates to these risk factors.
We are dependent upon certain key tenants and decisions made by these tenants or adverse developments in the business of these tenants could have a negative impact on our financial condition.
We own shopping centers which are supported by “anchor” tenants which, due to size, reputation or other factors, are particularly responsible for drawing other tenants and shoppers to our centers. For instance, Publix Supermarkets is our largest tenant and accounted for approximately 2.4 million square feet, or approximately 14.1% of our GLA, at December 31, 2007, and accounts for approximately $19.1 million of minimum rent, or 10.4% of our annualized minimum rent.
At any time, an anchor tenant or other tenant may experience a downturn in its business that may weaken its financial condition. As a result, tenants may delay lease commencement, fail to make rental payments when due or declare bankruptcy. We are subject to the risk that these tenants may be unable to make their lease payments or may decline to extend a lease upon its expiration. Any tenant bankruptcies, leasing delays or failures to make rental payments when due could result in the termination of the tenant’s lease and material losses to our business and harm to our operating results.
In addition, an anchor tenant may decide that a particular store is unprofitable and close its operations in our center, and, while the tenant may continue make rental payments, such a failure to occupy its premises could have an adverse effect on the property. A lease termination by an anchor tenant or a failure by that anchor tenant to occupy the premises could result in lease terminations or reductions in rent by other tenants in the same shopping center if their leases have “co-tenancy” clauses which permit cancellation or rent reduction if an anchor tenant’s lease is terminated or the anchor “goes dark.” Vacated anchor tenant space also tends to adversely affect the entire shopping center because of the loss of the departed anchor tenant’s power to draw customers to the center. We cannot provide any assurance that we would be able to quickly re-lease vacant space on favorable terms, if at all. Any of these developments could adversely affect our financial condition or results of operations.
We may experience difficulties and additional costs associated with renting vacant space and space to be vacated in future years.
Our goal is to improve the performance of our properties by re-leasing vacated space. However, we may not be able to maintain our overall occupancy. Our ability to continue to lease or re-lease vacant space in these or other properties will be affected by many factors, including our properties’ locations, current market conditions and covenants found in certain leases restricting the use of other space at our properties. For instance, in some cases, our tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants to sell that merchandise or provide those services. When re-leasing space after a vacancy, these provisions may limit the number and types of prospective tenants for the vacant space. The failure to lease or to re-lease on satisfactory terms could harm our operating results.
If we are able to re-lease vacated space, there is no assurance that rental rates will be equal to or in excess of current rental rates. In addition, we may incur substantial costs in obtaining new tenants, including brokerage commission fees paid by us in connection with new leases or lease renewals, and the cost of making leasehold improvements.
We have substantial debt obligations which may reduce our operating performance and put us at a competitive disadvantage.
As of December 31, 2007, we had debt and other liabilities outstanding in the aggregate amount of approximately $1.3 billion. Many of our loan facilities require scheduled principal and balloon payments. In addition, our organizational documents do not limit the level or amount of debt that we may incur, nor do we have a policy limiting our debt to any particular level. The amount of our debt outstanding from time to time could have important consequences to our stockholders. For example, it could:
| | · | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, property acquisitions, redevelopments and other appropriate business opportunities that may arise in the future; |
| | · | limit our ability to make distributions on our outstanding shares of our common stock, including the payment of dividends required to maintain our status as a REIT; |
| | · | make it difficult to satisfy our debt service requirements; |
| | · | limit our flexibility in planning for, or reacting to, changes in our business and the factors that affect the profitability of our business, which may place us at a disadvantage compared to competitors with less debt or debt with less restrictive terms; |
| | · | limit our ability to obtain any additional debt or equity financing we may need in the future for working capital, debt refinancing, capital expenditures, acquisitions, redevelopment or other general corporate purposes or to obtain such financing on favorable terms; and |
| | · | require us to dedicate increased amounts of our cash flow from operations to payments on our variable rate, unhedged debt if interest rates rise. |
If our internally generated cash is inadequate to repay our indebtedness upon maturity, then we will be required to repay debt through refinancing or equity offerings. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of our properties potentially upon disadvantageous terms, which might result in losses and might adversely affect our cash available for distribution. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancing, our interest expense would increase, without a corresponding increase in our rental rates, which would adversely affect our results of operations. Further, if one of our properties is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, or if we are in default under the related mortgage or deed of trust, such property could be transferred to the mortgagee, or the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of income and asset value. Foreclosure could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements under the Code.
Our financial covenants may restrict our operating or acquisition activities, which may harm our financial condition and operating results.
Our unsecured revolving credit facility, our outstanding senior unsecured notes and much of our existing mortgage indebtedness contain customary covenants and conditions, including, among others, compliance with various financial ratios and restrictions upon the incurrence of additional indebtedness and liens on our properties. Furthermore, the terms of some of this indebtedness will restrict our ability to consummate transactions that result in a change of control or to otherwise issue equity or debt securities. The existing mortgages also contain customary negative covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. If we were to breach covenants in these debt agreements, the lender could declare a default and require us to repay the debt immediately. If we fail to make such repayment in a timely manner, the lender may be entitled to take possession of any property securing the loan.
Increases in interest rates cause our borrowing costs to rise and generally adversely affect the market price of our securities.
Of our approximately $1.3 billion of debt outstanding as of December 31, 2007, approximately $137.0 million bears interest at variable interest rates, including $100.0 million of fixed rate borrowings that we have converted to floating rate borrowings through the use of hedging agreements. We also may borrow additional funds at variable interest rates in the future. Increases in interest rates would increase our interest expense on our variable rate debt and reduce our future earnings and cash flows, which could adversely affect our ability to service our debt and meet our other obligations and also could reduce the amount we are able to distribute to our stockholders. Although we may in the future enter into hedging arrangements or other transactions as to a portion of our variable rate debt to limit our exposure to rising interest rates, the amounts we are required to pay under the variable rate debt to which the hedging or similar arrangements relate may increase in the event of non-performance by the counterparties to any of our hedging arrangements.
In addition, the market price of our common stock is affected by the annual distribution rate on the shares of our common stock. Increasing market interest rates may lead prospective purchasers of our common stock and other securities to seek alternative investments that offer a higher annual yield which would likely adversely affect the market price of our common stock and other securities. Finally, increases in interest rates may have the effect of depressing the market value of retail properties such as ours, including the value of those properties securing our indebtedness.
Geographic concentration of our properties makes our business vulnerable to economic downturns in certain regions or to other events, like hurricanes, that disproportionately affect those areas.
Approximately 53.6% of our retail property gross leasable area is located in Florida. As a result, economic, real estate and other, general conditions in Florida will significantly affect our revenues and the value of our properties. Business layoffs or downsizing, industry slowdowns, changing demographics and other similar factors may adversely affect the economic climate in Florida. Any resulting oversupply or reduced demand for retail properties in Florida would adversely affect our operating performance and limit our ability to make distributions to stockholders.
In addition, a significant portion of our retail property gross leasable area is located in coastal areas that are susceptible to the harmful effects of tropical storms, hurricanes and other similar natural disasters. Most importantly, as of December 31, 2007, over 59.1% of the total insured value of our portfolio is located in the State of Florida, with approximately 33.7% located in Miami-Dade, Broward and Palm Beach counties. In 2005, our properties experienced damage from a total of seven named hurricanes or tropical storms with not all of the storm damages fully insured. While some of these uninsured expenses are recoverable from our tenants, not all of the leases have provisions permitting reimbursement, and, therefore, we must pay the remaining amounts. Moreover, with the increased hurricane activity, the cost of property insurance has risen dramatically. While much of the cost of this insurance is passed on to our tenants as reimbursable property costs, some tenants, particularly national tenants, do not pay a pro rata share of these costs under their leases. Hurricanes and similar storms also disrupt our business and the business of our tenants, which could affect the ability of some tenants to pay rent. Therefore, as a result of the geographic concentration of our properties, we face demonstrable risks, including higher costs, such as uninsured property losses and higher insurance premiums, and disruptions to our business and the businesses of our tenants. Lastly, the recent downturn in the real estate and credit markets may adversely affect our liquidity.
Our insurance coverage on our properties may be inadequate therefore increasing the risks to our business.
We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire, flood, rental loss and acts of terrorism. We also currently carry environmental insurance on most of our properties. All of these policies contain coverage limitations. We believe these coverages are of the types and amounts customarily obtained for or by an owner of similar types of real property assets located in the areas where our properties are located. We intend to obtain similar insurance coverage on subsequently acquired properties.
The availability of insurance coverage may decrease and the prices for insurance may increase as a consequence of significant losses incurred by the insurance industry. For instance, following the hurricane activity of 2005, property insurance costs in the State of Florida increased. In the event of future industry losses, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses from named wind storms or due to terrorist acts and toxic mold, or, if offered, the expense of obtaining these types of insurance may not be justified. We, therefore, may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available.
If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could disrupt seriously our operations, delay revenue and result in large expenses to repair or rebuild the property. Also, due to inflation, changes in codes and ordinances, environmental considerations and other factors, it may not be feasible to use insurance proceeds to replace a building after it has been damaged or destroyed or the proceeds could be insufficient. Events such as these could adversely affect our results of operations and our ability to meet our obligations, including distributions to our stockholders.
We may be unable to sell properties when appropriate because real estate investments are illiquid.
Real estate investments generally cannot be sold quickly. Also, there are limitations under federal income tax laws applicable to real estate and to REITs in particular that may limit our ability to sell our assets. We may not be able to alter our portfolio promptly in response to changes in economic or other conditions. Our inability to respond quickly to changes in the performance of our investments could adversely affect our ability to meet our obligations and make distributions to our stockholders.
The federal income tax provisions applicable to REITs provide that any gain realized by a REIT on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business is treated as income from a “prohibited transaction” that is subject to a 100 percent penalty tax. Under current law, unless a sale of real property qualifies for a safe harbor, the question of whether the sale of a property constitutes the sale of property held primarily for sale to customers is generally a question of the facts and circumstances regarding a particular transaction. We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of acquiring and owning properties and to make occasional sales as are consistent with our investment objectives. We do not intend to engage in prohibited transactions. We cannot assure you, however, that we will only make sales that satisfy the requirements of the safe harbors or that the IRS will not successfully assert that one or more of our sales are prohibited transactions.
Our development and redevelopment activities are inherently risky and may not yield anticipated returns, which would harm our operating results and reduce funds available for distributions to stockholders.
An important component of our growth strategy is the redevelopment of properties within our portfolio and the development of new shopping centers. At December 31, 2007, we had invested an aggregate of approximately $81.4 million in these development or redevelopment projects at various stages of completion and anticipate that these projects will require an additional $46.3 million to complete, based on our current plans and estimates. These developments and redevelopments may not be as successful as currently expected. Expansion, renovation and development projects entail the following considerable risks:
| | · | significant time lag between commencement and completion subjects us to greater risks due to fluctuation in the general economy; |
| | · | failure or inability to obtain construction or permanent financing on favorable terms; |
| | · | expenditure of money and time on projects that may never be completed; |
| | · | inability to achieve projected rental rates or anticipated pace of lease-up; |
| | · | higher-than-estimated construction costs, including labor and material costs; and |
| | · | possible delay in completion of the project because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters (such as fires, hurricanes, earthquakes or floods). |
While our policies with respect to expansion, renovation and development activities are intended to limit some of the risks otherwise associated with such activities, such as initiating construction only after securing commitments from anchor tenants, we will nevertheless be subject to risks that the construction costs of a property, due to factors such as cost overruns, design changes and timing delays arising from a lack of availability of materials and labor, weather conditions and other factors outside of our control, as well as financing costs, may exceed original estimates, possibly making the associated investment unprofitable. Significant changes in economic condition could adversely affect prospective tenants and our ability to lease newly developed and redeveloped properties. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and harm our operating results.
Future acquisitions may not yield the returns expected, may result in disruptions to our business, may strain management resources and may result in stockholder dilution.
Our investing strategy and our market selection process may not ultimately be successful and may not provide positive returns on our investment. The acquisition of properties or portfolios of properties entails risks that include the following, any of which could adversely affect our results of operations and our ability to meet our obligations:
| | · | we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify; |
| | · | we may not be able to integrate any acquisitions into our existing operations successfully; |
| | · | properties we acquire may fail to achieve within the time frames we project the occupancy or rental rates we project at the time we make the decision to acquire, which may result in the properties’ failure to achieve the returns we projected; |
| | · | our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase our total acquisition costs; and |
| | · | our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost. |
If we acquire a business, we will be required to integrate the operations, personnel and accounting and information systems of the acquired business and train, retain and motivate any key personnel from the acquired business. In addition, acquisitions of or investments in companies may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees. The issuance of equity securities in connection with any acquisition or investment could be substantially dilutive to our stockholders.
Our ability to grow will be limited if we cannot obtain additional capital.
Our growth strategy is focused on the redevelopment of properties we already own and the acquisition and development of additional properties. We believe that it will be difficult to fund our expected growth with cash from operating activities because, in addition to other requirements, we are required to distribute to our stockholders at least 90% of our REIT taxable income (excluding net capital gains) each year to continue to qualify as a REIT for federal income tax purposes. As a result, we must rely primarily upon the availability of debt or equity capital, which may or may not be available on favorable terms or at all. The debt could include mortgage loans from third parties or the sale of debt securities. Equity capital could include shares of our common stock or preferred stock. We cannot guarantee that additional financing, refinancing or other capital will be available in the amounts we desire or on favorable terms. Our access to debt or equity capital depends on a number of factors, including the general availability of credit in the capital markets, the market’s perception of our growth potential, our ability to pay dividends, our financial condition, our credit rating and our current and potential future earnings. Depending on the outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.
Competition for the acquisition of assets and the leasing of properties may impede our ability to make, or may increase the cost of, these acquisitions and may impair our future income.
Numerous commercial developers and real estate companies compete with us in seeking tenants for our existing properties and properties for acquisition. This competition may:
| | · | reduce properties available for acquisition; |
| | · | increase the cost of properties available for acquisition; |
| | · | reduce the rate of return on these properties; |
| | · | reduce rents payable to us; |
| | · | interfere with our ability to attract and retain tenants; |
| | · | lead to increased vacancy rates at our properties; and |
| | · | adversely affect our ability to minimize expenses of operation. |
In addition, tenants and potential acquisition targets may find competitors to be more attractive because they may have greater resources, broader geographic diversity, may be willing to pay more or offer greater lease incentives or may have a more compatible operating philosophy. In particular, larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. These competitive factors may adversely affect our profitability, and our stockholders may experience a lower return on their investment.
We may be subjected to liability for environmental contamination which might have a material adverse impact on our financial condition and results of operations.
As an owner and operator of real estate and real estate-related facilities, we may be liable for the costs of removal or remediation of hazardous or toxic substances present at, on, under, in or released from our properties, as well as for governmental fines and damages for injuries to persons and property. We may be liable without regard to whether we knew of, or were responsible for, the environmental contamination and with respect to properties previously owned by companies we have acquired, whether the contamination occurred before or after the acquisition. We have several properties in our portfolio that will require or are currently undergoing varying levels of environmental remediation. The presence of contamination or the failure properly to remediate contamination at any of our properties may adversely affect our ability to sell or lease those properties or to borrow funds by using those properties as collateral. The costs or liabilities could exceed the value of the affected real estate. Although we have environmental insurance policies covering most of our properties, there is no assurance that these policies will cover any or all of the potential losses or damages from environmental contamination; therefore, any liability, fine or damage could directly impact our financial results.
The Americans with Disabilities Act of 1990 could require us to take remedial steps with respect to existing or newly acquired properties.
Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990. Investigation of a property may reveal non-compliance with this Act. The requirements of this Act, or of other federal, state or local laws, also may change in the future and restrict or require further renovations of our properties with respect to access for disabled persons. Future compliance with this Act may require expensive changes to the properties.
We may experience adverse consequences in the event we fail to qualify as a REIT.
Although we believe that we are organized and have operated so as to qualify as a REIT under the Internal Revenue Code since our REIT election in 1995, no assurance can be given that we have qualified or will remain so qualified. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations. These provisions include requirements concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income, and the amount of our distributions to our stockholders. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources. Satisfying this requirement could be difficult, for example, if defaults by tenants were to reduce the amount of income from qualifying rents. In addition, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains. To the extent that we satisfy the 90 percent distribution requirement, but distribute less than 100 percent of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a four percent nondeductible excise tax on the amount, if any, by which our distributions (or deemed distributions) in any year are less than the sum of 85 percent of our ordinary income for that year, 95 percent of our capital gain net earnings for that year and 100 percent of our undistributed taxable income from prior years. We intend to make distributions to our stockholders to comply with the distribution provisions of the Internal Revenue Code. Although we anticipate that our cash flows from operating activities will be sufficient to enable us to pay our operating expenses and meet distribution requirements, no assurance can be given in this regard. We may be required to borrow money or sell assets to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax.
If we fail to qualify as a REIT:
| | · | we would not be allowed a deduction for distributions to stockholders in computing taxable income; |
| | · | we would be subject to federal income tax at regular corporate rates; |
| | · | we could be subject to the federal alternative minimum tax; |
| | · | unless we are entitled to relief under specific statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified; |
| | · | we could be required to pay significant income taxes, which would substantially reduce the funds available for investment or for distribution to our stockholders for each year in which we failed or were not permitted to qualify; and |
| | · | we would no longer be required by law to make any distributions to our stockholders. |
We are subject to other tax liabilities.
Even if we qualify as a REIT, we are subject to some federal, state and local taxes on our income and property that could reduce operating cash flow. For example, we will pay tax on certain types of income that are not distributed, and will be subject to a 100 percent excise tax on transactions with a TRS that are not conducted on an arms-length basis. In addition, our TRSs are subject to foreign, federal, state and local taxes.
Our Chairman of the Board and his affiliates own approximately 48.9% of our common stock and exercise significant control over our company and may delay, defer or prevent us from taking actions that would be beneficial to our other stockholders.
Chaim Katzman, the chairman of our board of directors and our largest stockholder, and his affiliates own approximately 48.9% of the outstanding shares of our common stock and, as a result of a stockholders’ agreement with other of our stockholders, have voting power of almost 55.8% of our outstanding shares with respect to the election of directors. Accordingly, Mr. Katzman is able to exercise significant control over the outcome of substantially all matters required to be submitted to our stockholders for approval, including decisions relating to the election of our board of directors and the determination of our day-to-day corporate and management policies. In addition, Mr. Katzman is able to exercise significant control over the outcome of any proposed merger or consolidation of our company which, under our charter, the affirmative vote of the holders of a majority of the outstanding shares of our common stock in such instances. Mr. Katzman’s ownership interest in our company may discourage third parties from seeking to acquire control of our company which may adversely affect the market price of our common stock.
Several of our controlling stockholders have pledged their shares of our stock as collateral under bank loans, foreclosure and disposition of which could have a negative impact on our stock price.
Several of our affiliated stockholders that beneficially own a significant interest in our company, including Gazit-Globe, Ltd. and related entities, have pledged a substantial portion of our stock that they own to secure loans made to them by commercial banks.
If a stockholder defaults on any of its obligations under these pledge agreements or the related loan documents, these banks may have the right to sell the pledged shares in one or more public or private sales that could cause our stock price to decline. Many of the occurrences that could result in a foreclosure of the pledged shares are out of our control and are unrelated to our operations. Some of the occurrences that may constitute such an event of default include:
| | · | the stockholder’s failure to make a payment of principal or interest when due; |
| | · | the occurrence of another default that would entitle any of the stockholder’s other creditors to accelerate payment of any debts and obligations owed to them by the stockholder; |
| | · | if the bank, in its absolute discretion, deems that a change has occurred in the condition of the stockholder to which the bank has not given its prior written consent; and |
| | · | if, in the opinion of the bank, the value of the pledged shares shall be reduced or is likely to be reduced (for example, the price of our common stock declines). |
In addition, because so many shares are pledged to secure loans, the occurrence of an event of default could result in a sale of pledged shares that would trigger a change of control of our company, even when such a change may not be in the best interests of our stockholders.
To maintain our status as a REIT, we limit the amount of shares any one stockholder can own.
The Internal Revenue Code imposes certain limitations on the ownership of the stock of a REIT. For example, not more than 50% in value of our outstanding shares of capital stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code). To protect our REIT status, our charter prohibits any one stockholder from owning (actually or constructively) more than 9.9% in value of the outstanding shares of common stock or of any class or series of outstanding preferred stock. The constructive ownership rules are complex. Shares of our capital stock owned, actually or constructively, by a group of related individuals and/or entities may be treated as constructively owned by one of those individuals or entities. As a result, the acquisition of less than 9.9% in value of the outstanding common stock and/or a class or series of preferred stock (or the acquisition of an interest in an entity that owns common stock or preferred stock) by an individual or entity could cause that individual or entity (or another) to own constructively more than 9.9% in value of the outstanding stock. If that happened, either the transfer or ownership would be void or the shares would be transferred to a charitable trust and then sold to someone who can own those shares without violating the 9.9% ownership limit. Our board of directors may waive these restrictions on a case-by-case basis, and it has in the past done so, including for the affiliates of Chaim Katzman, our Chairman of the board. The 9.9% ownership restrictions may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the stockholders’ best interest.
We cannot assure you we will continue to pay dividends at historical rates.
Our ability to continue to pay dividends on our common stock at historical rates or to increase our common stock dividend rate and service our debt securities will depend on a number of factors, including, among others, the following:
| · | our financial condition and results of future operations; |
| · | the performance of lease terms by tenants; |
| · | the terms of our loan covenants; and |
| · | our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates. |
If we do not maintain or increase the dividend rate on our common stock, it could have an adverse effect on the market price of our common stock and other securities. Conversely, payment of dividends on our common stock may be subject to payment in full of the interest on any debt securities we may offer.
Our organizational documents contain provisions which may discourage the takeover of our company, may make removal of our management more difficult and may depress our stock price.
Our organizational documents contain provisions that may have an anti-takeover effect and inhibit a change in our management. As a result, these provisions could prevent our stockholders from receiving a premium for their shares of common stock above the prevailing market prices. These provisions include:
| | · | the REIT ownership limit described above; |
| | · | the ability to issue preferred stock with the powers, preferences or rights determined by our board of directors; |
| | · | special meetings of our stockholders may be called only by the chairman of the board, the chief executive officer, the president or by the board of directors; |
| | · | advance notice requirements for stockholder proposals; |
| | · | the absence of cumulative voting rights; and |
| | · | provisions relating to the removal of incumbent directors. |
Finally, Maryland law also contains several statutes that restrict mergers and other business combinations with an interested stockholder or that may otherwise have the effect of preventing or delaying a change of control.
Changes in taxation of corporate dividends may adversely affect the value of our common stock.
The maximum marginal rate of tax payable by domestic non-corporate taxpayers on dividends received from a regular “C” corporation under current law is 15 percent through 2010, as opposed to higher ordinary income rates. The reduced tax rate, however, does not apply to distributions paid to domestic non-corporate taxpayers by a REIT on its stock, except for certain limited amounts. Although the earnings of a REIT that are distributed to its stockholders generally remain subject to less federal income taxation than earnings of a non-REIT “C” corporation that are distributed to its stockholders net of corporate-level income tax, legislation that extends the application of the 15 percent rate to dividends paid after 2010 by “C” corporations could cause domestic non-corporate investors to view the stock of regular “C” corporations as more attractive relative to the stock of a REIT, because the dividends from regular “C” corporations would continue to be taxed at a lower rate while distributions from REITs (other than distributions designated as capital gain dividends) are generally taxed at the same rate as the individual’s other ordinary income.
Foreign stockholders may be subject to FIRPTA on the sale of common shares if we are unable to qualify as a “domestically controlled” REIT
A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax, known as FIRPTA, on the gain recognized on the disposition. FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is a "domestically controlled REIT." A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares was held directly or indirectly by a non-U.S. persons. We cannot assure our stockholders that we will qualify as a domestically controlled REIT. If we were to fail to so qualify, gain realized by a foreign stockholder on a sale of our common stock would be subject to FIRPTA unless our common stock was traded on an established securities market and the foreign stockholder did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
Our portfolio consists primarily of grocer-anchored shopping centers and other necessity-oriented retailers and at December 31, 2007 contained an aggregate of approximately 17.5 million square feet of gross leasable area or GLA. Other than our leasehold interests in McAlpin Square shopping center located in Savannah, Georgia, Plaza Acadienne shopping center located in Eunice, Louisiana, and El Novillo, located in Miami, Florida, all of our other properties are owned in fee simple. In addition, some of our properties are subject to mortgages as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Mortgage Indebtedness.”
The following table provides a brief description of our properties as of December 31, 2007:
| | | | | | | | | | | | | | | |
| | Year | | | | GLA | | | | | | Average | | | Other |
| | Built / | | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| | | | | | | | | | | | | | | |
| ALABAMA (2) | | | | | | | | | | |
| Madison Centre | 1997 | | 2003 | | | 64,837 | | | | 95.7 | % | | $ | 9.38 | | Publix | Rite Aid |
| | | | | | | | | | | | | | | | | | |
| Winchester Plaza | 2006 | | 2005 | | | 78,544 | | | | 91.9 | % | | | 11.76 | | Publix | |
| | | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS ALABAMA (2) | 143,381 | | | | 93.6 | % | | $ | 10.66 | | | |
| | | | | | | | | | | | | | | | | | |
| CONNECTICUT (1) | | | | | | | | | | | | | | | | | |
| Brookside Plaza | 1985 / 2006 | | 2006 | | | 210,588 | | | | 88.9 | % | | $ | 11.34 | | Shaw's | Bed Bath & Beyond, |
| | | | | | | | | | | | | | | | | | | Walgreens, Staples, |
| | | | | | | | | | | | | | | | | | | Old Country Buffet |
| | | | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS CONNECTICUT (1) | 210,588 | | | | 88.9 | % | | $ | 11.34 | | | |
| | | | | | | | | | | | | | | | | | | |
| FLORIDA (84) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Orlando / Central Florida (10) | | | | | | | | | | | | | | |
| Alafaya Commons | 1987 | | 2003 | | | 126,333 | | | | 99.2 | % | | $ | 13.67 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Alafaya Village | 1986 | | 2006 | | | 39,477 | | | | 96.2 | % | | | 19.57 | | Super Saver | |
| | | | | | | | | | | | | | | | | | (Shadow - dark) | |
| Conway Crossing | 2002 | | 2003 | | | 76,321 | | | | 94.5 | % | | | 11.77 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Eastwood, Shoppes of | 1997 | | 2002 | | | 69,037 | | | | 100.0 | % | | | 11.15 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Hunter's Creek | 1998 | | 2003 | | | 73,204 | | | | 97.8 | % | | | 13.24 | | | Office Depot, |
| | | | | | | | | | | | | | | | | | | Lifestyle Family Fitness |
| | | | | | | | | | | | | | | | | | | |
| Kirkman Shoppes | 1973 | | 2000 | | | 88,820 | | | | 100.0 | % | | | 18.12 | | | Party America |
| | | | | | | | | | | | | | | | | | | |
| Lake Mary Centre | 1988 / 2001 | | 1995 | | | 339,084 | | | | 97.4 | % | | | 13.00 | | Albertsons | Kmart, |
| | | | | | | | | | | | | | | | | | | Lifestyle Fitness Center, |
| | | | | | | | | | | | | | | | | | | Office Depot |
| | | | | | | | | | | | | | | | | | | |
| Park Promenade | 1987 / 2000 | | 1999 | | | 128,848 | | | | 89.7 | % | | | 8.02 | | | Beauty Depot, |
| | | | | | | | | | | | | | | | | | | Orange County Library |
| | | | | | | | | | | | | | | | | | | |
| Town & Country | 1993 | | 2003 | | | 72,043 | | | | 94.4 | % | | | 8.43 | | Albertsons* | |
| | | | | | | | | | | | | | | | | | (Ross / DD's Discount) | |
| | | | | | | | | | | | | | | | | | | |
| Unigold Shopping Center | 1987 | | 2003 | | | 117,527 | | | | 99.1 | % | | | 11.11 | | Winn-Dixie | Lifestyle Family Fitness |
| | | | | | | | | | | | | | | | | | | |
| Jacksonville / North Florida (7) | | | | | | | | | | | | | | |
| Beauclerc Village | 1962 / 1988 | | 1998 | | | 70,429 | | | | 84.7 | % | | | 8.19 | | | Big Lots, Goodwill, |
| | | | | | | | | | | | | | | | | | | Bealls Outlet |
| Forest Village | 2000 | | 1999 | | | 71,526 | | | | 85.0 | % | | | 10.58 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Ft. Caroline | 1985 / 1995 | | 1994 | | | 74,546 | | | | 98.7 | % | | | 7.55 | | Winn-Dixie | Citi Trends |
| | | | | | | | | | | | | | | | | | | |
| Medical & Merchants | 1993 | | 2004 | | | 156,153 | | | | 96.2 | % | | | 12.66 | | Publix | Memorial Hospital |
