Item 1. Business
Regency Realty Corporation ("Regency" or "Company") acquires, owns, develops and manages neighborhood shopping centers in targeted markets. As of December 31, 1999, Regency owned, directly or indirectly, 216 properties in the United States, containing approximately 24.8 million square feet of gross leasable area ("GLA").
As of December 31, 1999, Regency had an investment in real estate of approximately $2.6 billion. Regency's shopping centers were approximately 92.4% leased as of December 31, 1999.
On February 26, 1999, Regency's stockholders approved the merger of Pacific Retail Trust ("Pacific") into the Company in a stock for stock transaction (0.48 Regency share for 1 Pacific share). At December 31, 1998, Pacific owned 71 retail shopping centers that were operating or under construction containing 8.4 million SF of GLA. The total cost to acquire Pacific was $1.157 billion based on the value of Regency shares issued, the assumption of $379 million of outstanding debt and other liabilities, and transaction costs.
The Company, a Florida corporation organized in 1993, commenced operations as a real estate investment trust (REIT) in 1993 with the completion of its initial public offering, and was the successor to the real estate business of The Regency Group, Inc. which had operated since 1963.
Regency formed Regency Centers, L.P. ("RCLP" or "Partnership"), a Delaware limited partnership and a public registrant, in 1996, and consolidated substantially all of its retail shopping centers into RCLP during 1999. RCLP is now the primary entity through which Regency owns its properties and through which Regency intends to expand its ownership and operation of retail shopping centers. At December 31, 1999, Regency owned approximately 97% of the outstanding common operating partnership units of RCLP. Regency, the general partner of RCLP, fully controls the operating and investing decisions and activities of RCLP, and accordingly, the following discussion of Regency's business also includes the business of RCLP.
See also footnote 3, Segments, to the consolidated financial statements included herein, for a related discussion of the Company's business.
Operating and Investment Philosophy
Regency's key operating and investment objective is to create long-term shareholder value by:
growing its high quality real estate portfolio of grocery-anchored neighborhood shopping centers in attractive markets,
maximizing the value of the portfolio through its "Retail Operating System," which incorporates research based investment strategies, value-added leasing and management systems, and customer-driven development programs, and
using conservative financial management and Regency's substantial capital base to access the most cost effective capital to fund Regency's growth.
Grocery-Anchored Strategy
Regency focuses its investment strategy on grocery-anchored neighborhood shopping centers which are located in infill locations or high growth corridors. Infill locations are situated in densely populated residential communities where there are significant barriers to entry, such as zoning restrictions, growth management laws or limited availability of sites for development or expansions. Regency is focused on building a platform of grocery-anchored neighborhood shopping centers because grocery stores provide convenience shopping for daily necessities, generate foot traffic for adjacent "side shop" tenants and should be better able to withstand adverse economic conditions. By marketing to leading supermarket chains, Regency believes it can attract the best "side shop" merchants and enhance revenue potential.
Research Driven Market Selection
Regency targets specific markets in the United States that offer greater growth in population, household income and employment than the national averages. In addition, Regency believes that it can achieve "critical mass" in these markets (defined as owning or managing 4 to 5 shopping centers) and that it can generate sustainable competitive advantages, through long-term leases to the predominant grocery-anchor and other barriers to entry from competition. Within these markets, Regency's research and investment staff further defines and selects submarkets and trade areas based on additional analysis of the above data. This research is used to support either the acquisition or development decision and assist in the leasing of major and local tenant space.
Retail Operating System
Regency's Retail Operating System drives its value-added operating strategy. Its Retail Operating System is characterized by:
proactive leasing and management;
value enhancing remerchandising initiatives;
Regency's "preferred customer initiative"; and
a customer-driven development and redevelopment program.
Proactive leasing and management Regency's integrated approach to asset management strengthens its leasing and management efforts. Asset managers are an integral component of the acquisition and development teams. Asset managers are responsible not only for the general operations of their centers, but also for coordinating leasing efforts, thereby aligning their interests with Regency's. In addition, Regency's information systems allow managers to spot future lease expirations and to proactively market and remerchandise spaces several years in advance of such expirations.
Value enhancing remerchandising initiatives Regency believes that certain shopping centers under-serve their customers, reducing foot traffic and negatively affecting the tenants located in the shopping center. In response, Regency has a remerchandising program directed at obtaining the optimum mix of tenants offering goods, personal services and entertainment and dining options in each of its shopping centers. By re-tenanting shopping centers with tenants that more effectively service the community, Regency expects to increase sales, and therefore the value of its shopping centers.
Preferred customer initiative Regency is implementing the "Preferred Customer Initiative" to enable the Company to profit from the platform's national and individual market strength and to enhance internal growth. The "Preferred Customer Initiative" is Regency's relationship based operating system that focuses on national and regional retailers that are the best operators in their merchandising categories. With this customer focused operating system that is augmented by merchandising research, the Company is in a unique position to continue to attract and better serve strong retailers by offering multiple leasing opportunities in centers that have the anchors and demographics that drive retail sales. The Company also serves the tenants by creating standard lease forms. Regency's objective is to create a brand with our tenant customers as the preferred neighborhood center operator and developer. Management expects the benefits of the preferred customer initiative to improve the merchandising and performance of the shopping centers, establish brand recognition among leading operators, reduce turnover of tenants and reduce vacancies.
Customer-driven development and redevelopment program Regency conducts its development and redevelopment program in close cooperation with its major grocery customers including Kroger, Publix, Safeway, and Albertsons. Regency uses its development capabilities to service its customer's growth needs by building or re-developing modern properties with state of the art supermarket formats that generate higher returns for Regency under new long-term leases. Regency's developments are customer driven with an executed lease from the anchor typically in hand prior to purchase of the land. As a result of the anchor commitment and Regency's relationship with key, side shop neighborhood retailers, a significant percentage of the GLA is pre-committed before commencement of construction.
Capital Strategy
Regency intends to maintain a conservative capital structure designed to enhance access to capital on favorable terms, to allow growth through development and acquisition and to promote future earnings growth. Regency's organizational documents do not limit the amount of debt that may be incurred; however, limitations have been established within the covenants of certain loan agreements related to RCLP's unsecured acquisition and development line of credit (the "Line') and medium term notes.
Regency's strategy to add shareholder value is designed to enable the Company to profit from the anomaly between low current pricing for public equity and the attractive private market valuations of quality neighborhood centers and to increase returns on invested capital by leveraging Regency's core competencies. Asset optimization will enable Regency to recycle capital from the sale of developments at low cap rates and dispositions of properties with limited growth prospects in the private market at attractive valuations. The proceeds will be used to finance new development of shopping centers and repurchases of Regency common stock at attractive yields.
Regency is actively pursuing a joint venture structure to leverage the Company's expertise and the quality of the operating properties and development pipeline. Value would be realized by contributing centers and selling developments to the venture at private market pricing. The joint venture structure will contribute to cost effectively financing Regency's development program, allow Regency to recognize profits from sales and expand the shopping center platform. All of these actions are expected to lead to higher returns on the Company's invested capital.
Risk Factors Relating to Ownership of Regency Common Stock
The Company is subject to certain business risks arising in connection with owning real estate which include, among others:
the bankruptcy or insolvency of, or a downturn in the business of, any of its major tenants could reduce cash flow,
the possibility that such tenants will not renew their leases as they expire or renew at lower rental rates could reduce cash flow,
risks related to the internet and e-commerce reducing the demand for shopping centers,
vacated anchor space will affect the entire shopping center because of the loss of the departed anchor tenant's customer drawing power,
poor market conditions could create an over supply of space or a reduction in demand for real estate in markets where the Company owns shopping centers,
the Company's rapid growth could place strains on its resources,
risks relating to leverage, including uncertainty that the Company will be able to refinance its indebtedness, and the risk of higher interest rates,
unsuccessful development activities could reduce cash flow,
the Company's inability to satisfy its cash requirements for operations and the possibility that the Company may be required to borrow funds to meet distribution requirements in order to maintain its qualification as a REIT,
potential liability for unknown or future environmental matters and costs of compliance with the Americans with Disabilities Act,
the risk of uninsured losses, and
unfavorable economic conditions could also result in the inability of tenants in certain retail sectors to meet their lease obligations and otherwise could adversely affect the Company's ability to attract and retain desirable tenants.
