-----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, HhkM5b/aJtJ5Apnkzl+O2pUmc3NHnBR7lt4auHrY5YF02tRc6b7wird8X2gQpqsn znhFshbKRECizrPNR3/0VQ== 0000931763-98-003065.txt : 19981126 0000931763-98-003065.hdr.sgml : 19981126 ACCESSION NUMBER: 0000931763-98-003065 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENCY CENTERS LP CENTRAL INDEX KEY: 0001066247 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-24763 FILM NUMBER: 98759123 BUSINESS ADDRESS: STREET 1: 121 W FORSYTH STREET STREET 2: SUITE 200 CITY: JACKSONVILLE STATE: FL ZIP: 32202 MAIL ADDRESS: STREET 1: 121 W FORSYTH ST STREET 2: STE 200 CITY: JACKSONVILLE STATE: FL ZIP: 32202 10-12G/A 1 AMENDMENT #2 TO THE FORM 10 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------- FORM 10/A-2 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 REGENCY CENTERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 59-3429602 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 121 WEST FORSYTH STREET, SUITE 200 (904) 356-7000 JACKSONVILLE, FLORIDA 32202 (Registrant's telephone No.) (Address of principal executive offices) (zip code) Securities registered pursuant to Section 12(b) of the Act: None. ---- Title of each class Name of each exchange on which to be so registered: each class is to be registered: NOT APPLICABLE NOT APPLICABLE ----------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Class B Units of Partnership Interest (Title of class) TABLE OF CONTENTS
PAGE ---- Item 1. Business....................................................................................... 1 Item 2. Financial Information.......................................................................... 7 Item 3. Properties..................................................................................... 15 Item 4. Security Ownership of Certain Beneficial Owners and Management................................. 24 Item 5. Directors and Executive Officers of the Registrant............................................. 25 Item 6. Executive Compensation......................................................................... 25 Item 7. Certain Relationships.......................................................................... 25 Item 8. Legal Proceedings.............................................................................. 26 Item 9. Market Price of and Dividends on the Registrant's Common Equity and Related Shareholder Matters.................................................................... 26 Item 10. Recent Sales of Unregistered Securities........................................................ 27 Item 11. Description of Registrant's Securities To Be Registered........................................ 28 Item 12. Indemnification of Directors and Officers...................................................... 30 Item 13. Consolidated Financial Statements and Supplementary Data....................................... 30 Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 30 Item 15. Financial Statements and Exhibits.............................................................. 30 SIGNATURES................................................................................................... 33
ITEM 1. BUSINESS ORGANIZATION AND SHOPPING CENTER BUSINESS Regency Centers, L.P. (the "Partnership") is a limited partnership which acquires, owns, develops and manages neighborhood and community shopping centers in targeted infill markets in the eastern half of the United States. As a result of the formation of the Partnership in 1996 and the subsequent consolidation of substantially all of its neighborhood and community shopping centers in early 1998, the Partnership is the primary entity through which Regency Realty Corporation (the "Company," "Regency" or the "General Partner") owns its properties and through which the Company intends to expand its ownership and operation of properties. Regency is a real estate investment trust ("REIT"), the common stock of which is traded on the New York Stock Exchange. The Company believes that the tax deferral advantages offered by the Partnership increase the attractiveness of the Partnership's units as consideration for property acquisitions. As of March 31, 1998, the Partnership owned, directly or through joint ventures, 100 of the Company's 121 properties, containing approximately 10.7 million square feet of Partnership-owned GLA. As of March 31, 1998, the Company had an investment in real estate of approximately $991.8 million, of which $779.0 million was attributable to the Partnership. As of March 31, 1998, the Company owned 121 shopping centers with 60% of the Company's 13.4 million square feet of GLA located in Georgia and Florida and the Partnership owned 100 shopping centers with 62% of the Partnership's 10.7 million square feet of GLA located in Georgia and Florida. As of March 31, 1998, the Company's shopping centers (excluding centers under development) were approximately 94.5% leased and the Partnership's shopping centers (excluding centers under development) were approximately 95.2% leased. OPERATING AND INVESTMENT PHILOSOPHY The Company's and the Partnership's key operating and investment objective is to create long-term shareholder value by (i) continuing to grow their high quality real estate portfolio of grocery-anchored neighborhood shopping centers in attractive infill markets, (ii) maximizing the value of the portfolio through implementation of their Retail Operating System, a system that incorporates research-based investment strategies and value-added leasing and management systems, and (iii) utilizing conservative financial management and their substantial capital base to access the most cost effective capital to fund their growth. Management believes that the key to achieving its objective is its single focus on, and growing critical mass of, quality grocery-anchored neighborhood shopping centers. In the opinion of management, the Partnership's premier platform of shopping centers in targeted markets, its proprietary research capabilities, its value enhancing Retail Operating System, its cohesive and experienced management team and its access to competitively priced capital enable it to maintain a competitive advantage over other operators. The Partnership believes that ownership of the approximately 30,000 shopping centers throughout the United States is highly fragmented, with less than 10% owned by REITs, and that many centers are held by unsophisticated and undercapitalized owners. As a result, the Partnership believes that an opportunity exists for it to be a consolidating force in the industry. In addition, the Partnership believes that through proprietary demographic research and targeting, its portfolio and tenant mix can be customized for and marketed to national and regional retailers, thereby producing greater sales and a value- added shopping environment for both retailer and shopper. The Partnership's shopping center properties feature some of the most attractive characteristics in the industry: an average age of seven years, an average remaining grocery-anchor lease term of 15 years and an average grocery- anchor size of 48,000 square feet (45% of the square footage of the grocery- anchored centers on average). GROCERY-ANCHORED INFILL STRATEGY The Partnership's investment strategy is focused on grocery-anchored infill shopping centers. Infill locations are situated in densely populated residential communities where there are significant barriers to entry, such as zoning restrictions, growth management laws or limited availability of sites for development or expansions. The Partnership is focused on building a platform of grocery-anchored neighborhood shopping centers because grocery stores provide convenience shopping for daily necessities, generate foot traffic for adjacent "side shop" tenants and should be better able to withstand adverse economic conditions. By developing close relationships with the leading supermarket chains, the Partnership believes it can attract the best "side shop" merchants and enhance revenue potential. Based on Partnership research, at March 31, 1998, 66 of the Partnership's shopping centers were anchored by the grocery store with the first or second leading market share, as measured by total market sales. RESEARCH DRIVEN MARKET SELECTION The Partnership has identified 35 markets in the eastern half of the United States as its target markets. These markets were selected because, in general, they offer greater growth in population, household income and employment than the national averages. In addition, the Partnership believes that it can achieve "critical mass" in these markets (defined as owning or managing four to five shopping centers) and that it can generate sustainable competitive advantages, through long-term leases to the predominant grocery-anchor and other barriers to entry from competition. Within these markets, the Partnership's research staff further defines and selects submarkets and trade areas based on additional analysis of the above data. The Partnership then identifies target properties and their owners (including development opportunities) within these submarkets and trade areas based on three-mile radius demographic data and ranks potential properties for purchase. The properties currently owned by the Partnership are in submarkets with an average three-mile population of 69,000, average household income of $62,000 and projected five-year population growth of 12%. 