United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended June 30, 1998
-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 August 14, 1998, there were 25,464,383 shares outstanding of the
Registrant's common stock.
REGENCY REALTY CORPORATION
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
1998 1997
---- ----
(unaudited)
Assets
Real estate investments, at cost:
Land $ 229,481,678 177,245,784
Buildings and improvements 820,869,554 622,555,583
Construction in progress - development for investment 9,947,030 13,427,370
Construction in progress - development for sale 21,186,446 20,173,039
------------- ----------
1,081,484,708 833,401,776
Less: accumulated depreciation 46,160,048 40,795,801
-------------- ----------
1,035,324,660 792,605,975
Investments in real estate partnerships 22,401,368 999,730
-------------- -----------
Net real estate investments 1,057,726,028 793,605,705
Cash and cash equivalents 12,732,702 16,586,094
Tenant receivables, net of allowance for
uncollectible accounts of $2,057,749
and $1,162,570 at June 30, 1998
and December 31, 1997, respectively 10,684,242 9,546,584
Deferred costs, less accumulated amortization
of $4,219,427 and $3,842,914 at June 30, 1998
and December 31, 1997, respectively 4,496,876 4,252,991
Other assets 7,458,208 2,857,217
-------------- ----------
$ 1,093,098,056 826,848,591
============= ===========
Liabilities and Stockholders' Equity
Liabilities:
Mortgage loans payable 317,796,022 229,919,242
Acquisition and development line of credit 89,731,185 48,131,185
Accounts payable and other liabilities 17,064,007 11,597,232
Tenants' security and escrow deposits 2,762,506 2,319,941
------------ -----------
Total liabilities 427,353,720 291,967,600
------------ -----------
Redeemable preferred units 78,800,000 -
Redeemable operating partnership units 26,912,106 13,777,156
Limited partners' interest in consolidated partnerships 7,520,049 7,477,182
---------- -----------
113,232,155 21,254,338
Stockholders' equity
Common stock $.01 par value per share:
150,000,000 shares authorized; 25,422,870
and 23,992,037 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 254,229 239,920
Special common stock - 10,000,000 shares authorized:
Class B $.01 par value per share, 2,500,000
shares issued and outstanding 25,000 25,000
Additional paid in capital 577,140,482 535,498,878
Distributions in excess of net income (14,501,931) (20,494,893)
Stock loans
(10,405,599) (1,642,252)
------------ -----------
Total stockholders' equity 552,512,181 513,626,653
-------------- -----------
Commitments and contingencies
$ 1,093,098,056 826,848,591
============= ===========
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Three Months ended June 30, 1998 and 1997
(unaudited)
1998 1997
---- -----
Revenues:
Minimum rent $ 25,405,644 18,061,032
Percentage rent 558,514 637,339
Recoveries from tenants 5,817,685 3,890,704
Management, leasing and brokerage fees 2,902,262 2,046,334
Equity in income of investments in
real estate partnerships 145,425 (9,654)
---------- ----------
Total revenues 34,829,530 24,625,755
---------- ----------
Operating expenses:
Depreciation and amortization 5,928,251 4,231,170
Operating and maintenance 4,355,499 3,505,909
General and administrative 3,829,341 2,995,008
Real estate taxes 2,999,053 1,778,745
--------- ---------
Total operating expenses 17,112,144 12,510,832
---------- ----------
Interest expense (income):
Interest expense 7,658,571 6,484,343
Interest income (631,179) (280,335)
--------- ---------
Net interest expense 7,027,392 6,204,008
--------- ---------
Income before minority interests and sale
of real estate investments 10,689,994 5,910,915
---------- ---------
Minority interest of redeemable partnership units (297,500) (969,731)
Minority interest of limited partners (103,009) (214,406)
Gain on sale of real estate investments 508,678 -
--------- ---------
Net income for common stockholders $ 10,798,163 4,726,778
========== ==========
Net income per share:
Basic $ .38 .26
========= ===========
Diluted $ .38 .26
========= ===========
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Six Months ended June 30, 1998 and 1997
(unaudited)
1998 1997
---- -----
Revenues:
Minimum rent $ 47,660,793 30,560,604
Percentage rent 1,661,861 1,107,937
Recoveries from tenants 10,638,415 6,985,904
Management, leasing and brokerage fees 5,406,368 3,687,525
Equity in income (loss) of investments in
real estate partnerships 146,411 17,137
---------- ----------
Total revenues 65,513,848 42,359,107
---------- ----------
Operating expenses:
Depreciation and amortization 11,384,555 7,074,670
Operating and maintenance 8,471,901 5,988,690
General and administrative 7,262,449 5,216,014
Real estate taxes 5,787,804 3,598,834
---------- ----------
Total operating expenses 32,906,709 21,878,208
---------- ----------
Interest expense (income):
Interest expense 12,873,370 10,221,374
Interest income (966,383) (452,602)
---------- ----------
Net interest expense 11,906,987 9,768,772
------------ ---------