Compliance with Governmental Regulations
Under various federal, state and local laws, ordinances and regulations, an owner or manager of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The cost of required remediation and the owner's liability for remediation could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent the property or borrow using the property as collateral. Regency has a number of 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.
Competition
The Company believes the ownership of shopping centers is highly fragmented, with less than 10% owned by REITs. Regency faces competition from other REITs in the acquisition, ownership and leasing of shopping centers as well as from numerous small owners. Regency competes for the development of shopping centers with other REITs engaged in development activities as well as with local, regional and national real estate developers. Regency develops properties by applying its proprietary research methods to identify development and leasing opportunities and by significantly pre-leasing development centers before beginning construction. Regency competes for the acquisition of properties through proprietary research that identifies opportunities in markets with high barriers to entry and higher-than-average population growth and household income. Regency seeks to maximize rents per square foot by establishing relationships with supermarket chains that are first or second in their markets and leasing non-anchor space in multiple centers to national or regional tenants. There can be no assurance, however, that other real estate owners or developers will not utilize similar research methods and target the same markets and anchor tenants that Regency targets or that such entities will successfully control these markets and tenants to the exclusion of Regency.
Changes in Policies
The Company's Board of Directors determines policies with respect to certain activities, including its debt capitalization, growth, distributions, REIT status, and investment and operating strategies. The Board of Directors may amend these policies at any time without a vote of the Company's shareholders.
Employees
The Company's headquarters are located in Jacksonville, Florida. The Company presently maintains 16 offices in 10 states where it conducts management, leasing and development activities. As of December 31, 1999, the Company had approximately 342 employees and believes that relations with its employees are good.
Item 2.
Item 2. Properties
The Partnership's properties summarized by state including their gross leasable areas (GLA) follows:
The following table summarizes the largest tenants occupying the Partnership's shopping centers based upon a percentage of total annualized base rent exceeding .5% at December 31, 1999. The table includes 100% of the base rent from leases of properties owned by joint ventures. Excluding the portion of base rent of joint ventures not owned by the Partnership, Kroger's percentage of annualized Partnership's base rent is 9.54%.
Summary of Principal Tenants > .5% of Annualized Base Rent (including Properties Under Development)
The Partnership's leases have lease terms generally ranging from three to five years for tenant space under 5,000 square feet. Leases greater than 10,000 square feet generally have lease terms in excess of five years, mostly comprised of anchor tenants. Many of the anchor leases contain provisions allowing the tenant the option of extending the term of the lease at expiration. The Partnership's leases provide for the monthly payment in advance of fixed minimum rentals, additional rents calculated as a percentage of the tenant's sales, the tenant's pro rata share of real estate taxes, insurance, and common area maintenance expenses, and reimbursement for utility costs if not directly metered. The following table sets forth a schedule of lease expirations for the next ten years, assuming that no tenants exercise renewal options:
Future Percent of Minimum Percent Lease Total Rent Total Expiration Expiring Partnership Expiring Minimum Year GLA GLA Leases Rent (2) ---- --- --- ------ --------
(1) 552,279 2.7% 6,614,154 2.8% 2000 1,337,006 6.4% 17,833,045 7.5% 2001 1,766,108 8.5% 24,305,272 10.2% 2002 1,913,470 9.2% 25,021,108 10.5% 2003 1,640,946 7.9% 23,096,744 9.7% 2004 1,974,539 9.5% 28,332,271 11.9% 2005 886,205 4.3% 10,007,682 4.2% 2006 837,489 4.0% 9,526,368 4.0% 2007 887,856 4.3% 9,207,554 3.9% 2008 855,458 4.1% 7,780,401 3.3% 2009 736,900 3.5% 7,713,090 3.3% ------------ ------ -------------- ----- 10 Yr Total 13,388,256 64.5% $ 169,437,689 71.0% ------------ ------ -------------- -----
(1) leased currently under month to month rent or in process of renewal (2) total minimum rent includes current minimum rent and future contractual rent steps for all properties, but excludes additional rent such as percentage rent, common area maintenance, real estate taxes and insurance reimbursements.
See the property table below and also see Item 7, Management's Discussion and Analysis for further information about the Partnership's properties.
(1) Or latest renovation (2) Includes development properties. If development properties are excluded, the total percentage leased would be 95.5% for Partnership shopping centers and 95.0% for Company shopping centers. (3) Company-owned property not owned by the Partnership. (4) Tenant owns its own building. (5) Owned by a partnership with outside investors in which the Partnership (or the Company in the case of a property referred to in note (3) above) or an affiliate is the general partner. (6) Property under development or redevelopment.
Item 3.
Item 3. Legal Proceedings
The Partnership is, from time to time, a party to legal proceedings which arise in the ordinary course of its business. The Partnership is not currently involved in any litigation nor, to management's knowledge, is any litigation threatened against the Partnership, the outcome of which would, in management's judgement based on information currently available, have a material adverse effect on the financial position or results of operations of the Partnership.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for partnership unit vote during the fourth quarter of 1999.
PART Il
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters
There is no established public trading market for the units of partnership interest in the Partnership ("Units"), and Units may be transferred only with the consent of the general partner as provided in the Third Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). As of December 31, 1999, Regency was the only holder of Class B Units, and there were approximately 46 holders of record in the aggregate of Original Limited Partnership Units, Additional Units and Series A, B, C and D Preferred Units, determined in accordance with Rule 12g5-1 under the Securities Exchange Act of 1934, as amended. To the Partnership's knowledge, there have been no bids for the Units and, accordingly, there is no available information with respect to the high and low quotation of the Units for any quarter since Regency became the general partner of the Partnership. Each outstanding Unit other than Class B Units and Series A, B, C and D Preferred Units may be exchangeable by its holder on a one share per one Unit basis, for the common stock of Regency or for cash, at Regency's election.
The Partnership Agreement provides that the Partnership will make priority distributions of Available Cash (as defined in the Partnership Agreement) first to Series A, C and D Preferred Units on each March 31, June 30, September 30 and December 31 in a distribution amount equal to 8.125%, 9.0% and 9.125% of the original capital contribution per Series A, C and D Preferred Units, respectively. The Partnership Agreement provides that the Partnership will make priority distributions of Available Cash (as defined in the Partnership Agreement) first to Series B Preferred Units on each March 1, June 1, September 1 and December 1 in a distribution amount equal to 8.75% of the original capital contribution per Series B Preferred Units. Subject to the prior right of the holders of Series A, B, C and D Preferred Units to receive all distributions accumulated on such Units in full, at the time of each distribution to holders of common stock of Regency, distributions of Available Cash will then be made to the holders of Additional Units, first in an amount per Unit identical to the amount that is distributed with respect to each share of common stock. The Partnership Agreement provides that all remaining Available Cash will be distributed to the General Partner.
Regency's common stock is traded on the New York Stock Exchange under the symbol "REG". The following table sets forth the high and low prices and the cash dividends declared on Regency's common stock by quarter for 1999 and 1998. Quarterly distributions to limited partners (other than holders of Series A, B, C and D Preferred Units) have been declared and paid at the same rate as the Regency cash dividends since Regency or its affiliate has been the general partner of the Partnership.
1999 1998 ---------------------------- ----------------------------- Cash Cash High Low Dividends High Low Dividends Price Price Declared Price Price Declared ------- ------ --------- ------ ------ -----------
March 31 $23.125 18.750 .46 27.812 24.750 .44 June 30 22.500 19.000 .46 26.687 24.062 .44 September 30 22.125 19.875 .46 26.500 20.500 .44 December 31 20.813 18.750 .46 23.437 20.250 .44
The Partnership intends to pay regular quarterly distributions to its Unit holders in an amount per Unit identical to the amount distributed to each share of Regency common stock. Future distributions will be declared and paid at the discretion of Regency's Board of Directors, and will depend upon cash generated by operating activities, the Partnership's financial condition, capital requirements, Regency's annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as the Board of Directors deems relevant. The Partnership anticipates that for the foreseeable future cash available for distribution will be greater than earnings and profits due to non-cash expenses, primarily depreciation and amortization, to be incurred by the Partnership. In order to maintain its qualification as a REIT, Regency must make annual distributions to shareholders of at least 95% of its taxable income (90% effective January 1, 2001). Under certain circumstances, which management does not expect to occur, Regency could be required to make distributions in excess of cash available for distributions in order to meet such requirements.