2 RETAIL OPERATING SYSTEM The Partnership's value-added operating strategy is driven by its Retail Operating System which is characterized by: (i) proactive leasing and management; (ii) value enhancing remerchandising initiatives; (iii) the Partnership's "preferred customer initiative"; (iv) a customer driven development and redevelopment program; and (v) proven management expertise. PROACTIVE LEASING AND MANAGEMENT. Leasing and management efforts are strengthened by the Partnership's integrated approach to property management. Property managers are an integral component of the acquisition and integration teams. Thorough, candid tenant interviews by property managers during acquisition due diligence allow the Partnership to quickly assess both problem areas as well as opportunities for revenue enhancement prior to closing. Property managers are responsible not only for the general operations of their centers, but also for coordinating leasing efforts, thereby aligning their interests with the Partnership's. In addition, the Partnership's information systems allow managers to spot future lease expirations and to proactively market and remerchandise spaces several years in advance of such expirations. VALUE ENHANCING REMERCHANDISING INITIATIVES. The Partnership believes that certain shopping centers underserve their customers, reducing foot traffic and negatively affecting the tenants located in the shopping center. In response, the Partnership is initiating a remerchandising program which is directed at obtaining the optimum mix of tenants offering goods, personal services and entertainment and dining options in each of its shopping centers. By re- tenanting shopping centers with tenants that more effectively service the community, the Partnership expects to increase sales, and therefore the value, of its shopping centers. PREFERRED CUSTOMER INITIATIVE. The Partnership has established a preferred customer initiative with dedicated personnel whose goal is to establish new and strengthen existing strategic relationships with successful retailers at the national, regional and local levels. The Partnership achieves this goal by establishing corporate relationships, negotiating standard lease forms and working with the preferred customers to match expansion plans with future availability in the Partnership's shopping centers. Retail trends and the operating performance of these preferred customers are monitored. The benefits of the preferred customer initiative are expected to improve the merchandising and performance of the shopping centers, establish brand recognition among leading operators, reduce turnover of tenants and reduce vacancies. The Partnership currently has identified and is developing relationships with 45 preferred customers, including Radio Shack, GNC, Hallmark Cards, Mailboxes, Etc. and Starbucks Coffee, and continues to target additional tenants with which to establish preferred customer relationships. CUSTOMER-DRIVEN DEVELOPMENT AND REDEVELOPMENT PROGRAM. The Partnership's development and redevelopment program is primarily conducted in close cooperation with its major customers, including Kroger, Publix and Eckerd. The Partnership uses its development capabilities to service these customer's growth needs by building or re-developing modern properties with state of the art supermarket formats that generate higher returns for the Partnership under new long-term leases. During 1997, the Partnership began development on 20 retail projects, including new developments, redevelopments and build-to-suits. Upon completion, the Partnership will have invested $77.4 million in these projects. In 1998, the Partnership has begun development on 19 retail projects, including 3 new developments, redevelopments and build-to-suits. Upon completion, the Partnership will have invested $154.0 million in these projects. The Partnership manages its development risk by obtaining signed anchor leases prior to the commencement of construction. ACQUISITION TRACK RECORD The Partnership has grown its asset base significantly through acquisitions in recent years, acquiring properties totaling $101.7 million, $346.0 million and $128.8 million in 1996 and 1997 and through March 31, 1998 respectively. These acquisitions have allowed the Partnership to diversify geographically from its predominantly Florida-based portfolio and have enabled it to establish a presence in many of its target markets. Upon identifying an acquisition target, the Partnership utilizes expertise from all of its functional areas, including acquisitions, due diligence and property management, not only to determine the appropriate purchase price, but also to develop a business plan for the center and to design an integration plan for the management of the center. The Partnership believes that its established acquisition and integration procedures produce higher returns on its portfolio, reduce risk and position the Partnership to capitalize on consolidation in the shopping center industry. CAPITAL STRATEGY The Partnership and the Company intend to maintain a conservative capital structure designed to enhance access to capital on favorable terms, to allow growth through development and acquisition and to promote future earnings growth. Neither the Partnership's nor the Company's organizational documents limit the amount of debt that may be incurred; however the Partnership has adopted a policy of limiting total indebtedness to 50% of total assets at cost and maintaining a minimum debt service coverage ratio of 2:1. The Board of Directors of the Company may amend this policy at any time without the approval of the shareholders of the Company or the limited partners of the Partnership. Debt service coverage ratio is defined as EBITDA (as defined below) divided by interest expense plus preferred distributions. As of March 31, 1998, the Partnership had indebtedness equal to 38.8% of total assets at cost and a debt service coverage ratio of 4.8:1. On a pro forma basis, after giving effect to the issuance by the Partnership of $80.0 million 8.125% Series A Cumulative Redeemable Preferred Units in June 1998 (the "Series A Preferred Units") and $100.0 million 7-1/8% Notes Due July 20, 2005 in July 1998 (the "Notes" and collectively with the Series A Preferred Units, the "Financings") and the application of the proceeds therefrom, as of March 31, 1998, the Partnership would have had indebtedness equal to 36.2% of total assets at cost and a debt service coverage ratio of 3.0:1. As used herein, "EBITDA" means earnings before interest expense, taxes (excluding taxes pertaining to the brokerage operations), depreciation, amortization and minority interests. EBITDA is computed as income from operations before minority interest plus interest expense, non-recurring gains and losses from the sale of operating real estate, depreciation and amortization. The Partnership believes that in addition to cash flows and net income, EBITDA is a useful financial performance measurement for assessing its operating performance because, together with net income and cash flows, EBITDA provides investors with an additional basis to 4 evaluate the ability of the Partnership to incur and service debt and to fund acquisitions and other capital expenditures. Since the Company's initial public offering in 1993, the Partnership and the Company have financed their growth in part through a series of public and private offerings of Regency equity and Partnership units totaling, as of June 1, 1998, approximately $464.6 million, including the Partnership's utilization of its units as consideration for acquisitions. As described above, the Partnership issued $80.0 million of Preferred Units in a private placement on June 25, 1998 and issued $100.0 million of Notes in a private placement on July 20, 1998. The Partnership applied the net proceeds therefrom to retire indebtedness under its $300.0 million unsecured revolving line of credit (the "Line") with a group of commercial banks. The Partnership had an outstanding balance under the Line of approximately $90.2 million as of March 31, 1998. At that time, the Partnership also had mortgage loans outstanding of $212.0 million that were secured by 38 properties. On a pro forma basis, after giving effect to the Financings and the application of the net proceeds therefrom, as of March 31, 1998, the Partnership would have had $300.0 million available under the Line. SC-USREALTY ALLIANCE In June 1996, Regency entered into a strategic alliance with Security Capital Holdings, S.A. (together with its parent company, Security Capital U.S. Realty, "SC-USREALTY") as a result of which SC-USREALTY became Regency's principal shareholder. In addition to SC-USREALTY's initial investment in 1996, SC-USREALTY has participated in subsequent Regency equity issuances (including in connection with the Branch acquisition and a common stock offering in 1997) pursuant to participation rights. As a result, SC-USREALTY beneficially owned 46.1% (39.4% including convertible securities on a fully diluted basis) of Regency's outstanding common stock as of June 30, 1998. Upon consummation of the proposed merger of Pacific Retail Trust into the Company discussed below (see "--Proposed Merger"), SC-USREALTY will own approximately 59.3% of the Company's outstanding common stock (52.5% on a fully diluted basis). Pursuant to an amendment to its stockholders agreement with the Company, which includes provisions limiting its stock ownership for a specific period of time, SC-USREALTY will have the right to own up to 60% of the Company's common stock on a fully diluted basis. In connection with its investment, SC-USREALTY has placed two of its nominees on Regency's thirteen-member Board of Directors. SC-USREALTY endeavors to obtain strategic ownership positions in leading value-added real estate operating companies in the United States. SC-USREALTY's investments focus on real estate operating companies in which opportunities exist to enhance asset cash flow by combining a strategically focused asset portfolio with synergistic marketing and other strategies that meet the needs of customers. The Company's relationship with SC-USREALTY combines SC-USREALTY's commitment to in-depth market research, tested operating systems and access to global capital with the Company's market presence, operating skills and grocery- anchored real estate platform. This relationship provides the Company with access to financial and strategic resources and differentiates the Company from its competitors in the retail shopping center industry. SC-USREALTY seeks to maximize its shareholders' returns primarily by acquiring and managing significant strategic investment positions in real estate operating companies based in the United States. SC-USREALTY seeks to identify potential strategic investment positions through rigorous fundamental research focused on the U.S. real estate industry, business niches and specific companies. By investing substantial capital and obtaining board and board committee representation, consultation rights and other rights, SC-USREALTY seeks to plan an active role in developing and implementing a long-term, focused operating strategy and value-added operating system for each of its strategic investment positions. SC-USREALTY also has non-strategic investment positions, or special opportunity positions, primarily in publicly-traded U.S. real estate operating companies where it research identifies attractive intermediate-term investment opportunities. SC-USREALTY's objective is to have 75%-90% of its assets invested in strategic investment positions and 10%-25% of its assets invested in special opportunity positions. See Item 7 ("Certain Relationships") for information concerning SC- USREALTY's stockholders agreement with the Company. MATTERS RELATING TO THE REAL ESTATE BUSINESS, THE PARTNERSHIP'S RAPID GROWTH AND THE PARTNERSHIP STRUCTURE The Partnership is subject to certain business risks arising in connection with owning real estate which include, among others, (1) a change in the general 5 economic climate and local conditions, such as an oversupply of space or a reduction in demand for real estate in an area, (2) the bankruptcy or insolvency of, or a downturn in the business of, any of its