-----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, S32CjmE1Vm4RlXvN4VcWYZoQCVR0l8EvQpRg9m3hU62SFC0+/GXJkkVIzqLrUm4t fF8NM0ntoVa2bAYALsxy1A== 0000910606-99-000019.txt : 19991109 0000910606-99-000019.hdr.sgml : 19991109 ACCESSION NUMBER: 0000910606-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991108 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: 99743336 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 SEPTEMBER 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 September 30, 1999 -or- [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission File Number 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[ ] Part I Item 1. Financial Statements REGENCY CENTERS, L.P. Consolidated Balance Sheets September 30, 1999 and December 31, 1998
1999 1998 ---- ---- (unaudited) Assets Real estate investments, at cost: Land $ 531,308,266 222,259,131 Buildings and improvements 1,707,307,063 795,124,798 Construction in progress - development for investment 81,899,349 15,647,659 Construction in progress - development for sale 110,868,541 20,869,915 ----------------- ----------------- 2,431,383,219 1,053,901,503 Less: accumulated depreciation 70,057,166 36,752,466 ----------------- ----------------- 2,361,326,053 1,017,149,037 Investments in real estate partnerships 58,567,208 30,630,540 ----------------- ----------------- Net real estate investments 2,419,893,261 1,047,779,577 Cash and cash equivalents 19,843,230 15,536,926 Tenant receivables, net of allowance for uncollectible accounts of $1,632,837 and $1,787,866 at September 30, 1999 and December 31, 1998, respectively 28,399,882 13,712,937 Deferred costs, less accumulated amortization of $4,517,310 and $2,350,267 at September 30, 1999 and December 31, 1998, respectively 10,763,167 5,156,289 Other assets 6,371,616 4,251,221 ----------------- ----------------- $ 2,485,271,156 1,086,436,950 ================= ================= Liabilities and Partners' Capital Liabilities: Notes payable 723,819,893 362,744,897 Acquisition and development line of credit 144,179,310 117,631,185 Accounts payable and other liabilities 39,607,989 17,596,224 Tenants' security and escrow deposits 7,154,897 2,638,033 ----------------- ----------------- Total liabilities 914,762,089 500,610,339 ----------------- ----------------- Limited partners' interest in consolidated partnerships (note 2) 10,580,517 11,558,619 ----------------- ----------------- Partners' Capital: Series A preferred units, par value $50: 1,600,000 units issued and outstanding at September 30, 1999 and December 31, 1998 78,800,000 78,800,000 Series B preferred units, par value $100: 850,000 units issued and outstanding at September 30, 1999 82,875,000 - Series C preferred units, par value $100: 750,000 units issued and outstanding at September 30, 1999 73,125,000 - Series D preferred units, par value $100: 500,000 units issued and outstanding at September 30, 1999 49,250,000 - General partner; 58,213,342 and 24,537,723 units outstanding at September 30, 1999 and December 31, 1998, respectively 1,235,791,802 472,748,608 Limited partners; 1,871,496 and 1,147,446 units outstanding at September 30, 1999 and December 31, 1998, respectively 40,086,748 22,719,384 ----------------- ----------------- Total partners' capital 1,559,928,550 574,267,992 ----------------- ----------------- Commitments and contingencies $ 2,485,271,156 1,086,436,950 ================= =================
See accompanying notes to consolidated financial statements. REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Three Months ended September 30, 1999 and 1998 (unaudited)
1999 1998 ---- ---- Revenues: Minimum rent $ 55,144,149 23,353,258 Percentage rent 268,143 91,356 Recoveries from tenants 13,741,167 5,442,963 Management, leasing and brokerage fees 4,540,031 3,079,485 Equity in income of investments in real estate partnerships 1,218,075 364,778 ----------------- ----------------- Total revenues 74,911,565 32,331,840 ----------------- ----------------- Operating expenses: Depreciation and amortization 12,184,080 5,556,794 Operating and maintenance 9,845,931 3,808,875 General and administrative 4,795,323 3,325,878 Real estate taxes 7,284,639 2,770,508 Other expenses 375,000 50,000 ----------------- ---------------- Total operating expenses 34,484,973 15,512,055 ----------------- ----------------- Interest expense (income): Interest expense 14,672,670 5,973,763 Interest income (479,652) (405,787) ----------------- ----------------- Net interest expense 14,193,018 5,567,976 ----------------- ----------------- Income before minority interests and sale of real estate investments 26,233,574 11,251,809 ----------------- ----------------- Loss on sale of real estate investments - (8,871) Minority interest of limited partners 83,702 (189,385) ----------------- ----------------- Net income 26,317,276 11,053,553 Preferred unit distributions (2,334,376) (1,733,333) ----------------- ----------------- Net income for common unitholders $ 23,982,900 9,320,220 ================= ================= Net income per common unit: Basic $ 0.40 0.34 ================= ================= Diluted $ 0.40 0.33 ================= =================