Under the loan agreement with the lenders of the Partnership's Line, distributions may not exceed 95% of Funds from Operations ("FFO") based on the immediately preceding four quarters. Also in the event of any monetary default, Regency will not make distributions to shareholders and limited partners.
The following describes the registrant's sales of unregistered securities during the periods covered by this report, each sold in reliance on Rule 506 of the Securities Act.
In November 1998, the Partnership acquired Park Place shopping center in exchange for 79,466 Additional Units valued at $26 per Unit plus the assumption of debt secured by Park Place. During 1999, 3,682 Additional Units were issued as contingent consideration.
On September 3, 1999, the Partnership 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 Line.
On September 3, 1999, the Partnership 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 Line.
On September 29, 1999, the Partnership 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 Line.
On June 29, 1998, the Partnership 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 Regency 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 Regency.
During 1998, the Partnership acquired 42 shopping centers and joint ventures for a total investment of $370.3 ("1998 Acquisitions"). With respect to these acquisitions, during 1999, the Partnership paid contingent consideration valued at $9.0 million consisting of 69,555 Units, 3,768 shares of common stock, and $7.0 million. During 2000, the Partnership may pay contingent consideration of up to an estimated $7.5 million, through the issuance of Units, stock and the payment of cash.
The Partnership acquired 34 shopping centers during 1997 (the "1997 Acquisitions") for approximately $377.8 million. Included in the 1997 Acquisitions are 26 shopping centers acquired from Branch Properties ("Branch") for $232.4 million. During 1999, the Partnership issued 298,064 Additional Units and shares of common stock valued at $5.9 million to Branch as contingent consideration for the satisfaction of certain performance criteria of the properties acquired. During 1998, the Partnership issued 721,997 Additional Units and shares of common stock valued at $18.2 million to Branch as contingent consideration for the satisfaction of certain performance criteria of the properties acquired.
Item 6.
Item 6. Selected Consolidated Financial Data (in thousands, except per share data and number of properties)
The following table sets forth Selected Financial Data on a historical basis for the five years ended December 31, 1999, for the Partnership. This information should be read in conjunction with the financial statements of the Partnership (including the related notes thereto) and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Financial Data has been derived from the audited financial statements.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers, L.P. appearing elsewhere within. Amounts are in thousands, except per share data and retail center statistical information.
Organization
Regency Realty Corporation ("Regency" or "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 December 31, 1999, 198 properties were owned either fee simple or through partnerships interests by the Partnership. At December 31, 1999, the Company had an investment in real estate, at cost, of approximately $2.6 billion of which $2.4 billion or 96% was owned by the Partnership.
Shopping Center Business
The Partnership's principal business is owning, operating and developing grocery anchored neighborhood shopping centers which are located in infill locations or high growth corridors. The Partnership's properties summarized by state and in order by largest holdings including their gross leasable areas (GLA) follows:
* Excludes properties under construction
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 grocery tenants occupying the Partnership's shopping centers at December 31, 1999:
Grocery Number of % of % of Annualized Avg Remaining Anchor Stores Total GLA Base Rent Lease Term --------- ---------- ---------- --------------- ------------ Kroger 52 13.2% 11.4% 16 yrs Publix 26 5.4% 4.6% 12 yrs Safeway 32 6.3% 4.3% 10 yrs Albertsons 14 3.2% 3.0% 14 yrs
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 of Regency held February 26, 1999. 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 closing costs. 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 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. Concurrent with this acquisition, the Company contributed all the assets and liabilities of Pacific to the Partnership in exchange for Class B Units.
During 1998, the Partnership, through Regency, acquired 42 shopping centers and joint ventures for a total investment of $370.3 ("1998 Acquisitions"). With respect to these acquisitions, during 1999, the Partnership and Regency paid contingent consideration valued at $9.0 million consisting of 69,555 Units, 3,768 shares of common stock, and $7.0 million. During 2000, the Partnership and Regency may pay contingent consideration of up to an estimated $7.5 million, through the issuance of Units, stock and the payment of cash.
Results from Operations
Comparison of 1999 to 1998
Revenues increased $162.3 million or 134% to $283.7 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions. At December 31, 1999, the real estate portfolio contained approximately 22.8 million SF, and was 92.6% leased. Minimum rent increased $116.9 million or 134%, and recoveries from tenants increased $32.8 million or 164%. Other non-rental revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Partnership were $18.2 million and $11.9 million in 1999 and 1998, respectively. This increase of $6.3 million was the result of higher gains on developments sold. During 1998, the Partnership 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 Partnership'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 $66.8 million or 110% to $127.6 million in 1999. Combined operating and maintenance, and real estate taxes increased $37.9 million or 151% during 1999 to $63 million. The increases are due to Pacific and the 1998 Acquisitions. General and administrative expenses increased 32% during 1999 to $19.3 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 $24.2 million during 1999 or 117% primarily due to Pacific and the 1998 Acquisitions.
Interest expense increased to $56 million in 1999 from $23.5 million in 1998 or 139% due to increased average outstanding loan balances related to the financing of Pacific and the 1998 Acquisitions on the Line and the assumption of debt.
Net income for common unit holders was $86.8 million in 1999 vs. $45.9 million in 1998, a $40.9 million or 89% increase for the reasons previously described. Diluted earnings per unit in 1999 was $1.59 vs. $1.58 in 1998 due to the gain offset by the dilutive impact from the increase in weighted average common units and equivalents of 26.9 million primarily due to the acquisition of Pacific.
Comparison of 1998 to 1997
Revenues increased $43.2 million or 55% to $121.4 million in 1998. The increase was due primarily to the 1998 and 1997 Acquisitions. At December 31, 1998, the real estate portfolio contained approximately 12.4 million SF, and was 93.6% leased. Minimum rent increased $31.3 million or 56%, and recoveries from tenants increased $6.9 million or 53%. Revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Partnership were $11.9 million in 1998 compared to $8.4 million in 1997, the increase due primarily to increased brokerage fees and increased activity in construction and development for third parties. During 1998, the Partnership 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 Partnership'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 $20.6 million or 52% to $60.8 million in 1998. Combined operating and maintenance, and real estate taxes increased $7.3 million or 41% during 1998 to $25.1 million. The increases are due to the 1998 and 1997 Acquisitions. General and administrative expenses increased 51% during 1998 to $15.1 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 the Partnership began managing for third parties during 1998 and 1997. Depreciation and amortization increased $8.3 million during 1998 or 67% primarily due to the 1998 and 1997 Acquisitions.
Interest expense increased to $23.5 million in 1998 from $14.8 million in 1997 or 59% 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. Weighted average interest rates increased 0.1% during 1998. See further discussion under Acquisition and Development of Shopping Centers and Liquidity and Capital Resources.
Net income for common unit holders was $45.9 million in 1998 vs. $24.2 million in 1997, a $21.7 million or 90% increase for the reasons previously described. Diluted earnings per unit in 1998 was $1.58 vs. $1.13 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 8.6 million primarily due to the acquisition of Branch and Midland.
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 $142.0 million and $54.0 million for the years ended December 31, 1999 and 1998, respectively. The Partnership 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 $18.9 million and $6.9 million, during 1999 and 1998, respectively. The Partnership paid scheduled principal payments of $6.1 million and $3.1 million during 1999 and 1998, respectively. The Partnership paid distributions of $15.5 million and $5.3 million, during 1999 and 1998, respectively, to its Common and Series A , B, C and D Preferred unitholders.
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 $211.9 million and $235.7 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 $105.3 million and $182.6 million during 1999 and 1998, respectively, primarily related to the proceeds from the preferred unit and debt offerings completed during 1999 and 1998. At December 31, 1999, the Partnership had 50 shopping centers under construction or undergoing major renovations, with costs to date of $271.3 million. Total committed costs necessary to complete the properties under development is estimated to be $135 million and will be expended through 2000.
