-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tg4lKHLIq//sVLj+AAo626I88Lc82uvu2SjnQmXEY+uASVHxtIGwbLZvqGMs2N4A +aujroES3E1Wl3VBNElatQ== 0000897069-03-001431.txt : 20031114 0000897069-03-001431.hdr.sgml : 20031114 20031114162837 ACCESSION NUMBER: 0000897069-03-001431 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENCY CENTERS LP CENTRAL INDEX KEY: 0001066247 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 593429602 STATE OF INCORPORATION: FL FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24763 FILM NUMBER: 031005084 BUSINESS ADDRESS: STREET 1: 121 W FORSYTH STREET STREET 2: SUITE 200 CITY: JACKSONVILLE STATE: FL ZIP: 32202 BUSINESS PHONE: 9043567000 MAIL ADDRESS: STREET 1: 121 W FORSYTH ST STREET 2: STE 200 CITY: JACKSONVILLE STATE: FL ZIP: 32202 10-Q 1 dkm549.txt FORM 10-Q FQE SEPTEMBER 30, 2003 United States SECURITIES AND EXCHANGE COMMISSION Washington DC 20549 FORM 10-Q (Mark One) [X] For the quarterly period ended September 30, 2003 -or- [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission File Number 0-24763 REGENCY CENTERS, L.P. --------------------- (Exact name of registrant as specified in its charter) Delaware 59-3429602 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 121 West Forsyth Street, Suite 200 Jacksonville, Florida 32202 --------------------------- (Address of principal executive offices) (Zip Code) (904) 598-7000 -------------- (Registrant's telephone number, including area code) Unchanged --------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] REGENCY CENTERS, L.P. Consolidated Balance Sheets September 30, 2003 and December 31, 2002 (unaudited)
2003 2002 ---- ---- Assets Real estate investments: Land $ 715,731,924 715,255,513 Buildings and improvements 1,964,626,055 1,973,501,081 ----------------- ----------------- 2,680,357,979 2,688,756,594 Less: accumulated depreciation 284,678,878 244,595,928 ----------------- ----------------- 2,395,679,101 2,444,160,666 Properties in development 345,614,496 276,085,435 Operating properties held for sale - 5,658,905 Investments in real estate partnerships 133,316,456 125,482,151 ----------------- ----------------- Net real estate investments 2,874,610,053 2,851,387,157 Cash and cash equivalents 45,888,449 56,447,329 Notes receivable 77,586,149 56,630,876 Tenant receivables, net of allowance for uncollectible accounts of $4,100,974 and $4,258,891 at September 30, 2003 and December 31, 2002, respectively 42,391,111 47,983,160 Deferred costs, less accumulated amortization of $31,721,996 and $25,588,464 at September 30, 2003 and December 31, 2002, respectively 34,299,656 37,367,196 Other assets 20,861,456 19,112,148 ----------------- ----------------- $ 3,095,636,874 3,068,927,866 ================= ================= Liabilities and Partners' Capital Liabilities: Notes payable 1,281,818,308 1,253,524,045 Unsecured line of credit 196,000,000 80,000,000 Accounts payable and other liabilities 91,959,394 83,977,263 Tenants' security and escrow deposits 9,413,884 8,847,603 ----------------- ----------------- Total liabilities 1,579,191,586 1,426,348,911 ----------------- ----------------- Limited partners' interest in consolidated partnerships 15,388,919 14,825,256 ----------------- ----------------- Partners' Capital: Series A preferred units, par value $50: 1,600,000 units issued and outstanding at December 31, 2002 - 78,800,000 Series B preferred units, par value $100: 850,000 units issued and outstanding at September 30, 2003 and December 31, 2002 82,799,720 82,799,720 Series C preferred units, par value $100: 750,000 units issued, 400,000 and 750,000 units outstanding at September 30, 2003 and December 31, 2002, respectively 38,964,575 73,058,577 Series D preferred units, par value $100: 500,000 units issued and outstanding at September 30, 2003 and December 31, 2002 49,157,977 49,157,977 Series E preferred units, par value $100: 700,000 units issued, 300,000 and 700,000 units outstanding at September 30, 2003 and December 31, 2002, respectively 29,237,820 68,221,579 Series F preferred units, par value $100: 240,000 units issued and outstanding at September 30, 2003 and December 31, 2002 23,365,799 23,365,799 Series 3 cumulative redeemable preferred units, par value $0.01: 300,000 units issued and outstanding at September 30, 2003; liquidation preference $250 75,000,000 - General partner; 59,610,435 and 60,007,436 units outstanding at September 30, 2003 and December 31, 2002, respectively 1,176,000,182 1,221,720,073 Limited partners; 1,431,837 and 1,504,458 units outstanding at September 30, 2003 and December 31, 2002, respectively 28,207,552 30,629,974 Accumulated other comprehensive income (loss) (1,677,256) - ----------------- ----------------- Total partners' capital 1,501,056,369 1,627,753,699 ----------------- ----------------- Commitments and contingencies $ 3,095,636,874 3,068,927,866 ================= =================
See accompanying notes to consolidated financial statements. 2 REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Three Months ended September 30, 2003 and 2002 (unaudited)
2003 2002 ---- ---- Revenues: Minimum rent $ 69,903,822 68,695,823 Percentage rent 737,231 533,119 Recoveries from tenants 21,054,968 20,234,787 Service operations revenue 13,357,686 8,301,507 Equity in income of investments in real estate partnerships 1,589,891 1,302,058 ----------------- ----------------- Total revenues 106,643,598 99,067,294 ----------------- ----------------- Operating expenses: Depreciation and amortization 18,997,852 17,722,077 Operating and maintenance 13,233,389 12,752,053 General and administrative 6,294,558 6,075,285 Real estate taxes 10,184,943 9,779,978 Other expenses 310,847 267,328 ----------------- ----------------- Total operating expenses 49,021,589 46,596,721 ----------------- ----------------- Other expense (income) Interest expense, net of interest income of $335,212 and $835,815 in 2003 and 2002, respectively 21,320,301 21,381,435 Loss on sale of operating properties - 56,754 Provision for loss on operating properties - 160,000 Other income - - ----------------- ----------------- Total other expense 21,320,301 21,598,189 ----------------- ----------------- Income before minority interests 36,301,708 30,872,384 Minority interest of limited partners (113,013) (125,174) ----------------- ----------------- Income from continuing operations 36,188,695 30,747,210 Discontinued operations: Operating income from discontinued operations 453,412 3,182,581 Gain on sale of operating properties and properties in development 2,529,775 2,577,422 ----------------- ----------------- Income from discontinued operations 2,983,187 5,760,003 ----------------- ----------------- Net income 39,171,882 36,507,213 Preferred unit distributions (8,653,126) (8,368,752) ----------------- ----------------- Net income for common unit holders $ 30,518,756 28,138,461 ================= ================= Income per common unit - Basic: Continuing operations $ 0.47 0.36 ================= ================= Discontinued operations $ 0.05 0.10 ================= ================= Net income for common unit holders per unit $ 0.52 0.46 ================= ================= Income per common unit - Diluted: Continuing operations $ 0.46 0.36 ================= ================= Discontinued operations $ 0.05 0.10 ================= ================= Net income for common unit holders per unit $ 0.51 0.46 ================= =================
See accompanying notes to consolidated financial statements. 3 REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Nine Months ended September 30, 2003 and 2002 (unaudited)
2003 2002 ---- ---- Revenues: Minimum rent $ 209,338,256 198,629,445 Percentage rent 1,504,869 1,464,154 Recoveries from tenants 61,228,673 57,476,965 Service operations revenue 26,606,097 12,436,245 Equity in income of investments in real estate partnerships 5,909,959 4,187,268 ----------------- ----------------- Total revenues 304,587,854 274,194,077 ----------------- ----------------- Operating expenses: Depreciation and amortization 56,200,672 50,209,070 Operating and maintenance 39,829,768 36,037,364 General and administrative 16,438,446 15,584,804 Real estate taxes 30,190,318 28,761,472 Other expenses 1,572,171 678,555 ----------------- ----------------- Total operating expenses 144,231,375 131,271,265 ----------------- ----------------- Other expense (income) Interest expense, net of interest income of $1,613,078 and $2,280,523 in 2003 and 2002, respectively 62,890,764 62,411,095 Gain on sale of operating properties - (1,437,471) Provision for loss on operating properties 1,968,520 2,524,480 Other income - (2,383,524) ----------------- ----------------- Total other expense (income) 64,859,284 61,114,580 ----------------- ----------------- Income before minority interests 95,497,195 81,808,232 Minority interest of limited partners (317,136) (360,158) ----------------- ----------------- Income from continuing operations 95,180,059 81,448,074 Discontinued operations: Operating income from discontinued operations 832,909 13,877,219 Gain on sale of operating properties and properties in development 6,655,829 7,419,323 ----------------- ----------------- Income from discontinued operations 7,488,738 21,296,542 ----------------- ----------------- Net income 102,668,797 102,744,616 Preferred unit distributions (27,501,636) (25,106,256) ----------------- ----------------- Net income for common unit holders $ 75,167,161 77,638,360 ================= ================= Income per common unit - Basic: Continuing operations $ 1.12 0.90 ================= ================= Discontinued operations $ 0.12 0.36 ================= ================= Net income for common unit holders per share $ 1.24 1.26 ================= ================= Income per common unit - Diluted: Continuing operations $ 1.11 0.90 ================= ================= Discontinued operations $ 0.12 0.36 ================= ================= Net income for common unit holders per share $ 1.23 1.26 ================= =================
See accompanying notes to consolidated financial statements. 4 REGENCY CENTERS, L.P. Consolidated Statement of Changes in Partners' Capital For the Nine Months Ended September 30, 2003 (unaudited)
Accumulated Other Total Series A-F Series 3 General Limited Comprehensive Partners' Preferred Units Preferred Units Partner Partner Income (Loss) Capital --------------- --------------- ------- ------- ------------- --------- Balance at December 31, 2002 $ 375,403,652 - 1,221,720,073 30,629,974 - 1,627,753,699 Net income 24,744,881 2,756,755 73,325,206 1,841,955 - 102,668,797 Change in fair value of derivative instruments - - - - (1,677,256) (1,677,256) -------------- Total comprehensive income - - - - - 100,991,541 Redemption of preferred units at par plus premium (155,750,000) - - - - (155,750,000) Cash distributions for dividends - - (93,807,900) (2,182,180) - (95,990,080) Preferred unit distribution (20,872,642) (2,756,755) - - - (23,629,397) Purchase of Regency stock and corresponding units - (153,206,916) - - (153,206,916) Units converted for cash - - - (973,505) - (973,505) Series 3 Preferred units issued - 75,000,000 - - - 75,000,000 Common Units issued as a result of common stock issued by Regency, net of repurchases - - 126,861,027 - - 126,861,027 Common Units exchanged for common stock of Regency - - 1,163,543 (1,163,543) - - Reallocation of limited partners interest - - (54,851) 54,851 - - ------------- -------------- -------------- ------------ ------------ ------------- Balance at September 30, 2003 $ 223,525,891 75,000,000 1,176,000,182 28,207,552 (1,677,256) 1,501,056,369 ============= ============== ============== ============ ============ =============