anchor tenants, (3) the possibility that such tenants will not renew their leases as they expire, (4) vacated anchor space affecting the entire shopping center because of the loss of the departed anchor tenant's customer drawing power, (5) risks relating to leverage, including uncertainty that the Partnership will be able to refinance its indebtedness, floating rate debt and the risk of higher interest rates, (6) the Partnership's inability to satisfy its cash requirements for operations and the possibility that the Partnership may be required to borrow funds to enable Regency to meet distribution requirements in order to maintain its qualification as a REIT, (7) potential liability for unknown or future environmental matters and costs of compliance with the Americans with Disabilities Act, (8) the risk of uninsured losses (such as from hurricanes) and (9) the risk that the Partnership's development activities will be unsuccessful. Unfavorable economic conditions could also result in the inability of tenants in certain retail sectors to meet their lease obligations and otherwise could adversely affect the Partnership's ability to attract and retain desirable tenants. The Partnership believes that the shopping centers are relatively well positioned to withstand adverse economic conditions since they typically are anchored by grocery stores, drug stores and discount department stores that offer day-to-day necessities rather than luxury goods. The Partnership is also subject to risks due to its extensive growth through acquisitions. This expansion has placed significant demands on its operational, administrative and financial resources. The continued growth of the Partnership's real estate portfolio can be expected to continue to place a significant strain on its resources. The Partnership's future performance will depend in part on its ability to successfully attract and retain qualified management personnel to manage the growth and operations of the Partnership's business and to finance such acquisitions. Regency's acquisition of properties through the Partnership in exchange for interests in the Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Partnership. Since properties contributed to the Partnership may have unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although generally Regency, as the general partner of the Partnership, has no obligation to consider the tax consequences of its actions to any limited partner, there can be no assurance that the Partnership will not acquire properties in the future subject to material restrictions designed to minimize the adverse tax consequences to the limited partners who contribute such properties. Such restrictions could result in significantly reduced flexibility to manage Partnership assets. PROPOSED MERGER On September 23, 1998, the Company entered into an Agreement and Plan of Merger with Pacific Retail Trust, a Maryland real estate investment trust which owns and operates a portfolio of grocery and drug store anchored neighborhood shopping centers in the western United States ("Pacific Retail"). SC-USREALTY, the Company's major shareholder, owns 69.9% of the outstanding stock of Pacific Retail. Upon consummation of the merger, Pacific Retail shareholders, including SC-USREALTY, will receive .48 share of Regency stock for each share of Pacific Retail stock owned immediately prior to the merger. As a result of the merger, the Company will own 194 shopping centers in 22 states and Washington, D.C. COMPETITION There are numerous shopping center developers, real estate companies and other owners of real estate that compete with the Partnership in seeking retail tenants to occupy vacant space, for the acquisition of shopping centers, and for the development of new shopping centers. The Partnership believes that its competition in the real estate industry is highly fragmented with less than 10% owned by REITs, and that many centers are held by unsophisticated and undercapitalized owners. As a result, the Company believes that an opportunity exists for it to be a consolidating force in the industry. 6 CHANGES IN POLICIES Regency's Board of Directors determines Regency's and the Partnership's policies with respect to certain activities, including debt capitalization, growth, distributions, Regency's REIT status, and investment and operating policies. The Board of Directors has no present intention to amend or revise these policies. However, the Board of Directors may do so at any time without a vote of Regency's stockholders or the Partnership's limited partners. EMPLOYEES The Partnership's headquarters are located in Jacksonville, Florida. Regency presently maintains nine offices in which it conducts management and leasing activities located in Florida, Georgia, North Carolina, Ohio, and Missouri. As of March 31, 1998, the Partnership had approximately 255 employees and believes that relations with its employees are good. ITEM 2. FINANCIAL INFORMATION SELECTED FINANCIAL DATA The following table sets forth Selected Financial Data on a historical basis for the three months ended March 31, 1997 and March 31, 1998 and for the five years ended December 31, 1997, for the Partnership and the commercial real estate business of The Regency Group, Inc. ("TRG" or "Regency Properties"), the predecessor of the Company. This information should be read in conjunction with the Consolidated Financial Statements of the Partnership (including the related notes thereto) and "Management's Discussion and Analysis of the Financial Condition and Results of Operations," each included elsewhere in this Registration Statement. The historical Selected Financial Data for the Partnership for the four year period ended December 31, 1997, and for the period from July 9, 1993 to December 31, 1993, have been derived from audited financial statements. The historical Selected Financial Data for the Regency Properties as of November 5, 1993 has been derived from audited financial statements. The data presented for the three-month periods ended March 31, 1997 and March 31, 1998 are derived from unaudited financial statements and include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the data for such periods. The results for the three-month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the full fiscal year. 7
REGENCY REGENCY CENTERS, LP. PROPERTIES ------------------------------------------------------------------------- ---------- THREE MONTHS ENDED PERIOD PERIOD MARCH 31, YEAR ENDED DECEMBER 31, ENDED ENDED ------------------- --------------------------------------- Dec. 31, Nov. 5, 1998 1997 1997 1996 1995 1994 1993 1993(1) ------------------- --------------------------------------- -------- ---------- (Unaudited) ----------- (In thousands of dollars, except per unit data) OPERATING DATA: Revenues: Rental revenue.................... $ 21,294 $ 11,323 $ 67,221 $ 24,899 $ 14,362 $10,209 $ 954 $ 3,938 Management, leasing & brokerage fees............................ 2,504 1,641 7,997 3,444 2,426 2,332 534 2,247 Equity in income of investments in real estate partnerships............. 1 27 33 70 4 17 3 18 -------- -------- -------- -------- -------- ------- ------- ------- Total revenues................. 23,799 12,991 75,251 28,413 16,792 12,558 1,491 6,203 -------- -------- -------- -------- -------- ------- ------- ------- Operating expenses: Operating, maintenance & real estate taxes.................... 5,139 3,068 17,139 7,211 4,130 3,279 406 2,275 General and administrative........ 3,433 2,221 9,964 6,049 4,895 4,531 736 2,835 Depreciation and amortization..... 4,145 1,921 11,905 4,345 2,573 1,895 167 963 -------- -------- -------- -------- -------- ------- ------- ------- Total operating expenses....... 12,717 7,210 39,008 17,605 11,598 9,705 1,309 6,073 -------- -------- -------- -------- -------- ------- ------- ------- Interest expense, net of interest income................. 3,091 2,330 12,679 5,866 4,398 2,276 (74) 1,766 -------- -------- -------- -------- -------- ------- ------- ------- Income (loss) before minority interest and gain on sale of real estate investments..................... 7,991 3,451 23,564 4,942 796 577 256 ( 1,636) Minority interest...................... (97) (131) (505) -- -- -- -- 126 Gain on sale of real estate investments and other income..................... 10,237 -- 451 -- -- -- -- 2,725 -------- -------- -------- -------- -------- ------- ------- ------- Net income........................ 18,131 3,320 23,510 4,942 796 577 256 1,215 Net income for unit holders....... $ 18,131 $ 3,320 $ 23,510 $ 4,942 $ 796 $ 577 $ 256 $ 1,215 ======== ======= ======== ======== ======== ======= ======= ======= Earnings per unit: Basic........................... $ 0.71 $ 0.20 $ 1.20 $ 0.19 $ 0.04 $ 0.09 $ 0.07 n/a ======== ======== ========= ======== ======== ======= ======= ======= Diluted......................... $ 0.70 $ 0.20 $ 1.12 $ 0.19 $ 0.04 $ 0.09 $ 0.07 n/a ======== ========= ========= ======== ======== ======= ======= ======= BALANCE SHEET DATA: Real estate investments at cost........ $779,008 $ 519,472 $636,787 $257,066 $149,735 $92,649 $41,484 - Total assets........................... 776,211 523,499 641,149 258,184 145,997 90,404 40,262 - Total debt............................. 302,259 241,336 193,587 107,982 55,686 56,998 2,521 -