Income before minority interests and sale
of real estate investments 20,700,152 10,712,127
---------- ----------
Minority interest of redeemable partnership units (891,824) (1,603,436)
Minority interest of limited partners (200,159) (345,142)
Gain on sale of real estate investments 10,746,097 -
---------- ----------
Net income for common stockholders $ 30,354,266 8,763,549
========== ==========
Net income per share:
Basic $ 1.11 .51
========== ==========
Diluted $ 1.06 .51
========== ==========
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 30,354,266 8,763,550
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 11,384,555 7,074,670
Deferred financing cost and debt premium amortization 46,002 441,004
Minority interest of redeemable partnership units 891,824 1,603,436
Minority interest of limited partners 200,159 345,142
Equity in income of investments in
real estate partnerships (146,411) (17,137)
Gain on sale of real estate investments (10,746,097) -
Changes in assets and liabilities:
Tenant receivables (676,428) 2,186,499
Deferred leasing commissions (554,373) (273,695)
Other assets (5,917,878) (447,802)
Tenants' security deposits 442,565 245,481
Accounts payable and other liabilities 7,406,975 5,011,309
------------ ----------
Net cash provided by operating activities 32,685,159 24,932,457
------------- ----------
Cash flows from investing activities:
Acquisition and development of real estate (120,592,104) (115,441,611)
Investment in real estate partnerships (21,276,350) -
Capital improvements (2,842,069) (1,451,400)
Construction in progress for sale, net of reimbursement (1,013,407) (8,248,018)
Proceeds from sale of real estate investments 30,662,197 -
Distributions received from real
Estate partnership investments 21,123 -
--------------- ------------
Net cash used in investing activities (115,040,610) (125,141,029)
--------------- ------------
Cash flows from financing activities:
Net proceeds from common stock issuance 9,685,435 68,275,213
Proceeds from issuance of redeemable partnership units 7,667 2,255,140
Distributions to redeemable partnership unit holders (897,817) (1,442,196)
Distributions to limited partners
In consolidated partnerships (157,292) (24,232)
Dividends paid to stockholders (24,361,304) (12,253,317)
Proceeds from issuance of redeemable preferred units, net 78,800,000 -
Proceeds from acquisition and
Development line of credit, net 41,600,000 37,630,000
Proceeds from mortgage loans payable 7,345,000 15,148,753
Repayments of mortgage loans payable (32,903,271) (3,751,167)
Deferred financing costs (616,359) (510,471)
--------------- ------------
Net cash provided by financing activities 78,502,059 105,327,723
--------------- ------------
Net (decrease) increase in cash and cash equivalents (3,853,392) 5,119,151
Cash and cash equivalents at beginning of period 16,586,094 8,293,229
-------------- -----------
Cash and cash equivalents at end of period $ 12,732,702 13,412,380
============= ==========
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(unaudited)
-continued-
1998 1997
---- ----
Supplemental disclosure of non cash transactions:
Mortgage loans assumed from sellers of real estate at fair value $ 113,945,176 135,802,817
=========== ===========
Redeemable operating partnership units and
common stock issued to sellers of real estate $ 33,938,977 94,769,706
========== ===========
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
Regency Realty Corporation (the Company) was formed for the
purpose of managing, leasing, brokering, acquiring, and developing
shopping centers. The Company also provides management, leasing,
brokerage and development services for real estate not owned by
the Company.
The accompanying interim unaudited financial statements (the
"Financial Statements") include the accounts of the Company, its
wholly owned qualified REIT subsidiaries, and its majority owned
subsidiaries and partnerships. All significant intercompany
balances and transactions have been eliminated in the consolidated
financial statements. The Company owns approximately 95% of the
outstanding units of Regency Centers, L.P., ("RCLP" or the
"Partnership" formally known as Regency Retail Partnership, L.P.)
and partnership interests ranging from 51% to 93% in four majority
owned real estate partnerships (the "Majority Partnerships"). The
equity interests of third parties held in RCLP and the Majority
Partnerships are included in the consolidated financial statements
as redeemable operating partnership units, redeemable preferred
units and limited partners' interests in consolidated
partnerships, respectively. The Company is a qualified real estate
investment trust ("REIT") which began operations in 1993.
The Financial Statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission, and
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
pursuant to such rules and regulations, 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, 1997 Form 10-K filed with
the Securities and Exchange Commission.