| | | | | | | | | | | | | | | | | | | |
| Middle Beach | 1994 | | 2003 | | | 69,277 | | | | 98.7 | % | | | 9.65 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Oak Hill | 1985 / 1997 | | 1995 | | | 78,492 | | | | 96.5 | % | | | 7.45 | | Publix | Beall's |
| | | | | | | | | | | | | | | | | | | |
| South Beach | 1990 / 1991 | | 2003 | | | 289,964 | | | | 96.8 | % | | | 12.06 | | | Beall's, Bed Bath & Beyond |
| | | | | | | | | | | | | | | | | | | Home Depot, Stein Mart |
| Miami-Dade / Broward / Palm Beach (39) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Year | | | | GLA | | | | | | Average | | | Other |
| | Built / | | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| Bird Ludlum | 1988 / 1998 | | 1994 | | | 192,282 | | | | 96.3 | % | | $ | 15.47 | | Winn-Dixie | CVS Pharmacy |
| | | | | | | | | | | | | | | | | | | Bird Executive, Goodwill |
| | | | | | | | | | | | | | | | | | | |
| Boca Village | 1978 | | 2000 | | | 93,428 | | | | 92.9 | % | | | 15.73 | | Publix | CVS Pharmacy |
| | | | | | | | | | | | | | | | | | | |
| Boynton Plaza | 1978 / 1999 | | 2000 | | | 99,324 | | | | 99.0 | % | | | 14.13 | | Publix | CVS Pharmacy |
| | | | | | | | | | | | | | | | | | | |
| Bluffs Square | 1986 | | 2000 | | | 132,395 | | | | 85.8 | % | | | 13.49 | | Publix | Walgreens |
| | | | | | | | | | | | | | | | | | | |
| Chapel Trail | 2007 | | 2006 | | | 56,378 | | | | 97.2 | % | | | 22.05 | | | LA Fitness |
| | | | | | | | | | | | | | | | | | | |
| Concord Shopping Plaza | 1962 / 1992 / 1993 | | 2006 | | | 298,986 | | | | 99.3 | % | | | 9.83 | | Winn Dixie | Home Depot, Big Lots |
| | | | | | | | | | | | | | | | | | | |
| Coral Reef Shopping Center | 1968 / 1990 | | 2006 | | | 74,680 | | | | 84.8 | % | | | 20.26 | | | Office Depot |
| | | | | | | | | | | | | | | | | | | |
| Countryside Shops | 1986 / 1988 / 1991 | | 2003 | | | 179,561 | | | | 97.9 | % | | | 13.45 | | Publix | CVS Pharmacy, Stein Mart |
| | | | | | | | | | | | | | | | | | | |
| Crossroads Square | 1973 | | 2000 | | | 84,387 | | | | 71.1 | % | | | 17.67 | | | CVS Pharmacy |
| | | | | | | | | | | | | | | | | | | |
| CVS Plaza | 2004 | | 1999 | | | 29,204 | | | | 100.0 | % | | | 17.05 | | | CVS Pharmacy |
| | | | | | | | | | | | | | | | | | | |
| El Novillo | 1970 / 2000 | | 1998 | | | 10,000 | | | | 100.0 | % | | | 21.00 | | | Jumbo Buffet |
| | | | | | | | | | | | | | | | | | | |
| Greenwood | 1982 / 1994 | | 2003 | | | 132,325 | | | | 98.3 | % | | | 12.86 | | Publix | Beall's Outlet |
| | | | | | | | | | | | | | | | | | | |
| Jonathan's Landing | 1997 | | 2000 | | | 26,820 | | | | 79.5 | % | | | 20.77 | | Albertsons | |
| | | | | | | | | | | | | | | | | | (shadow) | |
| | | | | | | | | | | | | | | | | | | |
| Lago Mar | 1995 | | 2003 | | | 82,613 | | | | 95.4 | % | | | 13.95 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Lantana Village | 1976 / 1999 | | 1998 | | | 181,780 | | | | 98.1 | % | | | 7.41 | | Winn-Dixie | Kmart, |
| | | | | | | | | | | | | | | | | | | Rite Aid* (Family Dollar) |
| Meadows | 1997 | | 2002 | | | 75,524 | | | | 100.0 | % | | | 13.45 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Oakbrook Square | 1974 / 2000 / 2003 | | 2000 | | | 212,074 | | | | 91.5 | % | | | 14.74 | | Publix | Stein Mart, TJ Maxx, |
| | | | | | | | | | | | | | | | | | | Home Goods, CVS Pharmacy, |
| | | | | | | | | | | | | | | | | | | Basset Furniture, Duffy's |
| Oaktree Plaza | 1985 | | 2006 | | | 23,745 | | | | 74.8 | % | | | 15.20 | | | |
| | | | | | | | | | | | | | | | | | | |
| Pine Island | 1983 / 1999 | | 1999 | | | 254,907 | | | | 98.9 | % | | | 11.45 | | Publix | Home Depot Expo, Staples |
| | | | | | | | | | | | | | | | | | | |
| Pine Ridge Square | 1986 / 1998 / 1999 | | 2003 | | | 117,399 | | | | 94.4 | % | | | 14.63 | | Fresh Market | Bed Bath & Beyond, |
| | | | | | | | | | | | | | | | | | | Nordic Interiors |
| | | | | | | | | | | | | | | | | | | |
| Plaza Alegre | 2003 | | 2002 | | | 91,611 | | | | 100.0 | % | | | 15.43 | | Publix | Goodwill |
| | | | | | | | | | | | | | | | | | | |
| Point Royale | 1970 / 2000 | | 1995 | | | 216,760 | | | | 95.8 | % | | | 6.63 | | Winn-Dixie | Best Buy |
| | | | | | | | | | | | | | | | | | | |
| Prosperity Centre | 1993 | | 2000 | | | 122,014 | | | | 96.6 | % | | | 17.38 | | | Office Depot, CVS Pharmacy, |
| | | | | | | | | | | | | | | | | | | Bed Bath & Beyond, |
| | | | | | | | | | | | | | | | | | | Carmine's, TJ Maxx |
| Ridge Plaza | 1984 / 1999 | | 2000 | | | 155,204 | | | | 92.2 | % | | | 10.74 | | | |
| | | | | | | | | | | | | | | | | | | AMC Theater, Kabooms, |
| | | | | | | | | | | | | | | | | | | Wachovia* (United Collection), |
| | | | | | | | | | | | | | | | | | | Round Up |
| Riverside Square | 1987 | | 2003 | | | 104,241 | | | | 96.5 | % | | | 13.82 | | Publix | |
| | | | | | | | | | | | | | | | | | | |
| Sawgrass Promenade | 1982 / 1998 | | 2000 | | | 107,092 | | | | 95.0 | % | | | 11.52 | | Publix | Walgreens |
| | | | | | | | | | | | | | | | | | | |
| Sheridan** | 1973 / 1991 | | 2003 | | | 504,495 | | | | 97.3 | % | | | 13.71 | | Publix | Kohl's, Ross, |
| | | | | | | | | | | | | | | | | | | Bed Bath & Beyond, Office Depot, |
| | | | | | | | | | | | | | | | | | | CVS Pharmacy, Sheridan Plaza, |
| | | | | | | | | | | | | | | | | | | LA Fitness, USA Baby, Child Space |
| Shoppes of Andros Isles | 2000 | | 2006 | | | 79,420 | | | | 96.5 | % | | | 13.12 | | Publix | |
| | | | | | | | | | | | | | |
| | Year | | | GLA | | | | | | Average | | | Other |
| | Built / | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| Shoppes of Ibis | 1999 | 2002 | | | 79,420 | | | | 100.0 | % | | $ | 13.45 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Shoppes at Quail Roost | 2005 | 2006 | | | 73,550 | | | | 98.2 | % | | | 15.58 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Shoppes of Silverlakes | 1995 / 1997 | 2003 | | | 126,788 | | | | 95.3 | % | | | 16.83 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Shops at Skylake | 1999 / 2005 / 2006 | 1997 | | | 284,943 | | | | 99.2 | % | | | 15.83 | | Publix | CVS Pharmacy, LA Fitness, |
| | | | | | | | | | | | | | | | | Goodwill |
| Shoppes of Sunset | 1979 | 2007 | | | 21,704 | | | | 97.2 | % | | | 16.42 | | | |
| | | | | | | | | | | | | | | | | |
| Shoppes of Sunset II | 1980 | 2007 | | | 27,767 | | | | 72.6 | % | | | 18.77 | | | |
| | | | | | | | | | | | | | | | | |
| Tamarac Town Square | 1987 | 2003 | | | 127,635 | | | | 88.4 | % | | | 11.59 | | Publix | Dollar Tree |
| | | | | | | | | | | | | | | | | |
| Waterstone | 2005 | 1992 | | | 82,531 | | | | 100.0 | % | | | 15.20 | | Publix | Walgreens |
| | | | | | | | | | | | | | | | | |
| West Lakes Plaza | 1984 / 2000 | 1996 | | | 100,747 | | | | 100.0 | % | | | 12.16 | | Winn-Dixie | Navarro Pharmacy |
| | | | | | | | | | | | | | | | | |
| Westport Plaza | 2002 | 2004 | | | 49,980 | | | | 99.1 | % | | | 17.85 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Young Circle | 1962 / 1997 | 2005 | | | 65,834 | | | | 96.7 | % | | | 15.87 | | Publix | Walgreens |
| | | | | | | | | | | | | | | | | |
| Florida Treasure / Northeast Coast (8) | | | | | | | | | | | | |
| Cashmere Corners | 2001 | 2000 | | | 92,734 | | | | 96.0 | % | | | 9.31 | | Albertsons | |
| | | | | | | | | | | | | | | | | |
| New Smyrna Beach | 1987 | 2003 | | | 118,451 | | | | 100.0 | % | | | 11.29 | | Publix | Walgreens* (Bealls Outlet), |
| | | | | | | | | | | | | | | | | Bealls Home Outlet |
| | | | | | | | | | | | | | | | | |
| Old King Commons | 1988 | 2003 | | | 84,759 | | | | 100.0 | % | | | 8.94 | | | Wal-Mart, Staples, |
| | | | | | | | | | | | | | | | | Bealls Outlet |
| | | | | | | | | | | | | | | | | |
| Ryanwood | 1987 | 2000 | | | 114,925 | | | | 97.4 | % | | | 10.76 | | Publix | Bealls Outlet, |
| | | | | | | | | | | | | | | | | Books-A-Million |
| | | | | | | | | | | | | | | | | |
| Salerno Village | 1987 | 2002 | | | 82,477 | | | | 99.1 | % | | | 10.79 | | Winn-Dixie | CVS Pharmacy |
| | | | | | | | | | | | | | | | | |
| Shops at St. Lucie | 2006 | 2000 | | | 19,361 | | | | 74.2 | % | | | 19.70 | | | |
| | | | | | | | | | | | | | | | | |
| South Point Center | 2003 | 2006 | | | 64,790 | | | | 94.1 | % | | | 15.70 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Treasure Coast | 1983 | 2003 | | | 133,781 | | | | 97.5 | % | | | 9.71 | | Publix | TJ Maxx |
| | | | | | | | | | | | | | | | | |
| Tampa / St. Petersburg / Venice / Cape Coral / Naples (20) | | | | | | | | | | | |
| Bay Pointe Plaza | 1984 / 2002 | 2003 | | | 103,986 | | | | 95.6 | % | | | 10.27 | | Publix | Bealls Outlet |
| | | | | | | | | | | | | | | | | |
| Carrollwood | 1970 / 2002 | 2003 | | | 94,203 | | | | 94.4 | % | | | 13.02 | | Publix | Golf Locker |
| | | | | | | | | | | | | | | | | |
| Charlotte Square | 1980 | 2003 | | | 96,188 | | | | 95.4 | % | | | 8.40 | | | American Signature Furniture, |
| | | | | | | | | | | | | | | | | Seafood Buffet |
| Chelsea Place | 1992 | 2003 | | | 81,144 | | | | 100.0 | % | | | 11.76 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Dolphin Village | 1967 / 1990 | 2006 | | | 138,129 | | | | 88.2 | % | | | 11.30 | | Publix | Dollar Tree, CVS Pharmacy |
| | | | | | | | | | | | | | | | | |
| Lake St. Charles | 1999 | 2001 | | | 57,015 | | | | 100.0 | % | | | 10.14 | | Sweet Bay | |
| | | | | | | | | | | | | | | | | |
| Lutz Lake | 2002 | 2003 | | | 64,985 | | | | 93.8 | % | | | 13.68 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Marco Town Center | 2001 | 2000 | | | 109,830 | | | | 94.9 | % | | | 17.28 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Mariners Crossing | 1989 / 1999 | 2000 | | | 91,608 | | | | 100.0 | % | | | 9.75 | | Kash n' Karry | |
| | | | | | | | | | | | | | | | | |
| Midpoint Center | 2002 | 2006 | | | 75,386 | | | | 100.0 | % | | | 11.54 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Pavilion | 1982 | 2004 | | | 167,745 | | | | 92.0 | % | | | 14.37 | | Publix | Pavilion 6 Theatre |
| | | | | | | | | | | | | | | | | |
| Regency Crossing | 1986 / 2001 | 2003 | | | 85,864 | | | | 81.2 | % | | | 10.28 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Ross Plaza | 1984 / 1996 | 2000 | | | 89,859 | | | | 77.4 | % | | | 11.46 | | | Ross Dress for Less |
| | | | | | | | | | | | | | | | | |
| Seven Hills | 1991 | 2003 | | | 72,590 | | | | 92.1 | % | | | 10.72 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Shoppes of North Port | 1991 | 2000 | | | 84,705 | | | | 100.0 | % | | | 10.56 | | Publix | Bealls Outlet |
| | | | | | | | | | | | | | | | | |
| Summerlin Square | 1986 / 1998 | 1998 | | | 109,156 | | | | 80.3 | % | | | 10.68 | | Winn-Dixie | Lee County Sheriff's Office |
| | | | | | | | | | | | | | | | | |
| Sunpoint Shopping Center | 1984 | 2006 | | | 132,374 | | | | 66.1 | % | | | 9.53 | | | Bealls Outlet, Goodwill, |
| | | | | | | | | | | | | | | | | Ozzie's Buffet |
| | | | | | | | | | | | | | |
| | Year | | | GLA | | | | | | Average | | | Other |
| | Built / | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| | | | | | | | | | | | | | | | | |
| Venice Plaza | 1971 / 1979 / 1999 | 2003 | | | 132,345 | | | | 96.7 | % | | $ | 5.97 | | Sweet Bay | TJ Maxx, Blockbuster |
| | | | | | | | | | | | | | | | | |
| Venice Shopping Center | 1968 / 2000 | 2004 | | | 111,934 | | | | 98.1 | % | | | 5.69 | | Publix | Beall's Outlet |
| | | | | | | | | | | | | | | | | |
| Walden Woods | 1985 / 1998 / 2003 | 1999 | | | 75,874 | | | | 89.7 | % | | | 6.79 | | | Dollar Tree, Aaron Rents, |
| | | | | | | | | | | | | | | | | Dollar General |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS FLORIDA (84) | 9,406,827 | | | | 95.0 | % | | $ | 12.36 | | | |
| | | | | | | | | | | | | | | | | |
| GEORGIA (25) | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Atlanta (21) | | | | | | | | | | | |
| BridgeMill | 2000 | 2003 | | | 89,102 | | | | 96.4 | % | | $ | 15.36 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Buckhead Station | 1996 | | | | 233,930 | | | | 89.7 | % | | | 19.70 | | | Bed Bath & Beyond, |
| | | | | | | | | | | | | | | | | TJ Maxx, Old Navy, Toys R Us, |
| | | | | | | | | | | | | | | | | DSW, Goldsmith, Ulta |
| Butler Creek | 1990 | 2003 | | | 95,597 | | | | 93.5 | % | | | 10.79 | | Kroger | |
| | | | | | | | | | | | | | | | | |
| Chastain Square | 1981 / 2001 | 2003 | | | 91,637 | | | | 94.5 | % | | | 17.12 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Commerce Crossing | 1988 | 2003 | | | 100,668 | | | | 62.4 | % | | | 4.76 | | Ingles | Fred's Store |
| | | | | | | | | | | | | | | | | |
| Douglas Commons | 1988 | 2003 | | | 97,027 | | | | 98.9 | % | | | 10.41 | | Kroger | |
| | | | | | | | | | | | | | | | | |
| Fairview Oaks | 1997 | 2003 | | | 77,052 | | | | 95.4 | % | | | 11.32 | | Kroger | |
| | | | | | | | | | | | | | | | | |
| Grassland Crossing | 1996 | 2003 | | | 90,906 | | | | 98.6 | % | | | 11.82 | | Kroger | |
| | | | | | | | | | | | | | | | | |
| Hairston Center | 2000 | 2005 | | | 13,000 | | | | 46.2 | % | | | 14.91 | | | |
| | | | | | | | | | | | | | | | | |
| Hamilton Ridge | 2002 | 2003 | | | 89,496 | | | | 85.3 | % | | | 12.44 | | Kroger | |
| | | | | | | | | | | | | | | | | |
| Mableton Crossing | 1997 | 2003 | | | 86,819 | | | | 98.1 | % | | | 10.55 | | Kroger | |
| | | | | | | | | | | | | | | | | |
| Macland Pointe | | 2003 | | | 79,699 | | | | 98.5 | % | | | 9.99 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Market Place | 1976 | 2003 | | | 77,706 | | | | 82.3 | % | | | 11.70 | | | Peachtree Cinema |
| | | | | | | | | | | | | | | | | |
| Paulding Commons | 1991 | 2003 | | | 192,391 | | | | 97.1 | % | | | 7.53 | | Kroger | Kmart |
| | | | | | | | | | | | | | | | | |
| Piedmont Peachtree Crossing | 1978 / 1998 | 2006 | | | 152,239 | | | | 100.0 | % | | | 16.41 | | Kroger | Cost Plus Store, |
| | | | | | | | | | | | | | | | | Binders Art Supplies |
| | | | | | | | | | | | | | | | | |
| Powers Ferry Plaza | 1979 / 1987 / 1998 | 2003 | | | 86,473 | | | | 91.2 | % | | | 9.63 | | | Micro Center |
| | | | | | | | | | | | | | | | | |
| Presidential Markets | 1993 / 2000 | 2003 | | | 396,408 | | | | 96.3 | % | | | 11.09 | | Publix | Marshall's, TJ Maxx, |
| | | | | | | | | | | | | | | | | Bed Bath & Beyond, |
| | | | | | | | | | | | | | | | | Carmike Cinemas, |
| | | | | | | | | | | | | | | | | Ross Dress for Less, |
| | | | | | | | | | | | | | | | | Office Depot, Shoe Carnival, |
| | | | | | | | | | | | | | | | | Grand Harbor Import Co., |
| | | | | | | | | | | | | | | | | Borders |
| Shops of Huntcrest | 2003 | 2003 | | | 97,040 | | | | 96.9 | % | | | 13.97 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Shops of Westridge | 2006 | 2003 | | | 66,297 | | | | 89.4 | % | | | 13.86 | | Publix | |
| | | | | | | | | | | | | | | | | |
| Wesley Chapel | 1989 | 2003 | | | 170,792 | | | | 32.5 | % | | | 7.07 | | Ingles* | CVS Pharmacy |
| | | | | | | | | | | | | | | | | |
| Williamsburg @ Dunwoody | 1983 | 2003 | | | 44,928 | | | | 98.2 | % | | | 18.69 | | | |
| | | | | | | | | | | | | | |
| | Year | | | GLA | | | | | | Average | | | Other |
| | Built / | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| | | | | | | | | | | | | | |
| Central / South Georgia (4) | | | | | | | | | |
| Daniel Village | 1956 / 1997 | 2003 | | | 171,932 | | | | 95.3 | % | | $ | 8.50 | | Bi-Lo | St. Joseph Home Health Care |
| | | | | | | | | | | | | | | | | |
| McAlpin Square | 1979 | 2003 | | | 176,807 | | | | 87.1 | % | | | 8.06 | | Kroger | Big Lots, U.S. Post Office |
| | | | | | | | | | | | | | | | | |
| Spalding Village | 1989 | 2003 | | | 235,318 | | | | 67.6 | % | | | 7.85 | | Kroger | JC Penney*, Blockbuster, |
| | | | | | | | | | | | | | | | | Fred's Store |
| Walton Plaza | 1990 | 2003 | | | 43,460 | | | | 100.0 | % | | | 10.11 | | Harris Teeter* (Omni Fitness) | |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS GEORGIA (25) | 3,056,724 | | | | 80.9 | % | | $ | 11.63 | | | |
| | | | | | | | | | | | | | | | | |
| LOUSIANA (14) | | | | | | | | | | | | | | | | |
| Ambassador Row | 1980 / 1991 | 2003 | | | 193,978 | | | | 84.1 | % | | $ | 9.79 | | | Conn's Appliances, Big Lots, |
| | | | | | | | | | | | | | | | | Chuck E Cheese, Goody's |
| | | | | | | | | | | | | | | | | |
| Ambassador Row Courtyard | 1986 / 1991 / 2005 | 2003 | | | 146,697 | | | | 99.1 | % | | | 9.95 | | | Bed Bath & Beyond, Marshall's |
| | | | | | | | | | | | | | | | | Hancock Fabrics, |
| | | | | | | | | | | | | | | | | United Training Academy, |
| | | | | | | | | | | | | | | | | Tuesday Morning |
| | | | | | | | | | | | | | | | | |
| Bluebonnet Village | 1983 | 2003 | | | 101,623 | | | | 79.7 | % | | | 10.24 | | Matherne's | |
| | | | | | | | | | | | | | | | | |
| Boulevard | 1976 / 1994 | 2003 | | | 68,012 | | | | 98.4 | % | | | 8.59 | | | Piccadilly, |
| | | | | | | | | | | | | | | | | Harbor Freight Tools, |
| | | | | | | | | | | | | | | | | Golfballs.com |
| Country Club Plaza | 1982 / 1994 | 2003 | | | 64,686 | | | | 100.0 | % | | | 6.32 | | Winn-Dixie | |
| | | | | | | | | | | | | | | | | |
| Crossing | 1988 / 1993 | 2003 | | | 114,806 | | | | 93.8 | % | | | 5.65 | | Save A Center | A-1 Home Appliance, |
| | | | | | | | | | | | | | | | | Piccadilly |
| | | | | | | | | | | | | | | | | |
| Elmwood Oaks | 1989 | 2003 | | | 133,995 | | | | 98.1 | % | | | 9.49 | | | Academy Sports, Dollar Tree |
| | | | | | | | | | | | | | | | | Home Décor |
| | | | | | | | | | | | | | | | | |
| Grand Marche (ground lease) | 1969 | 2003 | | | 200,585 | | | | 100.0 | % | | NA | | | Grande Marche |
| | | | | | | | | | | | | | | | | |
| Plaza Acadienne | 1980 | 2003 | | | 105,419 | | | | 49.0 | % | | | 4.02 | | Super 1 Store | Fred's Store |
| | | | | | | | | | | | | | | | | |
| Sherwood South | 1972 / 1988 / 1992 | 2003 | | | 77,107 | | | | 86.0 | % | | | 6.15 | | | Burke's Outlet, |
| | | | | | | | | | | | | | | | | Harbor Freight Tools, |
| | | | | | | | | | | | | | | | | Fred's Store |
| | | | | | | | | | | | | | | | | |
| Siegen Village | 1988 | 2003 | | | 170,416 | | | | 99.2 | % | | | 8.79 | | | Office Depot, Big Lots, |
| | | | | | | | | | | | | | | | | Dollar Tree, Stage, Party City |
| | | | | | | | | | | | | | | | | |
| Tarpon Heights | 1982 | 2003 | | | 56,605 | | | | 89.8 | % | | | 5.09 | | | Stage, Dollar General |
| | | | | | | | | | | | | | | | | |
| Village at Northshore | 1988 | 2003 | | | 144,638 | | | | 100.0 | % | | | 8.68 | | | Marshall's, Dollar Tree, |
| | | | | | | | | | | | | | | | | Kirschman's*, Bed Bath & Beyond, |
| | | | | | | | | | | | | | | | | Office Depot |
| | | | | | | | | | | | | | | | | |
| Wal-Mart Mathews | 1985 | 2003 | | | 54,223 | | | | 100.0 | % | | | 2.90 | | | Wal-Mart* |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS LOUISIANA (14) | 1,632,790 | | | | 91.7 | % | | $ | 8.08 | | | |
| | | | | | | | | | | | | | | | | |
| MASSACHUSETTS (7) | | | | | | | | | | | | | | | | |
| Cambridge Star Market | 1953 / 1997 | 2004 | | | 66,108 | | | | 100.0 | % | | $ | 26.89 | | Star Market | |
| | | | | | | | | | | | | | | | | |
| Medford Shaw's Supermarket | 1995 | 2004 | | | 62,656 | | | | 100.0 | % | | | 23.94 | | Shaw's | |
| | | | | | | | | | | | | | | | | |
| Plymouth Shaw's Supermarket | 1993 | 2004 | | | 59,726 | | | | 100.0 | % | | | 17.77 | | Shaw's | |
| | | | | | | | | | | | | | | | | |
| Quincy Star Market | 1965 / 1995 | 2004 | | | 100,741 | | | | 100.0 | % | | | 17.36 | | Star Market | |
| | | | | | | | | | | | | | | | | |
| Swampscott Whole Foods | 1967 / 2005 | 2004 | | | 35,907 | | | | 100.0 | % | | | 21.00 | | Whole Foods | |
| | | | | | | | | | | | | | | | | |
| Webster Plaza | 1963 / 1998 | 2006 | | | 201,425 | | | | 97.0 | % | | | 7.88 | | Shaw's | Kmart, Family Dollar, Dollar Tree |
| | | | | | | | | | | | | | | | | |
| West Roxbury Shaw's Plaza | 1973 / 1995/ 2006 | 2004 | | | 76,316 | | | | 100.0 | % | | | 23.44 | | Shaw's | |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS MASSACHUSETTS (7) | 602,879 | | | | 99.0 | % | | $ | 17.04 | | | |
| | | | | | | | | | | | | | |
| | Year | | | GLA | | | | | | Average | | | Other |
| | Built / | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| | | | | | | | | | | | | | |
| MISSISSIPPI (1) | | | | | | | | | | | | | |
| Shipyard Plaza | 1987 | 2003 | | | 66,857 | | | | 100.0 | % | | $ | 7.02 | | | Big Lots, Buffalo Wild Wings |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS MISSISSIPPI (1) | 66,857 | | | | 100.0 | % | | $ | 7.02 | | | |
| | | | | | | | | | | | | | | | | |
| NORTH CAROLINA (8) | | | | | | | | | | | | |
| Centre Pointe Plaza | 1989 | 2003 | | | 163,642 | | | | 95.8 | % | | $ | 6.33 | | | Belk's, Goody's, Dollar Tree, |
| | | | | | | | | | | | | | | | | Aaron Rents |
| Galleria | 1986 / 1990 | 2003 | | | 92,114 | | | | 92.9 | % | | | 10.25 | | Harris Teeter* | |
| | | | | | | | | | | | | | | | | |
| Parkwest Crossing | 1990 | 2003 | | | 85,602 | | | | 100.0 | % | | | 10.36 | | Food Lion | |
| | | | | | | | | | | | | | | | | |
| Riverview Shopping Center | 1973 / 1995 | 2003 | | | 128,498 | | | | 93.4 | % | | | 7.82 | | Kroger | Upchurch Drugs, Riverview Galleries |
| | | | | | | | | | | | | | | | | |
| Salisbury Marketplace | 1987 | 2003 | | | 79,732 | | | | 91.6 | % | | | 10.56 | | Food Lion | Family Dollar |
| | | | | | | | | | | | | | | | | |
| Stanley Market Place | 2007 | 2003 | | | 53,228 | | | | 93.4 | % | | | 9.82 | | Food Lion | |
| | | | | | | | | | | | | | | | | |
| Thomasville Commons | 1991 | 2003 | | | 148,754 | | | | 95.2 | % | | | 5.73 | | Ingles | Kmart |
| | | | | | | | | | | | | | | | | |
| Willowdaile Shopping Center | 1986 | 2003 | | | 120,984 | | | | 93.2 | % | | | 10.04 | | Harris Teeter | Hall of Fitness |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS NORTH CAROLINA (8) | 872,554 | | | | 94.6 | % | | $ | 8.36 | | | |
| | | | | | | | | | | | | | | | | |
| SOUTH CAROLINA (8) | | | | | | | | | | | | | |
| Belfair Towne Village | 2000 / 2003 / 2006 | 2003 | | | 166,639 | | | | 95.3 | % | | $ | 12.93 | | Kroger | Stein Mart |
| | | | | | | | | | | | | | | | | |
| Lancaster Plaza | 1971 / 1990 | 2003 | | | 77,400 | | | | 32.6 | % | | | 3.62 | | Bi-Lo | |
| | | | | | | | | | | | | | | | | |
| Lancaster Shopping Center | 1963 / 1987 | 2003 | | | 29,047 | | | | 100.0 | % | | | 2.09 | | | Sweet Union Furniture |
| | | | | | | | | | | | | | | | | |
| Milestone Plaza | 1995 | 2006 | | | 98,777 | | | | 89.5 | % | | | 14.97 | | Bi-Lo | |
| | | | | | | | | | | | | | | | | |
| North Village Center | 1984 | 2003 | | | 60,356 | | | | 96.8 | % | | | 8.87 | | Bi-Lo | Dollar General, Gold's Gym |
| | | | | | | | | | | | | | | | | |
| Sparkleberry Square | 1997 / 2004 | 2004 | | | 339,051 | | | | 99.5 | % | | | 11.35 | | Kroger | Ross Dress for Less, Circuit City, |
| | | | | | | | | | | | | | | | | Bed Bath & Beyond, Petsmart, |
| | | | | | | | | | | | | | | | | Pier One, Kohl's |
| | | | | | | | | | | | | | | | | |
| Windy Hill | 1968 / 1988 / 2006 | 2004 | | | 68,465 | | | | 100.0 | % | | | 6.18 | | | Rose's Store, Family Dollar Store |
| | | | | | | | | | | | | | | | | |
| Woodruff | 1995 | 2003 | | | 68,055 | | | | 98.2 | % | | | 10.45 | | Publix | |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS SOUTH CAROLINA (8) | 907,790 | | | | 91.7 | % | | $ | 10.81 | | | |
| | | | | | | | | | | | | | | | | |
| TEXAS (1) | | | | | | | | | | | | | |
| Rosemeade | 1986 | 2001 | | | 51,231 | | | | 79.2 | % | | $ | 7.20 | | | Russian Banya Spa |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS TEXAS (1) | 51,231 | | | | 79.2 | % | | $ | 7.20 | | | |
| | | | | | | | | | | | | | | | | |
| VIRGINIA (1) | | | | | | | | | | | | | | | | |
| Smyth Valley Crossing | 1989 | 2003 | | | 126,841 | | | | 98.9 | % | | $ | 5.93 | | Ingles | Wal-Mart |
| | | | | | | | | | | | | | | | | |
| TOTAL SHOPPING CENTERS VIRGINIA (1) | 126,841 | | | | 98.9 | % | | $ | 5.93 | | | |
| | | | | | | | | | | | | | | | | |
| TOTAL CORE SHOPPING CENTER PORTFOLIO (152) | 17,078,462 | | | | 93.2 | % | | $ | 11.66 | | | |
| | | | | | | | | | | | | | |
| | Year | | | GLA | | | | | | Average | | | Other |
| | Built / | Year | | Sq. Ft. | | | Percent | | | base rent | | Grocer | Anchors |
| Property | Renovated | Acquired | | at 12/31/07 (1) | | | Leased | | | PSF (2) | | Anchor | > 10,000 sf |
| | | | | | | | | | | | | | |
| OTHER PROPERTIES (6) | | | | | | | | | |
| 4101 South I-85 Industrial | 1956 / 1963 | 2003 | | | 188,513 | | | | 38.0 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| Banco Popular Office Building | 1971 | 2005 | | | 32,737 | | | | 90.1 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| Laurel Walk Apartments | 1985 | 2005 | | | 106,480 | | | | 87.3 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| Mandarin Mini-Storage | 1982 | 1994 | | | 52,300 | | | | 82.1 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| Prosperity Office Building | 1972 | 2006 | | | 3,200 | | | | 0.0 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| Providence Square | 1973 | 2003 | | | 85,930 | | | | 32.5 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| TOTAL OTHER PROPERTIES (6) | 469,160 | | | | 56.6 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| TOTAL EXCLUDING DEV / REDEV & LAND (158) | 17,547,622 | | | | 92.2 | % | | | | | | |
| | | | | | | | | | | | | | | | | |
| DEVELOPMENTS / REDEVELOPMENTS & LAND (11) | | | | | | | | | | | | |
| Developments (3) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Redevelopments (4) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Land Held for Development (4) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| GRAND TOTAL - 169 Properties | | | | | | | | | | | | |
——————————
| (1) | Total square footage does not include shadow anchor square footage that is not owned by Equity One. |
| (2) | Calculated by annualizing the center’s monthly base rent at December 31, 2007, excluding expense reimbursements, percentage rent payments and other charges divided by GLA. |
| * | Indicates a tenant which continues to pay rent, but has closed its store and ceased operations. |
The sub-tenant, if any, is shown in ().
Most of our leases provide for the monthly payment in advance of fixed minimum rentals, the tenants’ pro rata share of ad valorem taxes, insurance (including fire and extended coverage, rent insurance and liability insurance) and common area maintenance for the property. They may also provide for the payment of additional rentals based on a percentage of the tenants’ sales. Utilities are generally paid directly by tenants except where common metering exists with respect to a property. In this case, we make the payments for the utilities and are reimbursed by the tenants on a monthly basis. Generally, our leases prohibit the tenant from assigning or subletting its space. They also require the tenant to use its space for the purpose designated in its lease agreement and to operate its business on a continuous basis. Some of the lease agreements with major tenants contain modifications of these basic provisions in view of the financial condition, stability or desirability of those tenants. Where a tenant is granted the right to assign its space, the lease agreement generally provides that the original lessee will remain liable for the payment of the lease obligations under that lease agreement.
Major Tenants
The following table sets forth as of December 31, 2007 the gross leasable area, or GLA of our existing properties leased to tenants in our core shopping center portfolio:
| | | | | | | | | | | | | |
| | | Supermarket Anchor Tenants | | | Other Anchor Tenants | | | Non-anchor Tenants | | | Total | |
| Leased GLA (sq. ft.) | | | 5,082,066 | | | | 5,277,245 | | | | 5,560,389 | | | | 15,919,700 | |
| | | | | | | | | | | | | | | | | |
| Percentage of Total Leased GLA | | | 31.9 | % | | | 33.2 | % | | | 34.9 | % | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
The following table sets forth as of December 31, 2007 the annual minimum rent at expiration attributable to tenants in our core shopping center portfolio:
| | | | | | | | | | | | | |
| | | Supermarket Anchor Tenants | | | Other Anchor Tenants | | | Non-anchor Tenants | | | Total | |
| Annual Minimum Rent (“AMR”) | | $ | 44,624,919 | | | $ | 45,681,357 | | | $ | 100,877,270 | | | $ | 191,183,546 | |
| | | | | | | | | | | | | | | | | |
| Percentage of Total AMR | | | 23.3 | % | | | 23.9 | % | | | 52.8 | % | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
The following table sets forth as of December 31, 2007 information regarding leases with the ten largest tenants in our core shopping center portfolio:
| | | | | | | | | | | | | | | | | | | |
| Tenant | | Number of Leases | | | GLA (square feet) | | | Percent of Total GLA | | | Annualized Minimum Rent at 12/31/07 | | | Percent of Aggregate Annualized Minimum Rent | | | Average Annual Minimum Rent per Square Foot | |
| Publix | | | 54 | | | | 2,415,977 | | | | 14.1% | | | $ | 19,074,490 | | | | 10.4% | | | $ | 7.90 | |
| Supervalu | | | 7 | | | | 458,273 | | | | 2.7% | | | | 8,302,236 | | | | 4.5% | | | | 18.12 | |
| Kroger | | | 13 | | | | 747,025 | | | | 4.4% | | | | 6,057,487 | | | | 3.3% | | | | 8.11 | |
| Bed Bath & Beyond | | | 10 | | | | 321,490 | | | | 1.9% | | | | 3,620,831 | | | | 2.0% | | | | 11.26 | |
| Winn Dixie | | | 10 | | | | 476,128 | | | | 2.8% | | | | 2,891,202 | | | | 1.6% | | | | 6.07 | |
| TJ Maxx Companies | | | 10 | | | | 310,658 | | | | 1.8% | | | | 2,556,245 | | | | 1.4% | | | | 8.23 | |
| LA Fitness | | | 3 | | | | 144,307 | | | | 0.8% | | | | 2,517,941 | | | | 1.4% | | | | 17.45 | |
| Blockbuster | | | 23 | | | | 122,124 | | | | 0.7% | | | | 2,277,865 | | | | 1.2% | | | | 18.65 | |
| CVS Pharmacy | | | 14 | | | | 152,365 | | | | 0.9% | | | | 2,222,981 | | | | 1.2% | | | | 14.59 | |
| Office Depot | | | 7 | | | | 190,206 | | | | 1.1% | | | | 2,063,628 | | | | 1.1% | | | | 10.85 | |
| Total top ten tenants | | | 151 | | | | 5,338,553 | | | | 31.2% | | | $ | 51,584,906 | | | | 28.1% | | | $ | 9.66 | |
The following tables sets forth as of December 31, 2007 the anticipated expirations of tenant leases in our core shopping center portfolio for each year from 2008 through 2017 and thereafter:
| ALL TENANTS | |
| Year | | Number of Leases | | | GLA (square feet) | | | Percent of Total GLA | | | Annualized Minimum Rent at Expiration | | | Percent of Aggregate Annualized Minimum Rent at Expiration | | | Average Annual Minimum Rent per Square Foot at Expiration | |
| | | 91 | | | | 186,275 | | | | 1.1% | | | $ | 2,632,686 | | | | 1.4% | | | $ | 14.13 | |
| 2008 | | | 591 | | | | 1,395,686 | | | | 8.2% | | | | 21,132,295 | | | | 11.1% | | | | 15.14 | |
| 2009 | | | 557 | | | | 1,985,673 | | | | 11.6% | | | | 24,580,784 | | | | 12.9% | | | | 12.38 | |
| 2010 | | | 553 | | | | 2,097,306 | | | | 12.3% | | | | 25,283,953 | | | | 13.2% | | | | 12.06 | |
| 2011 | | | 371 | | | | 1,989,203 | | | | 11.6% | | | | 23,618,759 | | | | 12.4% | | | | 11.87 | |
| 2012 | | | 313 | | | | 1,748,605 | | | | 10.2% | | | | 20,506,557 | | | | 10.7% | | | | 11.73 | |
| 2013 | | | 75 | | | | 991,322 | | | | 5.8% | | | | 9,981,112 | | | | 5.2% | | | | 10.07 | |
| 2014 | | | 45 | | | | 792,319 | | | | 4.6% | | | | 6,830,088 | | | | 3.6% | | | | 8.62 | |
| 2015 | | | 33 | | | | 399,382 | | | | 2.3% | | | | 4,393,324 | | | | 2.3% | | | | 11.00 | |
| 2016 | | | 34 | | | | 910,930 | | | | 5.3% | | | | 13,697,924 | | | | 7.1% | | | | 15.04 | |
| 2017 | | | 32 | | | | 592,401 | | | | 3.4% | | | | 7,270,278 | | | | 3.8% | | | | 12.27 | |
| Thereafter | | | 110 | | | | 2,830,598 | | | | 16.4% | | | | 31,255,786 | | | | 16.3% | | | | 11.04 | |
| Sub-total/Average | | | 2,805 | | | | 15,919,700 | | | | 93.2% | | | $ | 191,183,546 | | | | 100.0% | | | $ | 12.01 | |
| Vacant | | | 375 | | | | 1,158,762 | | | | 6.8% | | | NA | | | NA | | | NA | |
| Total/Average | | | 3,180 | | | | 17,078,462 | | | | 100.0% | | | $ | 191,183,546 | | | | 100.0% | | | NA | |
| ANCHOR TENANTS > 10,000 SF | |
| Year | | Number of Leases | | | GLA (square feet) | | | Percent of Total GLA | | | Annualized Minimum Rent at Expiration | | | Percent of Aggregate Annualized Minimum Rent at Expiration | | | Average Annual Minimum Rent per Square Foot at Expiration | |
| M-T-M | | | 2 | | | | 33,978 | | | | 0.3% | | | $ | 390,565 | | | | 0.4% | | | $ | 11.49 | |
| 2008 | | | 13 | | | | 211,324 | | | | 1.9% | | | | 1,461,123 | | | | 1.6% | | | | 6.91 | |
| 2009 | | | 33 | | | | 886,200 | | | | 8.1% | | | | 6,033,373 | | | | 6.7% | | | | 6.81 | |
| 2010 | | | 38 | | | | 1,030,540 | | | | 9.5% | | | | 6,340,522 | | | | 7.0% | | | | 6.15 | |
| 2011 | | | 42 | | | | 1,215,396 | | | | 11.2% | | | | 8,802,132 | | | | 9.7% | | | | 7.24 | |
| 2012 | | | 32 | | | | 1,093,763 | | | | 10.1% | | | | 7,472,072 | | | | 8.3% | | | | 6.83 | |
| 2013 | | | 20 | | | | 832,049 | | | | 7.6% | | | | 6,752,824 | | | | 7.5% | | | | 8.12 | |
| 2014 | | | 16 | | | | 693,616 | | | | 6.4% | | | | 4,788,277 | | | | 5.3% | | | | 6.90 | |
| 2015 | | | 11 | | | | 324,938 | | | | 3.0% | | | | 2,791,511 | | | | 3.1% | | | | 8.59 | |
| 2016 | | | 17 | | | | 847,255 | | | | 7.8% | | | | 12,276,939 | | | | 13.6% | | | | 14.49 | |
| 2017 | | | 13 | | | | 498,622 | | | | 4.6% | | | | 5,325,139 | | | | 5.9% | | | | 10.68 | |
| Thereafter | | | 64 | | | | 2,691,630 | | | | 24.7% | | | | 27,871,799 | | | | 30.9% | | | | 10.35 | |
| Sub-total/Average | | | 301 | | | | 10,359,311 | | | | 95.2% | | | $ | 90,306,276 | | | | 100.0% | | | $ | 8.72 | |
| Vacant | | | 19 | | | | 520,089 | | | | 4.8% | | | NA | | | NA | | | NA | |
| Total/Average | | | 320 | | | | 10,879,400 | | | | 100.0% | | | $ | 90,306,276 | | | | 100.0% | | | NA | |
| LOCAL TENANTS < 10,000 SF | |
| Year | | Number of Leases | | | GLA (square feet) | | | Percent of Total GLA | | | Annualized Minimum Rent at Expiration | | | Percent of Aggregate Annualized Minimum Rent at Expiration | | | Average Annual Minimum Rent per Square Foot at Expiration | |
| M-T-M | | | 89 | | | | 152,297 | | | | 2.5% | | | $ | 2,242,121 | | | | 2.2 | % | | $ | 14.72 | |
| 2008 | | | 578 | | | | 1,184,362 | | | | 19.1% | | | | 19,671,172 | | | | 19.5 | % | | | 16.61 | |
| 2009 | | | 524 | | | | 1,099,473 | | | | 17.7% | | | | 18,547,411 | | | | 18.4 | % | | | 16.87 | |
| 2010 | | | 515 | | | | 1,066,766 | | | | 17.2% | | | | 18,943,431 | | | | 18.8 | % | | | 17.76 | |
| 2011 | | | 329 | | | | 773,807 | | | | 12.5% | | | | 14,816,627 | | | | 14.7 | % | | | 19.15 | |
| 2012 | | | 281 | | | | 654,842 | | | | 10.6% | | | | 13,034,485 | | | | 12.9 | % | | | 19.90 | |
| 2013 | | | 55 | | | | 159,273 | | | | 2.6% | | | | 3,228,288 | | | | 3.2 | % | | | 20.27 | |
| 2014 | | | 29 | | | | 98,703 | | | | 1.6% | | | | 2,041,811 | | | | 2.0 | % | | | 20.69 | |
| 2015 | | | 22 | | | | 74,444 | | | | 1.2% | | | | 1,601,813 | | | | 1.6 | % | | | 21.52 | |
| 2016 | | | 17 | | | | 63,675 | | | | 1.0% | | | | 1,420,985 | | | | 1.4 | % | | | 22.32 | |
| 2017 | | | 19 | | | | 93,779 | | | | 1.5% | | | | 1,945,139 | | | | 1.9 | % | | | 20.74 | |
| Thereafter | | | 46 | | | | 138,968 | | | | 2.2% | | | | 3,383,987 | | | | 3.4 | % | | | 24.35 | |
| Sub-total/Average | | | 2,504 | | | | 5,560,389 | | | | 89.7% | | | $ | 100,877,270 | | | | 100.0 | % | | $ | 18.14 | |
| Vacant | | | 356 | | | | 638,673 | | | | 10.3% | | | NA | | | NA | | | NA | |
| Total/Average | | | 2,860 | | | | 6,199,062 | | | | 100.0% | | | $ | 100,877,270 | | | | 100.0 | % | | NA | |
We may incur substantial expenditures in connection with the re-leasing of our retail space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the terms of the leases. We also incur expenditures for certain recurring capital expenses.
Insurance
Our tenants are generally responsible under their leases for providing adequate insurance on the spaces they lease. We believe that our properties are covered by adequate fire, flood and property insurance, and where necessary hurricane and windstorm coverages all provided by reputable companies. However, certain of our properties are not covered by disaster insurance with respect to certain hazards (such as hurricanes) for which coverage is not available or available only at rates, which in our opinion, are not economically justifiable.
Neither we nor our properties are subject to any litigation which we believe will have a material adverse affect on our business, financial condition, results of operations or cash flows. Furthermore, to the best of our knowledge, except as described above with respect to environmental matters, there is no litigation threatened against us or any of our properties, other than routine litigation and administrative proceedings arising in the ordinary course of business, which collectively are not expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted for stockholder vote during the fourth quarter of 2007.
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information and Dividends
Our common stock began trading on the New York Stock Exchange, or NYSE, on May 18, 1998, under the symbol “EQY.” On February 15, 2008, we had 1,508 stockholders of record representing 17,191 beneficial owners. The following table sets forth for the periods indicated the high and low sales closing prices as reported by the NYSE and the distributions declared by us:
| | | | | | | | | | |
| | | High | | | Low | | | Distributions Declared | |
| First Quarter, 2007 | | $ | 28.76 | | | $ | 25.52 | | | $ | 0.30 | |
| Second Quarter, 2007 | | $ | 29.30 | | | $ | 25.55 | | | $ | 0.30 | |
| Third Quarter, 2007 | | $ | 28.09 | | | $ | 22.77 | | | $ | 0.30 | |
| Fourth Quarter, 2007 | | $ | 28.68 | | | $ | 21.49 | | | $ | 0.30 | |
| | | | | | | | | | | | | |
| First Quarter, 2006 | | $ | 24.90 | | | $ | 22.40 | | | $ | 0.30 | |
| Second Quarter, 2006 | | $ | 24.00 | | | $ | 20.48 | | | $ | 1.30 | (1) |
| Third Quarter, 2006 | | $ | 25.48 | | | $ | 21.15 | | | $ | 0.30 | |
| Fourth Quarter, 2006 | | $ | 28.14 | | | $ | 23.89 | | | $ | 0.30 | |
| | | | | | | | | | | | | |
(1) Included a special dividend of $1.00 per share related to the sale of our Texas portfolio.
Dividends paid during 2007 and 2006 totaled $88.6 million and $162.7 million, inclusive of the 2006 special dividend aggregating $73.7 million, respectively. Future declarations of dividends will be made by us at the discretion of our board of directors and will depend upon our earnings, financial condition and such other factors as our board of directors deems relevant. In order to qualify for the beneficial tax treatment accorded to real estate investment trusts under the Internal Revenue Code of 1986, or the Code, we are currently required to make distributions to holders of our shares in an amount equal to at least 90% of our “real estate investment trust taxable income,” as defined in Section 857 of the Code.
Performance Graph
The following graph compares the cumulative total return of our common stock with the Russell 2000 Index, the NAREIT All Equity Index and SNL Shopping Center REITs, an index of approximately 20 publicly-traded REITS that primarily own and operate shopping centers, each as provided by SNL Securities L.C., from December 31, 2002 until December 31, 2007. The SNL Shopping Center REIT index is compiled by SNL Securities L.C. and includes our common stock and securities of many of our competitors. The graph assumes that $100 was invested on December 31, 2002 in our common stock, the Russell 2000 Index, the NAREIT All Equity REIT Index and SNL Shopping Center REITs, and that all dividends were reinvested. The lines represent semi-annual index levels derived from compounded daily returns. The indices are re-weighted daily, using the market capitalization on the previous tracking day. If the semi-annual interval is not a trading day, the preceding trading day is used.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
Issuer Purchases Of Equity Securities
No equity securities were purchased by us during 2007.
