SECURITIES AND EXCHANGE COMMISSION UNITED STATES Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 28, 1999 REGENCY CENTERS, L.P. (Exact name of registrant as specified in its charter) Delaware 0-24763 59-3429602 (State or other jurisdiction Commission (IRS Employer of incorporation) File Number) Identification No.) 121 West Forsyth Street, Suite 200 Jacksonville, Florida 32202 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (904)-356-7000 Not Applicable (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OF ASSETS - ------- --------------------- This Form 8-K is being amended to file the audited financial statements of Pacific Retail Trust ("Pacific Retail") for December 31, 1998 and to update the pro forma financial information previously filed as of that date. Regency Centers, L.P. ("Regency Centers") is the primary entity through which Regency Realty Corporation ("Regency") owns its properties and through which Regency intends to expand its ownership and operation of retail shopping centers. At December 31, 1998, Regency owned approximately 96% of the outstanding common units of Regency Centers. Regency completed its merger with Pacific Retail, a Dallas-based private real estate company that is a leading neighborhood shopping center company in the western United States. The merger was approved Friday, February 26, 1999 by shareholders of both companies at special shareholder meetings and was effective February 28, 1999. Of the 25.5 million Regency shares authorized to vote, 84.1% was represented at the special shareholder meeting either in person or by proxy. Of the shares represented, 98.6% voted in favor of the merger. Of the 67.2 million Pacific Retail shares authorized to vote, 97.0% was represented at the special shareholder meeting either in person or by proxy. Of the shares represented, 97.3% voted in favor of the merger. The merged company will operate under the Regency name and will continue to trade on the New York Stock Exchange under the ticker symbol "REG". With the completion of the merger, Regency owns 200 retail properties totaling more than 23 million square feet located in high-growth markets throughout the United States. Following the merger, Regency contributed to Regency Centers substantially all of the assets it acquired from Pacific Retail in the merger, including (1) title to all of the properties acquired, and (2) all of the outstanding non-voting common stock of PRT Development Corporation, Pacific Retail's non-qualified REIT subsidiary, in exchange for Class B Partnership units. In the merger, Regency became the general partner of Retail Properties Partners Limited Partnership, which continues to own 8 properties that it owned prior to the merger. Regency expects to merge these 8 properties into Regency Centers during the second quarter of 1999 subject to the approval of the limited partners of Retail Property Partners Limited Partnership. While Regency believes that the merger is probable, there is no assurance that the required consents will be obtained. Regency and Regency Centers intend to continue to use the assets acquired in the merger in the same manner and to conduct the same type of business as Pacific Retail conducted prior to the merger. 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS - ------- ------------------------------------------------------------------ REGENCY CENTERS, L.P.: UNAUDITED PRO FORMA FINANCIAL INFORMATION Pro Forma Consolidated Balance Sheet as of December 31, 1998...................................................... P-2 Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998................................... P-2 Notes to Pro Forma Consolidated Statement of Operations................ P-4 PACIFIC RETAIL TRUST: UNAUDITED PRO FORMA FINANCIAL INFORMATION Pro Forma Consolidated Balance Sheet as of December 31, 1998...................................................... P-8 Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998................................... P-9 Notes to Pro Forma Consolidated Statement of Operations................ P-10 REGENCY CENTERS L.P. AND PACIFIC RETAIL TRUST MERGER: UNAUDITED PRO FORMA FINANCIAL INFORMATION Pro Forma Consolidated Balance Sheet as of December 31, 1998...................................................... P-13 Notes to Pro Forma Consolidated Balance Sheet.......................... P-14 Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998................................... P-15 Notes to Pro Forma Consolidated Statement of Operations................ P-16 4 PACIFIC RETAIL TRUST: CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants...................................... F-1 Consolidated Balance Sheets as of December 31, 1998 and 1997........... F-2 Consolidated Statements of Operations for the years ended December 31, 1998 and 1997............................................. F-3 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1998 and 1997............................. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997............................................. F-5 Notes to Consolidated Financial Statements............................ F-6 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1998................................................ S-1 C. Exhibits: --------- 2. Agreement and Plan of Merger between Regency Realty Corporation and Pacific Retail Trust dated as of September 23, 1998 (incorporated by reference from Annex A to Regency Realty Corporation's definitive Proxy Statement and Prospectus dated January 28, 1999). Exhibits to the Agreement and Plan of Merger are incorporated by reference to Annexes D, E and F to the above-referenced Proxy Statement and Prospectus. The following schedules have been omitted (the Registrant agrees to furnish copies supplementally to the Securities and Exchange Commission upon request): Regency Realty Corporation ("East") Disclosure Schedules: 3.2(a) and (b) (i) Commitments to Issue Securities of East or East Operating Partnership (ii) East Voting Agreement (iii) East Redemption Obligations (iv) East Registration Rights Agreements 3.2(c) Stock Ownership of East Subsidiaries 3.2(d) Commitments to Issue Securities of East Subsidiaries 3.3(b) East Required Consents 3.5 East Material Adverse Changes 5 3.7 East Tax Matters 3.9 East Litigation 3.11 East Properties 3.26 Knowledge 5.1(d) East Acquisitions, Dispositions, or Financings 7.1(i) Mandatory Required Consents Pacific Retail Trust ("West") Disclosure Schedule 23. Consent of PricewaterhouseCoopers LLP Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REGENCY CENTERS, L.P. (registrant) By: Regency Realty Corporation, Its General Partner February 28, 1999 By: /s/ J. Christian Leavitt ----------------------------------- J. Christian Leavitt Senior Vice President P-1 Pro Forma Consolidated Financial Statements Regency Centers, L.P. The following unaudited pro forma consolidated financial statements are based upon the audited historical consolidated financial statements of Regency Centers, L.P. (Regency Centers) as of December 31, 1998, which have been included in Regency Centers' filing on Form 10-K as of and for the three years ended December 31, 1998. This accompanying pro forma balance sheet has no adjustments since Regency Centers has not had any significant acquisition of real estate or other transactions subsequent to December 31, 1998 which would require pro forma adjustment, with the exception of Regency Realty Corporation's merger with Pacific Retail Trust, for which separate pro forma financial statements are presented within this filing. The pro forma consolidated statement of operations has been adjusted to present Regency Centers' operations as if it had 1) completed the acquisition of all properties, 2) sold all its office buildings, and 3) completed its offerings of debt and preferred units, as of January 1, 1998. These unaudited pro forma consolidated financial statements should be read in conjunction with Regency Centers' Form 10-K as of and for the three years ended December 31, 1998. The unaudited pro forma consolidated financial statements are not necessarily indicative of what the actual financial position or results of operations of Regency Centers would have been at December 31, 1998 assuming the transactions had been completed as set forth above, nor does it purport to represent the financial position or results of operations of Regency Centers in future periods. P-2 Regency Centers, L.P. Pro Forma Consolidated Balance Sheet December 31, 1998 (Unaudited) (In thousands) Historical Adjustments Pro Forma ---------- ----------- --------- Assets ------------------------------------------------ Real estate investments, at cost $ 1,038,253 - 1,038,253 Construction in progress 15,648 - 15,648 Less: accumulated depreciation 36,752 - 36,752 ---------- ----------- ---------- Real estate rental property, net 1,017,149 - 1,017,149 ---------- ----------- ---------- Investments in real estate partnerships 30,631 - 30,631 ---------- ----------- ----------- Net real estate investments 1,047,780 - 1,047,780 ---------- ----------- ----------- Cash and cash equivalents 15,537 - 15,537 Tenant receivables, net of allowance for uncollectible accounts 13,713 - 13,713 Deferred costs, less accumulated amortization 5,156 - 5,156 Other assets 4,251 4,251 ---------- ----------- ----------- Total Assets $ 1,086,437 - 1,086,437 ========== =========== =========== Liabilities and Partners' Capital ------------------------------------------------ Notes payable 362,745 - 362,745 Acquisition and development line of credit 117,631 - 117,631 ---------- ----------- ----------- Total debt 480,376 - 480,376 Accounts payable and other liabilities 17,596 - 17,596 Tenant's security and escrow deposits 2,638 - 2,638 ---------- ----------- ----------- Total liabilities 500,610 - 500,610 ---------- ----------- ----------- Limited partners' interest in consolidated partnerships 11,559 - 11,559 ---------- ----------- ----------- Partners' Capital: Series A preferred units 78,800 - 78,800 General and Limited partnership units 495,468 - 495,468 ---------- ----------- ----------- Total partners' capital 574,268 - 574,268 ---------- ----------- ----------- Total liabilities and partners' capital $ 1,086,437 - 1,086,437 ========== =========== =========== See accompanying notes to pro forma consolidated balance sheet. P-3 Regency Centers, L.P. Pro Forma Consolidated Statement of Operations (Unaudited) (In thousands, except unit and per unit data) For the Year Ended December 31, 1998 ------------------------------------ Acquisition Other Historical Properties Adjustments Pro Forma ---------- ----------- ----------- --------- Revenues: Minimum rent $ 86,945 11,387 (a) (697) (d) 97,635 Percentage rent 1,652 183 (a) (8) (d) 1,827 Recoveries from tenants 19,989 2,260 (a) (67) (d) 22,182 Management, leasing and brokerage fees 11,863 - - 11,863 Equity in income of investments in real estate partnership 946 - - 946 --------- -------- ------- -------- 121,395 13,830 (772) 134,453 --------- -------- ------- -------- Operating expenses: Depreciation and amortization 20,653 2,874 (b) (453) (d) 23,074 Operating and maintenance 14,876 1,335 (a) (122) (d) 16,089 General and administrative 15,064 676 (a) (25) (d) 15,715 Real estate taxes 10,202 1,470 (a) (81) (d) 11,591 --------- -------- ------- -------- 60,795 6,355 (681) 66,469 --------- -------- ------- -------- Interest expense (income): Interest expense 23,464 7,676 (c) (2,426) (e) 28,714 Interest income (1,900) - - (1,900) --------- -------- ------- -------- 21,564 7,676 (2,426) 26,814 --------- -------- ------- -------- Income before minority interest and gain on sale of real estate investments 39,036 (201) 2,335 41,170 Gain on sale of real estate investments 10,726 - (9,336) (d) 1,390 Minority interest (464) - - (464) --------- -------- ------- -------- Net income 49,298 (201) (7,001) 