(b) Statement of Financial Accounting Standards No. 130
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes
standards for reporting total comprehensive income in financial
statements, and requires that Companies explain the differences
between total comprehensive income and net income. Management has
adopted this statement in 1998. No differences between total
comprehensive income and net income existed in the interim
financial statements reported at June 30, 1998 and 1997.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
1. Summary of Significant Accounting Policies (continued)
(c) Statement of Financial Accounting Standards No. 131
The FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"), which is effective for fiscal years
beginning after December 15, 1997. FAS 131 establishes standards
for the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports. Management does
not believe that FAS 131 will effect its current disclosures.
(d) Emerging Issues Task Force Issue 97-11
Effective March 19, 1998, the Emerging Issues Task Force (EITF)
ruled in Issue 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions", that only internal costs of
identifying and acquiring non-operating properties that are
directly identifiable with the acquired properties should be
capitalized, and that all internal costs associated with
identifying and acquiring operating properties should be expensed
as incurred. The Company had previously capitalized direct costs
associated with the acquisition of operating properties as a cost
of the real estate. The Company has adopted EITF 97-11 effective
March 19, 1998. During 1997, the Company capitalized approximately
$1.5 million of internal costs related to acquiring operating
properties. Through the effective date of EITF 97-11, the Company
has capitalized $474,000 of internal acquisition costs. For the
remainder of 1998, the Company expects to incur $1.1 million of
internal costs related to acquiring operating properties which
will be expensed.
(e) Emerging Issues Task Force Issue 98-9
On May 22, 1998, the EITF reached a consensus on Issue 98-9
"Accounting for Contingent Rent in Interim Financial Periods". The
EITF has stated that lessors should defer recognition of
contingent rental income that is based on meeting specified
targets until those specified targets are met and not ratably
throughout the year. The Company has previously recognized
contingent rental income (i.e. percentage rent) ratably over the
year based on the historical trends of its tenants. The Company
has adopted Issue 98-9 prospectively and has ceased the
recognition of contingent rents until such time as its tenants
have achieved its specified target. The Company believes this will
effect the interim period in which percentage rent is recognized,
however it will not have a material impact on the annual
recognition of percentage rent.
(f) Reclassifications
Certain reclassifications have been made to the 1997 amounts to
conform to classifications adopted in 1998.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
2. Acquisitions of Shopping Centers
During the first six months of 1998, the Company acquired 24 shopping
centers for approximately $239.2 million (the "1998 Acquisitions"). In
January, 1998, the Company entered into an agreement to acquire the
shopping centers from various entities comprising the Midland Group
("Midland") consisting of 21 shopping centers plus a development pipeline
of 11 shopping centers. Of the 32 centers to be acquired or developed, 31
are anchored by Kroger, or its affiliate. Eight of the shopping centers
included in the development pipeline will be owned through a joint
venture in which the Company will own less than a 50% interest upon
completion of construction (the "JV Properties"). The Company's
investment in the properties acquired from Midland is $180.3 million at
June 30, 1998. As of June 30, 1998, the Company has acquired all but one
of the shopping centers and all the JV Properties. During 1998, 1999 and
2000, including all payments made to date, the Company will pay
approximately $213 million (including costs to be incurred on properties
currently under construction) for the 32 properties, and in addition may
pay contingent consideration of $23 million for the properties through
the issuance of units of RCLP, the payment of cash and the assumption of
debt.
In March, 1997, the Company acquired 26 shopping centers from Branch
Properties ("Branch") for $232.4 million. Additional Units and shares of
common stock may be issued after the first, second and third
anniversaries of the closing with Branch (each an "Earn-Out Closing"),
based on the performance of the properties acquired. The formula for the
earn-out provides for calculating any increases in value on a
property-by-property basis, based on any increases in net income for the
properties acquired, as of February 15 of the year of calculation. The
earn-out is limited to 721,997 Units at the first Earn-Out Closing and
1,020,061 Units for all Earn-Out Closings (including the first Earn-Out
Closing). During March, 1998, the Company issued 721,997 Units and shares
valued at $18.2 million to the partners of Branch.