Equity Compensation Plan Information
Information regarding equity compensation plans is presented in Item 12 of this annual report and incorporated herein by reference.
| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | (in thousands other than per share, percentage and ratio data) | |
Statement of Operations Data: (1) | | | | | | | | | | | | | | | |
| Total rental income | | $ | 246,613 | | | $ | 224,777 | | | $ | 201,781 | | | $ | 178,998 | | | $ | 137,647 | |
| Property operating expenses | | | 64,500 | | | | 61,161 | | | | 51,355 | | | | 45,837 | | | | 39,727 | |
| Property management and leasing services | | | 963 | | | | 1,861 | | | | 229 | | | | 82 | | | | 42 | |
| Rental property depreciation and amortization | | | 46,103 | | | | 40,312 | | | | 33,467 | | | | 28,655 | | | | 20,675 | |
| General and administrative expenses | | | 25,846 | | | | 29,757 | | | | 19,734 | | | | 18,708 | | | | 12,694 | |
| Total operating expenses | | | 137,412 | | | | 133,091 | | | | 104,785 | | | | 93,282 | | | | 73,138 | |
| Interest expense | | | (66,663 | ) | | | (53,983 | ) | | | (47,308 | ) | | | (40,987 | ) | | | (32,157 | ) |
| Amortization of deferred financing fees | | | (1,680 | ) | | | (1,485 | ) | | | (1,449 | ) | | | (1,329 | ) | | | (896 | ) |
| Other income, net | | | 9,893 | | | | 16,628 | | | | 7,941 | | | | 2,704 | | | | 1,095 | |
| Minority interest | | | (112 | ) | | | (206 | ) | | | (188 | ) | | | (576 | ) | | | (756 | ) |
| Impairment | | | (1,851 | ) | | | - | | | | - | | | | - | | | | - | |
| Income from continuing operations | | $ | 48,788 | | | $ | 52,640 | | | $ | 55,992 | | | $ | 45,528 | | | $ | 31,795 | |
| Net income | | $ | 69,385 | | | $ | 176,955 | | | $ | 92,741 | | | $ | 97,804 | | | $ | 63,647 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.67 | | | $ | 0.71 | | | $ | 0.76 | | | $ | 0.65 | | | $ | 0.53 | |
| Net income | | $ | 0.95 | | | $ | 2.40 | | | $ | 1.26 | | | $ | 1.39 | | | $ | 1.06 | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.67 | | | $ | 0.71 | | | $ | 0.75 | | | $ | 0.63 | | | $ | 0.52 | |
| Net income | | $ | 0.95 | | | $ | 2.38 | | | $ | 1.24 | | | $ | 1.37 | | | $ | 1.05 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
| Total rental properties, net of accumulated depreciation | | $ | 1,875,342 | | | $ | 1,752,018 | | | $ | 1,896,505 | | | $ | 1,873,687 | | | $ | 1,617,299 | |
Total assets (2) | | | 2,174,384 | | | | 2,069,775 | | | | 2,059,881 | | | | 1,992,292 | | | | 1,677,386 | |
| Mortgage notes payable | | | 397,112 | | | | 391,647 | | | | 446,925 | | | | 495,056 | | | | 459,103 | |
Total liabilities (2) | | | 1,257,463 | | | | 1,143,108 | | | | 1,085,727 | | | | 1,059,507 | | | | 834,162 | |
| Minority interest | | | 989 | | | | 989 | | | | 1,425 | | | | 1,397 | | | | 12,672 | |
| Shareholders’ equity | | | 915,932 | | | | 925,678 | | | | 972,729 | | | | 931,388 | | | | 830,552 | |
| | | | | | | | | | | | | | | | | | | | | |
| Other Data: | | | | | | | | | | | | | | | | | | | | |
Funds from operations(3) | | $ | 98,409 | | | $ | 110,311 | | | $ | 124,836 | | | $ | 113,663 | | | $ | 89,870 | |
| Cash flows from: | | | | | | | | | | | | | | | | | | | | |
| Operating activities | | | 107,016 | | | | 94,643 | | | | 117,192 | | | | 113,110 | | | | 78,262 | |
| Investing activities | | | (104,602 | ) | | | 114,813 | | | | (82,371 | ) | | | (244,851 | ) | | | (326,160 | ) |
| Financing activities | | | (1,101 | ) | | | (209,558 | ) | | | (39,841 | ) | | | 135,897 | | | | 245,920 | |
| GLA (square feet) at end of period | | | 17,548 | | | | 18,353 | | | | 19,699 | | | | 19,914 | | | | 19,883 | |
| Occupancy of core shopping center portfolio at end of period | | | 93.2 | % | | | 95.0 | % | | | 93.0 | % | | | 95.0 | % | | | 90.0 | % |
| Dividends per share | | $ | 1.20 | | | $ | 2.20 | | | $ | 1.17 | | | $ | 1.13 | | | $ | 1.10 | |
| | (1) | Reclassified to reflect the reporting of discontinued operations. |
| | (2) | Amounts have been reclassified to conform to the 2007 presentation. |
| | (3) | We believe Funds from Operations (“FFO”) (combined with the primary GAAP presentations) is a useful supplemental measure of our operating performance that is a recognized metric used extensively by the real estate industry and, in particular, REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) stated in its April 2002 White Paper on Funds from Operations, “Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminish predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” |
FFO, as defined by NAREIT, is “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures”. It states further that “adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.” We believe that financial analysts, investors and stockholders are better served by the clearer presentation of comparable period operating results generated from our FFO measure. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
FFO is presented to assist investors in analyzing our operating performance. FFO (i) does not represent cash flow from operations as defined by GAAP, (ii) is not indicative of cash available to fund all cash flow needs, including the ability to make distributions, (iii) is not an alternative to cash flow as a measure of liquidity, and (iv) should not be considered as an alternative to net income (which is determined in accordance with GAAP) for purposes of evaluating our operating performance.
The following table illustrates the calculation of FFO for each of the five years in the period ended December 31, 2007:
| | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | (In thousands) | |
| Net income | | $ | 69,385 | | | $ | 176,955 | | | $ | 92,741 | | | $ | 97,804 | | | $ | 63,647 | |
| Adjustments: | | | | | | | | | | | | | | | | | | | | |
| Rental property depreciation and amortization, including discontinued operations | | | 47,514 | | | | 44,791 | | | | 43,445 | | | | 37,215 | | | | 28,007 | |
| Gain on disposal of income- producing properties | | | (18,885 | ) | | | (112,995 | ) | | | (11,460 | ) | | | (22,176 | ) | | | (3,083 | ) |
| Minority interest | | | 112 | | | | 206 | | | | 110 | | | | 623 | | | | 803 | |
| Loss on disposal of fixed assets | | | 283 | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Other Items: | | | | | | | | | | | | | | | | | | | | |
| Interest on convertible partnership units | | | - | | | | - | | | | - | | | | - | | | | 43 | |
| Pro-rata share of real estate depreciation from joint ventures | | | - | | | | 1,354 | | | | - | | | | 197 | | | | 453 | |
| Funds from operations | | $ | 98,409 | | | $ | 110,311 | | | $ | 124,836 | | | $ | 113,663 | | | $ | 89,870 | |
| | | | | | | | | | | | | | | | | | | | | |
The following table reflects the reconciliation of FFO per diluted share to earnings per diluted share, the most directly comparable GAAP measure, for the periods presented:
| | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | (In thousands) | |
| Earnings per diluted share* | | $ | 0.95 | | | $ | 2.38 | | | $ | 1.24 | | | $ | 1.37 | | | $ | 1.05 | |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustments: | | | | | | | | | | | | | | | | | | | | |
| Rental property depreciation and amortization, including discontinued operations | | | 0.65 | | | | 0.60 | | | | 0.58 | | | | 0.52 | | | | 0.45 | |
| Gain on disposal of income-producing properties | | | (0.26 | ) | | | (1.52 | ) | | | (0.15 | ) | | | (0.31 | ) | | | (0.05 | ) |
| Loss on disposal of fixed assets | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Other items: | | | | | | | | | | | | | | | | | | | | |
| Pro-rata share of real estate depreciation from joint ventures | | | - | | | | 0.02 | | | | - | | | | - | | | | 0.01 | |
| Funds from operations per diluted share | | $ | 1.34 | | | $ | 1.48 | | | $ | 1.67 | | | $ | 1.58 | | | $ | 1.46 | |
| | | | | | | | | | | | | | | | | | | | | |
* Earnings per diluted share reflect the add-back of interest on convertible partnership units and the minority interest(s) in earnings of consolidated subsidiaries which are convertible to shares of our common stock.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing in “Item 8. Financial Statements and Supplementary Data” of this annual report.
We are a real estate investment trust (“REIT”) that owns, manages, acquires, develops and redevelops neighborhood and community shopping centers. As of December 31, 2007, our property portfolio comprised 169 properties, including 152 shopping centers consisting of approximately 17.1 million square feet of gross leasable area (“GLA”), seven development/redevelopment properties, six non-retail properties and four parcels of land. As of December 31, 2007, our core portfolio was 93.2% leased and included national, regional and local tenants.
Our principal business objective is to maximize long-term stockholder value by generating sustainable cash flow growth and increasing the long-term value of our real estate assets.
Operating Strategies. We derive substantially all of our revenue from tenants under existing leases at our properties. Our core operating strategy is to maximize and strengthen this revenue by attracting and retaining a strong and diverse base of tenants. In 2007, this strategy resulted in:
| | · | a 3.3% increase in same property net operating income as compared to 2006; |
| | · | an increase in the average rental rate of 14.6% to $16.02 per square foot on 370 lease renewals aggregating approximately 940,000 square feet; and |
| | · | 200 additional new leases totaling 758,122 square feet at an average rental rate of $12.64 per square foot. |
In the long-term, our operating revenues are dependent on the continued occupancy of our properties, the rents that we are able to charge to our tenants and the ability of these tenants to make their rental payments. The main long-term threat to our business is our dependence on the viability of our anchor and other tenants. We believe, however, that our general operating risks are mitigated by concentrating on high-density neighborhoods in major metropolitan areas, leasing to strong tenants in the markets in which we own properties and maintaining a diverse tenant mix.
Investment Strategies. Our investment strategy is to deploy capital in projects that generate a return that exceeds our cost of capital and, at the same time, to sell assets that no longer meet our investment criteria. In 2007, this strategy resulted in:
| | · | the sale of 14 non-core properties and six land parcels for an aggregate consideration of $77.5 million and an aggregate gain of $21.2 million; |
| | · | the acquisition of four retail properties, three outparcels and one land parcel for an aggregate consideration of $133.2 million; and |
| | · | the completion of approximately $35.1 million of development and redevelopment projects. |
Capital Strategy. Our business during 2007 was financed using our revolving lines of credit, proceeds from the sale of properties, the issuance of debt and assumed mortgages. Specifically, in 2007, our capital strategy resulted in:
| | · | the issuance of $150.0 million of 6.0% unsecured fixed-rate notes maturing in September 2017; and |
| | · | the prepayment of $11.5 million of certain mortgage notes. |
At December 31, 2007, the outstanding balances on our lines of credit aggregated $37.0 million, with $238.4 million of availability under those facilities subject to covenants that may restrict our use of additional borrowings. One of these facilities with borrowing limits of $275.0 million expires in early 2009. We have the option to extend this agreement for one year or we may seek other financing arrangements in 2008. In order to fund our business in the future, we anticipate using similar financing sources. However, there can be no assurances that these sources will be available to us in the future at reasonable terms or at all. In addition, although we have enjoyed a low interest rate environment in recent years, fluctuations in interest rates over the last 18 months has had, and any future increases will have, an adverse effect on the cost of our future borrowings, including borrowings under our revolving credit facilities, which are based on variable interest rates. As interest rates rise, the interest expense we incur on these loans will increase.
2008 Outlook. We will continue to focus in 2008 on disposing of assets that no longer meet our investment criteria. These sales may negatively affect our rental revenue and earnings in the short term. In the long run, we believe that our business and the earnings generated from the remaining properties will benefit from the quality, location and demographic characteristics of that portfolio, as well as new properties developed or acquired, in part, with capital from those sales.
We continue to see a positive impact on our income as a result of the redevelopment of our shopping centers and higher rental rates on existing spaces that are experiencing tenant turnover. We anticipate that approximately $100 million of developments and redevelopment projects will be completed in the next two years. As redevelopment properties stabilize, spaces that were out of service begin generating revenue. In addition, spaces that were not out of service and that have expiring leases may generate higher revenue because we generally receive higher rent on new leases. Further, leases signed in 2006 and 2007 on spaces for which there was a previous tenant has on average been renewed at higher base rent than the prior lease.
Our business is generally dependent on the performance of the economy in the areas in which we own properties and the cost of financing available to fund our growth. Changes in the economic environment tend to have a direct effect on our tenants’ businesses and, therefore, their ability to continue to pay us rent or remain in occupancy of our properties, as well as the willingness of businesses to lease locations. The markets in which we currently own properties have continued to show signs of economic and population growth during 2007, and we expect those trends to continue in 2008. However, general economic slowdowns or other macro-economic changes in these markets may adversely affect our business.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, which we refer to as GAAP, requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using our best judgment, after considering past and current events and economic conditions. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is included in “Item 1A. Risk Factors” of this annual report. We consider an accounting estimate to be critical if changes in the estimate or accrual results could have a material impact on our consolidated results of operations or financial condition.
The most significant accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:
Revenue Recognition and Accounts Receivable
Leases with tenants are classified as operating leases. Generally, our leases contain fixed escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on our assessment of credit, collection and other business risk. We make estimates of the collectability of our accounts receivable related to base rents, straight-line rents, expense reimbursements and other revenue or income taking into account our experience in the retail sector, available internal and external tenant credit information, payment history, industry trends, tenant credit-worthiness and remaining lease terms. In some cases, primarily relating to straight-line rents, the collection of these amounts extends beyond one year. The extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the non-recognition of a portion of straight-line rental income until the collection of such income is reasonably assured. These estimates have a direct impact on our earnings.
Real Estate Properties and Development Assets
The nature of our business as an owner, developer and operator of retail shopping centers means that we invest significant amounts of capital into our properties. Depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole. We capitalize real estate investments and depreciate them based on estimates of the assets’ physical and economic useful lives. The cost of our real estate investments is charged to depreciation expense over the estimated life of the asset using straight-line rates for financial statement purposes. We periodically review the estimated lives of our assets and implement changes, as necessary, to these estimates and, therefore, to our depreciation rates.
Properties and real estate under development are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of up to 40 years for buildings and improvements, the minimum lease term or economic useful life for tenant improvements, and five to seven years for furniture and equipment. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements, which improve or extend the useful life of assets, are capitalized. The useful lives of amortizable intangible assets are evaluated each reporting period with any changes in estimated useful lives being accounted for over the revised remaining useful life.
Properties also include construction in progress and land held for development. These properties are carried at cost and no depreciation is recorded. Properties undergoing significant renovations and improvements are considered under development. All direct and indirect costs related to development activities are capitalized into properties in construction in progress and land held for development on our condensed consolidated balance sheets. Costs incurred include predevelopment expenditures directly related to a specific project including, development and construction costs, interest, insurance and real estate tax expense. Indirect development costs include employee salaries and benefits, travel and other related costs that are directly associated with the development of the property. The capitalization of such expenses ceases when the property is ready for its intended use, but no later than one year from substantial completion of major construction activity. If we determine that a project is no longer probable all predevelopment project costs are immediately expensed. Similar costs related to properties not under development are expensed as incurred.
Our method of calculating capitalized interest is based upon applying our weighted average borrowing rate to that portion of actual costs incurred. We cease interest cost capitalization when the property is held available for occupancy upon substantial completion of tenant improvements, but no later than one year from the completion of major construction.
Long Lived Assets
When assets are identified as held for sale, we estimate the sales prices, net of selling costs, of such assets. Assets that will be sold together in a single transaction are aggregated in determining if the net sales proceeds of the group are expected to be less than the net book value of the assets. If, in our opinion, the net sales prices of the assets, which have been identified for sale, are expected to be less than the net book value of the assets, an impairment charge is recorded. An impairment charge may also be recorded for any asset if it is probable, in our estimation, that aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property.
We are required to make subjective assessments as to whether there are impairments in the value of our real estate properties and other investments. The assessments have a direct impact on our net income because recording an impairment charge results in an immediate charge to expense.
Real Estate Acquisitions
Upon acquisition of operating real estate properties, we estimate the fair value of acquired tangible assets (consisting of land, building and improvements), identified intangible assets and liabilities (consisting of above- and below-market leases, in-place leases and lease origination costs), and assumed debt in accordance with SFAS No. 141, Business Combinations. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities based on their estimated fair value. We evaluate the useful life of each amortizable intangible asset in each reporting period and account for any changes in such estimated useful life over the revised remaining useful life.
Securities
We have investments that consist primarily of equity securities. The equity investments are classified as available-for-sale and recorded at fair value based on current market prices. Changes in the fair value of the equity investments are included in accumulated other comprehensive income (loss) unless a decrease in fair value is deemed to be other than temporary.
Goodwill
We are required to perform annual, or more frequently in certain circumstances, impairment tests of our goodwill. The goodwill impairment test is a two-step process that requires us to make decisions in determining appropriate assumptions to use in the calculation. The first step consists of estimating the fair value of each reporting unit and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of reporting units (each property is considered a reporting unit) implied fair value of goodwill requires us to allocate the estimated fair value of the reporting unit to its assets and liabilities. Any unallocated fair value represents the implied fair value of goodwill which is compared to its corresponding carrying value.
We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill that totaled approximately $12.5 million at December 31, 2007. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our tenant base, or a materially negative change in our relationships with significant tenants.
Share Based Compensation and Incentive Awards
We recognize all share-based awards to employees, including grants of stock options, in our financial statements based on fair values. Because there is no observable market for our options, management must make critical estimates in determining the fair value at the grant date. Variations in the assumptions will have a direct impact on our net income. Critical estimates in valuing the fair value at the grant date and the assumptions that marketplace participants would use in making estimates of fair value include: expected volatility, expected dividend yield, risk-free interest rate, involuntary conversion due to change in control and expected exercise history of similar grants.
In addition, we have employment agreements for three of our executive officers, the employees have the right to an additional cash bonus at the end of the initial term of those agreements, or earlier as provided in the agreements, based on the performance of our stock versus a group of our peers. In assessing the annual compensation costs related to these future payments, we are required to make critical assumptions and estimates in determining the future payment.
Our estimates of the compensation costs under SFAS No. 123(R), “Share-Based Payment” and these agreements are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may not always reflect unanticipated events and changes in circumstances may occur.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159) which allows entities to voluntarily choose, at specified election dates, to measure many financial assets and financial liabilities at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. Subsequent to the adoption of SFAS No. 159, changes in fair value for the particular instruments shall be reported in earnings. Upon initial adoption, SFAS No. 159 provides entities with a one-time chance to elect the fair value option for existing eligible items. The effect of the first measurement to fair value should be reported as a cumulative-effect adjustment to the opening balance of retained earnings in the year the statement is adopted. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations” (SFAS 141(R)). In summary, SFAS 141(R) requires the acquirer of a business combination to measure at fair value the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, with limited exceptions. The standard is effective for fiscal years beginning after December 15, 2008, and is to be applied prospectively, with no earlier adoption permitted. The adoption of this standard may have an impact on the accounting for certain costs related to our future acquisitions.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160) which requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and non-controlling interest. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.
We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants’ revenues, in each case as provided in the particular leases.
Our primary cash expenses consist of our property operating expenses, which include real estate taxes, repairs and maintenance, management expenses, insurance, utilities and other expenses, general and administrative expenses, which include payroll, office expenses, professional fees and other administrative expenses, and interest expense, primarily on mortgage debt, unsecured senior debt and revolving credit facilities. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes and interest related to properties under development or redevelopment until the property is ready for its intended use.
Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments and redevelopments. The results of operations of any acquired property are included in our financial statements as of the date of its acquisition. A large portion of the change in our statement of operations line items is related to these changes in our property portfolio.
The following summarizes certain line items from our audited consolidated statements of operations which we think are important in understanding our operations and/or those items which have significantly changed in 2007 compared to 2006:
| | | | | | | | | | |
| | | | | | | | | | |
| | | For the year ended December 31, | |
| | | 2007 | | | 2006 | | | % Change | |
| | | (in thousands) | | | | |
| Total rental revenue | | $ | 246,613 | | | $ | 224,777 | | | | 9.7 | % |
| Property operating expenses | | | 64,500 | | | | 61,161 | | | | 5.5 | % |
| Management and leasing services expenses | | | 963 | | | | 1,861 | | | | -48.3 | % |
| Rental property depreciation and amortization | | | 46,103 | | | | 40,312 | | | | 14.4 | % |
| General and administrative expenses | | | 25,846 | | | | 29,757 | | | | -13.1 | % |
| Investment income | | | 7,329 | | | | 7,487 | | | | -2.1 | % |
| Equity in income of unconsolidated joint ventures | | | - | | | | 1,650 | | | | -100.0 | % |
| Interest expense | | | 66,663 | | | | 53,983 | | | | 23.5 | % |
| Gain on sale of real estate | | | 2,537 | | | | 6,937 | | | | -63.4 | % |
| Impairment loss | | | 1,851 | | | | - | | | | N/A | |
| Income from discontinued operations | | | 20,597 | | | | 124,315 | | | | -83.4 | % |
| Net income | | | 69,385 | | | | 176,955 | | | | -60.8 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total revenue increased by $21.8 million, or 9.7%, to $246.6 million in 2007. The increase is primarily attributable to the following:
| | · | an increase of approximately $20.0 million associated with properties acquired in 2007 and 2006; |
| | · | an increase of approximately $2.2 million in same-property revenue due primarily to higher rental rates, tenant expense recovery income and percentage rent income; |
| | · | an increase of approximately $1.5 million related to the completion of various development/redevelopment projects, partly offset by a decrease of $300,000 for development/redevelopment projects currently under construction; |
| | · | a decrease of approximately $1.0 million associated with property management, leasing and accounting services revenue for a portfolio of Texas properties, which services were terminated in the second quarter of 2007; and |
| | · | a decrease of approximately $600,000 in non-retail property revenue. |
Property operating expenses increased by $3.3 million, or 5.5%, to $64.5 million in 2007. The increase primarily consists of the following:
| | · | an increase of approximately $5.4 million related to properties acquired in 2007 and 2006; |
| | · | an increase of $800,000 related to the completion of various development/redevelopment properties; |
| | · | a decrease of approximately $2.0 million in property operating costs partly due to lower common area maintenance expense, property management/maintenance salary, lease termination expense, hurricane expense and real estate tax expense partially offset by higher insurance and bad debt provision expense; |
| | · | a decrease of $200,000 in general operating expenses for our non-retail properties; and |
| | · | a decrease of approximately $700,000 in office-related expense primarily related to closing the operation of various property management satellite locations. |
Management and leasing services expense decreased by $898,000 as a result of no longer providing property management, leasing and accounting services for the Texas properties.
Rental property depreciation and amortization increased by $5.8 million, or 14.4%, to $46.1 million for 2007 from $40.3 million in 2006. The increase in 2007 was primarily related to the following activity:
| | · | $4.9 million related to the operations of properties acquired in 2007 and 2006; |
| | · | the completion of various development/redevelopment projects increased depreciation and amortization by $400,000, partially offset by a decrease of approximately $200,000 of depreciation expense related to projects currently in various stages of construction; and |
| | · | same property depreciation and amortization increased by $700,000 related to increased leasing and tenant improvement activity. |
General and administrative expenses decreased by $3.9 million, or 13.1%, to $25.9 million for 2007 from $29.8 million in 2006. The decrease resulted primarily from:
| | · | $1.5 million decrease in compensation and employment-related expenses paid in 2006 related to executive management changes partly offset by higher severance-related expense paid to former employees in 2007 as well as higher payroll and payroll-related expenses; |
| | · | $1.0 million decrease attributable to lower pre-acquisition costs; |
| | · | a decrease of approximately $700,000 related to lower travel and entertainment expenses; |
| | · | a decrease of approximately $400,000 related to lower income taxes; |
| | · | $400,000 decrease in fees reflecting fewer directors and fewer meetings; |
| | · | a decrease of approximately $200,000 related to lower general office expenses; and |
| | · | an increase of approximately $300,000 of professional fees mainly related to higher audit fees. |
Investment income decreased by $158,000 in 2007, mostly due to $1.6 million decrease in interest income related to lower cash balances, partially offset by an increase of $1.4 million of dividend income primarily related to our ownership of 3.8 million ordinary shares of DIM Vastgoed N.V.
During 2007, we had no transactions related to equity in income from unconsolidated joint ventures as compared to $1.7 million in 2006, which was the result of the sale of a land parcel held in a joint venture in which we had a 50% interest.
Interest expense increased by $12.7 million, or 23.5%, to $66.7 million for 2007 as compared to $54.0 million for 2006. The increase is primarily attributable to the following:
| | · | an increase of approximately $7.8 million related to higher total unsecured senior debt outstanding; |
| | · | an increase of approximately $1.7 million related to the decrease in the amortization of the fair value debt premium related to two unsecured senior notes that were paid off in April and August 2006; |
| | · | an increase of approximately $2.6 million of interest expense related to lower capitalized interest for completed development/redevelopment projects; |
| | · | an increase of $1.5 million in mortgage interest which is primarily related to properties acquired in 2007 and 2006 partly offset by the repayment of certain mortgages; and |
| | · | a decrease of approximately $900,000 related to lower interest expense associated with our unsecured line of credit facility. |
Gain on sale of real estate in 2007 includes the sale of six land parcels for proceeds of nearly $5.5 million, generating $2.5 million in net realized gains, compared to gains in the same period of 2006 of approximately $6.9 million. The 2006 gain was primarily related to $5.9 million of gain on the sale of six land outparcels in connection with the Texas JV transaction and approximately $900,000 of gain on three additional outparcels.
As of December 31, 2007, we recognized impairment losses of approximately $1.9 million related to changes in the market condition of certain properties that are still owned by us. The carrying amounts of the assets were deemed unrecoverable and were written down to the estimated fair market value.
We sold 14 income-producing properties in 2007 and had one land parcel held for sale at December 31, 2007. The $1.7 million operating results of these properties are reflected under discontinued operations as operations of income-producing properties sold or held for sale. The sales of these properties produced a gain of $18.9 million in 2007. The 2006 discontinued operations of $9.1 million reflect a reclassification of operations of properties sold or held for sale. The gain of $106.9 million in 2006 is related to the sale of the Texas properties and the sale of three other income-producing properties for approximately $8.2 million.
As a result of the foregoing, net income decreased by $107.6 million, or 60.8%, to $69.4 million for 2007 from $177.0 million in 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005.
The following summarizes items from our audited consolidated statements of operations that we think are important in understanding our operations and/or those items which significantly changed in 2006 as compared to 2005:
| | | | | | | | | | |
| | | | | | | | | | |
| | | For the year ended December 31, | |
| | | 2006 | | | 2005 | | | % Change | |
| | | (in thousands) | | | | |
| Total rental revenue | | $ | 224,777 | | | $ | 201,781 | | | | 11.4 | % |
| Property operating expenses | | | 61,161 | | | | 51,355 | | | | 19.1 | % |
| Management and leasing services expenses | | | 1,861 | | | | 229 | | | | 712.7 | % |
| Rental property depreciation and amortization | | | 40,312 | | | | 33,467 | | | | 20.5 | % |
| General and administrative expenses | | | 29,757 | | | | 19,734 | | | | 50.8 | % |
| Investment income | �� | | 7,487 | | | | 7,941 | | | | -5.7 | % |
| Equity in income of unconsolidated joint ventures | | | 1,650 | | | | - | | | | N/A | |
| Interest expense | | | 53,983 | | | | 47,308 | | | | 14.1 | % |
| Gain on sale of real estate | | | 6,937 | | | | - | | | | N/A | |
| Income from discontinued operations | | | 124,315 | | | | 36,749 | | | | 238.3 | % |
| Net income | | | 176,955 | | | | 92,741 | | | | 90.8 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total revenue increased by $23.0 million, or 11.4%, to $224.8 million in 2006 from $201.8 million in 2005. The increase was mostly composed of the following:
| | · | an increase of $14.9 million associated with properties acquired in 2006 and 2005; |
| | · | an increase of $7.6 million in same property revenue due to higher termination fees, expense recovery revenue and increases in rental rates; |
| | · | an increase of $1.7 million in property management and leasing services revenue as a result of providing property management and leasing services for the Texas properties; and |
| | · | a decrease of approximately $1.2 million due to various development/redevelopment projects. |
Property operating expenses increased by $9.8 million, or 19.1%, to $61.2 million for 2006 from $51.4 million in 2005. The increase in 2006 is largely a result of the following activity:
| | · | an increase of approximately $7.0 million related to properties acquired in 2006 and 2005; |
| | · | an increase of approximately $1.7 million in property operating expenses primarily due to higher repairs and maintenance expenses; and |
| | · | the completion of various development/redevelopment projects increased operating expenses by approximately $1.1 million. |
Management and leasing services expense increased by $1.6 million as a result of providing property management, leasing and accounting services for the Texas properties.
Rental property depreciation and amortization increased by $6.8 million, or 20.5%, to $40.3 million for 2006 from $33.5 million in 2005. The increase is primarily attributable to the following:
| | · | an increase of $5.6 million related to properties acquired during 2006 and 2005; |
| | · | same property depreciation and amortization increased by approximately $1.1 million related to leasing and tenant improvement amortization; and |
| | · | an increase of approximately $100,000 related to the completion of various development/redevelopment projects. |
General and administrative expenses increased by $10.1 million, or 50.8%, to $29.8 million for 2006 from $19.7 million in 2005. Included in this increase were $5.8 million of employment-related expenses due to our executive management changes, write-offs of $1.0 million of abandoned pre-acquisition due diligence costs, $1.1 million related to abandoned corporate transactions that did not materialize, approximately $600,000 in higher fees paid to our non-employee members of the board of directors, approximately $600,000 of computer and related services, depreciation related to additional furniture and fixture purchases and professional services, approximately $500,000 of additional office expenses and approximately $400,000 in additional travel and entertainment expenses.
Investment income for 2006 primarily relates to an increase in interest income related to higher cash balances and $4.3 million of dividend income primarily related to our ownership of 2.8 million ordinary shares of DIM Vastgoed N.V. The 2005 investment income primarily relates to a gain of $5.2 million on the sale of common and preferred stock of Cedar Shopping Centers, Inc.
Equity in income from unconsolidated joint venture was $1.7 million for 2006. The income was related to the sale of a land parcel held in a joint venture in which we had a 50% interest.
Interest expense increased by $6.7 million, or 14.1%, to $54.0 million for 2006 from $47.3 million in 2005. The increase is mainly attributable to the following:
| | · | an increase of $13.6 million attributable to the issuance in September 2005 of $120.0 million principal amount of 5.375% unsecured senior notes, the issuance in March 2006 of $125.0 million principal amount of 6.0% unsecured senior notes and the issuance in August 2006 of $125.0 million principal amount of 6.25% unsecured senior notes, all of which was partially offset by the decrease of $1.9 million in interest on the repayment in March 2006 of the $50.0 million principal amount of 7.77% unsecured senior notes and the prepayment in August 2006 of the $75.0 million principal amount of 7.25% unsecured senior notes; |
| | · | an increase of $843,000 in interest expense attributable to an increase in the variable interest rate on the $100.0 million notional principal swap of our unsecured notes; |
| | · | a decrease of $2.5 million of interest expense related to an increase in capitalized interest related to increased development/redevelopment activity; |
| | · | a decrease of $2.0 million of interest expense related to the repayment of certain mortgage notes; and |
| | · | a decrease of $1.3 million of interest expense attributable to a lower outstanding balance on our line of credit. |
Gain on sale of real estate was $6.9 million for 2006 as a result of selling nine land parcels, of which six were related to the sale of the Texas properties, for a gross sales price of $18.5 million. There were no land sales during 2005.
During 2006, we sold four income-producing properties in individual transactions and the 29 Texas properties. At December 31, 2006, we had one property held for sale. The $9.1 million of operating results of these properties are reflected as operations of income-producing properties sold or held for sale. The sales of the properties during 2006 produced an aggregate gain of $115.2 million. The 2005 operations of income-producing properties sold or held for sale of $25.3 million reflects a reclassification of operations for properties sold during 2005 and 2006 and the one property held for sale at December 31, 2006 that qualifies as discontinued operations. We recognized gains of $11.5 million in 2005 related to the sales of properties during that year.
As a result of the foregoing, net income increased by $84.3 million, or 90.8 %, to $177.0 million for 2006 from $92.7 million in 2005.
Liquidity and Capital Resources
Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations. The cash generated from operations is primarily paid to our shareholders in the form of dividends. Our status as a REIT requires that we distribute at least 90% of our REIT taxable income (including net capital gain) each year, as defined in the Code. Our short-term liquidity requirements consist primarily of obligations under our capital and operating leases, normal recurring operating expenses, regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring company expenditures, such as general and administrative expenses, non-recurring company expenditures (such as tenant improvements and redevelopments) and dividends to common stockholders. Historically, we have satisfied these requirements principally through cash generated from operations.
Our long-term capital requirements consist primarily of maturities under our long-term debt, development and redevelopment costs and the costs related to acquisitions. We expect to fund these through a combination of sources which we believe will be available to us, including additional and replacement secured and unsecured borrowings, issuance of additional debt or equity securities, capital from institutional partners that desire to form joint venture relationships relating to existing properties or new acquisitions, and property dispositions. Overall capital requirements in 2008 will depend upon future acquisition opportunities, the pace of our disposition program, the level of improvements and redevelopments on existing properties and the timing and cost of future development.
We anticipate the cash needed to execute our operating and investing strategies, as well as to pay our debt at maturity, will come from one or more of the following sources:
| | · | cash provided by operations that is not distributed to stockholders, |
| | · | unsecured debt financing and/or mortgage financings, |
| | · | proceeds from the issuance of new debt or equity securities, |
| | · | proceeds of property dispositions, or |
| | · | other debt and equity alternatives, including formation of joint ventures, in a manner consistent with our intention to operate with a conservative debt structure. |
It is our intention that we have access to the capital resources necessary to operate, expand and develop our business. As a result, we intend to operate with, and maintain, a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings.
While we believe that cash generated from operations, borrowings under our unsecured revolving credit facilities and our access to other longer term capital sources will be sufficient to meet our short-term and long-term liquidity requirements, there are risks inherent in our business, including those risks described in Item 1A - “Risk Factors,” that may have a material adverse effect on our cash flow, and, therefore, on our ability to meet these requirements.
As of December 31, 2007, we had approximately $54.5 million of cash held in escrow primarily related to twelve property dispositions in the fourth quarter. These funds will be used primarily for the repayment of certain debt. In addition, we had $1.3 million of cash and cash equivalents available. We have two revolving credit facilities with aggregate potential borrowing limits up to $280.0 million, which we can utilize initially to finance the acquisition of properties and meet other short-term working capital requirements. One of these facilities with borrowing limits of $275.0 million expires in early 2009. We have the option to extend this agreement for one year or we may seek alternative financing arrangement in 2008. As of December 31, 2007, we had $238.4 million available that can be drawn under our revolving credit facilities. Subsequent to year-end, we have also repaid $37.0 million of outstanding balances under our lines of credit with proceeds from our 2007 dispositions.
Summary of Cash Flows. The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
| | | | | | | | | | |
| | | | | | | | | | |
| | | For the year ended December 31, | |
| | | 2007 | | | 2006 | | | Increase (Decrease) | |
| | | (in thousands) | | | | |
| Cash provided by operating activities | | $ | 107,016 | | | $ | 94,643 | | | $ | 12,373 | |
| Cash provided by (used in) investing activities | | | (104,602 | ) | | | 114,813 | | | | (219,415 | ) |
| Cash used in financing activities | | | (1,101 | ) | | | (209,558 | ) | | | 208,457 | |
| Cash and cash equivalents, end of year | | | 1,313 | | | | - | | | | 1,313 | |
| | | | | | | | | | | | | |
Net cash from operating activities consists primarily of cash flow generated from our rental properties (rental and other revenue less property operating expenses), plus dividends and interest income received from investments, less general and administrative expenses and less interest expense. In 2007, our net cash from operating activities increased by $12.4 million, or 13.1%, compared to 2006 primarily due to the acquisition and development of additional shopping centers and a decrease in general and administrative expenses.
Net cash from investing activities consists primarily of proceeds from dispositions of properties, repayment of notes receivables, and sales of securities, less cash paid for acquisitions, development, redevelopment, capitalized expenditures, and leasing costs, and less cash held in escrow. In 2007, our net cash from investing activities decreased by $219.4 million compared to 2006 primarily because we sold fewer rental properties in 2007, partly offset by lower additions to and purchases of rental property and lower additions to construction in progress.
Net cash from financing activities consists primarily of proceeds from financings and issuance of common stock, less repayment of debt and dividends paid to stockholders. In 2007, our cash from financing activities increased by $208.5 million compared to 2006 primarily because we paid a special dividend to stockholders, repurchased common stock, and repaid senior debt in 2006.
Contractual Commitments. The following tables set forth certain information regarding future contractual obligations, excluding interest, as of December 31, 2007:
| | |
| Payments due by period | |
| | | | | | Less than | | | | | | 3-5 years | | | More than | |
| Contractual Obligations | | Total | | | 1 year | | | 1-3 years | | | | | | 5 years | |
| | | (In thousands) | |
| Mortgage notes payable: | | | | | | | | | | | | | | | |
| Scheduled amortization | | $ | 98,601 | | | $ | 10,986 | | | $ | 29,874 | | | $ | 20,638 | | | $ | 37,103 | |
| Balloon payments | | | 298,511 | | | | 23,104 | | | | 183,435 | | | | 79,211 | | | | 12,761 | |
| Total mortgage obligations | | | 397,112 | | | | 34,090 | | | | 213,309 | | | | 99,849 | | | | 49,864 | |
| | | | | | | | | | | | | | | | | | | | | |
| Unsecured revolving credit facilities | | | 37,000 | | | | - | | | | 37,000 | | | | - | | | | - | |
Unsecured senior notes(1) | | | 745,000 | | | | - | | | | 200,000 | | | | 25,000 | | | | 520,000 | |
| Capital leases | | | - | | | | - | | | | - | | | | - | | | | - | |
| Operating leases | | | 547,253 | | | | 202,670 | | | | 180,392 | | | | 90,524 | | | | 73,667 | |
| Construction commitments | | | 8,108 | | | | 6,908 | | | | 1,200 | | | | - | | | | - | |
| Total contractual obligations | | $ | 1,734,473 | | | $ | 243,668 | | | $ | 631,901 | | | $ | 215,373 | | | $ | 643,531 | |
| | | | | | | | | | | | | | | | | | | | | |
| | (1) | $100 million of the outstanding balance has been swapped to a floating interest rate based on the six-month LIBOR in arrears, plus 0.4375%. The contractual obligations for the unsecured senior notes do not reflect this interest rate swap. |
The following table sets forth certain information regarding future interest obligations on outstanding debt as of December 31, 2007:
| | | | |
| | | Payments due by period | |
| | | | | | | | | | | | | | | | |
| | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
| | | (In thousands) | |
| | | (In thousands) | |
| | | | | | | | | | | | | | | | |
| Mortgage notes | | $ | 127,212 | | | $ | 28,187 | | | $ | 47,317 | | | $ | 23,911 | | | $ | 27,797 | |
Unsecured senior notes(2) | | | 293,415 | | | | 41,632 | | | | 68,366 | | | | 63,648 | | | | 119,769 | |
Unsecured revolving credit facilities(3) | | | 1,936 | | | | 1,850 | | | | 86 | | | | - | | | | - | |
| Total interest obligations | | $ | 422,563 | | | $ | 71,669 | | | $ | 115,769 | | | $ | 87,559 | | | $ | 147,566 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | (2) | $100 million of the outstanding principal balance has been swapped to a floating interest rate based on the six-month LIBOR in arrears, plus 0.4375%. The interest obligations for the unsecured senior notes presented above assume that the rate that was in effect at December 31, 2007 remains the same for this interest rate swap. |
| | (3) | Interest on the unsecured revolving credit facility is variable; these amounts assume that the weighted average interest rate remains the same as the rate at December 31, 2007. |
Indebtedness. The following table sets forth certain information regarding our indebtedness as of December 31, 2007:
EQUITY ONE, INC.