__________ (1) Such Combined Financial Statements have been prepared to reflect the historical combined operations of the Regency Properties associated with the ownership of the properties and the management, leasing, acquisition, development and brokerage business acquired by the Company from TRG on November 5, 1993 in connection with the Company's initial public offering completed November 5, 1993. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto of the Partnership appearing elsewhere herein. This Registration Statement contains certain forward-looking statements and information relating to Regency and the Partnership that is based on the beliefs of the management of Regency and the Partnership, as well as assumptions made by and information currently available to the management of Regency and the Partnership. When used in this Registration Statement, 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 any acquisitions, including the Branch and Midland Acquisitions (each as defined herein); changes in business strategy; the indebtedness of the Partnership; quality of management, business abilities and judgment of the Partnership's personnel; the availability, terms and deployment of capital; and various other factors referenced in this Registration Statement. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. To the extent documents incorporated by reference in this filing contain references to the safe harbor for forward looking statements, such safe harbor is not available to the Partnership. SHOPPING CENTER BUSINESS The Partnership's principal business is owning, operating and developing grocery-anchored neighborhood infill shopping centers in the eastern half of the United States. Infill locations are situated in densely populated residential communities where there are significant barriers to entry, such as zoning restrictions, growth management laws, or limited availability of sites for development or expansions. ACQUISITION AND DEVELOPMENT OF SHOPPING CENTERS The Partnership acquired 12 shopping centers during 1996 (the "1996 Acquisitions") for $101.7 million. The Partnership acquired 36 shopping centers during 1997 (the "1997 Acquisitions") for $346.0 million. The 1997 Acquisitions include the acquisition of 26 shopping centers from Branch for $232.4 million in March 1997 (the "Branch Acquisition"). The real estate acquired from Branch (the "Branch Properties") included 100% fee simple interests in 20 shopping centers, and also partnership interests (ranging from 50% to 93%) in four partnerships with outside investors that owned six shopping centers. The Partnership also acquired the third party property management contracts of Branch on approximately three million square feet of shopping center GLA that generate management fees and leasing commission revenues. During March 1998, the principals of Branch received 721,997 additional earn-out units and shares of common stock from the Partnership and the Company and may receive additional units and shares after the second and third anniversaries of the Branch closing, based on the performance of certain properties. The future earn-out is limited to an aggregate of 298,064 units and shares. In January, 1998, the Partnership entered into an agreement to acquire the shopping centers from various entities comprising the Midland Group ("Midland") 9 consisting of 21 shopping centers plus a development pipeline of 11 shopping centers. Of the 32 centers to be acquired or developed (the "Midland Acquisition" or "Midland Properties"), 31 are anchored by Kroger, or its affiliate. Eight of the shopping centers included in the development pipeline will be owned through a joint venture in which the Partnership will own less than a 50% interest upon completion of construction (the "JV Properties"). The Partnership acquired 13 of the Midland shopping centers during March, 1998 for approximately $111 million. As of June 30, 1998, the Partnership has acquired all but one of the shopping centers and all of the JV Properties. The Partnership acquired the one remaining operating shopping center during July, 1998 and expects to acquire the remaining three development shopping centers during the third quarter of 1998. As of June 30, 1998, the Partnership's total investment in the properties acquired from Midland was 186.6 million. During 1998, 1999 and 2000, including all payments made to date, the Partnership will pay approximately $213 million for the 32 properties, including the assumption of debt, and in addition may pay contingent consideration of up to an estimated $23 million through the issuance of Partnership units and the payment of cash. Whether contingent consideration will be issued, and if issued, the amount of such consideration, will depend on the satisfaction during 1998, 1999 and 2000 of performance criteria relating to the assets acquired from Midland. For example, if a property acquired as part of Midland's development pipeline satisfies specified performance criteria at closing and when development is completed, the transferors of the property will be entitled to additional Partnership units based on the development cost of the properties and their net operating income. Transferors who redeemed their Partnership units for cash at the initial Midland closing will receive any contingent future consideration in cash rather than units. During the first quarter of 1998, the Partnership acquired a total of 14 shopping centers for approximately $128.8 million (the "1998 Acquisitions"), which includes the 13 properties acquired from Midland. LIQUIDITY AND CAPITAL RESOURCES Management anticipates that cash generated from operating activities will provide the necessary funds on a short-term basis for its operating expenses, interest expense and scheduled principal payments on outstanding indebtedness, recurring capital expenditures necessary to properly maintain the shopping centers, and distributions to unit holders. Net cash provided by operating activities was $13.0 million for the three months ended March 31, 1998, and $30.1 million, $8.0 million, and $4.4 million for the years ended December 31, 1997, 1996 and 1995. Management expects to meet long-term liquidity requirements for debt maturities, 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 $47.7 million for the three months ended March 31, 1998 and $150.3 million, $107.3 million and $57.1 million during 1997, 1996 and 1995, respectively. Net cash provided by financing activities was $25.7 million for the three months ended March 31, 1998, and was $128.4 million, $104.5 million and $53.2 million during 1997, 1996 and 1995, respectively. At March 31, 1998, the Partnership had 20 shopping centers under construction or undergoing major renovations. Total committed costs necessary to complete the properties under development is estimated to be $65.0 million and will be expended through June 1999. The Partnership's outstanding debt at March 31, 1998 and December 31, 1997 and 1996 consists of the following:
1998 1997 1996 ------------------ ---------------- ---------------- Mortgage Loans Payable: Fixed rate secured loans $173,560,907 114,615,011 34,281,064 Variable rate secured loans 38,466,843 30,840,978 - Fixed rate unsecured loans - - - Unsecured line of credit 90,231,185 48,131,185 73,701,185 ------------ ----------- ----------- Total $302,258,935 193,587,174 107,982,249 ============ =========== ===========
The weighted average interest rate on total debt at March 31, 1998 and December 31, 1997 and 1996 was 7.3%, 7.7% and 7.8%, respectively. The Partnership's debt is typically cross-defaulted, but not cross-collateralized, and includes usual and customary affirmative and negative covenants. The Partnership is a party to a credit agreement dated as of March 27, 1998, providing for an unsecured line of credit (the "Line") from a group of lenders currently consisting of Wells Fargo Bank, National Association, First Union National Bank, Wachovia Bank, N.A., NationsBank, N.A., AmSouth Bank, Commerzbank AG, Atlanta Branch, PNC Bank, National Association, and Star Bank, N.A. This credit agreement modified the terms of the Partnership's existing line of credit by increasing the commitment to $300 million, reducing the interest rate, and incorporating a competitive bid facility of up to $150 million of the commitment amount. Maximum availability under the Line is based on the discounted value of a pool of eligible unencumbered assets (determined on the basis of capitalized net operating income) less the amount of the Partnership's and its subsidiaries' outstanding unsecured liabilities. The Line matures in May 2000, but may be extended annually for one year periods. Borrowings under the Line bear interest at a variable rate based on LIBOR plus a specified spread, (.875% currently), which is dependent on the Partnership's investment grade rating. The Partnership's ratings are currently Baa2 from Moody's Investor Service, BBB from Duff and Phelps, and BBB- from Standard and Poors. The Partnership is required to comply with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include (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 available for general working capital purposes. Mortgage loans are secured by certain real estate properties, but generally may be prepaid subject to a prepayment of a yield-maintenance premium. Unconsolidated partnerships and joint ventures had mortgage loans payable of $9,850,128 at March 31, 1998, and the Partnership's share of these loans was $1,714,101. 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%. As of March 31, 1998, scheduled principal repayments on mortgage loans payable were as follows: 1998 $ 23,248,924 1999 14,561,785 2000 15,038,369 2001 22,110,182 2002 29,367,477 Thereafter 107,701,013 ------------ Total 212,027,750 ============
Regency qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code. As a REIT, Regency is allowed to reduce taxable income by all or a portion of its distributions to stockholders. Since Regency's distributions have exceeded its taxable income, Regency has made no provision for federal income taxes. While the Partnership intends to continue to pay distributions such that Regency can continue to pay dividends to its stockholders, the Partnership will reserve such amounts of cash flow as it considers necessary for the proper maintenance and improvement of its real estate, while still allowing Regency to maintain its qualification as a REIT. RESULTS FROM OPERATIONS COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO Three Months Ended March 31, 1997 Revenues increased $10.8 million, or 83%, from $13.0 million for the first three months of 1997 to $23.8 million for the first three months of 1998. The increase was primarily the result of the 1997 Acquisitions and the Midland Acquisition. At March 31, 1998, the real estate portfolio contained approximately 10.7 million square feet and was 93.5% leased. Minimum rent increased $8.1 million, or 91%, and recoveries from tenants increased $1.5 million, or 68%, for the first three months of 1998 compared to the first three months of 1997. Revenues from property management, leasing, brokerage and development services provided on properties not owned by the Partnership were $2.5 million for the first three months of 1998 compared to $1.6 million for the first three months of 1997, the increase was due to fees earned from third property management and leasing contracts acquired as part of the Branch Acquisition and the Midland Acquisition. At March 31, 1998, the Partnership managed shopping centers and office buildings owned entirely by third parties containing approximately 6.1 million square feet. During the first quarter of 1998, the Partnership sold three office buildings and a parcel of land for $26.7 million, and recognized a gain on the sale of $10.2 million. The Partnership sold its one remaining office building during the second quarter of 1998, resulting in the Partnership's real estate portfolio being comprised entirely of neighborhood shopping centers. The proceeds from the sale were applied toward the purchase price of the 1998 Acquisitions. Operating expenses increased $5.5 million, or 76%, to $12.7 million for the first three months of 1998. Combined operating and maintenance expenses and real estate taxes increased $2.1 million, or 68%, during the first three months of 1998 to $5.1 million. The increases are due