-----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, Uw99TjRCgyevMa0ZwQVXNLIaVXLBnqpuePNLrnvfk03qWprYrbcvHRdm1Xs0JM92 Uwt+2gFSDb0Xt+oY4fNemw== 0000910606-99-000014.txt : 19990812 0000910606-99-000014.hdr.sgml : 19990812 ACCESSION NUMBER: 0000910606-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: SEC FILE NUMBER: 000-24763 FILM NUMBER: 99683548 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 JUNE 30, 1999 FORM 10-Q United States SECURITIES AND EXCHANGE COMMISSION Washington DC 20549 FORM 10-Q (Mark One) [X] For the quarterly period ended June 30, 1999 -or- [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission File Number 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) 356-7000 (Registrant's telephone number, including area code) Unchanged (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] REGENCY CENTERS, L.P. Consolidated Balance Sheets June 30, 1999 and December 31, 1998
1999 1998 ---- ---- Assets (unaudited) Real estate investments, at cost: Land $ 528,583,689 222,259,131 Buildings and improvements 1,692,245,580 795,124,798 Construction in progress - development for investment 54,783,730 15,647,659 Construction in progress - development for sale 84,535,053 20,869,915 --------------- --------------- 2,360,148,052 1,053,901,503 Less: accumulated depreciation 58,432,768 36,752,466 --------------- --------------- 2,301,715,284 1,017,149,037 Investments in real estate partnerships 43,737,090 30,630,540 --------------- --------------- Net real estate investments 2,345,452,374 1,047,779,577 Cash and cash equivalents 9,674,631 15,536,926 Tenant receivables, net of allowance for uncollectible accounts of $1,823,732 and $1,787,866 at June 30, 1999 and December 31, 1998, respectively 26,301,854 13,712,937 Deferred costs, less accumulated amortization of $3,651,223 and $2,350,267 at June 30, 1999 and December 31, 1998, respectively 9,656,375 5,156,289 Other assets 6,334,639 4,251,221 --------------- --------------- $ 2,397,419,873 1,086,436,950 =============== =============== Liabilities and Partners' Capital Liabilities: Notes payable 736,274,210 362,744,897 Acquisition and development line of credit 243,879,310 117,631,185 Accounts payable and other liabilities 43,159,760 17,596,224 Tenants' security and escrow deposits 6,533,671 2,638,033 --------------- --------------- Total liabilities 1,029,846,951 500,610,339 --------------- --------------- Limited partners' interest in consolidated partnerships (note 2) 11,050,830 11,558,619 --------------- --------------- Partners' Capital: Series A preferred units, par value $50, 1,600,000 units issued and outstanding at June 30, 1999 and December 31, 1998 78,800,000 78,800,000 General partner; 58,187,479 and 24,537,723 units outstanding at June 30, 1999 and December 31, 1998, respectively 1,236,171,847 472,748,608 Limited partners; 1,928,490 and 1,147,446 units outstanding at June 30, 1999 and December 31, 1998, respectively 41,550,245 22,719,384 --------------- --------------- Total partners' capital 1,356,522,092 574,267,992 --------------- --------------- Commitments and contingencies $ 2,397,419,873 1,086,436,950 =============== ===============
See accompanying notes to consolidated financial statements. REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Three Months ended June 30, 1999 and 1998 (unaudited) 1999 1998 ---- ---- Revenues: Minimum rent $ 54,953,189 21,124,547 Percentage rent 444,203 281,359 Recoveries from tenants 14,292,872 4,721,860 Management, leasing and brokerage fees 4,118,783 3,259,509 Equity in income of investments in real estate partnerships 1,395,100 145,425 --------------- ------------- Total revenues 75,204,147 29,532,700 --------------- ------------- Operating expenses: Depreciation and amortization 11,460,840 4,814,460 Operating and maintenance 9,108,016 3,447,740 General and administrative 5,143,534 3,529,341 Real estate taxes 7,030,429 2,462,897 Other expenses 375,000 300,000 --------------- ------------- Total operating expenses 33,117,819 14,554,438 --------------- ------------- Interest expense (income): Interest expense 16,168,053 6,638,099 Interest income (639,929) (615,226) --------------- ------------- Net interest expense 15,528,124 6,022,873 --------------- ------------- Income before minority interests and sale of real estate investments 26,558,204 8,955,389 --------------- ------------- Gain on sale of real estate investments - 508,678 Minority interest of limited partnersC (486,094) (103,009) --------------- ------------- Net income 26,072,110 9,361,058 Preferred unit distribution (1,625,001) - --------------- ------------- Net income for common unitholders $ 24,447,109 9,361,058 =============== ============= Net income per common unit: Basic $ 0.41 0.32 =============== ============= Diluted $ 0.41 0.32 =============== ============= See accompanying notes to consolidated financial statements REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Six Months ended June 30, 1999 and 1998 (unaudited) 1999 1998 ---- ---- Revenues: Minimum rent $ 90,508,619 39,197,149 Percentage rent 772,174 831,576 Recoveries from tenants 22,781,244 8,559,090 Management, leasing and brokerage fees 6,013,830 5,988,181 Equity in income of investments in real estate partnerships 2,136,203 146,411 --------------- ------------- Total revenues 122,212,070 54,722,407 --------------- ------------- Operating expenses: Depreciation and amortization 19,967,159 9,175,119 Operating and maintenance 15,410,001 6,632,184 General and administrative 8,780,893 6,962,449 Real estate taxes 11,401,939 4,715,289 Other expenses 525,000 300,000 --------------- ------------- Total operating expenses 56,084,992 27,785,041 --------------- ------------- Interest expense (income): Interest expense 25,826,013 10,799,357 Interest income (1,092,818) (933,472) --------------- ------------- Net interest expense 24,733,195 9,865,885 --------------- ------------- Income before minority interests and sale of real estate investments 41,393,883 17,071,481 --------------- ------------- Gain on sale of real estate investments - 10,746,097 Minority interest of limited partners (747,033) (200,159) --------------- ------------ Net income 40,646,850 27,617,419 Preferred unit distribution (3,250,002) - --------------- ------------ Net income for common unitholders $ 37,396,848 27,617,419 =============== ============ Net income per common unit: Basic $ 0.75 1.01 =============== ============= Diluted $ 0.75 1.00 =============== ============= See accompanying notes to consolidated financial statements REGENCY CENTERS, L.P. Consolidated Statements of Changes in Capital For the Six Months Ended June 30, 1999 (Unaudited)
Series A Preferred General Limited Total Units Partner Partners Capital Balance December 31, 1998 $ 78,800,000 472,748,608 22,719,384 574,267,992 Net income 3,250,002 36,058,337 1,338,511 40,646,850 Cash contributions from the - issuance of Regency stock/units - 70,809 - 70,809 Cash distributions for dividends - (40,766,863) (1,437,429) (42,204,292) Preferred unit distribution (3,250,002) - - (3,250,002) Other contributions (distributions), net - (5,780,775) - (5,780,775) Units issued for acquisition of real estate - 766,258,365 26,513,145 792,771,510 Units exchanged for common stock of Regency - 7,583,366 (7,583,366) - ------------- -------------- ------------- -------------- Balance June 30, 1999 $ 78,800,000 1,236,171,847 41,550,245 1,356,522,092 ============= ============== ============= ==============
