United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended March 31, 1999
-or-
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-12298
REGENCY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-3191743
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 356-7000
(Registrant's telephone number, including area code)
Unchanged
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
(Applicable only to Corporate Registrants)
As of May 14, 1999, there were 59,538,280 shares outstanding of the Registrant's
common stock.
REGENCY REALTY CORPORATION
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
1999 1998
---- ----
Assets (unaudited)
Real estate investments, at cost:
Land $ 555,764,835 257,669,018
Buildings and improvements 1,780,358,971 925,514,995
Construction in progress - development for investment 36,399,543 15,647,659
Construction in progress - development for sale 65,917,700 20,869,915
---------------- ----------------
2,438,441,049 1,219,701,587
Less: accumulated depreciation 67,971,411 58,983,738
---------------- ----------------
2,370,469,638 1,160,717,849
Investments in real estate partnerships 33,579,438 30,630,540
---------------- ----------------
Net real estate investments 2,404,049,076 1,191,348,389
Cash and cash equivalents 32,368,433 19,919,693
Tenant receivables, net of allowance for uncollectible accounts of
$1,806,705 and $1,787,686 at March 31, 1999 and
December 31, 1998, respectively 26,703,875 16,758,917
Deferred costs, less accumulated amortization of $5,681,919 and
$5,295,336 at March 31, 1999 and December 31, 1998 8,849,756 6,872,023
Other assets 4,639,970 5,208,278
---------------- ----------------
$ 2,476,611,110 1,240,107,300
================ ================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable 546,258,794 430,494,910
Acquisition and development line of credit 441,379,310 117,631,185
Accounts payable and other liabilities 34,562,734 19,936,424
Tenants' security and escrow deposits 6,883,000 3,110,370
---------------- ----------------
Total liabilities 1,029,083,838 571,172,889
Series A preferred units 78,800,000 78,800,000
Exchangeable operating partnership units 45,208,401 27,834,330
Limited partners' interest in consolidated partnerships 11,819,557 11,558,618
---------------- ----------------
Total minority interest 135,827,959 118,192,948
---------------- ----------------
Stockholders' equity:
Convertible Preferred stock Series 1 and paid in capital $.01 par
value per share: 542,532 shares authorized, issued and outstanding;
liquidation preference $20.83 per share 12,654,570 -
Convertible Preferred stock Series 2 and paid in capital $.01 par
value per share: 1,502,532 shares authorized; 960,000 issued and
outstanding; liquidation preference $20.83 per share 22,392,000 -
Common stock $.01 par value per share: 150,000,000 shares
authorized; 58,188,005 and 25,488,989 shares issued and
outstanding at March 31, 1999 and December 31, 1998 581,880 254,889
Special common stock - 10,000,000 shares authorized: Class B
$.01 par value per share, 1,250,000 and 2,500,000 shares issued
and outstanding at March 31, 1999 and December 31, 1998 12,500 25,000
Additonal paid in capital 1,307,156,394 578,466,708
Distributions in excess of net income (19,116,593) (19,395,744)
Stock loans (11,981,438) (8,609,390)
---------------- ----------------
Total stockholders' equity 1,311,699,313 550,741,463
---------------- ----------------
Commitments and contingencies
$ 2,476,611,110 1,240,107,300
================ ================
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Three Months ended March 31, 1999 and 1998
(unaudited)
1999 1998
---- ----
Revenues:
Minimum rent $ 39,216,255 22,255,149
Percentage rent 410,446 1,103,347
Recoveries from tenants 9,252,840 4,820,730
Management, leasing and brokerage fees 1,789,853 2,728,672
Equity in income of investments in
real estate partnerships 741,103 985
---------------- ----------------
Total revenues 51,410,497 30,908,883
---------------- ----------------
Operating expenses:
Depreciation and amortization 9,411,274 5,456,304
Operating and maintenance 6,994,187 4,116,402
General and administrative 3,787,359 3,433,108
Real estate taxes 4,760,085 2,788,751
---------------- ----------------
Total operating expenses 24,952,905 15,794,565
---------------- ----------------
Interest expense (income):
Interest expense 10,800,362 5,439,365
Interest income (466,518) (335,204)
---------------- ----------------
Net interest expense 10,333,844 5,104,161
---------------- ----------------
Income before minority interests and sale
of real estate investments 16,123,748 10,010,157
Gain on sale of real estate investments - 10,237,419
---------------- ----------------
Income before minority interest 16,123,748 20,247,576
Minority interest of redeemable partnership units (578,205) (594,324)
Minority interest of limited partners (260,939) (97,149)
Minority interest preferred unit distribution (1,625,001) -
---------------- ----------------
Net income 13,659,603 19,556,103
Preferred stock dividends (204,000) -
---------------- ----------------
Net income for common stockholders $ 13,455,603 19,556,103
================ ================
Net income per common share:
Basic $ 0.34 0.74
================ ================
Diluted $ 0.34 0.69
================ ================
See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 13,659,603 19,556,103
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 9,411,274 5,456,304
Deferred financing cost and debt premium amortization 34,967) 253,320
Stock based compensation 580,911 605,822
Minority interest of redeemable partnership units 578,205 594,324
Minority interest preferred unit distribution 1,625,001 -
Minority interest of limited partners 260,939 97,149
Equity in income of investments in real estate partnerships (741,103) (985)
Gain on sale of real estate investments - (10,237,419)
Changes in assets and liabilities:
Tenant receivables (6,302,962) (241,667)
Deferred leasing commissions (586,166) (371,043)
Other assets 1,763,773 (1,404,247)
Tenants' security deposits 54,713 241,534
Accounts payable and other liabilities 6,437,348 1,575,133
--------------- -------------
Net cash provided by operating activities 26,706,569 16,124,328
Cash flows from investing activities
Acquisition and development of real estate (13,601,894) (64,610,069)
Acquisition of Pacific, net of cash acquired (9,046,230) -
Investment in real estate partnerships (3,291,401) -
Capital improvements (2,608,266) (1,120,832)
Construction in progress for sale, net of reimbursement (12,316,835) (7,164,502)
Proceeds from sale of real estate investments - 26,734,955
Distributions received from real estate partnership investments 704,474 8,593
--------------- ---------------
Net cash used in investing activities (40,160,152) (46,151,855)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from common stock issuance 28,601 6,769
Distributions to partnership unit holders (580,402) (315,102)
Net distributions to limited partners in consolidated partnerships - (160,442)
Distributions to preferred unit holders (1,625,001) -
Dividends paid to stockholders (13,176,452) (12,021,247)
Proceeds from acquisition and development
line of credit, net 52,148,125 42,100,000
Proceeds from mortgage loans payable - 1,774,207