3. Mortgage Loans Payable and Unsecured Line of Credit
The Company's outstanding debt at June 30, 1998 and December 31, 1997
consists of the following:
1998 1997
---- ----
Mortgage Loans Payable:
Fixed rate secured loans $283,350,997 199,078,264
Variable rate secured loans 12,679,515 30,840,978
Fixed rate unsecured loans 21,765,510 -
Unsecured line of credit 89,731,185 48,131,185
---------- ------------
Total $407,527,207 278,050,427
============ ===========
During March, 1998, the Company modified the terms of its unsecured line
of credit (the "Line") by increasing the commitment to $300 million,
reducing the interest rate, and incorporating a competitive bid facility
of up to $150 million of the commitment amount. Maximum availability
under the Line is subject to a pool of unencumbered assets which cannot
have an aggregate value less than 175% of the amount of the Company's
outstanding unsecured liabilities. The Line matures in May 2000, but may
be extended annually for one year periods. Borrowings under the Line bear
interest at a variable rate based of LIBOR plus a specified spread,
(.875% currently), which is dependent on the Company's investment grade
rating. The Company's ratings are currently Baa2 from Moody's Investor
Service, BBB from Duff and Phelps, and BBB- from Standard and Poors. The
Company is required to comply with certain financial covenants consistent
with this type of
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
3. Mortgage Loans Payable and Unsecured Line of Credit (continued)
unsecured financing. The Line is used primarily to finance the
acquisition and development of real estate, but is 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 to an institutional
investor in a private placement. The issuance involved the sale of 1.6
million Preferred Units by RCLP for $50.00 per unit. The 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%. The Preferred Units
are not convertible into common stock of the Company. The net proceeds of
the offering were used to reduce the Company's bank line of credit.
On July 17, 1998 the Company through RCLP, completed a $100 million
private offering of senior term notes at an effective interest rate of
7.17%. The Notes were priced at 162.5 basis points over the current yield
for seven year US Treasury Bonds. The net proceeds of the offering were
used to repay borrowings under the line of credit.
Mortgage loans are secured by certain real estate properties, but
generally may be prepaid subject to a prepayment of a yield-maintenance
premium. Unconsolidated partnerships and joint ventures had mortgage
loans payable of $62,727,120 at June 30, 1998, and the Company's share of
these loans was $25,447,514. Mortgage loans are generally due in monthly
installments of interest and principal and mature over various terms
through 2018. 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 the first six months of 1998, the Company assumed mortgage loans
with a face value of $107,892,774 related to the acquisition of shopping
centers. The Company has recorded the loans at fair value which created
debt premiums of $6,052,402 related to assumed debt 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 June 30, 1998, scheduled principal repayments on mortgage loans
payable and the unsecured line of credit were as follows:
1998 $ 8,723,209
1999 23,285,800
2000 150,832,696
2001 43,392,285
2002 46,752,004
Thereafter 128,998,936
------------
Subtotal 401,984,930
Net unamortized debt premiums 5,542,277
------------
Total $407,527,207
============
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
4. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three months ended, June 30, 1998 and 1997(in thousands
except per share data):
1998 1997
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 24,945 13,051
Net income for common stockholders $ 10,798 4,727
Less: dividends paid on Class B common stock 1,344 1,285
----- -----
Net income for Basic EPS $ 9,454 3,442
===== =====
Basic EPS $ .38 .26
=== ===
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding for Basic EPS 24,945 13,051
Redeemable operating partnership units 1,294 2,891
Class B common stock equivalents, if dilutive - -
Incremental shares to be issued under common
stock options using the Treasury method - 78
Contingent units or shares for the acquisition
of real estate 519 1,138
Total diluted shares 26,758 17,158
Net income for Basic EPS $ 9,454 3,442
Add: minority interest of redeemable partnership units 297 970
----- -----
Net income for Diluted EPS $ 9,751 4,412
===== =====
Diluted EPS $ .36 .26
===== ===
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
4. Earnings Per Share (continued)
The following summarizes the calculation of basic and diluted earnings
per share for the six months ended, June 30, 1998 and 1997(in thousands
except per share data):
1998 1997
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 24,837 12,127
Net income for common stockholders $ 30,354 8,764
Less: dividends paid on Class B common stock 2,689 2,570
----- -----
Net income for Basic EPS $ 27,665 6,194
====== =====
Basic EPS $ 1.11 .51
==== ===
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding for Basic EPS 24,837 12,127
Redeemable operating partnership units 1,135 1,926
Class B common stock equivalents, if dilutive (a) 2,975 -
Incremental shares to be issued under common
stock options using the Treasury method 27 89
Contingent units or shares for the acquisition
of real estate
428 759
Total diluted shares 29,402 14,901
Net income for Basic EPS $ 27,665 6,194
Add: dividends paid on Class B common stock 2,689 -
Add: minority interest of redeemable partnership units 892 1,603
------ -----
Net income for Diluted EPS 31,246 7,797
====== =====
Diluted EPS 1.06 .51
==== ===
(a) Class B common stock is not included in the 1997 calculation of
diluted earnings per share because it is anti-dilutive.
PART II
Item 1. Legal Proceedings
None
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollar amounts in thousands).
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto of Regency Realty
Corporation (the "Company") appearing elsewhere in this Form 10-Q, and with the
Company's Form 10-K dated December 31, 1997. Certain statements made in the
following discussion may constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
involve unknown risks and uncertainties of business and economic conditions
pertaining to the operation, acquisition, or development of shopping centers
including the retail business sector, and may cause actual results of the
Company in the future to significantly differ from any future results that may
be implied by such forward-looking statements.