See accompanying notes to consolidated financial statements 5 REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2003 and 2002 (unaudited)
2003 2002 ---- ---- Cash flows from operating activities: Net income $ 102,668,796 102,744,616 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 56,278,855 54,158,411 Deferred loan cost and debt premium amortization 1,570,772 1,127,586 Services provided by Regency in exchange for common Units 8,688,129 6,188,453 Minority interest of limited partners 317,136 360,158 Equity in income of investments in real estate partnerships (5,909,959) (4,187,268) Gain on sale of operating properties (6,655,829) (8,856,794) Provision for loss on operating properties 1,968,520 2,524,480 Other income - gain on early extinguishment of debt - (2,383,524) Distributions from operations of investments in real estate partnerships 8,303,411 3,652,021 Changes in assets and liabilities: Tenant receivables 5,592,049 5,498,346 Deferred leasing costs (7,308,922) (8,224,925) Other assets (615,569) (6,407,285) Accounts payable and other liabilities (7,663,930) (15,717,379) Tenants' security and escrow deposits 566,282 870,593 ----------------- ----------------- Net cash provided by operating activities 157,799,741 131,347,489 ----------------- ----------------- Cash flows from investing activities: Acquisition and development of real estate (269,345,695) (242,066,967) Proceeds from sale of real estate 138,830,142 265,119,869 Repayment of notes receivable, net 48,332,147 37,357,641 Investment in real estate partnerships (10,259,572) (24,447,654) Distributions received from investments in real estate partnerships 18,360,644 9,650,753 ----------------- ----------------- Net cash (used in) provided by investing activities (74,082,334) 45,613,642 ----------------- ----------------- Cash flows from financing activities: Net proceeds from the issuance of Regency stock and common Units 125,072,674 9,932,137 Repurchase of Regency stock and corresponding common Units (150,501,884) (2,725,000) Redemption of preferred partnership units (155,750,000) - Conversion of common Units by limited partner (973,505) (83,232) Net distributions to limited partners in consolidated partnerships 246,527 (238,000) Distributions to preferred unit holders (23,629,397) (25,106,256) Cash distributions for dividends (95,990,080) (93,514,446) Net proceeds from issuance of Series 3 preferred units 72,294,967 - Net proceeds from fixed rate unsecured notes - 249,625,000 Proceeds (repayment) of unsecured line of credit, net 116,000,000 (244,000,000) Proceeds from notes payable 30,821,695 - Repayment of notes payable, net (7,255,541) (45,589,300) Scheduled principal payments (4,358,163) (4,164,277) Deferred loan costs (253,580) (2,081,247) ----------------- ----------------- Net cash used in financing activities (94,276,287) (157,944,621) ----------------- ----------------- Net (decrease) increase in cash and cash equivalents (10,558,880) 19,016,510 Cash and cash equivalents at beginning of period 56,447,329 27,853,264 ----------------- ----------------- Cash and cash equivalents at end of period $ 45,888,449 46,869,774 ================= =================
6 REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2003 and 2002 (unaudited) continued
2003 2002 ---- ---- Supplemental disclosure of cash flow information - cash paid for interest (net of capitalized interest of $9,778,187 and $11,020,043 in 2003 and 2002, respectively) $ 71,370,633 63,557,496 ================= ================= Supplemental disclosure of non-cash transactions: Mortgage loans assumed for the acquisition of real estate $ 15,341,889 46,747,196 ================= ================= Notes receivable taken in connection with sales of operating properties and properties in development $ 69,287,420 7,952,700 ================= ================= Real estate contributed as investment in real estate partnerships $ 18,328,829 12,612,410 ================= ================= Mortgage debt assumed by purchaser on sale of real estate $ 5,253,767 - ================= ================= Change in fair value of derivative instrument $ 1,677,256 - ================= =================
See accompanying notes to consolidated financial statements. 7 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 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 Centers Corporation ("Regency" or "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts all of its business and owns all of its assets. The Partnership was formed in 1996 for the purpose of acquiring certain real estate properties. At September 30, 2003, Regency owns approximately 98% of the outstanding common units of the Partnership. The Partnership's ownership interests are represented by Units, of which there are i) six series of preferred Units, ii) common Units owned by the limited partners and iii) common Units owned directly of indirectly by Regency which serves as the general partner. Each outstanding common Unit owned by a limited partner 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 also partnerships in which it has voting control. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The financial statements reflect all adjustments that are of a normal recurring nature, and in the opinion of management, are necessary to properly state the results of operations and financial position. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted although management believes that the disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's December 31, 2002 Form 10-K filed with the Securities and Exchange Commission. (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. Substantially all of the lease agreements contain provisions that grant additional rents based on tenants' sales volume (contingent or percentage rent) and reimbursement of the tenants' share of real estate taxes and certain common area maintenance ("CAM") costs. Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements and recovery of real estate taxes and CAM costs are recognized when earned. Service operations revenue includes management fees, commission income, and gains or losses from the sale of land and development properties without significant operations. Service operations revenue does not include gains or losses from the sale of operating properties. The Partnership accounts for profit recognition on sales of real estate in accordance with the FASB Statement No. 66, 8 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 (b) Revenues (continued) "Accounting for Sales of Real Estate." In summary, profits from sales will not be recognized by the Partnership unless a sale has been consummated; the buyer's initial and continuing investment is adequate to demonstrate a commitment to pay for the property; the Partnership has transferred to the buyer the usual risks and rewards of ownership; and the Partnership does not have substantial continuing involvement with the property. (c) Real Estate Investments Land, buildings and improvements are recorded at cost. All direct and indirect costs related to development activities are capitalized. Included in these costs are interest and real estate taxes incurred during construction as well as estimates for the portion of internal costs that are incremental, and deemed directly or indirectly related to development activity. Maintenance and repairs that do not improve or extend the useful lives of the respective assets are reflected in operating and maintenance expense. Depreciation is computed using the straight-line method over estimated useful lives of up to forty years for buildings and improvements, term of lease for tenant improvements, and three to seven years for furniture and equipment. On January 1, 2002, the Partnership adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"). In accordance with Statement 144, operating properties held for sale includes only those properties available for immediate sale in their present condition and for which management believes it is probable that a sale of the property will be completed within one year. Operating properties held for sale are carried at the lower of cost or fair value less costs to sell. Depreciation and amortization are suspended during the period held for sale. The Partnership reviews its real estate portfolio for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Regency determines whether impairment has occurred by comparing the property's carrying value to an estimate of the future undiscounted cash flows. In the event impairment exists, assets are written down to fair value for held and used assets and fair value less costs to sell for held for sale assets. During the second quarter of 2003, the Partnership recorded a provision for loss of approximately $2 million to adjust three operating properties to their estimated fair value. The fair values of the operating properties were determined by using prices for similar assets in their respective markets. The Partnership's properties generally have operations and cash flows that can be clearly distinguished from the rest of the Partnership. In accordance with Statement 144, the operations and gains on sales reported in discontinued operations include those operating properties and properties in development for which operations and cash flows can be clearly distinguished. The operations from these properties have been eliminated from ongoing operations and the Partnership will not have continuing involvement after disposition. Prior periods have been restated to reflect the operations of these properties as discontinued operations. The operations and gains on sales of operating properties sold to real estate partnerships in which the Partnership has some continuing involvement are included in income from continuing operations. 9 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 (d) Deferred Costs Deferred costs include deferred leasing costs, leasing intangibles acquired in business combinations and deferred loan costs, net of amortization. Such costs are amortized over the periods through lease expiration or loan maturity. Deferred leasing costs consist of internal and external commissions associated with leasing the Partnership's shopping centers. Leasing intangibles represent the allocation of purchase price to in-place leases of properties acquired. Net deferred leasing costs and leasing intangibles were $25.7 million and $26.5 million at September 30, 2003 and December 31, 2002, respectively. Deferred loan costs consist of initial direct and incremental costs associated with financing activities. Net deferred loan costs were $8.6 million and $10.9 million at September 30, 2003 and December 31, 2002, respectively. (e) 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 share equivalents for stock options, exchangeable operating partnership units, and preferred stock when dilutive. See note 7 for the calculation of earnings per unit. (f) Stock-Based Compensation 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 December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("Statement 148"). Statement 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002 and the interim disclosure provisions are effective for periods beginning after December 15, 2002. As permitted under Statement 123 and Statement 148, the Partnership will continue to follow the accounting guidelines pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"), for stock-based compensation and to furnish the pro forma disclosures as required under Statement 148. The Partnership applies Opinion 25 in accounting for its stock-based compensation plans, and accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Partnership determined compensation cost based on the fair value at the grant date for its stock-based employee awards under Statement 123, the Partnership's net income for common unit holders for the three month and nine month periods ended September 30, 2003 and 2002 would have been reduced to the pro forma amounts indicated on the following page (in thousands except per unit data): 10 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 (f) Stock-Based Compensation (continued)