to the 1997 Acquisitions and the Midland Acquisition. General and administrative expense increased 55% during the first three months of 1998 to $3.4 million due to the hiring of new employees 10 and related office expenses necessary to manage the 15 shopping centers acquired in the Midland Acquisition. Depreciation and amortization increased $2.2 million during the first three months of 1998, or 116%, primarily due to the 1997 Acquisitions and the Midland Acquisition. Interest expense increased to $3.4 million in the first three months of 1998 from $2.5 million in the first three months of 1997, or 37%, due primarily to increased average outstanding loan balances related to the financing of the 1997 and 1996 Acquisitions on the Line and the assumption of debt, as discussed under "-Acquisition and Development of Shopping Centers" above and "--Liquidity and Capital Resources" below. COMPARISON OF 1997 TO 1996 Revenues increased $46.8 million, or 165%, to $75.3 million in 1997. The increase was due primarily to the 1997 Acquisitions and 1996 Acquisitions. At December 31, 1997, the real estate portfolio contained approximately 7.1 million square feet and was 93.6% leased. Minimum rent increased $32.8 million, or 160%, and recoveries from tenants increased $8.7 million, or 204%. Revenues from property management, leasing, brokerage and development services provided on properties not owned by the Partnership were $8.0 million in 1997 compared to $3.4 million in 1996, due to fees earned from third party property management and leasing contracts acquired as part of the Branch Acquisition. At December 31, 1997, the Partnership managed shopping centers and office buildings owned entirely by third parties containing approximately 4.4 million square feet as compared with 1.2 million square feet at December 31, 1996. Operating expenses increased $21.4 million, or 122%, to $39.0 million in 1997. Combined operating and maintenance expenses and real estate taxes increased $9.9 million, or 138%, during 1997 to $17.1 million. The increases are due to the 1997 and 1996 Acquisitions. General and administrative expense increased 65% during 1997 to $10.0 million due to the hiring of new employees and related office expenses necessary to manage the 52 shopping centers acquired during 1996 and 1997, as well as the 44 shopping centers that the Partnership began managing for third parties during 1997. Depreciation and amortization increased $7.6 million during 1997, or 174%, primarily due to the 1997 and 1996 Acquisitions. Interest expense increased to $13.6 million in 1997 from $6.5 million in 1996, or 110%, due primarily to increased average outstanding loan balances related to the financing of the 1997 and 1996 Acquisitions on the Line and the assumption of debt, as discussed under "--Acquisition and Development of Shopping Centers" above and "--Liquidity and Capital Resources" below. COMPARISON OF 1996 TO 1995 Revenues increased $11.6 million, or 69.2%, to $28.4 million in 1996. The increase was due primarily to the 1996 Acquisitions discussed above and six shopping centers purchased during 1995 for $53.3 million ("1995 Acquisitions"). At December 31, 1996, the real estate portfolio contained approximately 3.5 million square feet and was 95.3% leased. Minimum rent increased $8.5 million, or 70%, and recoveries from tenants increased $2.0 million, or 87%. Revenues from property management, leasing, brokerage and development services provided on properties not owned by the partnership were $3.4 million in 1996 compared to $2.4 million in 1995, due to fees earned on build-to-suit development activity. 11 At December 31, 1996 and 1995, the Partnership managed shopping centers and office buildings owned entirely by third parties containing approximately 1.2 million square feet. Operating expenses increased $6.0 million, or 52%, to $17.6 million in 1996. Combined operating and maintenance expenses and real estate taxes increased $3.1 million, or 75%, during 1996 to $7.2 million. General and administrative expense increased 24% during 1996 to $6.0 million due to the hiring of new employees and related office expenses necessary to manage the 20 shopping centers acquired during 1995 and 1996. Depreciation and amortization increased $1.8 million during 1996, or 69%, primarily due to the 1996 and 1995 Acquisitions and three new anchor tenants who opened during 1996. Interest expense increased to $6.5 million in 1996 from $4.8 million in 1995, or 35%, due primarily to increased average outstanding loan balances related to the 1996 and 1995 Acquisitions. Outstanding debt at December 31, 1996 was $108.0 million as opposed to $55.7 million at year-end 1995. 12 ACCOUNTING STANDARDS AND ACCOUNTING CHANGES The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which is effective for years beginning after December 15, 1997. FAS 130 establishes standards for reporting total comprehensive income in financial statements, and requires that companies explain the differences between total comprehensive income and net income. Management has adopted this statement in 1998. No differences between total comprehensive income and net income existed in the interim financial statements reported at March 31, 1998 and 1997. FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"), which is effective for years beginning after December 15, 1997. FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Management does not believe that FAS 131 will affect its current disclosures. Effective March 19, 1998, the Emerging Issues Task Force ("EITF") ruled in Issue 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions", that only internal costs of identifying and acquiring non- operating properties that are directly identifiable with the acquired properties should be capitalized, and that all internal costs associated with identifying and acquiring operating properties should be expensed as incurred. The Partnership had previously capitalized all costs associated with the acquisition of operating properties as a cost of the real estate. The Partnership has adopted EITF 97-11 effective March 19, 1998. During 1997, the Partnership capitalized $1.5 million of internal costs related to acquiring operating 13 properties. Through the effective date of EITF 97-11, the Partnership has capitalized $474,000 of internal acquisition costs in 1998. For the remainder of 1998, the Partnership expects to incur $1.1 million internal costs related to acquiring operating properties, which will be expensed. On May 22, 1998, the EITF reached a consensus on issue 98-9 "Accounting for Contingent Rent in Interim Financial Periods." The EITF has stated that lessors should defer recognition of contingent rental income that is based on meeting specified targets until those specified targets are met, rather than recognizing it ratably throughout the year. The Partnership has previously recognized contingent rental income (i.e., percentage rent) ratably over the year based on the historical trends of its tenants. The Partnership has adopted Issue 98-9 prospectively and has ceased the recognition of contingent rents until such time as its tenants have achieved their specified targets. The Partnership believes this will affect the interim period in which percentage rent is recognized; however, it will not have a material impact on the annual recognition of percentage rent. ENVIRONMENTAL MATTERS The Partnership, like others in the commercial real estate industry, is subject to numerous environmental laws and regulations affecting the ownership and operation of real property. Dry cleaning facilities at the Partnership's shopping centers are a significant environmental concern. Certain of the Partnership's properties have been impacted by the dry cleaning operations of tenants or by other sources, and the Partnership is currently investigating or remediating contamination at these properties. The Partnership believes that the tenant dry cleaners are presently operating in accordance with current laws and regulations and has established procedures to monitor their operations. Based on information presently available, no additional environmental accruals have been made, and management believes that the ultimate disposition of currently known matters will not have a material adverse effect on the financial position, liquidity or results of operations of the Partnership. However, there can be no assurance that current remediation estimates and liability accruals for these matters will not change or that the future environmental compliance or remedial obligations arising out of known or currently undiscovered matters will not have a material adverse effect on the Partnership's business, financial condition or results of operations. INFLATION Inflation has remained relatively low during 1998 and 1997 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. 14 YEAR 2000 COMPLIANCE Management recognizes the potential effect Year 2000 may have on the Company's and 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 Company'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 and financial institutions. Total costs incurred to date associated with the Company's Year 2000 compliance project have been reflected in the Company's income statement throughout 1997 and 1998, and were approximately $250,000. The Company's computer hardware, operating systems, general accounting and property management systems and principal desktop software applications are Year 2000 compliant as certified by the various vendors. We are currently testing these systems, and expect to complete the testing phase by December 31, 1998. Based on initial testing, management does not anticipate any Year 2000 issues that will materially impact operations or operating results. An assessment of the Company's building management systems has been completed. This assessment has resulted in the identification of certain lighting, telephone, and voice mail systems that may not be Year 2000 compliant. While we have not yet begun renovations, management believes that the cost of upgrading these systems will not exceed $500,000. It is anticipated that the renovation and testing phases will be complete by June 30, 1999. The Company has surveyed its major tenants and financial institutions to determine the extent to which the Company is vulnerable to third parties' failure to resolve their Year 2000 issues. The Company will be able to more adequately assess its third party risk when responses are received from the majority of the entities contacted. Management believes its planning efforts are adequate to address the Year 2000 Issue and that its risk factors are primarily those that it cannot directly control, including the readiness of its major tenants and financial institutions. Failure on the part of these entities to become Year 2000 compliant could result in disruption in the Company's cash receipt and disbursement functions. There can be no guarantee, however, that the systems of unrelated entities upon which the Company's operations rely will be corrected on a timely basis and will not have a material adverse effect on the Company. The Company does not have a formal contingency plan or a timetable for implementing one. Contingency plans will be established, if they are deemed necessary, after the Company has adequately assessed the impact on operations should third parties fail to properly respond to their Year 2000 issues. ITEM 3. PROPERTIES The Partnership's properties and the Company's properties are summarized by state, including their GLA, as of March 31, 1998 as follows:
Partnership COMPANY ------------------------------------- ------------------------------------- LOCATION # PROPERTIES GLA % Leased(1) # PROPERTIES GLA % LEASED(1) -------- ------------ ---------- ----------- ------------ ---------- ----------- Florida 34 4,154,104 93.8% 44 5,310,720 91.9% Georgia 25 2,540,304 92.9% 27 2,717,511 93.2% North Carolina 12 1,239,667 96.8% 12 1,239,667 96.8% Ohio 9 945,610 97.5% 11 1,575,530 93.9% Alabama 0 C -- 5 516,080 99.9% Texas 5 464,552 86.1% 5 464,552 86.1% Tennessee 4 295,257 90.2% 4 295,257 90.2% Mississippi 0 C -- 2 185,061 97.8% Colorado 5 441,049 82.8% 5 441,049 82.8% Virginia 2 197,324 98.1% 2 197,324 98.1% Kentucky 1 205,060 93.1% 1 205,060 93.1% South Carolina 1 79,743 88.7% 1 79,743 88.7% Michigan 1 85,478 99.0% 1 85,478 99.0% Missouri 1 82,498 99.8% 1 82,498 99.8% --- ---------- ---- --- ---------- ---- TOTAL 100 10,730,646 93.5% 121 13,395,530 92.9% === ========== ==== === ========== ====
__________________________ (1) Includes 14 properties under development If centers under development were excluded, as of March 31, 1998, the Partnership's shopping centers would be 95.2% leased and the Company's shopping centers would be 94.5% leased. As of March 31, 1998, 38.7% of the Partnership's total GLA was located in Florida, 23.7% in Georgia and 11.6% in North Carolina. Under the Company's stockholders agreement with SC-USREALTY, as presently in effect, without SC- USREALTY's prior consent, the Company and its subsidiaries, including the Partnership, may not invest more than 10% of their assets on a consolidated basis outside the states listed on the table above, plus West Virginia, Maryland, the District of Columbia and the southern region of Indiana, without SC-USREALTY's consent. However, on September 23, 1998, the Company entered into a merger agreement with Pacific Retail Trust, a privately-held REIT with properties in Texas, California, Oregon, Washington, Colorado and Arizona. The merger agreement provides for Pacific Retail Trust to merge into the Company. The Company anticipates that the properties it acquires from Pacific Retail Trust will be transferred to the Partnership immediately following the closing, which presently is expected to take place at year-end 1998. SC-USREALTY has entered into an amendment to its stockholders agreement with the Company, which will take effect simultaneously with the closing of the merger, permitting the Company and its subsidiaries to acquire shopping center properties of less than 350,000 square feet throughout the entire U.S. Consummation of the merger is subject to, among other things, approval of the shareholders of both the Company and Pacific Retail Trust and lender consents. Except for the geographic limitations presently in effect with SC-USREALTY, neither the company nor the partnership has limitations or targets with respect to the geographic concentration of its properties by state. The Company and the Partnership identify targeted investments in infill locations in densely populated residential communities where there are significant barriers to entry and where properties would not compete with existing properties owned by the Company or its subsidiaries. The following table summarizes the largest tenants occupying the Partnership's shopping centers and the Company's shopping centers based upon percentage of total annual rent exceeding 1% at March 31, 1998: 15
PARTNERSHIP COMPANY ------------------------------------------------- ---------------------------------------------- % OF TOTAL % OF TOTAL PARTNER- RENT(1) % OF Company- RENT(1) % OF SHIP- (IN PARTNERSHIP OWNED (IN COMPANY TENANT GLA OWNED GLA MILLIONS) RENT(1) GLA GLA MILLIONS) RENT(1) ------ --------- --------- ---------- ----------- --------- -------- --------- ------- Kroger(2) 1,413,570 13.2% $11.6 13.4% 1,482,570 11.1% $11.9 10.7% Publix 1,068,110 10.0 7.0 8.1% 1,249,521 9.3% 7.8 7.1% Winn Dixie 411,003 3.9 2.7 3.1% 687,513 5.1% 4.7 4.3% Blockbuster 179,838 1.7 2.6 3.0% 186,338 1.4% 2.7 2.5% K-Mart 427,743 4.0 2.2 2.6% 427,743 3.2% 2.2 2.0% Harris Teeter 184,563 1.7 2.2 2.6% 184,563 1.4% 2.2 2.0% Eckerd 148,211 1.4 1.3 1.5% 198,325 1.5% 1.6 1.4% Walgreens 122,365 1.2 1.2 1.3% 177,365 1.3% 1.6 1.4% Wal-Mart 224,169 2.1 1.0 1.2% 486,168 3.6% 2.0 1.8% CVS Drugs 94,206 0.9 0.8 0.9% 103,206 0.8% 0.8 0.7%
_____________________________ (1) Rent includes annual base rent, annual percentage rent and annualized reimbursements for common area maintenance, real estate taxes and insurance as of March 31, 1998. (2) Excludes 11 Kroger-anchored shopping centers under development. If included, percentage of Partnership-owned GLA would be 19.5% and percentage of Partnership rent would be 20.5%. If included, percentage of Company- owned GLA would be 16.2% and percentage of Company rent would be 16.5%. The Partnership's leases have lease terms generally ranging from three to five years for tenant space under 5,000 square feet. Leases greater than 10,000 square feet generally have lease terms in excess of five years, mostly comprised of anchor tenants with leases generally ranging from five to 40 years. Many of the anchor leases contain provisions allowing the tenant the option of extending the term of the lease at expiration. The Partnership's leases provide for the monthly payment in advance of fixed minimum rentals and for the payment of additional rents calculated as a percentage of the tenant's sales (in some cases), the tenant's pro rata share of real estate taxes, insurance and common area maintenance expenses and reimbursement for utility costs if not directly metered. The following table sets forth for all occupied leases in place as of June 30, 1998, a schedule of the Partnership's lease expirations for the next ten years, assuming that no tenants exercise renewal options:
FUTURE PERCENT OF BASE PERCENT OF TOTAL GLA RENT UNDER TOTAL EXPIRING CURRENTLY EXPIRING BASE LEASE EXPIRATION YEAR GLA Occupied Leases Rent(2) --------------------- -------- ---------- ----------- ---------- (1)....................... 89,144 0.9% $ 910,569 0.9% 1998...................... 411,827 4.1 5,247,617 5.3 1999...................... 806,004 8.0 9,255,584 9.4 2000...................... 712,092 7.0 8,333,714 8.4 2001...................... 845,221 8.4 10,050,718 10.2 2002...................... 1,028,305 10.2 10,888,764 11.0 2003...................... 552,124 5.5 6,042,302 6.1 2004...................... 291,777 2.9 2,779,954 2.8 2005...................... 164,717 1.6 1,697,464 1.7 2006...................... 484,189 4.8 3,926,680 4.0 2007...................... 367,624 3.6 3,541,174 3.6 --------- ---- ----------- ---- 10 Yr Total........ 5,753,024 56.9% $62,674,540 63.3% ========= ==== =========== ====
______________ 16 (1) Leased currently under month-to-month rent or in process of renewal. (2) Total minimum rent includes current minimum rent and future contractual rent steps for all properties, but excludes additional rent such as percentage rent, common area maintenance, real estate taxes and insurance reimbursements. See the property table below and also see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information about the Partnership's properties. The following table describes the Partnership's properties and the Company's properties not owned by the Partnership at March 31, 1998:
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS (8) - ------------- -------- ----------- ---------- ---------- ------- ------------ ---------- ------------- FLORIDA JACKSONVILLE/NORTH FLORIDA - -------------------------- Anastasia Shopping Plaza 1993 1988 102,342 98.3% 4 8,555 Publix -- -- Bolton Plaza 1994 1988 172,938 98.6% -- -- -- Wal-Mart Carriage Gate 1994 1978 76,833 90.4% -- -- -- TJ Maxx Courtyard (3) 1987 1987 67,794 44.6% 6 6,446 Albertson's (4) -- -- Ensley Square (5) 1997 1977 62,361 97.1% 4 7,786 Delchamps -- -- Millhopper (3) 1993 1974 84,444 85.9% 3 7,244 Publix Eckerd -- Newberry Square 1994 1986 181,006 99.0% 3 9,795 Publix Kmart Old St. Augustine Plaza 1996 1990 170,220 98.2% 4 2,112 Publix Eckerd Waccamaw Palm Harbor 1996 1991 168,448 98.8% 4 5,254 Publix Eckerd Bealls Pine Tree Plaza (6) 1997 1998 60,488 82.4% 3 7,888 Publix -- -- Regency Court 1997 1992 218,665 97.6% -- -- -- CompUSA, Office Depot, Sports Authority South Monroe Commons (6) 1996 1998 80,214 86.5% 4 8,466 Winn-Dixie Eckerd -- Village Commons (7) 1988 1988 105,895 97.5% -- -- -- Wal-Mart (4), Stein Mart TAMPA/ORLANDO - ------------------------------- Bloomingdale 1998 1987 267,935 98.1% 3 9,795 Publix Eckerd Wal-Mart, Beall's Mainstreet Square 1997 1988 107,159 89.9% 5 6,000 Winn-Dixie Walgreen's -- Mariner's Village 1997 1986 117,665 95.6% 4 5,500 Winn-Dixie Walgreen's -- Market Place-St. Petersburg 1995 1983 90,296 100.0% 3 6,464 Publix Eckerd -- Paragon Cable Building 1993 1993 40,298 100.0% -- -- -- -- OTHER TENANTS (9) ------------- FLORIDA JACKSONVILLE/NORTH FLORIDA - -------------------------- Anastasia Shopping Plaza Hallmark, Schmagel's Bagels, Mailboxes Etc. Bolton Plaza Radio Shack, Payless Shoes, Mailboxes and More Carriage Gate Brueggers Bagels, Bedfellows, Alterations, Etc. Courtyard (3) Olan Mills, Heavenly Ham, Beauty Warehouse Ensley Square (5) Radio Shack, Hallmark, AmSouth Bank Millhopper (3) Whitney's Bridal, Chesapeake Bagel, Book Gallery Newberry Square H & R Block, Cato Fashions, Olan Mills Old St. Augustine Plaza Mail Boxes, Etc., Hallmark, Hair Cuttery Palm Harbor Mail Boxes, Etc., Hallmark, Merle Norman Pine Tree Plaza (6) N/A Regency Court H & R Block, Mail Boxes, Etc., Loop Restaurant South Monroe Commons (6) Rent-A-Center, H & R Block Village Commons (7) Mail Boxes, Etc., GNC, Payless Shoes TAMPA/ORLANDO - ------------------------------- Bloomingdale Radio Shack, H&R Block, Lucky Chinese Mainstreet Square Rent-A-Center, Allstate Insurance, Northwest Financial Mariner's Village Supercuts Market Place-St. Petersburg Mailboxes, Etc., Weight Watchers, Republic Bank Paragon Cable Building n/a
17