During 1999, 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. At December 31, 1999, the Company had repurchased 2.7 million shares for $54.5 million of which the majority of the funds came from the Partnership. Accordingly, 2.7 million Class B Units are currently held in treasury.
The Partnership's outstanding debt at December 31, 1999 and 1998 consists of the following (in thousands):
1999 1998 ------- ------ Notes Payable: Fixed rate mortgage loans $ 331,716 230,398 Variable rate mortgage loans 11,376 11,051 Fixed rate unsecured loans 370,696 121,296 ------- ------- Total notes payable 713,788 362,745 Acquisition and development line of credit 247,179 117,631 ------- ------- Total $ 960,967 480,376 ======= =======
During February, 1999, the Partnership 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 Partnership's outstanding unsecured liabilities. The Line matures in February 2001, but may be extended annually for one year periods. The Partnership 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 Partnership assumed debt with a fair value of $411.2 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 instruments0.
On April 15, 1999 the Partnership completed a $250 million unsecured debt offering in two tranches. The Partnership 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 December 31, 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 ---------- ------------ ----------
2000 5,711 41,942 47,653 2001 8,053 293,027 301,080 2002 4,943 44,091 49,034 2003 4,933 13,299 18,232 2004 5,327 199,866 205,193 Beyond 5 Years 36,833 290,365 327,248 Net unamortized debt premiums - 12,527 12,527 ---------- --------- --------- $ 65,850 895,117 960,967 Total ========== ========= =========
Unconsolidated partnerships and joint ventures had mortgage loans payable of $50.3 million at December 31, 1999, and the Partnership's proportionate share of these loans was $21.2 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, the Company and the Partnership will reserve such amounts of cash flow as it considers necessary for the proper maintenance and improvement of the real estate portfolio, while still maintaining the Company's qualification as a REIT.
The Partnership's real estate portfolio has grown substantially during 1999 as a result of the acquisitions and development discussed above. The Partnership 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 Partnership 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 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.
New Accounting Standards and Accounting Changes
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities " (FAS 133), which is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. FAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires entities to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Partnership does not believe FAS 133 will materially effect its financial statements.
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. The Partnership 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 or the Partnership 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 or Partnership.
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 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
Management recognized the potential effect Year 2000 could have on the Partnership's operations and, as a result, implemented a Year 2000 Compliance Project. The project included an awareness phase, an assessment phase, a renovation phase, and a testing phase of the data processing network, accounting and property management systems, computer and operating systems, software packages, and building management systems. The project also included surveying major tenants and financial institutions. The Partnership's computer hardware, operating systems, business systems, general accounting and property management systems and principal desktop software applications are Year 2000 compliant. Additionally, the Partnership did not incur and does not expect any business interruption as a result of any of its customers or financial institutions not being Year 2000 compliant.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The Partnership 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 Partnership's real estate investment portfolio and operations. The Partnership'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 Partnership 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 Partnership has no plans to enter into derivative or interest rate transactions for speculative purposes, and at December 31, 1999, the Partnership did not have any borrowings hedged with derivative financial instruments.
The Partnership's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts maturing (in thousands) based upon contractual terms, weighted average interest rates of debt remaining, 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.
As the table incorporates only those exposures that exist as of December 31, 1999, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Partnership'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 Partnership that is based on the beliefs of the Partnership'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 Partnership, 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 Partnership; quality of management, business abilities and judgment of the Partnership'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 Partnership 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 8.
Item 8. Consolidated Financial Statements and Supplementary Data
The Consolidated Financial Statements and supplementary data included in this Report are listed in Part IV, Item 14(a).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Partnership is managed by Regency, its general partner. Consequently, the information required by this item is reflected in and is hereby incorporated by reference to the information contained in Regency's definitive proxy statement for its 2000 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after the end of its fiscal year. The following table provides information concerning the executive officers of Regency.
Executive Officer Positions with the Company (Age) Principal Occupations During the Past Five Years
Martin E. Stein, Jr. Chairman, Chief Executive Officer, and Director (age 47) of the Company since its initial public offering in October 1993; previously President of the Company's predecessor real estate division since 1976.
Mary Lou Fiala President and Chief Operating Officer since January, (age 48) 1999 and Director of the Company since March, 1997; Managing Director - Security Capital U.S. Realty Strategic Group From March 1997 to January 1999; Senior Vice President and Director of Stores, New England - Macy's East/ Federated Department Stores from 1994 to March 1997; various retailing positions since joining Macy's in 1977, including Senior Vice President for Federated's Burdines Division and Henri Bendel.
Bruce M. Johnson Managing Director and Chief Financial Officer of the (age 52) Company since its initial public offering in October 1993, and Executive Vice President of the Company's predecessor real estate division since 1979.
Item 11.
Item 11. Executive Compensation
The Partnership is managed by Regency, its general partner. Consequently, the information required by this item is reflected in and is hereby incorporated by reference to the information contained in Regency's definitive proxy statement for its 2000 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after the end of its fiscal year.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owner and Management
Information known to the Partnership with respect to beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 5% of the outstanding Class B Units as of March 24, 2000 is as follows
NO. OF UNITS BENEFICIALLY CLASS BENEFICIAL OWNER OWNED % OF CLASS
Class B Units Regency Realty Corporation 55,123,067 100% 121 W. Forsyth St., Suite 200 Jacksonville, Florida 32202
The Partnership has no directors or executive officers and is managed by Regency as the general partner of the Partnership. Other than Lee S. Wielansky and John F. Euart, Jr., no director or executive officer of Regency personally owns any Units of the Partnership as of March 24, 2000.
Information concerning the beneficial ownership of shares of common stock of Regency by its directors and executive officers, as well as by persons believed to be the beneficial owner of more than 5% of Regency's outstanding common stock, is hereby incorporated by reference to the information contained in Regency's definitive proxy statement for its 2000 Annual Meeting of Shareholders.
Item 13.
Item 13. Certain Relationships and Related Transactions
The Partnership is managed by Regency, its general partner. Consequently, the information required by this item is reflected in and is hereby incorporated by reference to the information contained in Regency's definitive proxy statement for its 2000 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after the end of its fiscal year.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules:
The Partnership's 1999 financial statements and financial statement schedule, together with the reports of KPMG LLP dated January 26, 2000 are listed on the index immediately preceding the financial statements at the end of this report.
(b) Reports on Form 8-K:
None
(c) Exhibits:
3. Third Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P., as amended, incorporated by reference to Exhibit 10(q) of Regency Realty Corporation's Form 10-K for the year ended December 31, 1999, filed March 17, 2000.
4. Instruments defining Rights of Security Holders
(a) Indenture dated July 20, 1998 between Regency Centers, L.P., the guarantors named therein and First Union National Bank, as trustee (incorporated by reference to Exhibit 4.1 to the registration statement on Form S-4 of Regency Centers, L.P., No. 333-63723).
(b) Indenture dated March 9, 1999 between Regency Centers, L.P., the guarantors named therein and First Union National Bank, as trustee (incorporated by reference to Exhibit 4.1 to the registration statement on Form S-3 of Regency Centers, L.P., No. 333-72899)
10. Material Contracts
(a) Amended and Restated Credit Agreement dated as of February 26, 1999 by and among Regency Centers, L.P., a Delaware limited partnership (the "Borrower"), Regency Realty Corporation, a Florida corporation (the "Parent"), each of the financial institutions initially a signatory hereto together with their assignees, (the "Lenders"), and Wells Fargo Bank, National Association, as contractual representative of the Lenders to the extent and in the manner provided, incorporated by reference to Exhibit 10(u) of Regency Realty Corporation's Form 10-K for the year ended December 31, 1998, filed March 15, 1999.
(i) Letter Agreement dated August 30, 1999 amending the Amended and Restated Credit Agreement dated February 26, 1999, incorporated by reference to Exhibit 10(r)(i) of Regency Realty Corporation's Form 10-K for the year ended December 31, 1999, filed March 17, 2000.