Organization
The Company is a qualified real estate investment trust ("REIT") which began
operations in 1993. The Company invests in real estate primarily through general
partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership") an
operating partnership in which the Company currently owns approximately 95% of
the outstanding partnership units ("Units"). Of the 124 properties included in
the Company's portfolio at June 30, 1998, 103 properties were owned either fee
simple or through partnerships interests by RCLP. At June 30, 1998, the Company
had an investment in real estate, at cost, of approximately $1.1 billion of
which $891 million or 81% 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 including their gross leasable areas (GLA)
follows:
Location June 30, 1998 December 31, 1997
-------- ------------- -----------------
# Properties GLA % Leased # Properties GLA % Leased
------------- ------------- -------------- ------------- ---------- ----------
Florida 46 5,686,915 91.4% 45 5,267,894 91.5%
Georgia 27 2,715,918 91.7% 25 2,539,507 92.4%
North Carolina 12 1,241,784 97.2% 6 554,332 99.0%
Ohio 12 1,675,550 94.4% 2 629,920 89.1%
Alabama 5 516,080 99.9% 5 516,080 99.9%
Texas 5 450,267 89.6% - - -
Colorado 5 451,949 81.1% - - -
Tennessee 4 295,257 93.7% 3 208,386 98.5%
Kentucky 1 205,060 96.1% - - -
South Carolina 1 79,723 95.0% 1 79,743 84.3%
Virginia 2 197,324 98.1% - - -
Michigan 1 85,478 99.0% - - -
Missouri 1 82,498 98.4% - - -
Mississippi 2 185,061 97.8% 2 185,061 96.9%
-------------- ----------- -------- ------------ --------- --------
Total 124 13,868,864 92.7% 89 9,980,923 92.8%
============== =========== ======== ============ ========= =======
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 tenants occupying the Company's
shopping centers:
Average
Grocery Anchor Number of % of % of Annual Remaining Lease
Stores Total GLA Base Rent Term
Kroger * 37 16.0% 15.7% 20 yrs
Publix 31 9.6% 7.1% 12 yrs
Winn Dixie 17 5.6% 4.4% 11 yrs
Harris Teeter 5 1.7% 2.4% 16 yrs
*includes properties under development scheduled for opening in 1998
and 1999. Excluding development properties, Kroger would represent
12.8% of GLA and 12.0% of annual base rent.
Acquisition and Development of Shopping Centers
During the first six months of 1998, the Company acquired 24 shopping centers
for approximately $239.2 million (the "1998 Acquisitions"). In January, 1998,
the Company entered into an agreement to acquire the shopping centers from
various entities comprising the Midland Group ("Midland") consisting of 21
shopping centers plus a development pipeline of 11 shopping centers. Of the 32
centers to be acquired or developed, 31 are anchored by Kroger, or its
affiliate. Eight of the shopping centers included in the development pipeline
will be owned through a joint venture in which the Company will own less than a
50% interest upon completion of construction (the "JV Properties"). The
Company's investment in the properties acquired from Midland is $180.3 million
at June 30, 1998. As of June 30, 1998, the Company has acquired all but one of
the shopping centers and all the JV Properties. During 1998, 1999 and 2000,
including all payments made to date, the Company will pay approximately $213
million (including costs to be incurred on properties currently under
construction) for the 32 properties, and in addition may pay contingent
consideration of $23 million for the properties through the issuance of units of
RCLP, the payment of cash and the assumption of debt.
The Company acquired 35 shopping centers during 1997 (the "1997 Acquisitions")
for approximately $395.7 million. The 1997 Acquisitions include the acquisition
of 26 shopping centers from Branch Properties ("Branch") for $232.4 million in
March, 1997. The real estate acquired from Branch included 100% fee simple
interests in 20 shopping centers, and also partnership interests (ranging from
50% to 93%) in four partnerships with outside investors that owned six shopping
centers. The Company was also assigned the third party property management
contracts of Branch on approximately 3 million SF of shopping center GLA that
generate management fees and leasing commission revenues. Additional Units and
shares of common stock may be issued after the first, second and third
anniversaries of the closing with Branch (each an "Earn-Out Closing"), based on
the performance of the properties acquired. The formula for the earn-out
provides for calculating any increases in value on a property-by-property basis,
based on any increases in net income for the properties acquired, as of February
15 of the year of calculation. The earn-out is limited to 721,997 Units at the
first Earn-Out Closing and 1,020,061 Units for all Earn-Out Closings (including
the first Earn-Out Closing). During March, 1998, the Company issued 721,997
Units and shares valued at $18.2 million to the partners of Branch.