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS (8) - ------------- -------- ----------- ---------- ---------- ------- ---------- ---------- ------------- Peachland Promenade 1995 1991 82,082 97.4% 48,890 Publix Ace Hardware Regency Square at Brandon (3) 1986 1986 341,751 82.6% -- -- -- TJ Maxx, AMC, Staples, Marshalls, Michaels Seven Springs 1994 1986 162,580 93.1 35,000 Winn-Dixie -- Kmart Terrace Walk (3) 1990 1990 50,926 56.8 -- -- -- -- Town Square 1997 1986 42,969 100.0 14,074 Kash 'N Karry Rite Aid University Collections 1996 1984 106,627 93.8 40,143 Kash 'N Karry Eckerd (4) Village Center-Tampa 1995 1993 181,096 98.7 36,434 Publix Walgreen's Stein Mart WEST PALM BEACH/ Treasure Coast - --------------------------- Boynton Lakes Plaza 1997 1993 130,724 91.0 44,000 Winn-Dixie Walgreen's -- Chasewood Plaza (3) 1992 1986 141,034 89.6 39,795 Publix Walgreen's -- Chasewood Storage (3) 1992 1986 42,810 99.9 -- -- -- East Port Plaza 1997 1991 231,656 99.4 42,112 Publix Walgreen's Kmart, Sears Homelife Martin Downs Village Center (3) 1992 1985 121,998 92.7 -- -- Walgreen's Coastal Care Martin Downs Village Shoppes (3)(6) 1992 1988 48,932 95.6 -- -- -- -- Ocean Breeze (3) 1992 1985 111,551 93.2 36,464 Publix Walgreen's Coastal Care Ocean East (5) 1996 1997 112,894 63.4 38,100 Stuart's Fine -- Coastal Care Foods Tequesta Shoppes 1996 1986 109,766 92.8 39,795 Publix Walgreen's -- Town Center at Martin Downs 1996 1996 64,546 100.0 56,146 Publix -- -- Wellington Market Place 1995 1990 178,555 91.9 46,475 Winn-Dixie Walgreen's United Artists Wellington Town Square 1996 1982 105,150 94.9 36,464 Publix Eckerd -- MIAMI/FT. LAUDERDALE - --------------------------- Aventura (3) 1994 1974 102,876 90.5 35,908 Publix Eckerd Humana Berkshire Commons 1994 1992 106,434 99.9 65,537 Publix Walgreen's -- Garden Square 1997 1991 90,258 96.3 42,112 Publix Eckerd -- North Miami (3) 1993 1988 42,500 100.0 32,000 Publix Eckerd -- Palm Trails Plaza (6) 1997 1998 76,067 85.0 59,562 Winn-Dixie -- -- Tamiami Trail 1997 1987 110,867 93.8 42,112 Publix Eckerd -- University Market Place 1990 1990 129,121 61.1 63,139 Albertson's (4) -- Linens Super- market Welleby 1996 1982 109,949 89.5 46,779 Publix Walgreen's -- --------- ----- Subtotal/Weighted Average 5,310,720 91.9% (Florida) --------- ----- OTHER TENANTS (9) ---------- Peachland Promenade Ace Hardware, State Farm, Inc., Subway Regency Square at Brandon (3) Pak Mail, Lens Crafters, Famous Footware Seven Springs Subway, H & R Block, State Farm Terrace Walk (3) Olan Mills Town Square Baskin Robbins, Mailboxes, Etc., Hallmark University Collections Hallmark, Pak Mail, Dockside Imports Village Center - Tampa Hallmark, Pak Mail, Mens Warehouse WEST PALM BEACH - --------------------------- Boynton Lakes Plaza Radio Shack, Baskin Robbins, Dunkin Donuts Chasewood Plaza (3) Hallmark, GNC, Supercuts Chasewood Storage (3) East Port Plaza H&R Block, Pak Mail, Subway Martin Downs Village Center (3) Burger King, Hallmark, Barnett Bank Martin Downs Village Shoppes (3)(6) Mailbox Plus, Allstate Ocean Breeze (3) Mailboxes, Etc. Barnett Bank, Martin Memorial Ocean East (5) Nations Bank, Mail Boxes, Etc. Martin Memorial Tequesta Shoppes Hallmark, Mailboxes Etc, Radio Shack Town Center at Martin Downs Mail Boxes, Etc., Barnett Bank, Martin Memorial Wellington Marketplace Pak Mail, Subway, Papa John's, Manhattan Bagel Wellington Town Square Hallmark, Mail Boxes, Etc., Coldwell Banker MIAMI/ FT.LAUDERDALE - --------------------------- Aventura (3) Pak Mail, Bank United, City of Aventura Berkshire Commons H & R Block, Century 21, Postal Station Garden Square Blockbuster, Subway, Bell South Mobility North Miami (3) N/A Palm Trails Plaza (6) Sal's Pizza, Dry Cleaners Tamiami Trail Mail Boxes, Etc., Radio Shack, Pizza Hut University Market Place H & R Block, Mail Boxes, Etc., Olan Mills Welleby Pizza Hut, H & R Block, Mail Boxes Plus
18
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS(8) - ------------- -------- ----------- ---------- ---------- ------- ------- ----- ------- GEORGIA - --------------------------- ATLANTA - --------------------------- Ashford Place 1997 1993 53,345 100.0% -- -- -- Pier 1 Imports Braelin Village (5) 1997 1991 226,522 98.8 63,986 Kroger -- Kmart Briarcliff LaVista 1997 1962 39,201 100.0 -- -- Drug -- Emporium Briarcliff Village 1997 1990 192,660 90.0 -- -- Eckerd TJ Maxx, Office Depot Buckhead Court 1997 1984 55,227 95.8 -- -- -- Outback Steakhouse Cambridge Square 1996 1979 68,725 79.6 32,000 Winn-Dixie -- -- Cromwell Square 1997 1990 81,826 83.6 -- -- CVS Drug Haverty's Furniture Cumming 400 1997 1994 126,899 100.0 56,146 Publix -- Big Lots Delk Spectrum (3)(5) 1998 1991 100,880 100.0 45,044 A&P -- -- Dunwoody Hall 1997 1986 79,974 99.0 34,632 A&P Eckerd -- Dunwoody Village (5) 1997 1975 114,657 96.3 26,950 Bruno's -- -- Evans Crossing 1998 1993 76,580 100.0 62,580 Kroger -- -- Loehmann's Plaza 1997 1986 137,635 86.6 -- -- Eckerd Loehmann's Lovejoy Station 1997 1995 77,336 100.0 47,955 Publix -- -- Memorial Bend 1997 1995 177,278 86.5 56,146 Publix -- TJ Maxx Orchard Square 1995 1987 85,940 89.8 36,990 A&P CVS Drug -- Paces Ferry Plaza 1997 1987 61,693 100.0 -- -- -- -- Powers Ferry Square 1997 1987 97,809 100.0 7,216 Harry's Drugs for -- Less Powers Ferry Village 1997 1994 78,995 100.0 47,955 Publix CVS Drug -- Rivermont Station 1997 1996 90,267 100.0 58,261 Harris Teeter CVS Drug -- Roswell Village (6) 1997 1997 144,071 86.8 37,888 Publix Eckerd Ace Hardware Russell Ridge 1994 1995 98,556 100.0 63,296 Kroger -- -- Sandy Plains Village 1996 1992 168,513 76.9 60,009 Kroger -- Ace Hardware Sandy Springs Village 1997 1997 48,245 100.0 41,354 Kroger -- -- Trowbridge Crossing (5) (6) 1997 1997 64,060 89.9 37,888 Publix -- -- OTHER MARKETS - --------------------------- LaGrange Marketplace (3) 1993 1989 76,327 93.6 46,733 Winn-Dixie Eckerd -- Parkway Station (5) 1996 1983 94,290 92.9 42,130 Kroger -- -- --------- ----- Subtotal/Weighted Average (Georgia) 2,717,511 ----- --------- 93.2% ----- OTHER TENANTS (9) ------- GEORGIA - --------------------------- ATLANTA - --------------------------- Ashford Place Baskin Robbins, Mail Boxes, Etc., Merle Norman Braelinn Village (5) Baskin Robbins, Mail Boxes, Etc., Manhattan Bagel Briarcliff LaVista Supercuts Briarcliff Village Subway, Famous Footware, The Hair Cuttery Buckhead Court Hallmark, Bellsouth Mobility Cambridge Square Papa John's, AAA Mail & Package, Wachovia Cromwell Square First Union Cumming 400 Pizza Hut, Hair Cuttery, Famous Footware Delk Spectrum (3)(5) GNC, Mailboxes, Etc., Wolf Camera Dunwoody Hall Texaco, Blimpie, Nations Bank Dunwoody Village (5) Federal Express, Jiffy Lube, Hallmark Evans Crossing Subway, Hair Cuttery Loehman's Plaza Mail Boxes, Etc., GNC, H & R Block LoveJoy Station State Farm, Blockbuster, Pizza Hut Memorial Bend GNC, Pizza Hut, H & R Block Orchard Square Mail Boxes Unlimited, State Farm Paces Ferry Plaza Chapter 11 Bookstore, Sherwin Williams Powers Ferry Square Domino's Pizza, Dunkin Donuts Powers Ferry Village Mail Boxes, Etc., South Trust Bank, Blimpie Rivermont Station GNC, Pak Mail, Wolf Camera Roswell Village (6) Hallmark, Pizza Hut, Schlotzyky's Deli Russell Ridge Pizza Hut, Pak Mail, Hallmark Sandy Plains Village Mail Boxes, Etc., Subway, H & R Block Sandy Springs Village American Speedy Printing, Sandy Springs Schwinn Trowbridge Crossing (5)(6) Domino's Pizza, Postal Services, Hair Cuttery OTHER MARKETS - --------------------------- LaGrange Marketplace (3) Little Caesar's, It's Fashions, One Price Clothing Parkway Station (5) Olan Mills, Pizza Hut, H&R Block
19
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS (8) - ------------- -------- ----------- ---------- ---------- ------- ------- ----- ------- NORTH CAROLINA - --------------------------- CHARLOTTE - --------------------------- Carmel Commons 1997 1979 132,647 95.7% 14,300 Fresh Market Eckerd Piece Goods City View 1996 1993 77,550 98.5 44,000 Winn-Dixie CVS Drug -- Union Square 1996 1989 97,191 100.0 33,000 Harris Teeter CVS Drug Consolidated Theatres RALEIGH/DURHAM - --------------------------- Bent Tree Plaza 1998 1994 79,503 100.0 54,153 Kroger -- -- Garner Square (6)(7) 1998 1998 221,650 94.7 57,590 Kroger United -- Artists, Office Max, Petsmart Glenwood Village 1997 1983 42,864 100.0 27,764 Harris Teeter -- -- Lake Pine Plaza 1998 1997 87,690 100.0 57,590 Kroger -- -- Maynard Crossing 1998 1997 122,814 100.0 55,973 Kroger -- -- Southpoint Crossing (6)(7) 1998 1998 101,088 80.4 59,160 Kroger -- -- Woodcroft 1996 1984 85,353 98.5 26,752 Food Lion Eckerd True Value ASHEVILLE - ------------------------------ Oakley Plaza 1997 1988 118,727 100.0 42,317 Bi-Lo CVS Drug Baby Superstore WINSTON-SALEM - ------------------------------ Kernersville Marketplace 1998 1997 72,590 100.0 57,590 Kroger -- -- --------- ----- Subtotal/Weighted Average (North --------- ----- Carolina) 1,239,667 96.8% --------- ----- OTHER TENANTS -------- NORTH CAROLINA - --------------------------- CHARLOTTE - --------------------------- Carmel Commons Little Caesar's, Radio Shack, Blimpie's City View Little Caesar's, City Library, Willie's Music Union Square Subway, Mail Boxes, Etc., TCBY RALEIGH/DURHAM - --------------------------- Bent Tree Plaza (6)(7) Pizza Hut, Manhattan Bagel, Parcel Plus Garner Square Mail Boxes, Etc., Friedman's, Ritz Camera Glenwood Village Domino's PIzza, Theradbenders II, Simple Pleasures Lake Pine Plaza GNC, H & R Block Maynard Crossing Hallmark, Mail Boxes, Etc., GNC Southpoint Crossing (6) (7) Wolf Camera, GNC, Manhattan Bagel Woodcroft Domino's Pizza, Subway, Allstate Insurance ASHEVILLE - --------------------------- Oakley Plaza Little Caesar's, Subway, Life Uniform WINSTON - SALEM - --------------------------- Kernersville Marketplace Mail Boxes, Etc., Little Caesar's, Great Clips
20