Repayment of mortgage loans payable (8,915,732) (643,963)
Deferred financing costs (1,976,816) (591,622)
-------------- ---------------
Net cash provided by financing activities 25,902,323 30,148,600
--------------- ---------------
Net increase in cash and cash equivalents 12,448,740 121,073
Cash and cash equivalents at beginning of period 19,919,693 16,586,094
--------------- ---------------
Cash and cash equivalents at end of period $ 32,368,433 16,707,167
=============== ===============
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(unaudited)
-continued-
1999 1998
---- ----
Supplemental disclosure of cash flow information - cash paid for interest
net of capitalized interest of approximately
$2,158,000 and $1,064,000 in 1999 and 1998 respectively) $ 9,334,581 5,154,583
=============== ===============
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed for the acquisition of Pacific and real estate $ 396,682,000 74,481,885
=============== ===============
Redeemable operating partnership units, preferred and common
stock issued for the acquisition of Pacific and real estate $ 775,283,215 31,241,774
=============== ===============
Other liabilities assumed to acquire Pacific $ 13,897,643 -
=============== ===============
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Regency Realty Corporation, its wholly owned
qualified REIT subsidiaries, and its majority owned or controlled
subsidiaries and partnerships (the "Company" or "Regency"). All
significant intercompany balances and transactions have been
eliminated in the consolidated financial statements. The Company
owns approximately 97% of the outstanding common units of Regency
Centers, L.P., ("RCLP" or the "Partnership") and partnership
interests ranging from 51% to 93% in five majority owned real
estate partnerships (the "Majority Partnerships"). The equity
interests of third parties held in RCLP and the Majority Partner-
ships are included in the consolidated financial statements as
preferred or exchangeable operating partnership units and limited
partners' interests in consolidated partnerships. The Company is a
qualified real estate investment trust ("REIT") which began
operations in 1993.
The Financial Statements reflect all adjustments which are of a
normal recurring nature, and in the opinion of management, are
necessary to properly state the results of operations and
financial position. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted although management believes that the disclosures are
adequate to make the information presented not misleading. The
Financial Statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
December 31, 1998 Form 10-K filed with the Securities and Exchange
Commission.
(b) Reclassifications
Certain reclassifications have been made to the 1998 amounts to
conform to classifications adopted in 1999.
2. Acquisitions
On September 23, 1998, the Company entered into an Agreement of
Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately
held real estate investment trust. The Agreement, among other matters,
provided for the merger of Pacific into Regency, and the exchange of
each Pacific common or preferred share into 0.48 shares of Regency
common or preferred stock. The stockholders approved the merger at a
Special Meeting of Stockholders held February 26, 1999. At the time of
the merger, Pacific owned 71 retail shopping centers that are operating
or under construction containing 8.4 million SF of gross leaseable
area. On February 28, 1999, the effective date of the merger, the
Company issued equity instruments valued at $770.6 million to the
Pacific stockholders in exchange for their outstanding common and
preferred shares and units. The total cost to acquire Pacific was
approximately $1.157 billion based on the value of Regency shares
issued, including the assumption of $379 million of outstanding debt
and other liabilities of Pacific, and estimated closing costs of $7.5
million. The price per share used to determine the purchase price was
$23.325 based on 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 merger was accounted
for as a purchase with the Company as the acquiring entity.
During 1998, the Company acquired 31 shopping centers fee simple
for approximately $355.9 million and also invested $28.4 million in 12
joint ventures ("JV Properties"), for a total investment of $384.3
million in 43 shopping centers ("1998 Acquisitions"). Included in the
1998 Acquisitions are 32 shopping centers acquired from various
entities comprising the Midland Group ("Midland"). Of the 32 Midland
centers, 31 are anchored by Kroger, and 12 are owned through joint
ventures in which the Company's ownership interest is 50% or less. The
Company's investment in the properties acquired from Midland is $236.6
million at December 31, 1998. During 1999 and 2000, the Company may pay
contingent consideration of up to an estimated $23 million, through the
issuance of Partnership units and the payment of cash. The amount of
such consideration, if issued, will depend on the satisfaction of
certain performance criteria relating to the assets acquired from
Midland. Transferors who received cash at the initial Midland closing
will receive contingent future consideration in cash rather than units.
On April 16, 1999, the Company paid $5.2 million related to this
contingent consideration.
The operating results of Pacific and the 1998 Acquisitions are included
in the Company's consolidated financial statements from the date
each property was acquired. The following unaudited pro forma informa-
tion presents the consolidated results of operations as if Pacific and
all 1998 Acquisitions had occurred on January 1, 1998. Such pro forma
information reflects adjustments to 1) increase depreciation, interest
expense, and general and administrative costs, 2) remove the office
buildings sold, and 3) adjust the weighted average common shares, and
common equivalent shares outstanding issued to acquire the properties.
Pro forma revenues would have been $74.2 and $72.5 million as of March
31, 1999 and 1998, respectively. Pro forma net income for common
stockholders would have been $19.9 and $20.2 million as of March 31,
1999 and 1998, respectively. Pro forma basic net income per share would
have been $.33 and $.34 as of March 31, 1999 and 1998, respectively.
Pro forma diluted net income per share would have been $.33 and $.34,
as of March 31, 1999 and 1998, respectively. This data does not purport
to be indicative of what would have occurred had Pacific and the 1998
Acquisitions been made on January 1, 1998, or of results which may
occur in the future.
3. Segments
The Company was formed, and currently operates, for the purpose of 1)
operating and developing Company owned retail shopping centers (Retail
segment), and 2) providing services including property management,
leasing, brokerage, and construction and development management for
third-parties (Service operations segment). The Company had previously
operated four office buildings, of which three were sold in the first
quarter of 1998 (Office buildings segment). The Company's reportable
segments offer different products or services and are managed separately
because each requires different strategies and management expertise.
