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 CENTERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 59-3429602
(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[ ]
REGENCY CENTERS, L.P.
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
1998 1997
---- ----
(unaudited)
Assets
Real estate investments, at cost:
Land $ 183,543,075 134,457,274
Buildings and improvements 653,450,521 467,730,009
Construction in progress - development for investment 9,947,030 13,427,370
Construction in progress - development for sale 21,186,446 20,173,039
------------ -----------
868,127,072 635,787,692
Less: accumulated depreciation 24,857,246 22,041,114
------------ -----------
843,269,826 613,746,578
Investments in real estate partnerships 22,401,368 999,730
------------ -----------
Net real estate investments 865,671,194 614,746,308
Cash and cash equivalents 7,997,662 14,642,429
Tenant receivables, net of allowance for
uncollectible accounts of $2,203,559
and $1,162,570 at June 30, 1998
and December 31, 1997, respectively 8,523,897 7,245,788
Deferred costs, less accumulated amortization
of $1,626,167 and $1,456,933 at June 30, 1998
and December 31, 1997, respectively 2,589,036 2,215,099
Other assets 2,764,023 2,299,521
----------- -----------
$ 887,545,812 641,149,145
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Mortgage loans payable 224,440,767 145,455,989
Acquisition and development line of credit 89,731,185 48,131,185
Accounts payable and other liabilities 14,484,214 9,972,065
Tenants' security and escrow deposits 2,255,767 1,854,700
----------- -----------
Total liabilities 330,911,933 205,413,939
----------- -----------
Limited partners' interest in consolidated partnerships
(note 2) 7,354,704 7,305,945
----------- -----------
Redeemable preferred units 78,800,000 -
Redeemable operating partnership units 470,479,175 428,429,261
------------ -----------
Partners' capital 549,279,175 428,429,261
------------ -----------
Commitments and contingencies
$ 887,545,812 641,149,145
=========== ===========
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Statements of Operations
For the Three Months ended June 30, 1998 and 1997
(unaudited)
1998 1997
---- -----
Revenues:
Minimum rent $ 20,137,351 14,163,423
Percentage rent 203,785 404,913
Recoveries from tenants 4,534,061 2,863,135
Management, leasing and brokerage fees 2,902,262 2,046,334
Equity in income (loss) of investments in
real estate partnerships 145,425 (9,654)
---------- ----------
Total revenues 27,922,884 19,468,151
---------- ----------
Operating expenses:
Depreciation and amortization 4,594,855 3,200,573
Operating and maintenance 3,326,494 2,755,616
General and administrative 3,829,341 2,995,008
Real estate taxes 2,304,500 1,344,411
---------- ----------
Total operating expenses 14,055,190 10,295,608
---------- ----------
Interest expense (income):
Interest expense 5,840,063 5,173,451
Interest income (615,226) (264,326)
----------- ---------
Net interest expense 5,224,837 4,909,125
----------- ---------
Income before minority interests and sale
of real estate investments 8,642,857 4,263,418
--------- ---------
Minority interest of limited partners (103,009) (214,406)
Gain on sale of real estate investments 508,678 -
-------- --------
Net income for unitholders $ 9,048,526 4,049,012
========= =========
Net income per unit:
Basic $ .32 .20
========= ==========
Diluted $ .31 .19
========= ==========
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Statements of Operations
For the Six Months ended June 30, 1998 and 1997
(unaudited)
1998 1997
---- -----
Revenues:
Minimum rent $ 37,201,835 23,099,828
Percentage rent 622,899 526,799
Recoveries from tenants 8,344,603 5,127,636
Management, leasing and brokerage fees 5,406,368 3,687,525
Equity in income of investments in
real estate partnerships 146,411 17,137
--- ------- -----------
Total revenues 51,722,116 32,458,925
---------- -----------
Operating expenses:
Depreciation and amortization 8,740,321 5,151,973
Operating and maintenance 6,370,748 4,447,846
General and administrative 7,262,449 5,216,014
Real estate taxes 4,398,495 2,719,695
--------- ----------
Total operating expenses 26,772,013 17,535,528
---------- ----------
Interest expense (income):
Interest expense 9,249,580 7,631,828
Interest income (933,472) (423,016)
---------- ----------
Net interest expense 8,316,108 7,208,812
----------- ---------
Income before minority interests and sale
of real estate investments 16,633,995 7,714,585
---------- ---------
Minority interest of limited partners (200,159) (345,142)
Gain on sale of real estate investments 10,746,097 -
---------- ---------
Net income for unitholders $ 27,179,933 7,369,443
========== =========
Net income per unit:
Basic $ 1.04 .35
==== ===
Diluted $ 1.02 .32
==== ===
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
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 $ 27,179,933 7,369,443
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 8,740,321 5,151,973
Deferred financing cost and debt premium amortization (28,814) 441,004
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 (1,278,109) (1,175,630)