Liquidity and Capital Resources
Net cash provided by operating activities was $32.7 million and $24.9 million
for the six months ended June 30, 1998 and 1997, respectively, and is the
primary source of funds to pay dividends and distributions on outstanding common
stock and Units, maintain and operate the shopping centers, and pay interest and
scheduled principal reductions on outstanding debt. Changes in net cash provided
by operating activities is further discussed below under results from
operations. Net cash used in investing activities was $115 million and $ 125.1
million, during 1998 and 1997, respectively, as discussed above in Acquisitions
and Development of Shopping Centers. Net cash provided by financing activities
was $78.5 million and $105.3 million during 1998 and 1997, respectively.
The Company paid dividends and distributions of $25.4 million and $13.7 million,
during 1998 and 1997, respectively (see Funds from Operations below for further
discussion on payment of dividends). In 1998, the Company increased its
quarterly common dividend and distribution per Unit to $.44 per share vs. $.42
per share in 1997, had more outstanding common shares and Units in 1998 vs.
1997; and accordingly, expects dividends and distributions paid during 1998 to
increase substantially over 1997.
The Company's total indebtedness at June 30, 1998 and 1997 was approximately
$407.5 million and $356.4 million, respectively, of which $305.1 million and
$205.7 million had fixed interest rates averaging 7.5% and 7.4%, respectively.
The weighted average interest rate on total debt at June 30, 1998 and 1997 was
7.5% respectively. During 1998, the Company, as part of its acquisition
activities, assumed debt with a fair value of $113.9 million. The cash portion
of the purchase price for the 1998 and 1997 Acquisitions was financed from the
Company's line of credit (the "Line"). At June 30, 1998 and 1997, the balance of
the Line was $89.7 million and $111.3 million, respectively. The Line has a
variable rate of interest currently equal to the London Inter-bank Offered Rate
("LIBOR") plus 87.5 basis points.
In March, 1998, the Company entered into an agreement with the banks that
provide the Line to increase the unsecured commitment amount to $300 million,
provide for a $150 million competitive bid facility, and reduce the interest
rate on the line based upon achieving an investment grade rating. During the
first quarter of 1998, the Company received investment grade ratings from
Moody's of Baa2, Duff and Phelps of BBB, and S&P of BBB-.
On June 29, 1998, the Company, through RCLP, issued $80 million of 8.125% Series
A Cumulative Redeemable Preferred Units to an institutional investor in a
private placement. The issuance involved the sale of 1.6 million Preferred Units
for $50.00 per unit. The Preferred Units, which may be called 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%. The Preferred
Units are not convertible into common stock of the Company. The net proceeds of
the offering were used to reduce the balance of the Line.
On July 17, 1998 the Company, through RCLP, completed a $100 million private
offering of senior notes at an effective interest rate of 7.17%. The Notes were
priced at 162.5 basis points over the current yield for seven year US Treasury
Bonds. The net proceeds of the offering were used to reduce the balance of the
Line.
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 1998 as a
result of the acquisitions discussed above. The Company intends to continue to
acquire and develop shopping centers during 1998, and expects to meet the
related capital requirements from borrowings on the Line, and from additional
public equity and debt offerings. 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.
Results from Operations
Comparison of the Six Months Ended June 30, 1998 to 1997
Revenues increased $23.2 million or 55% to $65.5 million in 1998. The increase
was due primarily to the 1998 Acquisitions and 1997 Acquisitions providing
increases in revenues of $19.5 million during 1998. At June 30, 1998, the real
estate portfolio contained approximately 13.9 million SF, was 92.7% leased and
had average rents of $9.25 per SF. Minimum rent increased $17.1 million or 56%,
and recoveries from tenants increased $3.7 million or 52%. On a same property
basis (excluding the 1998 and 1997 Acquisitions) revenues decreased $.2 million
or 1%, primarily due to the sale of the office properties. Revenues from
property management, leasing, brokerage, and development services provided on
properties not owned by the Company were $5.4 million in 1998 compared to $3.7
million in 1997, the increase due primarily to fees earned from third party
property management and leasing contracts acquired as part of the acquisition of
Branch and Midland. During 1998, the Company sold four office buildings and a
parcel of land for $ 30.6 million, and recognized a gain on the sale of $10.7
million. As a result of these transactions the Company's real estate portfolio
is comprised entirely of neighborhood shopping centers. The proceeds from the
sale were applied toward the purchase of the 1998 acquisitions.
Operating expenses increased $11.0 million or 50% to $32.9 million in 1998.