For the three months ended September 30, 2003 2002 ---- ---- Net income for common unit holders as reported: $ 30,519 28,138 Add: stock-based employee compensation expense included in reported net income 2,918 2,127 Deduct: total stock-based employee compensation expense determined under fair value based methods for all awards 4,149 3,149 -------------- --------------- Pro forma net income $ 29,288 27,116 ============== =============== Earnings per unit: Basic - as reported $ 0.52 0.46 ============== =============== Basic - pro forma $ 0.50 0.44 ============== =============== Diluted - as reported $ 0.51 0.46 ============== =============== Diluted - pro forma $ 0.49 0.44 ============== =============== For the nine months ended September 30, 2003 2002 ---- ---- Net income for common unit holders as reported: $ 75,167 77,638 Add: stock-based employee compensation expense included in reported net income 8,688 6,188 Deduct: total stock-based employee compensation expense determined under fair value based methods for all awards 11,763 9,254 -------------- --------------- Pro forma net income $ 72,092 74,572 ============== =============== Earnings per unit: Basic - as reported $ 1.24 1.26 ============== =============== Basic - pro forma $ 1.18 1.21 ============== =============== Diluted - as reported $ 1.23 1.26 ============== =============== Diluted - pro forma $ 1.18 1.21 ============== ===============
11 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 (g) Consolidation of Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities" ("Interpretation 46"), which is intended to clarify the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, or variable interest entities, as defined in the interpretation. Interpretation 46 requires that certain variable interest entities be consolidated into the majority variable interest holder's financial statements and is applicable immediately to all variable interest entities created after January 31, 2003, and as of the first interim period ending after December 15, 2003 to those variable interest entities created before February 1, 2003 and not already consolidated under Interpretation 46 in previously issued financial statements . The Partnership did not create any variable interest entities after January 31, 2003. The Partnership is continuing its analysis of the applicability of this interpretation to its structures created before February 1, 2003 and does not believe its adoption will have a material effect on the financial statements. (h) Segment reporting The Partnership's business is investing in retail shopping centers through direct ownership or through joint ventures. The Partnership actively manages its portfolio of retail shopping centers and may from time to time make decisions to sell lower performing properties, or developments not meeting its long-term investment objectives. The proceeds of sales are invested into higher quality retail shopping centers through acquisitions or new developments, which management believes will meet its planned rate of return. It is management's intent that all retail shopping centers will be owned or developed for investment purposes. The Partnership's revenue and net income is generated from the operation of its investment portfolio. The Partnership will also earn incidental fees from third parties for services provided to manage and lease retail shopping centers owned through joint ventures. The Partnership's portfolio is located throughout the United States; however, management does not distinguish or group its operations on a geographical basis for purposes of allocating resources or measuring performance. The Partnership reviews operating and financial data for each property on an individual basis, therefore, the Partnership defines its operating segment as its individual properties. No individual property constitutes more than 10% of the Partnership's combined revenue, net income or assets, and thus the individual properties have been aggregated into one reportable segment based upon their similarities with regard to both the nature of the centers, tenants and operational processes, as well as, long-term average financial performance. In addition, no single tenant accounts for 10% or more of revenue and none of the shopping centers are located outside the United States. 12 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 (i) Derivative Financial Instruments The Partnership adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" as amended ("Statement 133"), on January 1, 2001. Statement 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Partnership uses derivative financial instruments such as interest rate swaps to mitigate its interest rate risk on a related financial instrument. Statement 133 requires that changes in fair value of derivatives that qualify as cash flow hedges be recognized in other comprehensive income (loss) while the ineffective portion of the derivative's change in fair value be recognized immediately in earnings. To determine the fair value of derivative instruments, the Partnership uses standard market conventions and techniques such as discounted cash flow analysis, option pricing models and termination costs at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. (j) Financial Instruments with Characteristics of both Liabilities and Equity In May 2003, the FASB issued Statement of Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("Statement 150"). Statement 150 affects the accounting for certain financial instruments, including requiring companies having consolidated entities with specified termination dates to treat minority owners' interests in such entities as liabilities in an amount based on the fair value of the entities. Although Statement 150 was originally effective July 1, 2003, the FASB has indefinitely deferred certain provisions related to classification and measurement requirements for mandatorily redeemable financial instruments that become subject to Statement 150 solely as a result of consolidation including minority interests of entities with specified termination dates. As a result, Statement 150 has no impact on the Partnership's Consolidated Statements of Operations for the three month and nine month periods ended September 30, 2003. At September 30, 2003, the Partnership held a majority interest in six consolidated entities with specified termination dates ranging from 2007 to 2049. The minority owners' interests in these entities are to be settled upon termination by distribution of either cash or specific assets of the underlying entities. The estimated fair value of minority interests in entities with specified termination dates was approximately $24.8 million at September 30, 2003. The Partnership has no other financial instruments that currently are affected by Statement 150. (k) Reclassifications Certain reclassifications have been made to the 2002 amounts to conform to classifications adopted in 2003. 13 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 2. Discontinued Operations During 2003, the Partnership sold 100% of its interest in eight operating properties for proceeds of $57.6 million and the combined operating income and gain of $7.3 million on these sales are included in discontinued operations. The revenues from properties included in discontinued operations, including properties sold in 2003 and 2002, as well as, operating properties held for sale, were $2.5 million and $24.2 million for the nine months ended September 30, 2003 and 2002, respectively. The operating income from these properties was $832,909 and $13.9 million for the nine months ended September 30, 2003 and 2002, respectively. 3. Investments in Real Estate and Real Estate Partnerships During 2003, the Partnership acquired two grocery-anchored shopping centers for $35 million. The 2003 acquisitions were accounted for as purchases and the results of their operations are included in the consolidated financial statements from the date of the acquisition. Acquisitions (either individually or in the aggregate) were not significant to the operations of the Partnership in the periods in which they were acquired or the period preceding the acquisition. The Partnership allocates the purchase price of acquired properties to land, buildings, and identifiable intangible assets based on their fair values. The total value of intangible assets is measured based on the difference between the purchase price paid for the property and the value of the property on an "as-if vacant" basis. Management's estimates of "as-if vacant" value are based on replacement costs for similar properties and consideration of carrying costs such as real estate taxes, insurance, and other operating expenses and lost rentals during expected lease-up periods. Total intangible assets are allocated to (i) above or below-market lease intangibles, (ii) at-market lease intangibles (in-place leases) and (iii) customer relationship value, if any. Above or below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be received on acquired leases and the estimated amounts that would be received for similar leases at current market terms. Above- and below-market lease intangibles are amortized to rental income over the remaining non-cancelable terms of the respective leases. The remaining amount of total intangible assets is assigned to the value of in-place leases and is amortized to expense over the initial term of the respective leases. The Partnership accounts for all investments in which it owns 50% or less and does not have a controlling financial interest using the equity method. The Partnership's combined investment in these partnerships was $133.3 million and $125.5 million at September 30, 2003 and December 31, 2002, respectively. Net income, which includes all operating results, as well as gains and losses on sales of properties within the joint ventures, is allocated to the Partnership in accordance with the respective partnership agreements. Such allocations of net income are recorded in equity in income of investments in real estate partnerships in the accompanying consolidated statements of operations. The Partnership has a 25% equity interest in Macquarie CountryWide-Regency, LLC ("MCWR"), a joint venture with an affiliate of Macquarie CountryWide Trust of Australia, a Sydney, Australia-based property trust focused on investing in grocery-anchored shopping centers. During the nine months ended, September 30, 2003, MCWR acquired eight shopping centers from the Partnership for $158.7 million, for which the Partnership received net proceeds of $59.2 million. The Partnership 14 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 3. Investments in Real Estate and Real Estate Partnerships (continued) holds a note receivable of $69.3 million related to the sale of three of the assets in September 2003. The note receivable has an interest rate of LIBOR plus 1.5% and matures on December 31, 2003. Since the Partnership has a continuing involvement in these properties, the development gains recognized by the Partnership on these sales represents gain recognition on only that portion of the sale to MCWR not owned by the Partnership and are not included in discontinued operations. The gains on these sales of $16.3 million are recorded in service operations revenue in the Partnership's consolidated statements of operations. The Partnership also has a 20% equity interest in Columbia Regency Retail Partners, LLC ("Columbia"), a joint venture with the Oregon State Treasury that was formed for the purpose of investing in retail shopping centers. During the current year, Columbia has acquired one shopping center for $20 million. With the exception of Columbia and MCWR, both of which intend to continue expanding their investment in shopping centers, the investments in real estate partnerships represent single asset entities formed for the purpose of developing or owning retail based commercial real estate. The Partnership's investments in real estate partnerships as of September 30, 2003 and December 31, 2002 consist of the following (in thousands):