CONSOLIDATED DEBT SUMMARY
As of December 31, 2007
(in thousands)
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Balance at | | | | | Maturity | | Balance Due | |
| Property | | December 31, 2007 | | | Rate (1) | | date | | at Maturity | |
| | | (in thousands) | | | | | | | (in thousands) | |
| Mortgage debt | | | | | | | | | | |
| Pine Island/Ridge Plaza | | $ | 23,336 | | | | 6.910 | % | 07/01/08 | | $ | 23,104 | |
| North Port Shopping Center | | | 3,667 | | | | 6.650 | % | 02/08/09 | | | 3,526 | |
| Prosperity Centre | | | 4,728 | | | | 7.875 | % | 03/01/09 | | | 4,137 | |
| Shoppes at Ibis | | | 5,077 | | | | 6.730 | % | 09/01/09 | | | 4,680 | |
| Tamarac Town Square | | | 5,816 | | | | 9.190 | % | 10/01/09 | | | 5,583 | |
| Park Promenade | | | 6,019 | | | | 8.100 | % | 02/01/10 | | | 5,833 | |
| Jonathan's Landing | | | 2,752 | | | | 8.050 | % | 05/01/10 | | | 2,639 | |
| Bluff's Square | | | 9,706 | | | | 8.740 | % | 06/01/10 | | | 9,401 | |
| Kirkman Shoppes | | | 9,166 | | | | 8.740 | % | 06/01/10 | | | 8,878 | |
| Ross Plaza | | | 6,393 | | | | 8.740 | % | 06/01/10 | | | 6,192 | |
| Shoppes of Andros Isle | | | 6,259 | | | | 7.900 | % | 06/10/10 | | | 5,800 | |
| Boynton Plaza | | | 7,167 | | | | 8.030 | % | 07/01/10 | | | 6,902 | |
| Pointe Royale | | | 3,409 | | | | 7.950 | % | 07/15/10 | | | 2,502 | |
| Shops at Skylake | | | 12,996 | | | | 7.650 | % | 08/01/10 | | | 11,644 | |
| Parkwest Crossing | | | 4,527 | | | | 8.100 | % | 09/01/10 | | | 4,352 | |
| Spalding Village | | | 9,146 | | | | 8.190 | % | 09/01/10 | | | 7,932 | |
| Charlotte Square | | | 3,317 | | | | 9.190 | % | 02/01/11 | | | 2,992 | |
| Forest Village | | | 4,273 | | | | 7.270 | % | 04/01/11 | | | 4,044 | |
| Boca Village | | | 7,900 | | | | 7.200 | % | 05/01/11 | | | 7,466 | |
| MacLand Pointe | | | 5,581 | | | | 7.250 | % | 05/01/11 | | | 5,268 | |
| Pine Ridge Square | | | 6,988 | | | | 7.020 | % | 05/01/11 | | | 6,580 | |
| Sawgrass Promenade | | | 7,900 | | | | 7.200 | % | 05/01/11 | | | 7,466 | |
| Presidential Markets | | | 26,225 | | | | 7.650 | % | 06/01/11 | | | 24,863 | |
| Lake Mary Centre | | | 23,406 | | | | 7.250 | % | 11/01/11 | | | 21,973 | |
| Lake St. Charles | | | 3,691 | | | | 7.130 | % | 11/01/11 | | | 3,461 | |
| Belfair Towne Village | | | 10,509 | | | | 7.320 | % | 12/01/11 | | | 9,322 | |
| Marco Town Center | | | 8,046 | | | | 6.700 | % | 01/01/12 | | | 7,150 | |
| Riverside Square | | | 7,209 | | | | 9.190 | % | 03/01/12 | | | 6,458 | |
| Cashmere Corners | | | 4,793 | | | | 5.880 | % | 11/01/12 | | | 4,084 | |
| Eastwood | | | 5,711 | | | | 5.880 | % | 11/01/12 | | | 4,866 | |
| Meadows Shopping Center | | | 6,001 | | | | 5.870 | % | 11/01/12 | | | 5,113 | |
Sparkleberry Square (Kohl's) (2) | | | 6,242 | | | | 6.170 | % | 11/30/12 | | | 5,374 | |
| Lutz Lake Crossing | | | 7,500 | | | | 6.280 | % | 12/01/12 | | | 7,012 | |
| Midpoint Center | | | 6,552 | | | | 5.770 | % | 07/10/13 | | | 5,458 | |
| Buckhead Station | | | 27,355 | | | | 6.880 | % | 09/01/13 | | | 23,584 | |
| Alafaya Village | | | 4,032 | | | | 5.990 | % | 11/11/13 | | | 3,603 | |
| Summerlin Square | | | 2,672 | | | | 6.750 | % | 02/01/14 | | | - | |
| South Point | | | 8,014 | | | | 5.720 | % | 07/10/14 | | | 6,509 | |
| Bird Ludlum | | | 7,565 | | | | 7.680 | % | 02/15/15 | | | - | |
| Treasure Coast Plaza | | | 3,575 | | | | 8.000 | % | 04/01/15 | | | - | |
| Shoppes of Silverlakes I | | | 2,085 | | | | 7.750 | % | 07/01/15 | | | - | |
| Grassland Crossing | | | 5,274 | | | | 7.870 | % | 12/01/16 | | | 2,601 | |
| Mableton Crossing | | | 3,736 | | | | 6.850 | % | 08/15/18 | | | 1,869 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Balance at | | | | | Maturity | | Balance Due | |
| Property | | December 31, 2007 | | | Rate (1) | | date | | at Maturity | |
| | | (in thousands) | | | | | | | (in thousands) | |
Sparkleberry Square (Kroger) (2) | | $ | 6,954 | | | | 6.750% | | 06/30/20 | | $ | - | |
| BridgeMill | | | 8,829 | | | | 7.940% | | 05/05/21 | | | 3,761 | |
| Westport Plaza | | | 4,573 | | | | 7.490% | | 08/24/23 | | | 1,221 | |
| Chastain Square | | | 3,491 | | | | 6.500% | | 02/28/24 | | | - | |
| Daniel Village | | | 3,816 | | | | 6.500% | | 02/28/24 | | | - | |
| Douglas Commons | | | 4,546 | | | | 6.500% | | 02/28/24 | | | - | |
| Fairview Oaks | | | 4,303 | | | | 6.500% | | 02/28/24 | | | - | |
| Madison Centre | | | 3,491 | | | | 6.500% | | 02/28/24 | | | - | |
| Paulding Commons | | | 5,926 | | | | 6.500% | | 02/28/24 | | | - | |
| Siegen Village | | | 3,855 | | | | 6.500% | | 02/28/24 | | | - | |
Wesley Chapel Crossing | | | 3,044 | | | | 6.500% | | 02/28/24 | | | - | |
| Webster Plaza | | | 7,968 | | | | 8.070% | | 08/15/24 | | | 2,746 | |
| Total mortgage debt (55 loans outstanding) | | $ | 397,112 | | | | 7.420% | | 4.5 | | $ | 297,948 | |
| | | | | | | (wtd-avg interest rate) | | (wtd-avg maturity) | | | | |
| (1) | The rate in effect on December 31, 2007. |
| (2) | Sparkleberry Square is encumbered by two separate mortgages. |
The weighted average interest rate of the mortgage notes payable at December 31, 2007 and 2006 was 7.42% and 7.26%, respectively, excluding the effects of the premium adjustment.
Each of the existing mortgage loans is secured by a mortgage on one or more of our properties. Certain of the mortgage loans involving an aggregate principal balance of approximately $74.9 million contain prohibitions on transfers of ownership which may have been violated by our previous issuances of common stock or in connection with past acquisitions and may be violated by transactions involving our capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified us that it intends to accelerate its mortgage. In the event that the mortgage holders declare defaults under the mortgage documents, we will, if required, prepay the remaining mortgage from existing resources, refinancing of such mortgages, borrowings under our other lines of credit or other sources of financing. Based on discussions with various lenders, current credit market conditions and other factors, we believe that the mortgages will not be accelerated. Accordingly, we believe that the violations of these prohibitions will not have a material adverse impact on our results of operations or financial condition.
Our outstanding unsecured senior notes at December 31, 2007 and December 31, 2006 consist of the following:
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Balance at | | | | | Maturity | | Balance Due | |
| Revolving credit facilities | | December 31, 2007 | | | Rate (1) | | date | | at Maturity | |
| | | (in thousands) | | | | | | | (in thousands) | |
| | | | | | | | | | | |
3.875% senior notes (2) | | $ | 200,000 | | | | 3.875 | % | 04/15/09 | | $ | 200,000 | |
| Fair value of $100MM fixed-to-floating interest rate swap | | | (315 | ) | | 6-month Libor + 0.4375 | % | 04/15/09 | | | (315 | ) |
| 7.84% senior notes | | | 25,000 | | | | 7.840 | % | 01/23/12 | | | 25,000 | |
| 5.375% senior notes | | | 120,000 | | | | 5.375 | % | 10/15/15 | | | 120,000 | |
| 6.00% senior notes | | | 125,000 | | | | 6.000 | % | 09/15/16 | | | 125,000 | |
| 6.25% senior notes | | | 125,000 | | | | 6.250 | % | 01/15/17 | | | 125,000 | |
| 6.00% senior notes | | | 150,000 | | | | 6.000 | % | 09/15/17 | | | 150,000 | |
| | | | | | | | | | | | | | |
| Total unsecured senior notes payable | | $ | 744,685 | | | | 5.674 | % | 7.55 | | $ | 744,685 | |
| | | | | | | (wtd-avg interest rate) | (wtd-avg maturity) | | | | |
| | | | | | | | | | | | | | |
| (1) | The rate in effect on December 31, 2007. |
| (2) | $100.0 million of the outstanding balance has been swapped to a floating interest rate based on the six-month LIBOR in arrears, plus 0.4375%. The indicated rate and weighted average rate for the unsecured senior notes do not reflect this interest rate swap. |
The weighted average interest rate of the unsecured senior notes at December 31, 2007 and December 31, 2006 was 5.67% and 5.58%, respectively, excluding the effects of the interest rate swap and net premium adjustment. In April 2007, we completed a private placement of $150.0 million senior unsecured notes that mature on September 15, 2017. Interest is due semi-annually on March 15 and September 15 of each year, with the first payment paid on September 15, 2007. The notes were issued at a discount of $151,500 that is being amortized as interest expense over the life of the notes. On December 5, 2007, we completed an exchange offer of registered notes for the private placement notes.
The indentures under which our unsecured senior notes were issued have several covenants which limit our ability to incur debt, require us to maintain an unencumbered assets ratio above a specified level and limit our ability to consolidate, sell, lease, or convey substantially all of our assets to, or merge with any other entity. These notes have also been guaranteed by most of our subsidiaries.
On March 24, 2004, we swapped $100.0 million of the $200.0 million 3.875% senior notes to a floating interest rate based on six-month LIBOR in arrears plus 0.4375%. The swap matures April 15, 2009, concurrently with the maturity of the 3.875% senior notes.
The following table provides a summary of our unsecured revolving lines of credit balances at December 31, 2007:
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Balance at | | | | | Maturity | | Balance Due | |
| Revolving credit facilities | | December 31, 2007 | | | Rate (1) | | date | | at Maturity | |
| | | (in thousands) | | | | | | | (in thousands) | |
| | | | | | | | | | | |
| $275MM Wells Fargo Unsecured | | $ | 37,000 | | | | 5.000 | % | 01/17/09 | | $ | 37,000 | |
| $5MM City National Bank Unsecured | | | - | | | LIBOR + 1.0 | % | 05/11/07 | | | - | |
| Total revolving credit facilities | | $ | 37,000 | | | | | | | | $ | 37,000 | |
| | | | | | | | | | | | | | |
(1) The rate in effect on December 31, 2007.
In January 2006, we amended and restated our unsecured revolving credit facility with a syndicate of banks for which Wells Fargo Bank, National Association is the sole lead arranger and administrative agent. This facility has a maximum principal amount of $275.0 million and bears interest at our option at (i) LIBOR plus 0.45% to 1.15%, depending on the credit ratings of our senior unsecured long term notes, or (ii) the Federal Funds Rate plus 0.5%. The facility is guaranteed by most of our subsidiaries. Based on our current rating, the LIBOR spread is 0.80%. The facility also includes a competitive bid option which allows us to conduct auctions among the participating banks for borrowings in an amount not to exceed $137.5 million, a $35.0 million swing line facility for short-term borrowings and a $20.0 million letter of credit commitment and may, at our request, be increased up to a total commitment of $400.0 million. The facility expires January 17, 2009 with a one-year extension option. In addition, the facility contains customary covenants, including financial covenants regarding debt levels, total liabilities, interest coverage, EBITDA coverage ratios, unencumbered properties and permitted investments which may limit the amount available under the facility. If a default under the facility exists, our ability to pay dividends would be limited to the amount necessary to maintain the Company’s status as a REIT unless the default is a payment default or bankruptcy event in which case we would be prohibited from paying any dividends. The interest rate in effect at December 31, 2007 and December 31, 2006 was 5.00% and 5.65%, respectively. The facility also provided collateral for $3.2 million in outstanding letters of credit.
We also have a $5.0 million unsecured credit facility with City National Bank of Florida, of which there was no outstanding balance as of December 31, 2007 and December 31, 2006. This facility also provides collateral for $1.4 million in outstanding letters of credit. In addition, we also have a $55,000 outstanding letter of credit with Bank of America.
As of December 31, 2007, the aggregated availability under the both credit facilities was approximately $238.4 million, net of outstanding balances and letters of credit.
We may not have sufficient funds on hand to repay balloon amounts on our indebtedness at maturity. Therefore, we expect to refinance this indebtedness either through additional mortgage financings secured by individual properties or groups of properties, by unsecured private or public debt offerings or by additional equity offerings. Our results of operations could be affected if the cost of new debt is greater or lesser than the cost of the maturing debt. If new financing is not available, we could be required to sell assets and our business would be adversely affected.
Equity. For the year ended December 31, 2007, we issued 412,375 shares of our common stock pursuant to the exercise of stock options at prices ranging from $10.00 to $27.28 per share. No shares were purchased from the Dividend Reinvestment and Stock Purchase Plan which was suspended in March 2006, with approximately 5.4 million shares still available for sale.
Future Capital Requirements. We believe, based on currently proposed plans and assumptions relating to our operations, that our existing financial arrangements, together with cash generated from our operations, will be sufficient to satisfy our cash requirements for a period of at least twelve months. In the event that our plans change, our assumptions change or prove to be inaccurate or cash flows from operations or amounts available under existing financing arrangements prove to be insufficient to fund our expansion and development efforts or to the extent we discover suitable acquisition targets the purchase price of which exceeds our existing liquidity, we would be required to seek additional sources of financing. There can be no assurance that any additional financing will be available on acceptable terms or at all, and any future equity financing could be dilutive to existing stockholders. If adequate funds are not available, our business operations could be materially adversely affected.
Distributions. We believe that we currently qualify, and intend to continue to qualify in the future, as a REIT under the Internal Revenue Code. As a REIT, we are allowed to reduce taxable income by all or a portion of our distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made. While we intend to continue to pay dividends to our stockholders, we also will reserve such amounts of cash flow as we consider necessary for the proper maintenance and improvement of our real estate and other corporate purposes while still maintaining our qualification as a REIT. Our cash distributions for the year ended December 31, 2007 were $88.6 million.
Off-Balance-Sheet Arrangements
From time to time, we may have off-balance-sheet joint ventures and other unconsolidated arrangements with varying structures. As of December 31, 2007 we had no unconsolidated joint ventures.
We consolidate entities in which we own less than a 100% equity interest if we have a controlling interest or are the primary beneficiary in a variable-interest entity, as defined in Financial Interpretation No. 46, Consolidation of Variable Interest Entities.
Letters of Credit. As of December 31, 2007, we have pledged letters of credit for $4.7 million as additional security for certain property matters. The letters of credit are secured by our revolving credit facilities.
Construction Commitments. We have outstanding obligations as of December 31, 2007 to fund $8.1 million of construction commitments, based on current plans and estimates, in order to complete current development and redevelopment projects. These obligations, comprised principally of construction contracts, are generally due as the work is performed and are expected to be financed by our available credit facilities.
Operating Lease Obligations. Certain of our properties are subject to a ground lease, which are accounted for as operating leases and have annual obligations of approximately $100,000.
Non-Recourse Debt Guarantees. Under certain of our and joint venture non-recourse mortgage loans, we could, under certain circumstances, be responsible for portions of the mortgage indebtedness in connection with certain customary non-recourse carve-out provisions, such as environmental conditions, misuse of funds and material misrepresentations. In management’s judgment, it would be extremely unlikely for us to incur any material liability under these guarantees that will have a material adverse effect on our financial condition, results of operations, or cash flow.
We are subject to numerous environmental laws and regulations. The operation of dry cleaning facilities or gas stations at our shopping centers is the principal environmental concern. We require that the tenants who operate these facilities do so in material compliance with current laws and regulations and we 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. Several properties in our portfolio will require or are currently undergoing varying levels of environmental remediation. However, we have environmental insurance policies covering most of our properties.
We believe that the ultimate disposition of currently known environmental matters will not have a material effect on our financial position, liquidity or operations.
Inflation and Recession Considerations
Most of our leases contain provisions designed to partially mitigate the adverse impact of inflation. Most of our leases require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. A small number of our leases also include clauses enabling us to receive percentage rents based on a tenant’s gross sales above predetermined levels, which sales generally increase as prices rise, or escalation clauses which are typically related to increases in the Consumer Price Index or similar inflation indices.
Our financial results are affected by general economic conditions in the markets in which our properties are located. An economic recession, or other adverse changes in general or local economic conditions, could result in the inability of some of our existing tenants to meet their lease obligations and could otherwise adversely affect our ability to attract or retain tenants.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk. The primary market risk to which we have exposure is interest rate risk. Changes in interest rates can affect our net income and cash flows. As changes in market conditions occur and interest rates increase or decrease, interest expense on the variable component of our debt will move in the same direction. We intend to utilize variable rate indebtedness available under our unsecured revolving credit facilities in order to initially fund future acquisitions, development costs and other operating needs. With respect to our fixed rate mortgage notes and senior unsecured notes, changes in interest rates generally do not affect our interest expense as these notes are at fixed rates for extended terms. Because we have the intent to hold our existing fixed-rate debt either to maturity or until the sale of the associated property, these fixed-rate notes pose an interest rate risk to our results of operations and our working capital position only upon the refinancing of that indebtedness. Our possible risk is from increases in long-term interest rates that may occur as this may increase our cost of refinancing maturing fixed-rate debt. In addition, we may incur prepayment penalties or defeasance costs when prepaying or defeasing fixed-rate debt.
As of December 31, 2007, we had approximately $137.0 million of outstanding floating rate debt, including $100.0 million of fixed rate borrowings that we have converted to floating rate borrowings through the use of hedging agreements. We do not believe that the interest rate risk represented by our floating rate debt is material as of December 31, 2007, in relation to our $1.3 billion of outstanding debt, $2.2 billion of total assets and $1.7 billion total equity market capitalization as of that date.
If interest rates on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $1.4 million. If interest rates on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $1.4 million. This assumes that the amount outstanding under our variable rate debt remains at approximately $137.0 million (including the $100.0 million of fixed rate debt converted to floating rate debt through the use of hedging agreements), the balance as of December 31, 2007.
The fair value of our fixed-rate debt is $1.031 billion, which includes the mortgage notes and fixed-rate portion of the senior unsecured notes payable (excluding the unamortized premium and the $100.0 million of fixed-rate debt converted to floating-rate debt through maturity). If interest rates increase by 1%, the fair value of our total fixed-rate debt would decrease by approximately $49.0 million. If interest rates decrease by 1%, the fair value of our total outstanding debt would increase by approximately $52.6 million. This assumes that our total outstanding fixed-rate debt remains at $1.042 billion, the balance as of December 31, 2007.
Hedging. To manage, or hedge, our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments. We do not enter into derivative instruments for speculative purposes. We require that the hedges or derivative financial instruments be effective in managing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential to qualify for hedge accounting. Hedges that meet these hedging criteria are formally designated as such at the inception of the contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, resulting in some ineffectiveness, the change in the fair value of the derivative instrument will be included in earnings. Additionally, any derivative instrument used for risk management that becomes ineffective is marked-to-market each period and would be charged to operations.
We are exposed to credit risk, in the event of non-performance by the counter-parties to the hedge agreements. We believe that we mitigate our credit risk by entering into these agreements with major financial institutions. Net interest differentials to be paid or received under a swap contract and/or collar agreement are included in interest expense as incurred or earned.
In 2006, we entered into an aggregate notional amount of $85.0 million of treasury locks. The treasury locks were executed to hedge the benchmark interest rate associated with forecasted interest payments relating to an anticipated issuance of fixed-rate borrowings. The treasury locks were terminated in connection with the issuance of $150.0 million of unsecured senior notes in April 2007. The realized loss on these hedging relationships has been deferred in other comprehensive income and will be reclassified against earnings over the term of the debt as an adjustment to interest.
During 2004, concurrent with the issuance of $200 million unsecured senior notes, we entered into a $100.0 million notional principal variable rate interest swap with an estimated fair value of $315,000 as of December 31, 2007. This swap converted fixed rate debt to variable rate based on the six-month LIBOR in arrears plus 0.4375%, and matures April 15, 2009.
The estimated fair value of our derivative financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value.
Other Market Risks
As of December 31, 2007, we had no material exposure to any other market risks (including foreign currency exchange risk, commodity price risk or equity price risk).
In making this determination and for purposes of the Securities and Exchange Commission's market risk disclosure requirements, we have estimated the fair value of our financial instruments at December 31, 2007 based on pertinent information available to management as of that date. Although management is not aware of any factors that would significantly affect the estimated fair value amounts as of December 31, 2007, future estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and supplementary data required by Regulation S-X are included in this Form 10-K commencing on page F-1.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of December 31, 2007, the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the December 31, 2007 that our disclosure controls and procedures were effective at the reasonable assurance level such that the information relating to us and our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting
The report of our management regarding internal control over financial reporting is set forth on page F-1 of Item 8 of this Annual Report on Form 10-K under the caption “Management Report on Internal Control over Financial Reporting” and incorporated herein by reference.
Attestation Report of Independent Registered Public Accounting Firm
The report of our independent registered public accounting firm regarding our internal control over financial reporting is set forth in page F-2 of Item 8 of this Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm” and incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
PART III
| ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of our fiscal year covered by this Form 10-K.
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of our fiscal year covered by this Form 10-K.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATD STOCKHOLDER MATTERS |
Equity Compensation Plan Information
The following table sets forth information regarding securities authorized for issuance under equity compensation plans as of December 31, 2007
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| | | (a) | | | (b) | | | (c) | |
Equity compensation plans approved by security holders(1) | | | 1,959,943 | | | $ | 23.69 | | | | 3,669,716 | |
Equity compensation plans not approved by security holders(1) | | | 364,660 | | | $ | 24.70 | | | | - | |
| Total | | | 2,324,603 | | | $ | 23.85 | | | | 3,669,716 | |
| | (1) | Includes information related to our 1995 Stock Option Plan, 2000 Executive Incentive Compensation Plan, 1989 IRT Stock Option Plan and 1998 IRT Long-Term Incentive Plan. |
The other information required by this item is incorporated by reference from our definitive proxy statement to be filed within 120 days after the end of our fiscal year covered by this Form 10-K.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end our fiscal year covered by this Form 10-K.
| PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Incorporated by reference from our definitive proxy statement to be filed within 120 days after the end our fiscal year covered by this Form 10-K.
PART IV
| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
| (a) | The following consolidated financial information is included as a separate section of this Form 10-K: | |
| | | | |
| | 1. | Financial Statements: | |
| | | | Page |
| | | | |
| | | Management Report on Internal Control Over Financial Reporting | F-1 |
| | | | |
| | | Report of Independent Registered Public Accounting Firm on Management Report on Internal Control over Financial Reporting | F-2 |
| | | | |
| | | Report of Independent Registered Public Accounting Firm | F-3 |
| | | | |
| | | Consolidated Balance Sheets as of December 31, 2007 and 2006 | F-4 |
| | | | |
| | | Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005 | F-5 |
| | | | |
| | | Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005 | F-6 |
| | | | |
| | | Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005 | F-7 |
| | | | |
| | | Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 | F-8 - F-9 |
| | | | |
| | | Notes to the Consolidated Financial Statements | F-10 - F-44 |
| | | | |
| | 2. | Financial statement schedules required to be filed | |
| | | | |
| | | Schedule III - Real Estate Investments and Accumulated Depreciation | S-1 – S-4 |
| | | | |
| | | Schedule IV – Mortgage Loans on Real Estate | S-5 |
| | | | |
| | | Schedules I and V are not required to be filed. | |
| | | | |
| (b) | Exhibits: The following exhibits are filed as part of, or incorporated by reference into, this annual report. | |
| EXHIBIT NO. | | DESCRIPTION |
| | | |
| 3.1 | | Composite Charter of the Company (Exhibit 3.1) (1) |
| 3.2 | | Amended and Restated Bylaws of the Company (Exhibit 3.2) (2) |
| 4.1 | | Indenture dated November 9, 1995 between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4(c)) (3) |
| 4.2 | | Supplemental Indenture No. 1, dated March 26, 1996, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4) (4) |
| 4.3 | | Supplemental Indenture No. 2, dated August 15, 1997, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4) (5) |
| 4.4 | | Supplemental Indenture No. 3, dated September 9, 1998, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.1) (6) |
| 4.5 | | Supplemental Indenture No. 4, dated November 1, 1999, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.1) (7) |
| 4.6 | | Supplemental Indenture No. 5, dated February 12, 2003, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (8) |
| 4.7 | | Supplemental Indenture No. 6, dated April 23, 2004, between the Company and SunTrust Bank, as Trustee (Exhibit 4.2) (9) |
| 4.8 | | Supplemental Indenture No. 7, dated May 20, 2005, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (10) |
| 4.9 | | Indenture, dated September 9, 1998, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.2) (6) |
| 4.10 | | Supplemental Indenture No. 1, dated September 9, 1998, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.3) (6) |
| 4.11 | | Supplemental Indenture No. 2, dated November 1, 1999, between the Company, as successor-by-merger to IRT Property Company, and SunTrust Bank, as Trustee (Exhibit 4.5) (7) |
| 4.12 | | Supplemental Indenture No. 3, dated February 12, 2003, between the Company and SunTrust Bank, as Trustee (Exhibit 4.2) (8) |
| 4.13 | | Supplemental Indenture No. 4, dated March 26, 2004, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (11) |
| 4.14 | | Supplemental Indenture No. 5, dated April 23, 2004, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (9) |
| 4.15 | | Supplemental Indenture No. 6 dated May 20, 2005, between the Company and SunTrust Bank, as Trustee (Exhibit 4.2)(10) |
| 4.16 | | Supplemental Indenture No. 7 dated September 20, 2005, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1)(12) |
| 4.17 | | Supplemental Indenture No. 8 dated December 30, 2005, between the Company and SunTrust Bank, as Trustee (Exhibit 4.1)(13) |
| 4.18 | | Supplemental Indenture No. 9 dated March 10, 2006 between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (14) |
| 4.19 | | Supplemental Indenture No. 10 dated August 18, 2006 between the Company and SunTrust Bank, as Trustee (Exhibit 4.1) (15) |
| 4.20 | | Supplemental Indenture No. 11 dated April 18 , 2007, between the Company and U.S. Bank Nation Association, as Trustee (Exhibit 4.1) (27) |
| 10.1 | | Form of Indemnification Agreement (Exhibit 10.1)(16) |
| 10.2 | | 1995 Stock Option Plan, as amended (17)* |
| 10.3 | | Amended and Restated 2000 Executive Incentive Plan (Annex A) (32)* |
| 10.4 | | Form of Stock Option Agreement for stock options awarded under the Amended and Restated 2000 Executive Incentive Plan (Exhibit 10.3) (19)* |
| 10.5 | | Form of Restricted Stock Agreement for restricted stock awarded under the Amended and Restated 2000 Executive Incentive Plan (Exhibit 10.4) (19)* |
| 10.6 | | IRT 1989 Stock Option Plan, assumed by the Company (20)* |
| 10.7 | | IRT 1998 Long-Term Incentive Plan, assumed by the Company (21)* |
| 10.8 | | 2004 Employee Stock Purchase Plan (Annex B) (18)* |
| 10.9 | | Registration Rights Agreement, dated as of January 1, 1996 by and among the Company, Chaim Katzman, Gazit Holdings, Inc., Dan Overseas Ltd., Globe Reit Investments, Ltd., Eli Makavy, Doron Valero and David Wulkan, as amended. (Exhibit 10.6, Amendment No. 3) (22) |
| 10.10 | | Stock Exchange Agreement dated May 18, 2001 among the Company, First Capital Realty Inc. and First Capital America Holding Corp (23) |
| 10.11 | | Use Agreement, regarding use of facilities, by and between Gazit (1995), Inc. and the Company, dated January 1, 1996. (Exhibit 10.15, Amendment No. 1) (22) |
| 10.12 | | Subscription Agreement, dated October 4, 2000, made by Alony Hetz Properties & Investments, Ltd. (Exhibit 10.13) (24) |
| 10.13 | | Stockholders Agreement, dated October 4, 2000, among the Company, Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (Exhibit 10.14) (24) |
| 10.14 | | First Amendment to Stockholders Agreement, dated December 19, 2001, among the Company Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (Exhibit 10.15) (24) |
| 10.15 | | Second Amendment to Stockholders Agreement, dated October 28, 2002, among the Company Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (25) |
| 10.16 | | Third Amendment to Stockholders Agreement, dated May 23, 2003, among the Company Alony Hetz Properties & Investments, Ltd., Gazit-Globe (1982), Ltd., M.G.N. (USA), Inc. and Gazit (1995), Inc. (9) |
| 10.17 | | Chairman Compensation Agreement effective as of January 1, 2007 between the Company and Chaim Katzman (Exhibit 10.1) (26)* |
| 10.18 | | First Amended and Restated Employment Agreement effective as of September 15, 2006 between the Company and Jeffrey S. Olson (Exhibit 10.2) (26)* |
| 10.19 | | Employment Agreement effective as of November 15, 2006 between the Company and Gregory R. Andrews (Exhibit 10.3) (26)* |
| 10.20 | | Employment Agreement, effective as of November 6, 2006 between the Company and Jeffrey S. Stauffer (Exhibit 10.4) (26)* |
| 10.21 | | Fourth Amendment to Stockholders Agreement, dated June 23, 2004 , among the Company, Alony-Hetz Properties & Investments, Ltd., Gazit-Globe, Ltd., MGN (USA), Inc. and Gazit (1995), Inc. |
| 10.22 | | Registration Rights Agreement, dated October 28, 2002, between the Company and certain Purchasers (Exhibit 99.3) (28) |
| 10.23 | | Amended and Restated Credit Agreement, dated as of January 17, 2006, among the Company, each of the financial institutions initially a signatory thereto, Wachovia Bank National Association and SunTrust Bank, as Co-Syndication Agents, PNC Bank National Association and JP Morgan Chase Bank, N.A., as Co-Documentation Agents, Bank of America, N.A., Harris Nesbitt (Bank Of Montreal) and Branch Banking and Trust Company, as Managing Agents, and Wells Fargo Bank, National Association as Administrative Agent and as Sole Lead Arranger. (Exhibit 10.1)(29) |
| 10.24 | | Clarification Agreement and Protocol, dated as of January 1, 2004, among the Company and Gazit-Globe (1982), Ltd. (Exhibit 10.2) (30) |
| 10.25 | | Equity One, Inc. Non-Qualified Deferred Compensation Plan. (Exhibit 10.1) (31)* |
| 10.26 | | Consulting Agreement effective as of January 1, 2007 between the Company and Doron Valero (Exhibit 10.6) (26) |
| 12.1 | | Ratios of Earnings to Fixed Charges |
| 21.1 | | List of Subsidiaries of the Registrant |
| 23.1 | | Consent of Ernst & Young LLP |
| 31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 |
*Identifies employee agreements, management contracts, compensatory plans or other arrangements.
| (1) | Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended June 30, 2002, and incorporated by reference herein. |
| (2) | Previously filed as an exhibit to our Annual Report on Form 10-K for the period ended December 31, 2003, and incorporated by reference herein. |
| (3) | Previously filed by IRT Property Company as an exhibit to IRT’s Annual Report on Form 10-K for the period ending December 31, 1995, and incorporated by reference herein. |
| (4) | Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on March 26, 1996, and incorporated by reference herein. |
| (5) | Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on August 13, 1997, and incorporated by reference herein. |
| (6) | Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on September 15, 1998, and incorporated by reference herein. |
| (7) | Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on November 12, 1999, and incorporated by reference herein. |
| (8) | Previously filed as an exhibit to our Current Report on Form 8-K filed on February 20, 2003, and incorporated by reference herein. |
| (9) | Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended March 31, 2004, and incorporated by reference herein. |
| (10) | Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended June 30, 2005, and incorporated by reference herein. |
| (11) | Previously filed as an exhibit to our Current Report on Form 8-K filed on March 31, 2004, and incorporated by reference herein. |
| (12) | Previously filed as an exhibit to our Current Report on Form 8-K filed on September 20, 2005, and incorporated by reference herein. |
| (13) | Previously filed as an exhibit to our Annual Report on Form 10-K on March 3, 2006, and incorporated by reference herein. |
| (14) | Previously filed as an exhibit to our Current Report on Form 8-K on March 13, 2006, and incorporated by reference herein. |
| (15) | Previously filed as an exhibit to our Current Report on Form 8-K filed on August 22, 2006, and incorporated by reference herein. |
| (16) | Previously filed as an exhibit to our Annual Report on Form 10-K on March 16, 2005, and incorporated by reference herein. |
| (17) | Previously filed with our definitive Proxy Statement for the Annual Meeting of Stockholders held on June 30, 1999, and incorporated herein by reference. |
| (18) | Previously filed with our definitive Proxy Statement for the Annual Meeting of Stockholders held on May 21, 2004, and incorporated herein by reference. |
| (19) | Previously filed with our Current Report on Form 8-K filed on February 18, 2005, and incorporated by reference herein. |
| (20) | Previously filed by IRT Property Company as an exhibit to IRT’s Current Report on Form 8-K filed on March 22, 1989, and incorporated herein by reference. |
| (21) | Previously filed by IRT Property Company with IRT’s definitive Proxy Statement for the Annual Meeting of Stockholders held on May 22, 1998, and incorporated herein by reference. |
| (22) | Previously filed with our Registration Statement on Form S-11, as amended (Registration No. 333-3397), and incorporated herein by reference. |
| (23) | Previously filed as Appendix A to our definitive Proxy Statement for the Special Meeting of Stockholders held on September 6, 2001 and incorporated herein by reference. |
| (24) | Previously filed with our Annual Report Form 10-K/A filed on March 18, 2002, and incorporated herein by reference. |
| (25) | Previously filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2002, and incorporated by reference herein. |
| (26) | Previously filed as an exhibit to our Quarterly Report on Form 10-Q on November 9, 2006, and incorporated by reference herein. |
| (27) | Previously filed as an exhibit to our Current Report on Form 8-K filed on April 20, 2007, and incorporated by reference herein. |
| (28) | Previously filed as Exhibit 2.1 to our Current Report on Form 8-K filed on October 30, 2002, and incorporated by reference herein. |
| (29) | Previously filed as an exhibit to our Current Report on Form 8-K filed on January 20, 2006, and incorporated by reference herein. |
| (30) | Previously filed as an exhibit to our Current Report on Form 8-K filed on March 16, 2004, and incorporated by reference herein. |
| (31) | Previously filed as an exhibit to our Current Report on Form 8-K filed on July 7, 2005, and incorporated by reference herein. |
| (32) | Previously filed as Annex A to our definitive Proxy Statement for the Annual Meeting of Stockholders held on June 4, 2007 and incorporated herein by reference. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: February 22, 2008 | EQUITY ONE, INC. |
| | |
| | By: /s/ Jeffrey S. Olson Jeffrey S. Olson |
| | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities, and on the dates indicated.
| SIGNATURE | TITLE | DATE |
| | | |
/s/ Jeffrey S. Olson | President and Chief Executive Officer | February 22, 2008 |
| Jeffrey S. Olson | (Principal Executive Officer and Director) | |
| | | |
/s/ Gregory R. Andrews | Executive Vice President and | February 22, 2008 |
| Gregory R. Andrews | Chief Financial Officer (Principal Accounting and Financial Officer) | |
| | | |
/s/ Chaim Katzman | Chairman of the Board | February 22, 2008 |
| Chaim Katzman | | |
| | | |
/s/ Noam Ben-Ozer | Director | February 22, 2008 |
| Noam Ben-Ozer | | |
| | | |
/s/ James S. Cassel | Director | February 22, 2008 |
| James S. Cassel | | |
| | | |
/s/ Cynthia Cohen | Director | February 22, 2008 |
| Cynthia Cohen | | |
| | | |
/s/ Neil Flanzraich | Director | February 22, 2008 |
| Neil Flanzraich | | |
| | | |
/s/ Nathan Hetz | Director | February 22, 2008 |
| Nathan Hetz | | |
| | | |
/s/ Peter Linneman | Director | February 22, 2008 |
| Peter Linneman | | |
| | | |
/s/ Dori J. Segal | Director | February 22, 2008 |
| Dori J. Segal | | |
EQUITY ONE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| | Page |
| | |
| Management Report on Internal Control Over Financial Reporting | F-1 |
| | |
| Report of Independent Registered Public Accounting Firm on Management Report on Internal Control over Financial Reporting | F-2 |
| | |
| Reports of Independent Registered Public Accounting Firm | F-3 |
| | |
| Consolidated Balance Sheets as of December 31, 2007 and 2006 | F-4 |
| | |
| Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005 | F-5 |
| | |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005 | F-6 |
| | |
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005 | F-7 |
| | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 | F-8 - F-9 |
| | |
| Notes to the Consolidated Financial Statements | F-10 - F-44 |
| | |
Management Report on Internal Control over Financial Reporting
The management of Equity One, Inc. and subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, which requires the use of certain estimates and judgments, and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| | · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| | · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| | · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Reasonable assurance is based on the premise that the cost of internal controls should not exceed the benefits derived. Reasonable assurance includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected in a timely manner. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s management used the criteria set forth by the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2007, the Company’s internal control over financial reporting is effective.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s independent registered public accounting firm has issued a report on the Company’s internal control over financial reporting. This report appears on the following page of this Annual Report.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
of Equity One, Inc.
We have audited Equity One, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Equity One, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Equity One, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Equity One, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2007 of Equity One, Inc. and subsidiaries and our report dated February 21, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
February 21, 2008
Miami, Florida
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
of Equity One, Inc.