(ii) Letter Agreement dated October 29, 1999 amending the Amended and Restated Credit Agreement dated February 26, 1999, incorporated by reference to Exhibit 10(r)(ii) of Regency Realty Corporation's Form 10-K for the year ended December 31, 1999, filed March 17, 2000.
21. Subsidiaries of the Registrant incorporated by reference to Exhibit 21 of Regency Realty Corporation's Form 10-K for the year ended December 31, 1999, filed March 17, 2000.
23. Consent of KPMG LLP
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REGENCY CENTERS, L.P.
By: REGENCY REALTY CORPORATION, Its General Partner
Date: March 17, 2000 By: /s/ Martin E. Stein, Jr. ------------------------ Martin E Stein, Jr., Chairman of the Board and Chief Executive Officer
Date: March 17, 2000 By: /s/ Bruce M. Johnson -------------------- Bruce M. Johnson, Managing Director and Principal Financial Officer
Date: March 17, 2000 By: /s/ J. Christian Leavitt ------------------------ J. Christian Leavitt, Senior Vice President, Finance and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Date: March 17, 2000 /s/ Martin E. Stein, Jr. ------------------------ Martin E. Stein, Jr.,Chairman of the Board and Chief Executive Officer
Date: March 17, 2000 /s/ Mary Lou Fiala ------------------------ Mary Lou Fiala, President, Chief Operating Officer and Director
Date: March 17, 2000 /s/ Thomas B. Allin ------------------------ Thomas B. Allin, Director
Date: March 17, 2000 /s/ Raymond L. Bank ------------------------ Raymond L. Bank, Director
Date: March 17, 2000 /s/ A. R. Carpenter ------------------------ A. R. Carpenter, Director
Date: March 17, 2000 /s/ Jeffrey A. Cozad ------------------------ Jeffrey A. Cozad, Director
Date: March 17, 2000 /s/ J. Dix Druce, Jr. ------------------------ J. Dix Druce, Jr., Director
Date: March 17, 2000 /s/ John T. Kelley ------------------------ John T. Kelley, Director
Date: March 17, 2000 /s/ Douglas S. Luke ------------------------ Douglas S. Luke, Director
Date: March 17, 2000 /s/ John C. Schweitzer ------------------------ John C. Schweitzer, Director
Date: March 17, 2000 /s/ Lee Wielansky ------------------------ Lee Wielansky, Director
Date: March 17, 2000 /s/ Terry N. Worrell ----------------------- Terry N. Worrell, Director
REGENCY CENTERS, L.P.
Regency Centers, L.P.
Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997 Consolidated Statements of Changes in Capital for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 Notes to Consolidated Financial Statements
Financial Statement Schedule
Independent Auditors' Report on Financial Statement Schedule S-1
Schedule III - Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation - December 31, 1999 S-2
All other schedules are omitted because they are not applicable or because information required therein is shown in the financial statements or notes thereto.
Independent Auditors' Report
The Unitholders of Regency Centers, L.P. and the Board of Directors of Regency Realty Corporation:
We have audited the accompanying consolidated balance sheets of Regency Centers, L.P. as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Regency Centers, L.P. as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles.
KPMG LLP
Jacksonville, Florida January 26, 2000
REGENCY CENTERS, L.P. Consolidated Balance Sheets December 31, 1999 and 1998
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Years ended December 31, 1999, 1998, and 1997
See accompanying notes to consolidated financial statements
REGENCY CENTERS, L.P. Consolidated Statement of Changes in Capital For the Years Ended December 31, 1999, 1998 and 1997
See accompanying notes to consolidated financial statements
REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997
REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997 continued
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
Regency Centers, L.P. ("RCLP" or "Partnership") is the primary entity through which Regency Realty Corporation ("Regency" or "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts substantially all of its business and owns substantially all of its assets.
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. At December 31, 1999, Regency owns approximately 97% of the outstanding common units of the Partnership.
During 1999, two properties were transferred from Regency to RCLP. The effects of such transfers were not material to the operations or financial position of the Partnership. During 1998, Regency transferred all of the assets and liabilities of a 100% owned shopping center, Hyde Park, to the Partnership in exchange for Class B units. Hyde Park was acquired by Regency on June 6, 1997, and its operations had been included in Regency's financial statements from that date forward. Since the Partnership and Hyde Park are under the common control of Regency, the transfer of Hyde Park has been accounted for at historical cost in a manner similar to a pooling of interests, as if the Partnership had directly acquired Hyde Park on June 6, 1997. Accordingly, the Partnership's financial statements have been restated to include the assets, liabilities, units issued, and results of operations of Hyde Park from the date it was acquired.
The Partnership's ownership interests are represented by Units, of which there are (i) Series A Preferred Units, (ii) Series B Preferred Units (iii) Series C Preferred Units (iv) Series D Preferred Units (v) Original Limited Partnership Units, all of which were issued in connection with the Branch acquisition, (vi) Additional Units, all of which were issued in connection with the Midland and other property acquisitions, and (vii) Class B Units, all of which are owned by Regency. Each outstanding Unit other than Class B Units and Series A, B, C, and D Preferred Units is exchangeable, on a one share per one Unit basis, for the common stock of Regency or for cash at Regency's election.
The accompanying consolidated financial statements include the accounts of the Partnership, its wholly owned subsidiaries, and its majority owned or controlled subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
(b) Revenues
The Partnership leases space to tenants under agreements with varying terms. Leases are accounted for as operating leases with minimum rent recognized on a straight-line basis over the term of the lease regardless of when payments are due. Accrued rents are included in tenant receivables. Minimum rent has been adjusted to reflect the effects of recognizing rent on a straight line basis.
Substantially all of the lease agreements contain provisions which provide additional rents based on tenants' sales volume (contingent or percentage rent) or reimbursement of the tenants' share of real estate taxes and certain common area maintenance (CAM) costs. These additional rents are recognized as the tenants achieve the specified targets as defined in the lease agreements.
Other non-rental revenues from management, leasing and brokerage fees are recognized as revenue when earned.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
(c) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct and indirect costs clearly associated with the acquisition, development and construction of real estate projects are capitalized as buildings and improvements.
Maintenance and repairs which do not improve or extend the useful lives of the respective assets are reflected in operating and maintenance expense. The property cost includes the capitalization of interest expense incurred during construction in accordance with generally accepted accounting principles.
Depreciation is computed using the straight line method over estimated useful lives up to forty years for buildings and improvements, term of lease for tenant improvements, and five to seven years for furniture and equipment.
The Partnership reviews its real estate investments for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
(d) Income Taxes
The Partnership is not liable for federal income taxes and each partner reports its allocable share of income and deductions on its respective return; accordingly no provision for income taxes is required in the consolidated financial statements.
Regency Realty Group, Inc., ("RRG") and PRT Development Corporation ("PRTDC") are taxable subsidiaries of the Partnership. RRG and PRTDC are subject to Federal and state income taxes and file separate tax returns. RRG and PRTDC had combined taxable income of $3,465,262, $774,756 and $890,404 for the years ended December 31, 1999, 1998 and 1997, respectively. RRG and PRTDC incurred Federal and state income tax of $1,502,876, $223,657 and $327,013 in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, the net book basis of real estate assets exceeds the tax basis by approximately $244.8 million and $168.6 million, respectively, primarily due to the difference between the cost basis of the assets acquired and their carryover basis recorded for tax purposes.
(e) Deferred Costs
Deferred costs consist of internal and external commissions associated with leasing the rental property and loan costs incurred in obtaining financing which are limited to initial direct and incremental costs. The net leasing commission balance was $6.2 and $2.5 million at December 31, 1999 and 1998, respectively. The net loan cost balance was $5.1 and $2.6 million at December 31, 1999 and 1998, respectively. Such costs are deferred and amortized over the terms of the respective leases and loans.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
(f) Earnings Per Unit
Basic net income per unit is computed based upon the weighted average number of common units outstanding during the year. Diluted net income per unit also includes common unit equivalents for options to purchase additional units and contingently issuable units when dilutive. See note 7 for the calculation of earnings per unit.
(g) Cash and Cash Equivalents
Any instruments which have an original maturity of ninety days or less when purchased are considered cash equivalents.