Ownership 2003 2002 --------- ---- ---- Columbia Regency Retail Partners, LLC 20% $ 39,628 42,413 Macquarie CountryWide-Regency, LLC 25% 31,770 22,281 RRG-RMC Tracy, LLC 50% 23,449 23,269 OTR/Regency Texas Realty Holdings, L.P. 30% 16,071 15,992 Tinwood, LLC 50% 10,232 10,983 Regency Woodlands/Kuykendahl, Ltd. 50% 6,528 7,973 Jog Road, LLC 50% 3,000 2,571 Hermosa Venture 2002, LLC 27% 2,638 - ------------- ------------- $ 133,316 125,482 ============= =============
Summarized financial information for the unconsolidated investments on a combined basis, is as follows (in thousands):
September 30, December 31, 2003 2002 ---- ---- Balance Sheet: Investment in real estate, net $ 692,862 553,118 Other assets 53,156 15,721 ------------- ------------- Total assets $ 746,018 568,839 ============= ============= Notes payable $ 298,132 167,071 Other liabilities 16,493 10,386 Equity and partners' capital 431,393 391,382 ------------- ------------- Total liabilities and equity $ 746,018 568,839 ============= =============
Unconsolidated partnerships and joint ventures had notes payable of $298 million at September 30, 2003 and the Partnership's proportionate share of these loans was $58.1 million. 15 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 3. Investments in Real Estate and Real Estate Partnerships (continued) The revenues and expenses on a combined basis are summarized as follows for the three months ended September 30, 2003 and 2002:
2003 2002 ---- ---- Statement of Operations: Total revenues $ 18,835 9,815 Total expenses 13,384 5,278 ------------- ------------- Net income $ 5,451 4,537 ============= ============= The revenues and expenses on a combined basis are summarized as follows for the nine months ended September 30, 2003 and 2002: 2003 2002 ---- ---- Statement of Operations: Total revenues $ 52,257 28,346 Total expenses 33,955 13,455 ------------- ------------- Net income $ 18,302 14,891 ============= =============
4. Notes Payable and Unsecured Line of Credit The Partnership's outstanding debt at September 30, 2003 and December 31, 2002 consists of the following (in thousands):
2003 2002 ---- ---- Notes Payable: Fixed rate mortgage loans $ 233,378 229,551 Variable rate mortgage loans 49,336 24,998 Fixed rate unsecured loans 999,104 998,975 --------------- --------------- Total notes payable 1,281,818 1,253,524 Unsecured line of credit 196,000 80,000 --------------- --------------- Total $ 1,477,818 1,333,524 =============== ===============
Interest rates paid on the unsecured line of credit (the "Line"), which are based on LIBOR plus .85%, were 1.975% and 2.2880% at September 30, 2003 and December 31, 2002, respectively. The spread that the Partnership pays on the Line is dependent upon maintaining specific investment grade ratings. The Partnership is required to comply, and is in compliance with, certain financial and other covenants customary with this type of unsecured financing. 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, but could be subject to a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2023. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 130 to 150 basis points. Fixed interest rates on mortgage loans range from 5.65% to 9.5%. 16 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 4. Notes Payable and Unsecured Line of Credit (continued) In June 2003, the Partnership assumed debt with a fair value of $13.3 million related to the acquisition of a property, which includes a debt premium of $797,303 based upon the above market interest rate of the debt instrument. The debt premium is being amortized over the term of the related debt instrument. As of September 30, 2003, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments -------------------------- ---------------------------------------------- 2003 $ 1,293 20,671 21,964 2004 (includes the Line) 5,344 418,604 423,948 2005 4,156 172,732 176,888 2006 3,476 24,094 27,570 2007 2,891 25,696 28,587 Beyond 5 Years 24,725 768,291 793,016 Unamortized debt premiums - 5,845 5,845 ---------------------------------------------- Total $ 41,885 1,435,933 1,477,818 ==============================================
5. Derivative Financial Instruments The Partnership is exposed to capital market risk, such as changes in interest rates. In order to manage the volatility relating to interest rate risk, the Partnership may enter into interest rate hedging arrangements from time to time. The Partnership does not utilize derivative financial instruments for trading or speculative purposes. The Partnership accounts for derivative instruments under Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended ("Statement 133"). In July and September, 2003, the Partnership entered into two forward-starting interest rate swaps of $96.5 million and $47.7 million, respectively. The Partnership designated the $144.2 million swaps as hedges to effectively fix the rate on a refinancing expected in April 2004. The fair value of the swaps was a liability of $1.7 million as of September 30, 2003, and is recorded in accounts payable and other liabilities in the accompanying balance sheet. The swaps qualify for hedge accounting under Statement 133; therefore, changes in fair value are recorded in other comprehensive income (loss). No hedge ineffectiveness has been incurred and recognized to date on these swaps. Amounts reported in accumulated other comprehensive income (loss) related to these swaps will be reclassified to interest expense as interest payments are made on the forecasted refinancing. 17 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 6. Stockholders' Equity and Partners' Capital (a) RCLP has issued Cumulative Redeemable Preferred Units ("Preferred Units") in various amounts since 1998. The issues were sold primarily to institutional investors in private placements for $100 per unit. The Preferred Units, which may be called by RCLP at par after certain dates, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at fixed rates. At any time after ten years from the date of issuance, the Preferred Units may be exchanged by the holder for Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of one share for one unit. The Preferred Units and the related Preferred Stock are not convertible into common stock of the Company. The net proceeds of these offerings were used to reduce the Line. At September 30, 2003 and December 31, 2002, the face value of total Preferred Units issued was $229 million and $384 million, respectively with an average fixed distribution rate of 8.88% and 8.72%, respectively. During the third quarter of 2003, the Partnership redeemed $80 million of Series A 8.125% Preferred Units which was funded from proceeds from the stock offering completed on August 18, 2003 and described below. At the time of the redemption, $1.2 million of previously deferred costs related to the original preferred units' issuance were recognized in the consolidated statements of operations as a component of minority interest preferred unit distributions. During the first quarter of 2003, the Partnership redeemed $35 million of Series C 9% Preferred Units and $40 million of Series E 8.75% Preferred Units. The redemptions were portions of each series and the Partnership paid a 1% premium on the face value of the redeemed units totaling $750,000. At the time of redemption, the premium and $1.9 million of previously deferred costs related to the original preferred units' issuance were recognized in the consolidated statements of operations as a component of minority interest preferred unit distributions. The redemption of the Series C and E units was funded from proceeds from the Line. Terms and conditions of the Preferred Units outstanding as of September 30, 2003 are summarized as follows:
Units Issue Amount Distribution Callable Exchangeable Series Outstanding Price Outstanding Rate by Partnership by Unitholder - -------------- --------------- -------------- -- ---------------- --------------- ----------------- ------------------ Series B 850,000 100.00 85,000,000 8.750% 09/03/04 09/03/09 Series C 400,000 100.00 40,000,000 9.000% 09/03/04 09/03/09 Series D 500,000 100.00 50,000,000 9.125% 09/29/04 09/29/09 Series E 300,000 100.00 30,000,000 8.750% 05/25/05 05/25/10 Series F 240,000 100.00 24,000,000 8.750% 09/08/05 09/08/10 --------------- ---------------- 2,290,000 $ 229,000,000 =============== ================
(b) On August 18, 2003, we issued 3,600,000 shares of common stock at $35.96 per share in a public offering. Until June 24, 2003, Security Capital beneficially owned 34,273,236 shares, representing 56.6% of the voting stock outstanding of Regency. On June 24, 2003, Security Capital sold common stock through (1) an underwritten public offering (the "Secondary Offering"), and (2) the sale of shares to Regency pursuant to a Purchase and Sale Agreement dated 18 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 6. Stockholders' Equity and Partners' Capital (continued) (b) June 11, 2003 (the "Purchase and Sale Agreement"), and also agreed to sell the balance of the shares pursuant to forward sales contracts. Security Capital sold 9,666,356 shares of common stock in the Secondary Offering. On June 24, 2003, it also sold 4,606,880 shares of common stock to Regency at the public offering price of $32.56 per share pursuant to the Purchase and Sale Agreement. The purchase price of $150 million was funded from the Partnership's Line. Currently, Security Capital owns 12,186,667 shares of common stock (constituting approximately 20.4% of Regency's outstanding common stock) all of which are subject to forward sales contracts. Upon settlement of all of the forward sales contracts, which provide for settlement at various times during the first half of 2004, or earlier at the election of Security Capital, they will no longer own any shares of Regency common stock, unless Security Capital elects to settle one or more of the forward contracts in cash rather than by delivery of shares of common stock. Concurrently with the closing of the Secondary Offering and the sale of common stock to Regency, Security Capital and Regency terminated the Stockholders Agreement dated as of July 10, 1996, as amended. This termination