We have audited the accompanying consolidated balance sheets of Equity One, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equity One, Inc. and subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company adopted SFAS No. 123(R), “Share-Based Payment,” applying the modified prospective method at the beginning of fiscal year 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Equity One, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
February 21, 2008
Miami, Florida
| EQUITY ONE, INC. AND SUBSIDIARIES | |
| CONSOLIDATED BALANCE SHEETS | |
| DECEMBER 31, 2007 and 2006 | |
| (In thousands, except per share amounts) | |
| | | | | | | |
| | | December 31, 2007 | | | December 31, 2006 | |
| ASSETS | | | | | | |
| PROPERTIES: | | | | | | |
| Income producing | | $ | 2,047,993 | | | $ | 1,896,843 | |
| Less: accumulated depreciation | | | (172,651 | ) | | | (144,825 | ) |
| Income-producing properties, net | | | 1,875,342 | | | | 1,752,018 | |
| | | | | | | | | |
| Construction in progress and land held for development | | | 81,574 | | | | 113,340 | |
| Properties held for sale | | | 323 | | | | 20,353 | |
| Properties, net | | | 1,957,239 | | | | 1,885,711 | |
| | | | | | | | | |
| Cash and cash equivalents | | | 1,313 | | | | - | |
| Cash held in escrow | | | 54,460 | | | | 1,547 | |
| Accounts and other receivables, net | | | 14,148 | | | | 18,967 | |
| Securities | | | 72,299 | | | | 75,102 | |
| Goodwill | | | 12,496 | | | | 13,092 | |
| Other assets | | | 62,429 | | | | 75,356 | |
| TOTAL ASSETS | | $ | 2,174,384 | | | $ | 2,069,775 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Liabilities: | | | | | | | | |
| Notes Payable | | | | | | | | |
| Mortgage notes payable | | $ | 397,112 | | | $ | 391,647 | |
| Unsecured revolving credit facilities | | | 37,000 | | | | 76,500 | |
| Unsecured senior notes payable | | | 744,685 | | | | 591,187 | |
| | | | 1,178,797 | | | | 1,059,334 | |
| Unamortized premium/discount on notes payable | | | 10,042 | | | | 10,322 | |
| Total notes payable | | | 1,188,839 | | | | 1,069,656 | |
| | | | | | | | | |
| Other liabilities | | | | | | | | |
| Accounts payable and accrued expenses | | | 30,499 | | | | 36,565 | |
| Tenant security deposits | | | 9,685 | | | | 9,622 | |
| Other liabilities | | | 28,440 | | | | 27,265 | |
| Total liabilities | | | 1,257,463 | | | | 1,143,108 | |
| Minority interest | | | 989 | | | | 989 | |
| | | | | | | | | |
| COMMIITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Preferred stock, $0.01 par value – 10,000 shares authorized but unissued | | | - | | | | - | |
| Common stock, $0.01 par value – 100,000 shares authorized, 73,300 and 72,756 shares issued and outstanding for 2007 and 2006, respectively | | | 733 | | | | 728 | |
| Additional paid-in capital | | | 906,174 | | | | 895,247 | |
| Retained earnings | | | 17,987 | | | | 37,201 | |
| Accumulated other comprehensive loss | | | (8,962 | ) | | | (7,498 | ) |
| Total stockholders’ equity | | | 915,932 | | | | 925,678 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 2,174,384 | | | $ | 2,069,775 | |
| | | | | | | | | |
| See accompanying notes to the consolidated financial statements. | | | | | | | | |
| EQUITY ONE, INC. AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | |
| YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 | |
| (In thousands, except per share amounts) | |
| | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| REVENUE: | | | | | | | | | |
| Minimum rents | | $ | 189,727 | | | $ | 171,602 | | | $ | 157,136 | |
| Expense recoveries | | | 53,523 | | | | 49,076 | | | | 42,461 | |
| Percentage rent | | | 2,200 | | | | 2,032 | | | | 1,686 | |
| Management and leasing services | | | 1,163 | | | | 2,067 | | | | 498 | |
| Total revenue | | | 246,613 | | | | 224,777 | | | | 201,781 | |
| COSTS AND EXPENSES: | | | | | | | | | | | | |
| Property operating | | | 64,500 | | | | 61,161 | | | | 51,355 | |
| Management and leasing services | | | 963 | | | | 1,861 | | | | 229 | |
| Rental property depreciation and amortization | | | 46,103 | | | | 40,312 | | | | 33,467 | |
| General and administrative | | | 25,846 | | | | 29,757 | | | | 19,734 | |
| Total costs and expenses | | | 137,412 | | | | 133,091 | | | | 104,785 | |
| | | | | | | | | | | | | |
| INCOME BEFORE OTHER INCOME AND EXPENSES, MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 109,201 | | | | 91,686 | | | | 96,996 | |
| | | | | | | | | | | | | |
| OTHER INCOME AND EXPENSE: | | | | | | | | | | | | |
| Investment income | | | 7,329 | | | | 7,487 | | | | 7,941 | |
| Equity in income of unconsolidated joint ventures | | | - | | | | 1,650 | | | | - | |
| Other income | | | 310 | | | | 389 | | | | - | |
| Interest expense | | | (66,663 | ) | | | (53,983 | ) | | | (47,308 | ) |
| Amortization of deferred financing fees | | | (1,680 | ) | | | (1,485 | ) | | | (1,449 | ) |
| Gain on the sale of real estate | | | 2,537 | | | | 6,937 | | | | - | |
| Loss on the sale of fixed assets | | | (283 | ) | | | - | | | | - | |
| Gain on extinguishment of debt | | | - | | | | 165 | | | | - | |
| Impairment loss | | | (1,851 | ) | | | - | | | | - | |
| INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 48,900 | | | | 52,846 | | | | 56,180 | |
| Minority Interest | | | (112 | ) | | | (206 | ) | | | (188 | ) |
| INCOME FROM CONTINUING OPERATIONS | | | 48,788 | | | | 52,640 | | | | 55,992 | |
| | | | | | | | | | | | | |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | |
| Operations of income-producing properties sold or held for sale | | | 1,712 | | | | 9,147 | | | | 25,289 | |
| Gain on disposal of income-producing properties | | | 18,885 | | | | 115,168 | | | | 11,460 | |
| Income from discontinued operations | | | 20,597 | | | | 124,315 | | | | 36,749 | |
| NET INCOME | | $ | 69,385 | | | $ | 176,955 | | | $ | 92,741 | |
| | | | | | | | | | | | | |
| EARNINGS PER SHARE: | | | | | | | | | | | | |
| BASIC EARNINGS PER SHARE | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.67 | | | $ | 0.71 | | | $ | 0.76 | |
| Income from discontinued operations | | | 0.28 | | | | 1.69 | | | | 0.50 | |
| | | $ | 0.95 | | | $ | 2.40 | | | $ | 1.26 | |
| Number of Shares Used in Computing Basic Earnings per Share | | | 73,091 | | | | 73,598 | | | | 73,840 | |
| | | | | | | | | | | | | |
| DILUTED EARNINGS PER SHARE | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.67 | | | $ | 0.71 | | | $ | 0.75 | |
| Income from discontinued operations | | | 0.28 | | | | 1.67 | | | | 0.49 | |
| Total diluted earnings per share | | $ | 0.95 | | | $ | 2.38 | | | $ | 1.24 | |
| | | | | | | | | | | | | |
| Number of Shares Used in Computing Diluted Earnings per Share | | | 73,362 | | | | 74,324 | | | | 74,790 | |
| | | | | | | | | | | | | |
| See accompanying notes to the consolidated financial statements. | | | | | | | | | | | | |
| EQUITY ONE, INC. AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |
| YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 | |
| (In thousands) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | | |
| NET INCOME | | $ | 69,385 | | | $ | 176,955 | | | $ | 92,741 | |
| OTHER COMPREHENSIVE INCOME: | | | | | | | | | | | | |
| Net unrealized holding (loss)/gain on securities available for sale | | | (1,386 | ) | | | (9,780 | ) | | | 4,330 | |
| Changes in fair value of cash flow hedges | | | 75 | | | | (2,574 | ) | | | - | |
| Reclassification adjustment for gain/(loss) on the sale of securities and cash flow hedges included in net income | | | 2,322 | | | | 29 | | | | (5,559 | ) |
| Net realized gain/(loss) on settlement of interest rate contracts | | | (2,498 | ) | | | 1,543 | | | | - | |
| Net amortization of interest rate contracts | | | 23 | | | | (120 | ) | | | - | |
| Other comprehensive income adjustment | | | (1,464 | ) | | | (10,902 | ) | | | (1,229 | ) |
| | | | | | | | | | | | | |
| COMPREHENSIVE INCOME | | $ | 67,921 | | | $ | 166,053 | | | $ | 91,512 | |
| | | | | | | | | | | | | |
| See accompanying notes to the consolidated financial statements. | |
EQUITY ONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (In thousands, except per share data) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Additional Paid-In Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Loss | | | Unamortized Restricted Stock Compensation | | | Notes Receivable from the Issuance of Common Stock | | | Total Stockholders' Equity | |
| | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, JANUARY 1, 2005 | | $ | 736 | | | $ | 920,616 | | | $ | 17,481 | | | $ | 4,633 | | | $ | (11,928 | ) | | $ | (150 | ) | | $ | 931,388 | |
| Issuance of common stock | | | 18 | | | | 34,943 | | | | - | | | | - | | | | 2,236 | | | | - | | | | 37,197 | |
| Stock issuance cost | | | - | | | | (181 | ) | | | - | | | | - | | | | - | | | | - | | | | (181 | ) |
| Repayments of notes receivable from | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| issuance of common stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | 85 | | | | 85 | |
| Net income | | | - | | | | - | | | | 92,741 | | | | - | | | | - | | | | - | | | | 92,741 | |
| Dividends paid | | | - | | | | - | | | | (87,272 | ) | | | - | | | | - | | | | - | | | | (87,272 | ) |
| Other comprehensive income adjustment | | | - | | | | - | | | | - | | | | (1,229 | ) | | | - | | | | - | | | | (1,229 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, DECEMBER 31, 2005 | | | 754 | | | | 955,378 | | | | 22,950 | | | | 3,404 | | | | (9,692 | ) | | | (65 | ) | | | 972,729 | |
| Cumulative effect of change in | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| accounting principle | | | (5 | ) | | | (5,188 | ) | | | - | | | | - | | | | 9,692 | | | | - | | | | 4,499 | |
| Issuance of common stock | | | 9 | | | | 8,074 | | | | - | | | | - | | | | - | | | | - | | | | 8,083 | |
| Stock issuance cost | | | - | | | | (69 | ) | | | - | | | | - | | | | - | | | | - | | | | (69 | ) |
| Repurchase of common stock | | | (30 | ) | | | (69,073 | ) | | | - | | | | - | | | | - | | | | - | | | | (69,103 | ) |
| Share-based compensation expense | | | - | | | | 6,125 | | | | - | | | | - | | | | - | | | | - | | | | 6,125 | |
| Repayments of notes receivable from | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| issuance of common stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | 65 | | | | 65 | |
| Net income | | | - | | | | - | | | | 176,955 | | | | - | | | | - | | | | - | | | | 176,955 | |
| Dividends paid | | | - | | | | - | | | | (162,704 | ) | | | - | | | | - | | | | - | | | | (162,704 | ) |
| Other comprehensive income adjustment | | | - | | | | - | | | | - | | | | (10,902 | ) | | | - | | | | | | | | (10,902 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, DECEMBER 31, 2006 | | | 728 | | | | 895,247 | | | | 37,201 | | | | (7,498 | ) | | | - | | | | - | | | | 925,678 | |
| Issuance of common stock | | | 5 | | | | 3,877 | | | | - | | | | - | | | | - | | | | - | | | | 3,882 | |
| Share-based compensation expense | | | - | | | | 7,050 | | | | - | | | | - | | | | - | | | | - | | | | 7,050 | |
| Net income | | | - | | | | - | | | | 69,385 | | | | - | | | | - | | | | - | | | | 69,385 | |
| Dividends paid | | | - | | | | - | | | | (88,599 | ) | | | - | | | | - | | | | - | | | | (88,599 | ) |
| Other comprehensive income adjustment | | | - | | | | - | | | | - | | | | (1,464 | ) | | | - | | | | - | | | | (1,464 | ) |
| BALANCE, DECEMBER 31, 2007 | | $ | 733 | | | $ | 906,174 | | | $ | 17,987 | | | $ | (8,962 | ) | | $ | - | | | $ | - | | | $ | 915,932 | |
| | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| See accompanying notes to the condensed consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | |
| EQUITY ONE, INC. AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| YEARS ENDED DECEMBER 31, 2007, 2006 and 2005 | |
| (In thousands) | |
| | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| OPERATING ACTIVITIES: | | | | | | | | | |
| Net income | | $ | 69,385 | | | $ | 176,955 | | | $ | 92,741 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Straight line rent adjustment | | | (1,582 | ) | | | (4,066 | ) | | | (4,450 | ) |
| Amortization of above/(below) market lease intangibles | | | (4,586 | ) | | | (2,612 | ) | | | (1,006 | ) |
| Provision for losses on accounts receivable | | | 1,559 | | | | 742 | | | | 893 | |
| Amortization of premium on notes payable | | | (2,102 | ) | | | (5,864 | ) | | | (5,159 | ) |
| Amortization of deferred financing fees | | | 1,684 | | | | 1,503 | | | | 1,512 | |
| Rental property depreciation and amortization | | | 47,514 | | | | 44,791 | | | | 43,445 | |
| Share-based compensation | | | 7,050 | | | | 6,125 | | | | 5,973 | |
| Amortization of derivatives | | | 23 | | | | (120 | ) | | | - | |
| Gain on disposal of real estate and income-producing properties | | | (21,423 | ) | | | (122,105 | ) | | | (11,460 | ) |
| Impairment loss | | | 3,360 | | | | - | | | | - | |
| Loss on extinguishment of debt | | | 491 | | | | - | | | | - | |
| Loss on sale of fixed assets | | | 283 | | | | - | | | | - | |
| Loss/(gain) on sale of securities | | | (325 | ) | | | (282 | ) | | | (5,223 | ) |
| Equity in income of unconsolidated joint ventures | | | - | | | | (1,853 | ) | | | - | |
| Operating distributions from unconsolidated joint ventures | | | - | | | | 1,373 | | | | - | |
| Minority interest | | | 112 | | | | 206 | | | | 188 | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Accounts and other receivables | | | 3,262 | | | | (1,988 | ) | | | (1,832 | ) |
| Other assets | | | 8,465 | | | | 1,807 | | | | (2,768 | ) |
| Accounts payable and accrued expenses | | | (2,191 | ) | | | 2,946 | | | | 3,674 | |
| Tenant security deposits | | | 63 | | | | 60 | | | | 1,002 | |
| Other liabilities | | | (4,026 | ) | | | (2,975 | ) | | | (338 | ) |
| Net cash provided by operating activities | | | 107,016 | | | | 94,643 | | | | 117,192 | |
| | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Additions to and purchases of rental property | | $ | (107,587 | ) | | $ | (186,006 | ) | | $ | (36,081 | ) |
| Land held for development | | | (2,651 | ) | | | (45,784 | ) | | | (29,290 | ) |
| Additions to construction in progress | | | (15,212 | ) | | | (47,429 | ) | | | (23,058 | ) |
| Proceeds from disposal of rental properties | | | 71,273 | | | | 411,090 | | | | 44,024 | |
| Increase in cash held in escrow | | | (52,913 | ) | | | (1,547 | ) | | | (51 | ) |
| Increase in deferred leasing costs | | | (3,884 | ) | | | (6,163 | ) | | | (5,877 | ) |
| Additions to notes receivable | | | (14 | ) | | | (33 | ) | | | (4,227 | ) |
| Proceeds from repayment of notes receivable | | | 4,745 | | | | 5,735 | | | | 40 | |
| Proceeds from sale of securities | | | 2,822 | | | | 12,852 | | | | 32,764 | |
| Cash used to purchase securities | | | (1,181 | ) | | | (29,837 | ) | | | (60,603 | ) |
| Distributions from (to) unconsolidated joint ventures from sale of property | | | - | | | | 1,935 | | | | (12 | ) |
| Net cash (used in) provided by investing activities | | | (104,602 | ) | | | 114,813 | | | | (82,371 | ) |
| | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Repayments of mortgage notes payable | | $ | (22,270 | ) | | $ | (88,880 | ) | | $ | (48,131 | ) |
| Net repayments under revolving credit facilities | | | (39,500 | ) | | | (16,665 | ) | | | (53,835 | ) |
| Proceeds from senior debt offerings | | | 148,874 | | | | 246,868 | | | | 118,606 | |
| Repayment of senior debt | | | - | | | | (125,000 | ) | | | - | |
| Cash paid for settlement of interest rate contracts | | | (2,498 | ) | | | - | | | | - | |
| Increase in deferred financing costs | | | (878 | ) | | | (1,947 | ) | | | (463 | ) |
| Proceeds from issuance of common stock | | | 3,882 | | | | 8,083 | | | | 31,510 | |
| Repayment of notes receivable from issuance of common stock | | | - | | | | 65 | | | | 85 | |
| Stock issuance costs | | | - | | | | (69 | ) | | | (181 | ) |
| Repurchase of common stock | | | - | | | | (69,103 | ) | | | - | |
| Cash dividends paid to stockholders | | | (88,599 | ) | | | (162,704 | ) | | | (87,272 | ) |
| Distributions to minority interest | | | (112 | ) | | | (206 | ) | | | (160 | ) |
| Net cash used in financing activities | | | (1,101 | ) | | | (209,558 | ) | | | (39,841 | ) |
| | | | | | | | | | | | | |
| Net increase in cash and cash equivalents | | | 1,313 | | | | (102 | ) | | | (5,020 | ) |
| Cash and cash equivalents at beginning of the year | | | - | | | | 102 | | | | 5,122 | |
| Cash and cash equivalents at end of the year | | $ | 1,313 | | | $ | - | | | $ | 102 | |
| EQUITY ONE, INC. AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| YEARS ENDED DECEMBER 31, 2007, 2006 and 2005 | |
| (In thousands) | |
| | | | | | | | | | |
| | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | | |
| Cash paid for interest (net of capitalized interest of $3.2 million, $5.8 million and $3.4 million in 2007, 2006 and 2005, respectively) | | $ | 66,386 | | | $ | 57,684 | | | $ | 55,249 | |
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Change in unrealized holding loss on securities | | $ | (1,386 | ) | | $ | (9,753 | ) | | $ | (1,229 | ) |
| Change in cash flow hedges | | $ | 75 | | | $ | (2,574 | ) | | | | |
| | | | | | | | | | | | | |
| The Company acquired and assumed mortgages on the acquisition of certain rental properties: | | | | | | | | | | | | |
| Fair value of rental property | | $ | 69,069 | | | $ | 58,551 | | | | | |
| Assumption of mortgage notes payable | | | (27,740 | ) | | | (33,602 | ) | | | | |
| Fair value adjustment of mortgage notes payable | | | (1,974 | ) | | | (1,863 | ) | | | | |
| Cash paid for rental property | | $ | 39,355 | | | $ | 23,086 | | | | | |
| The Company issued senior unsecured notes: | | | | | | | | | | | | |
| Face value of notes | | $ | 150,000 | | | $ | 250,000 | | | $ | 120,000 | |
| Underwriting Costs | | | (975 | ) | | | (1,624 | ) | | | (780 | ) |
| Discount | | | (151 | ) | | | (1,508 | ) | | | (614 | ) |
| Cash received | | $ | 148,874 | | | $ | 246,868 | | | $ | 118,606 | |
| | | | | | | | | | | | | |
| (Concluded) | |
| | | | | | | | | | | | | |
| See accompanying notes to the consolidated financial statements. | | | | | | | | | | | | |
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
1. Organization and Basis of Presentation
Organization
Equity One, Inc. operates as a self-managed real estate investment trust (“REIT”) that principally acquires, renovates, develops and manages neighborhood and community shopping centers anchored by leading supermarkets, drug stores or discount retail store chains. As of December 31, 2007, we owned or had interests in 169 properties consisting of 152 shopping centers, seven development/redevelopment properties, six non-retail properties and four parcels of land.
Basis of Presentation
The consolidated financial statements include the accounts of Equity One, Inc. and its wholly-owned subsidiaries and those other subsidiaries or partnerships where it has financial and operating control. Equity One, Inc. and its subsidiaries are hereinafter referred to as the “Company”, “we”, “our”, “us” or similar terms. All significant intercompany transactions and balances have been eliminated in consolidation.
Investments in joint ventures not controlled by us are accounted for under the equity method of accounting where we have concluded that the venture is not a variable interest entity or we are not the primary beneficiary and subject to the consolidation rules of Statement of Financial Accounting Standards, or SFAS 46(R), “Consolidation of Variable Interest Entities.”
Certain prior-year data have been reclassified to conform to the 2007 presentation.
2. Summary of Significant Accounting Policies
Revenue Recognition
Rental income includes minimum rents, expense reimbursements, termination fees and percentage rental payments. Minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis. As part of the leasing process, we may provide the lessee with an allowance for the construction of leasehold improvements. Leasehold improvements are capitalized and depreciated over the shorter of the useful life of the improvements or the lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the improvements, the allowance is considered a lease incentive and is recognized over the lease term as a reduction to revenue. Factors considered during this evaluation include, among others, the type of improvements made, who holds legal title to the improvements, and other controlling rights provided by the lease agreement. Lease revenue recognition commences when the lessee is given possession of the leased space and there are no contingencies offsetting the lessee’s obligation to pay rent.
Substantially all of the lease agreements contain provisions that require the payment of additional rents based on the respective tenant’s sales volume (contingent or percentage rent) and reimbursement of the tenant’s share of real estate taxes, insurance and common area maintenance, or CAM, costs. Revenue based on percentage of tenants’ sales is recognized only after the tenant exceeds their sales breakpoint. Revenue from tenant reimbursements of taxes, CAM and insurance is recognized in the period that the applicable costs are incurred in accordance with the lease agreements.
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on an assessment of the tenants’ payment history and current credit quality using the specific identification method.
We recognize gains or losses on sales of real estate in accordance with Statement of Financial Accounting Standards No. 66 “Accounting for Sales of Real Estate.” Profits are not recognized until (a) a sale has been consummated; (b) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; (c) our receivable, if any, is not subject to future subordination; and (d) we have transferred to the buyer the usual risks and rewards of ownership, and we do not have a substantial continuing involvement with the property. The sales of operating properties where we do not have a continuing involvement are presented in the discontinued operations section of our condensed consolidated statements of operations.
During 2007, we were engaged by joint ventures and other third parties to provide property management and leasing services. The fees were generally calculated as a percentage of either revenues received or reimbursement of costs and were recognized as services were rendered. As of May 31, 2007, we are no longer providing these services.
Properties
Income-producing properties are stated at cost, less accumulated depreciation and amortization. Costs include those related to acquisition, development and construction, including tenant improvements, interest incurred during development, costs of predevelopment and certain direct and indirect costs of development. All costs related to unsuccessful acquisition opportunities are expensed when it is probable that we will not be successful in the acquisition.
Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, as follows:
| Buildings | 30-40 years |
| Buildings and Land Improvements | 5-40 years |
| Tenant improvements | Minimum lease term or economic useful life |
| Furniture and Equipment | 5-7 years |
Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements that improve or extend the useful life of assets are capitalized. The useful lives of amortizable intangible lease assets are evaluated each reporting period with any changes in estimated useful lives being accounted for over the revised remaining useful life.
Construction in Progress and Land Held for Development
Properties also include construction in progress and land held for development. These properties are carried at cost and no depreciation is recorded. Properties undergoing significant renovations and improvements are considered under development. All direct and indirect costs related to development activities are capitalized into properties in construction in progress and land held for development on our condensed consolidated balance sheets. Costs incurred include predevelopment expenditures directly related to a specific project including development and construction costs, interest, insurance and real estate tax expense. Indirect development costs include employee salaries and benefits, travel and other related costs that are directly associated with the development of the property. The capitalization of such expenses ceases when the property is ready for its intended use and has reached stabilization but no later than one-year from substantial completion of construction activity. If we determine that a project is no longer probable, all predevelopment project costs are immediately expensed. Similar costs related to properties not under development are expensed as incurred.
Our method of calculating capitalized interest is based upon applying our weighted average borrowing rate to that portion of actual costs incurred. Total interest expense capitalized to construction in progress and land held for development was $3.2 million, $5.8 million, and $3.4 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Business Combinations
When we purchase real estate properties, we allocate the initial purchase price of assets acquired (net tangible and identifiable intangible assets) and liabilities assumed based on their relative fair values at the date of acquisition pursuant to the provisions of SFAS No. 141, “Business Combinations”. Our initial fair value purchase price allocations may be refined as final information regarding fair value of the assets acquired and liabilities assumed is received. The allocations are finalized within one year of the acquisition date. We allocate the purchase price of the acquired property to land, building, improvements and intangible assets. The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off. There are three categories of intangible assets to be considered: (1) value of in-place leases; (2) above and below-market value of in-place leases and; (3) customer relationship value.
The value of in-place leases is estimated based on the fair value of at-market in-place leases considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional lease expense over the remaining contractual lease term.
Above-market and below-market in-place lease values for acquired properties are computed based on the present value of the difference between the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition and our estimate of fair market lease rates for the property or comparable property, measured over a period equal to the remaining contractual lease period. The value of above-market lease assets is amortized as a reduction of rental income over the remaining terms of the respective leases. The value of below-market lease liabilities is amortized as an increase to rental income over the remaining terms of the respective leases.
We do not allocate value to customer relationship intangibles if we have pre-existing business relationships with the tenants in the acquired property. Other than as discussed above, we have determined that our real estate properties do not have any significant identifiable intangibles.
The results of operations of acquired properties are included in our financial statements as of the dates they are acquired. The lease intangibles associated with property acquisitions are included in other assets and other liabilities in our condensed consolidated balance sheets. In the event that a tenant terminates its lease, all unamortized costs are written-off as a charge to depreciation expense.
Properties Held for Sale
Under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the definition of a component of an entity, assuming no significant continuing involvement, requires that operating properties that are sold or classified as held for sale be accounted for as discontinued operations. Accordingly, the results of operations of operating properties disposed of or classified as held for sale for which we have no significant continuing involvement are reflected as discontinued operations. Given the nature of real estate sales contracts, it is customary for such contracts to allow potential buyers a period of time to evaluate the property prior to committing to its acquisition. In addition, certain conditions to the closing of a sale, such as financing contingencies, often remain following the completion of the buyer’s due diligence review. As a result, properties under contract may not close within the expected time period, or may not close at all. Due to these uncertainties, we generally do not classify a property as “discontinued operations” until it is sold, unless we have otherwise determined that the property meets the criteria of SFAS No. 144 and is likely to close within the time requirements.
Long-lived Assets
Our properties are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. If there is an event or change in circumstance indicating the potential for impairment in the value of a property, we evaluate our ability to recover our net investment in the long-lived assets by comparing the carrying value (net book value) of such asset to the estimated future undiscounted cash flows over their expected useful life. Future cash flow estimates are based on probability-weighted projections for a range of possible outcomes.
During 2007 and 2006, we determined that the carrying amounts of certain of our assets were unrecoverable, and, therefore, we wrote down such amounts to their estimated fair market values. For the years ended December 31, 2007, 2006 and 2005, $3.4 million, $86,000 and $0 of impairment losses were recognized of which $1.5 million, $86,000 and $ 0, respectively, was included in income from discontinued operations.
Cash and Cash Equivalents
We consider liquid investments with an initial maturity of three months or less to be cash equivalents.
Cash Held in Escrow
Cash held in escrow represents the cash proceeds of property sales that are being held by qualified intermediaries in anticipation of the acquisition of replacement properties in tax-free exchanges under Section 1031 of the Internal Revenue Code. Subsequent to year-end, we repaid $37.0 million of outstanding balances under our lines of credit with proceeds from our 2007 dispositions
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable include amounts billed to tenants and unbilled but accrued expense recoveries due from tenants. We evaluate the probability of collection for these receivables and adjust the allowance for doubtful accounts to reflect amounts estimated to be uncollectible. The allowance for doubtful accounts was approximately $2.2 million and $1.6 million at December 31, 2007 and December 31, 2006, respectively.
Securities
Our investments in securities are classified as available-for-sale and recorded at fair value based on current market prices. Changes in the fair value of the securities investments are included in accumulated other comprehensive income.
As of December 31, 2007, we indirectly owned approximately 3.8 million ordinary shares of DIM Vastgoed N.V., or DIM, representing 47.9% of the total outstanding ordinary shares of DIM. DIM is a public company organized under the laws of the Netherlands, the shares of which are listed on Euronext Amsterdam and which operates as a closed-end investment company owning and operating a portfolio of 21 shopping center properties aggregating approximately 2.6 million square feet in the southeastern United States. DIM’s capital structure includes priority shares and ordinary shares. The priority shares are 100% owned by a foundation that is controlled by its supervisory board. The ordinary shares have voting rights; however, only the priority shares have the right to nominate members to the supervisory board and to approve certain other corporate matters. As of December 31, 2007, we believe that the investment in DIM should be accounted for as an available-for-sale security because, as of that date, we were unable to exert significant influence over DIM’s operating or financial policies and, based on DIM’s organizational and capital structure, we were unable to participate in the affairs of DIM’s supervisory board.
As of December 31, 2007, the fair value of DIM’s ordinary shares is less than the carrying amount of our total investment. Our aggregate cost is approximately $79.1 million and, based on the closing market price on December 31, 2007, the ordinary shares of DIM had a fair value of approximately $71.3 million. This equates to an unrealized loss of $7.8 million. In making a judgment as to whether our investment is impaired, we consider a number of factors including, but not necessarily limited to the following:
| · | our intent and ability to hold the securities for a period of time sufficient to allow for any anticipated recovery in fair value; |
| | · | our assessment of the net asset value of the properties held by DIM based upon our expertise in the shopping center real estate business; |
| | · | the assessment by DIM’s management of its net asset value, or NAV, based upon its use of fair value accounting; |
| | · | the financial and operational condition of DIM’s properties; |
| | · | market and economic conditions that might affect DIM’s prospects; |
| | · | the extent to which fair value of DIM is below our cost basis and the period of time over which the decline has existed; |
| | · | the relevance of the market price given the thin trading in DIM shares and the concentration of share ownership between ourselves and one other institutional investor; and |
| | · | the share-price premium that might be warranted given our ownership of a large block of the outstanding common stock. |
We have evaluated the severity and duration of the possible impairment, together with the near-term prospects of DIM, the thin trading market for DIM shares and our ability and intent to hold the investment for a reasonable period sufficient for a forecasted recovery of the carrying cost. Based upon our intent and ability to hold DIM shares, our own evaluation of the NAV of the underlying properties held by DIM, and the duration and extent of the possible impairment, we do not consider the investment to be other-than-temporarily impaired at December 31, 2007. Changes in estimates, assumptions, or expected outcomes could impact the determination of whether a decline in value is other-than-temporary and whether the effects could materially impact our financial position or net income in future periods. If the market value of DIM remains less than our carrying amount for an extended period of time and/or the financial condition and near-term prospects of DIM deteriorate or do not otherwise improve in the future, among other factors, we may be required to record an other than temporary impairment of the investment.
As of December 31, 2007, we owned 44,200 shares of preferred stock of a publicly-traded REIT that had a fair value of $1.04 million, a carrying amount of $1.1 million and an unrealized loss of approximately $66,000.
During 2006, we held debt securities of Winn Dixie Stores, Inc. (“Winn Dixie”). In November 2006, a portion of the debt securities were converted into common stock of Winn Dixie when it emerged from bankruptcy. During the second quarter of 2007, we sold our remaining shares of Winn Dixie common stock and realized a gain of approximately $227,000.
The specific identification method is used to determine realized gain or loss on securities sold.
The following table reflects the gross unrealized losses and fair value of our investments with unrealized losses that are not deemed other-than-temporarily impaired:
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | As of December 31, | |
| | | 2007 | | | 2006 | |
| | | (In thousands) | | | (In thousands) | |
| Investment | | Fair Value | | | Unrealized Loss | | | Fair Value | | | Unrealized Loss | |
| Equity securities | | $ | 72,300 | | | $ | 7,911 | | | $ | 75,103 | | | $ | 6,349 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Deferred Costs and Intangibles
Deferred costs, intangible assets included in other assets, and intangible liabilities included in other liabilities consist of loan origination fees, leasing costs and the value of intangibles when a property was acquired. Loan and other fees directly related to rental property financing with third parties are amortized over the term of the loan using the effective interest method. Direct salaries, third-party fees and other costs incurred by us to originate a lease are capitalized and are being amortized using the straight-line method over the term of the related leases. Intangible assets consist of in-place lease values, tenant origination costs and above-market rents that were acquired in connection with the acquisition of the properties. Intangible liabilities consist of below-market rents that are also acquired in connection with the acquisition of properties. Both intangible assets and liabilities are amortized using the straight-line method over the term of the related leases.
Deposits
Deposits included in other assets are comprised of funds held by various institutions for future payments of property taxes, insurance and improvements, utility and other service deposits.
Goodwill
Goodwill has been recorded to reflect the excess of cost over the fair value of net assets acquired in various business acquisitions. We adopted SFAS No. 142 “Goodwill and Other Intangible Assets” on January 1, 2002 and no longer amortize goodwill.
We are required to perform annual, or more frequently in certain circumstances, impairment tests of our goodwill. We have elected to test for goodwill impairment in November of each year. The goodwill impairment test is a two-step process that requires us to make decisions in determining appropriate assumptions to use in the calculation. The first step consists of estimating the fair value of each reporting unit and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of reporting units (each property is considered a reporting unit) implied fair value of goodwill requires us to allocate the estimated fair value of the reporting unit to its assets and liabilities. Any unallocated fair value represents the implied fair value of goodwill which is compared to its corresponding carrying amount. During the periods presented, no impairment of goodwill was incurred.
We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill that totaled approximately $12.5 million at December 31, 2007. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our tenant base, or a materially negative change in its relationships with significant tenants.
Goodwill was included in the determination of the gain on disposal of real estate due to the disposition of certain properties. For the years ended December 31, 2007, 2006 and 2005, $595,000, $604,000 and $325,000, respectively, was included in the gain on sale.
Minority Interest
On January 1, 1999, Equity One (Walden Woods) Inc., a wholly-owned subsidiary of ours, entered into a limited partnership as a general partner. An income-producing shopping center (“Walden Woods Village”) was contributed by its owners (the “Minority Partners”), and we contributed 93,656 shares of our common stock (the “Walden Woods Shares”) to the limited partnership at an agreed-upon price of $10.30 per share. Based on this per share price and the net value of property contributed by the Minority Partners, the limited partners received 93,656 partnership units. We have entered into a Redemption Agreement with the Minority Partners whereby the Minority Partners can request that we purchase either their limited partnership units or any shares of common stock, which they received in exchange for their partnership units at a price of $10.30 per unit or per share at any time before January 1, 2014. Because of the Redemption Agreement, we consolidate the accounts of the partnership with our financial data. In addition, under the terms of the limited partnership agreement, the Minority Partners do not have an interest in the Walden Woods Shares except to the extent of dividends. Accordingly, a preference in earnings has been allocated to the Minority Partners to the extent of the dividends declared. The Walden Woods Shares are not considered outstanding in the condensed consolidated financial statements and are excluded from the share count in the calculation of primary earnings per share.
We have controlling interests in two joint ventures that, together, own our Sunlake development project. We have funded all of the acquisition costs, are required to fund any necessary development and operating costs, receive an 8% preferred return on our advances and are entitled to 60% of the profits thereafter. The minority partners are not required to make contributions and, to date, have not contributed any capital. The joint ventures are in the process of obtaining the required approvals and permits to continue their mixed-use business plan. No minority interest has been recorded as the venture has incurred operating losses after taking into account our preferred return.
We also have a controlling membership interest in Dolphin Village Partners, LLC, a venture that owns our Dolphin Village shopping center. We have funded all of the acquisition costs, are required to fund any necessary development and operating costs, receive an 8% preferred return on our advances and are entitled to 50% of the profits thereafter. The minority partner is not required to make contributions and, to date, has not contributed any capital. The joint venture has obtained preliminary approval of its redevelopment plans and is evaluating the feasibility of those plans. No minority interest has been recorded as the venture has incurred operating losses after taking into account our preferred return.
Use of Derivative Financial Instruments
We account for derivative and hedging activities in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted. These accounting standards require us to measure derivatives, including certain derivatives embedded in other contracts, at fair value and to recognize them in the consolidated balance sheets as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in fair value of the derivative are reported in other comprehensive income and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging instruments, and ineffective portions of hedges, are recognized in earnings in the current period.
We do not enter into derivative instruments for speculative purposes. We require that the hedges or derivative financial instruments be effective in managing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential to qualify for hedge accounting. Hedges that meet these hedging criteria are formally designated as such at the inception of the contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, resulting in some ineffectiveness, the change in the fair value of the derivative instrument will be included in earnings. Additionally, any derivative instrument used for risk management that becomes ineffective is marked-to-market each period. We believe that our credit risk has been mitigated by entering into these agreements with major financial institutions. Net interest differentials to be paid or received under a swap contract and/or collar agreement are included in interest expense as incurred or earned.
The estimated fair value of our derivative financial instruments has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value.
In 2006, we entered into an aggregate notional amount of $85.0 million of treasury locks. The treasury locks were executed to hedge the benchmark interest rate associated with forecasted interest payments relating to an anticipated issuance of fixed-rate borrowings. The treasury locks were terminated in connection with the issuance of $150.0 million of unsecured senior notes in April 2007. The realized loss on these hedging relationships has been deferred in other comprehensive income and will be amortized against earnings over the term of the debt as an adjustment to interest expense.
On March 24, 2004, concurrent with the issuance of the $200.0 million 3.875% senior unsecured notes, we entered into a $100.0 million notional principal variable rate interest swap with an estimated fair value of $315,000 as of December 31, 2007. This swap converted fixed rate debt to variable rate based on the six-month LIBOR in arrears plus 0.4375%, and matures April 15, 2009.
Investments In and Advances to Unconsolidated Ventures
As of December 31, 2007, we did not have investments in unconsolidated joint ventures.
Concentration of Credit Risk
A concentration of credit risk arises in our business when a national or regionally based tenant occupies a substantial amount of space in multiple properties owned by us. In that event, if the tenant suffers a significant downturn in its business, it may become unable to make its contractual rent payments to us, exposing us to a potential loss in rental revenue, expense recoveries, and percentage rent that is magnified as a result of the tenant renting space in multiple locations. Generally, we do not obtain security from its national or regionally based tenants in support of their lease obligations to us. We regularly monitor our tenant base to assess potential concentrations of credit risk. As of December 31, 2007, Publix Super Markets accounted for over 10% of our annualized minimum rent, or approximately $19.1 million of annualized minimum rent. No other tenant accounts for over 5% of our annualized minimum rent.
Earnings Per Share
Earnings per share are accounted for in accordance with SFAS No. 128, “Earnings per Share”, which requires a dual presentation of basic and diluted earnings per share on the face of the consolidated statement of operations. Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. We calculate the dilutive effect of stock-based compensation arrangements using the treasury stock method. This method assumes that the proceeds we receive from the exercise of stock options and non-vested stock are used to repurchase common shares in the market. The adoption of SFAS No. 123(R), “Share-Based Payment”, requires that we include as assumed proceeds the amount of compensation cost attributed to future services and not yet recognized, and the amount of tax benefits (both deferred and current), if any, that would be credited to additional paid-in capital assuming exercise of the options and vesting of the restricted shares.
Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code (“Code”), commencing with our taxable year ended December 31, 1995. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT taxable income to our stockholders. Also, at least 95% of our gross income in any year must be derived from qualifying sources. The difference between net income available to common stockholders for financial reporting purposes and taxable income before dividend deductions relates primarily to temporary differences, such as real estate depreciation and amortization, deduction of deferred compensation and deferral of gains on sold properties utilizing like kind exchanges. It is our intention to adhere to these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate level federal income tax on taxable income that we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and to federal income and excise taxes on our undistributed taxable income. Accordingly, the only provision for federal income taxes in our condensed consolidated financial statements relates to our consolidated taxable REIT subsidiaries (“TRSs”). Our TRSs did not have significant tax provisions or deferred income tax items during the periods reported hereunder.
In June 2006, the FASB issued SFAS Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (FIN 48).” In summary, FIN 48 requires that all tax positions subject to SFAS No. 109, “Accounting for Income Taxes,” to be analyzed using a two-step approach. The first step requires an entity to determine if a tax position would more likely than not be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. FIN 48 was effective for fiscal years beginning after December 15, 2006, with any adjustment in a company’s tax provision being accounted for as a cumulative effect of accounting change in beginning equity. The adoption of the standard did not have a material impact on our consolidated financial statements.
Further, we believe that we have appropriate support for the tax positions taken on our tax returns and that our accruals for the tax liabilities are adequate for all years still subject to tax audit after 2003.
At December 31, 2007 and 2006, the accompanying financial statement basis of assets and liabilities exceeds the tax basis by approximately $356.0 million and $225.5 million, respectively.