Combined operating and maintenance, and real estate taxes increased $4.7 million
or 49% during 1998 to $14.3 million. The increases are due to the 1998 and 1997
Acquisitions generating operating and maintenance expenses and real estate tax
increases of $5.1 million during 1998. On a same property basis, operating and
maintenance expenses and real estate taxes decreased $445,000 or 6% due to the
sale of the four office properties. General and administrative expenses
increased 39% during 1998 to $7.3 million due to the hiring of new employees and
related office expenses necessary to manage the shopping centers acquired during
1998 and 1997, as well as, the shopping centers that the Company began managing
for third parties during 1997. Depreciation and amortization increased $4.3
million during 1998 or 61% primarily due to the 1998 and 1997 Acquisitions
generating $6.1 million in depreciation and amortization.
Interest expense increased to $12.9 million in 1998 from $10.2 million in 1997
or 26% due to increased average outstanding loan balances related to the
financing of the 1998 and 1997 Acquisitions on the Line and the assumption of
debt.
Net income for common stockholders was $30.4 million in 1998 vs. $8.8 million in
1997, a $21.6 million or 246% increase for the reasons previously described.
Diluted earnings per share in 1998 was $1.06. vs. $.51 in 1997 due to the
increase in net income combined with the dilutive impact from the increase in
weighted average common shares and equivalents of 14.5 million primarily due to
the acquisition of Branch and Midland, the issuance of shares to SC-USREALTY
during 1997, and the public offering completed in July, 1997.
Comparison of the Three Months Ended June 30, 1998 to 1997
Revenues increased $10.2 million or 41% to $34.8 million in 1998. The increase
was due primarily to the 1998 Acquisitions and 1997 Acquisitions providing
increases in revenues of $8.5 million during 1998. Minimum rent increased $7.3
million or 41%, and recoveries from tenants increased $1.9 million or 50%. On a
same property basis (excluding the 1998 and 1997 Acquisitions) revenues
decreased $.4 million or 3%, primarily due to the sale of the office properties.
Revenues from property management, leasing, brokerage, and development services
provided on properties not owned by the Company were $2.9 million in 1998
compared to $2.0 million in 1997, the increase due primarily to fees earned from
third party property management and leasing contracts acquired as part of the
acquisition of Branch.
Operating expenses increased $4.6 million or 37% to $17.1 million in 1998.
Combined operating and maintenance, and real estate taxes increased $2.1 million
or 39% during 1998 to $7.4 million. The increases are due to the 1998 and 1997
Acquisitions generating operating and maintenance expenses and real estate tax
increases of $2.4 million during 1998. On a same property basis, operating and
maintenance expenses and real estate taxes decreased $294,000 or 8% due to the
sale of the office properties. General and administrative expenses increased 28%
during 1998 to $3.8 million due to the hiring of new employees and related
office expenses necessary to manage the shopping centers acquired during 1998
and 1997, as well as, the shopping centers that the Company began managing for
third parties during 1997. Depreciation and amortization increased $1.7 million
during 1998 or 40% primarily due to the 1998 and 1997 Acquisitions generating
$3.4 million in depreciation and amortization.
Interest expense increased to $7.7 million in 1998 from $6.5 million in 1997 or
18% due to increased average outstanding loan balances related to the financing
of the 1998 and 1997 Acquisitions on the Line and the assumption of debt.
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 89% from 1997 to 1998 as a result of the acquisition activity
discussed above under "Results of Operations". FFO for the six months ended June
30, 1998 and 1997 are summarized in the following table:
1998 1997
---- ----
Net income for common stockholders $ 30,354 8,764
Add (subtract):
Real estate depreciation and amortization 10,997 6,773
Gain on sale of operating property (9,844) -
Minority interests in net income of
redeemable partnership units 892 1,603
Funds from operations $ 32,399 17,140
========= ======
Cash flow provided by (used in):
Operating activities $ 32,685 24,932
Investing activities (115,041) (125,141)
Financing activities 78,502 105,328
New Accounting Standards and Accounting Changes
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"),
which is effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting total comprehensive income in financial
statements, and requires that Companies explain the differences between total
comprehensive income and net income. Management has adopted this statement in
1998. No differences between total comprehensive income and net income existed
in the interim financial statements reported at June 30, 1998 and 1997.
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which is effective for fiscal years beginning after December 15, 1997.
FAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Management does not believe that FAS 131
will effect its current disclosures.
Effective March 19, 1998, the Emerging Issues Task Force (EITF) ruled in Issue
97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions", that only internal costs of identifying and acquiring
non-operating properties that are directly identifiable with the acquired
properties should be capitalized, and that all internal costs associated with
identifying and acquiring operating properties should be expensed as incurred.