There are no material inter-segment sales or transfers.
The Company assesses and measures operating results starting with Net
Operating Income for the Retail and Office Buildings segments and Income
for the Service operations segment and converts such amounts into a
performance measure referred to as Funds From Operations (FFO). The
operating results for the individual retail shopping centers have been
aggregated since all of the Company's shopping centers exhibit highly
similar economic characteristics as neighborhood shopping centers, and
offer similar degrees of risk and opportunities for growth. FFO as
defined by the National Association of Real Estate Investment Trusts
consists of net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt
restructuring and sales of income producing property held for investment,
plus depreciation and amortization of real estate, and adjustments for
unconsolidated investments in real estate partnerships and joint
ventures. The Company considers FFO to be the industry standard for
reporting the operations of REITs. Adjustments for investments in real
estate partnerships are calculated to reflect FFO on the same basis.
While management believes that FFO is the most relevant and widely used
measure of the Company's performance, such amount does not represent cash
flow from operations as defined by generally accepted accounting
principles, should not be considered an alternative to net income as an
indicator of the Company's operating performance, and is not indicative
of cash available to fund all cash flow needs. Additionally, the
Company's calculation of FFO, as provided below, may not be comparable to
similarly titled measures of other REITs.
The accounting policies of the segments are the same as those described
in note 1. The revenues and FFO for each of the reportable segments are
summarized as follows for the periods ended as of March 31, 1999 and
1998.
1999 1998
---- ----
Revenues:
Retail segment $ 49,620,644 27,699,540
Service operations segment 1,789,853 2,728,672
Office buildings segment - 480,671
================ ===============
Total revenues $ 51,410,497 30,908,883
================ ===============
Funds from Operations:
Retail segment net operating income $ 37,866,372 20,971,902
Service operations segment income 1,789,853 2,728,672
Office buildings segment net operating income - 303,156
Adjustments to calculate consolidated FFO:
Interest expense (10,800,362) (5,439,365)
Interest income 466,518 335,204
Earnings from recurring land sales - 901,853
General and administrative (3,787,359) (3,433,108)
Non-real estate depreciation (175,790) (133,578)
Minority interests of limited partners (260,939) (97,149)
Minority interests in depreciation
and amortization (181,594) (133,697)
Share of joint venture depreciation
And amortization 99,193 20,097
Dividends on preferred units (1,625,001) -
---------------- ---------------
Funds from Operations 23,390,891 16,023,987
---------------- ---------------
Reconciliation to net income:
Real estate related depreciation
And amortization (9,235,484) (5,322,726)
Minority interests in depreciation
And amortization 181,594 133,697
Share of joint venture depreciation
And amortization (99,193) (20,097)
Earnings from property sales - 9,335,566
Minority interests of exchangeable
Partnership units (578,205) (594,324)
---------------- ---------------
Net income $ 13,659,603 19,556,103
Assets by reportable segment as of March 31, 1999 and December 31, 1998
are as follows. Non-segment assets to reconcile to total assets include
cash, accounts receivable and deferred financing costs.
Assets (in thousands): 1999 1998
---------------------- ---- ----
Retail segment $ 2,338,131 1,170,478
Service operations segment 65,918 20,870
Office buildings segment - -
Cash and other assets 72,562 48,759
================ ===============
Total assets $ 2,476,611 1,240,107
================ ===============
4. Notes Payable and Acquisition and Development Line of Credit
The Company's outstanding debt at March 31, 1999 and December 31, 1998
consists of the following (in thousands):
1999 1998
---- ----
Notes Payable:
Fixed rate mortgage loans $ 400,308 298,148
Variable rate mortgage loans 24,773 11,051
Fixed rate unsecured loans 121,178 121,296
--------- ---------
Total notes payable 546,259 430,495
Acquisition and development line of credit 441,379 117,631
--------- ---------
Total $ 987,638 548,126
========= =========
During February, 1999, the Company modified the terms of its unsecured
line of credit (the "Line") by increasing the commitment to $635 million.
This credit agreement also provides for a competitive bid facility of up
to $250 million of the commitment amount. Maximum availability under the
Line is based on the discounted value of a pool of eligible unencumbered
assets (determined on the basis of capitalized net operating income) less
the amount of the Company's outstanding unsecured liabilities. The Line
matures in May 2001, but may be extended annually for one year periods.
The Company is required to comply, and is in compliance, with certain
financial and other covenants customary with this type of unsecured
financing. These financial covenants include among others (i) maintenance
of minimum net worth, (ii) ratio of total liabilities to gross asset
value, (iii) ratio of secured indebtedness to gross asset value, (iv)
ratio of EBITDA to interest expense, (v) ratio of EBITDA to debt service
and reserve for replacements, and (vi) ratio of unencumbered net
operating income to interest expense on unsecured indebtedness. The Line
is used primarily to finance the acquisition and development of real
estate, but is also available for general working capital purposes.
Mortgage loans are secured by certain real estate properties, and may be
prepaid subject to a prepayment of a yield-maintenance premium. Mortgage
loans are generally due in monthly installments of interest and principal
and mature over various terms through 2019. Variable interest rates on
mortgage loans are currently based on LIBOR plus a spread in a range of
125 basis points to 150 basis points. Fixed interest rates on mortgage
loans range from 7.04% to 9.8%.
During 1999, the Company assumed debt with a fair value of $396.7 million
related to the acquisition of real estate, which includes debt premiums
of $4.1 million based upon the above market interest rates of the debt
instruments. Debt premiums are being amortized over the terms of the
related debt instruments.
On April 15, 1999 the Company, through RCLP, completed a $250 million
unsecured debt offering in two tranches. The Company issued $200 million
7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50
million 7.75% notes due April 1, 2009, priced at 100%. The net proceeds
of the offering were used to reduce the balance of the Line. On April 30,
1999, the balance of the Line was $206.9 million.