Deferred leasing commissions (477,146) (173,658)
Other assets (1,656,348) 712,327
Tenants' security deposits 401,067 689,406
Accounts payable and other liabilities 4,512,149 8,126,544
----------- -----------
Net cash provided by operating activities 26,700,704 21,469,414
------------ -----------
Cash flows from investing activities:
Acquisition and development of real estate (119,980,748) (113,482,333)
Investment in real estate partnerships (21,276,350) -
Capital improvements (1,878,993) (1,013,456)
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 (113,466,178) (122,743,807)
------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of redeemable partnership units 7,667 2,255,140
Cash contributions from the issuance of Regency stock 9,685,435 68,275,213
Cash distributions for dividends (25,416,413) (13,719,745)
Other contributions (distributions), net 1,478,481 609,420
Proceeds from issuance of redeemable preferred units 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 (32,763,104) (2,148,114)
Deferred financing costs (616,359) (510,471)
----------- -----------
Net cash provided by financing activities 80,120,707 107,540,196
------------ -----------
Net (decrease) increase in cash and cash equivalents (6,644,767) 6,265,803
------------- ------------
Cash and cash equivalents at beginning of period 14,642,429 6,466,899
------------ -----------
Cash and cash equivalents at end of period $ 7,997,662 12,732,702
=========== ===========
REGENCY CENTERS, L.P.
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 $ 104,751,624 111,052,817
=========== ===========
Redeemable operating partnership units
issued to sellers of real estate $ 28,963,411 94,769,706
=========== ===========
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
June 30, 1998
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
Regency Centers, L.P. (the Partnership) is the primary entity
through which Regency Realty Corporation ("Regency"), a
self-administered and self-managed real estate investment trust
("REIT"), conducts substantially all of its business and owns
substantially all of its assets. In 1993, Regency was formed for
the purpose of managing, leasing, brokering, acquiring, and
developing shopping centers. The Partnership also provides
management, leasing, brokerage and development services for real
estate not owned by Regency (i.e., owned by third parties).
The Partnership was formed in 1996 for the purpose of acquiring
certain real estate properties. The historical financial
statements of the Partnership reflect the accounts of the
Partnership since its inception, together with the accounts of
certain predecessor entities (including Regency Centers, Inc., a
wholly-owned subsidiary of Regency through which Regency owned a
substantial majority of its properties), which were merged with
and into the Partnership as of February 26, 1998.
The accompanying interim unaudited financial statements (the
"Financial Statements") include the accounts of the Partnership,
and its majority owned subsidiaries and partnerships. All
significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
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 Partnership's December 31, 1997 Form 10 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 CENTERS, L.P.
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 Partnership had previously capitalized direct
costs associated with the acquisition of operating properties as a
cost of the real estate. The Partnership has adopted EITF 97-11
effective March 19, 1998. During 1997, the Partnership capitalized
approximately $1.5 million of internal costs related to acquiring
operating properties. Through the effective date of EITF 97-11,
the Partnership has capitalized $474,000 of internal acquisition
costs. For the remainder of 1998, the Partnership 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 Partnership has previously recognized
contingent rental income (i.e. percentage rent) ratably over the
year based on the historical trends of its tenants. The
Partnership 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 Partnership 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 CENTERS, L.P.
Notes to Consolidated Financial Statements
June 30, 1998
2. Acquisitions of Shopping Centers
During the first six months of 1998, the Partnership acquired a total of
23 shopping centers for approximately $225.2 million (the "1998
Acquisitions"). In January, 1998, the Partnership 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 Partnership
will own less than a 50% interest upon completion of construction (the
"JV Properties"). As of June 30, 1998, the Partnership has acquired all
but one of the shopping centers and all of the JV Properties. The
Partnership's investment in the properties acquired from Midland is
$180.3 million at June 30, 1998. During 1998, 1999 and 2000, including
all payments made to date, the Partnership will pay approximately $213
million (including costs to be incurred on propertied 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 the Partnership, the payment of cash and the assumption of debt.
