United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended September 30, 1999
-or-
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-12298
REGENCY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-3191743
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 356-7000
(Registrant's telephone number, including area code)
Unchanged
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
(Applicable only to Corporate Registrants)
As of November 8, 1999, there were 59,263,998 shares outstanding of the
Registrant's common stock.
Part I.
Item 1. Financial Statements
REGENCY REALTY CORPORATION
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
1999 1998
---- ----
(unaudited)
Assets
Real estate investments, at cost:
Land $ 560,100,560 257,669,018
Buildings and improvements 1,817,570,069 925,514,995
Construction in progress - development for investment 81,899,349 15,647,659
Construction in progress - development for sale 110,868,541 20,869,915
----------------- -----------------
2,570,438,519 1,219,701,587
Less: accumulated depreciation 92,323,612 58,983,738
----------------- -----------------
2,478,114,907 1,160,717,849
Investments in real estate partnerships 58,567,208 30,630,540
----------------- -----------------
Net real estate investments 2,536,682,115 1,191,348,389
Cash and cash equivalents 23,584,820 19,919,693
Tenant receivables, net of allowance for uncollectible accounts of
$1,632,837 and $1,787,686 at September 30, 1999 and
December 31, 1998, respectively 29,766,946 16,758,917
Deferred costs, less accumulated amortization of $7,641,567 and
$5,295,336 at September 30, 1999 and December 31, 1998 12,051,673 6,872,023
Other assets 6,400,533 5,208,278
----------------- -----------------
$ 2,608,486,087 1,240,107,300
================= =================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable 774,819,893 430,494,910
Acquisition and development line of credit 144,179,310 117,631,185
Accounts payable and other liabilities 41,464,665 19,936,424
Tenants' security and escrow deposits 7,539,864 3,110,370
----------------- -----------------
Total liabilities 968,003,732 571,172,889
----------------- -----------------
Preferred units 284,050,000 78,800,000
Exchangeable operating partnership units 44,906,443 27,834,330
Limited partners' interest in consolidated partnerships 10,580,517 11,558,618
----------------- -----------------
Total minority interest 339,536,960 118,192,948
----------------- -----------------
Stockholders' equity:
Convertible Preferred stock Series 1 and paid in capital $.01
par value per share: 542,532 shares authorized issued and
outstanding; liquidation preference $20.83 per share 12,654,570 -
Convertible Preferred stock Series 2 and paid in capital $.01
par value per share: 1,502,532 shares authorized; 960,000 shares
issued and outstanding, liquidation preference $20.83 per share 22,392,000 -
Common stock $.01 par value per share: 150,000,000 shares
authorized; 59,586,075 and 25,488,989 shares issued and
outstanding at September 30, 1999 and December 31, 1998 595,861 254,889
Special common stock - 10,000,000 shares authorized: Class B
$.01 par value per share, 2,500,000 shares issued
and outstanding at December 31, 1998 - 25,000
Additonal paid in capital 1,302,393,185 578,466,708
Distributions in excess of net income (25,622,779) (19,395,744)
Stock loans (11,467,442) (8,609,390)
----------------- -----------------
Total stockholders' equity 1,300,945,395 550,741,463
----------------- -----------------
Commitments and contingencies
$ 2,608,486,087 1,240,107,300
================= =================
See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Three Months ended September 30, 1999 and 1998
(unaudited)
1999 1998
---- ----
Revenues:
Minimum rent $ 58,700,840 27,162,566
Percentage rent 274,372 173,589
Recoveries from tenants 14,535,041 6,419,085
Management, leasing and brokerage fees 4,540,031 3,079,485
Equity in income of investments in
real estate partnerships 1,218,075 364,779
----------------- ----------------
Total revenues 79,268,359 37,199,504
----------------- -----------------
Operating expenses:
Depreciation and amortization 13,112,164 6,600,399
Operating and maintenance 10,560,095 4,605,159
General and administrative 4,795,323 3,325,878
Real estate taxes 7,679,217 3,263,624
Other expenses 375,000 50,000
-----------------
Total operating expenses 36,521,799 17,845,060
----------------- -----------------
Interest expense (income):
Interest expense 15,575,115 7,293,863
Interest income (491,730) (418,671)
----------------- -----------------
Net interest expense 15,083,385 6,875,192
----------------- -----------------
Income before minority interests and sale
of real estate investments 27,663,175 12,479,252
Loss on sale of real estate investments - (8,871)
----------------- -----------------
Income before minority interests 27,663,175 12,470,381
Minority interest of exchangeable partnership units (769,851) (486,954)
Minority interest of limited partners 83,702 (189,385)
Minority interest preferred unit distribution (2,334,376) (1,733,333)
----------------- -----------------
Net income 24,642,650 10,060,709
Preferred stock dividends (677,165) -
----------------- -----------------
Net income for common stockholders $ 23,965,485 10,060,709
================= =================
Net income per share:
Basic $ 0.40 0.34
================= =================
Diluted $ 0.40 0.34
================= =================
See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION
Consolidated Statements of Operations
For the Nine Months ended September 30, 1999 and 1998
(unaudited)
1999 1998
---- ----
Revenues:
Minimum rent $ 156,322,933 74,823,359
Percentage rent 1,150,840 1,835,450
Recoveries from tenants 38,859,254 17,057,500
Management, leasing and brokerage fees 10,553,861 9,067,666
Equity in income of investments in
real estate partnerships 3,354,278 511,189
----------------- -----------------
Total revenues 210,241,166 103,295,164
----------------- -----------------
Operating expenses:
Depreciation and amortization 34,893,216 17,984,954
Operating and maintenance 27,361,566 13,077,060
General and administrative 13,576,216 10,288,327
Real estate taxes 19,871,176 9,051,428
Other expenses 900,000 350,000
----------------- -----------------
Total operating expenses 96,602,174 50,751,769
----------------- -----------------
Interest expense (income):
Interest expense 43,567,458 20,749,045
Interest income (1,612,733) (1,385,054)
----------------- -----------------
Net interest expense 41,954,725 19,363,991
----------------- -----------------
Income before minority interests and sale
of real estate investments 71,684,267 33,179,404
Gain on sale of real estate investments - 10,737,226
----------------- -----------------
Income before minority interests 71,684,267 43,916,630
Minority interest of exchangeable partnership units (2,108,362) (1,378,778)
Minority interest of limited partners (663,331) (389,544)
Minority interest preferred unit distribution (5,584,378) (1,733,333)
----------------- -----------------
Net income 63,328,196 40,414,975
Preferred stock dividends (1,577,165) -
----------------- -----------------
Net income for common stockholders $ 61,751,031 40,414,975
================= =================
Net income per share:
Basic $ 1.16 1.45
================= =================
Diluted $ 1.16 1.42
================= =================
See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION
Consolidated Statement of Stockholders' Equity
For the Nine Months ended September 30, 1999
(unaudited)
Class B Additional
Series 1 Series 2 Common Common Paid In
Preferred Stock Preferred Stock Stock Stock Capital
--------------- --------------- --------- ------------ ---------------
Balance at
December 31, 1998 $ - - 254,889 25,000 578,466,708
Common stock issued as
compensation or purchased by
directors or officers - - 2,085 - 2,140,046
Common stock issued or cancelled
under stock loans - - (498) - (1,234,741)
Common stock issued for
partnership units exchanged - - 3,961 - 7,591,712
Common stock issued for
class B conversion - - 29,755 (25,000) (4,755)
Preferred stock issued to
acquire Pacific Retail Trust 12,654,570 22,392,000 - - -
Common stock issued to
acquire Pacific Retail Trust - - 305,669 - 715,434,215
Cash dividends declared:
Common stock $.46 per share