42,096 Preferred unit distributions (3,358) - (3,142) (f) (6,500) --------- -------- ------- -------- Net income for common unit holders $ 45,940 (201) (10,143) 35,596 ========= ======== ------- -------- Net income per common unit (note (g)): Basic $ 1.62 $ 1.21 ========= ======== Diluted $ 1.58 $ 1.18 ========= ======== See accompanying notes to pro forma consolidated statement of operations. P-4 Regency Centers, L.P. Notes to Pro Forma Consolidated Statement of Operations For the Year Ended December 31, 1998 (Unaudited) (In thousands, except unit and per unit data) (a) In January 1998, Regency Centers entered into an agreement to acquire 32 shopping centers from various entities comprising the Midland Group. Regency Centers has acquired 20 Midland shopping centers fee simple and 12 through joint ventures during 1998 containing 2.2 million square feet for approximately $220.4 million. In addition to the Midland Group Regency Centers has acquired ten other shopping centers during 1998. The following reflects revenues and certain expenses for all acquired properties for the period from January 1, 1998 to the earlier of the respective acquisition date of the property. Property Acquisition Minimum Percentage Recoveries Operating and Real General and Name Date Rent Rent from Tenants Maintenance Estate Taxes Administrative ----------- -------- ---------- ------------ ------------- ------------ -------------- Garner Festival (1) 9/30/98 $ - $ - $ - $ - $ - $ - Windmiller Farms 7/15/98 621 - 97 37 77 34 Franklin Square 4/29/98 414 - 56 52 31 32 St. Ann Square 4/17/98 217 - 44 18 35 12 East Point Crossing 4/29/98 268 - 52 16 35 17 North Gate Plaza 4/29/98 234 - 33 18 27 10 Worthington Park 4/29/98 281 - 68 22 40 19 Beckett Commons 3/1/98 113 - 7 6 14 4 Cherry Grove Plaza 3/1/98 239 - 11 13 22 21 Bent Tree Plaza 3/1/98 137 - 11 7 59 8 West Chester Plaza 3/1/98 130 - 12 13 42 7 Brookville Plaza 3/1/98 95 - 5 5 8 4 Lake Shores Plaza 3/1/98 123 - 10 5 16 6 Evans Crossing 3/1/98 116 - 4 5 8 6 Statler Square 3/1/98 164 - 15 13 1 8 Kernersville Plaza 3/1/98 120 - 4 8 8 8 Maynard Crossing 3/1/98 272 - 38 13 15 15 Shoppes at Mason 3/1/98 116 - 27 15 33 6 Lake Pine Plaza 3/1/98 152 - 13 10 8 9 Hamilton Meadows 3/1/98 148 - 42 10 15 7 ------- ------- ------ ------ ------ ---- Total Midland Group 3,960 - 549 286 494 233 ------- ------- ------ ------ ------ ---- Bloomingdale Square 2/11/98 214 6 53 25 24 21 Silverlake 6/3/98 346 - 60 36 36 18 Highland Square 6/17/98 516 51 86 46 79 60 Shoppes @104 6/19/98 620 - 133 72 79 28 Fleming Island 6/30/98 348 - 289 39 194 36 Pike Creek 8/4/98 1,172 116 108 135 83 47 Hinsdale Lake Common 10/21/98 1,289 7 379 216 148 67 Park Place 11/20/98 952 3 229 171 120 20 Queensboro 12/11/98 756 - 135 143 57 44 Beneva Village 12/22/98 1,214 - 239 166 156 102 ------- ------- ------ ------ ------ ---- Total for all acquisitions $ 11,387 $ 183 $ 2,260 $ 1,335 $ 1,470 $ 676 ======= ======= ====== ====== ====== ==== (1) The property was under development until the date of acquisition, thus there are no revenues and expenses to be recorded in the statement of operations. P-5 (b) Depreciation expense is based on the estimated useful life of the properties acquired. For properties under construction, depreciation expense is calculated from the date the property is placed in service through the end of the period. In addition, the calculations reflect depreciation expense on the properties from January 1, 1998 to the respective acquisition date of the property. Property Building and Year Building Depreciation Name Improvements Built/Renovated Useful Life Adjustment -------- ------------ --------------- ----------- ------------ Bloomingdale Square $ 13,189 1987 30 $ 51 Silverlake Shopping Center 7,584 1988 31 103 Highland Square 9,049 1960 20 208 Shoppes @104 6,439 1990 33 91 Fleming Island 4,773 1994 37 64 Pike Creek 18,082 1981 24 446 Hinsdale Lake Commons 14,976 1986 29 382 Park Place 7,974 1988 31 236 Queensboro 6,501 1993 36 181 Beneva Village 8,851 1987 30 295 ------ $ 2,057 ------ Midland Group $ 151,636 Ranging from Ranging from 1986 to 1996 29 to 40 $ 817 ------ Total depreciation adjustment $ 2,874 ====== (c) To reflect interest expense on the Line required to complete the acquisition of all properties at the interest rate afforded Regency Centers at December 31, 1998 (6.562%), and the assumption of $97.0 million of debt in conjunction with the Midland Group. For properties under construction, interest expense is calculated from the date the property was placed in service through the acquisition date. (d) During 1998, Regency Centers sold three office buildings and a parcel of land for $26.7 million, and recognized a gain on the sale of $9.3 million. The adjustments to the pro forma statements of operations reflect the reversal of the revenues and expenses from the office buildings generated during 1998, including the gains on the sale of the office buildings as if the sales had been completed on January 1, 1998. Regency Centers believes that excluding the results of operations and gains related to the office buildings sold is necessary for an understanding of the continuing operations of the Regency Centers. (e) To reflect (i) interest expense and loan cost amortization on the $100 million debt offering on July 15, 1998 offset by (ii) the reduction of interest expense on the Line and mortgage loans from the proceeds of the debt offering, the issuance of $80 million of preferred units on July 15, 1998 and the proceeds from the sale of the office buildings referred to in note (d). (f) To adjust the preferred unit distribution to an assumed annual rate of 8.125%. P-6 (g) The following summarizes the calculation of basic and diluted earnings per unit for the year ended December 31, 1998. Basic Earnings Per Unit (EPU) Calculation: Weighted average common units outstanding 24,991 =============== Net income for unit holders $ 35,596 Less: dividends paid on Class B common stock 5,378 --------------- Net income for Basic and Diluted EPU $ 30,218 =============== Basic EPU $ 1.21 =============== Diluted Earnings Per Unit (EPU) Calculation: Weighted average common units outstanding for Basic EPU 24,991 Incremental units to be issued under common stock options using the Treasury method 14 Contingent units for the acquisition of real estate 511 --------------- Total Diluted Units 25,516 =============== Diluted EPU $ 1.18 =============== P-7 Pacific Retail Trust Pro Forma Consolidated Financial Statements The following unaudited pro forma consolidated financial statements are based upon the historical consolidated balance sheet of Pacific Retail Trust (Pacific Retail) as of December 31, 1998. The following unaudited pro forma consolidated statement of operations of Pacific Retail are based upon the historical consolidated statement of operations for the year ended December 31, 1998. These statements are presented as if Pacific Retail had acquired all of its properties as of January 1, 1998. The unaudited pro forma consolidated financial statements are not necessarily indicative of what the actual financial position or results of operations of Pacific Retail would have been at December 31, 1998 assuming the transactions had been completed as set forth above, nor does it purport to represent the financial position or results of operations of Pacific Retail in future periods. P-8 Pacific Retail Trust Pro Forma Consolidated Balance Sheet December 31, 1998 (Unaudited) (In thousands) Historical Adjustments Pro Forma Assets ---------- ----------- --------- ------------------------------------------------- Real estate investments, at cost $ 1,081,107 33,000 (a) 1,114,107 Construction in progress 24,975 - 24,975 Less: accumulated depreciation 41,916 - 41,916 ---------- -------- ---------- Real estate rental property, net 1,064,166 33,000 1,097,166 ---------- -------- ---------- Cash and cash equivalents 529 - 529 Tenant receivables, net of allowance for uncollectible accounts 12,878 - 12,878 Deferred costs, less accumulated amortization 6,876 - 6,876 Other assets 11,025 - 11,025 ---------- -------- ---------- Total Assets $ 1,095,474 33,000 $ 1,128,474 ========== ======== ========== Liabilities and Stockholders' Equity ------------------------------------------------- Mortgage loans payable $ 101,747 - 101,747 Acquisition and development line of credit 233,600 33,000 (a) 266,600 ---------- -------- ---------- Total debt 335,347 33,000 368,347 Accounts payable and other liabilities 12,570 - 12,570 Tenant's security and escrow deposits 3,536 - 3,536 ---------- -------- ---------- Total liabilities 351,453 33,000 384,453 ---------- -------- ---------- Minority interest 19,377 - 19,377 ---------- -------- ---------- Preferred stock 31,303 - 31,303 Common stock and additional paid in capital 706,089 - 706,089 Distributions in excess of net income (12,748) - (12,748) ---------- -------- ---------- Total stockholders' equity 724,644 - 724,644 ---------- -------- ---------- Total liabilities and stockholders' equity $ 1,095,474 33,000 1,128,474 ========== ======== ========== P-9 Pacific Retail Trust Pro Forma Consolidated Statement of Operations (Unaudited) (In thousands, except share and per share data) For the Year Ended December 31, 1998 ------------------------------------ Acquisition Historical Properties Pro Forma ---------- ----------- --------- Revenues: Minimum rent $ 97,058 7,359 (b) 104,417 Percentage rent 1,540 - 1,540 Recoveries from tenants 25,901 1,574 (b) 27,475 Management, leasing and brokerage fees 53 - 53 ---------- -------- --------- 124,552 8,933 133,485 ---------- -------- --------- Operating expenses: Depreciation and amortization 23,397 1,896 (c) 25,293 Operating and maintenance 16,208 1,502 (b) 17,710 General and administrative 9,967 283 (b) 10,250 Real estate taxes 13,997 687 (b) 14,684 ---------- -------- --------- 63,569 4,368 67,937 ---------- -------- --------- Interest expense (income): Interest expense 16,751 5,906 (d) 22,657 Interest income (852) - (852) ---------- -------- --------- 15,899 5,906 21,805 ---------- -------- --------- Income before minority interest and gain on sale of real estate investments 45,084 (1,341) 43,743 Gain on sale of real estate investments 837 837 Minority interest (925) 153 (772) ---------- -------- --------- Net income 44,996 (1,188) 43,808 Preferred distributions (2,352) - (2,352) ---------- -------- --------- Net income for common shareholders $ 42,644 (1,188) 41,456 ========== ======== ========= Net income per share (note (e)): Basic $ 0.67 $ 0.65 ========== ========= Diluted $ 0.66 $ 0.64 ========== ========= See accompanying notes to pro forma consolidated statements of operations. P-10 Pacific Retail Trust Notes to Pro Forma Consolidated Statement of Operations For the Year Ended December 31, 1998 (Unaudited) (In thousands, except share and per share data) (a) Pacific Retail acquired one shopping center, subsequent to December 31, 1998, for an aggregate purchase price of approximately $33 million which is reflected in the pro forma balance sheet. The shopping center, Westlake Village and Center, was acquired on February 3, 1999 using funds drawn on the Acquisition and development line of credit. (b) Reflects revenues and certain expenses for the Acquisition Properties for the period from January 1, 1998 to the earlier of the respective acquisition date of the property or December 31, 1998. Property Acquisition Minimum Recoveries Operating and Real Name Date Rent from Tenants Maintenance Estate Taxes -------- ----------- ------- ------------ ------------- ------------ Twin Peaks 1/15/98 $ 231 $ 32 $ 25 $ 8 Woodman - Van Nuys 1/30/98 78 10 22 12 Pine Lake Village 3/6/98 327 62 47 24 Sammamish Highlands 3/6/98 348 100 71 31 Inglewood Plaza 3/6/98 71 19 15 6 Oakbrook Plaza 3/30/98 180 44 10 14 Diablo Plaza 5/14/98 434 191 69 76 Thomas Lake 5/21/98 400 65 26 37 Sherwood Market Center 