See accompanying notes to consolidated financial statements REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1999 and 1998 (unaudited)
1999 1998 Cash flows from operating activities: Net income $ 40,646,850 27,617,419 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation and amortization 19,967,159 9,175,119 Deferred financing cost and debt premium amortization (82,187) (115,200) Stock based compensation 1,264,038 1,306,757 Minority interest of limited partners 747,033 200,159 Equity in income of investments in real estate partnerships (2,136,203) (146,411) Gain on sale of real estate investments - (10,746,097 Changes in assets and liabilities: Tenant receivables (8,445,600) (1,654,241) Deferred leasing commissions (1,868,040) (502,290) Other assets 901,449 (1,659,589 Tenants' security deposits 77,215 403,176 Accounts payable and other liabilities 7,584,010 3,006,366 ---------------- -------------- Net cash provided by operating activities 58,655,723 26,885,168 ---------------- -------------- Cash flows from investing activities: Acquisition, development and improvements of real estate (43,021,442) (120,136,113) Acquisition of Pacific, net of cash acquired (9,046,230) - Capital improvements (6,421,178) (1,908,092) Investment in real estate partnerships (10,104,935) (21,276,350) Construction in progress for sale, net of reimbursement (30,934,188) (1,013,407) Proceeds from sale of real estate investments - 30,662,197 Distributions received from real estate partnership investments 704,474 21,123 -------------- -------------- Net cash used in investing activities (98,823,499) (113,650,642) -------------- -------------- Cash flows from financing activities: Cash contributions from the issuance of Regency stock and partnership units 70,809 9,693,102 Net distributions to limited partners in consolidated partnerships (458,450) (157,292) Distributions to preferred unit holdes (3,250,002) - Cash distributions for dividends (42,204,292) (25,259,121 Other (distributions) contributions, net (5,780,775) 1,478,481 Net proceeds from term notes 249,845,300 - Net proceeds from issuance of Series A preferred units - 78,800,000 (Repayment) proceeds from acquisition and development line of credit, net (145,351,875) 41,600,000 Proceeds from mortgage loans payable - 7,345,000 Repayment of mortgage loans payable (15,000,200) (32,763,104) Deferred financing costs (3,565,034) (616,359) --------------- ------------- Net cash provided by financing activities 34,305,481 80,120,707 --------------- ------------- Net decrease in cash and cash equivalents (5,862,295) (6,644,767) Cash and cash equivalents at beginning of period 15,536,926 14,642,429 -------------- ------------- Cash and cash equivalents at end of period $ 9,674,631 7,997,662 =============== ==============
REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1999 and 1998 (unaudited) -continued-
1999 1998 ---- ---- Supplemental disclosure of cash flow information - cash paid for interest (net of capitalized interest of approximately $3,935,000 and $1,700,000 in 1999 and 1998 respectively) $ 19,808,946 8,764,540 =================== =================== Supplemental disclosure of non-cash transactions: Mortgage loans assumed for the acquisition of Pacific and real estate $ 411,184,783 105,531,486 =================== =================== Common stock and exchangeable operating partnership units issued to acquire investments in real estate partnerships 1,949,020 - =================== =================== Exchangeable operating partnership units, preferred and common stock issued for the acquisition of Pacific and real estate $ 790,822,490 28,963,411 =================== =================== Other liabilities assumed to acquire Pacific $ 13,897,643 - =================== ===================
See accompanying notes to consolidated financial statements. REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements June 30, 1999 (unaudited) 1. Summary of Significant Accounting Policies (a) Organization and Principles of Consolidation Regency Centers, L.P. ("RCLP" or "Partnership") is the primary entity through which Regency Realty Corporation ("Regency" or "Company"), a self-administered and self-managed real estate investment trust ("REIT"), conducts substantially all of its business and owns substantially all of its assets. The Partnership was formed in 1996 for the purpose of acquiring certain real estate properties. The historical financial statements of the Partnership reflect the accounts of the Partnership since its inception, together with the accounts of certain predecessor entities (including Regency Centers, Inc., a wholly-owned subsidiary of Regency through which Regency owned a substantial majority of its properties), which were merged with and into the Partnership as of February 26, 1998. At June 30, 1999, Regency owns approximately 97% of the outstanding common units of the Partnership. The Partnership's ownership interests are represented by Units, of which there are (i) Series A Preferred Units, (ii) Original Limited Partnership Units (including Class A Units), all of which were issued in connection with the Branch acquisition, (iii) Class 2 Units, all of which were issued in connection with the Midland and other property acquisitions, and (iv) Class B Units, all of which are owned by Regency. Each outstanding Unit other than Class B Units and Series A Preferred Units is exchangeable, on a one share per one Unit basis, for the common stock of Regency or for cash at Regency's election. The accompanying consolidated financial statements include the accounts of the Partnership, its wholly owned subsidiaries, and its majority owned or controlled subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The financial statements reflect all adjustments which are of a normal recurring nature, and in the opinion of management, are necessary to properly state the results of operations and financial position. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted although management believes that the disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's December 31, 1998 Form 10-K filed with the Securities and Exchange Commission. During 1999, two properties were transferred from Regency to RCLP. The effects of such transfers were not material to the operations or financial position of the Partnership. During 1998, Regency transferred all of the assets and liabilities of a 100% owned shopping center, Hyde Park, to the Partnership in exchange for Class B units. Hyde Park was acquired by Regency on June 6, 1997, and its operations had been included in Regency's financial statements from that date forward. Since the Partnership and Hyde Park are under the common control of Regency, the transfer of Hyde Park has been accounted for at historical cost in a manner similar to a pooling of interests, as if the Partnership had directly acquired Hyde Park on June 6, 1997. Accordingly, the Partnership's financial statements have been restated to include the assets, liabilities, units issued, and results of operations of Hyde Park from the date it was acquired. (b) Reclassifications Certain reclassifications have been made to the 1998 amounts to conform to classifications adopted in 1999. 