and preferred stock - - - - -
Net income - - - - -
-------------- ------------ ----------- ----------- --------------
Balance at
September 30, 1999 $ 12,654,570 22,392,000 595,861 - 1,302,393,185
============== ============ =========== =========== ==============
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statement of Stockholders' Equity
For the Nine Months ended September 30, 1999
(unaudited)
continued
Distributions Total
in exess of Stock Stockholders'
Net Income Loans Equity
-------------- -------------- ----------------
Balance at
December 31, 1998 $ (19,395,744) (8,609,390) 550,741,463
Common stock issued as
compensation or purchased by
directors or officers - - 2,142,131
Common stock issued or cancelled
under stock options - 1,140,902 (94,337)
Common stock issued for
partnership units exchanged - - 7,595,673
Common stock issued for
class B conversion - - -
Preferred stock issued to
acquire Pacific Retail Trust - - 35,046,570
Common stock issued to
acquire Pacific Retail Trust - (3,998,954) 711,740,930
Cash dividends declared:
Common stock $.46 per share
and preferred stock (69,555,231) - (69,555,231)
Net income 63,328,196 - 63,328,196
-------------- -------------- ----------------
Balance at
September 30, 1999 $ (25,622,779) (11,467,442) 1,300,945,395
============== ============== ================
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 63,328,196 40,414,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,893,216 17,984,954
Deferred financing cost and debt premium amortization 347,204 (510,223)
Stock based compensation 1,921,831 1,921,484
Minority interest of exchangeable partnership units 2,108,362 1,378,778
Minority interest preferred unit distribution 5,584,378 1,733,333
Minority interest of limited partners 663,331 389,544
Equity in income of investments in real estate partnerships (3,354,278) (511,189)
Gain on sale of real estate investments - (10,737,226)
Changes in assets and liabilities:
Tenant receivables (9,368,533) (6,559,473)
Deferred leasing commissions (3,378,467) (1,491,666)
Other assets 1,439,804 (6,508,924)
Tenants' security deposits 711,577 608,197
Accounts payable and other liabilities 5,347,438 15,508,988
---------------- ----------------
Net cash provided by operating activities 100,244,059 53,621,552
---------------- ----------------
Cash flows from investing activities:
Acquisition and development of real estate (88,033,694) (174,869,327)
Acquisition of Pacific, net of cash acquired (9,046,230) -
Investment in real estate partnerships (23,714,109) (23,337,738)
Capital improvements (10,894,912) (4,825,026)
Construction in progress for sale, net of reimbursement (57,267,676) 3,445,834
Proceeds from sale of real estate investments - 30,662,197
Distributions received from real estate partnership investments 704,474 35,844
---------------- ----------------
Net cash used in investing activities (188,252,147) (168,888,216)
---------------- ----------------
Cash flows from financing activities:
Net proceeds from common stock issuance 105,809 9,733,060
Proceeds from issuance of exchangeable partnership units - 7,694
Redemption of partnership units (1,377,523) -
Net distributions to limited partners in consolidated partnerships (940,763) (234,577)
Distributions to partnership unit holders (2,576,197) (1,471,599)
Distributions to preferred unit holders (5,584,378) (1,733,333)
Dividends paid to common stockholders (67,978,066) (36,913,032)
Dividends paid to preferred stockholders (1,352,165) -
Net proceeds from term notes 249,845,300 99,758,000
Net proceeds from issuance of preferred units 205,250,000 78,800,000
Repayment of acquisition and development
line of credit, net (245,051,875) (2,200,000)
Proceeds from mortgage and construction loans payable 2,555,836 7,345,000
Repayment of mortgage loans payable (36,875,935) (34,765,133)
Deferred financing costs (4,346,828) (1,244,787)
---------------- ----------------
Net cash provided by financing activities 91,673,215 117,081,293
---------------- ----------------
Net increase in cash and cash equivalents 3,665,127 1,814,629
Cash and cash equivalents at beginning of period 19,919,693 16,586,094
---------------- ----------------
Cash and cash equivalents at end of period $ 23,584,820 18,400,723
================ ================
REGENCY REALTY CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(unaudited)
-continued-
1999 1998
---- ----
Supplemental disclosure of cash flow information - cash paid for interest
(net of capitalized interest of approximately
$7,485,000 and $3,447,000 in 1999 and 1998 respectively) $ 43,333,640 17,660,318
================ ================
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed for the acquisition of Pacific and real estate $ 402,582,015 131,858,223
================ ================
Common stock and exchangeable operating partnership units issued
to acquire investments in real estate partnerships $ 1,949,020 -
================ ================
Exchangeable operating partnership units, preferred and common
stock issued for the acquisition of Pacific and real estate $ 771,351,617 34,957,703
================ ================
Other liabilities assumed to acquire Pacific $ 13,897,643 -
================ ================
See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Regency Realty Corporation, its wholly owned qualified
REIT subsidiaries, and its majority owned or controlled
subsidiaries and partnerships (the "Company" or "Regency"). All
significant intercompany balances and transactions have been
eliminated in the consolidated financial statements. The Company
owns approximately 97% of the outstanding common units of Regency
Centers, L.P., ("RCLP" or the "Partnership") and partnership
interests ranging from 51% to 93% in five majority owned real
estate partnerships (the "Majority Partnerships"). The equity
interests of third parties held in RCLP and the Majority
Partnerships are included in the consolidated financial statements
as preferred or exchangeable operating partnership units and
limited partners' interests in consolidated partnerships. The
Company is a qualified real estate investment trust ("REIT") which
began operations in 1993.
The financial statements reflect all adjustments which are of a
normal recurring nature, and in the opinion of management, are
necessary to properly state the results of operations and
financial position. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted although management believes that the disclosures are
adequate to make the information presented not misleading. The
financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
December 31, 1998 Form 10-K filed with the Securities and Exchange
Commission.
(b) Reclassifications
Certain reclassifications have been made to the 1998 amounts to
conform to classifications adopted in 1999.
2. Acquisitions
On September 23, 1998, the Company entered into an Agreement of Merger
("Agreement") with Pacific Retail Trust ("Pacific"), a privately held
real estate investment trust. The Agreement, among other matters,
provided for the merger of Pacific into Regency, and the exchange of each
Pacific common or preferred share into 0.48 shares of Regency common or
preferred stock. The stockholders approved the merger at a Special
Meeting of Stockholders held February 26, 1999. At the time of the
merger, Pacific owned 71 retail shopping centers that are operating or
under construction containing 8.4 million SF of gross leaseable area. On
February 28, 1999, the effective date of the merger, the Company issued
equity instruments valued at $770.6 million to the Pacific stockholders
in exchange for their outstanding common and preferred shares and units.
The total cost to acquire Pacific was approximately $1.157 billion based
on the value of Regency shares issued, including the assumption of $379
million of outstanding debt and other liabilities of Pacific, and
estimated closing costs of $7.5 million. The price per share used to
determine the purchase price was $23.325 based on the five day average of
the closing stock price of Regency's common stock as listed on the New
York Stock Exchange immediately before, during and after the date the
terms of the merger were agreed to and announced to the public. The
merger was accounted for as a purchase with the Company as the acquiring
entity.