As of March 31, 1999, scheduled principal repayments on notes payable and
the Line were as follows (in thousands):
Scheduled Term
Principal Loan Total
Scheduled Payments by Year Payments Maturities Payments
1999 $ 4,908 27,506 32,414
2000 5,519 539,946 545,465
2001 5,387 45,824 51,211
2002 4,687 44,122 48,809
2003 4,654 13,284 17,938
Beyond 5 Years 37,752 239,937 277,689
Net unamortized debt payments - 14,112 14,112
------- ------- -------
Total $62,907 924,731 987,638
======= ======= =======
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $58.8 million at March 31, 1999, and the Company's proportionate share
of these loans was $25.5 million.
5. Stockholders' Equity
On June 11, 1996, the Company entered into a Stockholders
Agreement (the "Agreement") with SC-USREALTY granting it certain rights
such as purchasing common stock, nominating representatives to the
Company's Board of Directors, and subjecting SC-USREALTY to certain
restrictions including voting and ownership restrictions. In connection
with the Units and shares of common stock issued in March 1998 related to
earnout payments, SC-USREALTY acquired 435,777 shares at $22.125 per
share in accordance with their rights as provided for in the Agreement.
As of March 31, 1999, SC-USREALTY owned approximately 34.3 million shares
of common stock or 58.9% of the outstanding common shares.
In connection with the acquisition of shopping centers, RCLP has issued
Exchangeable Operating Partnership Units to limited partners convertible
on a one for one basis into shares of common stock of the Company.
On June 29, 1998, the Company through RCLP issued $80 million of
8.125% Series A Cumulative Redeemable Preferred Units ("Series A
Preferred Units") to an institutional investor in a private placement.
The issuance involved the sale of 1.6 million Series A Preferred Units
for $50.00 per unit. The Series A Preferred Units, which may be called by
the Partnership at par on or after June 25, 2003, have no stated maturity
or mandatory redemption, and pay a cumulative, quarterly dividend at an
annualized rate of 8.125%. At any time after June 25, 2008, the Series A
Preferred Units may be exchanged for shares of 8.125% Series A Cumulative
Redeemable Preferred Stock of the Company at an exchange rate of one
share of Series A Preferred Stock for one Series A Preferred Unit. The
Series A Preferred Units and Series A Preferred Stock are not convertible
into common stock of the Company. The net proceeds of the offering were
used to reduce the acquisition and development line of credit.
As part of the acquisition of Pacific Retail Trust, the Company issued
Series 1 and Series 2 preferred shares. Series 1 preferred shares are
convertible into Series 2 preferred shares on a one-for-one basis and
contain provisions for adjustment to prevent dilution. The Series 1
preferred shares are entitled to a quarterly dividend in an amount equal
to $0.0271 less than the common dividend and are cumulative. Series 2
preferred shares are convertible into common shares on a one-for-one
basis. The Series 2 preferred shares are entitled to quarterly dividends
in an amount equal to the common dividend and are cumulative. The Company
may redeem the preferred shares any time after October 20, 2010 at a
price of $20.83 per share, plus all accrued but unpaid dividends.
On March 4, 1999, the holders of Class B stock converted 1,250,000 shares
into 1,487,734 shares of common stock.
6. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the period ended, March 31, 1999 and 1998 (in thousands
except per share data):
1999 1998
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares
outstanding 36,410 24,727
======== ========
Net income for common stockholders $ 13,456 19,556
Less: dividends paid on Class B common stock 1,175 1,344
-------- --------
Net income for Basic EPS $ 12,281 18,212
======== ========
Basic EPS $ .34 .74
======== ========
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding
for Basic EPS 36,410 24,727
Exchangeable operating partnership units 1,631 973
Incremental shares to be issued under common
stock options using the Treasury method - 54
Class B common stock - 2,975
Contingent units or shares for the acquisition
of real estate 159 334
-------- --------
Total diluted shares 38,200 29,063
======== ========
Net income for Basic EPS $ 12,281 18,212
Add: Class B dividends - 1,344
Add: minority interest of exchangeable
partnership units 578 594
-------- --------
Net income for Diluted EPS $ 12,859 20,150
======== ========
Diluted EPS $ .34 .69
======== ========
The Preferred Series 1 and Series 2 stock and the Class B common stock
are not included in the above calculation for 1999 because they are
anti-dilutive.
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of shareholders of Regency Realty Corporation was
held on February 26, 1999 for the following purpose:
1. To consider and vote upon the approval of the Agreement and
Plan of Merger dated as of September 23, 1998 (the "Merger
Agreement"), between Regency and Pacific Retail Trust, a
Maryland real estate investment trust ("Pacific Retail").
2. To consider and vote upon amendments to the Company's
Articles of Incorporation to permit Security Capital Holdings
S.A.,("SC-USREALTY'), Regency's largest shareholder and the
controlling shareholder of Pacific Retail, to acquire the
Regency common stock issuable to it in the merger and to
prohibit Non-US Persons (other than Security Capital Holdings
S.A. and certain related parties) from directly or indirectly
acquiring Regency capital stock so long as Non-U.S. Persons own
50% or more of the issued and outstanding shares of Regency
capital stock. To transact such other business as may properly
come before the meeting or any adjournment thereof.
3. To consider and vote on Amendment No. 1 to the Regency 1993
Long-Term Omnibus Plan (the" Regency Incentive Plan") to
increase the number of shares available for award under the
Regency Incentive Plan to incorporate the shares authorized
under Pacific Retail's stock option plan and to expand the
class of eligible participants to include three departing
Pacific Retail executives.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
All items were approved with total outstanding votes received of . The
votes were as follows:
voting 20,777,471 FOR, 289,279 AGAINST and 18,116
ABSTAIN for Item 1, votes 20,775,784 FOR, 288,878 AGAINST and
20,203 ABSTAIN for Item 2 and 20,528,228 FOR, 526,569 AGAINST
and 30,068 ABSTAIN for Item 3 21,084,766 FOR, 100 ABSTAIN for
Item 4, Accordingly, the proposals were passed.
Item 6 Exhibits and Reports on Form 8-K:
2. Agreement and Plan of Merger dated as of September 23, 1998 between
Regency Realty Corporation and Pacific Retail Trust (incorporated by
reference to Exhibit 2.1 to the registration statement on Form S-4 of
Regency Realty Corporation, No. 333-65491)
3. Articles of Incorporation
#(i) Restated Articles of Incorporation of Regency Realty
Corporation as amended.