2. Acquisitions On September 23, 1998, the Company entered into an Agreement of Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real estate investment trust. The Agreement, among other matters, provided for the merger of Pacific into Regency, and the exchange of each Pacific common or preferred share into 0.48 shares of Regency common or preferred stock. The stockholders approved the merger at a Special Meeting of Stockholders held February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of gross leaseable area. On February 28, 1999, the effective date of the merger, the Company issued equity instruments valued at $770.6 million to the Pacific stockholders in exchange for their outstanding common and preferred shares and units. The total cost to acquire Pacific was approximately $1.157 billion based on the value of Regency shares issued including the assumption of $379 million of outstanding debt and other liabilities of Pacific, and estimated closing costs of $7.5 million. The price per share used to determine the purchase price was $23.325 based on the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The merger was accounted for as a purchase with the Company as the acquiring entity. The properties acquired from Pacific were concurrently contributed by Regency into RCLP in exchange for additional partnership units. During 1998, the Partnership acquired 30 shopping centers fee simple for approximately $341.9 million and also invested $28.4 million in 12 joint ventures ("JV Properties"), for a total investment of $370.3 million in 42 shopping centers ("1998 Acquisitions"). Included in the 1998 Acquisitions are 32 shopping centers acquired from various entities comprising the Midland Group ("Midland"). Of the 32 Midland centers, 31 are anchored by Kroger, and 12 are owned through joint ventures in which the Partnership's ownership interest is 50% or less. The Partnership's investment in the properties acquired from Midland is $236.6 million at December 31, 1998. During 1999 and 2000, the Partnership may pay contingent consideration of up to an estimated $23 million, through the issuance of Partnership units and the payment of cash. The amount of such consideration, if issued, will depend on the satisfaction of certain performance criteria relating to the assets acquired from Midland. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than units. On April 16, 1999, the Partnership paid $5.2 million related to this contingent consideration. The operating results of Pacific and the 1998 Acquisitions are included in the Partnership's consolidated financial statements from the date each property was acquired. The following unaudited pro forma information presents the consolidated results of operations as if Pacific and all of the 1998 Acquisitions had occurred on January 1, 1998. Such pro forma information reflects adjustments to 1) increase depreciation, interest expense, and general and administrative costs, 2) remove the office buildings sold, and 3) adjust the weighted average common units issued to acquire the properties. Pro forma revenues would have been $145.0 and $133.9 million as of June 30, 1999 and 1998, respectively. Pro forma net income for common unitholders would have been $44.4 and $38.3 million as of June 30, 1999 and 1998, respectively. Pro forma basic net income per common unit would have been $.73 and $.63 as of June 30, 1999 and 1998, respectively. Pro forma diluted net income per common unit would have been $.73 and $.63, as of June 30, 1999 and 1998, respectively. This data does not purport to be indicative of what would have occurred had Pacific and the 1998 Acquisitions been made on January 1, 1998, or of results which may occur in the future. 3. Segments The Partnership was formed, and currently operates, for the purpose of 1) operating and developing Partnership owned retail shopping centers (Retail segment), and 2) providing services including property management, leasing, brokerage, and construction and development management for third-parties (Service operations segment). The Partnership had previously operated four office buildings, all of which have been sold during 1998. The Partnership's reportable segments offer different products or services and are managed separately because each requires different strategies and management expertise. There are no material inter-segment sales or transfers. The Partnership assesses and measures operating results starting with Net Operating Income for the Retail and Office Buildings segments and Income for the Service operations segment and converts such amounts into a performance measure referred to as Funds From Operations (FFO) on a diluted basis. The operating results for the individual retail shopping centers have been aggregated since all of the Partnership's shopping centers exhibit highly similar economic characteristics as neighborhood shopping centers, and offer similar degrees of risk and opportunities for growth. FFO as defined by the National Association of Real Estate Investment Trusts consists of net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of income producing property held for investment, plus depreciation and amortization of real estate, and adjustments for unconsolidated investments in real estate partnerships and joint ventures. The Partnership considers FFO to be the industry standard for reporting the operations of REITs. Adjustments for investments in real estate partnerships are calculated to reflect FFO on the same basis. While management believes that FFO is the most relevant and widely used measure of the Partnership's performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered an alternative to net income as an indicator of the Partnership's operating performance, and is not indicative of cash available to fund all cash flow needs. Additionally, the Partnership's calculation of FFO, as provided below, may not be comparable to similarly titled measures of other REITs. The accounting policies of the segments are the same as those described in note 1. The revenues, FFO, and assets for each of the reportable segments are summarized as follows for the six month periods ended as of June 30, 1999 and 1998. Revenues: 1999 1998 --------- ---- ---- Retail segment $ 116,198,240 48,201,532 Service operations segment 6,013,830 5,988,181 Office buildings segment - 532,694 ----------------- ---------------- Total revenues $ 122,212,070 54,722,407 ================= ================
Funds from Operations: Retail segment net operating income $ 89,386,300 36,923,351 Service operations segment income 6,013,830 5,988,181 Office buildings segment net operating income - 463,402 Adjustments to calculate consolidated FFO: Interest expense (25,826,013) (10,799,357) Interest income 1,092,818 933,472 Earnings from recurring land sales - 901,854 General and administrative and other expenses (9,305,893) (7,262,449) Non-real estate depreciation (391,511) (285,147) Minority interests of limited partners (747,033) (200,159) Minority interests in depreciation and amortization (359,452) (256,722) Share of joint venture depreciation and amortization 286,549 154,599 Dividends on preferred units (3,250,002) - ----------------- ----------------- Funds from Operations 56,899,593 26,561,025 ----------------- ----------------- Reconciliation to net income for common unitholders: Real estate related depreciation and amortization (19,575,648) (8,889,972) Minority interests in depreciation and amortization 359,452 256,722 Share of joint venture depreciation and amortization (286,549) (154,599) Earnings from property sales - 9,844,243 ----------------- ----------------- Net income for common unitholders $ 37,396,848 27,617,419 ================= =================
Assets by reportable segment as of June 30, 1999 and December 31, 1998 are as follows. Non-segment assets to reconcile to total assets include cash, accounts receivable and deferred financing costs.