During 1998, the Company acquired 31 shopping centers fee simple for
approximately $355.9 million and also invested $28.4 million in 12 joint
ventures ("JV Properties"), for a total investment of $384.3 million in
43 shopping centers ("1998 Acquisitions"). Included in the 1998
Acquisitions are 32 shopping centers acquired from various entities
comprising the Midland Group ("Midland"). Of the 32 Midland centers, 31
are anchored by Kroger, and 12 are owned through joint ventures in which
the Company's ownership interest is 50% or less. The Company's investment
in the properties acquired from Midland is $236.6 million at December 31,
1998. During 1999 and 2000, the Company may pay contingent consideration
of up to an estimated $23 million, through the issuance of Partnership
units and the payment of cash. The amount of such consideration, if
issued, will depend on the satisfaction of certain performance criteria
relating to the assets acquired from Midland. Transferors who received
cash at the initial Midland closing will receive contingent future
consideration in cash rather than units. On April 16, 1999, the Company
paid $5.2 million related to this contingent consideration.
The operating results of Pacific and the 1998 Acquisitions are included
in the Company's consolidated financial statements from the date each
property was acquired. The following unaudited pro forma information
presents the consolidated results of operations as if Pacific and all
1998 Acquisitions had occurred on January 1, 1998. Such pro forma
information reflects adjustments to 1) increase depreciation, interest
expense, and general and administrative costs, 2) remove the office
buildings sold, and 3) adjust the weighted average common shares, and
common equivalent shares outstanding issued to acquire the properties.
Pro forma revenues would have been $233 and $217 million as of September
30, 1999 and 1998, respectively. Pro forma net income for common
stockholders would have been $68.2 and $60.8 million as of September 30,
1999 and 1998, respectively. Pro forma basic net income per share would
have been $1.14 and $1.02 as of September 30, 1999 and 1998,
respectively. Pro forma diluted net income per share would have been
$1.14 and $1.00, as of September 30, 1999 and 1998, respectively. This
data does not purport to be indicative of what would have occurred had
Pacific and the 1998 Acquisitions been made on January 1, 1998, or of
results which may occur in the future.
3. Segments
The Company was formed, and currently operates, for the purpose of 1)
operating and developing Company owned retail shopping centers (Retail
segment), and 2) providing services including property management,
leasing, brokerage, and construction and development management for
third-parties (Service operations segment). The Company had previously
operated four office buildings, all of which were sold in 1998 (Office
buildings segment). The Company's reportable segments offer different
products or services and are managed separately because each requires
different strategies and management expertise. There are no material
inter-segment sales or transfers.
The Company assesses and measures operating results starting with Net
Operating Income for the Retail and Office Buildings segments and Income
for the Service operations segment and converts such amounts into a
performance measure referred to as Funds From Operations (FFO), on a
diluted basis. The operating results for the individual retail shopping
centers have been aggregated since all of the Company's shopping centers
exhibit highly similar economic characteristics as neighborhood shopping
centers, and offer similar degrees of risk and opportunities for growth.
FFO as defined by the National Association of Real Estate Investment
Trusts consists of net income (computed in accordance with generally
accepted accounting principles) excluding gains (or losses) from debt
restructuring and sales of income producing property held for investment,
plus depreciation and amortization of real estate, and adjustments for
unconsolidated investments in real estate partnerships and joint
ventures. The Company considers FFO to be the industry standard for
reporting the operations of REITs. Adjustments for investments in real
estate partnerships are calculated to reflect FFO on the same basis.
While management believes that FFO is the most relevant and widely used
measure of the Company's performance, such amount does not represent cash
flow from operations as defined by generally accepted accounting
principles, should not be considered an alternative to net income as an
indicator of the Company's operating performance, and is not indicative
of cash available to fund all cash flow needs. Additionally, the
Company's calculation of FFO, as provided below, may not be comparable to
similarly titled measures of other REITs.
The accounting policies of the segments are the same as those described
in note 1. The revenues and FFO for each of the reportable segments are
summarized as follows for the nine month periods ended September 30, 1999
and 1998.
1999 1998
---- ----
Revenues:
Retail segment $ 199,687,305 93,694,804
Service operations segment 10,553,861 9,067,666
Office buildings segment - 532,694
---------------- ----------------
Total revenues $ 210,241,166 103,295,164
================ ================
Funds from Operations:
Retail segment net operating income $ 152,454,563 71,635,608
Service operations segment income 10,553,861 9,067,666
Office buildings segment net operating income - 463,402
Adjustments to calculate consolidated FFO:
Interest expense (43,567,458) (20,749,045)
Interest income 1,612,733 1,385,054
Earnings from recurring land sales - 901,854
General and administrative and other expenses (14,476,216) (10,638,327)
Non-real estate depreciation (661,600) (464,949)
Minority interests of limited partners (663,331) (389,544)
Minority interests in depreciation
and amortization (433,578) (385,924)
Share of joint venture depreciation
and amortization 461,768 447,841
Dividends on preferred units (5,584,378) (1,733,333)
---------------- ----------------
Funds from Operations 99,696,364 49,540,303
---------------- ----------------
Reconciliation to net income:
Real estate related depreciation
and amortization (34,231,616) (17,520,005)
Minority interests in depreciation
and amortization 433,578 385,924
Share of joint venture depreciation
and amortization (461,768) (447,841)
Earnings from property sales - 9,835,372
Minority interests of exchangeable
partnership units (2,108,362) (1,378,778)
---------------- ----------------
Net income $ 63,328,196 40,414,975
================ ================
Assets by reportable segment as of September 30, 1999 and December 31,
1998 are as follows. Non-segment assets to reconcile to total assets
include cash, accounts receivable and deferred financing costs.
Assets (in thousands): 1999 1998
---------------------- ---- ----
Retail segment $ 2,425,814 1,170,478
Service operations segment 110,869 20,870
Cash and other assets 71,803 48,759
---------------- ---------------
Total assets $ 2,608,486 1,240,107
================ ================
4. Notes Payable and Acquisition and Development Line of Credit
The Company's outstanding debt at September 30, 1999 and December 31,
1998 consists of the following (in thousands):
1999 1998
---- ----
Notes Payable:
Fixed rate mortgage loans $ 390,476 298,148
Variable rate mortgage loans 13,517 11,051
Fixed rate unsecured loans 370,827 121,296
----------- -----------
Total notes payable 774,820 430,495
Acquisition and development line of credit 144,179 117,631
------------ ------------
Total $ 918,999 548,126
============ ============
During February, 1999, the Company modified the terms of its unsecured
line of credit (the "Line") by increasing the commitment to $635 million.
This credit agreement also provides for a competitive bid facility of up
to $250 million of the commitment amount. Maximum availability under the
Line is based on the discounted value of a pool of eligible unencumbered
assets (determined on the basis of capitalized net operating income) less
the amount of the Company's outstanding unsecured liabilities. The Line
matures in February 2001, but may be extended annually for one year
periods. The Company is required to comply, and is in compliance, with
certain financial and other covenants customary with this type of
unsecured financing. These financial covenants include among others (i)
maintenance of minimum net worth, (ii) ratio of total liabilities to
gross asset value, (iii) ratio of secured indebtedness to gross asset
value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to
debt service and reserve for replacements, and (vi) ratio of unencumbered
net operating income to interest expense on unsecured indebtedness. The
Line is used primarily to finance the acquisition and development of real
estate, but is also available for general working capital purposes.