In March, 1997, the Partnership 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 Partnership 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 Partnership's outstanding debt at June 30, 1998 and December 31, 1997
consists of the following:
1998 1997
---- ----
Mortgage Loans Payable:
Fixed rate secured loans $189,995,742 114,615,011
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 $314,171,952 193,587,174
============ ===========
During March, 1998, the Partnership 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 Partnership'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 on LIBOR plus a specified spread,
(.875% currently), which is dependent on the Partnership's investment
grade rating. The Partnership's ratings are currently Baa2 from Moody's
Investor Service, BBB from Duff and Phelps, and BBB- from Standard and
Poors. The Partnership is required to comply with certain financial
covenants consistent with this
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
June 30, 1998
3. Mortgage Loans Payable and Unsecured Line of Credit (continued)
type of 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 Partnership 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 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 Regency. The net proceeds of the
offering were used to reduce the Partnership's bank line of credit.
On July 17, 1998 the Partnership 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 will be 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 Partnership'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 Partnership assumed mortgage
loans with a face value of $99,602,679 related to the acquisition of
shopping centers. The Partnership has recorded the loans at fair value
which created debt premiums of $5,148,945 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 $8,325,724
1999 14,935,360
2000 99,525,400
2001 18,931,911
2002 38,654,417
Thereafter 128,998,937
-----------
Subtotal 309,371,749
Net unamortized debt premiums 4,800,203
-----------
Total 314,171,952
===========
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
June 30, 1998
4. Earnings Per Unit
The following summarizes the calculation of basic and diluted earnings
per unit for the three months ended, June 30, 1998 and 1997(in thousands
except per unit data):
1998 1997
---- ----
Basic Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding 23,855 13,440
Net income for unitholders $ 9,049 4,049
Less: dividends paid on Class B common stock
1,344 1,285
----- -----
Net income for Basic Earnings per Unit $ 7,705 2,764
===== =====
Basic Earnings per Unit $ .32 .20
=== ===
Diluted Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding for Basic EPU 23,855 13,440
Incremental units to be issued under common
stock options using the Treasury method - 78
Contingent units for the acquisition
of real estate
519 1,138
------ ------
Total diluted units 24,374 14,656
====== ======
Diluted Earnings per Unit $ .32 .19
=== ===
The Class B common stock dividends are deducted from income in computing
earnings per unit since the proceeds of this offerings was transferred to
and reinvested by the Partnership. Accordingly, payment of such dividends
is dependent upon the operations of the Partnership.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
June 30, 1998
4. Earnings Per Unit (continued)
The following summarizes the calculation of basic and diluted earnings
per unit for the six months ended, June 30, 1998 and 1997(in thousands
except per unit data):
1998 1997
---- ----
Basic Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding 23,602 13,691
Net income for unitholders $ 27,180 7,369
Less: dividends paid on Class B common stock 2,689 2,570
----- -----
Net income for Basic Earnings per Unit $ 24,491 4,799
====== =====
Basic Earnings per Unit $ 1.04 .35
===== ===
Diluted Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding for Basic EPU 23,602 13,691
Incremental units to be issued under common
stock options using the Treasury method 27 89
Contingent units for the acquisition
of real estate 428 759
------ ------
Total diluted units 24,057 14,539
====== ======
Diluted Earnings per Unit $ 1.02 .33
==== ===
The Class B common stock dividends are deducted from income in
computing earnings per unit since the proceeds of this offerings was
transferred to and reinvested by the Partnership. Accordingly, payment of
such dividends is dependent upon the operations of the Partnership.
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 Centers, L.P.
("RCLP" or the "Partnership") appearing elsewhere in this Form 10-Q, and with
the Partnership's Form 10 filed August 7, 1998. 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
Partnership in the future to significantly differ from any future results that
may be implied by such forward-looking statements.