Assets (in thousands): 1999 1998 ---------------------- ---- ---- Retail segment $ 2,260,917 1,026,910 Service operations segment 84,535 20,870 Office buildings segment - - Cash and other assets 51,968 38,657 ----------------- ----------------- Total assets $ 2,397,420 1,086,437 ================= =================
4. Notes Payable and Acquisition and Development Line of Credit The Partnership's outstanding debt at June 30, 1999 and December 31, 1998 consists of the following (in thousands):
1999 1998 ---- ---- Notes Payable: Fixed rate mortgage loans $ 341,469 230,398 Variable rate mortgage loans 23,862 11,051 Fixed rate unsecured loans 370,944 121,296 -------------- --------------- Total notes payable 736,275 362,745 Acquisition and development line of credit 243,879 117,631 -------------- --------------- Total $ 980,154 480,376 ============== ===============
During February, 1999, the Partnership modified the terms of its unsecured line of credit (the "Line") by increasing the commitment to $635 million. Maximum availability under the Line is based on the discounted value of a pool of eligible unencumbered assets (determined on the basis of capitalized net operating income) less the amount of the Company's outstanding unsecured liabilities. The Line matures in February 2001, but may be extended annually for one year periods. The Company is required to comply, and is in compliance, with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include among others (i) maintenance of minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii) ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to debt service and reserve for replacements, and (vi) ratio of unencumbered net operating income to interest expense on unsecured indebtedness. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. On April 15, 1999 the Partnership completed a $250 million unsecured debt offering in two tranches. The Company issued $200 million 7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50 million 7.75% notes due April 1, 2009, priced at 100%. The net proceeds of the offering were used to reduce the balance of the Line. Mortgage loans are secured by certain real estate properties, but generally may be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2018. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%. During 1999, the Partnership assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which includes debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. As of June 30, 1999, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments 1999 $ 3,377 12,899 16,276 2000 5,711 47,590 53,301 2001 5,621 291,689 297,310 2002 4,943 44,120 49,063 2003 4,933 13,286 18,219 Beyond 5 Years 42,205 490,225 532,430 Net unamortized debt payments - 13,555 13,555 --------------- -------------- ---------------- Total $ 66,790 913,364 980,154 =============== ============== ================
Unconsolidated partnerships and joint ventures had mortgage loans payable of $64.0 million at June 30, 1999, and the Partnership's proportionate share of these loans was $28.1 million. 5. Regency's Stockholders' Equity and Partners' Capital On June 11, 1996, the Company entered into a Stockholders Agreement (the "Agreement") with SC-USREALTY granting it certain rights such as purchasing common stock, nominating representatives to the Company's Board of Directors, and subjecting SC-USREALTY to certain restrictions including voting and ownership restrictions. In connection with the Units and shares of common stock issued in March 1998 related to earnout payments, SC-USREALTY acquired 435,777 shares at $22.125 per share in accordance with their rights as provided for in the Agreement. In conjunction with the acquisition of Pacific, SC-USREALTY exchanged their Pacific shares for 22.6 million Regency common shares. As of June 30, 1999, SC-USREALTY owns approximately 34.3 million shares of common stock or 57.5% of the outstanding common shares. In connection with the acquisition of shopping centers, the Partnership has issued Original Limited Partnership and Class 2 Units to limited partners convertible on a one for one basis into shares of common stock of the Company. There are currently 1,140,886 such units outstanding. In conjunction with the merger of Pacific, there are 787,604 units outstanding that are convertible into Regency common stock. On June 29, 1998, the Partnership issued $80 million of 8.125% Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred Units, which may be called by the Partnership at par on or after June 25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the Partnership at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit. As part of the acquisition of Pacific, the Company issued Series 1 and Series 2 preferred shares. Series 1 preferred shares are convertible into Series 2 preferred shares on a one-for-one basis and contain provisions for adjustment to prevent dilution. The Series 1 preferred shares are entitled to a quarterly dividend in an amount equal to $0.0271 less than the common dividend and are cumulative. Series 2 preferred shares are convertible into common shares on a one-for-one basis. The Series 2 preferred shares are entitled to quarterly dividends in an amount equal to the common dividend and are cumulative. The Company may redeem the preferred shares any time after October 20, 2010 at a price of $20.83 per share, plus all declared but unpaid dividends. During 1999, the holders of all of Regency's Class B stock converted 2,500,000 shares into 2,975,468 shares of common stock. 6. Earnings Per Unit The following summarizes the calculation of basic and diluted earnings per unit for the three months period ended June 30, 1999 and 1998 (in thousands except per share data):
1999 1998 Basic Earnings Per Unit (EPU) Calculation: Weighted average units outstanding 58,040 24,822 =========== ============== Net income for common unitholders $ 24,447 9,361 Less: dividends paid on Class B common stock, Series 1 and Series 2 Preferred stock (931) (1,344) ----------- -------------- Net income for Basic EPU $ 23,516 8,017 =========== ============== Basic EPU $ 0.41 0.32 =========== ============== Diluted Earnings Per Unit (EPU) Calculation: Weighted average units outstanding for Basic 58,040 24,822 EPU Incremental units to be issued under common stock options using the Treasury method 6 - Contingent units for the acquisition of real estate - 520 ----------- -------------- Total diluted units 58,046 25,342 =========== ============== Diluted EPU $ 0.41 0.32 =========== ==============
The Class B common stock dividends are deducted from income in computing earnings per unit since the proceeds of this offering were transferred to and reinvested by the Partnership. In addition, the Series 1 and Series 2 Preferred stock dividends are also deducted from net income in computing earnings per unit since the properties acquired with these preferred shares were contributed to the Partnership. Accordingly, the payment of Class B common, Series 1 and Series 2 Preferred stock dividends are deemed to be preferential to the distributions made to common unitholders. The following summarizes the calculation of basic and diluted earnings per unit for the six month periods ended June 30, 1999 and 1998 (in thousands except per share data):