Mortgage loans are secured by certain real estate properties, and may be
prepaid subject to a prepayment of a yield-maintenance premium. Mortgage
loans are generally due in monthly installments of interest and principal
and mature over various terms through 2019. Variable interest rates on
mortgage loans are currently based on LIBOR plus a spread in a range of
125 basis points to 150 basis points. Fixed interest rates on mortgage
loans range from 7.04% to 9.8%.
During 1999, the Company assumed debt with a fair value of $402.6 million
related to the acquisition of real estate, which includes debt premiums
of $4.1 million based upon the above market interest rates of the debt
instruments. Debt premiums are being amortized over the terms of the
related debt instruments.
On April 15, 1999 the Company, through RCLP, completed a $250 million
unsecured debt offering in two tranches. The Company issued $200 million
7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50
million 7.75% notes due April 1, 2009, priced at 100%. The net proceeds
of the offering were used to reduce the balance of the Line.
As of September 30, 1999, scheduled principal repayments on notes payable
and the Line were as follows (in thousands):
Scheduled
Principal Term Loan Total
Scheduled Payments by Year Payments Maturities Payments
--------------- -------------- ---------------
1999 $ 1,718 - 1,718
2000 5,711 98,608 104,319
2001 5,621 194,572 200,193
2002 4,943 44,114 49,057
2003 4,933 13,301 18,234
Beyond 5 Years 42,210 490,227 532,437
Net unamortized debt payments - 13,041 13,041
--------------- -------------- ---------------
Total $ 65,136 853,863 918,999
=============== ============== ===============
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $54.9 million at September 30, 1999, and the Company's proportionate
share of these loans was $23.5 million.
5. Stockholders' Equity and Minority Interest
On June 11, 1996, the Company entered into a Stockholders Agreement (the
"Agreement") with SC-USREALTY granting it certain rights such as
purchasing common stock, nominating representatives to the Company's
Board of Directors, and subjecting SC-USREALTY to certain restrictions
including voting and ownership restrictions. In connection with the Units
and shares of common stock issued in March 1998 related to earnout
payments, SC-USREALTY acquired 435,777 shares at $22.125 per share in
accordance with their rights as provided for in the Agreement. In
conjunction with the acquisition of Pacific, SC-USREALTY exchanged their
Pacific shares for 22.6 million Regency common shares. As of September
30, 1999, SC-USREALTY owned approximately 34.3 million shares of common
stock or 57.5% of the outstanding common shares.
In connection with the acquisition of shopping centers, RCLP has issued
Exchangeable Operating Partnership Units to limited partners convertible
on a one for one basis into shares of common stock of the Company.
On June 29, 1998, the Company through RCLP issued $80 million of 8.125%
Series A Cumulative Redeemable Preferred Units ("Series A Preferred
Units") to an institutional investor in a private placement. The issuance
involved the sale of 1.6 million Series A Preferred Units for $50.00 per
unit. The Series A Preferred Units, which may be called by the
Partnership at par on or after June 25, 2003, have no stated maturity or
mandatory redemption, and pay a cumulative, quarterly dividend at an
annualized rate of 8.125%. At any time after June 25, 2008, the Series A
Preferred Units may be exchanged for shares of 8.125% Series A Cumulative
Redeemable Preferred Stock of the Company at an exchange rate of one
share of Series A Preferred Stock for one Series A Preferred Unit. The
Series A Preferred Units and Series A Preferred Stock are not convertible
into common stock of the Company. The net proceeds of the offering were
used to reduce the acquisition and development line of credit.
On September 3, 1999, the Company through RCLP issued $85 million of
8.75% Series B Cumulative Redeemable Preferred Units ("Series B Preferred
Units") to an institutional investor in a private placement. The issuance
involved the sale of 850,000 Series B Preferred Units for $100.00 per
unit. The Series B Preferred Units, which may be called by the
Partnership at par on or after September 3, 2004, have no stated maturity
or mandatory redemption, and pay a cumulative, quarterly dividend at an
annualized rate of 8.75%. At any time after September 3, 2009, the Series
B Preferred Units may be exchanged for shares of 8.75% Series B
Cumulative Redeemable Preferred Stock of the Company at an exchange rate
of one share of Series B Preferred Stock for one Series B Preferred Unit.
The Series B Preferred Units and Series B Preferred Stock are not
convertible into common stock of the Company. The net proceeds of the
offering were used to reduce the acquisition and development line of
credit.
On September 3, 1999, the Company through RCLP issued $75 million of 9.0%
Series C Cumulative Redeemable Preferred Units ("Series C Preferred
Units") to an institutional investor in a private placement. The issuance
involved the sale of 750,000 Series C Preferred Units for $100.00 per
unit. The Series C Preferred Units, which may be called by the
Partnership at par on or after September 3, 2004, have no stated maturity
or mandatory redemption, and pay a cumulative, quarterly dividend at an
annualized rate of 9.0%. At any time after September 3, 2009, the Series
C Preferred Units may be exchanged for shares of 9.0% Series C Cumulative
Redeemable Preferred Stock of the Company at an exchange rate of one
share of Series C Preferred Stock for one Series C Preferred Unit. The
Series C Preferred Units and Series C Preferred Stock are not convertible
into common stock of the Company. The net proceeds of the offering were
used to reduce the acquisition and development line of credit.
On September 29, 1999, the Company through RCLP issued $50 million of
9.125% Series D Cumulative Redeemable Preferred Units ("Series D
Preferred Units") to an institutional investor in a private placement.
The issuance involved the sale of 500,000 Series D Preferred Units for
$100.00 per unit. The Series D Preferred Units, which may be called by
the Partnership at par on or after September 29, 2004, have no stated
maturity or mandatory redemption, and pay a cumulative, quarterly
dividend at an annualized rate of 9.125%. At any time after September 29,
2009, the Series D Preferred Units may be exchanged for shares of 9.125%
Series D Cumulative Redeemable Preferred Stock of the Company at an
exchange rate of one share of Series D Preferred Stock for one Series D
Preferred Unit. The Series D Preferred Units and Series D Preferred Stock
are not convertible into common stock of the Company. The net proceeds of
the offering were used to reduce the acquisition and development line of
credit.
As part of the acquisition of Pacific Retail Trust, the Company issued
Series 1 and Series 2 preferred shares. Series 1 preferred shares are
convertible into Series 2 preferred shares on a one-for-one basis and
contain provisions for adjustment to prevent dilution. The Series 1
preferred shares are entitled to a quarterly dividend in an amount equal
to $0.0271 less than the common dividend and are cumulative. Series 2
preferred shares are convertible into common shares on a one-for-one
basis. The Series 2 preferred shares are entitled to quarterly dividends
in an amount equal to the common dividend and are cumulative. The Company
may redeem the preferred shares any time after October 20, 2010 at a
price of $20.83 per share, plus all accrued but unpaid dividends.
During the fourth quarter, the Board of Directors authorized the
repurchase of up to $65 million of the Company's outstanding shares from
time to time through periodic open market transactions or through
privately negotiated transactions.
During 1999, the holders of all of Regency's Class B stock converted
2,500,000 shares into 2,975,468 shares of common stock.
6. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three month periods ended, September 30, 1999 and 1998
(in thousands except per share data):
1999 1998
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 59,572 25,457
--------------- ---------------
Net income for common stockholders $ 23,965 10,061
Less: dividends paid on Class B common stock - (1,344)
--------------- ---------------
Net income for Basic EPS $ 23,965 8,717
=============== ===============
Basic EPS $ 0.40 0.34
=============== ===============
Diluted Earnings Per Share (EPS) Calculation:
Weighted average shares outstanding for Basic EPS 59,572 25,457
Exchangeable operating partnership units 2,085 1,307
Incremental shares to be issued under common stock options using
the Treasury Method 5 -
Contingent units or shares for the acquisition of real estate - 493
--------------- ---------------
Total diluted shares 61,662 27,257
=============== ===============
Net income for Basic EPS $ 23,965 8,717
Add: minority interest of exchangeable partnership units 770 487
--------------- ---------------
Net income for Diluted EPS $ 24,735 9,204
=============== ===============
Diluted EPS $ 0.40 0.34
=============== ===============
The Preferred Series 1 and Series 2 stock and the Class B common stock
are not included in the above calculation because their effects are
anti-dilutive.
The following summarizes the calculation of basic and diluted earnings
per share for the nine month periods ended, September 30, 1999 and 1998
(in thousands except per share data):
1999 1998
---- ----
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding 51,796 25,045
--------------- ---------------
Net income for common stockholders $ 61,751 40,415
Less: dividends paid on Class B common stock (1,410) (4,033)
--------------- ---------------
Net income for Basic EPS $ 60,341 36,382
--------------- ---------------
Basic EPS $ 1.16 1.45
=============== ===============
Diluted Earnings Per Share (EPS)Calculation:
Weighted average shares outstanding for Basic EPS 51,796 25,045
Exchangeable operating partnership units 1,979 1,193
Incremental shares to be issued under common stock options using
the Treasury Method 4 -
Contingent units or shares for the acquisition of real estate - 418
--------------- ---------------
Total diluted shares 53,779 26,656
=============== ===============
Net income for Basic EPS $ 60,341 36,382
Add: minority interest of exchangeable partnership units 2,108 1,379
--------------- ---------------
Net income for Diluted EPS $ 62,449 37,761
=============== ===============
Diluted EPS $ 1.16 1.42
=============== ===============
The Preferred Series 1 and Series 2 stock and the Class B common stock are not
included in the above calculation because their effects are anti-dilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto of Regency Realty
Corporation ("Regency" or "Company") appearing elsewhere within.
Organization
The Company is a qualified real estate investment trust ("REIT") which began
operations in 1993. The Company invests in real estate primarily through its
general partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership")
an operating partnership in which the Company currently owns approximately 97%
of the outstanding common partnership units ("Units"). Of the 216 properties
included in the Company's portfolio at September 30, 1999, 198 properties were
owned either fee simple or through partnerships interests by RCLP. At September
30, 1999, the Company had an investment in real estate, at cost, of
approximately $2.5 billion of which $2.4 billion or 95% 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 properties under development) in order
by their gross leasable areas (GLA) follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Location # Properties GLA % Leased # Properties GLA % Leased
-------- ------------ --------- -------- ------------ ----------- --------
Florida 48 5,896,902 91.4% 46 5,728,347 91.4%
Texas 30 4,103,182 86.6% 5 479,900 84.7%
California 36 3,820,946 97.5% - - -
Georgia 27 2,715,350 93.5% 27 2,737,590 93.1%
Ohio 14 1,890,510 92.9% 13 1,786,521 93.4%
North Carolina 12 1,241,634 97.7% 12 1,239,783 98.3%
Washington 9 1,066,962 87.4% - - -
Colorado 10 902,848 92.5% 5 447,569 89.4%
Oregon 6 583,464 94.1% - - -
Alabama 5 516,060 99.5% 5 516,060 99.0%
Tennessee 4 388,357 99.2% 4 295,179 96.8%
Arizona 2 326,984 99.7% - - -
Delaware 1 232,752 97.6% 1 232,752 94.8%
Kentucky 1 205,060 91.3% 1 205,060 95.6%
Virginia 2 197,324 96.1% 2 197,324 97.7%
Mississippi 2 185,06 96.6% 2 185,061 97.6%
Illinois 1 178,600 85.9% 1 178,600 86.9%
Michigan 2 177,316 81.5% 2 177,929 81.5%
South Carolina 2 162,056 98.2% 2 162,056 100.0%
Missouri 1 82,498 98.4% 1 82,498 99.8%
Wyoming 1 75,000 81.3% - - -
-------------- --------------- ---------------- -------------- --------------- -------------
Total 216 24,948,866 92.6% 129 14,652,229 92.9%
============== =============== ================ ============== =============== =============
The Company is focused on building a platform of grocery anchored neighborhood
shopping centers because grocery stores provide convenience shopping of daily
necessities, foot traffic for adjacent local tenants, and should withstand
adverse economic conditions. The Company's current investment markets have
continued to offer strong stable economies, and accordingly, the Company expects
to realize growth in net income as a result of increasing occupancy in the
portfolio, increasing rental rates, development and acquisition of shopping
centers in targeted markets, and redevelopment of existing shopping centers. The
following table summarizes the four largest grocery tenants occupying the
Company's shopping centers or expected to occupy shopping centers currently
under construction at September 30, 1999:
Grocery Anchor Number of % of % of Annualized
Stores Total GLA Base Rent
-------------- ---------- ---------- --------------
Kroger 53 12.3% 10.85%
Publix 36 6.4% 4.33%
Safeway 27 5.1% 4.41%
Winn-Dixie 16 3.0% 2.08%
Acquisition and Development of Shopping Centers
On September 23, 1998, the Company entered into an Agreement of Merger
("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real
estate investment trust. The Agreement, among other matters, provided for the
merger of Pacific into Regency, and the exchange of each Pacific common or
preferred share into 0.48 shares of Regency common or preferred stock. The
stockholders approved the merger at a Special Meeting of Stockholders held
February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping
centers that are operating or under construction containing 8.4 million SF of
gross leaseable area. On February 28, 1999, the effective date of the merger,
the Company issued equity instruments valued at $770.6 million to the Pacific
stockholders in exchange for their outstanding common and preferred shares and
units. The total cost to acquire Pacific was approximately $1.157 billion based
on the value of Regency shares issued including the assumption of $379 million
of outstanding debt and other liabilities of Pacific, and estimated closing
costs of $7.5 million. The price per share used to determine the purchase price
was $23.325 based on the five day average of the closing stock price of
Regency's common stock as listed on the New York Stock Exchange immediately
before, during and after the date the terms of the merger were agreed to and
announced to the public. The merger was accounted for as a purchase with the
Company as the acquiring entity.
During 1998, the Company acquired 31 shopping centers fee simple for
approximately $355.9 million and also invested $28.4 million in 12 joint
ventures ("JV Properties"), for a total investment of $384.3 million in 43
shopping centers ("1998 Acquisitions"). Included in the 1998 Acquisitions are 32
shopping centers acquired from various entities comprising the Midland Group
("Midland"). Of the 32 Midland centers, 31 are anchored by Kroger, and 12 are
owned through joint ventures in which the Company's ownership interest is 50% or
less. The Company's investment in the properties acquired from Midland is $236.6
million at December 31, 1998. During 1999 and 2000, the Company may pay
contingent consideration of up to an estimated $23 million, through the issuance
of Partnership units and the payment of cash. The amount of such consideration,
if issued, will depend on the satisfaction of certain performance criteria
relating to the assets acquired from Midland. Transferors who received cash at
the initial Midland closing will receive contingent future consideration in cash
rather than units. On April 16, 1999, the Company paid $5.2 million related to
this contingent consideration.