The following summarizes the tax status of dividends paid:
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| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| Dividend paid per share | | $ | 1.20 | | | $ | 2.20 | | | $ | 1.17 | |
| Ordinary income | | | 51.26 | % | | | 23.62 | % | | | 68.17 | % |
| Return of capital | | | 20.41 | % | | | 29.86 | % | | | 26.92 | % |
| Capital gains | | | 28.33 | % | | | 46.52 | % | | | 4.91 | % |
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Stock-Based Compensation
Cumulative Effect of Change in Accounting Principle
Prior to January 1, 2006, we accounted for stock-based compensation under the recognition and measurement provisions of Accounting Principle Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” Under APB No. 25, no stock-based compensation costs were recognized in the statement of operations as our options granted had an exercise price equal to the market value of our common shares on the date of grant. Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment”, using the modified-prospective-transition method. Under this transition method, compensation costs recognized beginning January 1, 2006 includes: (a) compensation costs for all share-based payments granted prior to, but not vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). We use the binomial model to value stock options.
On January 1, 2006, we recorded the cumulative effect of adopting SFAS No. 123(R). This cumulative effect resulted in decreasing accrued liabilities by $4.5 million and increasing shareholder equity by $4.5 million. These balance sheet changes related to deferred compensation on unvested shares. There was no effect on the consolidated statement of operations or cash flows. Under SFAS No. 123(R), deferred compensation is no longer recorded at the time unvested shares are issued. Share-based compensation is now recorded over the requisite service period with an offsetting credit to equity (generally additional paid-in capital).
Share-Based Compensation Subsequent to the Adoption of SFAS 123(R)
Share-based compensation expense charged against earnings for the years ended December 31, 2007 and 2006 is summarized as follows:
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| | | | |
| | | 2007 | | | 2006 | |
| | | (In thousands) | |
| | | | | | | |
| Restricted Stock | | $ | 5,234 | | | $ | 5,543 | |
| Options | | | 1,799 | | | | 747 | |
| Employee stock purchase plan | | | 12 | | | | 12 | |
| less: amounts capitalized | | | (494 | ) | | | (178 | ) |
| Net share-based compensation expense | | $ | 6,551 | | | $ | 6,124 | |
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Pro Forma Information for Periods Prior to Adoption of SFAS No. 123(R)
The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123(R) to our stock-based compensation for the year ended December 31, 2005:
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| | | | 2005 | |
| (in thousands, except per share amounts) | |
| | | | | |
| Net Income | As reported | | $ | 92,741 | |
| | | | | | |
| Add: | Stock-based employee compensation expense included in reported net income | | | 5,660 | |
| | | | | | |
| Deduct: | Total fair value stock-based employee compensation expense for all awards | | | (6,486 | ) |
| | Proforma | | $ | 91,915 | |
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| Basic earnings per share | As reported | | $ | 1.26 | |
| | Proforma | | $ | 1.24 | |
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| Diluted earnings per share | As reported | | $ | 1.24 | |
| | Proforma | | $ | 1.23 | |
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Segment Information
Our properties are community and neighborhood shopping centers located predominantly in high-growth and high-barrier markets in the southern and northeastern United States. Each of our centers is a separate operating segment, all of which have characteristics so similar they are expected to have essentially the same future prospects and have been aggregated and reported as one reportable segment. The economic characteristics include similar returns, occupancy and tenants. No individual property constitutes more than 10% of our combined revenue, net income or assets. The individual properties have been aggregated into one reportable segment based upon their similarities with regard to both the nature and economics of the centers, tenants and operational processes, as well as long-term average financial performance. In addition, no shopping center is located outside the United States.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159) which allows entities to voluntarily choose, at specified election dates, to measure many financial assets and financial liabilities at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. Subsequent to the adoption of SFAS No. 159, changes in fair value for the particular instruments shall be reported in earnings. Upon initial adoption, SFAS No. 159 provides entities with a one-time chance to elect the fair value option for existing eligible items. The effect of the first measurement to fair value should be reported as a cumulative-effect adjustment to the opening balance of retained earnings in the year the statement is adopted. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are not electing to measure our financial assets or financial liabilities at fair value pursuant to this standard.
In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations” (SFAS 141(R)). In summary, SFAS 141(R) requires the acquirer of a business combination to measure at fair value the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, with limited exceptions. The standard is effective for fiscal years beginning after December 15, 2008, and is to be applied prospectively, with no earlier adoption permitted. The adoption of this standard may have an impact on the accounting for certain costs related to our future acquisitions.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160) which requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and non-controlling interest. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.
Fair value of financial instruments
The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methods. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts. We have used the following market assumptions and/or estimation methods:
Cash and Cash Equivalents and Accounts and Other Receivables. The carrying amounts reported in the balance sheets for these financial instruments approximate fair value because of their short maturities.
Notes Receivable. The fair value is estimated by using the current interest rates at which similar loans would be made. The carrying amounts reported in the balance sheets approximate fair value.
Available for Sale Securities. The fair value estimated at December 31, 2007 and 2006 was $72.3 million and $75.1 million, respectively, based on the closing market prices of the securities. The unrealized holding loss was $7.9 million at December 31, 2007, and $6.3 million at December 31, 2006.
Mortgage Notes Payable. The fair value estimated at December 31, 2007 and 2006 was $426.4 million and $413.4 million, respectively, calculated based on the net present value of payments over the term of the loans using estimated market rates for similar mortgage loans and remaining terms.
Unsecured Revolving Credit Facilities. The fair value was estimated by using the current rates at which similar loans would be made and remaining terms. The carrying amounts reported in the balance sheets approximate fair value.
Unsecured Senior Notes Payable. The fair value estimated at December 31, 2007 and 2006 was $704.7 million and $568.8 million, respectively, calculated based on the net present value of payments over the term of the loan using estimated market rates for similar notes and remaining terms.
3. Properties
The following table is a summary of the composition of properties in the consolidated balance sheets:
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| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | (thousands) | |
| | | | | | | |
| Land and land improvements | | $ | 891,431 | | | $ | 802,925 | |
| Building and building improvements | | | 1,116,936 | | | | 1,054,467 | |
| Tenant improvements | | | 39,626 | | | | 39,451 | |
| | | | 2,047,993 | | | | 1,896,843 | |
| Less: accumulated depreciation | | | (172,651 | ) | | | (144,825 | ) |
| Income-producing property, net | | $ | 1,875,342 | | | $ | 1,752,018 | |
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Acquisitions
The following table reflects the individual properties that were acquired during 2007:
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| Date | Property | City, State | | Gross Leasable Area | | | Purchase Price | |
| | | | | (In square feet) | | | (In thousands) | |
| | | | | | | | | |
| 01/09/07 | Concord Shopping Plaza | Miami, FL | | | 298,986 | | | $ | 48,433 | |
| 02/07/07 | Shelby Plaza Land | Shelby, NC | | | N/A | | | | 505 | |
| 02/15/07 | Alafaya Commons Outparcel | Orlando, FL | | | N/A | | | | 2,146 | |
| 03/09/07 | Buckhead Station | Atlanta, GA | | | 233,930 | | | | 68,000 | |
| 06/13/07 | Shoppes of Sunset | Miami, FL | | | 21,704 | | | | 5,000 | |
| 06/21/07 | Medical & Merchants - Crown Bank Outparcel | Jacksonville, FL | | | 3,392 | | | | 1,333 | |
| 11/01/07 | Sunset II | Miami, FL | | | 27,767 | | | | 5,400 | |
| 11/06/07 | Concord Outparcel | Miami, FL | | | N/A | | | | 2,400 | |
| | Total | | | | | | | $ | 133,217 | |
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No equity interests were issued or issuable in connection with the above purchases and no contingent payments, options or commitments are provided for in the agreements. No goodwill was recorded in conjunction with any of the individual property acquisitions.
The amounts assigned to intangibles consisting of in-place leases, lease origination costs, above-market leases and below-market leases are $12.2 million, $3.5 million, $3.0 million and ($21.2 million), respectively. The weighted average amortization period is 4.6 years.
4. Accounts and Other Receivables
The following table is a summary of the composition of accounts and other receivables in the consolidated balance sheets:
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| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | (in thosands) | |
| | | | | | | |
| Tenants | | $ | 15,654 | | | $ | 18,312 | |
| Other | | | 737 | | | | 2,264 | |
| Allowance for doubtful accounts | | | (2,243 | ) | | | (1,609 | ) |
| Total accounts and other receivables, net | | $ | 14,148 | | | $ | 18,967 | |
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5. Other Assets
The following is a summary of the composition of other assets in the consolidated balance sheets:
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| | | | | | | |
| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | (In thousands) | |
| Notes receivable | | $ | 69 | | | $ | 4,800 | |
| Deposits and escrow impounds | | | 9,175 | | | | 11,909 | |
| Deferred financing fees, net | | | 6,474 | | | | 6,307 | |
| Leasing commissions, net | | | 10,743 | | | | 11,134 | |
| Intangible assets, net | | | 18,649 | | | | 20,579 | |
| Furniture and equipment, net | | | 2,370 | | | | 2,700 | |
| Prepaid and other assets | | | 14,949 | | | | 17,927 | |
| Total other assets | | $ | 62,429 | | | $ | 75,356 | |
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All amounts included as intangible assets (other than goodwill) are subject to amortization. The gross carrying amount and accumulated amortization of our intangible assets as of December 31, 2007 and 2006 was $18.8 million and $14.9 million, and accumulated amortization of $6.6 million and $3.8 million, respectively, for in-place leases, $5.7 million and $5.0 million, and accumulated amortization of $2.2 million and $1.3 million, respectively, for lease origination costs; $4.7 million and $4.8 million, and accumulated amortization of $1.7 million, and $755,000, respectively, for above-market leases; and $8,000 and $1.8 million accumulated amortization of $1,000 and $38,000, respectively, for lease incentives. For the years ended December 31, 2007, 2006 and 2005, the amortization for intangible assets was $1.2 million, $1.8 million and $624,000 respectively. The amortization for the next five years for the recorded intangible assets is approximately $4.1 million, $3.4 million, $2.7 million, $2.1 million and $1.7 million , respectively. The amortization for the next five years for the recorded intangible liabilities is approximately $5.0 million, $4.6 million, $3.1 million, $2.3 million and $1.8 million, respectively.
6. Borrowings
The following is a summary of our borrowings, consisting of mortgage notes payable, unsecured senior notes payable and unsecured revolving credit facilities:
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| | | December 31, | |
| | | 2007 | | | 2006 | |
| Mortgage Notes Payable | | (In thousands) | |
| | | | | | | |
| Fixed rate mortgage loans | | $ | 397,112 | | | $ | 391,647 | |
| Unamortized net premium on mortgage notes payable | | | 10,455 | | | | 10,463 | |
| Total | | $ | 407,567 | | | $ | 402,110 | |
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The weighted average interest rate of the mortgage notes payable at December 31, 2007 and December 31, 2006 was 7.42% and 7.26%, respectively, excluding the effects of the net premium adjustment.
Each of the existing mortgage loans is secured by a mortgage on one or more of our properties. Certain of the mortgage loans involving an aggregate principal balance of approximately $74.9 million contain prohibitions on transfers of ownership which may have been violated by our previous issuances of common stock or in connection with past acquisitions and may be violated by transactions involving our capital stock in the future. If a violation were established, it could serve as a basis for a lender to accelerate amounts due under the affected mortgage. To date, no lender has notified us that it intends to accelerate its mortgage. In the event that the mortgage holders declare defaults under the mortgage documents, we will, if required, repay the remaining mortgage from existing resources, refinancing of such mortgages, borrowings under its revolving lines of credit or other sources of financing. Based on discussions with various lenders, current credit market conditions and other factors, we believe that the mortgages will not be accelerated. Accordingly, we believe that the violations of these prohibitions will not have a material adverse impact on our results of operations or financial condition.
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| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | (In thousands) | |
| Unsecured Senior Notes Payable | | | | | | |
| 3.875% Senior Notes, due 4/15/09 | | $ | 200,000 | | | $ | 200,000 | |
| Fair value of interest rate swap | | | (315 | ) | | | (3,813 | ) |
| 7.84% Senior Notes, due 1/23/12 | | | 25,000 | | | | 25,000 | |
| 5.375% Senior Notes, due 10/15/15 | | | 120,000 | | | | 120,000 | |
| 6.0% Senior Notes, due 9/15/16 | | | 125,000 | | | | 125,000 | |
| 6.25% Senior Notes, due 1/15/17 | | | 125,000 | | | | 125,000 | |
| 6.0% Senior Notes, due 9/15/17 | | | 150,000 | | | | - | |
| Unamortized net premium (discount) on unsecured senior notes payable | | | (413 | ) | | | (141 | ) |
| Total | | $ | 744,272 | | | $ | 591,046 | |
The weighted average interest rate of the unsecured senior notes at December 31, 2007 and 2006 was 5.67% and 5.58%, respectively, excluding the effects of the interest rate swap and net premium adjustment. In April 2007, we completed a private placement of $150.0 million senior unsecured notes that mature on September 15, 2017. Interest is due semi-annually on March 15 and September 15 of each year, with the first payment paid on September 15, 2007. The notes were issued at a discount of $151,500 that is being amortized as interest expense over the life of the notes. The notes are guaranteed by certain of our subsidiaries. On December 5, 2007, we completed an exchange offer of registered notes for the private placement notes.
The indentures under which our unsecured senior notes were issued have several covenants, which limit the ability to incur debt, require us to maintain an unencumbered assets ratio above a specified level and limit the ability to consolidate, sell, lease, or convey substantially all of the assets to, or merge with any other entity. These notes have also been guaranteed by most of our subsidiaries.
On March 24, 2004, we swapped $100.0 million notional principal of the $200.0 million, 3.875% senior notes to a floating interest rate based on the six-month LIBOR in arrears plus 0.4375%. The swap matures April 15, 2009, concurrent with the 3.875% senior notes.
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| | | December 31, | |
| | | 2007 | | | 2006 | |
| Unsecured Revolving Credit Facilities | | (In thousands) | |
| | | | | | | |
| Wells Fargo | | $ | 37,000 | | | $ | 76,500 | |
| City National Bank | | | - | | | | - | |
| | | | | | | | | |
| Total | | $ | 37,000 | | | $ | 76,500 | |
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In January 2006, we entered into an amended and restated unsecured revolving credit facility, with a syndicate of banks for which Wells Fargo Bank, National Association is the sole lead arranger and administrative agent. This facility has a maximum principal amount of $275.0 million and bears interest at our option at (i) LIBOR plus 0.45% to 1.15%, depending on the credit ratings of our senior unsecured notes or (ii) Federal Funds Rate plus 0.5%. The facility is guaranteed by most of our subsidiaries. Based on our current rating, the LIBOR spread is 0.80%. The facility also includes a competitive bid option, which allows us to conduct auctions among the participating banks for borrowings in an amount not to exceed $137.5 million, a $35.0 million swing line facility for short term borrowings, and a $20.0 million letter of credit commitment. At our request, the facility may be increased up to a total commitment of $400.0 million. The facility expires January 17, 2009 with a one-year extension option. In addition, the facility contains customary covenants, including financial covenants regarding debt levels, total liabilities, interest coverage, EBITDA coverage ratios, unencumbered properties and permitted investments which may limit the amount available under the facility. If a default under the facility exists, our ability to pay dividends would be limited to the amount necessary to maintain our status as a REIT unless the default is a payment default or bankruptcy event in which case we would be prohibited from paying any dividends. The interest rate in effect at December 31, 2007 and December 31, 2006, was 5.00% and 5.65%, respectively. The facility also provides collateral for $3.2 million in outstanding letters of credit.
We have a $5.0 million unsecured credit facility with City National Bank of Florida, of which there was no outstanding balance at December 31, 2007 and December 31, 2006. This facility also provides collateral for $1.4 million in outstanding letters of credit. In addition, we also have an additional $55,000 outstanding letter of credit with Bank of America.
As of December 31, 2007, the availability under the various credit facilities was approximately $238.4 million net of outstanding balances and letters of credit.
Principal maturities (including scheduled amortization payments) of the notes payable as of December 31, 2007 are as follows:
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| | | | |
| Principal Maturities Year ending December 31, | | Amount | |
| | | (In thousands) | |
| 2008 | | $ | 34,090 | |
| 2009 | | | 228,843 | |
| 2010 | | | 119,268 | |
| 2011 | | | 102,197 | |
| 2012 | | | 72,645 | |
| Thereafter | | | 622,069 | |
| Total | | $ | 1,179,112 | |
Interest costs incurred, excluding amortization of discount/premium, were $72.4 million, $64.8 million and $60.5 million in the years ended December 31, 2007, 2006, 2005, respectively, of which $3.2 million, $5.8 million and $3.4 million were capitalized, respectively.
| 7. | Consolidating Financial Information |
As of December 31, 2007, most of our subsidiaries have guaranteed the Company’s unsecured senior debt. The guarantees are joint and several and full and unconditional.
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| Condensed Balance Sheet As of December 31, 2007 | | Equity One, Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Eliminating Entries | | | Consolidated | |
| ASSETS | | (In thousands) | |
| Properties, net | | $ | 320,703 | | | $ | 1,258,413 | | | $ | 378,123 | | | $ | - | | | $ | 1,957,239 | |
| Investment in affiliates | | | 628,309 | | | | - | | | | - | | | | (628,309 | ) | | | - | |
| Other assets | | | 81,989 | | | | 43,874 | | | | 91,282 | | | | - | | | | 217,145 | |
| Total Assets | | $ | 1,031,001 | | | $ | 1,302,287 | | | $ | 469,405 | | | $ | (628,309 | ) | | $ | 2,174,384 | |
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| LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Mortgage notes payable | | $ | 45,366 | | | $ | 134,311 | | | $ | 217,435 | | | $ | - | | | $ | 397,112 | |
| Unsecured revolving credit facilities | | | 37,000 | | | | - | | | | - | | | | - | | | | 37,000 | |
| Unsecured senior notes payable | | | 744,685 | | | | - | | | | - | | | | - | | | | 744,685 | |
| Unamortized premium on notes payable | | | (310 | ) | | | 3,379 | | | | 6,973 | | | | - | | | | 10,042 | |
| Other liabilities | | | 69,775 | | | | 15,536 | | | | (16,687 | ) | | | - | | | | 68,624 | |
| Total Liabilities | | | 896,516 | | | | 153,226 | | | | 207,721 | | | | - | | | | 1,257,463 | |
| | | | | | | | | | | | | | | | | | | | | |
| MINORITY INTEREST | | | - | | | | - | | | | - | | | | 989 | | | | 989 | |
| | | | | | | | | | | | | | | | | | | | | |
| STOCKHOLDERS’ EQUITY | | | 134,485 | | | | 1,149,061 | | | | 261,684 | | | | (629,298 | ) | | | 915,932 | |
| Total Liabilities and Stockholders' Equity | | $ | 1,031,001 | | | $ | 1,302,287 | | | $ | 469,405 | | | $ | (628,309 | ) | | $ | 2,174,384 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Condensed Balance Sheet As of December 31, 2006 | | Equity One, Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Eliminating Entries | | | Consolidated | |
| ASSETS | | (In thousands) | |
| Properties, net | | $ | 355,817 | | | $ | 1,003,181 | | | $ | 526,713 | | | $ | - | | | $ | 1,885,711 | |
| Investment in affiliates | | | 700,622 | | | | 140,134 | | | | (201,618 | ) | | | (639,138 | ) | | | - | |
| Other assets | | | 48,917 | | | | 38,575 | | | | 96,572 | | | | - | | | | 184,064 | |
| Total Assets | | $ | 1,105,356 | | | $ | 1,181,890 | | | $ | 421,667 | | | $ | (639,138 | ) | | $ | 2,069,775 | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Mortgage notes payable | | $ | 47,113 | | | $ | 99,867 | | | $ | 244,667 | | | $ | - | | | $ | 391,647 | |
| Unsecured revolving credit facilities | | | 76,500 | | | | - | | | | - | | | | - | | | | 76,500 | |
| Unsecured senior notes payable | | | 591,187 | | | | - | | | | - | | | | - | | | | 591,187 | |
| Unamortized premium on notes payable | | | 11 | | | | 2,346 | | | | 7,965 | | | | - | | | | 10,322 | |
| Other liabilities | | | 26,217 | | | | 28,623 | | | | 18,612 | | | | - | | | | 73,452 | |
| Total Liabilities | | | 741,028 | | | | 130,836 | | | | 271,244 | | | | - | | | | 1,143,108 | |
| | | | | | | | | | | | | | | | | | | | | |
| MINORITY INTEREST | | | - | | | | - | | | | - | | | | 989 | | | | 989 | |
| | | | | | | | | | | | | | | | | | | | | |
| STOCKHOLDERS’ EQUITY | | | 364,328 | | | | 1,051,054 | | | | 150,423 | | | | (640,127 | ) | | | 925,678 | |
| Total Liabilities and Stockholders' Equity | | $ | 1,105,356 | | | $ | 1,181,890 | | | $ | 421,667 | | | $ | (639,138 | ) | | $ | 2,069,775 | |
| | | | | | | | | | | | | | | | |
Condensed Statement of Operations for the year ended December 31, 2007 | | Equity One Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Eliminating Entries | | | Consolidated | |
| | | (In thousands) | |
| REVENUE: | | | | | | | | | | | | | | | |
| Minimum rents | | $ | 32,889 | | | $ | 115,901 | | | $ | 40,937 | | | $ | - | | | $ | 189,727 | |
| Expense recoveries | | | 9,507 | | | | 30,577 | | | | 13,439 | | | | - | | | | 53,523 | |
| Percentage rent | | | 194 | | | | 1,292 | | | | 714 | | | | - | | | | 2,200 | |
| Management and leasing services | | | - | | | | 1,163 | | | | - | | | | - | | | | 1,163 | |
| Total revenue | | | 42,590 | | | | 148,933 | | | | 55,090 | | | | - | | | | 246,613 | |
| | | | | | | | | | | | | | | | | | | | | |
| EQUITY IN SUBSIDIARIES EARNINGS | | | 103,208 | | | | - | | | | - | | | | (103,208 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | | |
| Property operating | | | 10,919 | | | | 38,704 | | | | 14,877 | | | | - | | | | 64,500 | |
| Management and leasing services | | | - | | | | 963 | | | | - | | | | - | | | | 963 | |
| Rental property depreciation and amortization | | | 7,059 | | | | 29,098 | | | | 9,946 | | | | - | | | | 46,103 | |
| General and administrative | | | 22,621 | | | | 3,109 | | | | 116 | | | | - | | | | 25,846 | |
| Total costs and expenses | | | 40,599 | | | | 71,874 | | | | 24,939 | | | | - | | | | 137,412 | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE OTHER INCOME AND EXPENSES, MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 105,199 | | | | 77,059 | | | | 30,151 | | | | (103,208 | ) | | | 109,201 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME AND EXPENSES: | | | | | | | | | | | | | | | | | | | | |
| Investment income | | | 1,147 | | | | 34 | | | | 6,148 | | | | - | | | | 7,329 | |
| Other income | | | 310 | | | | - | | | | - | | | | - | | | | 310 | |
| Interest expense | | | (43,381 | ) | | | (8,293 | ) | | | (14,989 | ) | | | - | | | | (66,663 | ) |
| Amortization of deferred financing fees | �� | | (1,474 | ) | | | (76 | ) | | | (130 | ) | | | - | | | | (1,680 | ) |
| Gain on the sale of real estate | | | 1,027 | | | | 1,510 | | | | - | | | | - | | | | 2,537 | |
| Loss on the sale of fixed assets | | | (283 | ) | | | - | | | | - | | | | - | | | | (283 | ) |
| Impairment loss | | | - | | | | - | | | | (1,851 | ) | | | - | | | | (1,851 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 62,545 | | | | 70,234 | | | | 19,329 | | | | - | | | | 48,900 | |
| Minority Interest | | | - | | | | - | | | | (112 | ) | | | (103,208 | ) | | | (112 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | 62,545 | | | | 70,234 | | | | 19,217 | | | | (103,208 | ) | | | 48,788 | |
| | | | | | | | | | | | | | | | | | | | | |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | | | | | | | | | |
| Operations of income producing-properties sold or held for sale | | | 418 | | | | 1,460 | | | | (166 | ) | | | - | | | | 1,712 | |
| Gain on disposal of income-producing properties | | | 6,422 | | | | 9,761 | | | | 2,702 | | | | - | | | | 18,885 | |
| Income from discontinued operations | | | 6,840 | | | | 11,221 | | | | 2,536 | | | | - | | | | 20,597 | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | $ | 69,385 | | | $ | 81,455 | | | $ | 21,753 | | | $ | (103,208 | ) | | $ | 69,385 | |
| | | | | | | | | | | | | | | | |
Condensed Statement of Operations for the year ended December 31, 2006 | | Equity One Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Eliminating Entries | | | Consolidated | |
| | | (In thousands) | |
| REVENUE: | | | | | | | | | | | | | | | |
| Minimum rents | | $ | 34,766 | | | $ | 90,610 | | | $ | 46,226 | | | $ | - | | | $ | 171,602 | |
| Expense recoveries | | | 9,474 | | | | 26,289 | | | | 13,313 | | | | - | | | | 49,076 | |
| Percentage rent | | | 178 | | | | 1,303 | | | | 551 | | | | - | | | | 2,032 | |
| Management and leasing services | | | - | | | | 2,067 | | | | - | | | | - | | | | 2,067 | |
| Total revenue | | | 44,418 | | | | 120,269 | | | | 60,090 | | | | - | | | | 224,777 | |
| | | | | | | | | | | | | | | | | | | | | |
| EQUITY IN SUBSIDIARIES EARNINGS | | | 203,222 | | | | - | | | | - | | | | (203,222 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | | |
| Property operating | | | 10,387 | | | | 36,319 | | | | 14,455 | | | | - | | | | 61,161 | |
| Management and leasing services | | | 275 | | | | 1,406 | | | | 180 | | | | - | | | | 1,861 | |
| Rental property depreciation and amortization | | | 6,785 | | | | 22,047 | | | | 11,480 | | | | - | | | | 40,312 | |
| General and administrative | | | 25,851 | | | | 3,906 | | | | - | | | | - | | | | 29,757 | |
| Total costs and expenses | | | 43,298 | | | | 63,678 | | | | 26,115 | | | | - | | | | 133,091 | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE OTHER INCOME AND EXPENSES, MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 204,342 | | | | 56,591 | | | | 33,975 | | | | (203,222 | ) | | | 91,686 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME AND EXPENSES: | | | | | | | | | | | | | | | | | | | | |
| Investment income | | | 2,883 | | | | 265 | | | | 4,339 | | | | - | | | | 7,487 | |
| Equity in income of unconsolidated joint ventures | | | - | | | | 1,650 | | | | - | | | | - | | | | 1,650 | |
| Other income | | | 389 | | | | - | | | | - | | | | - | | | | 389 | |
| Interest expense | | | (33,040 | ) | | | (5,771 | ) | | | (15,172 | ) | | | - | | | | (53,983 | ) |
| Amortization of deferred financing fees | | | (1,280 | ) | | | (76 | ) | | | (129 | ) | | | - | | | | (1,485 | ) |
| Gain on the sale of real estate | | | - | | | | 5,651 | | | | 1,286 | | | | - | | | | 6,937 | |
| Gain (loss) on extinguishment of debt | | | 457 | | | | - | | | | (292 | ) | | | - | | | | 165 | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 173,751 | | | | 58,310 | | | | 24,007 | | | | (203,222 | ) | | | 52,846 | |
| Minority Interest | | | - | | | | - | | | | (206 | ) | | | - | | | | (206 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | 173,751 | | | | 58,310 | | | | 23,801 | | | | (203,222 | ) | | | 52,640 | |
| | | | | | | | | | | | | | | | | | | | | |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | | | | | | | | | |
| Operations of income producing-properties sold or held for sale | | | 2,144 | | | | 7,582 | | | | (579 | ) | | | - | | | | 9,147 | |
| Gain on disposal of income-producing properties | | | 1,060 | | | | 108,337 | | | | 5,771 | | | | - | | | | 115,168 | |
| Income from discontinued operations | | | 3,204 | | | | 115,919 | | | | 5,192 | | | | - | | | | 124,315 | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | $ | 176,955 | | | $ | 174,229 | | | $ | 28,993 | | | $ | (203,222 | ) | | $ | 176,955 | |
| | | | | | | | | | | | | | | | |
Condensed Statement of Operations for the year ended December 31, 2005 | | Equity One Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Eliminating Entries | | | Consolidated | |
| | | (In thousands) | |
| REVENUE: | | | | | | | | | | | | | | | |
| Minimum rents | | $ | 34,929 | | | $ | 79,753 | | | $ | 42,454 | | | $ | - | | | $ | 157,136 | |
| Expense recoveries | | | 9,104 | | | | 20,695 | | | | 12,662 | | | | - | | | | 42,461 | |
| Percentage rent | | | 173 | | | | 947 | | | | 566 | | | | - | | | | 1,686 | |
| Management and leasing services | | | 50 | | | | 448 | | | | - | | | | - | | | | 498 | |
| Total revenue | | | 44,256 | | | | 101,843 | | | | 55,682 | | | | - | | | | 201,781 | |
| | | | | | | | | | | | | | | | | | | | | |
| EQUITY IN SUBSIDIARIES EARNINGS | | | 91,447 | | | | - | | | | - | | | | (91,447 | ) | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | | |
| Property operating | | | 10,054 | | | | 28,560 | | | | 12,741 | | | | - | | | | 51,355 | |
| Management and leasing services | | | - | | | | 229 | | | | - | | | | - | | | | 229 | |
| Rental property depreciation and amortization | | | 6,292 | | | | 18,174 | | | | 9,001 | | | | - | | | | 33,467 | |
| General and administrative | | | 16,962 | | | | 2,478 | | | | 294 | | | | - | | | | 19,734 | |
| Total costs and expenses | | | 33,308 | | | | 49,441 | | | | 22,036 | | | | - | | | | 104,785 | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE OTHER INCOME AND EXPENSES, MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 102,395 | | | | 52,402 | | | | 33,646 | | | | (91,447 | ) | | | 96,996 | |
| | | | | | | | | | | | | | | | | | | | | |
| OTHER INCOME AND EXPENSES: | | | | | | | | | | | | | | | | | | | | |
| Investment income | | | 7,503 | | | | 280 | | | | 158 | | | | - | | | | 7,941 | |
| Interest expense | | | (22,891 | ) | | | (7,910 | ) | | | (16,507 | ) | | | - | | | | (47,308 | ) |
| Amortization of deferred financing fees | | | (1,209 | ) | | | (57 | ) | | | (183 | ) | | | - | | | | (1,449 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS | | | 85,798 | | | | 44,715 | | | | 17,114 | | | | (91,447 | ) | | | 56,180 | |
| Minority Interest | | | (78 | ) | | | - | | | | (110 | ) | | | - | | | | (188 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | 85,720 | | | | 44,715 | | | | 17,004 | | | | (91,447 | ) | | | 55,992 | |
| | | | | | | | | | | | | | | | | | | | | |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | | | | | | | | | |
| Operations of income-producing properties sold or held for sale | | | 3,155 | | | | 20,305 | | | | 1,829 | | | | - | | | | 25,289 | |
| Gain on disposal of income-producing properties | | | 3,866 | | | | 3,837 | | | | 3,757 | | | | - | | | | 11,460 | |
| Income from discontinued operations | | | 7,021 | | | | 24,142 | | | | 5,586 | | | | - | | | | 36,749 | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | $ | 92,741 | | | $ | 68,857 | | | $ | 22,590 | | | $ | (91,447 | ) | | $ | 92,741 | |
| | | | | | | | | | | | | |
Condensed Statement of Cash Flows for the year ended December 31, 2007 | | Equity One, Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Consolidated | |
| | | (In thousands) | |
| Net cash provided by operating activities | | | (17,171 | ) | | | 95,255 | | | | 28,932 | | | | 107,016 | |
| | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Additions to and purchase of rental property | | | (2,421 | ) | | | (106,323 | ) | | | 1,157 | | | | (107,587 | ) |
| Purchased s of land held for development | | | - | | | | (2,529 | ) | | | (122 | ) | | | (2,651 | ) |
| Additions to construciton in progress | | | (58 | ) | | | (14,256 | ) | | | (898 | ) | | | (15,212 | ) |
| Proceeds from disposal of rental properties | | | 29,833 | | | | 37,793 | | | | 3,647 | | | | 71,273 | |
| Increase in cash held in escrow | | | (52,913 | ) | | | - | | | | - | | | | (52,913 | ) |
| Proceeds from sale of securities | | | 2,822 | | | | - | | | | - | | | | 2,822 | |
| Cash used to purchase securities | | | (1,181 | ) | | | | | | | - | | | | (1,181 | ) |
| Addtions to notes receivable | | | - | | | | (14 | ) | | | | | | | (14 | ) |
| Proceeds from repayment of notes receivable | | | 4,706 | | | | 26 | | | | 13 | | | | 4,745 | |
| Increase in deferred financing costs | | | (3,884 | ) | | | - | | | | - | | | | (3,884 | ) |
| Advances from (to) affiliates | | | 22,271 | | | | (3,157 | ) | | | (19,114 | ) | | | - | |
| Net cash (used in) provided by investing activities | | | (825 | ) | | | (88,460 | ) | | | (15,317 | ) | | | (104,602 | ) |
| | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Repayment of mortgage notes payable | | | (1,860 | ) | | | (6,795 | ) | | | (13,615 | ) | | | (22,270 | ) |
| Net repayments under revolving credit facilities | | | (39,500 | ) | | | - | | | | - | | | | (39,500 | ) |
| Proceeds from senior debt offering | | | 148,874 | | | | - | | | | - | | | | 148,874 | |
| Cash paid for settlement of interest rate contracts | | | (2,498 | ) | | | - | | | | - | | | | (2,498 | ) |
| Increase in deferred financing costs | | | (878 | ) | | | - | | | | - | | | | (878 | ) |
| Stock issuance costs | | | 3,882 | | | | - | | | | - | | | | 3,882 | |
| Cash dividends paid to stockholders | | | (88,599 | ) | | | - | | | | - | | | | (88,599 | ) |
| Distributions to minority interest | | | (112 | ) | | | - | | | | - | | | | (112 | ) |
| Net cash used in financing activities | | | 19,309 | | | | (6,795 | ) | | | (13,615 | ) | | | (1,101 | ) |
| | | | | | | | | | | | | | | | | |
| Net increase in cash and cash equivalents | | | 1,313 | | | | - | | | | - | | | | 1,313 | |
| Cash and cash equivalents at beginning of the period | | | - | | | | - | | | | - | | | | - | |
| Cash and cash equivalents at end of the period | | $ | 1,313 | | | $ | - | | | $ | - | | | $ | 1,313 | |
| | | | | | | | | | | | | |
Condensed Statement of Cash Flows for the year ended December 31, 2006 | | Equity One, Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Consolidated | |
| | | (In thousands) | |
| Net cash provided by operating activities | | $ | (39,286 | ) | | $ | 106,419 | | | $ | 27,510 | | | $ | 94,643 | |
| | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Additions to and purchase of rental property | | | (5,648 | ) | | | (72,671 | ) | | | (107,687 | ) | | | (186,006 | ) |
| Land held for development | | | - | | | | (20,740 | ) | | | (25,044 | ) | | | (45,784 | ) |
| Additions to construction in progress | | | (2,462 | ) | | | (32,011 | ) | | | (12,956 | ) | | | (47,429 | ) |
| Proceeds from disposal of rental properties | | | 2,569 | | | | 381,348 | | | | 27,173 | | | | 411,090 | |
| Increase in cash held in escrow | | | (1,547 | ) | | | - | | | | - | | | | (1,547 | ) |
| Increase in deferred leasing costs | | | (810 | ) | | | (4,505 | ) | | | (848 | ) | | | (6,163 | ) |
| Additions to notes receivable | | | | | | | (18 | ) | | | (15 | ) | | | (33 | ) |
| Proceeds from repayment of notes receivable | | | 5,693 | | | | 28 | | | | 14 | | | | 5,735 | |
| Proceeds from sale of securities | | | 12,852 | | | | - | | | | - | | | | 12,852 | |
| Cash used to purchase securities | | | (434 | ) | | | - | | | | (29,403 | ) | | | (29,837 | ) |
| Advances from (to) affiliates | | | 151,090 | | | | (330,322 | ) | | | 179,232 | | | | - | |
| Distributions from unconsolidated joint ventures from sale of property | | | - | | | | - | | | | 1,935 | | | | 1,935 | |
| Net cash (used in) provided by investing activities | | | 161,303 | | | | (78,891 | ) | | | 32,401 | | | | 114,813 | |
| | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Repayment of mortgage notes payable | | | (1,619 | ) | | | (27,350 | ) | | | (59,911 | ) | | | (88,880 | ) |
| Net repayments under revolving credit facilities | | | (16,665 | ) | | | - | | | | . | | | | (16,665 | ) |
| Proceeds from senior debt offering | | | 246,868 | | | | - | | | | - | | | | 246,868 | |
| Repayment of senior debt | | | (125,000 | ) | | | - | | | | - | | | | (125,000 | ) |
| Increase in deferred financing costs | | | (1,947 | ) | | | - | | | | - | | | | (1,947 | ) |
| Proceeds from issuance of common stock | | | 8,083 | | | | - | | | | - | | | | 8,083 | |
| Repayment of notes receivable from issuance of common stock | | | 65 | | | | - | | | | - | | | | 65 | |
| Stock issuance costs | | | (69 | ) | | | - | | | | - | | | | (69 | ) |
| Repurchase of common stock | | | (69,103 | ) | | | - | | | | - | | | | (69,103 | ) |
| Cash dividends paid to stockholders | | | (162,704 | ) | | | - | | | | - | | | | (162,704 | ) |
| Distributions to minority interest | | | (28 | ) | | | (178 | ) | | | - | | | | (206 | ) |
| Net cash used in financing activities | | | (122,119 | ) | | | (27,528 | ) | | | (59,911 | ) | | | (209,558 | ) |
| | | | | | | | | | | | | | | | | |
| Net increase in cash and cash equivalents | | | (102 | ) | | | - | | | | - | | | | (102 | ) |
| Cash and cash equivalents at beginning of the period | | | 102 | | | | - | | | | - | | | | 102 | |
| Cash and cash equivalents at end of the period | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
Condensed Statement of Cash Flows for the year ended December 31, 2005 | | Equity One, Inc. | | | Combined Guarantor Subsidiaries | | | Non- Guarantor Subsidiaries | | | Consolidated | |
| | | (In thousands) | |
| Net cash provided by operating activities | | $ | (2,477 | ) | | $ | 90,685 | | | $ | 28,984 | | | $ | 117,192 | |
| | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Additions to and purchase of rental property | | | (2,673 | ) | | | (31,991 | ) | | | (1,417 | ) | | | (36,081 | ) |
| Land held for development | | | (1,215 | ) | | | (28,075 | ) | | | - | | | | (29,290 | ) |
| Additions to construction in progress | | | - | | | | (15,551 | ) | | | (7,507 | ) | | | (23,058 | ) |
| Proceeds from disposal of rental properties | | | 15,482 | | | | 12,682 | | | | 15,860 | | | | 44,024 | |
| Increase in cash held in escrow | | | (51 | ) | | | - | | | | - | | | | (51 | ) |
| Increase in deferred leasing costs | | | (1,239 | ) | | | (3,962 | ) | | | (676 | ) | | | (5,877 | ) |
| Additions to notes receivable | | | (4,215 | ) | | | (12 | ) | | | - | | | | (4,227 | ) |
| Proceeds from repayment of notes receivable | | | 18 | | | | 17 | | | | 5 | | | | 40 | |
| Proceeds from sale of securities | | | 32,764 | | | | - | | | | - | | | | 32,764 | |
| Cash used to purchase securities | | | (12,212 | ) | | | - | | | | (48,391 | ) | | | (60,603 | ) |
| Advances from (to) affiliates | | | (36,139 | ) | | | (1,915 | ) | | | 38,054 | | | | - | |
| Distributions to unconsolidated joint ventures from sale of property | | | - | | | | - | | | | (12 | ) | | | (12 | ) |
| Net cash (used in) provided by investing activities | | | (9,480 | ) | | | (68,807 | ) | | | (4,084 | ) | | | (82,371 | ) |
| | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Repayment of mortgage notes payable | | | (1,513 | ) | | | (21,828 | ) | | | (24,790 | ) | | | (48,131 | ) |
| Net repayments under revolving credit facilities | | | (53,835 | ) | | | - | | | | . | | | | (53,835 | ) |
| Proceeds from senior debt offering | | | 118,606 | | | | - | | | | - | | | | 118,606 | |
| Increase in deferred financing costs | | | (463 | ) | | | - | | | | - | | | | (463 | ) |
| Proceeds from issuance of common stock | | | 31,510 | | | | - | | | | - | | | | 31,510 | |
| Stock issuance costs | | | (181 | ) | | | - | | | | - | | | | (181 | ) |
| Repayment of notes receivable from issuance of common stock | | | 85 | | | | - | | | | - | | | | 85 | |
| Cash dividends paid to stockholders | | | (87,272 | ) | | | - | | | | - | | | | (87,272 | ) |
| Distributions to minority interest | | | - | | | | (50 | ) | | | (110 | ) | | | (160 | ) |
| Net cash used in financing activities | | | 6,937 | | | | (21,878 | ) | | | (24,900 | ) | | | (39,841 | ) |
| | | | | | | | | | | | | | | | | |
| Net increase in cash and cash equivalents | | | (5,020 | ) | | | - | | | | - | | | | (5,020 | ) |
| Cash and cash equivalents at beginning of the period | | | 5,122 | | | | - | | | | - | | | | 5,122 | |
| Cash and cash equivalents at end of the period | | $ | 102 | | | $ | - | | | $ | - | | | $ | 102 | |
9. Property Held for Sale and Dispositions
Portfolio Dispositions
In April 2006, we sold 29 of our properties located in Texas (the “Texas Properties”) to EQYInvest Texas, LLC, a Delaware limited liability company, in which we retained a 20% interest (the “JV”). In connection with the sale, we agreed to manage and lease the Texas Properties on behalf of the JV. In December 2006, we disposed of our 20% interest in the JV, but continued to manage and lease the properties under the management agreement. As of May 31, 2007, all services provided under that agreement ceased.