1999 1998 Basic Earnings Per Unit (EPU) Calculation: Weighted average units outstanding 46,659 24,569 ============= ============== Net income for common unitholders $ 37,397 27,617 Less: dividends paid on Class B common stock, Series 1 and Series 2 Preferred stock (2,309) (2,689) ------------- -------------- Net income for Basic EPU $ 35,088 24,928 ============= ============== Basic EPU $ 0.75 1.01 ============= ============== Diluted Earnings Per Unit (EPU) Calculation: Weighted average units outstanding for Basic 46,659 24,569 EPU Incremental units to be issued under common stock options using the Treasury method 3 27 Contingent units for the acquisition of real estate - 428 ------------- -------------- Total diluted units 46,662 25,024 ============= ============== Diluted EPU $ 0.75 1.00 ============= ==============
The Class B common stock dividends are deducted from income in computing earnings per unit since the proceeds of this offering were transferred to and reinvested by the Partnership. In addition, the Series 1 and Series 2 Preferred stock dividends are also deducted from net income in computing earnings per unit since the properties acquired with these preferred shares were contributed to the Partnership. Accordingly, the payment of Class B common, Series 1 and Series 2 Preferred stock dividends are deemed to be preferential to the distributions made to common unitholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers, L.P. appearing elsewhere within. Amounts are in thousands, except per share data and retail center statistical information. Organization Regency Realty Corporation ("Regency" or "Company") is a qualified real estate investment trust ("REIT") which began operations in 1993. The Company invests in real estate primarily through its general partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership") an operating partnership in which the Company currently owns approximately 97% of the outstanding common partnership units ("Units"). Of the 214 properties included in the Company's portfolio at June 30, 1999, 196 properties were owned either fee simple or through partnerships interests by the Partnership. At June 30, 1999, the Company had an investment in real estate, at cost, of approximately $2.5 billion of which $2.4 billion or 95% was owned by the Partnership. Shopping Center Business The Partnership's principal business is owning, operating and developing grocery anchored neighborhood infill shopping centers. Infill refers to shopping centers within a targeted investment market offering sustainable competitive advantages such as barriers to entry resulting from zoning restrictions, growth management laws, or limited new competition from development or expansions. The Partnership's properties (including properties under development) summarized by state in order by their gross leasable areas (GLA) follows:
June 30, 1999 December 31, 1998 ------------- ----------------- Location # Properties GLA % Leased # Properties GLA % Leased -------- ------------ --------- -------- ------------ ----------- -------- Florida 39 4,846,630 91.7% 36 4,571,617 92.9% Texas 30 4,084,686 85.6% 5 479,900 84.7% California 36 3,820,264 96.0% - - - Georgia 25 2,541,347 92.7% 25 2,560,383 92.8% Ohio 14 1,892,686 93.3% 12 1,527,510 96.8% North Carolina 12 1,241,633 97.5% 12 1,239,783 98.3% Colorado 9 865,031 95.8% 5 447,569 89.4% Washington 8 851,485 93.7% - - - Oregon 6 583,704 94.3% - - - Tennessee 4 388,357 96.8% 4 295,179 96.8% Arizona 2 326,984 99.8% - - - Delaware 1 232,752 96.1% 1 232,752 94.8% Kentucky 1 205,060 92.3% 1 205,060 95.6% Virginia 2 197,324 96.1% 2 197,324 97.7% Illinois 1 178,600 85.9% 1 178,600 86.9% Michigan 2 177,399 81.5% 2 177,929 81.5% South Carolina 2 162,056 98.2% 2 162,056 100.0% Missouri 1 82,498 98.4% 1 82,498 99.8% Wyoming 1 75,000 81.3% - - - -------------- --------------- ---------------- -------------- --------------- ------------- Total 196 22,753.496 92.4% 109 12,358,160 93.6% ============== =============== ================ ============== =============== =============
The Partnership, is focused on building a platform of grocery anchored neighborhood shopping centers because grocery stores provide convenience shopping of daily necessities, foot traffic for adjacent local tenants, and should withstand adverse economic conditions. The Partnership's current investment markets have continued to offer strong stable economies, and accordingly, the Partnership expects to realize growth in net income as a result of increasing occupancy in the portfolio, increasing rental rates, development and acquisition of shopping centers in targeted markets, and redevelopment of existing shopping centers. The following table summarizes the four largest grocery tenants occupying the Partnership's shopping centers or expected to occupy shopping centers currently under construction at June 30, 1999: Grocery Anchor Number of % of % of Annualized Stores Total GLA Base Rent Kroger 49 12.7% 11.10% Publix 31 6.1% 4.19% Albertson's 14 3.3% 3.20% Winn Dixie 13 2.8% 2.04% Acquisition and Development of Shopping Centers On September 23, 1998, the Company entered into an Agreement of Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real estate investment trust. The Agreement, among other matters, provided for the merger of Pacific into Regency, and the exchange of each Pacific common or preferred share into 0.48 shares of Regency common or preferred stock. The stockholders approved the merger at a Special Meeting of Stockholders held February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of gross leaseable area. On February 28, 1999, the effective date of the merger, the Company issued equity instruments valued at $770.6 million to the Pacific stockholders in exchange for their outstanding common and preferred shares and units. The total cost to acquire Pacific was approximately $1.157 billion based on the value of Regency shares issued including the assumption of $379 million of outstanding debt and other liabilities of Pacific, and estimated closing costs of $7.5 million. The price per share used to determine the purchase price was $23.325 based on the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The merger was accounted for as a purchase with the Company as the acquiring entity. The properties acquired from Pacific were concurrently contributed by Regency into RCLP in exchange for additional partnership units. During 1998, the Partnership acquired 30 shopping centers fee simple for approximately $341.9 million and also invested $28.4 million in 12 joint ventures ("JV Properties"), for a total investment of $370.3 million in 42 shopping centers ("1998 Acquisitions"). Included in the 1998 Acquisitions are 32 shopping centers acquired from various entities comprising the Midland Group ("Midland"). Of the 32 Midland centers, 31 are anchored by Kroger, and 12 are owned through joint ventures in which the Partnership's ownership interest is 50% or less. The Partnership's investment in the properties acquired from Midland is $236.6 million at December 31, 1998. During 1999 and 2000, the Partnership may pay contingent consideration of up to an estimated $23 million, through the issuance of Partnership units and the payment of cash. The amount of such consideration, if issued, will depend on the satisfaction of certain performance criteria relating to the assets acquired from Midland. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than units. On April 16, 1999, the Partnership paid $5.2 million related to this contingent consideration. Results from Operations Comparison of the six months ended June 30, 1999 to 1998 Revenues increased $67.5 million or 123% to $122.2 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions. At June 30, 1999, the real estate portfolio contained approximately 22.8 million SF, and was 92.4% leased. Minimum rent increased $51.3 million or 131%, and recoveries from tenants increased $14.2 million or 166%. Revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Partnership were $6 million in both 1999 and 1998. During 1998, the Partnership sold four office buildings and a parcel of land for $26.7 million, and recognized a gain on the sale of $10.7 million. As a result of these transactions the Partnership's real estate portfolio is comprised entirely of retail shopping centers. The proceeds from the sale were used to reduce the balance of the line of credit. Operating expenses increased $28.3 million or 102% to $56.1 million in 1999. Combined operating and maintenance, and real estate taxes increased $15.5 million or 136% during 1999 to $26.8 million. The increases are due to Pacific and the 1998 Acquisitions. General and administrative expenses increased 26% during 1999 to $8.8 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $10.8 million during 1999 or 118% primarily due to Pacific and the 1998 Acquisitions. Interest expense increased to $25.8 million in 1999 from $10.8 million in 1998 or 139% due to increased average outstanding loan balances related to the financing of Pacific and the 1998 Acquisitions on the Line and the assumption of debt. Net income for common unit holders was $37.4 million in 1999 vs. $27.6 million in 1998, a $9.8 million or 35% increase for the reasons previously described. Diluted earnings per unit in 1999 was $.75 vs. $1.00 in 1998 due to the gain offset by the dilutive impact from the increase in weighted average common units and equivalents of 21.6 million primarily due to the acquisition of Pacific. Comparison of the three months ended June 30, 1999 to 1998 Revenues increased $45.7 million or 155% to $75.2 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions. At June 30, 1999, the real estate portfolio contained approximately 22.8 million SF, and was 92.4% leased. Minimum rent increased $33.8 million or 160%, and recoveries from tenants increased $9.6 million or 203%. Revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Partnership were $4.1 million in 1999 compared to $3.3 million in 1998, the increase due primarily to a increase in brokerage fees. During 1998, the Partnership sold four office buildings and a parcel of land for $26.7 million, and recognized a gain on the sale of $509,000 relating to the transaction in the second quarter of 1998, after recording a gain of $10.2 million in the first quarter of 1998. As a result of these transactions the Partnership's real estate portfolio is comprised entirely of retail shopping centers. The proceeds from the sale were used to reduce the balance of the line of credit. Operating expenses increased $18.6 million or 128% to $33.1 million in 1999. Combined operating and maintenance, and real estate taxes increased $10.2 million or 173% during 1999 to $16.1 million. The increases are due to Pacific and the 1998 Acquisitions. General and administrative expenses increased 46% during 1999 to $5.1 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $6.6 million during 1999 or 138% primarily due to Pacific and the 1998 Acquisitions. Interest expense increased to $16.2 million in 1999 from $6.6 million in 1998 or 144% due to increased average outstanding loan balances related to the financing of Pacific and the 1998 Acquisitions on the Line and the assumption of debt. Net income for common unit holders was $24.4 million in 1999 vs. $9.4 million in 1997, a $15 million or 161% increase for the reasons previously described. Diluted earnings per unit in 1999 was $.41 vs. $.32 in 1998 due to the increase in net income offset by the dilutive impact from the increase in weighted average common units and equivalents of 32.7 million primarily due to the acquisition of Pacific. Funds from Operations The Partnership considers funds from operations ("FFO"), as defined by the National Association of Real Estate Investment Trusts as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of income producing property held for investment, plus depreciation and amortization of real estate, and after adjustments for unconsolidated investments in real estate partnerships and joint ventures, to be the industry standard for reporting the operations of real estate investment trusts ("REITs"). Adjustments for investments in real estate partnerships are calculated to reflect FFO on the same basis. While management believes that FFO is the most relevant and widely used measure of the Partnership's performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered an alternative to net income as an indicator of the Partnership's operating performance, and is not indicative of cash available to fund all cash flow needs. Additionally, the Partnership's calculation of FFO, as provided below, may not be comparable to similarly titled measures of other REITs. FFO for the periods ended June 30, 1999 and 1998 are summarized in the following table (in thousands): 1999 1998 Net income for common unitholders $ 37,397 27,617 Add (subtract): Real estate depreciation and amortization 19,503 8,788 (Gain) on sale of operating property - (9,844) ------------ ------------ Funds from operations $ 56,900 26,561 ============ ============ Cash flow provided by (used in): Operating activities $ 58,656 26,885 Investing activities (98,823) (113,651) Financing activities 34,305 80,121 Liquidity and Capital Resources Management anticipates that cash generated from operating activities will provide the necessary funds on a short-term basis for its operating expenses, interest expense and scheduled principal payments on outstanding indebtedness, recurring capital expenditures necessary to properly maintain the shopping centers, and distributions to share and unit holders. Net cash provided by operating activities was $58.7 million and $26.9 million for the six months ended June 30, 1999 and 1998, respectively. The Partnership paid scheduled principal payments of $2.7 million and $1.4 million during the first six months of 1999 and 1998, respectively. The Partnership paid distributions of $45.4 million and $25.3 million, during 1999 and 1998, respectively, to its Original