Results from Operations
Comparison of the nine months ended September 30, 1999 to 1998
Revenues increased $106.9 million or 104% to $210.2 million in 1999. The
increase was due primarily to Pacific and the 1998 Acquisitions providing
increases in revenues of $101.2 million during 1999. At September 30, 1999, the
real estate portfolio contained approximately 24.9 million SF and was 92.6%
leased. Minimum rent increased $81.5 million or 109%, and recoveries from
tenants increased $21.8 million or 128%. On a same property basis (excluding
Pacific, the 1998 Acquisitions, and the office portfolio sold during 1998) gross
rental revenues increased $4.8 million or 6%, primarily due to higher base
rents. Revenues from property management, leasing, brokerage, and development
services (service operation segment) provided on properties not owned by the
Company were $10.6 million and $9.1 million in 1999 and 1998, respectively.
During 1998, the Company sold four office buildings and a parcel of land for
$30.7 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 retail shopping centers. The proceeds from the sale were used to reduce the
balance of the line of credit.
Operating expenses increased $45.9 million or 90% to $96.6 million in 1999.
Combined operating and maintenance, and real estate taxes increased $25.1
million or 113% during 1999 to $47.2 million. The increases are due to Pacific
and the 1998 Acquisitions generating operating and maintenance expenses and real
estate tax increases of $24.4 million during 1999. On a same property basis,
operating and maintenance expenses and real estate taxes increased $860,000 or
4.5%. General and administrative expenses increased 32% during 1999 to $13.6
million due to the hiring of new employees and related office expenses necessary
to manage the shopping centers acquired during 1999 and 1998. Depreciation and
amortization increased $16.9 million during 1999 or 94% primarily due to Pacific
and the 1998 Acquisitions.
Interest expense increased to $43.6 million in 1999 from $20.7 million in 1998
or 110% due to increased average outstanding loan balances related to the
financing of the 1998 Acquisitions on the Line, the assumption of debt for
Pacific and the debt offerings completed in 1999. Weighted average interest
rates decreased .15% during 1999. See further discussion under Acquisition and
Development of Shopping Centers and Liquidity and Capital Resources.
Net income for common stockholders was $61.8 million in 1999 vs. $40.4 million
in 1998, a $21.3 million or 53% increase for the reasons previously described.
Diluted earnings per share in 1999 was $1.16 vs. $1.42 in 1998 due to the gain
offset by the dilutive impact from the increase in weighted average common
shares and equivalents of 27.1 million primarily due to the acquisition of
Pacific Retail Trust and the issuance of shares to SC-USREALTY during 1998.
Comparison of the three months ended September 30, 1999 to 1998
Revenues increased $42.1 million or 113% to $79.3 million in 1999. The increase
was due primarily to Pacific and the 1998 Acquisitions providing increases in
revenues of $39.1 million during 1999. Minimum rent increased $31.5 million or
116%, and recoveries from tenants increased $8.1 million or 126%. On a same
property basis (excluding Pacific, the 1998 Acquisitions, and the office
portfolio sold during 1998) gross rental revenues increased $1.6 million or 6%,
primarily due to higher base rents. Revenues from property management, leasing,
brokerage, and development services (service operation segment) provided on
properties not owned by the Company were $4.5 million in 1999 compared to $3.1
million in 1998, the increase is due primarily to a increase in brokerage fees.
Operating expenses increased $18.7 million or 105% to $36.5 million in 1999.
Combined operating and maintenance, and real estate taxes increased $10.4
million or 132% during 1999 to $18.2 million. The increases are due to Pacific
and the 1998 Acquisitions generating operating and maintenance expenses and real
estate tax increases of $9.8 million during 1999. On a same property basis,
operating and maintenance expenses and real estate taxes increased $550,000 or
8.8%. General and administrative expenses increased 44% during 1999 to $4.8
million due to the hiring of new employees and related office expenses necessary
to manage the shopping centers acquired during 1999 and 1998. Depreciation and
amortization increased $6.5 million during 1999 or 99% primarily due to Pacific
and the 1998 Acquisitions.
Interest expense increased to $15.6 million in 1999 from $7.3 million in 1998 or
114% due to increased average outstanding loan balances related to the financing
of the 1998 Acquisitions on the Line and the assumption of debt for Pacific and
the debt offerings completed in 1999. See further discussion under Acquisition
and Development of Shopping Centers and Liquidity and Capital Resources.
Net income for common stockholders was $24 million in 1999 vs. $10.1 million in
1998, a $13.9 million or 138% increase for reasons previously described. Diluted
earnings per share in 1999 was $.40 vs. $.34 in 1998 due to the increase in net
income offset by the dilutive impact from the increase in weighted average
common shares and equivalents of 34.4 million primarily due to the acquisition
of Pacific Retail Trust and the issuance of shares to SC-USREALTY during 1998.
Funds from Operations
The Company considers funds from operations ("FFO"), as defined by the National
Association of Real Estate Investment Trusts as net income (computed in
accordance with generally accepted accounting principles) excluding gains (or
losses) from debt restructuring and sales of income producing property held for
investment, plus depreciation and amortization of real estate, and after
adjustments for unconsolidated investments in real estate partnerships and joint
ventures, to be the industry standard for reporting the operations of real
estate investment trusts ("REITs"). Adjustments for investments in real estate
partnerships are calculated to reflect FFO on the same basis. While management
believes that FFO is the most relevant and widely used measure of the Company's
performance, such amount does not represent cash flow from operations as defined
by generally accepted accounting principles, should not be considered an
alternative to net income as an indicator of the Company's operating
performance, and is not indicative of cash available to fund all cash flow
needs. Additionally, the Company's calculation of FFO, as provided below, may
not be comparable to similarly titled measures of other REITs.
FFO increased by 101% from 1998 to 1999 as a result of the activity discussed
above under "Results of Operations". FFO for the nine months ended September 30,
1999 and 1998 are summarized in the following table (in thousands):
1999 1998
------------ ------------
Net income for common stockholders $ 61,751 40,415
Real estate depreciation and amortization 34,260 17,582
(Gain) on sale of operating property - (9,835)
Convertible preferred dividends 1,577 -
Minority interests in net income of
exchangeable partnership units 2,108 1,378
------------ ------------
Funds from operations - diluted $ 99,696 49,540
============ ============
Cash flow provided by (used in):
Operating activities $ 100,244 53,622
Investing activities (188,252) (168,888)
Financing activities 91,673 117,081
Liquidity and Capital Resources
Management anticipates that cash generated from operating activities will
provide the necessary funds on a short-term basis for its operating expenses,
interest expense and scheduled principal payments on outstanding indebtedness,
recurring capital expenditures necessary to properly maintain the shopping
centers, and distributions to share and unit holders. Net cash provided by
operating activities was $100.2 million and $53.6 million for the nine months
ended September 30, 1999 and 1998, respectively. The Company incurred recurring
and non-recurring capital expenditures (non-recurring expenditures pertain to
immediate building improvements on new acquisitions and anchor tenant
improvements on new leases) of $10.9 million and $4.8 million, during 1999 and
1998, respectively. The Company paid scheduled principal payments of $4.3
million and $2.3 during 1999 and 1998, respectively. The Company paid dividends
and distributions of $77.5 million and $40.1 million, during 1999 and 1998,
respectively, to its share and unit holders.