(h) Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the Partnership's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(i) Stock Option Plan
The Company and the Partnership apply the provisions of SFAS No. 123, "Accounting for Stock Based Compensation", which allows companies a choice in the method of accounting for stock options. Entities may recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant or SFAS No. 123 also permits entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per unit disclosures for employee stock option grants made as if the fair-value-based method defined in SFAS No. 123 had been applied. APB Opinion No. 25 "Accounting for Stock Issued to Employees", and related interpretations states that compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(j) Allocation of Expenses
All general and administrative expenses incurred by Regency and the Partnership have been paid by the Partnership. All other expenses have been allocated between Regency and the Partnership based upon the direct relationship to the real estate asset for which they were incurred. The Partnership provides property management services for the real estate properties within the Partnership as well as other entities, and earns a fee for these services. Such fees are recorded as management fee revenue for third parties or as a reduction of general and administrative expenses for properties owned by Regency. These fees are charged based on a percentage of total revenues, as defined.
(k) Reclassifications
Certain reclassifications have been made to the 1998 amounts to conform to classifications adopted in 1999.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
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 of Regency held February 26, 1999. 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 closing costs. 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 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. Concurrent with this acquisition, the Company contributed all the assets and liabilities of Pacific to the Partnership in exchange for Class B Units.
During 1998, the Partnership, through Regency, acquired 42 shopping centers and joint ventures for a total investment of $370.3 ("1998 Acquisitions"). With respect to these acquisitions, during 1999, the Partnership and Regency paid contingent consideration valued at $9.0 million consisting of 69,555 Units, 3,768 shares of common stock, and $7.0 million. During 2000, the Partnership and Regency may pay contingent consideration of up to an estimated $7.5 million, through the issuance of Units, stock and the payment of cash.
The operating results of Pacific and the 1998 Acquisitions are included in the Partnership'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 of the 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 units issued to acquire the properties. Pro forma revenues would have been $306.5 and $267.9 million as of December 31, 1999 and 1998, respectively. Pro forma net income for common unitholders would have been $93.2 and $76.7 million as of December 31, 1999 and 1998, respectively. Pro forma basic net income per common unit would have been $1.60 and $1.26 as of December 31, 1999 and 1998, respectively. Pro forma diluted net income per common unit would have been $1.60 and $1.25 as of December 31, 1999 and 1998, respectively. This data does not purport to be indicative of what would have occurred had Pacific and the 1998 Acquisitions been made on January 1, 1998, or of results which may occur in the future.
3. Segments
The Partnership was formed, and currently operates, for the purpose of 1) operating and developing Partnership 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 Partnership had previously operated four office buildings that were sold during 1998 and 1997 (Office buildings segment). The Partnership'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 Partnership assesses and measures operating results starting with Net Operating Income for the Retail and Office Buildings segments and Income for the Service operations segment and converts such amounts into a performance measure referred to as Funds From Operations ("FFO"). The operating results for the individual retail shopping centers have been aggregated since all of the Partnership'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
REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements December 31, 1999 (unaudited)
3. Segments (continued)
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 Partnership further adjusts FFO by distributions made to holders of Units that results in a diluted FFO amount. The Partnership considers diluted FFO 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 diluted FFO on the same basis. While management believes that diluted FFO is the most relevant and widely used measure of the Partnership'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 Partnership's operating performance, and is not indicative of cash available to fund all cash flow needs. Additionally, the Partnership's calculation of diluted 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, diluted FFO, and assets for each of the reportable segments are summarized as follows for the years ended as of December 31, 1999, 1998, and 1997. Non-segment assets to reconcile to total assets include cash and deferred costs.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
4. Investments in Real Estate Partnerships
The Partnership accounts for all investments in which it owns less than 50% and does not have controlling financial interest, using the equity method. The Partnership's combined investment in these partnerships was $66.9 and $30.6 million at December 31, 1999 and 1998, respectively. Net income is allocated to the Partnership in accordance with the respective partnership agreement.
5. Notes Payable and Acquisition and Development Line of Credit
The Partnership's outstanding debt at December 31, 1999 and December 31, 1998 consists of the following (in thousands):
During February, 1999, the Partnership modified the terms of its unsecured acquisition and development 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 Partnership's outstanding unsecured liabilities. The Line matures in February 2001, 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, (1.00% currently), which is dependent on the Company's investment grade rating. The Partnership 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 Partnership assumed debt with a fair value of $411.2 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 an adjustment to interest expense.
On April 15, 1999 the Partnership completed a $250 million unsecured debt offering in two tranches. The Partnership 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.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
5. Notes Payable and Acquisition and Development Line of Credit (continued)
As of December 31, 1999, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
Unconsolidated partnerships and joint ventures had mortgage loans payable of $50.3 million at December 31, 1999, and the Partnership's proportionate share of these loans was $21.2 million.
6. Regency's Stockholders' Equity and Partners' Capital
Allocation of profits and losses and distributions to unitholders are made in accordance with the partnership agreement. Distributions to Limited Partners are made in the same amount as the dividends declared and paid on Regency common stock. Distributions to the General Partner are made at the General Partner's discretion.
The following represent equity transactions initiated by Regency and the Partnership. The proceeds from such transactions are the primary source of capital from which the Partnership acquires and develops new real estate.
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.
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 Partnership 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 Line.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
6. Regency's Stockholders' Equity and Partners' Capital (continued)
On September 3, 1999, the Partnership 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 Line.
On September 3, 1999, the Partnership 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 Line.
On September 29, 1999, the Partnership 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 Line.
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 1999, a holder of Series 2 preferred shares converted their shares into 14,987 shares of common stock.
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. At December 31, 1999, the Company had repurchased 2.7 million shares for $54.5 million of which the majority of the funds came from the Partnership. Accordingly, 2.7 million Class B Units are currently held in treasury.
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.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
7. Earnings Per Unit
The following summarizes the calculation of basic and diluted earnings per unit for the years ended December 31, 1999, 1998 and 1997 (in thousands except per share data):
The Class B common stock dividends are deducted from income in computing earnings per unit since the proceeds of this offering were transferred to and reinvested by the Partnership. In addition, the Series 1 and Series 2 Preferred stock dividends are also deducted from net income in computing earnings per unit since the properties acquired with these preferred shares were contributed to the Partnership. Accordingly, the payment of Class B common, Series 1 and Series 2 Preferred stock dividends are deemed to be preferential to the distributions made to common unitholders.
8. Long-Term Stock Incentive Plans
Regency is committed to contribute to the Partnership all proceeds from the exercise of options or other stock-based awards granted under Regency's Stock Option and Incentive Plan. Regency's ownership in the Partnership will be increased based on the amount of proceeds contributed to the Partnership.
In 1993, the Company adopted a Long-Term Omnibus Plan (the "Plan") pursuant to which the Board of Directors may grant stock and stock options to officers, directors and other key employees. The Plan provides for the issuance of up to 12% of the Company's common shares outstanding not to exceed 8.5 million shares. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All stock options granted have ten year terms, and become fully exercisable after four years from the date of grant, with the exception of options issued to directors prior to 1999 which become fully exercisable after one year.
At December 31, 1999, there were approximately 2.7 million shares available for grant under the Plan. The per share weighted-average fair value of stock options granted during 1999 and 1998 was $1.23 and $2.22 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1999 - expected dividend yield 9.2%, risk-free interest rate of 5.7%, expected volatility 21%, and an expected life of 5.3 years; 1998 - expected dividend yield 7.5%, risk-free interest rate of 4.8%, expected volatility 21%, and an expected life of 6.5 years. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements.
REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements December 31, 1999 (unaudited)
8. Long-Term Stock Incentive Plans (continued)
Had the Partnership determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Partnership's net income for common stockholders would have been reduced to the pro forma amounts indicated below (in thousands except per share data):
Net income for common unitholders 1999 1998 1997
As reported: $86,763 $45,940 $24,228 Net income per unit: Basic $1.59 $1.62 $1.20 Diluted $1.59 $1.58 $1.13
Pro forma: $84,610 $44,915 $22,603 Net income per unit: Basic $1.55 $1.58 $1.09 Diluted $1.55 $1.55 $1.03
Stock option activity during the periods indicated is as follows:
Number of Weighted-Average Shares Exercise Price
Outstanding, December 31, 1996 198,000 $ 19.43
Granted 1,252,276 25.39 Forfeited (7,000) 23.54 Exercised (124,769) 19.25
Outstanding, December 31, 1997 1,318,507 25.08 Granted 741,265 24.39 Forfeited (123,495) 25.33 Exercised (227,700) 24.97
Outstanding, December 31, 1998 1,708,577 24.71
Granted 860,767 20.70 Pacific Retail Merger 1,251,719 24.24 Forfeited (87,395) 25.69 Exercised (4,000) 17.88 ----------- ---------- Outstanding, December 31, 1999 3,729,668 $ 23.61 =========== ==========
The following table presents information regarding all options outstanding at December 31, 1999.
Weighted Average Weighted Number of Remaining Range of Average Options Contractual Exercise Exercise Outstanding Life Prices Price
423,220 9.31 $ 16.75 - 19.81 $ 19.73 1,388,098 8.68 20.83 - 22.94 21.86 1,918,350 7.42 25.00 - 27.69 25.73 --------- ---- ------------------ ------------- 3,729,668 8.10 $ 16.75 - 27.69 $ 23.61 ========= ==== ================== =============
The following table presents information regarding options currently exercisable at December 31, 1999: Weighted Number of Range of Average Options Exercise Exercise Exercisable Prices Price
45,731 $ 16.75 - 19.25 $ 19.01 15,899 22.25 - 25.00 23.34 88,681 26.25 - 27.75 26.98 ------- --------------- ------------ 150,311 $ 16.75 - 27.75 $ 24.17 ======= =============== ============ Also as part of the Plan, certain officers and employees have received loans to purchase stock at market rates of interest, have been granted restricted stock, and have been granted dividend equivalents. During 1999, 1998 and 1997, the Company charged $1,030,645, $1,322,164 and $1,115,906, respectively, to income on the consolidated statement of operations related to the Plan.
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 1999
(unaudited)
9. Operating Leases
The Partnership's properties are leased to tenants under operating leases with expiration dates extending to the year 2032. Future minimum rents under noncancelable operating leases as of December 31,1999, excluding tenant reimbursements of operating expenses and excluding additional contingent rentals based on tenants' sales volume are as follows:
Year ending December 31, Amount 2000 $ 212,605,774 2001 199,375,597 2002 176,902,371 2003 155,139,918 2004 128,333,418 Thereafter 883,033,479 ------------- Total $ 1,755,390,557 ============= The shopping centers' tenant base includes primarily national and regional supermarkets, drug stores, discount department stores and other retailers and, consequently, the credit risk is concentrated in the retail industry. There were no tenants which individually represented 10% or more of the Partnership's combined minimum rent.
10. Contingencies
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. While the Partnership has registered the plants located in Florida under a state funded program designed to substantially fund the clean up, if necessary, of any environmental issues, the owner or operator is not relieved from the ultimate responsibility for clean up. The Partnership also has established due diligence procedures to identify and evaluate potential environmental issues on properties under consideration for acquisition. In connection with acquisitions during 1999 and 1998, the Partnership has established environmental reserves which amounted to $2.6 million and $2.2 million at December 31, 1999 and 1998, respectively. While it is not possible to predict with certainty, management believes that the reserves are adequate to cover future clean-up costs related to these sites. The Partnership's policy is to accrue environmental clean-up costs when it is probable that a liability has been incurred and that amount is reasonably estimable. 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.
11. Summary of Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 1999 and 1998 (amounts in thousands, except per share data):
Independent Auditors' Report On Financial Statement Schedule
The Unitholders of Regency Centers, L.P. and the Board of Directors of Regency Realty Corporation
Under date of January 26, 2000, we reported on the consolidated balance sheets of Regency Centers L.P. as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 1999, as contained in the annual report on Form 10-K for the year 1999. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index on page of the annual report on Form 10-K for the year 1999. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Jacksonville, Florida January 26, 2000
S-1
Regency Centers, L.P.
Combined Real Estate and Accumulated Depreciation December 31, 1999
S-2
Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1999
S-3
Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1999
S-4
Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1999
Schedule III
Total Cost Net of Accumulated Accumulated Depreciation Depreciation Mortgages ------------ -------------- --------------- ANASTASIA SHOPPING PLAZA 703,411 4,163,157 - ARAPAHO VILLAGE 167,115 8,701,721 - ARDEN SQUARE 154,340 10,406,098 - ASHFORD PLACE 919,895 11,393,577 4,550,587 AVENTURA SHOPPING CENTER 2,590,758 9,755,545 8,470,790 BECKETT COMMONS 290,832 7,448,840 - BENEVA 234,349 11,393,934 - BENT TREE PLAZA 333,929 8,252,865 5,524,586 BERKSHIRE COMMONS 1,293,958 9,240,660 - BLOOMINGDALE 689,773 17,508,442 - BLOSSOM VALLEY 214,502 17,909,979 - BOLTON PLAZA 1,164,968 9,140,320 - BOULEVARD CENTER 200,691 13,116,576 - BOYNTON LAKES PLAZA 503,861 12,365,815 - BRAELINN VILLAGE EQUIPORT 1,169,840 16,294,636 2,218,290 BRIARCLIFF LA VISTA 228,379 3,512,307 1,630,511 BRIARCLIFF VILLAGE 1,531,761 20,845,297 3,113,636 BRISTOL WARNER 254,072 16,742,944 - BROOKVILLE PLAZA 232,409 5,368,115 - BUCKHEAD COURT 640,706 8,775,325 - BUCKLEY SQUARE 114,662 7,981,578 - CAMBRIDGE SQUARE 231,738 3,786,043 - CARMEL COMMONS 724,774 12,304,356 - CARRIAGE GATE 929,813 3,538,220 2,266,757 CASA LINDA PLAZA 646,494 34,677,836 - CASCADE PLAZA 89,111 13,628,514 - CENTER OF SEVEN SPRINGS 1,365,365 8,443,745 - CHAMPIONS FOREST 180,533 11,163,945 - CHERRY GROVE 608,392 16,132,341 - CHERRY PARK MARKET 336,746 18,226,188 - CITY VIEW SHOPPING CENTER 387,717 5,214,450 - COOPER STREET 222,192 12,538,888 - COSTA VERDE 524,233 