7/15/98 700 157 97 83 Murrayhill Marketplace 7/15/98 878 93 280 51 Cherry Park Market 7/15/98 518 77 97 30 Sunnside 205 7/15/98 493 91 130 57 Westlake Plaza and Center 2/3/99 2,701 633 613 258 ------ ------- ------ ----- $ 7,359 $ 1,574 $ 1,502 $ 687 ====== ======= ====== ===== (c) Depreciation expense is based on an estimated life of up to forty years for the buildings and ten years for the improvements of the properties acquired. In addition the calculations reflect depreciation expense on the properties from January 1, 1998 to the earlier of the respective acquisition date of the property or December 31, 1998. Property Building and Year Building Depreciation Name Improvements Built/Renovated Adjustment -------- ------------ --------------- ------------ Twin Peaks $ 24,726 1988 $ 16 Woodman - Van Nuys 5,920 1992 14 Pine Lake Village 10,326 1989 47 Sammamish Highlands 7,391 1992 36 Inglewood Plaza 1,830 1985 8 Oakbrook Plaza 5,926 1982 42 Diablo Plaza 7,362 1982 71 Thomas Lake 9,940 1998 103 Sherwood Market Center 14,860 1995 187 Murrayhill Marketplace 14,664 1988 183 Cherry Park Market 15,934 1997 201 Sunnside 205 8,585 1988 108 Westlake Village Plaza and Center 26,400 1975 880 ------- Acquisition Properties pro forma depreciation adjustment $ 1,896 ======= P-11 (d) To reflect interest expense on the Line required to complete the acquisition of the Acquisition Properties at the interest rate afforded Pacific Retail at December 31, 1998 (6.89%). The year ended December 31, 1998 calculation reflects interest expense on the properties from January 1, 1998 to the respective acquisition date of the property. The aggregate purchase price for all Acquisition Properties was $212,143. (e) The following summarizes the calculation of basic and diluted earnings per share for the year ended December 31, 1998. Basic Earnings Per Share (EPS) Calculation: Weighted average common shares outstanding 64,048 ========== Proforma net income for Basic EPS $ 41,456 ========== Basic EPS $ 0.65 ========== Proforma net income for Basic EPS 41,456 Add: minority interest for operating partnership units 772 ---------- Proforma net income for Diluted EPS 42,228 ========== Diluted Earnings Per Share (EPS) Calculation: Weighted average common shares outstanding for Basic EPS 64,048 Operating partnership units 1,636 Incremental shares to be issued under common stock options using the Treasury method 171 ---------- Total Diluted Shares 65,855 ========== Diluted EPS $ 0.64 ========== Preferred shares are not considered in the earnings per share calculation since their effect is antidilutive. P-12 Regency Centers, L.P. and Pacific Retail Trust Merger Pro Forma Consolidated Financial Statements The following unaudited pro forma consolidated financial statements are based upon the pro forma financial statements of Regency Centers, L.P. (Regency Centers), and the pro forma financial statements of Pacific Retail Trust (Pacific Retail), both included elsewhere within this filing. The pro forma consolidated financial statements are presented as if Regency Centers' parent, Regency Realty Corporation, had completed its merger with Pacific Retail as of January 1, 1998 and concurrently contributed all of Pacific Retail's assets and liabilities to Regency Centers in exchange for general partnership units. These unaudited pro forma consolidated financial statements should be read in conjunction with Regency Centers' annual report filed on Form 10-K as of and for the year ended December 31, 1998, and also in conjunction with the Pacific Retail financial statements included elsewhere within this filing. The unaudited pro forma consolidated financial statements are not necessarily indicative of what the actual financial position or results of operations of Regency Centers would have been as of and for the year ended December 31, 1998 assuming the transactions had been completed as set forth above, nor does it purport to represent the financial position or results of operations of Regency Centers in future periods. P-13 Regency Centers, L.P. and Pacific Retail Trust Merger Pro Forma Consolidated Balance Sheet December 31, 1998 (Unaudited) (In thousands) Regency Centers Pacific Retail Combined Pro forma Pro forma Adjustments Pro Forma --------------- -------------- ----------- --------- Assets ------------------------------------------------ Real estate investments, at cost $ 1,038,253 1,114,107 4,362 (a) 2,156,722 Construction in progress 15,648 24,975 - 40,623 Less: accumulated depreciation 36,752 41,916 41,916 (a) 36,752 ------------ ---------- --------- ---------- Real estate rental property, net 1,017,149 1,097,166 46,278 2,160,593 ------------ ---------- --------- ---------- Investments in real estate partnerships 30,631 - - 30,631 ------------ ---------- --------- ---------- Net real estate investments 1,047,780 1,097,166 46,278 2,191,224 ------------ ---------- --------- ---------- Cash and cash equivalents 15,537 529 (1,844) (a) 14,222 Tenant receivables, net of allowance for uncollectible accounts 13,713 12,878 - 26,591 Deferred costs, less accumulated amortization 5,156 6,876 (6,876) (a) 5,156 Other assets 4,251 11,025 (11,025) (a) 4,251 ------------ ---------- --------- ---------- Total Assets $ 1,086,437 1,128,474 26,533 2,241,444 ============ ========== ========= ========== Liabilities and Partners' Capital ------------------------------------------------ Notes payable 362,745 101,747 - 464,492 Acquisition and development line of credit 117,631 266,600 384,231 ------------ ---------- --------- ---------- Total debt 480,376 368,347 - 848,723 Accounts payable and other liabilities 17,596 12,570 - 30,166 Tenant's security and escrow deposits 2,638 3,536 - 6,174 ------------ ---------- --------- ---------- Total liabilities 500,610 384,453 - 885,063 ------------ ---------- --------- ---------- Limited partners' interest in consolidated partnerships 11,559 19,377 (19,377) (a) 11,559 ------------ ---------- --------- ---------- Series A preferred units 78,800 - - 78,800 Total stockholders' equity - 724,644 (724,644) (a) - General and Limited partnership units 495,468 770,554 (a) 1,266,022 ------------ ---------- --------- ---------- Total partners' capital 574,268 724,644 45,910 1,344,822 ------------ ---------- --------- ---------- Total liabilities and partners' capital $ 1,086,437 1,128,474 26,533 2,241,444 ============ ========== ========= ========== See accompanying notes to pro forma consolidated balance sheet. P-14 Regency Centers, L.P. and Pacific Retail Trust Merger Notes to Pro Forma Consolidated Balance Sheet December 31, 1998 (Unaudited) (In thousands) (a) Merger of Pacific Retail and Regency Realty Corporation Pacific Retail will be merged with and into Regency Realty Corporation (Regency), with Regency being the surviving entity. Each issued and outstanding Pacific Retail Common Share will be exchanged for 0.48 shares of Regency Common Stock, and each issued and outstanding Pacific Retail Preferred Share will be converted into 0.48 shares of a corresponding series of Regency Preferred Stock. Concurrent with that merger Regency will contribute all the acquired properties to Regency Centers in exchange for general partnership units. The total cost to acquire Pacific Retail is $1,156,851 based on the value of Regency shares and partnership units expected to be issued including the assumption of outstanding debt and liabilities of Pacific Retail, at fair value ($384,453 at December 31, 1998), and estimated closing costs of $1,844. The price per share and partnership unit used to determine the purchase price is $23.325 based upon the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The following summarizes the total costs paid by Regency related to the merger: Pacific Retail Shares and Regency Shares Regency Units Exchange and Units Value Acquisition Outstanding Ratio Issued Per Share Costs -------------- -------- -------------- --------- ----------- Common stock 64,058 0.48 30,748 $23.325 $ 717,195 Preferred stock 3,130 0.48 1,503 $23.325 35,047 Partnership units 1,636 0.48 785 $23.325 18,312 --------- -------- ---------- 68,824 33,036 770,554 ========= ======== ========== Pacific Retail outstanding debt and liabilities assumed at fair value 384,453 Estimated closing costs 1,844 ---------- Total acquisition costs $ 1,156,851 ========== The following summarizes the adjustment necessary to record the merger of Pacific Retail and Regency under purchase accounting. followed by the concurrent contribution of assets and liabilities to Regency Centers. Assets ------ Pacific Retail pro forma assets and liabilities $ 1,128,474 Adjust Pacific Retail real estate investments to fair value 4,362 Remove Pacific Retail accumulated depreciation 41,916 Adjust Pacific Retail deferred and other assets under purchase accounting (17,901) ---------- Total purchase price 1,156,851 Adjust for cash paid for closing costs (1,844) ---------- $ 1,155,007 ========== Liabilites and Partners' Capital -------------------------------- Pacific Retail pro forma liabilities and stockholders' equity 1,128,474 Remove Pacific Retail stockholders' equity (724,644) Remove Pacific Retail General and Limited partnership units (19,377) General partnership units issued to Regency 770,554 ---------- $ 1,155,007 ========== P-15 Regency Centers, L.P. and Pacific Retail Trust Merger Pro Forma Consolidated Statement of Operations (Unaudited) (In thousands, except per unit data) For the Year Ended December 31, 1998 ------------------------------------ Regency Centers Pacific Retail Combined Pro Forma Pro Forma Adjustments Company --------------- -------------- ----------- -------- Revenues: Minimum rent $ 97,635 104,417 - 202,052 Percentage rent 1,827 1,540 - 3,367 Recoveries from tenants 22,182 27,475 - 49,657 Management, leasing and brokerage fees 11,863 53 - 11,916 Equity in income of investments in real estate partnerships 946 - - 946 -------- --------- -------- -------- 134,453 133,485 - 267,938 -------- --------- -------- -------- Operating expenses: Depreciation and amortization 23,074 25,293 1,128 (b) 49,495 Operating and maintenance 16,089 17,710 - 33,799 General and administrative 15,715 10,250 - 25,965 Real estate taxes 11,591 14,684 - 26,275 -------- --------- -------- -------- 66,469 67,937 1,128 135,534 -------- --------- -------- -------- Interest expense (income): Interest expense 28,714 22,657 - 51,371 Interest income (1,900) (852) - (2,752) -------- --------- -------- -------- 26,814 21,805 - 48,619 -------- --------- -------- -------- Income before minority interest and gain on sale of real estate investments 41,170 43,743 (1,128) 83,785 Minority interest (464) (772) 772 (d) (464) Gain on sale of real estate investments 1,390 837 - 2,227 -------- --------- -------- -------- Net income 42,096 43,808 (356) 85,548 Preferred unit distributions (6,500) (2,352) - (8,852) -------- --------- -------- -------- Net income for common unitholders $ 35,596 41,456 (356) 76,696 ======== ========= ======== ======== Net income per common unit (note (c)): Basic $ 1.21 $ 0.65 $ 1.26 ======== ========= ======== ======== Diluted $ 1.18 $ 0.64 $ 1.25 ======== ========= ======== ======== See accompanying notes to pro forma consolidated statement of operations. P-16 Regency Centers, L.P. and Pacific Retail Trust Merger Notes to Pro Forma Consolidated Statement of Operations For the Year Ended December 31, 1998 (b) To increase depreciation expense as a result of the adjustment of real estate investments to fair market value for Pacific Retail merger: Adjustment to record real estate investments at fair market value $ 46,278 Allocation to land (10,181) -------- Allocation to building 36,097 Estimated useful life in years 32 -------- Depreciation expense $ 1,128 ======== (c) The following summarizes the calculation of basic and diluted earnings per unit for the year ended December 31, 1998. Basic Earnings