We had guaranteed the joint venture an operating return based on certain predetermined targets for the first twelve months following the sale, which required us to pay to the joint venture an amount up to $2.0 million in the event that the joint venture did not achieve its targeted operating returns. We had also agreed to fund remaining construction costs to complete various projects in an amount up to $1.6 million. In August 2007, we paid approximately $1.5 million and $1.6 million, respectively, for each guarantee. As of December 31, 2007, we have fulfilled all obligations related to the joint venture.
Individual Property Dispositions
As of December 31, 2007, one parcel of land was held for sale with a net book value of $323,000.
The following table reflects individual properties sold during 2007:
| | | | | | | | | | | | |
| Date | Property | City, State | | Gross Leasable Area | | | Sales Price | | | Gain (loss) On Sale | |
| | | | | (In square feet) | | | (In thousands) | |
| Income-producing properties | | | | | | | | | | |
| 01/11/07 | Pinhook Plaza Office Building | Lafayette, LA | | | 4,406 | | | $ | 350 | | | $ | 266 | |
| 03/14/07 | Eustis Square Shopping Center | Eustis, FL | | | 126,791 | | | | 7,100 | | | | 1,454 | |
| 11/19/07 | Commonwealth | Jacksonville, FL | | | 81,467 | | | | 7,307 | | | | 3,290 | |
| 12/11/07 | Monument Point | Jacksonville, FL | | | 75,128 | | | | 6,000 | | | | 2,664 | |
| 12/11/07 | Skipper Palms | Tampa, FL | | | 86,355 | | | | 7,750 | | | | 2,656 | |
| 12/13/07 | Colony Square | Fitzgerald, GA | | | 50,000 | | | | 575 | | | | (13 | ) |
| 12/13/07 | West Towne Square | Rome, GA | | | 89,596 | | | | 3,575 | | | | (92 | ) |
| 12/20/07 | Parkmore Plaza | Pensacola, FL | | | 159,093 | | | | 9,100 | | | | 3,047 | |
| 12/20/07 | Pensacola Plaza | Pensacola, FL | | | 56,098 | | | | 2,800 | | | | 678 | |
| 12/20/07 | Shelby Plaza | Shelby, NC | | | 103,200 | | | | 3,815 | | | | 986 | |
| 12/20/07 | Smyrna Village | Smyrna, TN | | | 83,334 | | | | 8,350 | | | | 2,023 | |
| 12/20/07 | Spring Valley | Columbia, SC | | | 75,415 | | | | 7,900 | | | | 1,698 | |
| 12/20/07 | Westgate | Mobile, AL | | | 64,378 | | | | 5,100 | | | | 820 | |
| 12/31/07 | Plaza North | Hendersonville, NC | | | 47,240 | | | | 2,300 | | | | (826 | ) |
| | Subtotal | | | | | | | $ | 72,022 | | | $ | 18,651 | |
| | | | | | | | | | | | | | | |
| Sale of real estate | | | | | | | | | | | | | |
| 03/22/07 | Venice Plaza Outparcel | Venice, FL | | | N/A | | | $ | 1,500 | | | $ | 1,028 | |
| 06/13/07 | Shops of Hampton Oaks Outparcel | Atlanta, GA | | | N/A | | | | 1,300 | | | | 303 | |
| 06/29/07 | Winchester Plaza Outparcel | Huntsville, AL | | | N/A | | | | 550 | | | | 254 | |
| 08/31/07 | Winchester Plaza Outparcel | Huntsville, AL | | | N/A | | | | 575 | | | | 408 | |
| 11/19/07 | Commonwealth Land | Jacksonville, FL | | | N/A | | | | 1,118 | | | | 347 | |
| 12/20/07 | Shelby Land | Shelby, NC | | | N/A | | | | 450 | | | | 197 | |
| | Subtotal | | | | | | | $ | 5,493 | | | $ | 2,537 | |
| | | | | | | | | | | | | | | |
| | Total | | | | | | | $ | 77,515 | | | $ | 21,188 | |
| | | | | | | | | | | | | | | |
Pursuant to SFAS No. 144, the accompanying statements of operations have been retrospectively adjusted to reflect the classification of discontinued operations. The summary selected operating results for income-producing properties disposed of or designated as held for sale as of December 31, 2007, 2006 and 2005 with no significant continuing involvement, are as follows:
| | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | (In thousands) | |
| | | | | | | | | | |
| Rental Revenue: | | $ | 8,206 | | | $ | 23,237 | | | $ | 53,458 | |
| Expenses: | | | | | | | | | | | | |
| Property operating expenses | | | 2,635 | | | | 6,193 | | | | 13,451 | |
| Rental property depreciation and amortization | | | 1,411 | | | | 4,479 | | | | 9,980 | |
| Interest expense | | | 444 | | | | 1,539 | | | | 4,675 | |
| Amortization of deferred financing fees | | | 4 | | | | 18 | | | | 63 | |
| Other (income) expense | | | 2,000 | | | | 1,861 | | | | - | |
| Operations of income-producing properties sold or held for sale | | $ | 1,712 | | | $ | 9,147 | | | $ | 25,289 | |
| | | | | | | | | | | | | |
10. Stockholders’ Equity and Earnings Per Share
Common Stock
The following table reflects the change in number of shares of common stock issued for the year ended December 31, 2007:
| | | | | | | | | | |
| | | | | | | | | | |
| | | Common Stock | | | Options Exercised | | | Total | |
| | | (In thousands) | |
| | | | | | | | | | |
| Board of Directors* | | | 29 | | | | 141 | | | | 170 | |
| Officers* | | | 83 | | | | 267 | | | | 350 | |
| Employees and other | | | 20 | | | | 5 | | | | 25 | |
| Total | | | 132 | | | | 413 | | | | 545 | |
| | | | | | | | | | | | | |
| | *Net of shares surrendered on the exercise of options. |
In May 2006, we commenced a program to repurchase up to $100.0 million of the Company’s outstanding common stock. During the period May 2006 through December 2006, through periodic open-market transactions or through privately negotiated transactions, we repurchased and retired 3.0 million common shares, at an average purchase price of $22.68 per share, at an aggregate cost of $69.1 million. No common stock repurchases were made during 2007.
Dividend Reinvestment Plan
We had a Dividend Reinvestment and Share Purchase Plan whereby stockholders could invest cash distributions and make optional cash purchases of our common stock. Effective March 2006, the plan was suspended, with approximately 5.4 million shares still available for sale.
The following is a reconciliation of the amounts of net income and shares of common stock used in calculating basic and diluted per-share income (“EPS”) for the years ended December 31, 2007, 2006 and 2005:
| | | | |
| | | | |
| | | For the Year Ended December 31, 2007 | |
| | | Income | | | Shares | | | Per Share | |
| | | (Numerator) | | | (Denominator) | | | Amount | |
| | | (In thousands, except per share amounts) | |
| | | | | | | | | | |
| Net Income | | $ | 69,385 | | | | | | | |
| | | | | | | | | | | |
| Basic EPS | | | | | | | | | | |
| Income attributable to common stockholders | | $ | 69,385 | | | | 73,091 | | | $ | 0.95 | |
| | | | | | | | | | | | | |
| Effect of Dilutive Securities | | | | | | | | | | | | |
| Walden Woods Village, Ltd. | | | 112 | | | | 94 | | | | | |
| Unvested restricted stock using the treasury method | | | | | | | 99 | | | | | |
| Common stock options using the treasury method | | | | | | | 78 | | | | | |
| | | | 112 | | | | 271 | | | | | |
| Diluted EPS | | | | | | | | | | | | |
| Income attributable to common stockholders assuming conversions | | $ | 69,497 | | | | 73,362 | | | $ | 0.95 | |
| | | | | | | | | | | | | |
Options to purchase 119,660 shares of common stock at prices ranging from $26.41 to $28.05 per share were outstanding at December 31, 2007, but were not included in the computation of diluted EPS because the option price was greater than the average market price of common shares.
| | | | |
| | | For the Year Ended December 31, 2006 | |
| | | Income | | | Shares | | | Per Share | |
| | | (Numerator) | | | (Denominator) | | | Amount | |
| | | (In thousands, except per share amounts) | |
| | | | | | | | | | |
| Net Income | | $ | 176,955 | | | | | | | |
| | | | | | | | | | | |
| Basic EPS | | | | | | | | | | |
| Income attributable to common stockholders | | $ | 176,955 | | | | 73,598 | | | $ | 2.40 | |
| | | | | | | | | | | | | |
| Effect of Dilutive Securities | | | | | | | | | | | | |
| Walden Woods Village, Ltd. | | | 206 | | | | 94 | | | | | |
| Unvested restricted stock | | | - | | | | 439 | | | | | |
| Stock options | | | - | | | | 193 | | | | | |
| | | | 206 | | | | 726 | | | | | |
| Diluted EPS | | | | | | | | | | | | |
| Income attributable to common stockholders assuming conversions | | $ | 177,161 | | | | 74,324 | | | $ | 2.38 | |
| | | | | | | | | | | | | |
Options to purchase 1.8 million shares of common stock at prices ranging from $24.12 to $28.05 per share were outstanding at December 31, 2006, but were not included in the computation of diluted EPS because the option price was greater than the average market price of common shares.
| | | | | | | | | | |
| | | | | | | | | | |
| | | For the Year Ended December 31, 2005 | |
| | | (In thousands, except per share amounts) | |
| | | | | | | | | | |
| | | Income | | | Shares | | | Per Share | |
| | | (Numerator) | | | (Denominator) | | | Amount | |
| | | | | | | | | | |
| Net Income | | $ | 92,741 | | | | | | | |
| | | | | | | | | | | |
| Basic EPS | | | | | | | | | | |
| Income attributable to common stockholders | | $ | 92,741 | | | | 73,840 | | | $ | 1.26 | |
| | | | | | | | | | | | | |
| Effect of Dilutive Securities | | | | | | | | | | | | |
| Walden Woods Village, Ltd. | | | 109 | | | | 94 | | | | | |
| Unvested restricted stock | | | - | | | | 575 | | | | | |
| Stock options | | | - | | | | 281 | | | | | |
| | | | 109 | | | | 950 | | | | | |
| Diluted EPS | | | | | | | | | | | | |
| Income attributable to common stockholders assuming conversions | | $ | 92,850 | | | | 74,790 | | | $ | 1.24 | |
| | | | | | | | | | | | | |
Options to purchase 10,000 shares of common stock at $23.52 per share were outstanding at December 31, 2005, but were not included in the computation of diluted EPS because the option price was greater than the average market price of common shares.
11. Share-Based Compensation and Other Benefit Plans
On October 23, 1996, we adopted the Equity One, Inc. 1995 Stock Option Plan (the “Plan”), which was amended December 10, 1998. The purpose of the Plan is to further our growth by offering incentives to our directors, officers and other key employees, and to increase stock ownership by these directors, officers and employees. The effective date of the Plan was January 1, 1996. The maximum number of shares of common stock as to which options may be granted under this Plan is 1.0 million shares, which is reduced each year by the required or discretionary grant of options. The term of each option is determined by the compensation committee of our Board of Directors, but in no event can be longer than ten years from the date of the grant. The vesting of the options is determined by the committee, in its sole and absolute discretion, at the date of grant of the option.
On June 23, 2000, we, with shareholder approval, adopted the Equity One 2000 Executive Incentive Compensation Plan (the “2000 Plan”). The 2000 Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock, deferred stock, other stock-related awards and performance or annual incentive awards that may be settled in cash, stock or other property. The persons eligible to receive an award under the 2000 Plan are our officers, directors, employees and independent contractors. Following an amendment to the 2000 Plan, approved by our stockholders on June 4, 2007, the total number of shares of common stock that may be issuable under the 2000 Plan is 8.5 million shares, plus (i) the number of shares with respect to which options previously granted under the 2000 Plan terminate without being exercised, and (ii) the number of shares that are surrendered in payment of the exercise price for any awards or any tax withholding requirements. In an amendment to the 2000 Plan approved by our stockholders in July 2004, the compensation committee expanded the list of business criteria that the committee may use in granting performance awards and annual incentive awards under the 2000 Plan intended to qualify for the exclusions from the limitations of Section 162(m) of the Internal Revenue Code and modified the definition of a “change of control” to include, in addition to other instances, following approval by stockholders of any reorganization, merger or consolidation or other transaction or series of transactions if persons who were stockholders immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merger or consolidated company’s then outstanding voting securities (previously the threshold was 26%). The 2000 Plan will terminate on the earlier of the day before the tenth anniversary of the stockholders’ approval of the 2000 Plan or the date on which all shares reserved for issuance under the 2000 Plan have been issued.
Options
As of December 31, 2007, we have options outstanding under four share-based compensations plans. The 2000 Plan authorized the grant of options, common stock and other share-based awards for up to 8.5 million shares of common stock, of which 3.7 million shares are available for issuance. The IRT Property Company 1998 Long Term Incentive Plan similarly authorized the grant of options, common stock and other share-based awards for up to 1,462,500 shares of common stock, of which 14,400 shares are available for issuance. The Plan authorized the grant of option awards for up to 1.0 million shares of common stock, all of which have been issued. The IRT Property Company 1989 Stock Option Plan authorized the grant of stock options and other share-based awards for up to 956,250 shares of common stock, of which no shares are available for issuance. In addition, in connection with the initial employment of Jeffrey S. Olson, our Chief Executive Officer, we issued Mr. Olson 364,660 options to purchase 364,660 shares of common stock.
The term of each award is determined by our compensation committee, but in no event can be longer than ten years from the date of the grant. The vesting of the awards is determined by the committee, in its sole and absolute discretion, at the date of grant of the award. Dividends are paid on unvested shares of restricted stock. Certain options and share awards provide for accelerated vesting if there is a change in control, as defined in the 2000 Plan.
The fair value of each option award during 2007 is estimated on the date of grant using the binomial option-pricing model. Expected volatilities, dividend yields, employee exercises and employee terminations are primarily based on historical data. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. We measure compensation costs for restricted stock awards based on the fair value of our common stock at the date of the grant and charges to expense such amounts to earnings ratably over the vesting period. For grants with a graded vesting schedule we have elected to recognize compensation expense on a straight-line basis.
The following is a summary of our stock option activity for the years ended December 31, 2007, 2006 and 2005:
| | | 2007 | | | 2006 | | | 2005 | |
| | | Shares Under Option | | | Weighted- Average Exercise Price | | | Shares Under Option | | | Weighted Average Exercise Price | | | Shares Under Option | | | Weighted Average Exercise Price | |
| | | (In thousands) | | | | | | (In thousands) | | | | | | (In thousands) | | | | |
| Outstanding at the beginning of the year | | | 2,437 | | | $ | 22.82 | | | | 977 | | | $ | 16.00 | | | | 1,481 | | | $ | 14.52 | |
| Granted | | | 305 | | | | 23.40 | | | | 1,843 | | | | 24.77 | | | | 106 | | | | 20.89 | |
| Exercised | | | (412 | ) | | | 17.36 | | | | (383 | ) | | | 14.85 | | | | (596 | ) | | | 13.26 | |
| Forfeited or expired | | | (5 | ) | | | 27.28 | | | | - | | | | - | | | | (14 | ) | | | 12.93 | |
| Outstanding at the end of the year | | | 2,325 | | | $ | 23.85 | | | | 2,437 | | | $ | 22.82 | | | | 977 | | | $ | 16.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Vested at the end of year | | | 678 | | | $ | 22.29 | | | | 168 | | | $ | 14.93 | | | | 428 | | | $ | 14.11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average fair value of options granted during the year | | | | | | $ | 3.43 | | | | | | | $ | 3.17 | | | | | | | $ | 4.48 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cash received from stock options exercised during the years ended December 31, 2007, 2006 and 2005 was $3.8 million, $3.0 million and $2.1 million, respectively.
At December 31, 2007, the aggregate intrinsic value of outstanding unvested options that are expected to vest was less than the exercise price and the intrinsic value of options exercisable was $498,300.
The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was $3.9 million, $3.6 million and $7.8 million, respectively.
The fair value of each option grant was estimated on the grant date using a binomial option-pricing model with the following assumptions for the years ended December 31, 2007, 2006 and 2005:
| | | | | | |
| | | | | | |
| | 2007 | | 2006 | | 2005 |
| Dividend Yield | 5.1% | | 4.7% - 5.0% | | 5.0% |
| Risk-free interest rate | 4.1% - 4.9% | | 4.6% - 4.8% | | 4.0% - 4.2% |
| Expected option life (years) | 4.3 | | 3.0 - 3.3 | | 10 |
| Expected volatility | 20.0% - 22.0% | | 20.0% | | 19.0% - 22.0% |
| | | | | | |
In determining the fair value of the option grants made during 2007, management included in the assumptions the probability of involuntary early exercise based on historical patterns, actuarial data, and potential change of control events.
The options were granted with an exercise price equivalent to the current stock price on the grant date or the ten-day average of the stock price prior to the grant date.
The following table summarizes information about outstanding stock options as of December 31, 2007:
| Options Outstanding | | | Options Exercisable | |
| | | | Number of Options Outstanding | | | Weighted Average Remaining Contractual Life | | | Number of Options Exercisable | |
| | | | (In thousands) | | | (In years) | | | (In thousands) | |
| Exercise Price | | | | | | | | | | |
| $ | 10.00-10.99 | | | | 42 | | | | 0.80 | | | | 42 | |
| $ | 11.00-11.99 | | | | 1 | | | | 0.50 | | | | 1 | |
| $ | 13.00-13.99 | | | | 5 | | | | 4.40 | | | | 5 | |
| $ | 17.00-17.99 | | | | 135 | | | | 6.00 | | | | 135 | |
| $ | 23.00-23.99 | | | | 285 | | | | 9.80 | | | | 10 | |
| $ | 24.00-24.99 | | | | 1,237 | | | | 8.70 | | | | 310 | |
| $ | 25.00-25.99 | | | | 500 | | | | 8.90 | | | | 125 | |
| $ | 26.00-26.99 | | | | 95 | | | | 8.80 | | | | 42 | |
| $ | 28.00-28.99 | | | | 25 | | | | 8.90 | | | | 8 | |
| | | | | | 2,325 | | | | | | | | 678 | |
| | | | | | | | | | | | | | | |
Restricted Stock Grants
Our compensation committee grants restricted stock to our officers, directors, and other employees. Vesting periods for the restricted stock are determined by our compensation committee. We measure compensation costs for restricted stock awards based on the fair value of our common stock at the date of the grant and expense such amounts ratably over the vesting period. As of December 31, 2007, we had 492,000 shares of non-vested restricted stock grants outstanding.
The following table provides a summary of restricted stock activity:
| | | | | | | |
| | | Unvested Shares | | | Weighted-Average Price | |
| | | (In thousands) | | | | |
| | | | | | | |
| Unvested at December 31, 2006 | | | 381 | | | $ | 23.58 | |
| Granted | | | 393 | | | | 26.38 | |
| Vested | | | (252 | ) | | | 24.13 | |
| Forfeited | | | (30 | ) | | | 23.75 | |
| Unvested at December 31, 2007 | | | 492 | | | $ | 25.52 | |
| | | | | | | | | |
As of December 31, 2007, there was $16.4 million of total unrecognized compensation expense related to unvested share-based compensation arrangements (options and unvested restricted shares) granted under our plans. This cost is expected to be recognized over the next 4.0 years. The total vesting-date value of the shares that vested during the year ended December 31, 2007 was $4.0 million.
401(k) Plan
We have a 401(k) defined contribution plan (the “401(k) Plan”) covering substantially all of our officers and employees which permits participants to defer compensation up to the maximum amount permitted by law. We match 100% of each employee’s contribution up to 3.0% of the employee’s annual compensation and, thereafter, match 50% of the next 3.0% of the employee’s annual compensation. Employee’s contributions and our matching contributions vest immediately. Our contributions to the 401(k) Plan for the years ended December 31, 2007, 2006 and 2005 were $249,000, $295,000, and $288,000, respectively. Effective January 1, 2007, the 401(k) Plan discontinued purchasing publicly traded shares of the Company’s common stock as matching contributions.
Deferred Compensation Plan
During 2005, we established a non-qualified deferred compensation plan that permits eligible employees to defer a portion of their compensation. The deferred compensation liability (included in accounts payable in the accompanying balance sheet) was $569,000 at December 31, 2007. We have established a grantor trust (Rabbi Trust) to provide funding for benefits payable under this plan. The assets held in the trust at December 31, 2007 amounted to $569,000. The Rabbi Trust’s assets consist of short-term cash investments and a managed portfolio of equity securities. These assets are included in other assets in the accompanying balance sheets.
2004 Employee Stock Purchase Plan
Under the 2004 Employee Stock Purchase Plan (the “Purchase Plan”) (implemented in October 2004), our employees, including our directors who are employees, are eligible to participate in quarterly plan offerings in which payroll deductions may be used to purchase shares of our common stock. The purchase price per share is 90% of the average closing price per share of our common stock on the NYSE on the five trading days that immediately precede the date of purchase, provided, however, that in no event shall the exercise price per share of common stock on the exercise date of an offering period be less than the lower 85% of (i) the market price on the first day of the offering period or (ii) the market price on the exercise date.
Long-Term Incentive Compensation Plans
Three of our executive officers are eligible for long-term incentive compensation subject to a performance-based schedule at the end of an approximate four-year performance period. In order for participants to receive compensation, our Total Shareholder Return (“TSR”) over the performance period must exceed 6% and achieve a certain spread against the average TSR of a defined peer group.
We determine the fair value of TSR grants annually based upon a Monte Carlo simulation model, and recognize compensation expense accordingly over the vesting period. The level of cash compensation available depends on the spread between our TSR and the average TSR of the peer group companies.
12. Future Minimum Rental Income
Our properties are leased to tenants under operating leases with expiration dates extending to the year 2032. Future minimum rents under noncancelable operating leases as of December 31, 2007, excluding tenant reimbursements of operating expenses and percentage rent based on tenants’ sales volume are as follows:
| | | | |
| | | | |
| Year Ending | | Amount | |
| | | (In thousands) | |
| | | | |
| 2008 | | $ | 178,107 | |
| 2009 | | | 157,233 | |
| 2010 | | | 134,083 | |
| 2011 | | | 111,144 | |
| 2012 | | | 87,940 | |
| Thereafter | | | 314,057 | |
| Total | | $ | 982,564 | |
| | | | | |
13. Commitments and Contingent Liabilities
Letters of Credit. As of December 31, 2007 and 2006, we have pledged letters of credit for $4.7 million and $6.1 million, respectively, as additional security for certain property matters. The letters of credit are generally secured by our revolving credit facilities.
Construction Commitments. We have entered into construction commitments and, as of December 31, 2007, have outstanding commitments of $8.1 million, based on current plans and estimates, in order to complete current development and redevelopment projects. These obligations, comprised principally of construction contracts, are generally due as the work is performed and are expected to be financed by our available credit facilities.
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Operating Lease Obligations. Certain of our properties are subject to ground leases, which are accounted for as operating leases and have annual obligations of approximately $100,000.
Non-Recourse Debt Guarantees. Under certain of our non-recourse mortgage loans, we could, under certain circumstances, be responsible for portions of the mortgage indebtedness in connection with certain customary non-recourse carve-out provisions, such as environmental conditions, misuse of funds and material misrepresentations. In our judgment, it would be extremely unlikely for us to incur any material liability under these guarantees that will have a material adverse effect on our financial condition, results of operations, or cash flow.
Litigation. We are subject to litigation in the normal course of business, none of which as of December 31, 2007 in the opinion of management, will have a material adverse effect on our financial condition, results of operations, or cash flows.
14. Environmental Matters
We are subject to numerous environmental laws and regulations. The operation of dry cleaning and gas station facilities at our shopping centers are the principal environmental concerns. We require that the tenants who operate these facilities do so in material compliance with current laws and regulations and we 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. Several properties in the portfolio will require or are currently undergoing varying levels of environmental remediation. However, we have environmental insurance policies covering most of our properties. Management believes that the ultimate disposition of currently known environmental matters will not have a material effect on our financial position, liquidity or operations.
15. Subsequent Events
Subsequent to year end, We entered into a joint venture with Global Retail Investors, LLC (GRI), an entity formed by an affiliate of First Washington Realty, Inc. and California Public Employees’ Retirement System, to invest in shopping centers throughout the United States. The joint venture will be 90% owned by GRI and 10% owned by one of our affiliates. We will manage and lease properties acquired by the joint venture. As its first investment, the new joint venture acquired a Class-A grocery-anchored shopping center for approximately $37 million. The property is located in Miami, Florida.
16. Quarterly Financial Data (unaudited)
| | | | | | | | | | | | | | | | |
| | | First Quarter (1) | | | Second Quarter (1) | | | Third Quarter (1) | | | Fourth Quarter (1) | | | Total (2) | |
| 2007: | | | | | | | | | | | | | | | |
| Total revenues | | $ | 61,470 | | | $ | 63,158 | | | $ | 61,313 | | | $ | 60,672 | | | $ | 246,613 | |
| Income from continuing operations | | $ | 17,185 | | | $ | 12,688 | | | $ | 10,004 | | | $ | 8,911 | | | $ | 48,788 | |
| Net income | | $ | 20,019 | | | $ | 12,868 | | | $ | 10,666 | | | $ | 25,832 | | | $ | 69,385 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic per share data | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.24 | | | $ | 0.17 | | | $ | 0.14 | | | $ | 0.12 | | | $ | 0.67 | |
| Net Income | | $ | 0.27 | | | $ | 0.18 | | | $ | 0.15 | | | $ | 0.35 | | | $ | 0.95 | |
| | | | | | | | | | | | | | | | | | | | | |
| Diluted per share data | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.23 | | | $ | 0.17 | | | $ | 0.14 | | | $ | 0.12 | | | $ | 0.67 | |
| Net income | | $ | 0.27 | | | $ | 0.17 | | | $ | 0.14 | | | $ | 0.35 | | | $ | 0.95 | |
| | | | | | | | | | | | | | | | | | | | | |
—————————
| (1) | Reclassified to reflect the reporting of discontinued operations. |
| (2) | The sum of quarterly earnings per share amounts may differ from annual earnings per share. |
| | | | | | | | | | | | | | | | |
| | | First Quarter (1) | | | Second Quarter (1) | | | Third Quarter (1) | | | Fourth Quarter (1) | | | Total (2) | |
| 2006: | | | | | | | | | | | | | | | |
| Total revenues | | $ | 53,404 | | | $ | 55,199 | | | $ | 55,423 | | | $ | 60,751 | | | $ | 224,777 | |
| Income from continuing operations | | $ | 15,102 | | | $ | 18,358 | | | $ | 10,615 | | | $ | 8,565 | | | $ | 52,640 | |
| Net income | | $ | 22,365 | | | $ | 111,347 | | | $ | 14,120 | | | $ | 29,123 | | | $ | 176,955 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic per share data | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.20 | | | $ | 0.25 | | | $ | 0.15 | | | $ | 0.12 | | | $ | 0.71 | |
| Net Income | | $ | 0.30 | | | $ | 1.50 | | | $ | 0.19 | | | $ | 0.40 | | | $ | 2.40 | |
| | | | | | | | | | | | | | | | | | | | | |
| Diluted per share data | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.20 | | | $ | 0.24 | | | $ | 0.14 | | | $ | 0.12 | | | $ | 0.71 | |
| Net income | | $ | 0.29 | | | $ | 1.48 | | | $ | 0.19 | | | $ | 0.40 | | | $ | 2.38 | |
| | | | | | | | | | | | | | | | | | | | | |
—————————
| (1) | Reclassified to reflect the reporting of discontinued operations. |
| (2) | The sum of quarterly earnings per share amounts may differ from annual earnings per share. |
** * * *
SCHEDULE III
Equity One, Inc.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2007
(in thousands)
| | | | | | | | INITIAL COST TO COMPANY | | | | GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD | | | | | | | | | | | |
| Property | Location | Location | | Encum- brances | | | Land | | | Building & Improvements | | | Capitalized Subsequent to Acquisition or Improvements | | | Land | | | Building & Improvements | | | Total | | | Accumulated Depreciation | | | Date of Construction | | Date Acquired | | Dep - reciable Life (yrs) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2400 PGA | FL | Palm Beach Gardens | | $ | - | | | $ | 1,418 | | | $ | - | | | $ | - | | | $ | 1,418 | | | $ | - | | | $ | 1,419 | | | $ | - | | | | | 03/20/06 | | | 40 | |
| 4101 South I-85 Industrial | NC | Charlotte, NC | | | - | | | | 1,619 | | | | 950 | | | | 585 | | | | 1,619 | | | | 1,535 | | | | 3,154 | | | | (228 | ) | | 1956,1963 | | 02/12/03 | | | 40 | |
| Alafaya Commons | FL | Orlando | | | - | | | | 6,858 | | | | 10,720 | | | | 1,217 | | | | 6,858 | | | | 11,937 | | | | 18,795 | | | | (1,356 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Alafaya Village | FL | Orlando | | | 4,032 | | | | 1,444 | | | | 4,967 | | | | 80 | | | | 1,444 | | | | 5,047 | | | | 6,491 | | | | (250 | ) | | 1986 | | 04/20/06 | | | 40 | |
| Ambassador Row | LA | Lafayette, LA | | | - | | | | 3,880 | | | | 10,570 | | | | 1,324 | | | | 3,880 | | | | 11,894 | | | | 15,774 | | | | (1,574 | ) | | 1980 | | 02/12/03 | | | 40 | |
| Ambassador Row Courtyard | LA | Lafayette, LA | | | - | | | | 3,110 | | | | 9,208 | | | | 1,840 | | | | 3,110 | | | | 11,048 | | | | 14,158 | | | | (1,433 | ) | | 1986 | | 02/12/03 | | | 40 | |
| Atlantic Village | FL | Atlantic Beach | | | - | | | | 1,190 | | | | 4,760 | | | | 1,246 | | | | 1,190 | | | | 6,006 | | | | 7,196 | | | | (2,297 | ) | | 1984 | | 06/30/95 | | | 40 | |
| Banco Popular Building | FL | N Miami Beach | | | - | | | | 3,363 | | | | 1,566 | | | | 152 | | | | 3,363 | | | | 1,718 | | | | 5,081 | | | | (140 | ) | | 1971 | | 09/27/05 | | | 40 | |
| Bay Pointe Plaza | FL | St. Petersburg | | | - | | | | 4,655 | | | | 5,870 | | | | 82 | | | | 4,655 | | | | 5,952 | | | | 10,607 | | | | (793 | ) | | 1984 | | 02/12/03 | | | 40 | |
| Beauclerc Village | FL | Jacksonville | | | - | | | | 651 | | | | 2,242 | | | | 758 | | | | 651 | | | | 3,000 | | | | 3,651 | | | | (1,070 | ) | | 1962 | | 05/15/98 | | | 40 | |
| Belfair Towne Village | SC | Bluffton, SC | | | 10,508 | | | | 11,071 | | | | 10,037 | | | | 4,036 | | | | 11,238 | | | | 13,906 | | | | 25,144 | | | | (1,420 | ) | | 2000 | | 12/22/03 | | | 40 | |
| Bird Ludlum | FL | Miami | | | 7,566 | | | | 4,088 | | | | 16,318 | | | | 677 | | | | 4,088 | | | | 16,995 | | | | 21,083 | | | | (5,860 | ) | | 1988 | | 08/11/94 | | | 40 | |