was pursuant to an Agreement Relating to Disposition of Shares dated as of June 11, 2003 (the "Disposition Agreement"). Under the Disposition Agreement, Security Capital also agreed that, following the closing of the Secondary Offering, it will vote any shares of common stock that are subject to forward contracts and over which it has voting power in the same proportion as shares are voted by other shareholders of Regency. In addition, Security Capital agreed that, if it settles forward contracts in cash rather than shares, within 100 trading days thereafter, it will sell a sufficient number of shares so that it will no longer beneficially own shares with a value in excess of 7% of the total value of Regency's capital stock. Security Capital also agreed in the Disposition Agreement to waive the special ownership limit created for it in Regency's articles of incorporation. Once Security Capital reduces its ownership to 7% or less after the forward contracts settle in 2004, it will be subject to the same 7% ownership limit in Regency's articles of incorporation that applies to other shareholders. (c) During the first quarter of 2003, the holder of the Series 2 preferred stock converted all of its remaining 450,400 preferred shares into common stock at a conversion ratio of 1:1. (d) On April 3, 2003, the Company received proceeds from a $75 million offering of 3,000,000 depositary shares representing 300,000 shares of Series 3 Cumulative Redeemable Preferred Stock. The depositary shares are not convertible into common stock of the Company and are redeemable at par upon Regency's election on or after April 3, 2008, pay a 7.45% annual dividend and have a liquidation value of $25 per depositary share. The proceeds from this transaction were contributed to the Partnership in exchange for 300,000 of Series 3 Preferred Units issued to and held by Regency with terms exactly the same as the Series 3 Cumulative Redeemable Preferred Stock. The proceeds from this offering were used to reduce the Line. 19 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 7. Earnings per Unit The following summarizes the calculation of basic and diluted earnings per unit for the three months ended September 30, 2003 and 2002 (in thousands except per unit data):
2003 2002 ---- ---- Numerator: Income from continuing operations $ 36,189 30,747 Discontinued operations 2,983 5,760 ------------------ ------------------ Net income 39,172 36,507 Less: Preferred unit distributions 8,653 8,369 ------------------ ------------------ Net income for common unit holders 30,519 28,138 Less: Preferred stock dividends - 758 Net income for common unit holders ------------------ ------------------ Basic and Diluted $ 30,519 27,380 ================== ================== Denominator: ------------- Weighted average common units outstanding for Basic EPU 59,079 59,857 Incremental units to be issued under common stock options using the Treasury stock method 363 313 ------------------ ------------------ Weighted average common units outstanding for Diluted EPU 59,442 60,170 ================== ================== Income per common unit - Basic Income from continuing operations $ 0.47 0.36 Discontinued operations $ 0.05 0.10 ------------------ ------------------ Net income for common unit holders per unit $ 0.52 0.46 ================== ================== Income per common unit - Diluted Income from continuing operations $ 0.46 0.36 Discontinued operations $ 0.05 0.10 ------------------ ------------------ Net income for common unit holders per unit $ 0.51 0.46 ================== ==================
The Series 2 Preferred stock dividends are deducted in 2002 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 Series 2 Preferred stock dividends is deemed to be preferential to the distributions made to common unit holders. 20 Regency Centers, L.P. Notes to Consolidated Financial Statements September 30, 2003 7. Earnings per Unit (continued) The following summarizes the calculation of basic and diluted earnings per unit for the nine months ended September 30, 2003 and 2002 (in thousands except per unit data):
2003 2002 ---- ---- Numerator: Income from continuing operations $ 95,180 81,448 Discontinued operations 7,489 21,296 ------------------ ------------------ Net income 102,669 102,744 Less: Preferred unit distributions 27,502 25,106 ------------------ ------------------ Net income for common unit holders 75,167 77,638 ------------------ ------------------ Less: Preferred stock dividends - 2,276 Net income for common unit holders ------------------ ------------------ Basic and Diluted $ 75,167 75,362 ================== ================== Denominator: ------------- Weighted average common units outstanding for Basic EPU 60,766 59,608 Incremental units to be issued under common stock options using the Treasury stock method 395 172 ------------------ ------------------ Weighted average common units outstanding for Diluted EPU 61,161 59,780 ================== ================== Income per common unit - Basic Income from continuing operations $ 1.12 0.90 Discontinued operations $ 0.12 0.36 ------------------ ------------------ Net income for common unit holders per unit $ 1.24 1.26 ================== ================== Income per common unit - Diluted Income from continuing operations $ 1.11 0.90 Discontinued operations $ 0.12 0.36 ------------------ ------------------ Net income for common unit holders per unit $ 1.23 1.26 ================== ==================
The Series 2 Preferred stock dividends are deducted in 2002 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 Series 2 Preferred stock dividends is deemed to be preferential to the distributions made to common unit holders. 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------------------- In addition to historical information, the following information contains forward-looking statements under the federal securities laws. These statements are based on current expectations, estimates and projections about the industry and markets in which Regency operates, and management's beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in national and local economic conditions; financial difficulties of tenants; competitive market conditions, including pricing of acquisitions and sales of properties and out-parcels; changes in expected leasing activity and market rents; timing of acquisitions, development starts and sales of properties and out-parcels; weather; the ability to obtain governmental approvals; and meeting development schedules. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers, L.P. ("RCLP" or "Partnership") appearing elsewhere within. Organization - ------------ Regency Centers Corporation ("Regency" or Company") is a qualified real estate investment trust ("REIT"), which began operations in 1993. We invest in retail shopping centers through our partnership interest in Regency Centers, L.P., an operating partnership in which Regency currently owns approximately 98% of the outstanding common partnership units ("Common Units"). Regency's acquisition, development, operations and financing activities, including the issuance of Common Units or Cumulative Redeemable Preferred Units ("Preferred Units"), are generally executed by RCLP. Shopping Center Business - ------------------------ We are a national owner, operator and developer of grocery-anchored neighborhood retail shopping centers. A list of our shopping centers including those partially owned through joint ventures, summarized by state and in order of largest holdings, including their gross leasable areas ("GLA") follows:
September 30, 2003 December 31, 2002 Location # Properties GLA % Leased # Properties GLA % Leased -------- ------------ --- -------- ------------ --- -------- Florida 50 5,934,025 94.1% 53 6,193,550 91.9% California 46 5,489,582 94.5% 43 5,125,030 99.1% Texas 41 5,310,463 89.1% 40 5,123,197 93.6% Georgia 23 2,256,018 94.2% 24 2,437,712 93.9% Ohio 14 1,901,537 89.7% 14 1,901,684 91.4% Colorado 14 1,622,717 87.3% 15 1,538,570 98.0% North Carolina 10 1,050,043 98.8% 12 1,225,201 97.6% Virginia 8 1,008,792 98.9% 7 872,796 96.8% Washington 9 1,020,514 96.2% 9 986,374 98.9% Oregon 8 841,998 92.3% 9 822,115 93.7% Alabama 8 698,235 87.0% 7 644,896 94.3% Arizona 5 501,005 94.4% 6 525,701 96.3% Tennessee 6 444,234 98.0% 6 444,234 95.3% Illinois 3 408,211 95.9% 2 300,477 96.1% South Carolina 5 339,926 94.0% 5 339,256 99.1% Kentucky 3 319,875 96.2% 2 304,659 96.6% Michigan 4 368,260 86.9% 3 279,265 92.6% Delaware 2 240,418 99.5% 2 240,418 99.0% New Jersey 1 88,993 86.6% 1 88,993 - Missouri 1 82,498 92.9% 1 82,498 92.9% Pennsylvania 1 6,000 100.0% 1 6,000 100.0% ----------------- --------------- ---------------- ---------------- --------------- --------------- Total 262 29,933,344 92.9% 262 29,482,626 91.5% ================= =============== ================ ================ =============== ===============
22 We are focused on building a portfolio of grocery-anchored neighborhood shopping centers that are positioned to withstand adverse economic conditions by providing consumers with convenient shopping for daily necessities and adjacent local tenants with foot traffic. Regency's current investment markets are stable, and we expect 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 our shopping centers, including those partially owned through joint ventures at September 30, 2003:
Percentage of Percentage of Grocery Number of Company- Annualized Anchor Stores (a) owned GLA Base Rent ------ ---------- --------- --------- Kroger 61 12.0% 8.7% Publix 54 8.4% 5.3% Safeway 47 6.0% 4.7% Albertsons 25 3.2% 2.4%
(a) Includes grocery-tenant-owned stores Acquisition and Development of Shopping Centers - ----------------------------------------------- We have implemented a growth strategy dedicated to developing and acquiring high-quality shopping centers. Our development program makes a significant contribution to our overall growth. Development is customer-driven, meaning we generally have an executed lease from the grocery-anchor before we begin construction. Developments serve the growth needs of our grocery and specialty retail customers, result in modern shopping centers with long-term leases from grocery and other anchors, and produce either attractive returns on invested capital or profits from sale. This development process can require up to 36 months from initial land or redevelopment acquisition through construction, lease-up and stabilization, depending upon the size and type of project. Generally, anchor tenants begin operating their stores prior to construction completion of the entire center, resulting in rental income during the development phase. At September 30, 2003, we had 34 projects under construction or undergoing major renovations, which, when completed, are expected to represent an investment of $590.5 million before the estimated reimbursement of certain tenant-related costs and projected sales proceeds from adjacent land and out-parcels of $139.5 million. Costs necessary to complete these developments will be $208.3 million, are generally already committed as part of existing construction contracts, and will be expended through 2005. These developments are approximately 65% complete and 81% pre-leased. We have a 20% equity interest in and serve as property manager for Columbia Regency Retail Partners, LLC ("Columbia"), a joint venture with the Oregon State Treasury that was formed for the purpose of investing in retail shopping centers. At September 30, 2003, Columbia owned 13 shopping centers and had total assets of $311.1 million. Columbia has acquired one shopping center for $20 million during 2003. We have a 25% equity interest in and serve as property manager for Macquarie CountryWide-Regency, LLC ("MCWR"), a joint venture with an affiliate of Macquarie CountryWide Trust of Australia, a Sydney, Australia based property trust focused on investing in grocery-anchored shopping centers. During 2003, MCWR acquired eight shopping centers from the Company for $158.7 million, for which we received net proceeds of $59.2 million and a note receivable of $69.3 million with a rate of LIBOR plus 1.5% maturing on December 31, 2003. MCWR is currently in the process of placing third-party fixed-rate mortgages on the properties, the proceeds of which will be used to repay the note receivable. We recognized gains on these development sales of $16.3 million recorded as service operations revenue. The recognition of gain is recorded on only that portion of the sale to MCWR not attributable to our 25% joint venture interest. The gain is not recorded as discontinued operations because of our continuing involvement in these shopping centers. Also during 2003, MCWR sold a shopping center to a third party for $9.4 million. At September 30, 2003, MCWR owned 23 shopping centers and had total assets of $333.8 million. 