Limited Partnership, Class 2 and Series A Preferred unitholders. Management expects to meet long-term liquidity requirements for term debt payoffs at maturity, non-recurring capital expenditures, and acquisition, renovation and development of shopping centers from: (i) excess cash generated from operating activities, (ii) working capital reserves, (iii) additional debt borrowings, and (iv) additional equity raised in the public markets. Net cash used in investing activities was $98.8 million and $113.7 million, during the first six months of 1999 and 1998, respectively, primarily for purposes discussed above under Acquisitions and Development of Shopping Centers. Net cash provided by financing activities was $34.3 million and $80.1 for the six months ended June 30, 1999 and 1998, respectively, primarily related to the proceeds from the preferred unit and debt offerings completed during 1998. At June 30, 1999, the Partnership had 45 retail properties under construction or undergoing major renovations, with costs to date of $203 million. Total committed costs necessary to complete the properties under development is estimated to be $174 million and will be expended through 1999 and 2000. The Partnership's outstanding debt at June 30, 1999 and December 31, 1998 consists of the following (in thousands): 1999 1998 ---- ---- Notes Payable: Fixed rate mortgage loans $ 341,469 230,398 Variable rate mortgage loans 23,862 11,051 Fixed rate unsecured loans 370,944 121,296 -------------- --------------- Total notes payable 736,275 362,745 Acquisition and development line of credit 243,879 117,631 -------------- --------------- Total $ 980,154 480,376 ============== =============== During February, 1999, the Partnership modified the terms of its unsecured line of credit (the "Line") by increasing the commitment to $635 million. Maximum availability under the Line is based on the discounted value of a pool of eligible unencumbered assets (determined on the basis of capitalized net operating income) less the amount of the Company's outstanding unsecured liabilities. The Line matures in February 2001, but may be extended annually for one year periods. The Company is required to comply, and is in compliance, with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include among others (i) maintenance of minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii) ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to debt service and reserve for replacements, and (vi) ratio of unencumbered net operating income to interest expense on unsecured indebtedness. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. On June 29, 1998, the Partnership issued $80 million of 8.125% Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an institutional investor, Belair Capital Fund, LLC, in a private placement. The issuance involved the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred Units, which may be called by the Partnership at par on or after June 25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the Line. On April 15, 1999 the Partnership completed a $250 million unsecured debt offering in two tranches. The Company issued $200 million 7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50 million 7.75% notes due April 1, 2009, priced at 100%. The net proceeds of the offering were used to reduce the balance of the Line. Mortgage loans are secured by certain real estate properties, but generally may be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2018. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%. During 1999, the Partnership assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which includes debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. As of June 30, 1999, scheduled principal repayments on notes payable and the Line for the next five years were as follows (in thousands): Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments 1999 $ 3,377 12,899 16,276 2000 5,711 47,590 53,301 2001 5,621 291,689 297,310 2002 4,943 44,120 49,063 2003 4,933 13,286 18,219 Beyond 5 Years 42,205 490,225 532,430 Net unamortized debt payments - 13,555 13,555 ------------- ------------ ------------- Total $ 66,790 913,364 980,154 ============= ============ ============= Unconsolidated partnerships and joint ventures had mortgage loans payable of $64.0 million at June 30, 1999, and the Company's proportionate share of these loans was $28.1 million. The Company qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code. As a REIT, the Company is allowed to reduce taxable income by all or a portion of its distributions o stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made by the Company. While the Company intends to continue to pay dividends to its stockholders, the Company and the Partnership will reserve such amounts of cash flow as it considers necessary for the proper maintenance and improvement of the real estate portfolio, while still maintaining the Company's qualification as a REIT. The Partnership's real estate portfolio has grown substantially during 1999 as a result of the acquisitions and development discussed above. The Partnership intends to continue to acquire and develop shopping centers in the near future, and expects to meet the related capital requirements from borrowings on the Line. The Partnership expects to repay the Line from time to time from additional public and private equity and debt offerings through both the Company and the Partnership, such as those completed in previous years. Because such acquisition and development activities are discretionary in nature, they are not expected to burden the Partnership's capital resources currently available for liquidity requirements. The Partnership expects that cash provided by operating activities, unused amounts available under the Line, and cash reserves are adequate to meet liquidity requirements. New Accounting Standards and Accounting Changes The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities " (FAS 133), which is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. FAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires entities to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Partnership does not believe FAS 133 will materially effect its financial statements. Environmental Matters The Partnership like others in the commercial real estate industry, is subject to numerous environmental laws and regulations and the operation of dry cleaning plants at the Partnership's shopping centers is the principal environmental concern. The Partnership believes that the dry cleaners are operating in accordance with current laws and regulations and has established procedures to monitor their operations. The Company has approximately 38 properties that will require or are currently undergoing varying levels of environmental remediation. These remediations are not expected to have a material financial effect on the Company or the Partnership due to financial statement reserves and various state-regulated programs that shift the responsibility and cost for remediation to the state. Based on information presently available, no additional