#(ii) Restated Bylaws of Regency Realty Corporation.
4. (a) See exhibits 3(i) and 3(ii) for provisions of the
Articles of Incorporation and Bylaws of Regency Realty
Corporation defining rights of security holders.
(b) Indenture dated July 20, 1998 between Regency Centers, L.P.,
the guarantors named therein and First Union National Bank,
as trustee (incorporated by reference to Exhibit 10.2 to the
registration statement on Form 10 of Regency Centers, L.P.).
(c) Indenture dated March 9, 1999 between Regency Centers, L.P.,
the guarantors named therein and First Union National Bank,
as trustee (incorporated by reference to Exhibit 4.1 to the
registration statement on Form S-3 of Regency Centers, L.P.,
No. 333-72899)
10. Material Contracts
(a) Administrative Services Agreement between Regency Realty
Corporation and SC Group, Incorporated dated February 26, 1999
(b) Amended and Restated Credit Agreement dated as of February 26,
1999 by and among Regency Centers, L.P., a Delaware limited
partnership (the "Borrower"), Regency Realty Corporation, a
Florida corporation (the "Parent"), each of the financial
institutions initially a signatory hereto together with their
assignees, (the "Lenders"), and Wells Fargo Bank, National
Association, as contractual representative of the Lenders to
the extent and in the manner provided (filed as an Exhibit to
Regency Realty Corporation's Form 10-K on March 15, 1999 and
incorporated herein by reference)
27. Financial Data Schedule
Reports on Form 8-K.
None
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On February 28, 1999, the Company issued 542,532 shares of its Series 1
Convertible Preferred Stock and 960,000 shares of its Series 2 Convertible
Preferred Stock as partial consideration for the Company's acquisition of
Pacific. The two classes of Preferred Stock are entitled to a preference in the
payment of dividends and both have a liquidation preference of $20.83 per share.
See Note 5 to the financial statements included elsewhere herein for additional
information concerning the terms of the Preferred Stock. No dividends may be
paid to holders of common stock in the event of any arrearages in the payment of
dividends on the Preferred Stock, and no liquidating distributions may be made
to holders of common stock until the holders of the Preferred Stock have
received an amount equal to their liquidation preferences.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto of Regency Realty
Corporation ("Regency" or "Company") appearing elsewhere within.
Organization
- - ------------
The Company is a qualified real estate investment trust ("REIT") which began
operations in 1993. The Company invests in real estate primarily through its
general partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership")
an operating partnership in which the Company currently owns approximately 97%
of the outstanding common partnership units ("Units"). Of the 204 properties
included in the Company's portfolio at March 31, 1999, 186 properties were owned
either fee simple or through partnerships interests by RCLP. At March 31, 1999,
the Company had an investment in real estate, at cost, of approximately $2.4
billion of which $2.3 billion or 94% was owned by RCLP.
Shopping Center Business
- - ------------------------
The Company's principal business is owning, operating and developing
grocery anchored neighborhood infill shopping centers. Infill refers to shopping
centers within a targeted investment market offering sustainable competitive
advantages such as barriers to entry resulting from zoning restrictions, growth
management laws, or limited new competition from development or expansions. The
Company's properties summarized by state and in order by largest holdings
including their gross leasable areas (GLA) follows:
March 31, 1999 December 31, 1998
Location # Properties GLA % Leased # Properties GLA % Leased
-------- ------------ --- -------- ------------ --- --------
Florida 47 5,818,484 89.7% 46 5,728,347 91.4%
California 33 3,660,085 95.2% - - -
Georgia 27 2,730,100 93.0% 27 2,737,590 93.1%
Texas 25 3,542,442 89.7% 5 479,900 84.7%
Ohio 13 1,803,945 92.7% 13 1,786,521 93.4%
North Carolina 12 1,239,718 97.7% 12 1,239,783 98.3%
Colorado 9 872,431 94.6% 5 447,569 89.4%
Washington 8 737,310 97.1% - - -
Oregon 6 583,704 89.8% - - -
Alabama 5 516,060 99.5% 5 516,060 99.0%
Tennessee 4 389,197 92.4% 4 295,179 96.8%
Arizona 2 326,984 99.8% - - -
Virginia 2 197,324 96.1% 2 197,324 97.7%
Delaware 1 232,752 96.1% 1 232,752 94.8%
Kentucky 1 205,060 94.7% 1 205,060 95.6%
Mississippi 2 185,061 96.6% 2 185,061 97.6%
Illinois 1 178,600 86.9% 1 178,600 86.9%
Michigan 2 177,399 81.6% 2 177,929 81.5%
South Carolina 2 162,056 98.8% 2 162,056 100.0%
Missouri 1 82,498 99.8% 1 82,498 99.8%
Wyoming 75,000 0% - - -
----- ---------- ------ ---- ---------- -------
Total 204 23,716,210 92.3% 129 14,652,229 92.9%
===== ========== ====== ==== ========== =======
The Company is focused on building a platform of grocery anchored neighborhood
shopping centers because grocery stores provide convenience shopping of daily
necessities, foot traffic for adjacent local tenants, and should withstand
adverse economic conditions. The Company's current investment markets have
continued to offer strong stable economies, and accordingly, the Company expects
to realize growth in net income as a result of increasing occupancy in the
portfolio, increasing rental rates, development and acquisition of shopping
centers in targeted markets, and redevelopment of existing shopping centers. The
following table summarizes the four largest grocery tenants occupying the
Company's shopping centers at March 31, 1999:
Number of % of % of Annualized
Grocery Anchor Stores Total GLA Base Rent
-------------- --------- --------- ---------------
Kroger 39 9.9% 8.3%
Publix 34 6.3% 4.1%
Albertson's 14 3.2% 3.0%
Winn-Dixie 17 3.3% 2.6%
Acquisition and Development of Shopping Centers
- - -----------------------------------------------
On September 23, 1998, the Company entered into an Agreement of Merger
("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real
estate investment trust. The Agreement, among other matters, provided for the
merger of Pacific into Regency, and the exchange of each Pacific common or
preferred share into 0.48 shares of Regency common or preferred stock. The
stockholders approved the merger at a Special Meeting of Stockholders held
February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping
centers that are operating or under construction containing 8.4 million SF of
gross leaseable area. On February 28, 1999, the effective date of the merger,
the Company issued equity instruments valued at $770.6 million to the Pacific
stockholders in exchange for their outstanding common and preferred shares and
units. The total cost to acquire Pacific was approximately $1.157 billion based
on the value of Regency shares issued including the assumption of $379 million
of outstanding debt and other liabilities of Pacific, and estimated closing
costs of $7.5 million. The price per share used to determine the purchase price
was $23.325 based on 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 merger was accounted for as a purchase with the
Company as the acquiring entity.