23 Columbia and MCWR intend to continue to acquire retail shopping centers, some of which they may acquire directly from us. For those properties acquired from third parties, Regency is required to provide its pro rata share of the purchase price. Liquidity and Capital Resources - ------------------------------- We expect that the cash generated from revenues will provide the necessary funds on a short-term basis to pay our operating expenses, interest expense, scheduled principal payments on outstanding indebtedness, recurring capital expenditures necessary to maintain our shopping centers properly, and distributions to stock and unit holders. Net cash provided by operating activities was $157.8 million and $131.3 million for the nine months ended September 30, 2003 and 2002, respectively. During the first nine months of 2003 and 2002, respectively, we incurred capital expenditures of $11.4 million and $12 million to improve our shopping center portfolio, paid scheduled principal payments of $4.4 million and $4.2 million to our lenders, and paid dividends and distributions of $119.6 million and $118.6 million to our share and unit holders. Although base rent is supported by long-term lease contracts, tenants who file bankruptcy have the ability to cancel their leases and close the related stores. In the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases, we could experience a significant reduction in our revenues. We are not currently aware of any current or pending bankruptcy of any of our tenants that would cause a significant reduction in our revenues, and no tenant represents more than 10% of our annual base-rental revenues. We expect to meet long-term capital requirements for maturing preferred units and debt, the acquisition of real estate, and the renovation or development of shopping centers from: (i) cash generated from operating activities after the payments described above, (ii) proceeds from the sale of real estate, (iii) joint venturing of real estate, (iv) refinancing of debt, and (v) equity raised in the private or public markets. Additionally, the Company has the right to call and repay at par outstanding preferred units five years after their issuance date, at the Company's discretion. We are exposed to capital market risk, such as changes in interest rates. In order to manage the volatility relating to interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments for trading or speculative purposes. We account for derivative instruments under Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended ("Statement 133"). We have $200 million of 7.4% unsecured debt maturing April 1, 2004. In July and September, 2003, we entered into two forward-starting interest rate swaps of $96.5 million and $47.7 million, respectively. We designated the aggregate $144.2 million swaps as a hedge to effectively fix the rate on financing expected in April, 2004. The fair value of the swaps was a liability of $1.7 million as of September 30, 2003, and is recorded in accounts payable and other liabilities in the accompanying balance sheet. The swaps qualify for hedge accounting under Statement 133; therefore, changes in fair value are recorded in other comprehensive income (loss). No hedge ineffectiveness has been incurred and recognized to date on these swaps. Amounts reported in accumulated other comprehensive income (loss) related to these swaps will be reclassified to interest expense as interest payments are made on the related debt. On August 18, 2003, we issued 3,600,000 shares of common stock at $35.96 per share in a public offering. The proceeds of $129.5 million were used to pay offering costs, redeem $80 million or 100% of the Series A Preferred Units and the balance to reduce the Line. At the time of the redemption, $1.2 million of previously deferred costs related to the original preferred units' issuance were recognized in the consolidated statement of operations as a component of minority interest preferred unit distributions. 24 On June 24, 2003, we purchased 4,606,880 shares of common stock for $150 million from Security Capital pursuant to a Purchase and Sale Agreement dated June 11, 2003. The purchase was funded from the Line and the shares are held as Treasury shares. On April 3, 2003, we received proceeds from a $75 million offering of 3,000,000 depositary shares representing Series 3 Cumulative Redeemable Preferred Stock. The depositary shares are not convertible into common stock of the Company and are redeemable at par upon Regency's election on or after April 3, 2008, pay a 7.45% annual dividend and have a liquidation value of $25 per depositary share. During the first quarter, we redeemed $35 million of Series C 9% Preferred Units and $40 million of Series E 8.75% Preferred Units in a negotiated transaction. The redemptions were portions of each series and we paid a 1% premium on the face value of the redeemed units totaling $750,000 which is recorded as minority interest preferred units. At the time of redemption, the premium and $1.9 million of previously deferred costs related to the original preferred units' issuance were recognized in the consolidated statement of operations as a component of minority interest preferred unit distributions. The redemption was funded from proceeds from the Line. Our commitment to maintaining a high-quality portfolio dictates that we continually assess the value of all of our properties and sell to third parties those operating properties that no longer meet our long-term investment standards. We may also sell a portion of an operating or development property to one of our joint ventures, which may provide Regency with a capital source for new development and acquisitions. By selling a property to a joint venture, Regency owns less than 100% of the property, generally 20% to 50%, and shares the risks and rewards of the property with its partner. Proceeds from the sale or joint venturing of properties are included in net investing activities on the Consolidated Statements of Cash Flows. During 2003 net proceeds from the sale or joint venturing of real estate was $138.8 million, compared to $265.1 million during the first nine months of 2002. Net cash used in investing activities was $74.1 million for the nine months ended September 30, 2003. Net cash provided by investing activities was $45.6 million for the nine months ended September 30, 2002. Net cash used in financing activities was $94.3 million and $157.9 million for the nine months ended September 30, 2003 and 2002, respectively. Outstanding debt at September 30, 2003 and December 31, 2002 consists of the following (in thousands):
2003 2002 ---- ---- Notes Payable: Fixed-rate mortgage loans $ 233,378 229,551 Variable-rate mortgage loans 49,336 24,998 Fixed-rate unsecured loans 999,104 998,975 -------------- --------------- Total notes payable 1,281,818 1,253,524 Unsecured line of credit 196,000 80,000 -------------- --------------- Total $ 1,477,818 1,333,524 ============== ===============
Mortgage loans are secured by certain real estate properties, and may be prepaid, but could be subject to a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal, and mature over various terms through 2023. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 130 to 150 basis points. Fixed interest rates on mortgage loans range from 5.65% to 9.5%. Interest rates paid on the Line, which are based on LIBOR plus .85%, at September 30, 2003 and December 31, 2002 were 1.975% and 2.288%, respectively. The spread that we pay on the Line is dependent upon maintaining specific investment-grade ratings. We are also required to comply, and are in compliance, with certain financial and other covenants customary with this type of unsecured financing. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working-capital purposes. 25 As of September 30, 2003, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
Scheduled Principal Term-Loan Total Scheduled Payments by Year Payments Maturities Payments -------------------------- ---------------------------------------------- 2003 $ 1,293 20,671 21,964 2004 (includes the Line) 5,344 418,604 423,948 2005 4,156 172,732 176,888 2006 3,476 24,094 27,570 2007 2,891 25,696 28,587 Beyond five years 24,725 768,291 793,016 Unamortized debt premiums 0 5,845 5,845 ---------------------------------------------- Total $ 41,885 1,435,933 1,477,818 ==============================================
Unconsolidated partnerships and joint ventures in which we have an investment had notes and mortgage loans payable of $298.1 million at September 30, 2003 and the Company's proportionate share of these loans was $58.1 million. RCLP has issued Preferred Units in various amounts since 1998, the net proceeds of which we used to reduce the balance of the Line. RCLP sold the issues primarily to institutional investors in private placements. The Preferred Units, which may be called by RCLP after certain dates ranging from 2004 to 2005, have no stated maturity or mandatory redemption, and they pay a cumulative, quarterly dividend at fixed rates ranging from 8.75% to 9.125%. At any time after 10 years from the date of issuance, the Preferred Units may be exchanged by the holders for Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of one share for one unit. The Preferred Units and the related Preferred Stock are not convertible into Regency common stock. At September 30, 2003 and December 31, 2002 the face value of total Preferred Units issued was $229 million and $384 million, respectively with an average fixed distribution rate of 8.88% and 8.72%, respectively. We intend to continue growing our portfolio through acquisitions and developments, either directly or through our joint venture relationships. Because acquisition and development activities are discretionary in nature, they are not expected to burden the capital resources we have currently available for liquidity requirements. Regency expects that cash provided by operating activities, unused amounts available under the Line, and cash reserves are adequate to meet liquidity requirements. Critical Accounting Policies and Estimates - ------------------------------------------ Knowledge about our accounting policies is necessary for a complete understanding of our financial results, and discussions and analysis of these results. The preparation of our financial statements requires that we make certain estimates that impact the balance of assets and liabilities at a financial statement date and the reported amount of income and expenses during a financial reporting period. These accounting estimates are based upon our judgments and are considered to be critical because of their significance to the financial statements and the possibility that future events may differ from those judgments, or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness. However, the amounts we may ultimately realize could differ from such estimates. Capitalization of Costs - We have an investment services group with an established infrastructure that supports the due diligence, land acquisition, construction, leasing and accounting of our development properties. All direct and indirect costs related to these activities are capitalized. Included in these costs are interest and real estate taxes incurred during construction as well as estimates for the portion of internal costs that are incremental, and deemed directly or indirectly related to our development activity. If future accounting standards limit the amount of internal costs that may be capitalized, or if our development activity were to decline significantly without a proportionate decrease in internal costs, we could incur a significant increase in our operating expenses. 