environmental accruals were made and management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity, or operations of the Company or Partnership. Inflation Inflation has remained relatively low during 1990 and 1998 and has had a minimal impact on the operating performance of the shopping centers, however, substantially all of the Partnership's long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Partnership to receive percentage rentals based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indices. In addition, many of the Partnership's leases are for terms of less than ten years, which permits the Partnership to seek increased rents upon re-rental at market rates. Most of the Partnership's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Partnership's exposure to increases in costs and operating expenses resulting from inflation. Year 2000 System Compliance Management recognizes the potential effect Year 2000 may have on the Partnership's operations and, as a result, has implemented a Year 2000 Compliance Project. The term "Year 2000 compliant" means that the software, hardware, equipment, goods or systems utilized by, or material to the physical operations, business operations, or financial reporting of an entity will properly perform date sensitive functions before, during and after the year 2000. The Partnership's Year 2000 Compliance Project includes an awareness phase, an assessment phase, a renovation phase, and a testing phase of our data processing network, accounting and property management systems, computer and operating systems, software packages, and building management systems. The project also includes surveying our major tenants, financial institutions, and utility companies. The Partnership's computer hardware, operating systems, general accounting and property management systems and principal desktop software applications are Year 2000 compliant as certified by the various vendors. We have tested, and remedied as needed, our general accounting and property management information system, all servers and their operating systems, all principal desktop software applications, and 70% of our personal computers and PC operating systems. Based on the test results, Management does not anticipate any Year 2000 problems that will materially impact operations or operating results. An assessment of the Partnership's building management systems has been completed. This assessment has resulted in the identification of certain lighting, telephone, and voice mail systems that may not be Year 2000 compliant. These non-compliant systems are in the process of being replaced. All such replacements will be completed prior to September 30, 1999. It is expected that the additional costs associated with these replacements will be less than $100,000. The Partnership has surveyed its major tenants, financial institutions, and utility companies in order to determine the extent to which the Partnership is vulnerable to third party Year 2000 failures. We have received responses from 100% of our principal tenants and financial institutions and 98% of the utility companies that provide service to our shopping centers. All parties have indicated that they are Year 2000 compliant or will be by September 30, 1999. However, there are no assurances that these entities will not experience failures that might disrupt the operations of the Partnership. Management believes the Year 2000 Compliance Project, summarized above, has adequately addressed the Year 2000 risk. Certain events are beyond the control of Management, primarily related to the readiness of customers and suppliers, and can not be tested. Management believes this risk is mitigated by the fact that the Partnership deals with numerous geographically disbursed customers and suppliers. Any third party failures should be isolated and short term, however, there can be no guarantee that the systems of unrelated entities will be corrected on a timely basis and will not have an adverse effect on the Partnership. While the Partnership does not expect major business interruptions as a result of the Year 2000 issue, we are currently developing a formal Year 2000 contingency plan, which is expected to be in place by November 1999. Item 7a. Quantitative and Qualitative Disclosures About Market Risk Market Risk The Partnership is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Partnership's real estate investment portfolio and operations. The Partnership's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Partnership borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Partnership has no plans to enter into derivative or interest rate transactions for speculative purposes, and at June 30, 1999, the Partnership did not have any borrowings hedged with derivative financial instruments. The Partnership's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts maturing (in thousands) based upon contractual terms, weighted average interest rates of debt remaining, and the fair value of total debt (in thousands), by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
Fair 1999 2000 2001 2002 2003 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Fixed rate debt 3,317 53,170 42,661 49,063 18,218 532,430 698,859 712,413 Average interest rate for all debt 7.81% 7.81% 7.78% 7.70% 7.66% 7.81% - - Variable rate LIBOR debt 12,959 132 254,650 - - - 267,741 267,741 Average interest rate for all debt 6.13% 6.13% - - - - - -
As the table incorporates only those exposures that exist as of June 30, 1999, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Partnership's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. Forward Looking Statements This report contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that is based on the beliefs of the Company's management, as well as assumptions made by and information currently available to management. When used in this report, the words "estimate," "project," "believe," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; changes in customer preferences; competition; changes in technology; the integration of acquisitions, including Pacific; changes in business strategy; the indebtedness of the Company; quality of management, business abilities and judgment of the Company's personnel; the availability, terms and deployment of capital; and various other factors referenced in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Item 6 Exhibits and Reports on Form 8-K: (c) Exhibits: Reports on Form 8-K. None 27.1 Financial Data Schedule SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 11, 1999 REGENCY CENTERS, L..P. By: /s/ J. Christian Leavitt Senior Vice President and Secretary EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM REGENCY CENTERS, L.P. QUARTERLY REPORT FOR THE PERIOD ENDED 6/30/99 0001066247 REGENCY CENTERS, L.P. 1 6-MOS DEC-31-1999 JUN-30-1999 9,674,631 0 34,145,171 7,843,317 0 0 2,403,885,142 58,432,768 2,397,419,873 0 0 0 0 0 1,356,522,092 2,397,419,873 0 122,212,070 0 26,811,940 19,967,159 0 25,826,013 40,646,850 0 40,646,850 0 0 0 37,396,848 0.75 0.75
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