See accompanying notes to consolidated financial statements REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Nine Months ended September 30, 1999 and 1998 (unaudited)
1999 1998 ---- ---- Revenues: Minimum rent $ 145,652,768 62,550,407 Percentage rent 1,040,317 922,932 Recoveries from tenants 36,522,411 14,002,053 Management, leasing and brokerage fees 10,553,861 9,067,666 Equity in income of investments in real estate partnerships 3,354,278 511,189 ----------------- ----------------- Total revenues 197,123,635 87,054,247 ----------------- ----------------- Operating expenses: Depreciation and amortization 32,151,239 14,731,913 Operating and maintenance 25,255,932 10,441,059 General and administrative 13,576,216 10,288,327 Real estate taxes 18,686,578 7,485,797 Other expenses 900,000 350,000 ----------------- ----------------- Total operating expenses 90,569,965 43,297,096 ----------------- ----------------- Interest expense (income): Interest expense 40,498,683 16,773,120 Interest income (1,572,470) (1,339,259) ----------------- ----------------- Net interest expense 38,926,213 15,433,861 ----------------- ----------------- Income before minority interests and sale of real estate investments 67,627,457 28,323,290 ----------------- ----------------- Gain on sale of real estate investments - 10,737,226 Minority interest of limited partners (663,331) (389,544) ----------------- ----------------- Net income 66,964,126 38,670,972 Preferred unit distributions (5,584,378) (1,733,333) ----------------- ----------------- Net income for common unitholders $ 61,379,748 36,937,639 ================= ================= Net income per common unit: Basic $ 1.15 1.42 ================= ================= Diluted $ 1.15 1.40 ================= =================
See accompanying notes to consolidated financial statements REGENCY CENTERS, L.P. Consolidated Statement of Changes in Capital For the Nine Months Ended September 30, 1999 (Unaudited)
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 5,584,378 59,271,386 2,108,362 66,964,126 Cash contributions from the - issuance of Regency stock and units - 105,809 - 105,809 Cash received for the issuance of preferred units, net 205,250,000 - - 205,250,000 Cash distributions for dividends - (69,625,481) (2,280,947) (71,906,428) Preferred unit distribution (5,584,378) - - (5,584,378) Other distributions, net - (562,558) - (562,558) Units issued for acquisition of real estate - 766,258,365 26,513,145 792,771,510 Units converted for cash - - (1,377,523) (1,377,523) Units exchanged for common stock of Regency - 7,595,673 (7,595,673) - --------------- --------------- --------------- -------------- Balance September 30, 1999 $ 284,050,000 1,235,791,802 40,086,748 1,559,928,550 =============== ================ ================ ==============
See accompanying notes to consolidated financial statements REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1999 and 1998 (unaudited)
1999 1998 ---- ---- Cash flows from operating activities: Net income $ 66,964,126 38,670,972 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation and amortization 32,151,239 14,731,913 Deferred financing cost and debt premium amortization 31,379 (741,922) Stock based compensation 1,921,831 1,921,484 Minority interest of limited partners 663,331 389,544 Equity in income of investments in real estate partnerships (3,354,278) (511,189) Gain on sale of real estate investments - (10,737,226) Changes in assets and liabilities: Tenant receivables (10,546,128) (7,139,350) Deferred leasing commissions (3,059,125) (1,309,105) Other assets 559,800 (4,972,578) Tenants' security deposits 698,441 570,983 Accounts payable and other liabilities 3,757,558 10,075,675 ------------------- ------------------- Net cash provided by operating activities 89,788,174 40,949,201 ------------------- ------------------- Cash flows from investing activities: Acquisition and development of real estate (86,116,776) (179,114,491) Acquisition of Pacific, net of cash acquired (9,046,230) - Capital improvements (9,290,763) (3,679,757) Investment in real estate partnerships (23,714,109) (23,337,738) Construction in progress for sale, net of reimbursement (57,267,676) 3,445,834 Proceeds from sale of real estate investments - 30,662,197 Distributions received from real estate partnership investments 704,474 35,844 ------------------- ------------------- Net cash used in investing activities (184,731,080) (171,988,111) ------------------- ------------------- Cash flows from financing activities: Cash contributions from the issuance of Regency stock and partnership units 105,809 9,740,754 Redemption of partnership units (1,377,523) - Net distributions to limited partners in consolidated partnerships (940,763) (234,577) Distributions to preferred unit holders (5,584,378) (1,733,333) Cash distributions for dividends (71,906,428) (38,783,993) Other (distributions) contributions, net (562,558) 12,595,235 Net proceeds from term notes 249,845,300 99,758,000 Net proceeds from issuance of preferred units 205,250,000 78,800,000 Repayment of acquisition and development line of credit, net (245,051,875) (2,200,000) Proceeds from mortgage and construction loans payable 2,555,836 7,345,000 Repayment of mortgage loans payable (28,737,382) (34,576,785) Deferred financing costs (4,346,828) (1,244,787) ------------------- ------------------- Net cash provided by financing activities 99,249,210 129,465,514 ------------------- ------------------- Net increase (decrease) in cash and cash equivalents 4,306,304 (1,573,396) Cash and cash equivalents at beginning of period 15,536,926 14,642,429 ------------------- ------------------- Cash and cash equivalents at end of period $ 19,843,230 13,069,033 =================== ===================
REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1999 and 1998 (unaudited) -continued-
1999 1998 ---- ---- Supplemental disclosure of cash flow information - cash paid for interest (net of capitalized interest of approximately $7,485,000 and $3,447,000 in 1999 and 1998 respectively) $ 40,939,225 13,916,091 =================== =================== Supplemental disclosure of non-cash transactions: Mortgage loans assumed for the acquisition of Pacific and real estate $ 411,184,783 107,002,084 =================== =================== 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 September 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 September 30, 1999, Regency owns approximately 97% of the outstanding common units of the Partnership. During 1999, two properties were transferred from Regency to RCLP. The effects of such transfers were not material to the operations or financial position of the Partnership. During 1998, Regency transferred all of the assets and liabilities of a 100% owned shopping center, Hyde Park, to the Partnership in exchange for Class B units. Hyde Park was acquired by Regency on June 6, 1997, and its operations had been included in Regency's financial statements from that date forward. Since the Partnership and Hyde Park are under the common control of Regency, the transfer of Hyde Park has been accounted for at historical cost in a manner similar to a pooling of interests, as if the Partnership had directly acquired Hyde Park on June 6, 1997. Accordingly, the Partnership's financial statements have been restated to include the assets, liabilities, units issued, and results of operations of Hyde Park from the date it was acquired. The Partnership's ownership interests are represented by Units, of which there are (i) Series A Preferred Units, (ii) Series B Preferred Units (iii) Series C Preferred Units (iv) Series D Preferred Units (v) Original Limited Partnership Units, all of which were issued in connection with the Branch acquisition, (vi) Class 2 Units, all of which were issued in connection with the Midland and other property acquisitions, and (vii) Class B Units, all of which are owned by Regency. Each outstanding Unit other than Class B Units and Series A, B, C, and D Preferred Units is exchangeable, on a one share per one Unit basis, for the common stock of Regency or for cash at Regency's election. The accompanying consolidated financial statements include the accounts of the Partnership, its wholly owned subsidiaries, and its majority owned or controlled subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. 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. (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 $219.9 and $200.9 million as of September 30, 1999 and 1998, respectively. Pro forma net income for common unitholders would have been $67.8 and $57.6 million as of September 30, 1999 and 1998, respectively. Pro forma basic net income per common unit would have been $1.15 and $0.98 as of September 30, 1999 and 1998, respectively. Pro forma diluted net income per common unit would have been $1.15 and $0.97 as of September 30, 1999 and 1998, respectively. This data does not purport to be indicative of what would have occurred had Pacific and the 1998 Acquisitions been made on January 1, 1998, or of results which may occur in the future. 3. Segments The 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 nine month periods ended September 30, 1999 and 1998.