| Bluebonnet Village | LA | Baton Rouge, LA | | | - | | | | 2,790 | | | | 4,231 | | | | 1,130 | | | | 2,449 | | | | 5,702 | | | | 8,151 | | | | (589 | ) | | 1983 | | 02/12/03 | | | 40 | |
| Bluffs Square Shoppes | FL | Jupiter | | | 9,706 | | | | 3,232 | | | | 9,917 | | | | 297 | | | | 3,232 | | | | 10,214 | | | | 13,446 | | | | (2,370 | ) | | 1986 | | 08/15/00 | | | 33 | |
| Boca Village | FL | Boca Raton | | | 7,900 | | | | 3,385 | | | | 10,174 | | | | 330 | | | | 3,385 | | | | 10,504 | | | | 13,889 | | | | (2,112 | ) | | 1978 | | 08/15/00 | | | 37 | |
| Boynton Plaza | FL | Boynton Beach | | | 7,167 | | | | 2,943 | | | | 9,100 | | | | 290 | | | | 2,943 | | | | 9,390 | | | | 12,333 | | | | (2,192 | ) | | 1978 | | 08/15/00 | | | 33 | |
| BridgeMill | GA | Canton, GA | | | 8,828 | | | | 8,593 | | | | 6,310 | | | | 608 | | | | 8,593 | | | | 6,918 | | | | 15,511 | | | | (889 | ) | | 2000 | | 11/13/03 | | | 40 | |
| Brookside Plaza | CT | Enfield, CT | | | - | | | | 2,290 | | | | 26,260 | | | | 3,558 | | | | 2,291 | | | | 29,817 | | | | 32,108 | | | | (1,600 | ) | | 1985 | | 01/12/06 | | | 40 | |
| Buckhead Station | GA | Atlanta, GA | | | 27,355 | | | | 27,138 | | | | 45,277 | | | | - | | | | 27,138 | | | | 45,277 | | | | 72,415 | | | | (1,082 | ) | | 1996 | | 03/09/07 | | | 40 | |
| Butler Creek | GA | Acworth, GA | | | - | | | | 2,808 | | | | 7,648 | | | | 1,752 | | | | 2,808 | | | | 9,400 | | | | 12,208 | | | | (1,461 | ) | | 1990 | | 07/15/03 | | | 40 | |
| Carrollwood | FL | Tampa | | | - | | | | 2,756 | | | | 6,553 | | | | 651 | | | | 2,756 | | | | 7,204 | | | | 9,960 | | | | (964 | ) | | 1970 | | 02/12/03 | | | 40 | |
| Cashmere Corners | FL | Port St. Lucie | | | 4,792 | | | | 1,435 | | | | 5,707 | | | | 512 | | | | 1,947 | | | | 5,707 | | | | 7,654 | | | | (1,042 | ) | | 2001 | | 08/15/00 | | | 40 | |
| Centre Pointe Plaza | NC | Smithfield, NC | | | - | | | | 2,081 | | | | 4,411 | | | | 917 | | | | 2,081 | | | | 5,328 | | | | 7,409 | | | | (778 | ) | | 1989 | | 02/12/03 | | | 40 | |
| Chapel Trail Plaza | FL | Pembroke Pines | | | - | | | | 3,641 | | | | 5,777 | | | | 2,718 | | | | 3,641 | | | | 8,495 | | | | 12,136 | | | | (255 | ) | | 1996 | | 05/10/06 | | | 40 | |
| Charlotte Square | FL | Port Charlotte | | | 3,317 | | | | 4,155 | | | | 4,414 | | | | 105 | | | | 4,155 | | | | 4,519 | | | | 8,674 | | | | (650 | ) | | 1980 | | 02/12/03 | | | 40 | |
| Chastain Square | GA | Atlanta, GA | | | 3,491 | | | | 10,689 | | | | 5,937 | | | | 125 | | | | 10,689 | | | | 6,062 | | | | 16,751 | | | | (796 | ) | | 1981 | | 02/12/03 | | | 40 | |
| Chelsea Place | FL | New Port Richey | | | - | | | | 2,591 | | | | 6,491 | | | | 1,152 | | | | 2,591 | | | | 7,643 | | | | 10,234 | | | | (923 | ) | | 1992 | | 02/12/03 | | | 40 | |
| Chestnut Square | NC | Brevard, NC | | | - | | | | 1,189 | | | | 1,326 | | | | 3,284 | | | | 1,189 | | | | 4,610 | | | | 5,799 | | | | (204 | ) | | 1985 | | 02/12/03 | | | 40 | |
| Commerce Crossing | GA | Commerce, GA | | | - | | | | 2,013 | | | | 1,301 | | | | 405 | | | | 2,013 | | | | 1,706 | | | | 3,719 | | | | (349 | ) | | 1988 | | 02/12/03 | | | 40 | |
| Concord Shopping Plaza | FL | Miami, FL | | | - | | | | 35,128 | | | | 17,492 | | | | 79 | | | | 35,128 | | | | 17,572 | | | | 52,700 | | | | (548 | ) | | 1962 | | 01/09/07 | | | 40 | |
| Conway Crossing | FL | Orlando | | | - | | | | 2,615 | | | | 5,818 | | | | 1,863 | | | | 2,615 | | | | 7,681 | | | | 10,296 | | | | (920 | ) | | 2002 | | 02/12/03 | | | 40 | |
| Coral Reef Shopping Center | FL | South Miami | | | - | | | | 16,465 | | | | 4,376 | | | | - | | | | 16,465 | | | | 4,376 | | | | 20,841 | | | | (168 | ) | | 1968 | | 09/01/06 | | | 40 | |
| Corporate | FL | Miami, FL | | | - | | | | - | | | | 242 | | | | - | | | | - | | | | 242 | | | | 242 | | | | (10 | ) | | various | | various | | | | |
| Country Club Plaza | LA | Slidell, LA | | | - | | | | 1,294 | | | | 2,060 | | | | 133 | | | | 1,294 | | | | 2,193 | | | | 3,487 | | | | (332 | ) | | 1982 | | 02/12/03 | | | 40 | |
| Countryside Shops | FL | Cooper City | | | - | | | | 11,343 | | | | 13,853 | | | | 3,042 | | | | 11,343 | | | | 16,895 | | | | 28,238 | | | | (2,030 | ) | | 1986 | | 02/12/03 | | | 40 | |
| Crossroads Square | FL | Ft. Lauderdale | | | - | | | | 3,592 | | | | 4,401 | | | | 5,766 | | | | 3,592 | | | | 10,167 | | | | 13,759 | | | | (1,325 | ) | | 1973 | | 08/15/00 | | | 40 | |
| Cutler Ridge | FL | South Miami | | | - | | | | 1,064 | | | | 326 | | | | - | | | | 1,064 | | | | 326 | | | | 1,390 | | | | (17 | ) | | 1972 | | 09/14/06 | | | 40 | |
| CVS Plaza | FL | Miami | | | - | | | | 995 | | | | 3,090 | | | | 1,386 | | | | 995 | | | | 4,476 | | | | 5,471 | | | | (406 | ) | | 2004 | | 07/23/99 | | | 40 | |
| Daniel Village | GA | Augusta, GA | | | 3,815 | | | | 3,439 | | | | 8,352 | | | | 70 | | | | 3,439 | | | | 8,422 | | | | 11,861 | | | | (1,063 | ) | | 1956 | | 02/12/03 | | | 40 | |
| Dolphin Village | FL | St. Petersburg | | | - | | | | 17,404 | | | | 10,098 | | | | 2,156 | | | | 17,607 | | | | 12,051 | | | | 29,658 | | | | (731 | ) | | 1967 | | 01/04/06 | | | 40 | |
| Douglas Commons | GA | Douglasville, GA | | | 4,546 | | | | 3,681 | | | | 7,588 | | | | 151 | | | | 3,681 | | | | 7,739 | | | | 11,420 | | | | (1,036 | ) | | 1988 | | 02/12/03 | | | 40 | |
| El Novillo | FL | Miami Beach | | | - | | | | 250 | | | | 1,000 | | | | 151 | | | | 250 | | | | 1,151 | | | | 1,401 | | | | (393 | ) | | 1970 | | 04/30/98 | | | 40 | |
| Elmwood Oaks | LA | Harahan, LA | | | - | | | | 4,088 | | | | 8,221 | | | | 516 | | | | 4,088 | | | | 8,737 | | | | 12,825 | | | | (1,153 | ) | | 1989 | | 02/12/03 | | | 40 | |
| Fairview Oaks | GA | Ellenwood, GA | | | 4,303 | | | | 1,929 | | | | 6,187 | | | | 1,647 | | | | 1,929 | | | | 7,834 | | | | 9,763 | | | | (948 | ) | | 1997 | | 02/12/03 | | | 40 | |
| Forest Village | FL | Tallahassee | | | 4,273 | | | | 4,997 | | | | 3,206 | | | | 715 | | | | 3,397 | | | | 5,521 | | | | 8,918 | | | | (1,021 | ) | | 2000 | | 01/28/99 | | | 40 | |
| Ft. Caroline | FL | Jacksonville | | | - | | | | 938 | | | | 2,800 | | | | 199 | | | | 738 | | | | 3,199 | | | | 3,937 | | | | (1,126 | ) | | 1985 | | 01/24/94 | | | 40 | |
| Galleria | NC | Wrightsville Beach, NC | | | - | | | | 1,493 | | | | 3,875 | | | | 776 | | | | 1,493 | | | | 4,651 | | | | 6,144 | | | | (570 | ) | | 1986 | | 02/12/03 | | | 40 | |
| Grand Marche | LA | Lafayette, LA | | | - | | | | 304 | | | | - | | | | - | | | | 304 | | | | - | | | | 304 | | | | - | | | 1969 | | 02/12/03 | | | 40 | |
| Grassland Crossing | GA | Alpharetta, GA | | | 5,274 | | | | 3,656 | | | | 7,885 | | | | 569 | | | | 3,656 | | | | 8,454 | | | | 12,110 | | | | (1,056 | ) | | 1996 | | 02/12/03 | | | 40 | |
| Greenwood | FL | Palm Springs | | | - | | | | 4,117 | | | | 10,295 | | | | 2,833 | | | | 4,117 | | | | 13,128 | | | | 17,245 | | | | (1,577 | ) | | 1982 | | 02/12/03 | | | 40 | |
| Hairston Center | GA | Decatur, GA | | | - | | | | 1,644 | | | | 642 | | | | 1 | | | | 1,644 | | | | 643 | | | | 2,287 | | | | (40 | ) | | 2000 | | 08/25/05 | | | 40 | |
| Hamilton Ridge | GA | Buford, GA | | | - | | | | 5,612 | | | | 7,167 | | | | 1,440 | | | | 5,612 | | | | 8,607 | | | | 14,219 | | | | (1,070 | ) | | 2002 | | 12/18/03 | | | 40 | |
| Hampton Oaks | GA | Atlanta, GA | | | - | | | | 835 | | | | - | | | | 1,327 | | | | 835 | | | | 1,327 | | | | 2,162 | | | | - | | | n/a | | 11/30/06 | | | | |
| Homestead Gas Station | FL | Homestead | | | - | | | | 1,170 | | | | - | | | | 26 | | | | 1,170 | | | | 26 | | | | 1,196 | | | | - | | | 1959 | | 11/08/04 | | | 40 | |
| Hunters Creek | FL | Orlando | | | - | | | | 1,562 | | | | 5,445 | | | | 2,292 | | | | 1,562 | | | | 7,737 | | | | 9,299 | | | | (711 | ) | | 1998 | | 09/23/03 | | | 40 | |
| Kirkman Shoppes | FL | Orlando | | | 9,166 | | | | 3,222 | | | | 9,714 | | | | 250 | | | | 3,222 | | | | 9,964 | | | | 13,186 | | | | (2,222 | ) | | 1973 | | 08/15/00 | | | 33 | |
| Lago Mar | FL | Miami | | | - | | | | 4,216 | | | | 6,609 | | | | 1,031 | | | | 4,216 | | | | 7,640 | | | | 11,856 | | | | (919 | ) | | 1995 | | 02/12/03 | | | 40 | |
| Lake Mary | FL | Orlando | | | 23,406 | | | | 7,092 | | | | 13,878 | | | | 5,033 | | | | 7,092 | | | | 18,911 | | | | 26,003 | | | | (5,290 | ) | | 1988 | | 11/09/95 | | | 40 | |
| Lake St. Charles | FL | Tampa | | | 3,692 | | | | 1,496 | | | | 3,768 | | | | 16 | | | | 1,497 | | | | 3,783 | | | | 5,280 | | | | (604 | ) | | 1999 | | 09/21/01 | | | 40 | |
| Lancaster Plaza | SC | Lancaster, SC | | | - | | | | 317 | | | | 153 | | | | 19 | | | | 317 | | | | 172 | | | | 489 | | | | (39 | ) | | 1971 | | 02/12/03 | | | 40 | |
| Lancaster Shopping Center | SC | Lancaster, SC | | | - | | | | 280 | | | | 120 | | | | 45 | | | | 280 | | | | 165 | | | | 445 | | | | (50 | ) | | 1963 | | 02/12/03 | | | 40 | |
| Lantana Village | FL | Lantana | | | - | | | | 1,350 | | | | 7,978 | | | | 1,451 | | | | 1,350 | | | | 9,429 | | | | 10,779 | | | | (2,086 | ) | | 1976 | | 01/06/98 | | | 40 | |
| Laurel Walk Apartments | NC | Charlotte, NC | | | - | | | | 2,065 | | | | 4,491 | | | | - | | | | 2,065 | | | | 4,491 | | | | 6,556 | | | | (234 | ) | | 1985 | | 10/31/05 | | | 40 | |
| Lutz Lake | FL | Lutz | | | 7,500 | | | | 3,619 | | | | 5,199 | | | | 1,142 | | | | 3,619 | | | | 6,341 | | | | 9,960 | | | | (780 | ) | | 2002 | | 02/12/03 | | | 40 | |
| Mableton Crossing | GA | Mableton, GA | | | 3,736 | | | | 3,331 | | | | 6,403 | | | | 51 | | | | 3,331 | | | | 6,454 | | | | 9,785 | | | | (816 | ) | | 1997 | | 02/12/03 | | | 40 | |
| Macland Pointe | GA | Marietta, GA | | | 5,581 | | | | 3,462 | | | | 4,814 | | | | 25 | | | | 3,462 | | | | 4,839 | | | | 8,301 | | | | (633 | ) | | 1992 | | 02/12/03 | | | 40 | |
| Madison Centre | AL | Madison, AL | | | 3,491 | | | | 1,424 | | | | 5,187 | | | | 57 | | | | 1,424 | | | | 5,244 | | | | 6,668 | | | | (953 | ) | | 1997 | | 02/12/03 | | | 40 | |
| Mandarin Landing | FL | Jacksonville | | | - | | | | 4,443 | | | | 4,747 | | | | 3,313 | | | | 4,443 | | | | 8,060 | | | | 12,503 | | | | (1,701 | ) | | 1976 | | 12/10/99 | | | 40 | |
| Mandarin Mini | FL | Jacksonville | | | - | | | | 362 | | | | 1,148 | | | | 318 | | | | 362 | | | | 1,466 | | | | 1,828 | | | | (501 | ) | | 1982 | | 05/10/94 | | | 40 | |
| Marco Town Center | FL | Marco Island | | | 8,047 | | | | 3,872 | | | | 11,966 | | | | 578 | | | | 3,872 | | | | 12,544 | | | | 16,416 | | | | (2,489 | ) | | 2001 | | 08/15/00 | | | 37 | |
| Mariners Crossing | FL | Spring Hill | | | - | | | | 1,262 | | | | 4,447 | | | | 2,368 | | | | 1,262 | | | | 6,815 | | | | 8,077 | | | | (905 | ) | | 1989 | | 09/12/00 | | | 40 | |
| Market Place | GA | Norcross, GA | | | - | | | | 1,667 | | | | 4,078 | | | | 92 | | | | 1,667 | | | | 4,170 | | | | 5,837 | | | | (551 | ) | | 1976 | | 02/12/03 | | | 40 | |
| McAlphin Square | GA | Savannah, GA | | | - | | | | 3,536 | | | | 6,963 | | | | 496 | | | | 3,536 | | | | 7,459 | | | | 10,995 | | | | (1,020 | ) | | 1979 | | 02/12/03 | | | 40 | |
| Meadows | FL | Miami | | | 6,001 | | | | 2,304 | | | | 6,670 | | | | 101 | | | | 2,304 | | | | 6,771 | | | | 9,075 | | | | (1,025 | ) | | 1997 | | 05/23/02 | | | 40 | |
| Medical & Merchants | FL | Jacksonville | | | - | | | | 10,323 | | | | 12,174 | | | | 29 | | | | 10,323 | | | | 12,202 | | | | 22,525 | | | | (1,224 | ) | | 1993 | | 05/27/04 | | | 40 | |
| Middle Beach Shopping Center | FL | Panama City Bch | | | - | | | | 2,195 | | | | 5,542 | | | | 5 | | | | 2,195 | | | | 5,547 | | | | 7,742 | | | | (566 | ) | | 1994 | | 12/23/03 | | | 40 | |
| Midpoint Center | FL | Cape Coral | | | 6,552 | | | | 5,417 | | | | 6,705 | | | | - | | | | 5,417 | | | | 6,705 | | | | 12,122 | | | | (206 | ) | | 2002 | | 12/08/06 | | | 40 | |
| Milestone Plaza | SC | Greenville, SC | | | - | | | | 11,576 | | | | 9,031 | | | | 23 | | | | 11,576 | | | | 9,054 | | | | 20,630 | | | | (308 | ) | | 1995 | | 08/25/06 | | | 40 | |
| | | | | | | | INITIAL COST TO COMPANY | | | | GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD | | | | | | | | | | | |
| Property | Location | Location | | Encum- brances | | | Land | | | Building & Improvements | | | Capitalized Subsequent to Acquisition or Improvements | | | Land | | | Building & Improvements | | | Total | | | Accumulated Depreciation | | | Date of Construction | | Date Acquired | | Dep - reciable Life (yrs) | |
| North Village Center | SC | N Myrtle Beach, SC | | | - | | | | 2,860 | | | | 2,774 | | | | 117 | | | | 2,860 | | | | 2,891 | | | | 5,751 | | | | (689 | ) | | 1984 | | 02/12/03 | | | 40 | |
| NSB Regional | FL | New Smyrna Beach | | | - | | | | 3,217 | | | | 8,896 | | | | 86 | | | | 3,217 | | | | 8,982 | | | | 12,199 | | | | (1,136 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Oak Hill | FL | Jacksonville | | | - | | | | 690 | | | | 2,760 | | | | 132 | | | | 690 | | | | 2,892 | | | | 3,582 | | | | (910 | ) | | 1985 | | 12/07/95 | | | 40 | |
| Oakbrook | FL | Palm Beach Gardens | | | - | | | | 7,706 | | | | 16,079 | | | | `3,549 | | | | 7,706 | | | | 19,628 | | | | 27,334 | | | | (2,901 | ) | | 1974 | | 08/15/00 | | | 40 | |
| Oaktree Plaza | FL | North Palm Beach | | | - | | | | 1,589 | | | | 2,275 | | | | 73 | | | | 1,589 | | | | 2,348 | | | | 3,937 | | | | (100 | ) | | 1985 | | 10/16/06 | | | 40 | |
| Old Kings Commons | FL | Palm Coast | | | - | | | | 1,420 | | | | 5,005 | | | | 387 | | | | 1,420 | | | | 5,392 | | | | 6,812 | | | | (662 | ) | | 1988 | | 02/12/03 | | | 40 | |
| Park Promenade | FL | Orlando | | | 6,020 | | | | 2,670 | | | | 6,444 | | | | 508 | | | | 2,670 | | | | 6,952 | | | | 9,622 | | | | (1,847 | ) | | 1987 | | 01/31/99 | | | 40 | |
| Parkwest Crossing | NC | Durham, NC | | | 4,527 | | | | 1,788 | | | | 6,727 | | | | 171 | | | | 1,788 | | | | 6,898 | | | | 8,686 | | | | (877 | ) | | 1990 | | 02/12/03 | | | 40 | |
| Paulding Commons | GA | Hiram, GA | | | 5,926 | | | | 3,848 | | | | 11,985 | | | | 116 | | | | 3,848 | | | | 12,101 | | | | 15,949 | | | | (1,525 | ) | | 1991 | | 02/12/03 | | | 40 | |
| Pavilion | FL | Naples | | | - | | | | 10,827 | | | | 11,299 | | | | 2,572 | | | | 10,827 | | | | 13,871 | | | | 24,698 | | | | (1,370 | ) | | 1982 | | 02/04/04 | | | 40 | |
| Piedmont Peachtree Crossing | GA | Atlanta, GA | | | - | | | | 34,337 | | | | 17,992 | | | | 576 | | | | 34,338 | | | | 18,567 | | | | 52,905 | | | | (1,011 | ) | | 1978 | | 03/06/06 | | | 40 | |
| Pine Island | FL | Davie | | | 23,336 | | | | 8,557 | | | | 12,860 | | | | 262 | | | | 8,557 | | | | 13,122 | | | | 21,679 | | | | (2,872 | ) | | 1983 | | 08/26/99 | | | 40 | |
| Pine Ridge Square | FL | Coral Springs | | | 6,988 | | | | 6,528 | | | | 9,850 | | | | 2,496 | | | | 6,528 | | | | 12,346 | | | | 18,874 | | | | (1,540 | ) | | 1986 | | 02/12/03 | | | 40 | |
| Plaza Acadienne | LA | Eunice, LA | | | - | | | | 2,108 | | | | 168 | | | | 9 | | | | 2,108 | | | | 177 | | | | 2,285 | | | | (26 | ) | | 1980 | | 02/12/03 | | | 40 | |
| Plaza Alegre | FL | Miami | | | - | | | | 2,011 | | | | 9,191 | | | | 350 | | | | 2,011 | | | | 9,541 | | | | 11,552 | | | | (1,785 | ) | | 2003 | | 02/26/02 | | | 40 | |
| Point Royale | FL | Miami | | | 3,409 | | | | 3,720 | | | | 5,005 | | | | 1,570 | | | | 3,720 | | | | 6,575 | | | | 10,295 | | | | (1,976 | ) | | 1970 | | 07/27/95 | | | 40 | |
| Powers Ferry Plaza | GA | Marietta, GA | | | - | | | | 3,236 | | | | 5,227 | | | | 579 | | | | 3,236 | | | | 5,806 | | | | 9,042 | | | | (978 | ) | | 1979 | | 02/12/03 | | | 40 | |
| Presidential Markets | GA | Snellville, GA | | | 26,225 | | | | 21,761 | | | | 28,779 | | | | 272 | | | | 21,761 | | | | 29,051 | | | | 50,812 | | | | (4,083 | ) | | 1993 | | 02/12/03 | | | 40 | |
| Prosperity Centre | FL | Palm Beach Gardens | | | 4,728 | | | | 4,597 | | | | 13,838 | | | | 177 | | | | 4,597 | | | | 14,015 | | | | 18,612 | | | | (2,826 | ) | | 1993 | | 08/15/00 | | | 40 | |
| Providence Square | NC | Charlotte, NC | | | - | | | | 1,112 | | | | 2,575 | | | | 718 | | | | 1,112 | | | | 3,293 | | | | 4,405 | | | | (424 | ) | | 1973 | | 02/12/03 | | | 40 | |
| Quincy Star Market | MA | Boston, MA | | | - | | | | 6,121 | | | | 18,444 | | | | - | | | | 6,121 | | | | 18,444 | | | | 24,565 | | | | (1,612 | ) | | 1965 | | 10/07/04 | | | 40 | |
| Regency Crossing | FL | Port Richey | | | - | | | | 1,982 | | | | 6,524 | | | | 61 | | | | 1,982 | | | | 6,585 | | | | 8,567 | | | | (814 | ) | | 1986 | | 02/12/03 | | | 40 | |
| Ridge Plaza | FL | Davie | | | - | | | | 3,905 | | | | 7,450 | | | | 812 | | | | 3,905 | | | | 8,262 | | | | 12,167 | | | | (1,938 | ) | | 1984 | | 08/15/00 | | | 40 | |
| River Green (land) | GA | Atlanta, GA | | | - | | | | 2,587 | | | | - | | | | 537 | �� | | | 2,587 | | | | 537 | | | | 3,124 | | | | - | | | n/a | | 09/27/05 | | | | |
| Riverside Square | FL | Coral Springs | | | 7,209 | | | | 6,423 | | | | 8,260 | | | | 1,007 | | | | 6,423 | | | | 9,267 | | | | 15,690 | | | | (1,207 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Riverview Shopping Center | NC | Durham, NC | | | - | | | | 2,277 | | | | 4,745 | | | | 1,646 | | | | 2,202 | | | | 6,466 | | | | 8,668 | | | | (710 | ) | | 1973 | | 02/12/03 | | | 40 | |
| Rosemeade | TX | Carrollton, TX | | | - | | | | 812 | | | | 2,719 | | | | - | | | | 812 | | | | 2,719 | | | | 3,531 | | | | (572 | ) | | 1986 | | 09/21/01 | | | 40 | |
| Ross Plaza | FL | Tampa | | | 6,392 | | | | 2,115 | | | | 6,346 | | | | 322 | | | | 2,115 | | | | 6,668 | | | | 8,783 | | | | (1,491 | ) | | 1984 | | 08/15/00 | | | 33 | |
| Ryanwood Square | FL | Vero Beach | | | - | | | | 2,281 | | | | 6,880 | | | | 662 | | | | 2,281 | | | | 7,542 | | | | 9,823 | | | | (1,145 | ) | | 1987 | | 08/15/00 | | | 40 | |
| Salerno Village Square | FL | Stuart | | | - | | | | 2,596 | | | | 1,511 | | | | 4,946 | | | | 2,291 | | | | 6,762 | | | | 9,053 | | | | (674 | ) | | 1987 | | 05/06/02 | | | 40 | |
| Salisbury Marketplace | NC | Salisbury, NC | | | - | | | | 3,118 | | | | 5,099 | | | | 321 | | | | 3,118 | | | | 5,420 | | | | 8,538 | | | | (709 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Sawgrass Promenade | FL | Deerfield Beach | | | 7,900 | | | | 3,280 | | | | 9,351 | | | | 918 | | | | 3,280 | | | | 10,269 | | | | 13,549 | | | | (2,386 | ) | | 1982 | | 08/15/00 | | | 40 | |
| Seven Hills | FL | Spring Hill | | | - | | | | 2,167 | | | | 5,167 | | | | 621 | | | | 2,167 | | | | 5,788 | | | | 7,955 | | | | (594 | ) | | 1991 | | 02/12/03 | | | 40 | |
| Shaw's @ Medford | MA | Boston, MA | | | - | | | | 7,750 | | | | 11,390 | | | | - | | | | 7,750 | | | | 11,390 | | | | 19,140 | | | | (991 | ) | | 1995 | | 10/07/04 | | | 40 | |
| Shaw's @ Plymouth | MA | Boston, MA | | | - | | | | 4,917 | | | | 12,199 | | | | - | | | | 4,917 | | | | 12,199 | | | | 17,116 | | | | (1,060 | ) | | 1993 | | 10/07/04 | | | 40 | |
| Sheridan | FL | Hollywood | | | - | | | | 38,888 | | | | 36,241 | | | | 4,819 | | | | 38,888 | | | | 41,060 | | | | 79,948 | | | | (4,408 | ) | | 1973 | | 07/14/03 | | | 40 | |
| Sherwood South | LA | Baton Rouge, LA | | | - | | | | 833 | | | | 2,412 | | | | 927 | | | | 746 | | | | 3,426 | | | | 4,172 | | | | (536 | ) | | 1972 | | 02/12/03 | | | 40 | |
| Shipyard Plaza | MS | Pascagoula, MS | | | - | | | | 1,337 | | | | 1,653 | | | | 424 | | | | 1,337 | | | | 2,077 | | | | 3,414 | | | | (285 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Shoppes at Andros Isle | FL | West Palm Beach | | | 6,259 | | | | 6,009 | | | | 7,832 | | | | 31 | | | | 6,009 | | | | 7,863 | | | | 13,872 | | | | (234 | ) | | 2000 | | 12/08/06 | | | 40 | |
| Shoppes at Silverlakes | FL | Pembroke Pines | | | 2,085 | | | | 10,306 | | | | 10,131 | | | | 1,862 | | | | 10,306 | | | | 11,993 | | | | 22,299 | | | | (1,467 | ) | | 1995 | | 02/12/03 | | | 40 | |
| Shoppes of Eastwood | FL | Orlando | | | 5,711 | | | | 1,688 | | | | 6,976 | | | | 69 | | | | 1,688 | | | | 7,045 | | | | 8,733 | | | | (1,005 | ) | | 1999 | | 06/28/02 | | | 40 | |
| Shoppes of Ibis | FL | West Palm Beach | | | 5,077 | | | | 3,002 | | | | 6,299 | | | | 44 | | | | 3,002 | | | | 6,343 | | | | 9,345 | | | | (902 | ) | | 1999 | | 07/10/02 | | | 40 | |
| Shoppes of Jonathan's Landing | FL | Jupiter | | | 2,751 | | | | 1,146 | | | | 3,442 | | | | 42 | | | | 1,146 | | | | 3,484 | | | | 4,630 | | | | (676 | ) | | 1997 | | 08/15/00 | | | 37 | |
| Shoppes of North Port | FL | North Port | | | 3,667 | | | | 1,452 | | | | 5,807 | | | | 145 | | | | 1,452 | | | | 5,952 | | | | 7,404 | | | | (1,083 | ) | | 1991 | | 12/05/00 | | | 40 | |
| Shoppes of Sunset | FL | Miami, FL | | | - | | | | 3,640 | | | | 1,282 | | | | - | | | | 3,640 | | | | 1,282 | | | | 4,922 | | | | (30 | ) | | 1979 | | 06/13/07 | | | 40 | |
| Shoppes of Sunset II | FL | Miami, FL | | | - | | | | 3,593 | | | | 1,640 | | | | - | | | | 3,593 | | | | 1,640 | | | | 5,233 | | | | (11 | ) | | 1980 | | 11/01/07 | | | 40 | |
| Shops at Skylake | FL | North Miami Beach | | | 12,996 | | | | 15,226 | | | | 7,206 | | | | 23,658 | | | | 15,226 | | | | 30,864 | | | | 46,090 | | | | (4,302 | ) | | 1999 | | 08/19/97 | | | 40 | |
| Shops of Huntcrest | GA | Lawrenceville, GA | | | - | | | | 5,706 | | | | 7,641 | | | | 36 | | | | 5,706 | | | | 7,677 | | | | 13,383 | | | | (1,082 | ) | | 2003 | | 02/12/03 | | | 40 | |
| Siegen Village | LA | Baton Rouge, LA | | | 3,856 | | | | 4,329 | | | | 9,691 | | | | 892 | | | | 4,329 | | | | 10,583 | | | | 14,912 | | | | (2,293 | ) | | 1988 | | 02/12/03 | | | 40 | |
| Smyth Valley Crossing | VA | Marion, VA | | | - | | | | 2,537 | | | | 3,890 | | | | 6 | | | | 2,537 | | | | 3,896 | | | | 6,433 | | | | (475 | ) | | 1989 | | 02/12/03 | | | 40 | |
| South Beach | FL | Jacksonville Bch | | | - | | | | 9,545 | | | | 19,228 | | | | 1,552 | | | | 9,545 | | | | 20,780 | | | | 30,325 | | | | (2,565 | ) | | 1990 | | 02/12/03 | | | 40 | |
| South Point | FL | Vero Beach | | | 8,015 | | | | 7,142 | | | | 7,098 | | | | - | | | | 7,142 | | | | 7,098 | | | | 14,240 | | | | (212 | ) | | 2003 | | 12/08/06 | | | 40 | |
| Spalding Village | GA | Griffin, GA | | | 9,147 | | | | 3,384 | | | | 5,005 | | | | 1,325 | | | | 4,709 | | | | 5,005 | | | | 9,714 | | | | (828 | ) | | 1989 | | 02/12/03 | | | 40 | |
| Sparkleberry Square | SC | Columbia, SC | | | 13,196 | | | | 10,956 | | | | 32,491 | | | | 1,583 | | | | 10,956 | | | | 34,074 | | | | 45,030 | | | | (3,135 | ) | | 1997 | | 03/31/04 | | | 40 | |
| St. Lucie Land | FL | Port St. Lucie | | | - | | | | 7,728 | | | | - | | | | 929 | | | | 7,728 | | | | 929 | | | | 8,657 | | | | - | | | n/a | | 11/27/06 | | | | |
| Stanley Market Place | NC | Stanley, NC | | | - | | | | 396 | | | | 669 | | | | 4,918 | | | | 396 | | | | 5,587 | | | | 5,983 | | | | (197 | ) | | 1980 | | 02/12/03 | | | 40 | |
| Star's @ Cambridge | MA | Boston, MA | | | - | | | | 11,358 | | | | 13,854 | | | | - | | | | 11,358 | | | | 13,854 | | | | 25,212 | | | | (1,207 | ) | | 1953 | | 10/07/04 | | | 40 | |
| Summerlin Square | FL | Fort Myers | | | 2,672 | | | | 2,187 | | | | 7,989 | | | | 360 | | | | 2,187 | | | | 8,349 | | | | 10,536 | | | | (2,005 | ) | | 1986 | | 06/10/98 | | | 40 | |
| Sun Point | FL | Ruskin | | | - | | | | 4,025 | | | | 4,228 | | | | - | | | | 4,025 | | | | 4,228 | | | | 8,253 | | | | (228 | ) | | 1984 | | 05/05/06 | | | 40 | |
| Sunlake-Equity One LLC | FL | Tampa | | | - | | | | 16,095 | | | | - | | | | 2,362 | | | | 9,861 | | | | 8,596 | | | | 18,457 | | | | - | | | n/a | | 02/01/05 | | | | |
| Tamarac Town Square | FL | Tamarac | | | 5,816 | | | | 4,742 | | | | 5,610 | | | | 416 | | | | 4,742 | | | | 6,026 | | | | 10,768 | | | | (833 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Tarpon Heights | LA | Galliano, LA | | | - | | | | 1,133 | | | | 631 | | | | 640 | | | | 1,133 | | | | 1,271 | | | | 2,404 | | | | (528 | ) | | 1982 | | 02/12/03 | | | 40 | |
| The Boulevard | LA | Lafayette, LA | | | - | | | | 1,360 | | | | 1,675 | | | | 354 | | | | 1,360 | | | | 2,029 | | | | 3,389 | | | | (428 | ) | | 1976 | | 02/12/03 | | | 40 | |
| The Crossing | LA | Slidell, LA | | | - | | | | 1,591 | | | | 3,650 | | | | 727 | | | | 1,591 | | | | 4,377 | | | | 5,968 | | | | (528 | ) | | 1988 | | 02/12/03 | | | 40 | |
| The Plaza at St. Lucie West | FL | Port St. Lucie | | | - | | | | 790 | | | | 3,082 | | | | 938 | | | | 790 | | | | 4,020 | | | | 4,810 | | | | (166 | ) | | | | | 08/15/00 | | | 40 | |
| The Shoppes at Quail Roost | FL | South Miami | | | - | | | | 7,926 | | | | 7,008 | | | | 119 | | | | 7,926 | | | | 7,127 | | | | 15,053 | | | | (267 | ) | | 2005 | | 08/31/06 | | | 40 | |
| Thomasville Commons | NC | Thomasville, NC | | | - | | | | 1,212 | | | | 4,567 | | | | 1,805 | | | | 1,212 | | | | 6,372 | | | | 7,584 | | | | (786 | ) | | 1991 | | 02/12/03 | | | 40 | |
| Town & Country | FL | Kissimmee | | | - | | | | 2,499 | | | | 4,397 | | | | 242 | | | | 2,503 | | | | 4,635 | | | | 7,138 | | | | (565 | ) | | 1993 | | 02/12/03 | | | 40 | |
| Treasure Coast Plaza | FL | Vero Beach | | | 3,575 | | | | 1,359 | | | | 9,728 | | | | 2,090 | | | | 1,359 | | | | 11,818 | | | | 13,177 | | | | (1,221 | ) | | 1983 | | 02/12/03 | | | 40 | |
| Unigold | FL | Winter Park | | | - | | | | 4,304 | | | | 6,413 | | | | 1,460 | | | | 4,304 | | | | 7,873 | | | | 12,177 | | | | (1,107 | ) | | 1987 | | 02/12/03 | | | 40 | |
| Union City Commons (land) | GA | Fairburn, GA | | | - | | | | 8,084 | | | | - | | | | 753 | | | | 8,084 | | | | 753 | | | | 8,837 | | | | - | | | n/a | | 06/22/06 | | | | |
| Venice Plaza | FL | Venice | | | - | | | | 2,755 | | | | 450 | | | | 3,284 | | | | 2,755 | | | | 3,734 | | | | 6,489 | | | | (762 | ) | | 1971 | | 02/12/03 | | | 40 | |
| Venice Shopping Center | FL | Venice | | | - | | | | 3,857 | | | | 2,562 | | | | 138 | | | | 3,857 | | | | 2,700 | | | | 6,557 | | | | (311 | ) | | 1968 | | 03/31/04 | | | 40 | |
| Village at Northshore | LA | Slidell, LA | | | - | | | | 1,034 | | | | 10,128 | | | | - | | | | 1,034 | | | | 10,128 | | | | 11,162 | | | | (1,195 | ) | | 1988 | | 02/12/03 | | | 40 | |
| Walden Woods | FL | Plant City | | | - | | | | 950 | | | | 3,780 | | | | 996 | | | | 950 | | | | 4,776 | | | | 5,726 | | | | (1,729 | ) | | 1985 | | 01/01/99 | | | 40 | |
| Wal-Mart Stores, Inc. | LA | Mathews, LA | | | - | | | | 2,688 | | | | - | | | | - | | | | 2,688 | | | | - | | | | 2,688 | | | | - | | | 1985 | | 02/12/03 | | | 40 | |
| Walton Plaza | GA | Augusta, GA | | | - | | | | 869 | | | | 2,827 | | | | 10 | | | | 869 | | | | 2,837 | | | | 3,706 | | | | (350 | ) | | 1990 | | 02/12/03 | | | 40 | |
| Waterlick Land | GA | Atlanta, GA | | | - | | | | 455 | | | | | | | | - | | | | 455 | | | | - | | | | 455 | | | | - | | | n/a | | 02/12/03 | | | | |
| Waterstone | FL | Homestead | | | - | | | | 1,820 | | | | 8,030 | | | | 457 | | | | 1,820 | | | | 8,487 | | | | 10,307 | | | | (525 | ) | | 2005 | | 04/10/92 | | | 40 | |
| Webster Plaza | MA | Webster, MA | | | 7,967 | | | | 5,033 | | | | 14,465 | | | | 271 | | | | 5,033 | | | | 14,736 | | | | 19,769 | | | | (514 | ) | | 1963 | | 10/12/06 | | | 40 | |
| Wesley Chapel Crossing | GA | Decatur, GA | | | 3,044 | | | | 6,389 | | | | 4,311 | | | | 625 | | | | 6,389 | | | | 4,936 | | | | 11,325 | | | | (615 | ) | | 1989 | | 02/12/03 | | | 40 | |
| West Lakes Plaza | FL | Miami | | | - | | | | 2,141 | | | | 5,789 | | | | 413 | | | | 2,141 | | | | 6,202 | | | | 8,343 | | | | (1,800 | ) | | 1984 | | 11/06/96 | | | 40 | |
| West Roxbury Shaw's Plaza | MA | Boston, MA | | | - | | | | 9,223 | | | | 13,588 | | | | 1,471 | | | | 9,207 | | | | 15,074 | | | | 24,281 | | | | (1,251 | ) | | 1973 | | 10/07/04 | | | 40 | |
| Westport Outparcels | FL | Davie | | | - | | | | 1,347 | | | | 1,010 | | | | 5 | | | | 1,347 | | | | 1,015 | | | | 2,362 | | | | (35 | ) | | 1990 | | 09/14/06 | | | 40 | |
| Westport Plaza | FL | Davie | | | 4,573 | | | | 3,609 | | | | 3,446 | | | | 659 | | | | 4,180 | | | | 3,534 | | | | 7,714 | | | | (292 | ) | | 2002 | | 12/17/04 | | | 40 | |
| Westridge | GA | McDonough, GA | | | - | | | | 1,266 | | | | 4,390 | | | | 2,024 | | | | 1,696 | | | | 5,984 | | | | 7,680 | | | | (231 | ) | | 2003 | | 02/12/03 | | | 40 | |
| Whole Foods @ Swampscott | MA | Boston, MA | | | - | | | | 5,139 | | | | 6,539 | | | | - | | | | 5,139 | | | | 6,539 | | | | 11,678 | | | | (566 | ) | | 1967 | | 10/07/04 | | | 40 | |
| Williamsburg @ Dunwoody | GA | Dunwoody, GA | | | - | | | | 4,347 | | | | 3,615 | | | | 752 | | | | 4,347 | | | | 4,367 | | | | 8,714 | | | | (522 | ) | | 1983 | | 02/12/03 | | | 40 | |
| Willowdale Shopping Center | NC | Durham, NC | | | - | | | | 2,073 | | | | 6,499 | | | | 979 | | | | 2,073 | | | | 7,478 | | | | 9,551 | | | | (1,072 | ) | | 1986 | | 02/12/03 | | | 40 | |
| Winchester Plaza | AL | Huntsville, AL | | | - | | | | 8,301 | | | | 8,784 | | | | (6,080 | ) | | | 2,221 | | | | 8,784 | | | | 11,005 | | | | (223 | ) | | 2006 | | 02/28/05 | | | 40 | |
| Windy Hill | SC | N Myrtle Beach, SC | | | - | | | | 941 | | | | 1,906 | | | | 658 | | | | 987 | | | | 2,518 | | | | 3,505 | | | | (203 | ) | | 1968 | | 04/08/04 | | | 40 | |
| Woodruff | SC | Greenville, SC | | | - | | | | 2,420 | | | | 5,482 | | | | 334 | | | | 2,420 | | | | 5,816 | | | | 8,236 | | | | (746 | ) | | 1995 | | 12/23/03 | | | 40 | |
| Young Circle | FL | Hollywood | | | - | | | | 13,410 | | | | 8,895 | | | | 1,348 | | | | 13,410 | | | | 10,243 | | | | 23,653 | | | | (623 | ) | | 1962 | | 05/19/05 | | | 40 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grand Total | | | $ | 397,112 | | | $ | 800,010 | | | $ | 1,166,023 | | | $ | 163,857 | | | $ | 788,333 | | | $ | 1,341,557 | | | $ | 2,129,890 | | | $ | (172,651 | ) | | | | | | | | | |
SCHEDULE III
Equity One, Inc.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2007
| | | Year ended | | | Year ended | | | Year ended | |
| | | 12/31/07 | | | 12/31/06 | | | 12/31/05 | |
| Reconciliation of total real estate carrying value: | | | | | | | | | |
| Balance at beginning of year | | $ | 2,030,947 | | | $ | 2,020,475 | | | $ | 1,970,069 | |
| Additions during period: | | | | | | | | | | | | |
| Improvements | | | 31,258 | | | | 36,698 | | | | 30,293 | |
| Acquisitions | | | 139,446 | | | | 270,931 | | | | 54,051 | |
| | | | | | | | | | | | | |
| Deductions during period: | | | | | | | | | | | | |
| Cost of real estate sold/written off | | | (71,761 | ) | | | (297,157 | ) | | | (33,938 | ) |
| Balance at end of year | | $ | 2,129,890 | | | $ | 2,030,947 | | | $ | 2,020,475 | |
| | | | | | | | | | | | | |
| Reconciliation of accumulated depreciation: | | | | | | | | | | | | |
| Balance at beginning of year | | $ | (144,829 | ) | | $ | (132,925 | ) | | $ | (96,382 | ) |
| Depreciation expense | | | (39,921 | ) | | | (37,684 | ) | | | (38,581 | ) |
| Cost of real estate sold/written off | | | 12,099 | | | | 25,780 | | | | 2,038 | |
| Balance at end of year | | $ | (172,651 | ) | | $ | (144,829 | ) | | $ | (132,925 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Aggregate cost for federal income tax purposes | | $ | 1,887,755 | | | $ | 1,999,063 | | | $ | 1,825,102 | |
SCHEDULE IV
Equity One, Inc.
MORTGAGE LOANS ON REAL ESTATE
December 31, 2007
| | | | | | | | | | |
| | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | (In thousands) | |
| Balance at beginning of period | | $ | 4,700 | | | $ | 10,381 | | | $ | 6,181 | |
| Additions during period: | | | | | | | | | | | | |
| New loans | | | - | | | | - | | | | 4,215 | |
| Reductions during period: | | | | | | | | | | | | |
| Collection of principal | | | (4,700 | ) | | | (5,681 | ) | | | (15 | ) |
| Balance at end of period | | $ | - | | | $ | 4,700 | | | $ | 10,381 | |
| | | | | | | | | | | | | |
INDEX TO EXHIBITS
| EXHIBIT NO. | DESCRIPTION |
| | |
| | |
| 10.21 | Fourth Amendment to Stockholders Agreement |
| Ratio of Earnings to Fixed Charges |
| List of Subsidiaries of the Registrant |
| Consent of Ernst & Young LLP |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 |
E - 1