The Company had previously capitalized direct costs associated with the
acquisition of operating properties as a cost of the real estate. The Company
has adopted EITF 97-11 effective March 19, 1998. During 1997, the Company
capitalized approximately $1.5 million of internal costs related to acquiring
operating properties. Through the effective date of EITF 97-11, the Company has
capitalized $474,000 of internal acquisition costs. For the remainder of 1998,
the Company expects to incur $1.1 million internal costs related to acquiring
operating properties which will be expensed.
On May 22, 1998, the EITF reached a consensus on Issue 98-9 "Accounting for
Contingent Rent in Interim Financial Periods". The EITF has stated that lessors
should defer recognition of contingent rental income that is based on meeting
specified targets until those specified targets are met and not ratably
throughout the year. The Company has previously recognized contingent rental
income (i.e. percentage rent) ratably over the year based on the historical
trends of its tenants. The Company has adopted Issue 98-9 prospectively and has
ceased the recognition of contingent rents until such time as its tenants have
achieved its specified target. The Company believes this will effect the interim
period in which percentage rent is recognized, however it will not have a
material impact on the annual recognition of percentage rent.
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. 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 1998 and 1997 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
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" problem and is in
process of resolving the issue. During 1997, the Company converted its operating
system, and its general accounting and lease administration software systems to
versions containing modifications that corrected for the Year 2000 problem. The
Company will continue to assess its other internal systems and reprogram or
upgrade as necessary, however, the cost to convert remaining systems is not
expected to have a material effect on the Company's financial position. The
Company is also reviewing the Year 2000 system conversions of other companies of
which it does business in order to determine their compliance.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting for Regency Realty Corporation was held on May 26,
1998 for the following purpose:
To elect one Class III Director, one Class I Director and four
Class II Directors to serve terms expiring at the annual
meeting of shareholders to be held in 1999, 2000, and 2001,
respectively, and until their successors have been elected and
qualified.
To consider and vote on a proposed amendment to the Company's
Articles of Incorporation that would apply to the Company's
major beneficial shareholder, Security Capital U.S. Realty and
its subsidiary (collectively, "SC-USREALTY'), the same transfer
restrictions that currently apply to all other Non-U.S. Persons
(as defined in the Articles of Incorporation).
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
22,006,051. The votes were as follows: 18,365,301 voting FOR and
19,712 ABSTAIN for Item 1, 18,343,286 votes FOR, 23,556 AGAINST
and 18,170 ABSTAIN for Item 2 and 18,385,023 FOR Item 3.
Accordingly, the proposals were passed.
5. Other Information
The deadline for submission of shareholder proposals pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended
("Rule14a-8"), for inclusion in the Company's proxy statement for its
1999 Annual Meeting of Shareholders is December 16, 1998. After March
1, 1999, notice to the Company of a shareholder proposal submitted
otherwise than pursuant to Rule 14a-8 will be considered untimely, and
the persons named in proxies solicited by the Company's Board of
Directors for its 1999 Annual Meeting of Shareholders may exercise
discretionary voting power with respect to any such proposal as to
which the Company does not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
3. Articles of Incorporation
(a) Restated Articles of Incorporation of Regency Realty
Corporation as amended to date.
(i) Amendment to Restated Articles of Incorporation of Regency
Realty Corporation as amended to date.
4. Instruments defining the rights of security holders, including
indentures
Indenture dated as of July 20, 1998 among RCLP, the Guarantors
named therein and First Union National Bank, as trustee,
incorporated by reference to Exhibit 10.3 to the Regency
Centers, L.P. Form 10 Registration Statement.
Material Contracts
Item 10. Material contracts
Purchase and Sale Agreement, dated March 10, 1998 between
Faison-Fleming Island Limited Partnership, a Florida limited
partnership, as Seller, and RRC Acquisitions, Two, Inc. a Florida
corporation, its designees, successors and assigns ("Buyer"), relating
to the acquisition of Fleming Island Shopping Center.
10.1
Exchange and Registration Rights Agreement dated as of July 15, 1998
among RCLP, the Guarantors named therein and the Purchasers named
therein, incorporated by reference to Exhibit 10.4 to the Partnership's
Form 10 Registration Statement.
10.2 Registration Rights Agreement dated as of June 25, 1998 between
Regency Realty Corporation and the Unit Holder named therein.
Reports on Form 8-K:
A report on Form 8-K was filed on July 20, 1998 reporting
under Item 5. Acquisition of five shopping centers to include
audited financial statements and December 31, 1997 audited
financial statements for the Midland Group and pro forma
condensed consolidated financial statements of operations for
the three months ended March 31, 1998 and the year ended
December 31, 1997.
27. Financial Data Schedule
June 30, 1998
Restated June 30, 1997
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 14, 1998 REGENCY REALTY CORPORATION
By: /s/ J. Christian Leavitt
Vice President, Treasurer
and Secretary