Revenues: 1999 1998 --------- ---- ---- Retail segment $ 186,569,774 77,453,887 Service operations segment 10,553,861 9,067,666 Office buildings segment - 532,694 ---------------- --------------- Total revenues $ 197,123,635 87,054,247 ================ ================ Funds from Operations: Retail segment net operating income $ 142,627,262 59,596,323 Service operations segment income 10,553,861 9,067,666 Office buildings segment net operating income - 463,402 Adjustments to calculate consolidated FFO: Interest expense (40,498,683) (16,773,120) Interest income 1,572,470 1,339,259 Earnings from recurring land sales - 901,854 General and administrative and other expenses (14,476,216) (10,638,327) Non-real estate depreciation (661,600) (464,949) Minority interests of limited partners (663,331) (389,544) Minority interests in depreciation and amortizatio (433,578) (385,924) Share of joint venture depreciation and amortizatin 461,768 447,841 Dividends on preferred units (5,584,378) (1,733,333) ----------------- ----------------- Funds from Operations 92,897,575 41,431,148 ----------------- ----------------- Reconciliation to net income for common unitholders: Real estate related depreciation and amortization (31,489,637) (14,266,964) Minority interests in depreciation and amortization 433,578 385,924 Share of joint venture depreciation and amortization (461,768) (447,841) Earnings from property sales - 9,835,372 ----------------- ----------------- Net income for common unitholders $ 61,379,748 36,937,639 ================= =================
Assets by reportable segment as of September 30, 1999 and December 31, 1998 are as follows. Non-segment assets to reconcile to total assets include cash, accounts receivable and deferred financing costs. Assets (in thousands): 1999 1998 ---------------------- ---- ---- Retail segment $ 2,309,023 1,026,910 Service operations segment 110,869 20,870 Cash and other assets 65,379 38,657 ----------------- ----------------- Total assets $ 2,485,271 1,086,437 ================= ================= 4. Notes Payable and Acquisition and Development Line of Credit The Partnership's outstanding debt at September 30, 1999 and December 31,1998 consists of the following (in thousands): 1999 1998 ---- ---- Notes Payable: Fixed rate mortgage loans $ 339,476 230,398 Variable rate mortgage loans 13,517 11,051 Fixed rate unsecured loans 370,827 121,296 ----------- ------------ Total notes payable 723,820 362,745 Acquisition and development line of credit 144,179 117,631 ----------- ------------ Total $ 867,999 480,376 ============= ============ 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 2019. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%. During 1999, the Partnership assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which includes debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. As of September 30, 1999, scheduled principal repayments on notes payable and the Line were as follows (in thousands):
Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments ----------- ----------- --------- 1999 $ 1,718 - 1,718 2000 5,711 47,608 53,319 2001 5,621 194,572 200,193 2002 4,943 44,114 49,057 2003 4,933 13,301 18,234 Beyond 5 Years 42,210 490,227 532,437 Net unamortized debt payments - 13,041 13,041 --------------- -------------- ---------------- Total $ 65,136 802,863 867,999 =============== ============== ================