Management expects to meet long-term liquidity requirements for term debt
payoffs at maturity, non-recurring capital expenditures, and acquisition,
renovation and development of shopping centers from: (i) excess cash generated
from operating activities, (ii) working capital reserves, (iii) additional debt
borrowings, and (iv) additional equity raised in the public markets. Net cash
used in investing activities was $188.3 million and $168.9 million, during 1999
and 1998, respectively, primarily for purposes discussed above under
Acquisitions and Development of Shopping Centers. Net cash provided by financing
activities was $91.7 million and $117.1 million during 1999 and 1998,
respectively. At September 30, 1999, the Company had 47 retail properties under
construction or undergoing major renovations, with costs to date of $414.1
million. Total committed costs necessary to complete the properties under
development is estimated to be $157.5 million and will be expended through 1999
and 2000. At September 30, 1999, the Company had approximately $164 million
available on its Line.
The Company's outstanding debt at September 30, 1999 and December 31, 1998
consists of the following (in thousands):
1999 1998
-------------- ---------------
Notes Payable:
Fixed rate mortgage loans $ 390,476 298,148
Variable rate mortgage loans 13,517 11,051
Fixed rate unsecured loans 370,827 121,296
-------------- ---------------
Total notes payable 774,820 430,495
Acquisition and development line of credit 144,179 117,631
-------------- ---------------
Total $ 918,999 548,126
============== ===============
The weighted average interest rate on total debt at September 30, 1999 and
December 31, 1998 and was 7.2% and 7.4%, respectively. The Company's debt is
typically cross-defaulted, but not cross-collateralized, and includes usual and
customary affirmative and negative covenants.
During February, 1999, the Company modified the terms of its unsecured line of
credit (the "Line") by increasing the commitment to $635 million. Maximum
availability under the Line is based on the discounted value of a pool of
eligible unencumbered assets (determined on the basis of capitalized net
operating income) less the amount of the Company's outstanding unsecured
liabilities. The Line matures in February 2001, but may be extended annually for
one year periods. The Company is required to comply, and is in compliance, with
certain financial and other covenants customary with this type of unsecured
financing. These financial covenants include among others (i) maintenance of
minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii)
ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to
interest expense, (v) ratio of EBITDA to debt service and reserve for
replacements, and (vi) ratio of unencumbered net operating income to interest
expense on unsecured indebtedness. The Line is used primarily to finance the
acquisition and development of real estate, but is also available for general
working capital purposes.
On June 29, 1998, the Company through RCLP issued $80 million of 8.125% Series A
Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an
institutional investor in a private placement. The issuance involved the sale of
1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred
Units, which may be called by the Company at par on or after June 25, 2003, have
no stated maturity or mandatory redemption, and pay a cumulative, quarterly
dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the
Series A Preferred Units may be exchanged for shares of 8.125% Series A
Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one
share of Series A Preferred Stock for one Series A Preferred Unit. The Series A
Preferred Units and Series A Preferred Stock are not convertible into common
stock of the Company. The net proceeds of the offering were used to reduce the
Line.
On September 3, 1999, the Company through RCLP issued $85 million of 8.75%
Series B Cumulative Redeemable Preferred Units ("Series B Preferred Units") to
an institutional investor in a private placement. The issuance involved the sale
of 850,000 Series B Preferred Units for $100.00 per unit. The Series B Preferred
Units, which may be called by the Partnership at par on or after September 3,
2004, have no stated maturity or mandatory redemption, and pay a cumulative,
quarterly dividend at an annualized rate of 8.75%. At any time after September
3, 2009, the Series B Preferred Units may be exchanged for shares of 8.75%
Series B Cumulative Redeemable Preferred Stock of the Company at an exchange
rate of one share of Series B Preferred Stock for one Series B Preferred Unit.
The Series B Preferred Units and Series B Preferred Stock are not convertible
into common stock of the Company. The net proceeds of the offering were used to
reduce the acquisition and development line of credit.
On September 3, 1999, the Company through RCLP issued $75 million of 9.0% Series
C Cumulative Redeemable Preferred Units ("Series C Preferred Units") to an
institutional investor in a private placement. The issuance involved the sale of
750,000 Series C Preferred Units for $100.00 per unit. The Series C Preferred
Units, which may be called by the Partnership at par on or after September 3,
2004, have no stated maturity or mandatory redemption, and pay a cumulative,
quarterly dividend at an annualized rate of 9.0%. At any time after September 3,
2009, the Series C Preferred Units may be exchanged for shares of 9.0% Series C
Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one
share of Series C Preferred Stock for one Series C Preferred Unit. The Series C
Preferred Units and Series C Preferred Stock are not convertible into common
stock of the Company. The net proceeds of the offering were used to reduce the
acquisition and development line of credit.
On September 29, 1999, the Company through RCLP issued $50 million of 9.125%
Series D Cumulative Redeemable Preferred Units ("Series D Preferred Units") to
an institutional investor in a private placement. The issuance involved the sale
of 500,000 Series D Preferred Units for $100.00 per unit. The Series D Preferred
Units, which may be called by the Partnership at par on or after September 29,
2004, have no stated maturity or mandatory redemption, and pay a cumulative,
quarterly dividend at an annualized rate of 9.125%. At any time after September
29, 2009, the Series D Preferred Units may be exchanged for shares of 9.125%
Series D Cumulative Redeemable Preferred Stock of the Company at an exchange
rate of one share of Series D Preferred Stock for one Series D Preferred Unit.
The Series D Preferred Units and Series D Preferred Stock are not convertible
into common stock of the Company. The net proceeds of the offering were used to
reduce the acquisition and development line of credit.
On April 15, 1999 the Company, through RCLP, completed a $250 million debt
offering in two tranches. The Company issued $200 million, 7.4% notes due April
1, 2004, priced at 99.922% to yield 7.42%, and $50 million, 7.75% notes due
April 1, 2009, priced at 100%. The net proceeds of the offering were used to
reduce the balance of the Line.
Mortgage loans are secured by certain real estate properties, and generally may
be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage
loans are generally due in monthly installments of interest and principal and
mature over various terms through 2019. Variable interest rates on mortgage
loans are currently based on LIBOR plus a spread in a range of 125 basis points
to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to
9.8%.
During 1999, the Company assumed debt with a fair value of $402.6 million
related to the acquisition of real estate, which includes debt premiums of $4.1
million based upon the above market interest rates of the debt instruments. Debt
premiums are being amortized over the terms of the related debt instruments.
As of September 30, 1999, scheduled principal repayments on notes payable and
the Line for the next five years were as follows (in thousands):
Scheduled
Principal Term Loan Total
Scheduled Payments by Year Payments Maturities Payments
--------------- -------------- ---------------
1999 $ 1,718 - 1,718
2000 5,711 98,608 104,319
2001 5,621 194,572 200,193
2002 4,943 44,114 49,057
2003 4,933 13,301 18,234
Beyond 5 Years 42,210 490,227 532,437
Net unamortized debt payments - 13,041 13,041
--------------- -------------- ---------------
Total $ 65,136 853,863 918,999
=============== ============== ===============
Unconsolidated partnerships and joint ventures had mortgage loans payable of
$54.9 million at September 30, 1999 and the Company's proportionate share of
these loans was $23.5 million.