Per Unit (EPU) Calculation: Weighted average common units outstanding Partnership 24,991 Partnership units issued to Regency for contribution of Pacific Retail 31,533 -------- Total Basic Units 56,524 ======== Net income for unit holders $ 76,696 Less: dividends paid on Class B common stock 5,378 -------- Net income for Basic and Diluted EPU $ 71,318 ======== Basic EPU $ 1.26 ======== Diluted Earnings Per Unit (EPU) Calculation: Weighted average common units outstanding for Basic EPU 56,524 Incremental units to be issued under common stock options using the Treasury method 96 Contingent units for the acquisition of real estate 511 ======== Total Diluted Units 57,131 ======== Diluted EPU $ 1.25 ======== (d) Adjust Pacific Retail minority interest since such interest represents limited partners of the Partnership. PACIFIC RETAIL TRUST CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998 and 1997 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Pacific Retail Trust In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Pacific Retail Trust and its consolidated investments at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsi- bility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP February 5, 1999 Dallas, Texas F-2 PACIFIC RETAIL TRUST CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- December 31, 1998 1997 -------------- ------------- ASSETS Real estate investments $ 1,106,081,526 $ 851,458,212 Less: accumulated depreciation (41,915,750) (19,680,694) -------------- ------------ 1,064,165,776 831,777,518 Cash and cash equivalents 529,156 4,496,896 Accounts receivable, net 8,230,352 7,814,026 Escrow deposits 3,080,963 2,582,250 Other assets, net 19,467,354 10,573,762 -------------- ------------ Total assets $ 1,095,473,601 $ 857,244,452 ============== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Lines of credit $ 233,600,000 $ 13,600,000 Notes payable 101,746,716 84,943,050 Accounts payable and accrued expenses 4,747,092 8,140,425 Accrued real estate taxes 7,307,298 6,859,847 Deferred income 516,722 1,820,900 Tenant security deposits 3,535,559 2,653,923 Other liabilities - 95,388 -------------- ------------ Total liabilities 351,453,387 118,113,533 Commitments and contingencies (Note 10) - - Minority interest 19,377,418 7,681,400 Shareholders' equity: Shares of beneficial interest, $0.01 par value; 150,000,000 shares authorized Series A preferred shares (1,130,276 authorized, issued and outstanding; stated liquidation preference of $10 per share plus declared and unpaid dividends) 11,302,760 11,302,760 Series B preferred shares (6,130,276 authorized; 2,000,000 issued and oustanding; stated liquidation preference of $10 per share plus declared and unpaid dividends) 20,000,000 20,000,000 Common shares (64,058,119 shares issued and outstanding at December 31, 1998; 64,022,671 shares issued and outstanding at December 31, 1997) 640,581 640,227 Additional paid-in capital 713,883,660 713,511,243 Employee share notes (8,435,857) (7,930,780) Distributions in excess of net earnings (12,748,348) (6,073,931) -------------- ------------ Total shareholders' equity 724,642,796 731,449,519 -------------- ------------ Total liabilities and shareholders' equity $ 1,095,473,601 $ 857,244,452 ============== ============ See accompanying notes to financial statements. F-3 PACIFIC RETAIL TRUST CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- Years Ended December 31, 1998 1997 ------------ ------------ Income: Minimum rent $ 97,058,254 $ 60,869,191 Percentage rent 1,540,006 1,233,100 Recoveries from tenants 25,901,436 16,890,346 Management, leasing and brokerage fees 52,637 391,950 ------------ ------------ 124,552,333 79,384,587 ------------ ------------ Operating Expenses: Operating and maintenance 16,208,322 9,727,800 Depreciation and amortization 23,397,091 14,715,334 General and administrative 9,967,234 6,541,521 Real estate taxes 13,996,484 10,011,484 ------------ ------------ 63,569,131 40,996,139 ------------ ------------ Interest expense (income): Interest expense 16,750,980 11,667,415 Interest income (851,775) (480,548) ------------ ------------ 15,899,205 11,186,867 ------------ ------------ Earnings before minority interest and gain on sale of real estate investments 45,083,997 27,201,581 Gain on sale of real estate investments 836,584 9,621 Minority interest (925,499) (490,173) ------------ ------------ Net earnings 44,995,082 26,721,029 Less: Series A preferred share dividends 811,543 755,024 Series B preferred share dividends 1,540,000 1,440,000 ------------ ------------ Net earnings attributable to common shares $ 42,643,539 $ 24,526,005 ============ ============ Weighted average common shares outstanding 64,047,832 40,173,476 ============ ============ Weighted average diluted common shares outstanding 64,218,610 40,268,452 ============ ============ Basic earnings per share $ .67 $ .61 Diluted earnings per share $ .66 $ .61 See accompanying notes to the financial statements. F-4 PACIFIC RETAIL TRUST CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- Shares of Beneficial Interest (150,000,000 Shares Authorized) Retained ---------------------------------------- earnings Series A Series B Common Additional (Distributions Total Preferred Preferred shares Employee paid-in in excess of shareholders' Shares Shares at par value share notes capital earnings) equity ------------ ------------ ------------ ------------ ------------- -------------- -------------- Balance at December 31, 1996 $ 11,302,760 $20,000,000 $ 239,598 $ - $240,013,905 $ (1,726,337) $ 269,829,926 Sale of shares, net 400,629 (7,934,400) 473,497,338 465,963,567 Shareholder distributions 3,620 (31,068,623) (31,065,003) Net earnings 26,721,029 26,721,029 ------------ ------------ ------------ ------------ ------------- -------------- -------------- Balance at December 31, 1997 11,302,760 20,000,000 640,227 (7,930,780) 713,511,243 (6,073,931) 731,449,519 Sale of shares 1,546 (1,909,500) 1,979,390 71,436 Redemption of shares (1,192) 1,345,263 (1,606,973) (262,902) Shareholder distributions 59,160 (51,669,499) (51,610,339) Net earnings 44,995,082 44,995,082 ------------ ------------ ------------ ------------ ------------- -------------- -------------- Balance at December 31, 1998 $ 11,302,760 $20,000,000 $ 640,581 $(8,435,857) $713,883,660 $ (12,748,348) $ 724,642,796 ============ ============ ============ ============ ============= ============== ============== See accompanying notes to financial statements. F-5 PACIFIC RETAIL TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- Years Ended December 31, 1998 1997 -------------- -------------- Operating activities Net earnings $ 44,995,082 $ 26,721,029 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 23,397,091 14,715,334 Minority interest 309,986 (28,127) Changes in operating assets and liabilities: Accounts receivable (416,326) (4,834,426) Escrow deposits (498,713) 14,087,417 Other assets (10,055,627) (7,105,918) Accounts payable and accrued expenses (3,393,333) 4,158,257 Accrued real estate taxes 447,451 3,097,230 Deferred income (1,304,178) 1,153,809 Tenant security deposits 881,636 1,372,106 Other liabilities (95,388) 46,590 ------------- ------------- Net cash provided by operating activities 54,267,681 53,383,301 ------------- ------------- Investing activities: Construction of and acquisition of real estate investments (217,560,036) (396,469,436) ------------- ------------- Net cash used in investing activities (217,560,036) (396,469,436) ------------- ------------- Financing activities: Principal payments on notes payable (8,873,580) (1,369,664) Proceeds from line of credit 220,000,000 - Payments on lines of credit - (61,400,000) Payments on bridge loan - (26,500,000) Proceeds from sales of shares, net of expenses 71,436 465,963,567 Redemption of shares (262,902) - Distributions paid to shareholders (51,610,339) (31,065,003) ------------- ------------- Net cash provided by financing activities 159,324,615 345,628,900 ------------- ------------- Net (decrease) increase in cash and cash equivalents (3,967,740) 2,542,765 Cash and cash equivalents at beginning of period 4,496,896 1,954,131 ------------- ------------- Cash and cash equivalents at end of period $ 529,156 $ 4,496,896 ============= ============= Supplemental cash flow information: Interest paid $ 16,925,664 $ 11,123,133 ============= ============= Noncash investing and financing activities: Acquisition of real estate for assumption of notes payable $ 25,677,246 $ 74,918,736 ============= ============= Acquisition of real estate in exchange for minority interest partnership units $ 11,386,032 $ - ============= ============= Exchange of employee share notes for shares $ 1,909,500 $ 7,934,400 ============= ============= Payments on employee share notes from shareholder distributions $ 59,160 $ 3,620 ============= ============= Redemption of employee share notes $ 1,345,263 $ - ============= ============= See accompanying notes to financial statements. F-6 PACIFIC RETAIL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and formation Pacific Retail Trust ("PACIFIC RETAIL") was organized as a Maryland real estate investment trust on April 27, 1995 (originally named Southwest Retail Trust) for the purpose of acquiring, developing, managing and owning neighborhood infill retail properties in a nine state region of the western United States. On August 23, 1995, the Declaration of Trust was amended and restated to change the name to Pacific Retail Trust. At December 31, 1998, 69.9% of PACIFIC RETAIL's outstanding shares of beneficial interest are constructively owned by Security Capital Holdings S.A. ("HOLDINGS"), a wholly-owned subsidiary of Security Capital U.S. Realty ("USREALTY"). Opportunity Capital Partners Limited Partnership ("OCP"), through its partnership Madison Property I, LP (MPI), acquired preferred shares of PACIFIC RETAIL as partial consideration for a pool of properties sold to PACIFIC RETAIL by MPI on October 20, 1995. At December 31, 1998, OCP owned 6.1% of PACIFIC RETAIL's outstanding shares of beneficial interest. Principles of consolidation The consolidated financial statements include the accounts of PACIFIC RETAIL, its 81.9% ownership in Retail Property Partners Limited Partnership and its 95% ownership in PRT Development Corporation (Note 4). Revenue recognition Minimum rents are recognized on a straight-line basis; as such, the rental revenues for leases, which contain rent abatements and contractual increases are recognized on a straight-line basis over the initial terms of the related leases. Property operating cost recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs, are recognized in the period when the recoveries are earned. Real estate assets and related depreciation Costs related directly to the development and improvement of real estate, including tenant improvements, are capitalized; ordinary repairs and maintenance are expensed as incurred. Depreciation is computed on a straight-line basis over the expected economic useful lives, which are principally 10 to 40 years for buildings and improvements. PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"). Under SFAS 121, PACIFIC RETAIL recognizes impairment losses on property whenever events and changes in circumstances indicate that the carrying amount of long-lived assets, on an individual property basis, may not be recoverable through undiscounted future cash flows. Such losses are determined by comparing the sum of the expected future discounted net cash flows to the carrying amount of the asset. Impairment losses are recognized in operating income as they are determined. As of December 31, 1998, no impairment losses have been incurred. F-7 Adoption of recent accounting pronouncement In March 1998, the Emerging Issues Task Force (EITF) finalized Issue 97-11, requiring all internal costs associated with acquiring operating