26 Valuation of Real Estate Investments - Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable. We review long-lived assets for impairment whenever events or changes in circumstances indicate such an evaluation is warranted. The review involves a number of assumptions and estimates used in determining whether impairment exists. Depending on the asset, we use varying methods such as i) estimating future cash flows, ii) determining resale values by market, or iii) applying a capitalization rate to net operating income using prevailing rates in a given market. These methods of determining fair value can fluctuate up or down significantly as a result of a number of factors including changes in the general economy of those markets in which we operate, tenant credit quality, and demand for new retail stores. If we determine that impairment exists due to the inability to recover an asset's carrying value, a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value. Discontinued Operations - The application of current accounting principles that govern the classification of any of our properties as held for sale on the balance sheet, or the presentation of results of operations and gains on the sale of these properties as discontinued, requires management to make certain significant judgments. In evaluating whether a property meets the criteria set forth in FASB Statement No. 144 "Accounting for the Impairment and Disposal of Long-Lived Assets" ("Statement 144"), the Company makes a determination as to the point in time that it can be reasonably certain that a sale will be consummated. Given the nature of all real estate sales contracts, not only those entered into by the Company, it is not unusual for such contracts to allow potential buyers a period of time to evaluate the property prior to formal acceptance of the contract. In addition, certain other matters critical to the final sale, such as financing arrangements, often remain pending even upon contract acceptance. As a result, properties under contract may not close within the expected time period, if at all. Due to these uncertainties, it is not likely that the Company can meet the criteria of Statement 144 prior to the sale formally closing. Therefore, any properties categorized as held for sale represent only those properties that management has determined are probable to close within the requirements set forth in Statement 144. The Company also makes judgments regarding the extent of involvement it will have with a property subsequent to its sale, in order to determine if the results of operations and gain/loss on sale should be reflected as discontinued. Consistent with Statement 144, any property sold to an entity in which the Company has significant continuing involvement (most often joint ventures) are not considered to be discontinued. In addition, any property which the Company sells to an unrelated third party, but retains a property or asset management function, are also not considered discontinued. Thus, only properties sold, or to be sold, to unrelated third parties for which the Company, in its judgment, has no continuing involvement are classified as discontinued. Income Tax Status - The prevailing assumption underlying the operation of our business is that we will continue to operate so as to qualify as a REIT, defined under the Internal Revenue Code. Certain income and asset tests are required to be met on a periodic basis to ensure we continue to qualify as a REIT. As a REIT, we are allowed to reduce taxable income by all or a portion of our distributions to stockholders. As we evaluate each transaction entered into, we determine the impact that these transactions will have on our REIT status. Determining our taxable income, calculating distributions, and evaluating transactions requires us to make certain judgments and estimates as to the positions we take in our interpretation of the Internal Revenue Code. Because many types of transactions are susceptible to varying interpretations under federal and state income tax laws and regulations, our positions are subject to change at a later date upon final determination by the taxing authorities. New Accounting Pronouncements - ----------------------------- In January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities" ("Interpretation 46"), which is intended to clarify the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, or variable interest entities, as defined in the interpretation. Interpretation 46 requires that certain variable interest entities be consolidated into the majority variable interest holder's financial statements and is applicable immediately to all variable interest entities created after January 31, 2003, and as of the first interim 27 period ending after December 15, 2003 to those variable interest entities created before February 1, 2003 and not already consolidated under Interpretation 46 in previously issued financial statements. The Company did not create any variable interest entities after January 31, 2003. The Company is continuing its analysis of the applicability of this interpretation to its structures created before February 1, 2003 and does not believe its adoption will have a material effect on the financial statements. In May 2003, the FASB issued Statement of Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("Statement 150"). Statement 150 affects the accounting for certain financial instruments, including requiring companies having consolidated entities with specified termination dates to treat minority owners interests in such entities as liabilities in an amount based on the fair value of the entities. Although Statement 150 was originally effective July 1, 2003, the FASB has indefinitely deferred certain provisions related to classification and measurement requirements for mandatorily redeemable financial instruments that become subject to Statement 150 solely as a result of consolidation including minority interests of entities with specified termination dates. As a result, Statement 150 has no impact on the Company's consolidated statements of operations for the three month and nine month periods ended September 30, 2003. At September 30, 2003, the Company held a majority interest in six consolidated entities with specified termination dates ranging from 2007 to 2049. The minority owners' interests in these entities are to be settled upon termination by distribution of either cash or specific assets of the underlying entities. The estimated fair value of minority interests in entities with specified termination dates was approximately $24.8 million at September 30, 2003. The Company has no other financial instruments that currently are affected by Statement 150. Results from Operations - ----------------------- Comparison of the nine months ended September 30, 2003 to September 30, 2002 At September 30, 2003, we were operating or developing 262 shopping centers. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction and initial lease-up process and are not yet fully leased (fully leased generally means greater than 90% leased) or occupied. Stabilized properties are those properties that are generally greater than 90% leased and, if they were developed, are more than three years beyond their original development start date. At September 30, 2003, we had 228 stabilized shopping centers that were 95.3% leased. Revenues increased $30.4 million, or 11.1%, to $304.6 million in 2003. This increase was due primarily to our realization of a full year of revenues from new 2002 developments and from growth in rental rates of the operating properties. In 2003, rental rates grew by 10% from renewal leases and new leases replacing previously occupied spaces in the stabilized properties. Minimum rent increased $10.7 million, or 5.4%, and recoveries from tenants increased $3.8 million, or 6.5%. Service operations revenue includes management fees, commission income, and gains or losses from the sale of land and development properties without significant operations. Service operations revenue does not include gains or losses from the sale of non-development operating properties. The Company accounts for profit recognition on sales of real estate in accordance with FASB Statement No. 66, "Accounting for Sales of Real Estate." Profits from sales of real estate will not be recognized by the Company unless a sale has been consummated; the buyer's initial and continuing investment is adequate to demonstrate a commitment to pay for the property; the Company has transferred to the buyer the usual risks and rewards of ownership; and the Company does not have substantial continuing involvement with the property. Service operations revenue increased $14.2 million to $26.6 million in 2003, or 113.9%. The increase was primarily due to a $10.8 million increase in development profits during 2003 primarily from the sale of development properties to MCWR joint venture, a $1.5 million increase in gains from the sale of land and outparcels and a $1.8 million increase in management fees primarily related to the increased assets of Columbia and MCWR joint ventures. 