During 1998, the Company acquired 31 shopping centers fee simple for
approximately $355.9 million and also invested $28.4 million in 12 joint
ventures ("JV Properties"), for a total investment of $384.3 million in 43
shopping centers ("1998 Acquisitions"). Included in the 1998 Acquisitions are 32
shopping centers acquired from various entities comprising the Midland Group
("Midland"). Of the 32 Midland centers, 31 are anchored by Kroger, and 12 are
owned through joint ventures in which the Company's ownership interest is 50% or
less. The Company's investment in the properties acquired from Midland is $236.6
million at December 31, 1998. During 1999 and 2000, the Company may pay
contingent consideration of up to an estimated $23 million, through the issuance
of Partnership units and the payment of cash. The amount of such consideration,
if issued, will depend on the satisfaction of certain performance criteria
relating to the assets acquired from Midland. Transferors who received cash at
the initial Midland closing will receive contingent future consideration in cash
rather than units. On April 16, 1999, the Company paid $5.2 million related to
this contingent consideration.
Results from Operations
- - -----------------------
Comparison of March 31, 1999 to 1998
Revenues increased $20.5 million or 66% to $51.4 million in 1999. The increase
was due primarily to Pacific and the 1998 Acquisitions providing increases in
revenues of $20.8 million during 1999. At March 31, 1999, the real estate
portfolio contained approximately 23.7 million SF and was 92.3% leased. Minimum
rent increased $17 million or 76%, and recoveries from tenants increased $4.4
million or 92%. On a same property basis (excluding Pacific and the 1998
Acquisitions, and the office portfolio sold during 1998) gross rental revenues
increased $1.5 million or 5.9%, primarily due to higher base rents. Revenues
from property management, leasing, brokerage, and development services (service
operation segment) provided on properties not owned by the Company were $1.8
million in 1999 compared to $2.7 million in 1998, the decrease is due primarily
to a decrease in brokerage fees. During the first quarter of 1998, the Company
sold three office buildings and a parcel of land for $26.7 million, and
recognized a gain on the sale of $10.2 million. As a result of these
transactions the Company's real estate portfolio is comprised entirely of retail
shopping centers. The proceeds from the sale were used to reduce the balance of
the line of credit.
Operating expenses increased $9.2 million or 58% to $25.0 million in 1999.
Combined operating and maintenance, and real estate taxes increased $4.9 million
or 70% during 1999 to $11.8 million. The increases are due to Pacific and the
1998 Acquisitions generating operating and maintenance expenses and real estate
tax increases of $5.0 million during 1999. On a same property basis, operating
and maintenance expenses and real estate taxes increased $150,000 or 2.3%.
General and administrative expenses increased 10% during 1999 to $3.8 million
due to the hiring of new employees and related office expenses necessary to
manage the shopping centers acquired during 1999 and 1998. Depreciation and
amortization increased $4.0 million during 1999 or 73% primarily due to Pacific
and the 1998 Acquisitions.
Interest expense increased to $10.8 million in 1999 from $5.4 million
in 1998 or 99% due to increased average outstanding loan balances related to the
financing of the 1998 Acquisitions on the Line and the assumption of debt for
Pacific. Weighted average interest rates decreased 0.3% during 1999. See further
discussion under Acquisition and Development of Shopping Centers and Liquidity
and Capital Resources.
Net income for common stockholders was $13.5 million in 1999 vs. $19.6
million in 1998, a $6.1 million or 31% decrease the result of a $10.2 million
gain recognized in the first quarter of 1998 on the sale of three office
buildings and a parcel of land. Diluted earnings per share in 1999 was $.34 vs.
$.69 in 1998 due to the decrease in net income combined with the dilutive impact
from the increase in weighted average common shares and equivalents of 9.1
million primarily due to the acquisition of Pacific Retail Trust and the
issuance of shares to SC-USREALTY during 1998.
Funds from Operations
The Company considers funds from operations ("FFO"), as defined by the National
Association of Real Estate Investment Trusts as net income (computed in
accordance with generally accepted accounting principles) excluding gains (or
losses) from debt restructuring and sales of income producing property held for
investment, plus depreciation and amortization of real estate, and after
adjustments for unconsolidated investments in real estate partnerships and joint
ventures, to be the industry standard for reporting the operations of real
estate investment trusts ("REITs"). Adjustments for investments in real estate
partnerships are calculated to reflect FFO on the same basis. While management
believes that FFO is the most relevant and widely used measure of the Company's
performance, such amount does not represent cash flow from operations as defined
by generally accepted accounting principles, should not be considered an
alternative to net income as an indicator of the Company's operating
performance, and is not indicative of cash available to fund all cash flow
needs. Additionally, the Company's calculation of FFO, as provided below, may
not be comparable to similarly titled measures of other REITs.