Unconsolidated partnerships and joint ventures had mortgage loans payable of $54.9 million at September 30, 1999, and the Partnership's proportionate share of these loans was $23.5 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 September 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 1,083,892 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. On September 3, 1999, the Partnership issued $85 million of 8.75% Series B Cumulative Redeemable Preferred Units ("Series B Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 850,000 Series B Preferred Units for $100.00 per unit. The Series B Preferred Units, which may be called by the Partnership at par on or after September 3, 2004, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.75%. At any time after September 3, 2009, the Series B Preferred Units may be exchanged for shares of 8.75% Series B Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series B Preferred Stock for one Series B Preferred Unit. The Series B Preferred Units and Series B Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit. On September 3, 1999, the Partnership issued $75 million of 9.0% Series C Cumulative Redeemable Preferred Units ("Series C Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 750,000 Series C Preferred Units for $100.00 per unit. The Series C Preferred Units, which may be called by the Partnership at par on or after September 3, 2004, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 9.0%. At any time after September 3, 2009, the Series C Preferred Units may be exchanged for shares of 9.0% Series C Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series C Preferred Stock for one Series C Preferred Unit. The Series C Preferred Units and Series C Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit. On September 29, 1999, the Partnership issued $50 million of 9.125% Series D Cumulative Redeemable Preferred Units ("Series D Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 500,000 Series D Preferred Units for $100.00 per unit. The Series D Preferred Units, which may be called by the Partnership at par on or after September 29, 2004, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 9.125%. At any time after September 29, 2009, the Series D Preferred Units may be exchanged for shares of 9.125% Series D Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series D Preferred Stock for one Series D Preferred Unit. The Series D Preferred Units and Series D Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the 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 the fourth quarter, the Board of Directors authorized the repurchase of up to $65 million of the Company's outstanding shares from time to time through periodic open market transactions or through privately negotiated transactions. During 1999, the holders of all of Regency's Class B stock converted 2,500,000 shares into 2,975,468 shares of common stock. 6. Earnings Per Unit The following summarizes the calculation of basic and diluted earnings per unit for the three months period ended September 30, 1999 and 1998 (in thousands except per share data):
1999 1998 ----- ------ Basic Earnings Per Unit (EPU) Calculation: Weighted average units outstanding 58,568 23,675 =========== ============== Net income for common unitholders $ 23,983 9,320 Less: dividends paid on Class B common stock, Series 1 and Series 2 Preferred stock (677) (1,344) ----------- -------------- Net income for Basic EPU $ 23,306 7,976 =========== ============== Basic EPU $ .40 .34 =========== ============== Diluted Earnings Per Unit (EPU) Calculation: Weighted average units outstanding for Basic 58,568 23,675 EPU Incremental units to be issued under common stock options using the Treasury method 5 - Contingent units for the acquisition of real estate - 493 ----------- -------------- Total diluted units 58,573 24,168 =========== ============== Diluted EPU $ .40 .33 =========== ==============
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 nine month periods ended September 30, 1999 and 1998 (in thousands except per share data):
1999 1998 ---- ---- Basic Earnings Per Unit (EPU) Calculation: Weighted average units outstanding 50,686 23,149 ============= ============== Net income for common unitholders $ 61,380 36,938 Less: dividends paid on Class B common stock, Series 1 and Series 2 Preferred stock (2,987) (4,033) ------------- ------------- Net income for Basic EPU $ 58,393 32,905 ============= ============== Basic EPU $ 1.15 1.42 ============= ============== Diluted Earnings Per Unit (EPU) Calculation: Weighted average units outstanding for Basic 50,686 23,149 EPU Incremental units to be issued under common stock options using the Treasury method 4 - Contingent units for the acquisition of real estate - 418 ------------- -------------- Total diluted units 50,690 23,567 ============= ============== Diluted EPU $ 1.15 1.40 ============= ==============