properties to be expensed as incurred. PACIFIC RETAIL has applied this policy prospectively since March 1998. Interest PACIFIC RETAIL capitalizes interest as part of the cost of real estate projects during construction periods. During the years ended December 31, 1998 and 1997, $3,009,426 and $1,567,444, respectively, of interest was capitalized. Cash and cash equivalents Cash and cash equivalents include all cash and cash equivalent investments with original maturities of three months or less. Reclassification Certain reclassifications have been made to prior year financial statements to conform to current year presentation. Deferred loan fees Included in other assets as of December 31, 1998 and December 31, 1997 are net costs of $2,883,460 and $1,668,710, respectively, associated with obtaining financing. Deferred loan fees are amortized to interest expense over the life of the loan and extensions, which is currently three years, using the straight-line method which approximates the interest method. Amortization of deferred loan fees for the years ended December 31, 1998 and 1997, was $769,636, and $583,334, respectively. Income taxes PACIFIC RETAIL elected real estate investment trust ("REIT") status in 1995 under the Internal Revenue Code of 1986, as amended. REITs are not required to pay federal income taxes if minimum distribution, income, asset and shareholder tests are met and, accordingly, no provision has been made for federal income taxes in the accompanying financial state- ments. PRT Development Corporation and Retail Property Partners Limited Partnership are taxed as separate entities. Earnings per share PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), which establishes standards for computing and presenting earnings per share (EPS). Basic EPS excludes the effect of potentially dilutive securities while diluted EPS reflects the potential dilution that would occur if dilutive securities or other contracts to issue common shares were exercised, converted into, or resulted in the issuance of common shares that then shared in the earnings of the Company. The following tables summarize the information required under SFAS 128: F-8 For the year ended December 31, 1998 -------------------------------------------------- Per Share Income Shares Amount -------------- --------------- --------------- Basic EPS Net earnings attributable to common shares $ 42,643,539 64,047,832 $ 0.67 ============== Effect of Dilutive Securities Options - 163,315 Deferred trustee shares - 7,463 ------------- --------------- Diluted EPS Income available to common shares and assumed conversions $ 42,643,539 64,218,610 $ 0.66 ------------- --------------- -------------- For the year ended December 31, 1997 ------------------------------------------------- Per Share Income Shares Amount ------------- --------------- --------------- Basic EPS Net earnings attributable to common shares $ 24,526,005 40,173,476 $ 0.61 ============== Effect of Dilutive Securities Options - 93,583 Deferred trustee shares - 1,393 ------------- --------------- Diluted EPS Income available to common shares and assumed conversions $ 24,526,005 40,268,452 $ 0.61 ============= =============== ============= For the nine months ended September 30, 1997 (unaudited) ------------------------------------------------- Per Share Income Shares Amount ------------- --------------- --------------- Basic EPS Net earnings attributable to common shares $ 16,502,115 37,373,491 $ 0.44 ============== Effect of Dilutive Securities Options - 77,622 Deferred trustee shares - 594 ------------- --------------- Diluted EPS Income available to common shares and assumed conversions $ 16,502,115 37,451,707 $ 0.44 ============= =============== ============== The assumed conversion of Series A preferred shares of beneficial i interest, Series B preferred shares of beneficial interest and minority interest are not dilutive and have therefore been excluded from the calculation of diluted EPS. Options to purchase 625,078 and 326,923 common shares at $13 per share were outstanding during the fourth quarter of 1998 and fourth quarter of 1997, respectively, but were not included in the computation of diluted EPS because the options' exercise price was greater than or equal to the estimated fair market value of the common shares. In addition, options to purchase 1,209,000 and 281,282 common shares at $12 and $11, respectively, were outstanding during the fourth quarter of 1998 but were not included in the diluted computation because the options' exercise price was greater than or equal to the estimated fair market value of the common shares. The options expire 10 years from the date of grant, or earlier upon termination of employ- ment or death. F-9 Use of estimates PACIFIC RETAIL has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities, and related revenues and expenses, to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates. Fair value PACIFIC RETAIL has estimated the fair value of its financial instruments at December 31, 1998 and 1997 as required by Statement of Financial Accounting Standards No. 107. The Company believes the carrying values of the Company's financial instruments are reasonable estimates of their fair values. 2. REAL ESTATE INVESTMENTS As of December 31, 1998, PACIFIC RETAIL owned seventy-five properties. Twenty-two properties are located in three major metropolitan markets in Texas: the Dallas-Fort Worth metroplex, Austin and Houston. Shopping centers in the Dallas-Fort Worth metroplex generated approximately 24% of the total revenues of the portfolio for the year ended December 31, 1998. Thirty-three shopping centers are located in California and comprise approximately 48% of the total revenues for the year ended December 31, 1998. The remaining properties are located in Arizona, Colorado, Washington, and Oregon. The following summarizes real estate investments: December 31, December 31, 1998 1997 ----------------- ----------------- Improved land $ 290,879,900 $ 215,860,610 Land held for development 2,643,679 1,062,657 Land under development 28,660,080 12,544,434 Buildings and improvements 685,481,307 540,192,993 Land improvements and parking lots 54,347,757 44,151,075 Construction in process 24,974,632 13,165,378 Redevelopment properties 19,094,171 24,481,065 ---------------- ---------------- Total real estate investments 1,106,081,526 851,458,212 Less accumulated depreciation (41,915,750) (19,680,694) ---------------- ---------------- Net real estate investments $ 1,064,165,776 $ 831,777,518 =============== ================ F-10 Land held for development In March 1996, PACIFIC RETAIL acquired Harwood Hills Shopping Center in Bedford, Texas. Between March and November of 1996, PACIFIC RETAIL completed the construction of an additional 20,300 square feet of retail space at a cost of approximately $1,857,000. As of December 31, 1998 and 1997, approximately 2.9 acres of land remained for additional development. In January 1997, PACIFIC RETAIL acquired Plaza de Hacienda in La Puenta, California. Associated with this shopping center were approximately 3.63 acres of land for additional development. As of December 31, 1998 and 1997, no development has taken place. In November 1998, PRT Development Corporation acquired Tarrant Parkway Plaza, which consists of 5.5 acres of land in North Richland Hills, Texas for development into a grocery anchored shopping center. As of December 31, 1998, no development has taken place. Land under development In August 1997, PACIFIC RETAIL acquired Prestonwood Park, which consists of 24.55 acres of land in Dallas, Texas for future development into a grocery anchored shopping center. As of December 31, 1998, construction has not commenced. In November 1997, PRT Development Corporation acquired Hebron Parkway Plaza, which consists of 7.77 acres of land in Carrollton, Texas for development into a grocery anchored shopping center. As of December 31, 1998, construction has not commenced. In January 1998, PRT Development Corporation acquired MacArthur Park, which consists of 38.2 acres of land in Irving, Texas for development into a shopping center. As of December 31, 1998, PRT Development Corporation has incurred $6,664,927 in design and construction costs associated with the development, which is included in construction in process. In March 1998, PACIFIC RETAIL acquired Hawthorne Plaza in Hawthorne, California, which consists of 10.4 acres of land and an existing shopping center. PACIFIC RETAIL plans to demolish the existing structure and rebuild a grocery anchored shopping center. As of December 31, 1998, PACIFIC RETAIL has incurred $1,727,450 in development costs associated with the development, which is included in construction in process. In October 1998, PRT Development Corporation acquired La Crescenta, which consists of 1.79 acres of land in La Crescenta, California. The Development Corporation plans to develop the existing space for a new tenant. As of December 31, 1998, PACIFIC RETAIL has incurred $249,785 in development costs associated with the development, which is included in construction in process. F-11 Redevelopment properties In July 1996, PACIFIC RETAIL acquired Hancock Center in Austin, Texas for the purpose of redeveloping it as a grocery anchored infill shopping center. PACIFIC RETAIL immediately embarked upon the redevelopment program. As of December 31, 1997, PACIFIC RETAIL had incurred $8,447,883, in design and demolition costs and construction associated with the redevelopment. On April 1, 1998, a portion of the project representing $7,322,949 in redevelopment costs was completed and capitalized. As of December 31, 1998, $9,233,708 in design and demolition costs and construction associated with the redevelopment remained in construction in process. In November 1997, PACIFIC RETAIL acquired Bristol & Warner Shopping Center in Santa Ana, California. During 1998, significant rehabilitation work began on the property. As of December 31, 1998, PACIFIC RETAIL has incurred $3,810,111 in design, demolition and construction costs. In October 1998, PACIFIC RETAIL purchased Crossroads Plaza, which consists of 5.04 acres of land and an existing building in Pico Rivera, California. The Company plans to develop the space for a new tenant. 