Organization
RCLP is the primary entity through which Regency Realty Corporation ("Regency"),
a self-administered and self-managed real estate investment trust ("REIT")
conducts substantially all of its business and owns substantially all of its
assets. In 1993, Regency was formed for the purpose of managing, leasing,
brokering, acquiring, and developing shopping centers. The Partnership also
provides management, leasing, brokerage and development services for real estate
not owned by Regency (i.e., owned by third parties).
Of the 124 properties included in Regency's portfolio at June 30, 1998, 103
properties were owned either fee simple or through partnership interests by the
Partnership. At June 30, 1998, Regency had an investment in real estate, at
cost, of approximately $1.1 billion of which $891 million or 81% was owned by
the Partnership.
Shopping Center Business
The Partnership'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
Partnership'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 36 4,529,458 93.0% 35 4,168,458 93.5%
Georgia 25 2,538,711 91.3% 23 2,368,890 92.4%
North Carolina 12 1,241,784 97.2% 6 554,332 99.0%
Ohio 10 1,045,630 97.3% - - -
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% - - -
-------------- --------- ---------- ------------- ----------- ------------
Total 103 1,203,189 93.1 68 7,379,778 93.6%
============= ========= ========== ============= =========== ============
The Partnership 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 Partnership's current
investment markets have continued to offer strong stable economies, and
accordingly, the Partnership 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 Partnership's shopping centers:
Average
Grocery Anchor Number of % of % of Annual Remaining Lease
Stores Total GLA Base Rent Term
Kroger * 36 15.5% 15.5% 20 yrs
Publix 26 8.3% 6.3% 13 yrs
Winn Dixie 11 3.6% 2.7% 13 yrs
Blockbuster 29 1.3% 2.1% 4 yrs
*includes properties under development scheduled for opening in 1998
and 1999. Excluding development properties, Kroger would represent
12.3% of GLA and 11.8% of annual base rent.
Acquisition and Development of Shopping Centers
During the first six months of 1998, the Partnership acquired a total of 23
shopping centers for approximately $225.2 million (the "1998 Acquisitions"). In
January, 1998, the Partnership 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
Partnership will own less than a 50% interest upon completion of construction
(the "JV Properties"). As of June 30, 1998, the Partnership has acquired all but
one of the shopping centers and all of the JV Properties. The Partnership's
investment in the properties acquired from Midland is $186.5 million at June 30,
1998. During 1998, 1999 and 2000, including all payments made to date, the
Partnership will pay approximately $213 million (including costs to be incurred
on propertied 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 Partnership acquired 36 shopping centers during 1997 (the "1997
Acquisitions") for approximately $346.1 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 Partnership 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 Partnership 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 $26.7 million and $21.5 million
for the six months ended June 30, 1998 and 1997, respectively, and is the
primary source of funds to pay distributions on outstanding partnership Units
(which Regency uses to pay dividends on its common stock), 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 $113.5 million and $122.7 million, during 1998 and
1997, respectively, as discussed above in Acquisitions and Development of
Shopping Centers. Net cash provided by financing activities was $80.1 million
and 107.5 million during 1998 and 1997, respectively.
The Partnership paid distributions of $25.4 million and $13.7 million, during
1998 and 1997, respectively. In 1998, the Partnership increased its quarterly
distribution per Unit to $.44 per share vs. $.42 per share in 1997, had more
outstanding Units in 1998 vs. 1997; and accordingly, expects distributions paid
during 1998 to increase substantially over 1997.
The Partnership's total indebtedness at June 30, 1998 and 1997 was approximately
$314.2 million and $271.1 million, respectively, of which $211.8 million and
$120.4 million had fixed interest rates averaging 7.4% and 8.2 %, respectively.
The weighted average interest rate on total debt at June 30, 1998 and 1997 was
7.4% and 7.8% respectively. During 1998, the Partnership, as part of its
acquisition activities, assumed debt with a fair value of $104.8 million. The
cash portion of the purchase price for the 1998 and 1997 Acquisitions was
financed from the Partnership'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 Partnership 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, RCLP received investment grade ratings from Moody's of
Baa2, Duff and Phelps of BBB, and S&P of BBB-.
On June 29, 1998, the Partnership 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 Regency. The net proceeds of the
offering were used to reduce the balance of the Line.
On July 17, 1998 the Partnership 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 reduce the balance of the Line.