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 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers, L.P. appearing elsewhere within. Amounts are in thousands, except per share data and retail center statistical information. Organization Regency Realty Corporation ("Regency" or "Company") is a qualified real estate investment trust ("REIT") which began operations in 1993. The Company invests in real estate primarily through its general partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership") an operating partnership in which the Company currently owns approximately 97% of the outstanding common partnership units ("Units"). Of the 216 properties included in the Company's portfolio at September 30, 1999, 198 properties were owned either fee simple or through partnerships interests by the Partnership. At September 30, 1999, the Company had an investment in real estate, at cost, of approximately $2.5 billion of which $2.4 billion or 95% was owned by 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: September 30, 1999 December 31, 1998 ------------------ ----------------- Location # Properties GLA % Leased # Properties GLA % Leased -------- ------------ --------- -------- ------------ ----------- -------- Florida 39 4,846,400 92.4% 36 4,571,617 92.9% Texas 30 4,103,182 86.6% 5 479,900 84.7% California 36 3,820,946 97.5% - - - Georgia 25 2,538,143 93.2% 25 2,560,383 92.8% Ohio 14 1,890,510 92.9% 12 1,527,510 96.8% North Carolina 12 1,241,634 97.7% 12 1,239,783 98.3% Washington 9 1,066,962 87.4% - - - Colorado 10 902,848 92.5% 5 447,569 89.4% Oregon 6 583,464 94.1% - - - Tennessee 4 388,357 99.2% 4 295,179 96.8% Arizona 2 326,984 99.7% - - - Delaware 1 232,752 97.6% 1 232,752 94.8% Kentucky 1 205,060 91.3% 1 205,060 95.6% Virginia 2 197,324 96.1% 2 197,324 97.7% Illinois 1 178,600 85.9% 1 178,600 86.9% Michigan 2 177,316 81.5% 2 177,929 81.5% South Carolina 2 162,056 98.2% 2 162,056 100.0% Missouri 1 82,498 98.4% 1 82,498 99.8% Wyoming 1 75,00 81.3% - - - -------------- --------------- ---------------- -------------- --------------- ------------- Total 198 23,020,036 92.6% 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 September 30, 1999: Grocery Anchor Number of % of % of Annualized Stores Total GLA Base Rent --------------- ---------- ----------- -------------- Kroger 53 13.4% 11.52% Publix 32 6.3% 4.24% Safeway 27 5.5% 4.68% Albertsons 14 3.2% 2.99% 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 nine months ended September 30, 1999 to 1998 Revenues increased $110.1 million or 126% to $197.1 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions. At September 30, 1999, the real estate portfolio contained approximately 23 million SF, and was 92.6% leased. Minimum rent increased $83.1 million or 133%, and recoveries from tenants increased $22.5 million or 161%. Revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Partnership were $10.6 million and $9.1million in 1999 and 1998, respectively. During 1998, the Partnership sold four office buildings and a parcel of land for $30.7 million, and recognized a gain on the sale of $10.7 million. As a result of these transactions the Partnership's real estate portfolio is comprised entirely of retail shopping centers. The proceeds from the sale were used to reduce the balance of the line of credit. Operating expenses increased $47.3 million or 109% to $90.6 million in 1999. Combined operating and maintenance, and real estate taxes increased $26 million or 145% during 1999 to $43.9 million. The increases are due to Pacific and the 1998 Acquisitions. General and administrative expenses increased 32% during 1999 to $13.6 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $17.4 million during 1999 or 118% primarily due to Pacific and the 1998 Acquisitions. Interest expense increased to $40.5 million in 1999 from $16.8 million in 1998 or 141% 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 $61.4 million in 1999 vs. $36.9 million in 1998, a $25.5 million or 66% increase for the reasons previously described. Diluted earnings per unit in 1999 was $1.15 vs. $1.40 in 1998 due to the gain offset by the dilutive impact from the increase in weighted average common units and equivalents of 27.2 million primarily due to the acquisition of Pacific. Comparison of the three months ended September 30, 1999 to 1998 Revenues increased $42.6 million or 132% to $74.9 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions. Minimum rent increased $31.8 million or 136%, and recoveries from tenants increased $8.3 million or 152%. Revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Partnership were $4.5 million and $3.1 million in 1999 and 1998, respectively. Operating expenses increased $19 million or 122% to $34.5 million in 1999. Combined operating and maintenance, and real estate taxes increased $10.6 million or 161% during 1999 to $17.1 million. The increases are due to Pacific