3. BORROWINGS Lines of credit - secured On December 27, 1995, PACIFIC RETAIL entered into a credit agreement with a group of lenders to provide a secured line of credit up to a maximum of $50 million. On July 17, 1996, the credit agreement was amended to increase the secured line of credit to a maximum of $75 million. The lenders determine the secured net borrowing base by using the lesser of 65% of the lenders' appraised value on ten of the properties or the permanent loan estimate for each property. As of December 31, 1997, the secured net borrowing base was $75 million. On November 14, 1997, the secured line of credit agreement was amended. Under the amended credit agreement, borrowings bear interest at the greater of prime or federal funds rate plus .50% or, at PACIFIC RETAIL's option, LIBOR plus a margin of 1.25%, if the ratio of total liabilities to gross asset value is less than .35 to one, or 1.40% if the ratio of total liabilities to gross asset value is greater than or equal to .35 to one. Additionally, there is a fee of .125% per annum of the average daily unfunded line of credit balance, or a fee of .25% per annum of the average daily unfunded line of credit balance if the average daily balance for both the secured and unsecured lines of credit is greater than $100 million. Interest is paid monthly based on the unpaid principal balance. On May 18, 1998, the credit agreement was amended; the secured line of credit was paid in full and terminated through the use of funds from the unsecured line of credit. The weighted averaged interest rates for the period from January 1, 1998 to May 18, 1998 and the year ended December 31, 1997 were 7.1% and 7.4%, respectively. The interest rate at December 31, 1997 was 8.5%. F-12 Lines of credit - unsecured On March 28, 1997, PACIFIC RETAIL entered into a credit agreement with a group of lenders to provide an unsecured line of credit up to a maximum of $75 million. On November 14, 1997, the unsecured line of credit was increased to a maximum of $125 million. On May 18, 1998, the credit agreement was amended and the unsecured line of credit was increased to $350 million. On December 7, 1998, the credit agreement was amended to reduce the unsecured line to $325 million. In addition, a bridge line of credit of $100 million was approved with identical provisions to the unsecured line of credit. Borrowings bear interest at the greater of prime or federal funds rate plus .50% or, at PACIFIC RETAIL's option, LIBOR plus a margin of 1.25%, if the ratio of total liabilities to gross asset value is less than .35 to one, or 1.40% if the ratio of total liabilities to gross asset value is greater than or equal to .35 to one and less than .5 to one. Additionally, there is a fee of .125% per annum of the average daily unfunded line of credit balance, or a fee of .25% per annum of the average daily unfunded line of credit balance if the average daily balance is greater than $175 million. Interest is paid monthly based on the unpaid principal balance. The weighted average interest rate for the year ended December 31, 1998 and the period from March 28, 1997 to December 31, 1997 were 6.88% and 7.7%, respectively. There were no borrowings outstanding under the unsecured line of credit at December 31, 1997. The interest rate at December 31, 1998 was 6.89%. The termination date of the amended credit agreement is March 28, 2000, but it may be extended for successive one-year periods, if acceptable to the lenders, for a .10% extension fee. All debt incurrences are subject to covenants, as more fully described in the credit agreement. PACIFIC RETAIL has utilized the unsecured line of credit to help finance the acquisition of neighborhood shopping centers and for general working capital purposes during the years ended December 31, 1998 and 1997. Notes payable Notes payable consisted of the following at December 31, 1998 and 1997: Principal Principal Interest Maturity Payments/ Balance At Balance At Market Rate Date Period 12/31/98 12/31/97 --------- ---------- --------- ----------- ------------ ------------ Mortgage Notes Payable: Harwood Hills Village Texas 8.58% 7/1/98 $ 49,335 (1) $ - $ 6,900,000 Shopping Center Paseo Village Arizona 7.50 5/1/01 38,668 (2) 4,220,915 4,362,548 Mills Pointe & (4) Texas 7.23 7/1/00 264,578 (2) 31,096,048 31,987,449 Preston Park Village Plaza de Hacienda California 9.00 6/10/12 57,128 (2) 6,683,992 6,764,017 Market at Round Rock Texas 8.63 12/31/05 63,059 (2) 7,410,496 7,522,739 North Hills Town Center Texas 7.37 1/1/14 76,974 (2) 8,938,999 9,193,610 Friar's Mission California 9.50 6/10/05 152,006 (2) 16,653,096 16,901,320 Woodman Van-Nuys California 8.80 9/15/15 57,745 (2) 6,061,268 - Sunnyside 205 Oregon 9.38 1/15/00 52,401 (2) 5,770,679 - Murrayhill Marketplace Oregon 8.05 5/1/19 69,762 (2) 8,364,524 - West Hills Plaza Oregon 7.99 12/10/08 38,303 (2) 5,225,000 - Municipal Tax Bonds Payable: Friar's Mission California 7.30-7.90 9/2/15 161,177- (3) 1,321,699 1,311,367 168,131 ------------ ------------ $101,746,716 $ 84,943,050 ============ ============ (1) Payments are interest only payable monthly with the full principal balance due at maturity. (2) Payments are interest and principal payable monthly. (3) Annual payments of principal and interest payable in two semiannual installments. Amount disclosed is the applicable annual payment range. (4) Mills Pointe & Preston Park Village are subject to one mortgage note payable. F-13 Principal repayments of notes payable are due approximately as follows: 1999 $ 2,182,652 2000 37,315,577 2001 5,281,298 2002 1,467,643 2003 1,610,476 2004 and after 53,889,070 ------------ $ 101,746,716 ============ 4. MINORITY INTEREST Minority interest represents limited partners' interests in Retail Property Partners Limited Partnership (the Partnership), a limited partnership controlled by PACIFIC RETAIL, and PRT Development Corporation (PRT Development), a Delaware corporation controlled by PACIFIC RETAIL. Retail Property Partners Limited Partnership In September 1996, PACIFIC RETAIL formed the Partnership by contributing cash to the Partnership in exchange for a 50.2% controlling general partnership interest in the Partnership, which invested in two retail centers in Dallas, Texas. On December 1, 1996, PACIFIC RETAIL contributed the Blossom Valley Shopping Center in Mountain View, California to the Partnership. The assets and liabilities of Blossom Valley were transferred at book value as the transfer was between entities under common control. The value of the contributed property was $17,354,543, which increased PACIFIC RETAIL's investment in the Partnership to 76.6%. On July 31, 1997, PACIFIC RETAIL contributed $8.9 million to the Partnership. With this contribution, PACIFIC RETAIL's investment in the Partnership increased to 81.6%. The Partnership used this contribution to purchase the Heritage Plaza land. On May 21, 1998, PACIFIC RETAIL contributed $14,273,244 to the Partnership. With this contribution, PACIFIC RETAIL's investment in the Partnership increased to 84.2%. The Partnership used this contribution to purchase the Thomas Lake property in May 1998. F-14 On July 10, 1998, PACIFIC RETAIL contributed $37,026,419 to the Partnership. The partnership purchased the Sherwood Market Center, Murrayhill Marketplace, Cherry Park Market and Sunnyside 205 properties with PACIFIC RETAIL's contribution and additional issues of partnership units in July 1998. PACIFIC RETAIL's investment in the Partnership at December 31, 1998 was 81.9%. Limited partners are entitled to exchange each partnership unit for one common share of beneficial interest in PACIFIC RETAIL beginning in August 1998. As of December 31, 1997, there were 765,000 limited partnership units outstanding in the Partnership. On May 21, 1998, an additional 115,385 partnership units were issued in association with the acquisition of Thomas Lake. On July 10, 1998, an additional 760,464 partnership units were issued in association with the acquisitions of the Sherwood Market Center, Murrayhill Marketplace, Cherry Park Market and Sunnyside 205 properties. The limited partners' interests will be reflected as minority interest in the consolidated financial statements until the units are exchanged for PACIFIC RETAIL shares. On July 10, 1998, the Partnership formed a limited liability company called PRT Sunnyside LLC for the purpose of owning, holding, managing, operating, leasing, or selling the property commonly referred to as Sunnyside 205. The property was purchased by the Partnership and then conveyed to PRT Sunnyside LLC subject to a note payable in the amount of $5,806,994. PRT Development Corporation On November 20, 1997, PRT Development Corporation was organized as a Delaware corporation for the purpose of acquiring land and developing and selling the developed property. The authorized capital of PRT Development consists of 2,000,000 shares of common stock. 100,000 of the shares will be issued as Class A voting shares. The remaining 1,900,000 shares will be Class B nonvoting. As of December 31, 1998 and December 31, 1997, 33,892 and 3,250 shares, respectively, of Class A common stock were issued and outstanding. All of the Class A common stock is constructively owned by USREALTY, and is represented in minority interest. PACIFIC RETAIL owned 643,958 and 61,750 shares of Class B common stock issued and outstanding at December 31, 1998 and December 31, 1997, respectively. The Class B common stock is generally entitled to 95% of all distributions made by PRT Development, and the Class A common stock is generally entitled to 5% of all distributions made by PRT Development. PACIFIC RETAIL has consolidated the operations of PRT Development based on the control exerted in the ordinary course of business over the operating decisions of PRT Development. 5. SHAREHOLDERS' EQUITY Offerings Between October 20, 1995 and July 16, 1996, PACIFIC RETAIL closed on a series of private offerings to HOLDINGS which resulted in the sale of 20 million common shares of beneficial interest at $10 per share for a total amount of $200 million. On October 20, 1995, as a partial acquisition price for five properties acquired from OCP, PACIFIC RETAIL issued 1,130,276 Series A preferred shares of beneficial interest to MPI at a stated liquidation preference of $10 per share plus declared and unpaid dividends resulting in outstanding Series A Preferred shares valued at $11,302,760. On December 22, 1995, PACIFIC RETAIL completed an offering of 100,000 common shares at a price of $10 per share. Net proceeds, after offering costs, to PACIFIC RETAIL were $982,000. On August 6, 1996, OCP acquired 2,000,000 shares of Series B preferred shares of beneficial interest at a stated liquidation preference of $10 per share plus declared and unpaid dividends resulting in Series B preferred shares valued at $20 million. On August 30, 1996, OCP acquired 1,000,000 common shares of beneficial interest in PACIFIC RETAIL at $10 per share for a total of $10 million. F-15 On August 31, 1996, PACIFIC RETAIL completed a private offering of 18,182,305 common shares of beneficial interest at $11 per share resulting in a total equity investment of $200,005,350. The first funding call took place on September 16, 1996 resulting in 2,860,197 shares being issued for net proceeds of $29,414,529. On January 9, 1997 and January 27, 1997, two funding calls took place resulting in a total of 10,214,738 shares being issued for net proceeds of $112,355,838. The final funding call took place on May 15, 1997 resulting in 5,107,370 shares being issued for net proceeds of $56,181,060. On April 30, 1997, PACIFIC RETAIL completed a private offering of 12,500,000 common shares of beneficial interest at $12 per share resulting in a total expected equity investment of $150,000,000. The first funding call took place on May 15, 1997 resulting in 1,898,100 shares being issued for net proceeds of $21,277,205. The second funding call took place on September 18, 1997 resulting in 3,180,570 shares being issued for net proceeds of $38,158,904. On October 1, November 11, and November 28, three funding calls took place resulting in a total of 4,342,300 shares being issued for net proceeds of $52,107,598. The final funding call took place on December 26, 1997 resulting in 3,079,030 shares being issued for net proceeds of $36,948,358. On December 29, 1997, PACIFIC RETAIL completed and fully funded a private offering of 11,538,462 common shares of beneficial interest at $13 per share for net proceeds of $148,474,528. Trustee compensation On March 11, 1997, PACIFIC RETAIL granted 4,305 shares to the board of trustees as part of their compensation. Effective March 14, 1997, PACIFIC RETAIL adopted the Deferred Fee Plan for nonemployee trustees. Under this plan, trustees can defer receipt of cash and equity compensation otherwise payable to the trustee by PACIFIC RETAIL. Interest and dividends are earned on the deferred compensation. An election must be made by each trustee to defer their compensation, and this election shall remain in effect until modified or revoked by the trustee. Each trustee must specify when the payment of deferred compensa- tion is to take place. The compensation may be deferred to a specific date of at least two years past the time the compensation is earned, or the compensation may become payable on the last day of the calendar year in which the trustee terminates service with PACIFIC RETAIL, or the compensation can become payable on the earlier