FFO increased by 46% from 1998 to 1999 as a result of the activity discussed
above under "Results of Operations". FFO for the three months ended March 31,
1999 and 1998 are summarized in the following table (in thousands):
1999 1998
---- ----
Net income for common stockholders $ 13,456 19,556
Add (subtract):
Real estate depreciation and amortization 9,153 5,209
Gain on sale of operating property - (9,336)
Convertible preferred stock distribution 204 -
Minority interests in net income of
Exchangeable partnership units 578 594
------------- --------
Funds from operations $ 23,391 16,024
============= ========
Cash flow provided by (used in):
Operating activities $ 26,707 16,124
Investing activities (40,160) (46,152)
Financing activities 25,902 30,149
Liquidity and Capital Resources
- - -------------------------------
Management anticipates that cash generated from operating activities will
provide the necessary funds on a short-term basis for its operating expenses,
interest expense and scheduled principal payments on outstanding indebtedness,
recurring capital expenditures necessary to properly maintain the shopping
centers, and distributions to share and unit holders. Net cash provided by
operating activities was $26.7 million and $16.1 million for the three months
ended March 31, 1999 and 1998, respectively. The Company incurred recurring and
non-recurring capital expenditures (non-recurring expenditures pertain to
immediate building improvements on new acquisitions and anchor tenant
improvements on new leases) of $2.6 million and $1.1 million, during 1999 and
1998, respectively. The Company paid scheduled principal payments of $1.1
million and $644,000 during 1999 and 1998, respectively. The Company paid
dividends and distributions of $15.4 million and $12.3 million, during 1999 and
1998, respectively, to its share and unit holders.
Management expects to meet long-term liquidity requirements for term debt
payoffs at maturity, non-recurring capital expenditures, and acquisition,
renovation and development of shopping centers from: (i) excess cash generated
from operating activities, (ii) working capital reserves, (iii) additional debt
borrowings, and (iv) additional equity raised in the public markets. Net cash
used in investing activities was $40.2 million and $46.2 million, during 1999
and 1998, respectively, primarily for purposes discussed above under
Acquisitions and Development of Shopping Centers. Net cash provided by financing
activities was $25.9 million and $30.1 million during 1999 and 1998,
respectively. At March 31, 1999, the Company had 14 retail properties under
construction or undergoing major renovations, with costs to date of $119.6
million. Total committed costs necessary to complete the properties under
development is estimated to be $209 million and will be expended through 1999
and 2000.
The Company's outstanding debt at March 31, 1999 and December 31, 1998 consists
of the following (in thousands):
1999 1998
---- ----
Notes Payable:
Fixed rate mortgage loans $ 400,308 298,148
Variable rate mortgage loans 24,773 11,051
Fixed rate unsecured loans 121,178 121,296
---------------- -------------
Total notes payable 546,259 430,495
Acquisition and development line of cre 441,379 117,631
---------------- -------------
Total $ 987,638 548,126
================ =============
The weighted average interest rate on total debt at March 31,
1999 and December 31, 1998 and was 7.1% and 7.4%, respectively. The Company's
debt is typically cross-defaulted, but not cross-collateralized, and includes
usual and customary affirmative and negative covenants.
During February, 1999, the Company modified the terms of its unsecured
line of credit (the "Line") by increasing the commitment to $635 million.
Maximum availability under the Line is based on the discounted value of a pool
of eligible unencumbered assets (determined on the basis of capitalized net
operating income) less the amount of the Company's outstanding unsecured
liabilities. The Line matures in May 2001, but may be extended annually for one
year periods. The Company is required to comply, and is in compliance, with
certain financial and other covenants customary with this type of unsecured
financing. These financial covenants include among others (i) maintenance of
minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii)
ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to
interest expense, (v) ratio of EBITDA to debt service and reserve for
replacements, and (vi) ratio of unencumbered net operating income to interest
expense on unsecured indebtedness. The Line is used primarily to finance the
acquisition and development of real estate, but is also available for general
working capital purposes.
On June 29, 1998, the Company through RCLP issued $80 million of 8.125%
Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to
an institutional investor, Belair Capital Fund, LLC, in a private placement. The
issuance involved the sale of 1.6 million Series A Preferred Units for $50.00
per unit. The Series A Preferred Units, which may be called by the Company at
par on or after June 25, 2003, have no stated maturity or mandatory redemption,
and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any
time after June 25, 2008, the Series A Preferred Units may be exchanged for
shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the Company
at an exchange rate of one share of Series A Preferred Stock for one Series A
Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are
not convertible into common stock of the Company. The net proceeds of the
offering were used to reduce the Line.
On April 15, 1999 the Company, through RCLP, completed a $250 million
debt offering in two tranches. The Company issued $200 million, 7.4% notes due
April 1, 2004, priced at 99.922% to yield 7.42%, and $50 million, 7.75% notes
due April 1, 2009, priced at 100%. The net proceeds of the offering were used to
reduce the balance of the Line. On April 30, 1999, the balance of the Line was
$206.9 million.
Mortgage loans are secured by certain real estate properties,
and generally may be prepaid subject to a prepayment of a yield-maintenance
premium. Mortgage loans are generally due in monthly installments of interest
and principal and mature over various terms through 2019. Variable interest
rates on mortgage loans are currently based on LIBOR plus a spread in a range of
125 basis points to 150 basis points. Fixed interest rates on mortgage loans
range from 7.04% to 9.8%.
During 1999, the Company assumed debt with a fair value of $396.7 million
related to the acquisition of real estate, which includes debt premiums of $4.1
million based upon the above market interest rates of the debt instruments. Debt
premiums are being amortized over the terms of the related debt instruments.
As of March 31, 1999, scheduled principal repayments on notes payable and the
Line for the next five years were as follows (in thousands):
Scheduled Term
Principal Loan Total
Scheduled Payments by Year Payments Maturities Payments
-------------------------- --------- ---------- --------
1999 $ 4,908 27,506 32,414
2000 5,519 539,946 545,465
2001 5,387 45,824 51,211
2002 4,687 44,122 48,809
2003 4,654 13,284 17,938
Beyond 5 Years 37,752 239,937 277,689
Net unamortized debt payments - 14,112 14,112
------- ------- -------
Total $62,907 924,731 987,638
======= ======= =======
Unconsolidated partnerships and joint ventures had mortgage loans payable of
$58.8 million at March 31, 1999 and the Company's proportionate share of these
loans was $25.5 million.
The Company qualifies and intends to continue to qualify as a REIT
under the Internal Revenue Code. As a REIT, the Company is allowed to reduce
taxable income by all or a portion of its distributions to stockholders. As
distributions have exceeded taxable income, no provision for federal income
taxes has been made. While the Company intends to continue to pay dividends to
its stockholders, it also will reserve such amounts of cash flow as it considers
necessary for the proper maintenance and improvement of its real estate, while
still maintaining its qualification as a REIT.