and the 1998 Acquisitions. General and administrative expenses increased 44% during 1999 to $4.8 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $6.6 million during 1999 or 119% primarily due to Pacific and the 1998 Acquisitions. Interest expense increased to $14.7 million in 1999 from $6 million in 1998 or 146% 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 million in 1999 vs. $9.3 million in 1997, a $14.7 million or 158% increase for the reasons previously described. Diluted earnings per unit in 1999 was $.40 vs. $.33 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 34.4 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 September 30, 1999 and 1998 are summarized in the following table (in thousands): 1999 1998 ------ ----- Net income for common unitholders $ 61,380 36,938 Add (subtract): Real estate depreciation and amortization 31,518 14,328 (Gain) on sale of operating property - (9,835) ------------ ------------ Funds from operations $ 92,898 41,431 ============ ============ Cash flow provided by (used in): Operating activities $ 89,788 40,949 Investing activities (184,731) (171,988) Financing activities 99,249 129,466 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 $89.8 million and $40.9 million for the nine months ended September 30, 1999 and 1998, respectively. The Partnership paid scheduled principal payments of $4.3 million and $2.1 million during the first nine months of 1999 and 1998, respectively. The Partnership paid distributions of $77.5 million and $40.5 million, during 1999 and 1998, respectively, to its Original Limited Partnership, Class 2 and Series A and Series C 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 $184.7 million and $172 million, during the first nine 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 $99.2 million and $129.5 for the nine months ended September 30, 1999 and 1998, respectively, primarily related to the proceeds from the preferred unit and debt offerings completed during 1999 and 1998. At September 30, 1999, the Partnership had 47 retail properties under construction or undergoing major renovations, with costs to date of $414.1 million. Total committed costs necessary to complete the properties under development is estimated to be $157.5 million and will be expended through 1999 and 2000. At September 30, 1999, the Company had approximately $164 million available on its Line. The Partnership's outstanding debt at September 30, 1999 and December 31, 1998 consists of the following (in thousands): 1999 1998 ---- ---- Notes Payable: Fixed rate mortgage loans $ 339,476 230,398 Variable rate mortgage loans 13,517 11,051 Fixed rate unsecured loans 370,827 121,296 -------------- --------------- Total notes payable 723,820 362,745 Acquisition and development line of credit 144,179 117,631 -------------- --------------- Total $ 867,999 480,376 ============== =============== 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 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 September 3, 1999, the Partnership issued $85 million of 8.75% Series B Cumulative Redeemable Preferred Units ("Series B Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 850,000 Series B Preferred Units for $100.00 per unit. The Series B Preferred Units, which may be called by the Partnership at par on or after September 3, 2004, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.75%. At any time after September 3, 2009, the Series B Preferred Units may be exchanged for shares of 8.75% Series B Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series B Preferred Stock for one Series B Preferred Unit. The Series B Preferred Units and Series B Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit. On September 3, 1999, the Partnership issued $75 million of 9.0% Series C Cumulative Redeemable Preferred Units ("Series C Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 750,000 Series C Preferred Units for $100.00 per unit. The Series C Preferred Units, which may be called by the Partnership at par on or after September 3, 2004, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 9.0%. At any time after September 3, 2009, the Series C Preferred Units may be exchanged for shares of 9.0% Series C Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series C Preferred Stock for one Series C Preferred Unit. The Series C Preferred Units and Series C Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit. On September 29, 1999, the Partnership issued $50 million of 9.125% Series D Cumulative Redeemable Preferred Units ("Series D Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 500,000 Series D Preferred Units for $100.00 per unit. The Series D Preferred Units, which may be called by the Partnership at par on or after September 29, 2004, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 9.125%. At any time after September 29, 2009, the Series D Preferred Units may be exchanged for shares of 9.125% Series D Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series D Preferred Stock for one Series D Preferred Unit. The Series D Preferred Units and Series D Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit. 