of such dates. As of December 31, 1998 and 1997, 9,668 and 4,825 shares, respectively, have been deferred under this plan. Shares of beneficial interest As of December 31, 1998 and 1997, 150,000,000 shares of beneficial interest, $.01 par value per share, were authorized. PACIFIC RETAIL's board of trustees is authorized to issue, from the authorized but unissued shares of PACIFIC RETAIL, preferred shares in series and to establish from time to time the number of preferred shares to be included in such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption's of the shares of such series. F-16 Common shares The outstanding common shares ("Shares") do not have redemption or conversion rights or the benefit of any sinking fund. In the event of liquidation, dissolution or winding up of PACIFIC RETAIL, the holders of Shares are entitled to receive ratably the assets remaining after satisfaction of all liabilities and payment of preferences and accrued dividends, if any, on PACIFIC RETAIL's shares ranking senior to the Shares (including the preferred shares). The rights of holders of Shares are subject to the rights and preferences established by PACIFIC RETAIL's board of trustees for any preferred shares, which have been or may subsequently be issued. Preferred shares The Series A preferred shares, the Series B preferred shares (together referred to as "Preferred Shares") and Shares vote together as a single class with respect to all matters presented to PACIFIC RETAIL's shareholders for a vote. If twelve consecutive quarterly dividends on the Preferred Shares are in arrears, the holders of Preferred Shares will be entitled to nominate and elect an additional trustee until such time as all arrearages have been paid. The Preferred Shares are entitled to a liquidation preference of $10 per share plus an amount equal to all dividends declared but unpaid to the date of final distribution. PACIFIC RETAIL may redeem the Preferred Shares any time after October 20, 2010 at a price of $10 per share, plus all declared but unpaid dividends. Series A preferred shares Series A preferred shares are convertible into Series B preferred shares on a one-for-one basis and contain provisions for adjustment to prevent dilution. For fiscal years beginning before January 1, 1997, the Series A preferred shares were entitled to a quarterly dividend in an amount equal to the greater of (i) $0.10 per share or (ii) $0.013 less than the dividend on the Shares. For fiscal years beginning on or after January 1, 1997, Series A preferred shares are entitled to quarterly dividends in an amount equal to the greater of (i) $0.10 per share, (ii) 65% of the highest funds from operations per Share for any preceding fiscal year and (iii) $0.013 less than the dividend on the Shares. Dividends on the Series A preferred shares are cumulative from the original issue date. PACIFIC RETAIL is restricted from paying any dividends on any Shares or shares ranking on a parity with, or ranking junior to, the Series A preferred shares, unless all cumulative dividends are simultaneously paid on the Series A preferred shares. Series B preferred shares The board of trustees has authorized up to 6,130,276 Series B preferred shares for issuance. Series B preferred shares are convertible into Shares on a one-for-one basis and contain provisions for adjustment to prevent dilution. For fiscal years beginning before January 1, 1997, the Series B preferred shares were entitled to a quarterly dividend in an amount equal to the greater of (i) $0.10 per share or (ii) the dividend on the Shares. For fiscal years beginning on and after January 1, 1997, Series B preferred shares are entitled to quarterly dividends in an amount equal to the greater of (i) $0.10 per share, (ii) 65% of the highest funds from operations per Share for any preceding fiscal year or (iii) the dividend on the Shares. Dividends on the Series B preferred shares are cumulative from the original issue date. PACIFIC RETAIL is restricted from paying any dividends on any Shares or shares ranking on a parity with, or ranking junior to, the Series B preferred shares, unless all cumulative dividends are simultaneously paid on the Series B preferred shares. F-17 Investor agreement On October 20, 1995, HOLDINGS, and PACIFIC RETAIL entered into an investor agreement whereby HOLDINGS agreed to purchase up to 20 million Shares at $10 per share, net of the original shares purchased, before October 20, 1997. As of December 31, 1996, HOLDINGS had completed the purchase of 20 million Shares. As long as HOLDINGS owns at least 25% of the outstanding common shares of PACIFIC RETAIL it will have certain rights regarding appointment of trustees to the board of trustees and regarding approval of budgets, property operations, property acquisitions, changes in executive officers and sales of shares. Shareholders' agreement On October 20, 1995, OCP entered into a shareholders' agreement with HOLDINGS and PACIFIC RETAIL. Among other provisions of the agreement, OCP was to acquire two million shares of Series B preferred shares at $10 per share at its own request or if required by PACIFIC RETAIL. On August 6, 1996, OCP purchased the two million shares of Series B preferred shares. As part of the August 9, 1996 amendment to the shareholders' agreement, HOLDINGS and OCP shall each have the right to participate pro rata, based upon percentage ownership of the Shares on a fully diluted basis, in any offerings by PACIFIC RETAIL of any capital shares or securities convertible into capital shares on the same terms and at the same time as other offerees. The respective rights terminate at such time as the holder shall own less than 10% of the Shares on a fully diluted basis. Shareholder ownership limitations PACIFIC RETAIL's Declaration of Trust seeks to preserve its REIT status by restricting any shareholder from owning more than 9.8% of PACIFIC RETAIL's shares of beneficial interest, other than HOLDINGS or OCP. PACIFIC RETAIL intends to adopt a shareholder rights plan pursuant to which one purchase right will be issued as a dividend for each outstanding Share. Each purchase right will entitle the holder to purchase one share at a fixed exercise price and, under certain circumstances, to purchase at the exercise price shares or securities of an acquiring company having a market value equal to some multiple of the exercise price. The purchase rights would be exercisable only upon the occurrence of certain triggering events and purchase rights held by the acquiring person would not be exercisable. HOLDINGS and OCP would be exempted from this shareholder rights plan. 6. MERGER On September 23, 1998, PACIFIC RETAIL entered into a merger agreement with Regency Realty Corporation (REGENCY), a publicly owned real estate investment trust. The merger, already approved by the board of trustees of PACIFIC RETAIL and the board of directors of REGENCY, would result in the acquisition of PACIFIC RETAIL by REGENCY with REGENCY being the surviving entity. Shareholders' meetings for REGENCY and PACIFIC RETAIL are scheduled for February 26, 1999 to vote on the merger. The merger is expected to become effective on February 28, 1999. Each outstanding Common and Preferred share of PACIFIC RETAIL would be converted into 0.48 shares of REGENCY Common and Preferred stock, respectively. REGENCY commenced operations as a real estate investment trust in 1993 with the completion of its initial public offering. It succeeded to the real estate business operations of The Regency Group, Inc., which began operations in 1963. REGENCY acquires, owns, develops and manages neighborhood shopping centers in targeted infill markets primarily in the eastern half of the United States. The merged company would have a total market capitalization of approximately $2.2 billion, owning over 195 shopping centers, consisting of approximately 22.5 million square feet in 22 states and Washington, D.C., including 13 shopping centers under development. USREALTY is the largest shareholder of REGENCY, owning approximately 46.0% of the outstanding REGENCY Common Stock. USREALTY has already approved the merger and will vote for the merger when both companies have their respective shareholder meetings. After the merger USREALTY will own approximately 59.4% of the outstanding REGENCY Common Stock (52.3% on a fully diluted basis). It is anticipated that after the merger REGENCY will continue to be taxed as a real estate investment trust under the Internal Revenue Code and continue to be organized as a corporation under the laws of the state of Florida. REGENCY's headquarters are in Jacksonville, Florida. F-18 7. INCENTIVE STOCK PROGRAMS PACIFIC RETAIL has authorized 1,875,000 shares for a share incentive plan (the "Plan"). On September 24, 1997, the Plan was amended to increase the number of shares authorized to 5,250,000. Additionally, the Plan was amended to award "dividend equivalent units" with all option grants (other than matching options). Participants who are awarded dividend equivalent units will be credited with these units annually based on a calculated dividend yield, multiplied by the number of options outstanding. Matching options and a loan provision have also been added to the common share purchase portion of the Plan. This provision allows the compensation committee to award, for each common share purchased, one or more matching options. Matching options do not receive dividend equivalent units. Further, PACIFIC RETAIL may offer participants loans for the entire purchase price of any common shares purchased under the share purchase program. Any loans will be fully recourse to the participant and be for a maximum of 10 years, subject to an acceleration in the event of termination of employment or sale of the common shares. Participants will be required to pledge any common shares to secure the loan from PACIFIC RETAIL. Under all plans, the option exercise price represents the estimated fair market value at the date of grant. Vesting of the options commences no more than two years from grant date and options are fully vested no more than five years from grant date. Options expire in 10 years from the date of grant or earlier upon termination of employment or death. On August 6, 1996, the board of trustees adopted the 1996 Trustees Plan (the "Trustees Plan"). Under the Trustees Plan, nonemployee trustees received options to purchase Shares at an exercise price equal to the market price on the date of the grant. Options granted under the Trustees Plan are immediately vested. These options expire in five years from the date of grant or earlier upon resignation from the board of trustees or death. PACIFIC RETAIL applies APB Opinion No. 25 and related Interpretations in accounting for both the Trustees Plan and the employee share incentive plan. No compensation has been recognized for the plans as PACIFIC RETAIL has issued the options at an exercise price, which represents the fair market value at the date of grant. Had compensation cost for the plans been determined based on the fair market value at the grant dates for awards, consistent with the method provided by Statement of Financial Accounting Standards No. 123 (SFAS No. 123), the Company's pro forma net earnings for the years ended December 31, 1998 and 1997 would have been: F-19 For the For the year ended year ended December 31, December 31, 1998 1997 ---------------- ---------------- Net earnings As reported $ 44,995,082 $ 26,721,029 Pro forma (unaudited) $ 43,955,131 $ 26,641,918 Per share net earnings As reported $ .67 $ .61 attributable to common shares Pro forma (unaudited) $ .65 $ .61 Diluted per share net earnings As reported $ .66 $ .61 attributable to common shares Pro forma (unaudited) $ .65 $ .61 The fair value of each option grant is estimated on the date of grant using the "minimum value" calculation stipulated by SFAS No. 123 for nonpublic companies. PACIFIC RETAIL has assumed the following in estimating the fair value of the options: expected lives of five years, dividend yield of 5%, expected volatility of 0%, and risk-free interest rates ranging from 6.56% to 4.53%. The following table summarizes activity under all programs: Weighted Average Exercise Number of Price Options -------------- -------------- Outstanding at December 31, 1997 $ 11.73 2,463,872 Granted 11.63 849,091 Exercised - - Cancelled (11.87) (386,668) ------------- ---------- Outstanding at December 31, 1998 $ 11.67 2,926,295 ------------- ---------- Options exercisable at December 31, 1998 $ 10.44 151,282 ------------- ---------- Weighted average fair value of options granted during 1998 $ 1.59 ------------- ---------- F-20 8. OPERATING LEASES PACIFIC RETAIL receives rental income from the properties under operating leases with terms ranging from less than one year to 24 years. The minimum future rentals under operating leases as of December 31, 1998 are as follows: 1999 98,815,752 2000 88,113,982 2001 76,324,315 2002 66,086,260 Thereafter 402,863,701 ------------- $ 732,204,010 ============= 9. COMMITMENTS AND CONTINGENCIES PACIFIC RETAIL is subject to environmental regulations related to the ownership, operation, development and acquisition of real estate properties. As part of due diligence procedures, PACIFIC RETAIL has obtained or conducted Phase I environmental assessments on each property prior to acquisition. PACIFIC RETAIL is not aware of any environmental condition on any of its properties which is likely to have a materially adverse effect on PACIFIC RETAIL's financial condition or results of operations. 