37,476,955 - COUNTRY CLUB CALIF 243,184 14,414,016 - CROMWELL SQUARE 582,640 7,737,686 4,411,629 CROSSROADS 53,918 6,055,040 - CUMMING 400 785,766 10,486,189 6,349,087 DIABLO PLAZA 156,691 12,679,175 - DUNWOODY HALL 612,852 8,640,405 - DUNWOODY VILLAGE 768,329 10,903,750 7,144,500 EAST POINTE 328,701 8,319,777 5,173,921 EAST PORT PLAZA 840,051 14,311,857 - EL CAMINO 226,355 18,226,073 - EL NORTE PARKWAY PLA 131,548 9,034,040 - ENCINA GRANDE 215,852 15,202,687 - ENSLEY SQUARE 326,996 4,145,485 - EVANS CROSSING 268,899 6,495,181 4,277,340 FLEMING ISLAND 237,072 9,162,886 3,404,648 FRANKLIN SQUARE 517,497 11,924,605 8,989,157 FRIARS MISSION 564,821 33,372,171 7,686,329 GARDEN SQUARE 447,836 9,665,710 6,403,488 GARNER FESTIVAL 626,736 25,726,539 - GLENWOOD VILLAGE 402,574 5,255,055 2,127,621 HAMILTON MEADOWS 385,108 8,235,267 5,528,516 HAMPSTEAD VILLAGE 20,684 7,901,320 2,431,616 HANCOCK 497,293 31,982,908 - HARPETH VILLAGE FIELDSTONE 446,475 10,934,823 - HARWOOD HILLS VILLAGE 187,491 11,857,827 - HERITAGE LAND - 12,390,000 - HERITAGE PLAZA 508,580 23,167,377 - HIGHLAND SQUARE 386,415 16,552,800 3,835,315 HILLCREST VILLAGE 37,464 3,360,222 - HINSDALE LAKE COMMONS 411,905 18,917,495 - HYDE PARK 2,306,602 43,018,474 4,750,000
S-5
Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1999
Schedule III
Total Cost Net of Accumulated Accumulated Depreciation Depreciation Mortgages ------------ -------------- ---------------
INGLEWOOD PLAZA 38,648 3,123,758 - JAMES CENTER 177,930 11,979,567 5,787,944 KERNERSVILLE PLAZA 281,973 7,809,255 5,146,742 KINGSDALE SHOPPING CENTER 838,852 18,212,882 - LAKE MERIDIAN 253,379 18,378,510 - LAKE PINE PLAZA 324,461 8,901,759 5,888,137 LAKESHORE 256,291 6,744,937 3,668,020 LEETSDALE MARKETPLACE 210,546 13,143,155 - LITTLETON SQUARE 171,608 10,113,356 - LOEHMANNS PLAZA 1,316,391 17,541,136 - LOEHMANNS PLAZA CALIFORNIA 182,289 13,916,846 - LOVEJOY STATION 349,967 6,777,255 - MAINSTREET SQUARE 322,753 5,490,638 - MARINERS VILLAGE 438,189 7,234,443 - MARKET AT PRESTON FOREST 223,653 14,929,059 - MARKET AT ROUND ROCK 202,961 11,473,209 7,298,779 MARKETPLACE ST PETE 511,093 5,721,767 - MAXTOWN ROAD (NORTHGATE) 273,865 7,752,667 5,339,003 MAYNARD CROSSING 653,322 18,113,619 1,550,269 MEMORIAL BEND SHOPPING CENTER 1,179,660 15,745,037 8,089,362 MERCHANTS VILLAGE 374,103 7,242,437 - MILLS POINTE 254,094 13,665,082 5,741,898 MOCKINGBIRD COMMON 202,283 12,473,317 - MORNINGSIDE PLAZA 277,236 17,142,693 - MURRAYHILL MARKETPLACE 332,855 18,020,179 8,209,237 NASHBORO 159,122 8,978,405 - NEWBERRY SQUARE 1,667,918 10,008,233 6,346,921 NEWLAND CENTER 265,001 24,456,278 - NORTH HILLS 394,792 23,477,410 8,688,589 NORTHVIEW PLAZA 180,899 10,470,941 - OAKBROOK PLAZA 137,140 10,228,564 - OAKLEY PLAZA 455,637 7,801,892 - OLD ST AUGUSTINE PLAZA 684,282 9,013,892 - ORCHARD SQUARE 475,492 5,098,889 - PACES FERRY PLAZA 1,013,894 13,813,052 - PALM HARBOUR SHOPPING VILLAGE 1,030,852 14,131,435 - PALM TRAILS PLAZA 237,875 8,067,006 - PARK PLACE 233,562 9,981,340 - PARKWAY STATION 437,015 5,186,105 - PASEO VILLAGE 162,823 10,167,279 4,081,445 PEACHLAND PROMENADE 724,060 5,797,281 4,095,518 PEARTREE VILLAGE 1,208,491 23,489,366 2,613,011 PIKE CREEK 715,709 23,620,511 2,237,467 PIMA CROSSING 521,129 30,170,561 - PINE LAKE VILLAGE 218,507 16,603,534 - PINE TREE PLAZA 152,747 5,692,786 - PLAZA DE HACIENDA 243,335 15,728,598 6,604,058 PLAZA HERMOSA 194,980 13,374,650 - POWERS FERRY SQUARE 1,328,284 18,971,897 - POWERS FERRY VILLAGE 379,832 5,277,669 2,885,949 PRESTON PARK 984,572 52,311,499 4,478,620 QUEENSBOROUGH 176,070 7,317,364 - REGENCY COURT 1,156,685 16,111,374 - RIDGLEA PLAZA 273,345 14,314,291 - RIVERMONT STATION 665,282 12,754,992 - RONA PLAZA 90,620 5,765,860 - ROSWELL VILLAGE 622,605 14,188,865 - RUSSELL RIDGE 823,061 7,905,107 6,124,639 SAMMAMISH HIGHLAND 157,091 16,696,197 - SAN LEANDRO 166,369 9,024,722 - SANDY PLAINS VILLAGE 955,297 13,918,996 - SANDY SPRINGS VILLAGE 248,139 4,064,362 - SANTA ANA DOWTOWN 153,685 11,405,783 - SEQUOIA STATION 372,249 26,627,570 - SHERWOOD MARKET CENTER 343,240 19,029,732 - SHOPPES @ 104 385,985 12,228,769 - SHOPPES AT MASON 249,129 6,685,382 3,861,074 SILVERLAKE 285,014 8,903,405 -
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Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1999
Schedule III
Total Cost Net of Accumulated Accumulated Depreciation Depreciation Mortgages ------------ -------------- ---------------
SOUTH MONROE 213,093 6,202,069 - SOUTH POINT PLAZA 209,355 14,876,640 - SOUTH POINTE CROSSING 279,858 15,483,030 - SOUTHCENTER 257,171 13,293,333 - SOUTHPARK 195,568 12,282,075 - ST ANN SQUARE 345,192 6,960,860 4,861,922 STATLER SQUARE 370,770 9,578,317 5,393,006 STRAWFLOWER VILLAGE 153,788 11,139,376 - SUNNYSIDE 205 182,560 9,720,721 5,678,996 TAMIAMI TRAILS 481,369 9,197,294 - TASSAJARA CROSSING 310,417 23,149,512 - TEQUESTA SHOPPES 564,489 7,888,776 - THE MARKETPLACE 264,410 2,471,683 2,186,300 THE PROMENADE 268,195 14,971,096 - THE VILLAGE 146,548 7,360,757 - THOMAS LAKE 214,407 16,087,404 - TOWN CENTER AT MARTIN DOWNS 387,973 5,996,662 - TOWN SQUARE 178,771 3,408,846 - TROWBRIDGE CROSSING EQUIPORT 202,473 3,785,268 1,800,000 TWIN PEAKS 524,275 29,795,483 - UNION SQUARE SHOPPING CENTER 556,755 7,380,986 - UNIVERSITY COLLECTION 737,604 10,913,690 - UNIVERSITY MARKETPLACE 2,122,729 10,703,507 - VALLEY RANCH CENTRE 227,928 13,520,876 - VENTURA VILLAGE 132,059 10,518,953 - VILLAGE CENTER 6 1,189,672 13,061,357 - WALKER CENTER 135,589 10,121,933 - WATERFORD TOWNE CENTER 43,360 11,121,369 - WELLEBY 780,688 7,743,531 - WELLINGTON MARKET PLACE 1,498,316 17,233,854 - WELLINGTON TOWN SQUARE 692,458 9,111,355 - WEST HILLS 125,737 8,119,496 5,185,042 WEST PARK PLAZA 103,736 10,728,235 - WESTCHESTER PLAZA 390,261 8,207,096 5,712,441 WESTLAKE VILLAGE CENTER 681,958 32,104,781 - WINDMILLER PLAZA PHASE I 431,949 13,847,700 - WOODCROFT SHOPPING CENTER 469,317 6,550,608 - WOODMAN VAN NUYS 138,667 12,196,579 5,895,124 WOODSIDE CENTRAL 186,176 12,159,522 - WORTHINGTON PARK CENTRE 510,888 13,371,676 4,858,536 --------------------------------------------- 81,294,400 2,180,400,769 350,596,373 ============================================= (*) Includes land parcels sold in 1999
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REGENCY REALTY CENTERS. L.P. Combined Real Estate and Accumulated Depreciation December 31, 1999
Depreciation and amortization of the Company's investment in buildings and improvements reflected in the statement of operation is calculated over the estimated useful lives of the assets as follows:
Buildings and improvements up to 40 years
The aggregate cost for Federal income tax purposes was approximately $1,935,556,329 at December 31, 1999.
The changes in total real estate assets for the period ended December 31, 1999, 1998, and 1997:
The changes in accumulated depreciation for the period ended December 31, 1999, 1998, and 1997:
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