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 September 30, 1999, scheduled principal repayments on notes payable and the Line for the next five years were as follows (in thousands):
Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments ------------ ------------ ----------- 1999 $ 1,718 - 1,718 2000 5,711 47,608 53,319 2001 5,621 194,572 200,193 2002 4,943 44,114 49,057 2003 4,933 13,301 18,234 Beyond 5 Years 42,210 490,227 532,437 Net unamortized debt payments - 13,041 13,041 --------------- ------------- -------------- Total $ 65,136 802,863 867,999 =============== ============== ===============
Unconsolidated partnerships and joint ventures had mortgage loans payable of $54.9 million at September 30, 1999, and the Company's proportionate share of these loans was $23.5 million. The Company qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code. As a REIT, the Company is allowed to reduce taxable income by all or a portion of its distributions 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 1999 and 1998 and has had a minimal impact on the operating performance of the shopping centers, however, substantially all of the Partnership's long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Partnership to receive percentage rentals based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indices. In addition, many of the Partnership's leases are for terms of less than ten years, which permits the Partnership to seek increased rents upon re-rental at market rates. Most of the Partnership's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Partnership's exposure to increases in costs and operating expenses resulting from inflation. Year 2000 System Compliance Management 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 included an awareness phase, an assessment phase, a renovation phase, and a testing phase of our data processing network, accounting and property management systems, computer and operating systems, software packages, and building management systems. The project also included surveying our major tenants, financial institutions, and utility companies. The 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, 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 have been replaced or updated to be compliant. 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, financial institutions and utility companies. All parties have indicated that they are Year 2000 compliant or will be by September 30, 1999. However, there are no assurances that these entities will not experience failures that might disrupt the operations of the 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. As a result, the Partnership has developed a formal Year 2000 contingency plan which has been communicated to tenants and employees allowing for communication and resolution of any disruption that may occur. Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk The 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 September 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 1,688 53,188 42,659 49,057 18,234 532,436 697,262 710,303 Average interest rate for all debt 7.81% 7.81% 7.78% 7.70% 7.66% 7.81% - - Variable rate LIBOR debt 30 132 157,534 - - - 157,696 157,696 Average interest rate for all debt 6.19% 6.18% - - - - - -
As the table incorporates only those exposures that exist as of September 30, 1999, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the 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. Part II Item 6 Exhibits and Reports on Form 8-K: (a) Exhibits: 27.1 Financial Data Schedule (b) Reports on Form 8-K. None SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 8, 1999 REGENCY 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 9/30/99 0001066247 REGENCY CENTERS, L.P. 1 9-MOS DEC-31-1999 SEP-30-1999 19,843,230 0 30,032,719 1,632,837 0 0 2,478,460,469 58,567,208 2,485,271,156 0 0 0 0 0 1,559,928,550 2,485,271,156 0 197,123,635 0 43,942,510 32,151,239 0 40,498,683 66,964,126 0 66,964,126 0 0 0 61,379,748 1.15 1.15
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