The Company's real estate portfolio has grown substantially
during 1999 as a result of the acquisitions and development discussed above. The
Company intends to continue to acquire and develop shopping centers in the near
future, and expects to meet the related capital requirements from borrowings on
the Line. The Company expects to repay the Line from time to time from
additional public and private equity or debt offerings, such as those completed
in previous years. Because such acquisition and development activities are
discretionary in nature, they are not expected to burden the Company's capital
resources currently available for liquidity requirements. The Company expects
that cash provided by operating activities, unused amounts available under the
Line, and cash reserves are adequate to meet liquidity requirements.
New Accounting Standards and Accounting Changes
- - -----------------------------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities " (FAS 133), which is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. FAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. FAS 133
requires entities to recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. The Company
does not believe FAS 133 will materially effect its financial statements. f.
Environmental Matters
- - ---------------------
The Company like others in the commercial real estate industry, is subject to
numerous environmental laws and regulations and the operation of dry cleaning
plants at the Company's shopping centers is the principal environmental concern.
The Company believes that the dry cleaners are operating in accordance with
current laws and regulations and has established procedures to monitor their
operations. The Company has approximately 31 properties that will require or are
currently undergoing varying levels of environmental remediation. These
remediations are not expected to have a material financial effect on the Company
due to financial statement reserves and various state-regulated programs that
shift the responsibility and cost for remediation to the state. Based on
information presently available, no additional environmental accruals were made
and management believes that the ultimate disposition of currently known matters
will not have a material effect on the financial position, liquidity, or
operations of the Company.
Inflation
- - ---------
Inflation has remained relatively low during 1999 and 1998 and has had a minimal
impact on the operating performance of the shopping centers; however,
substantially all of the Company's long-term leases contain provisions designed
to mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than ten years, which permits the Company to seek increased rents upon
re-rental at market rates. Most of the Company's leases require the tenants to
pay their share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from inflation.
Year 2000 System Compliance
- - ---------------------------
Management recognizes the potential effect Year 2000 may have on the Company's
operations and, as a result, has implemented a Year 2000 Compliance Project. The
term "Year 2000 compliant" means that the software, hardware, equipment, goods
or systems utilized by, or material to the physical operations, business
operations, or financial reporting of an entity will properly perform date
sensitive functions before, during and after the year 2000.
The Company's Year 2000 Compliance Project includes an awareness phase, an
assessment phase, a renovation phase, and a testing phase of our data processing
network, accounting and property management systems, computer and operating
systems, software packages, and building management systems. The project also
includes surveying our major tenants and financial institutions. Total costs
incurred to date associated with the Company's Year 2000 compliance project have
been reflected in the Company's income statement throughout 1999 and 1998, and
were approximately $250,000.
The Company's computer hardware, operating systems, general accounting and
property management systems and principal desktop software applications are Year
2000 compliant as certified by the various vendors. We are currently testing
these systems, and expect to complete the testing phase by June 30, 1999. Based
on testing to date, Management does not anticipate any Year 2000 issues that
will materially impact operations or operating results.
An assessment of the Company's building management systems has been completed.
This assessment has resulted in the identification of certain lighting,
telephone, and voice mail systems that may not be Year 2000 compliant.
Management has begun upgrading these systems and believes that the cost of these
systems will not exceed $500,000. It is anticipated that the renovation and
testing phases will be complete by September 30, 1999, and the Company expects
to be compliant upon completion of these phases.
The Company has surveyed its major tenants and financial institutions to
determine the extent to which the Company is vulnerable to third parties'
failure to resolve their Year 2000 issues. Based on the responses to surveys
received to date, no risks were identified to take additional action at this
point.
Management believes its planning efforts are adequate to address the Year 2000
issue and that its risk factors are primarily those that it cannot directly
control, including the readiness of its major tenants and financial
institutions. Failure on the part of these entities to become Year 2000
compliant could result in disruption in the Company's cash receipt and
disbursement functions. There can be no guarantee, however, that the systems of
unrelated entities upon which the Company's operations rely will be corrected on
a timely basis and will not have a material adverse effect on the Company.
The Company is in the process of establishing a formal contingency plan and
expects to have a plan in place by September 30, 1999.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
- - -----------
The Company is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows primarily
at fixed rates and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks in order to mitigate its interest
rate risk on a related financial instrument. The Company has no plans to enter
into derivative or interest rate transactions for speculative purposes, and at
March 31, 1999, the Company did not have any borrowings hedged with derivative
financial instruments.
The Company's interest rate risk is monitored using a variety
of techniques. The table below presents the principal amounts maturing (in
thousands), weighted average interest rates of remaining debt, and the fair
value of total debt (in thousands), by year of expected maturity to evaluate the
expected cash flows and sensitivity to interest rate changes.
1999 2000 2001 2002 2003 Thereafter Total Value
--------------------------------------------------------------------------------------
Fixed rate debt $16,561 103,954 42,423 48,809 17,939 277,689 507,374 521,486
Average interest rate for all debt 7.85% 8.01% 7.99% 7.87% 7.81% 7.80% - -
Variable rate LIBOR debt $15,853 441,511 8,788 - - - 466,152 466,152
Average interest rate for all debt 6.10% 7.30% - - - - - -
As the table incorporates only those exposures that exist as of March 31, 1999,
it does not consider those exposures or positions which could arise after that
date. Moreover, because firm commitments are not presented in the table above,
the information presented therein has limited predictive value. As a result, the
Company's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time, and interest rates.
Forward Looking Statements
- - --------------------------
This report contains certain forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995)
and information relating to the Company that is based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to management. When used in this report, the words "estimate,"
"project," "believe," "anticipate," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. Such statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; changes
in customer preferences; competition; changes in technology; the integration of
acquisitions, including Pacific; changes in business strategy; the indebtedness
of the Company; quality of management, business abilities and judgment of the
Company's personnel; the availability, terms and deployment of capital; and
various other factors referenced in this report. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
SIGNATURE
---------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 17, 1999 REGENCY REALTY CORPORATION
By: /s/ J. Christian Leavitt
-------------------------
Senior Vice President
and Secretary