Regency qualifies and intends to continue to qualify as a REIT under the
Internal Revenue Code. As a REIT, Regency is allowed to reduce taxable income by
all or a portion of its distributions to stockholders. Since Regency's
distributions have exceeded it's taxable income, Regency has made no provision
for federal income taxes. While the Partnership intends to continue to pay
distributions such that Regency can continue to pay dividends to its
stockholders, the Partnership will reserve such amounts of cash flow as it
considers necessary for the proper maintenance and improvement of its real
estate, while still allowing Regency to maintain its qualification as a REIT.
The Partnership's real estate portfolio has grown substantially during 1998 as a
result of the acquisitions discussed above. The Partnership 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
Partnership's capital resources currently available for liquidity requirements.
The Partnership 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 $19.3 million or 59% to $51.7 million in 1998. The increase
was due primarily to the 1998 Acquisitions and 1997 Acquisitions. At June 30,
1998, the real estate portfolio contained approximately 11.2 million SF, was
93.1% leased and had average rents of $9.45 per SF. Minimum rent increased $14.1
million or 61%, and recoveries from tenants increased $3.2 million or 63%.
Revenues from property management, leasing, brokerage, and development services
provided on properties not owned by the Partnership 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. 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 $9.2 million or 53% to $26.8 million in 1998.
Combined operating and maintenance, and real estate taxes increased $3.6 million
or 50% during 1998 to $10.8 million. The increases are due to the 1998 and 1997
Acquisitions. 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 Partnership began managing for third parties
during 1997. Depreciation and amortization increased $3.6 million during 1998 or
70% primarily due to the 1998 and 1997 Acquisitions.
Interest expense increased to $9.2 million in 1998 from $7.6 million in 1997 or
21% 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 $27.2 million in 1998 vs. $7.4 million in
1997, a $19.8 million or 269% increase for the reasons previously described.
Diluted earnings per unit in 1998 was $1.02 vs. $0.32 in 1997 due to the
increase in net income combined with the dilutive impact from the increase in
weighted average common units and equivalents of 9.5 million primarily due to
the acquisition of Branch and Midland, the issuance of units 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 $8.5 million or 43% to $27.9 million in 1998. The increase
was due primarily to the 1998 Acquisitions and 1997 Acquisitions. Minimum rent
increased $6.0 million or 42%, and recoveries from tenants increased $1.7
million or 58%. Revenues from property management, leasing, brokerage, and
development services provided on properties not owned by the Partnership 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 $3.8 million or 37% to $14.1 million in 1998.
Combined operating and maintenance, and real estate taxes increased $1.5 million
or 37% during 1998 to $5.6 million. The increases are due to the 1998 and 1997
Acquisitions. 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 Partnership began managing for third parties
during 1997. Depreciation and amortization increased $1.4 million during 1998 or
44% primarily due to the 1998 and 1997 Acquisitions.
Interest expense increased to $5.8 million in 1998 from $5.2 million in 1997 or
13% 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.
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 Partnership had previously capitalized direct costs associated with the
acquisition of operating properties as a cost of the real estate. The
Partnership has adopted EITF 97-11 effective March 19, 1998. During 1997, the
Partnership capitalized approximately $1.5 million of internal costs related to
acquiring operating properties. Through the effective date of EITF 97-11, the
Partnership has capitalized $474,000 of internal acquisition costs. For the
remainder of 1998, the Partnership 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 Partnership has previously recognized contingent rental
income (i.e. percentage rent) ratably over the year based on the historical
trends of its tenants. The Partnership 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 Partnership 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 Partnership 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 Partnership's shopping centers is the principal environmental
concern. The Partnership 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 Partnership.
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 Partnership's long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such provisions include
clauses enabling the Partnership 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 Partnership's leases are for
terms of less than ten years, which permits the Partnership to seek increased
rents upon re-rental at market rates. Most of the Partnership'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
Partnership's exposure to increases in costs and operating expenses resulting
from inflation.
Year 2000 System Compliance
The Partnership 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 Partnership 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 Partnership 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 Partnership's financial
position. The Partnership is also reviewing the Year 2000 system conversions of
other companies of which it does business in order to determine their
compliance.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
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.
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
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 CENTERS, L.P.
By: /s/ J. Christian Leavitt
Vice President, Treasurer
and Secretary