10. SUBSEQUENT EVENTS In January 1999, PACIFIC RETAIL acquired 13.59 acres of land in Keller, Texas for a purchase price of $2,145,019. On January 11, 1999, PACIFIC RETAIL sold Totem Hill Plaza for a sales price of $4,825,000 at a cost of $4,042,587 resulting in a net gain on the sale. On January 20, 1999, PRT Development Corporation formed a limited liability company called Fountain Valley, LLC for the purpose of owning, holding, managing, operating, leasing, or selling the property commonly referred to as Fountain Valley Plaza. Using proceeds of a loan obtained from PACIFIC RETAIL, Fountain Valley, LLC purchased Fountain Valley Plaza at a price of $10,163,300, subject to a note payable of $5,858,884. On February 3, 1999, primarily using proceeds from the line of credit, PACIFIC RETAIL purchased Westlake Village Plaza and Center in Thousand Oaks, California for a purchase price of approximately $33 million. S-1 PACIFIC RETAIL TRUST SCHEDULE III - REAL STATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------- Costs Initial Costs Capitalized ----------------------------- Subsequent Encum- Buildings & to Properties brances Land Improvements Acquisition - ---------------------------------- ---------- ----------- -------------- ------------- Operating Properties Austin, Texas Area: Market @ Round Rock $ 7,410 $ 2,000 $ 8,978 $ 33 North Hills 8,939 4,900 18,484 62 Dallas/Ft. Worth Area: Arapaho Village South 837 7,082 595 Casa Linda Plaza 4,515 23,190 6,512 Cooper Street Plaza 2,079 10,419 78 Harwood Hills Phase I & II 2,618 6,475 2,252 Hillcrest Village 1,600 1,752 Market @ Preston Forest 4,400 10,643 2 Mills Pointe 5,908 2,000 11,432 198 Mockingbird Commons 3,000 9,335 139 Northview Plaza 1,957 7,999 432 Preston Park Village 25,188 6,400 45,957 89 Ridglea Plaza 1,675 12,609 81 Southpark Center 3,078 8,720 499 Valley Ranch Phase I, II & III 2,593 6,276 4,658 The Village 522 6,809 76 Denver Area: Boulevard Center 3,659 9,382 66 Buckley Square 3,270 4,248 (209) (b) Leetsdale Center 3,420 9,150 539 Littleton Square 2,030 8,060 61 Houston Area: Champion Forest 2,666 7,943 524 Los Angeles County Area: Crossroads 3,514 2,538 El Camino 7,600 9,672 30 Oakbrook Plaza 4,000 5,919 152 Plaza de Hacienda 6,684 4,230 9,744 4 Plaza Hermosa 4,200 9,255 19 Redondo Village 1,313 3,810 135 Ventura Village 4,300 6,135 36 Woodman - Van Nuys 6,061 5,500 5,920 3 Orange County Area: Heritage Plaza 9,205 25,450 676 Morningside Plaza 4,300 12,819 84 Newland Center 12,500 11,693 124 Rona Plaza 1,500 4,239 50 Santa Ana Downtown Plaza 4,240 7,105 14 Phoenix Area: Paseo Village 4,221 2,550 6,652 943 Pima Crossing 5,800 24,208 342 Portland Area: Walker Center 3,840 6,244 28 Cherry Park Market 2,400 15,934 71 Murrayhill Marketplace 8,365 2,600 14,664 17 Sherwood Market Center 3,475 13,985 24 Sunnyside 205 5,771 1,200 8,582 West Hills Plaza 5,225 1,200 6,974 Sacramento Area: Arden Square 3,140 7,275 48 The Promenade 2,526 12,244 68 San Diego County Area: Costa Verde 12,740 21,992 902 El Norte Parkway Plaza 2,834 6,121 47 Friars Mission 17,975 6,660 25,770 43 Twin Peaks 2,496 14,911 49 Twin Peaks Target 2,704 9,824 San Francisco Bay Area: Blossom Valley 7,804 9,848 199 S-2 Country Club Village 3,000 11,117 392 Diablo Plaza 5,300 7,362 10 Encina Grande 5,040 10,117 96 Loehmann's Plaza 5,420 8,045 328 San Leandro 1,300 7,689 44 Sequoia Station 9,100 17,709 19 Strawflower Village 4,060 6,867 224 Tassajara Crossing 8,560 14,526 110 Westpark Plaza 5,840 4,398 406 Woodside Central Plaza 3,500 8,624 85 Seattle Area: Inglewood Plaza 1,300 1,830 7 Lake Meridian Marketplace 6,510 11,557 228 Pine Lake 6,300 10,326 43 Sammamish Highlands 9,300 7,391 16 South Point Plaza 5,000 9,697 62 Southcenter Plaza 1,300 12,022 77 Thomas Lake 6,000 9,917 212 Totem Hill Plaza 1,100 3,124 15 -------- -------- -------- ------- Total Operating Properties 101,747 277,520 716,788 23,169 -------- -------- -------- ------- Redevelopment Properties Austin, Texas Area: Hancock Center 8,232 4,150 7,363 Orange County Area: Bristol and Warner 5,000 7,094 487 -------- -------- -------- ------- Total Redevelopment Properties - 13,232 11,244 7,850 -------- -------- -------- ------- Land Under Development Dallas/Ft. Worth Area: Hebron Parkway Plaza 2,378 (281) (c) MacArthur Park 9,692 (569) (d) Prestonwood Park 10,171 34 Los Angeles Area: LaCrescenta 1,327 Hawthorne Plaza 5,905 3 -------- -------- -------- ------- Total Land Under Development - 29,473 - (813) -------- -------- -------- ------- Land Held For Development Dallas/Ft. Worth Area: Harwood Hills 234 1 Tarrant Parkway Plaza 1,582 Los Angeles Area: Plaza de Hacienda 770 57 -------- -------- -------- ------- Total Land Held for Development - 2,586 - 58 -------- -------- -------- ------- GRAND TOTAL $101,747 $ 322,811 $ 728,032 $ 30,264 ======== ======== ======== ======= Gross Amount at Which Carried at December 31, 1998 ------------------------------------------ Year Buildings & Accumulated Constructed/ Properties Land Improvements Total Depreciation Acquired - ---------------------------------- --------- ------------- ---------- -------------- ------------ Operating Properties Austin, Texas Area: Market @ Round Rock $ 2,000 $ 9,011 $ 11,011 $ (523) 1997 North Hills 4,900 18,546 23,446 (956) 1997 Dallas/Ft. Worth Area: Arapaho Village South 837 7,677 8,514 (918) 1995 Casa Linda Plaza 4,515 29,702 34,217 (2,016) 1996 Cooper Street Plaza 2,079 10,497 12,576 (1,018) 1995 Harwood Hills Phase I & II 2,618 8,727 11,345 (1,117) 1996,1996 Hillcrest Village 1,600 1,752 3,352 (114) 1996 Market @ Preston Forest 4,400 10,645 15,045 (545) 1997 Mills Pointe 2,000 11,630 13,630 (713) 1997 Mockingbird Commons 3,000 9,474 12,474 (702) 1996 S-3 Northview Plaza 1,957 8,431 10,388 (912) 1995 Preston Park Village 6,400 46,046 52,446 (2,391) 1997 Ridglea Plaza 1,675 12,690 14,365 (1,437) 1995 Southpark Center 3,078 9,219 12,297 (987) 1995 Valley Ranch Phase I, II & III 3,021 10,506 13,527 (724) 1996,1996,1998 The Village 522 6,885 7,407 (766) 1995 Denver Area: Boulevard Center 3,659 9,448 13,107 (630) 1996 Buckley Square 2,970 4,339 7,309 (355) 1996 Leetsdale Center 3,420 9,689 13,109 (751) 1996 Littleton Square 2,030 8,121 10,151 (492) 1996 Houston Area: Champion Forest 2,666 8,467 11,133 (533) 1997 Los Angeles County Area: Crossroads 3,514 2,538 6,052 (15) 1998 El Camino 7,600 9,702 17,302 (433) 1997 Oakbrook Plaza 4,000 6,071 10,071 (132) 1998 Plaza de Hacienda 4,230 9,748 13,978 (699) 1997 Plaza Hermosa 4,200 9,274 13,474 (247) 1998 Redondo Village 1,313 3,945 5,258 (395) 1996 Ventura Village 4,300 6,171 10,471 (531) 1996 Woodman - Van Nuys 5,500 5,923 11,423 (152) 1998 Orange County Area: Heritage Plaza 9,205 26,126 35,331 (1,137) 1997 Morningside Plaza 4,300 12,903 17,203 (601) 1997 Newland Center 12,500 11,817 24,317 (347) 1997 Rona Plaza 1,500 4,289 5,789 (148) 1997 Santa Ana Downtown Plaza 4,240 7,119 11,359 (630) 1996 Phoenix Area: Paseo Village 2,550 7,595 10,145 (512) 1996 Pima Crossing 5,800 24,550 30,350 (936) 1997 Portland Area: Walker Center 3,840 6,272 10,112 (361) 1997 Cherry Park Market 2,400 16,005 18,405 (219) 1998 Murrayhill Marketplace 2,600 14,681 17,281 (220) 1998 Sherwood Market Center 3,475 14,009 17,484 (179) 1998 Sunnyside 205 1,200 8,582 9,782 (113) 1998 West Hills Plaza 1,200 6,974 8,174 - 1998 Sacramento Area: Arden Square 3,140 7,323 10,463 (326) 1997 The Promenade 2,526 12,312 14,838 (1,017) 1996 San Diego County Area: Costa Verde 12,740 22,894 35,634 (1,978) 1996 El Norte Parkway Plaza 2,834 6,168 9,002 (659) 1996 Friars Mission 6,660 25,813 32,473 (985) 1997 Twin Peaks 2,496 14,960 17,456 (399) 1998 Twin Peaks Target 2,704 9,824 12,528 (268) 1998 San Francisco Bay Area: Blossom Valley 7,804 10,047 17,851 (744) 1996 Country Club Village 3,000 11,509 14,509 (741) 1996 Diablo Plaza 5,300 7,372 12,672 (124) 1998 Encina Grande 5,040 10,213 15,253 (618) 1997 Loehmann's Plaza 5,420 8,373 13,793 (277) 1997 San Leandro 1,300 7,733 9,033 (276) 1997 Sequoia Station 9,100 17,728 26,828 (499) 1997 Strawflower Village 4,060 7,091 11,151 (513) 1996 Tassajara Crossing 8,560 14,636 23,196 (1,319) 1996 Westpark Plaza 5,840 4,804 10,644 (286) 1997 Woodside Central Plaza 3,500 8,709 12,209 (443) 1997 Seattle Area: Inglewood Plaza 1,300 1,837 3,137 (42) 1998 Lake Meridian Marketplace 6,510 11,785 18,295 (731) 1996 Pine Lake 6,300 10,369 16,669 (239) 1998 Sammamish Highlands 9,300 7,407 16,707 (179) 1998 South Point Plaza 5,000 9,759 14,759 (486) 1997 Southcenter Plaza 1,300 12,099 13,399 (720) 1996 Thomas Lake 6,000 10,129 16,129 (186) 1998 Totem Hill Plaza 1,100 3,139 4,239 (212) 1997 -------- -------- --------- ------- Total Operating Properties 277,648 739,829 1,017,477 (40,874) -------- -------- --------- ------- Redevelopment Properties Austin, Texas Area: Hancock Center 8,232 11,513 19,745 (798) 1996 Orange County Area: Bristol and Warner 5,000 7,581 12,581 (244) 1997 -------- -------- --------- ------- S-4 Total Redevelopment Properties 13,232 19,094 32,326 (1,042) -------- -------- --------- ------- Land Under Development Dallas/Ft. Worth Area: Hebron Parkway Plaza 2,097 2,097 1997 MacArthur Park 9,123 9,123 1998 Prestonwood Park 10,205 10,205 1997 Los Angeles Area: LaCrescenta 1,327 1,327 1998 Hawthorne Plaza 5,905 3 5,908 1998 -------- -------- --------- ------- Total Land Under Development 28,657 3 28,660 - -------- -------- --------- ------- Land Held For Development Dallas/Ft. Worth Area: Harwood Hills 235 235 1996 Tarrant Parkway Plaza 1,582 1,582 1998 Los Angeles Area: Plaza de Hacienda 827 827 1997 -------- -------- --------- ------- Total Land Held for Development 2,644 - 2,644 - -------- -------- --------- ------- GRAND TOTAL $ 322,181 $ 758,926 $1,081,107 $(41,916) ======== ======== ========= ======= (a) Reconciliation of total cost to balance sheet caption at December 31, 1998 (in thousands): Total per Schedule III $ 1,081,107 Construction in process 24,975 Total real estate $ 1,106,082 (b) Pad site was sold in 1997 to the tenant under a right of first refusal existing at time center was purchased. Sales price was $300,000 which was equal to the cost of the pad site. (c) Pad site was sold in 1998 at a cost of $301,180. (d) Pad site was sold in 1998 at a cost of $568,546.