The Company qualifies and intends to continue to qualify as a REIT under the
Internal Revenue Code. As a REIT, the Company is allowed to reduce taxable
income by all or a portion of its distributions to stockholders. As
distributions have exceeded taxable income, no provision for federal income
taxes has been made. While the Company intends to continue to pay dividends to
its stockholders, it also will reserve such amounts of cash flow as it considers
necessary for the proper maintenance and improvement of its real estate, while
still maintaining its qualification as a REIT.
The Company's real estate portfolio has grown substantially during 1999 as a
result of the acquisitions and development discussed above. The Company intends
to continue to acquire and develop shopping centers in the near future, and
expects to meet the related capital requirements from borrowings on the Line.
The Company expects to repay the Line from time to time from additional public
and private equity or debt offerings, such as those completed in previous years.
Because such acquisition and development activities are discretionary in nature,
they are not expected to burden the Company's capital resources currently
available for liquidity requirements. The Company expects that cash provided by
operating activities, unused amounts available under the Line, and cash reserves
are adequate to meet liquidity requirements.
New Accounting Standards and Accounting Changes
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities " (FAS 133), which is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. FAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. FAS 133
requires entities to recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. The Company
does not believe FAS 133 will materially effect its financial statements.
Environmental Matters
The Company like others in the commercial real estate industry, is subject to
numerous environmental laws and regulations and the operation of dry cleaning
plants at the Company's shopping centers is the principal environmental concern.
The Company believes that the dry cleaners are operating in accordance with
current laws and regulations and has established procedures to monitor their
operations. The Company has approximately 38 properties that will require or are
currently undergoing varying levels of environmental remediation. These
remediations are not expected to have a material financial effect on the Company
due to financial statement reserves and various state-regulated programs that
shift the responsibility and cost for remediation to the state. Based on
information presently available, no additional environmental accruals were made
and management believes that the ultimate disposition of currently known matters
will not have a material effect on the financial position, liquidity, or
operations of the Company.
Inflation
Inflation has remained relatively low during 1999 and 1998 and has had a minimal
impact on the operating performance of the shopping centers; however,
substantially all of the Company's long-term leases contain provisions designed
to mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than ten years, which permits the Company to seek increased rents upon
re-rental at market rates. Most of the Company's leases require the tenants to
pay their share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from inflation.
Year 2000 System Compliance
Management recognizes the potential effect Year 2000 may have on the Company's
operations and, as a result, has implemented a Year 2000 Compliance Project. The
term "Year 2000 compliant" means that the software, hardware, equipment, goods
or systems utilized by, or material to the physical operations, business
operations, or financial reporting of an entity will properly perform date
sensitive functions before, during and after the year 2000.
The Company's Year 2000 Compliance Project included an awareness phase, an
assessment phase, a renovation phase, and a testing phase of our data processing
network, accounting and property management systems, computer and operating
systems, software packages, and building management systems. The project also
included surveying our major tenants, financial institutions, and utility
companies.
The Company's computer hardware, operating systems, general accounting and
property management systems and principal desktop software applications are Year
2000 compliant as certified by the various vendors. We have tested, and remedied
as needed, our general accounting and property management information system,
all servers and their operating systems, all principal desktop software
applications, personal computers and PC operating systems. Based on the test
results, Management does not anticipate any Year 2000 problems that will
materially impact operations or operating results.
An assessment of the Company's building management systems has been completed.
This assessment has resulted in the identification of certain lighting,
telephone, and voice mail systems that may not be Year 2000 compliant. These
non-compliant systems have been replaced or updated to be compliant.
The Company has surveyed its major tenants, financial institutions, and utility
companies in order to determine the extent to which the Company is vulnerable to
third party Year 2000 failures. We have received responses from 100% of our
principal tenants, financial institutions and utility companies. All parties
have indicated that they are Year 2000 compliant or will be by September 30,
1999. However, there are no assurances that these entities will not experience
failures that might disrupt the operations of the Company.
Management believes the Year 2000 Compliance Project, summarized above, has
adequately addressed the Year 2000 risk. Certain events are beyond the control
of Management, primarily related to the readiness of customers and suppliers,
and can not be tested. Management believes this risk is mitigated by the fact
that the Company deals with numerous geographically disbursed customers and
suppliers. Any third party failures should be isolated and short term, however,
there can be no guarantee that the systems of unrelated entities will be
corrected on a timely basis and will not have an adverse effect on the Company.
As a result, the Company has developed a formal Year 2000 contingency plan which
has been communicated to tenants and employees allowing for communication and
resolution of any disruption that may occur.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The Company is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows primarily
at fixed rates and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks in order to mitigate its interest
rate risk on a related financial instrument. The Company has no plans to enter
into derivative or interest rate transactions for speculative purposes, and at
September 30, 1999, the Company did not have any borrowings hedged with
derivative financial instruments.
The Company's interest rate risk is monitored using a variety of techniques. The
table below presents the principal amounts maturing (in thousands), weighted
average interest rates of remaining debt, and the fair value of total debt (in
thousands), by year of expected maturity to evaluate the expected cash flows and
sensitivity to interest rate changes.
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Fixed rate debt 1,688 104,188 42,659 49,057 18,234 532,436 748,262 761,303
Average interest rate for all debt 7.73% 7.81% 7.78% 7.70% 7.66% 7.81% - -
Variable rate LIBOR debt 30 132 157,534 - - - 157,696 157,696
Average interest rate for all debt 6.19% 6.18% - - - - - -
As the table incorporates only those exposures that exist as of September 30,
1999, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented therein has limited predictive value. As a
result, the Company's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time, and interest rates.
Forward Looking Statements
This report contains certain forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995) and information
relating to the Company that is based on the beliefs of the Company's
management, as well as assumptions made by and information currently available
to management. When used in this report, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Such statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; changes
in customer preferences; competition; changes in technology; the integration of
acquisitions, including Pacific; changes in business strategy; the indebtedness
of the Company; quality of management, business abilities and judgment of the
Company's personnel; the availability, terms and deployment of capital; and
various other factors referenced in this report. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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 last amended October 14, 1999.
(i) Amendment to Restated Articles
of Incorporation of Regency Realty Corporation as amended to date.
(ii) Amendment to Restated Articles of Incorporation, as last amended
February 28, 1999.
(iii) Form of Articles of Amendment to Articles of
Incorporation Amending the Designation of
Preferences, Rights and Limitations of Series 1 Cumulative
Convertible Redeemable Preferred Stock
(iv) Form of Articles of Amendment to Articles of Incorporation
Amending the Designation of Preferences, Rights and Limitations of
Series 2 Cumulative Convertible Redeemable Preferred Stock
10. Material Contracts
(a) Amendment No. 4 to Stockholders Agreement dated December 4, 1997
(incorporated by reference to Exhibit 6.2 to Schedule 13D/A filed by
Security Capital U.S. Realty on December 11, 1997)
(b) Reports on Form 8-K
An 8-K was filed on September 2, 1999 under Item 5. Other Information
for supplemental information to include pro forma financial statements
for Regency Realty Corporation as of June 30, 1999 and December 31,
1998.
27. Financial Data Schedule
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: November 8, 1999 REGENCY REALTY CORPORATION
By: /s/ J. Christian Leavitt
Senior Vice President
and Secretary