28 Operating expenses increased $13 million, or 9.9%, to $144.2 million in 2003. Combined operating, maintenance, and real estate taxes increased $5.2 million, or 8.1%, during 2003 to $70 million. The increase was primarily due to new developments that incurred expenses for only a portion of the previous year, and general increases in operating expenses on the stabilized properties. General and administrative expenses were $16.4 million during 2003 compared with $15.6 million in 2002, or 5.5% higher, as a result of general salary and benefit increases. Depreciation and amortization increased $6 million during 2003 related to the construction completion of development properties and placing them in service. We review our real estate portfolio for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset. Regency determines whether impairment has occurred by comparing the property's carrying value to an estimate of fair value based upon methods described in our Critical Accounting Policies. In the event the properties are impaired, we write down assets to fair value for "held-and-used" assets and fair value less costs to sell for "held-for-sale" assets. During the nine months ended September 30, 2003 and 2002, we recorded a provision for loss of approximately $2 million and $2.5 million, respectively. Net interest expense increased to $62.9 million in 2003 from $62.4 million in 2002, or 0.8%. Weighted average interest rates on outstanding debt declined to 6.6% at September 30, 2003 from 7.1% at September 30, 2002 related to reductions in the LIBOR rate. Average fixed rates remained unchanged at 7.5%. Average outstanding debt at September 30, 2003 was $1.406 billion vs. $1.424 billion in the prior year; however, average fixed rate debt increased $40 million, and average variable rate debt decreased $58 million. Income from discontinued operations was $7.5 million in 2003 primarily due to the sale of eight shopping centers to unrelated parties for $57.6 million with a combined gain on sale of $6.7 million. In compliance with the adoption of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144") in January 2002, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for 2003 and 2002, which will result in a reclassification of amounts previously reported as discontinued operations in 2002. The reclassified 2002 operating income from discontinued operations was $21.3 million compared to $12.9 million originally reported in 2002 due to the reclassification of $8.4 million of operating income for properties sold subsequent to September 30, 2002. Net income for common unit holders was $75.2 million in 2003 compared with $77.6 million in 2002, or a 3.2% decrease due to reasons discussed above, a reduction in gains on sales of operating properties of $1.4 million and a $2.4 million early extinguishment of debt recorded in 2002 as other income. Diluted earnings per unit were $1.23 in 2003 compared with $1.26 in 2002, or 2.4% lower related to the reduction in net income and an increase in weighted average common units of 1.4 million units. Comparison of the three months ended September 30, 2003 to September 30, 2002 Revenues increased $7.6 million, or 7.6%, to $106.6 million in 2003. Minimum rent increased $1.2 million, or 1.8%, and recoveries from tenants increased $820,181, or 4.1%. This increase was due to revenues from completed developments and acquisitions that began operating after September 30, 2002 along with rental rate growth on the existing portfolio previously described. Service operations revenue increased $5.1 million to $13.4 million in 2003, or 60.9%. The increase was primarily due to a $5.1 million dollar increase in development sales during 2003, and a $172,753 increase in management fees primarily related to the Columbia and MCWR joint ventures, offset by a $169,335 decrease resulting from selling fewer outparcels during 2003 than in 2002. 29 Operating expenses increased $2.4 million, or 5.2%, to $49.0 million in 2003. Combined operating, maintenance, and real estate taxes increased $886,301, or 3.9%, during 2003 to $23.4 million. This increase is due to new developments and acquisitions which were not operating at September 30, 2002. General and administrative expenses were $6.3 million during 2003 compared with $6.1 million in 2002, or 3.6% higher, as a result of general salary and benefit increases. Depreciation and amortization increased $1.3 million during 2003 related to the construction completion of development properties and placing them in service. Income from discontinued operations was $3 million related to the sale of three shopping centers during the third quarter for $18.7 million. The reclassified operating income from discontinued operations for the three months ended September 30, 2002 is $5.8 million compared to $3 million originally reported in 2002 due to the reclassification of $2.8 million of operating income for properties sold subsequent to September 30, 2002 in compliance with the adoption of Statement 144. Net income for common unit holders was $30.5 million in 2003 compared with $28.1 million in 2002, or an 8.5% increase for the reasons previously described. Diluted earnings per unit were $.51 in 2003 compared with $.46 in 2002, or 10.9% higher related to the increase in net income. Environmental Matters - --------------------- Regency, like others in the commercial real estate industry, is subject to numerous environmental laws and regulations. The operation of dry cleaning plants at our shopping centers is the principal environmental concern. We believe that the tenants who operate these plants do so in accordance with current laws and regulations and have established procedures to monitor their operations. Additionally, we use all legal means to cause tenants to remove dry cleaning plants from our shopping centers. Where available, we have applied and been accepted into state-sponsored environmental programs. We have a blanket environmental insurance policy that covers Regency against third-party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. We have also placed environmental insurance on specific properties with known contamination in order to mitigate Regency's environmental risk. We believe that the ultimate disposition of currently known environmental matters will not have a material effect on Regency's financial position, liquidity, or operations. No assurance can be given that existing environmental studies with respect to our shopping centers reveal all potential environmental liabilities; that any previous owner, occupant or tenant did not create any material environmental condition not known to us; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in imposition of additional environmental liability. Inflation - --------- Inflation has remained relatively low and has had a minimal impact on the operating performance of our shopping centers; however, substantially all of our long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling us 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 our leases are for terms of less than 10 years, which permits us to seek increased rents upon re-rental at market rates. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, and insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. 30 Item 3. Quantitative and Qualitative Disclosures about Market Risk Market Risk ----------- Regency is exposed to interest rate changes primarily as a result of the line of credit and long-term debt used to maintain liquidity, fund capital expenditures and expand Regency's real estate investment portfolio. Regency'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, Regency 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. Regency has no plans to enter into derivative or interest rate transactions for speculative purposes. Regency's interest rate risk is monitored using a variety of techniques. The table below presents the principal cash flows (in thousands), weighted average interest rates of remaining debt, and the fair value of total debt (in thousands), by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
Fair 2003 2004 2005 2006 2007 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Fixed rate debt $ 12,517 213,059 151,888 27,570 28,587 793,016 1,226,637 1,311,575 Average interest rate for all debt 7.58% 7.61% 7.60% 7.60% 7.59% 7.61% - - Variable rate LIBOR debt $ 9,447 210,889 25,000 - - - 245,336 245,336 Average interest rate for all debt 2.04% 2.53% 2.38% - - - - -
As the table incorporates only those exposures that exist as of September 30, 2003, 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, Regency's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, its hedging strategies at that time, and interest rates. Item 4. Controls and Procedures Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report, and, based on their evaluation, the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There has been no significant change in our internal controls over financial reporting identified in connection with the foregoing evaluation that occurred during the last quarter and that has materially affected, or is reasonably likely to material affect, our internal controls over financial reporting. 31 Part II Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of Regency Centers, L.P.'s Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Act of 1934. 31.2 Certification of Regency Centers, L.P.'s Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Act of 1934. 31.3 Certification of Regency Centers, L.P.'s Chief Operating Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Act of 1934. 32.1 Certification of Regency Centers, L.P.'s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) 32.2 Certification of Regency Centers, L.P.'s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) 32.3 Certification of Regency Centers, L.P.'s Chief Operating Officer Pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) (b) Reports on Form 8-K None 32 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2003 REGENCY CENTERS, L.P. By: /s/ J. Christian Leavitt --------------------------------- Senior Vice President, and Chief Accounting Officer 33 EX-31 3 dkm549a.txt EXHIBIT 31.1 - CERTIFICATION OF CEO Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 I, Martin E. Stein, Jr., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Regency Centers, L.P. ("registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ Martin E. Stein, Jr. ------------------------ Martin E. Stein, Jr. Chief Executive Officer EX-31 4 dkm549b.txt EXHIBIT 31.2 - CERTIFICATION OF CFO Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 I, Bruce M. Johnson, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Regency Centers, L.P. ("registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ Bruce M. Johnson -------------------- Bruce M. Johnson Chief Financial Officer EX-31 5 dkm549c.txt EXHIBIT 31.3 - CERTIFICATION OF COO Exhibit 31.3 Certification of Chief Operating Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 I, Mary Lou Fiala, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Regency Centers, L.P. ("registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ Mary Lou Fiala ------------------ Mary Lou Fiala Chief Operating Officer EX-32 6 dkm549d.txt EXHIBIT 32.1 - STATEMENT OF THE CEO EXHIBIT 32.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chairman and Chief Executive Officer of Regency Centers Corporation, the general partner of Regency Centers, L.P. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Martin E. Stein, Jr. - ------------------------ Martin E. Stein, Jr. November 12, 2003 EX-32 7 dkm549e.txt EXHIBIT 32.2 - STATEMENT OF THE CFO Exhibit 32.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Managing Director and Chief Financial Officer of Regency Centers Corporation, the general partner of Regency Centers, L.P. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Bruce M. Johnson - -------------------- Bruce M. Johnson November 12, 2003 EX-32 8 dkm549f.txt EXHIBIT 32.3 - STATEMENT OF THE COO Exhibit 32.3 Written Statement of the Chief Operating Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned President and Chief Operating Officer of Regency Centers Corporation, the general partner of Regency Centers, L.P. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mary Lou Fiala - ------------------ Mary Lou Fiala November 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----