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS(8) - ------------- -------- ----------- ---------- ---------- ------- ------- ----- ------- OHIO - ------------------------------ CINCINNATI - ------------------------------ Beckett Commons 1998 1995 80,434 100.0% 57,590 Kroger -- -- Cherry Grove 1998 1997 186,040 92.6 66,879 Kroger CVS Drug TJ Maxx, Hancock Fabrics Hyde Park Plaza (3)(5) 1997 1995 374,743 96.3 138,592 Kroger, Walgreen's Barnes & Thriftway Noble, Old Navy, Micheals COLUMBUS - ------------------------------ East Pointe 1998 1993 86,520 100.0 59,120 Kroger Stein Mart, The Limited, S&K Menswear North Gate Plaza 1998 1996 85,100 94.2 62,000 Kroger -- Kingsdale (3)(6) 1997 1998 255,177 77.3 55,000 Big Bear Stein Mart, The Limited, S&K Menswear Windmiller Plaza-Pickerington 1998 1997 119,192 97.1 75,240 Kroger Sears Hardware HAMILTON - ------------------------------ Hamilton Meadows 1998 1989 126,251 100.0 67,216 Kroger K-Mart WESTCHESTER - ------------------------------ Westchester Plaza 1998 1988 88,181 98.4 66,523 Kroger -- -- WORTHINGTON - ------------------------------ Worthington 1998 1991 93,092 100.0 52,337 Kroger CVS Drug -- --------- ----- Subtotal/Weighted --------- ----- Average (Ohio) 1,575,530 93.9% --------- ----- COLORADO - ------------------------------- COLORADO SPRINGS - ------------------------------- Cheyenne Meadows (5)(6) 1998 1998 89,130 88.5% 69,105 King Soopers -- -- Monument (6)(7) 1998 1998 85,313 81.9 69,913 King Soopers -- -- Woodman Plaza (6)(7) 1998 1998 97,913 71.4 69,913 King Soopers -- -- DENVER - ------------------------------- Lloyd King Center (5)(6) 1998 1998 83,380 91.6 61,000 King Soopers -- -- Stroh Ranch (6)(7) 1998 1998 85,313 81.9 69,913 King Soopers -- -- --------- ----- Subtotal/Weighted Average (Colorado) 441,049 82.8% --------- ----- OTHER TENANTS (9) -------------- OHIO - ------------------------------ CINCINNATI - ------------------------------ Beckett Commons Mail Boxes, Etc., Subway Cherry Grove GNC, Hallmark, Sally Beauty Supply Hyde Park Plaza (3)(5) H & R Block, Radio Shack, Hallmark COLUMBUS - --------------------------- East Pointe Mail Boxes, Etc., Hallmark, Liberty Mutual North Gate Plaza Domino's Pizza, GNC, Great Clips Kingsdale (3) (6) Hallmark, Lens Crafters, Boston Market Windmiller Plaza-Pickerington Radio Shack, Sears Optical, Great Clips HAMILTON - --------------------------- Hamilton Meadows H & R Block, GNC, Radio Shack WESTCHESTER - --------------------------- Westchester Plaza Pizza Hut, Subway, GNC WORTHINGTON - --------------------------- Worthington Little Caesar's, Hallmark, Radio Shack COLORADO - --------------------------- COLORADO SPRINGS - --------------------------- Cheyenne Meadows (5)(6) Hallmark, Blimpie Subs, Cost Cutters Monument (6) (7) Cost Cutter's, Pak Mail Woodman Plaza (6) (7) Cost Cutters DENVER - --------------------------- Lloyd King Center (5)(6) GNC, Cost Cutters, Hollywood Video Stroh Ranch (6) (7) Cost Cutters, Post Net, Dry Clean Station
21
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS(8) - ------------- -------- ----------- ---------- ---------- ------- ------- ----- ------- TENNESSEE - -------------------------------- NASHVILLE - -------------------------------- Harpeth Village (5)(6) 1997 1998 70,091 95.4% 54,510 Bruno's -- -- Marketplace (5) 1997 1997 23,500 100.0 -- -- -- Office Max Murphreesburo (5) 1998 1998 86,871 70.5 61,224 Kroger -- -- Nashboro Village (6)(7) 1998 1998 86,871 70.5 61,224 Kroger -- -- Peartree Village 1997 1997 -- -- 654,538 Harris Teeter Eckerd Office Max 114,795 100.0 Subtotal/Weighted -- -- Average (Tennessee) 295,257 90.2% SOUTH CAROLINA - -------------------------------- Merchants Village (6) 1997 1997 79,743 88.7% 37,888 Publix -- -- - -------------------------------- KENTUCKY - -------------------------------- Franklin Square 1998 1988 205,060 93.1% 50,499 Kroger Rite Aid JC Penney, Goody's MICHIGAN - -------------------------------- Lakeshore 1998 1996 85,478 99.0% 49,465 Kroger Rite Aid -- MISSOURI - -------------------------------- St. Ann Square 1998 1986 82,498 99.8% 43,483 National -- -- TEXAS - -------------------------------- DALLAS - -------------------------------- Bethany Lake (6)(7) 1998 1998 92,674 63.0% 58,374 Kroger -- -- Preston Brook-Frisco (6)(7) 1998 1998 86,132 70.7 60,932 Kroger -- -- Shiloh Springs (6)(7) 1998 1997 81,932 93.9 60,932 Kroger -- -- ARLINGTON - -------------------------------- Creekside (5) 1998 1997 85,642 100.0 60,932 Kroger -- -- - -------------------------------- SOUTHLAKE - -------------------------------- Village Center-Southlake (5) 1998 1997 118,172 100.0 60,932 Kroger -- -- --------- ----- Subtotal/Weighted Average (Texas) --------- 86.1% 464,552 ----- OTHER TENANTS (9) ------- TENNESSEE - --------------------------- NASHVILLE - --------------------------- Harpeth Villager (5)(6) Mail Boxes, Etc., Heritage Cleaners, Cat's Music Marketplace (5) N/A Murphreesboro (5) Nashboro Village (6) (7) Hallmark, Fantastic Sam's, Cellular Sales Peartree Village Hollywood Video, AAA Auto Club, Royal Thai SOUTH CAROLINA - --------------------------- Merchants Village (6) Hallmark, Mail Boxes, Etc., Hollywood Video KENTUCKY - --------------------------- Franklin Square Hallmark, Mail Boxes, Etc., Radio Shack MICHIGAN - --------------------------- Lakeshore Hallmark, Moy's Chinese, Baskin Robbins MISSOURI - --------------------------- St. Ann Square Great Clips, US Navy, US Marines TEXAS - --------------------------- DALLAS - --------------------------- Bethany Lake (6) (7) Boss Cleaners, Mr. Parcel, TGF Haircutters Preston Brook-Frisco (6)(7) Radio Shack, Coldwell Banker Shiloh Springs (6) (7) GNC, Great Clips ARLINGTON - --------------------------- Creekside (5) Hollywood Video, CICI's Pizza, Fantastic Sam's SOUTHLAKE - --------------------------- Village Center - Southlake (5) Radio Shack, Papa Johns, Smoothie King
22
YEAR GROSS YEAR CON- LEASABLE PERCENTAGE GROCERY GROCERY DRUG OTHER PROPERTY NAME ACQUIRED STRUCTED(1) AREA (GLA) LEASED (2) GLA ANCHOR STORE ANCHORS(8) ------------- -------- ----------- ---------- ---------- ------- ------- ----- ------- VIRGINIA - -------------------------------- Brookville Plaza 1998 1991 63,664 100.0% 52,864 Kroger -- -- Statler Square 1998 1996 133,660 97.2 65,003 Kroger CVS Drug Staples --------- ----- Subtotal/Weighted Average (Virginia) 197,324 98.1% --------- ---- ALABAMA - -------------------------------- BIRMINGHAM - -------------------------------- Villages of Trussville (3) 1993 1987 69,300 100.0% 38,380 Bruno's CVS Drug -- West County Marketplace (3) 1993 1987 129,155 100.0 42,848 Food World (4) Eckerd Wal-Mart - -------------------------------- MONTGOMERY - -------------------------------- Country Club (1) 1993 1991 67,622 99.6 35,922 Winn-Dixie Harco -- - -------------------------------- ROANOKE/ALEXANDER CITY - -------------------------------- Bonner's Point (1) 1993 1985 87,280 100.0 34,700 Winn-Dixie -- Wal-Mart Marketplace-Alexander City (3) 1993 1987 162,723 100.0 47,668 Winn-Dixie -- '97 Subtotal/Weighted Average 516,080 99.9% (Alabama) ======= ===== MISSISSIPPI - -------------------------------- Columbia Marketplace (3) 1993 1988 136,002 97.0% 41,895 Winn-Dixie -- Wal-Mart Lucedale Marketplace (3) 1993 1989 49,059 100.0 35,059 Delchamps -- Wal-Mart (4) Subtotal/Weighted Average 185,061 97.8% (Mississippi) Total/Weighted Average 13,395,530 92.9% ========== ===== OTHER TENANTS (9) ------- VIRGINIA - --------------------------- Brookville Plaza H & R Block, House of Frames, Jenny Craig Statler Square Little Caesar's, H & R Block, Hair Cuttery ALABAMA - --------------------------- BIRMINGHAM - --------------------------- Villages of Trussville (3) Little Caesar's, Cellular One, Mattress Max West County Marketplace (3) Domino's Pizza, GNC, Cato Plus MONTGOMERY - --------------------------- Country Club (1) Little Caesar's, Subway, Taco Bell ROANOAKE/ALEXANDER CITY - --------------------------- Bonner's Point (1) Subway, Domino's Pizza, It's Fashion Marketplace-Alexander City (3) Domino's Pizza, Subway, Hallmark MISSISSIPPI - --------------------------- Columbia Marketplace (3) Subway, Radio Shack, Cato Lucedale Marketplace (3) Subway, Video Junction, Byrd's Cleaners
23 - ------------------------- (1) Or latest renovation. (2) Includes development properties. If development properties are excluded, the total percentage leased would be 95.2% for Partnership shopping centers and 94.5% for Company shopping centers. (3) Company-owned property not owned by the Partnership. (4) Tenant owns its own building. (5) Owned by a partnership with outside investors in which the Partnership (or the Company in the case of a property referred to in note (3) above) or an affiliate is the general partner. (6) Property under development or redevelopment. (7) Owned by a joint venture in which the Partnership owns less than a 100% interest. (8) Other Anchors are defined as non-grocery and non-drug stores whose square footage is greater than 10,000 square feet. (9) Other tenants are presented in order to provide a representative sample of the Partnership's tenant base other than Grocery, Drug, and Other Anchors. Other Tenants are generally defined as any tenant that is not a grocery store, drug store, or included under Other Anchors, and generally have total GLA less than 5,000 square feet. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Partnership interests in the Partnership 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 Acquisition, and (iv) Class B Units, all of which are owned by Regency. With the exception of certain Class B Units, all of the Units represent limited partner interests. The General Partner, as the holder of Class B Units, has broad powers to manage the affairs of the Partnership. The Series A Preferred Units, the Original Limited Partnership Units and the Class 2 Units have limited voting rights and have no right to vote for or control the management of the Partnership. Each class of limited partnership interest may be entitled to vote only with respect to certain issuances of additional limited partnership interests, certain amendments to the Partnership Agreement and, in the case of the Series A Preferred Units, the merger or consolidation of the Partnership or the sale of substantially all of the Partnership's assets under certain circumstances. 24 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Information known to the Partnership with respect to beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 5% of the outstanding Class B Units as of July 31, 1998 is as follows: NO. OF UNITS CLASS BENEFICIAL OWNER BENEFICIALLY OWNED % OF CLASS - -------------------------------------------------------------------------------- Class B Units Regency Realty Corporation 21,550,259 100% 121 W. Forsyth St., Suite 200 Jacksonville, Florida 32202 SECURITY OWNERSHIP OF MANAGEMENT The Partnership has no directors or executive officers and is managed by Regency as the general partner of the Partnership. Other than J. Alexander Branch III (11,147 Original Limited Partnership Units) and Lee S. Wielansky (68,810 Class 2 Units), no director or executive officer of Regency personally owns any Units of the Partnership as of July 31, 1998. Information concerning the beneficial ownership of shares of common stock of Regency by its directors and executive officers, as well as by persons believed to be the beneficial owner of more than 5% of Regency's outstanding common stock, is hereby incorporated by reference to the information contained in Regency's definitive proxy statement for its 1998 Annual Meeting of Shareholders under the caption "Voting Securities." ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership is managed by Regency as the general partner of the Partnership. The information required by this item is hereby incorporated by reference to the material appearing under Item 10, "Directors and Executive Officers of the Registrant," in Regency's Annual Report on Form 10-K for the year ended December 31, 1997. ITEM 6. EXECUTIVE COMPENSATION The Partnership is managed by Regency as the general partner of the Partnership. Consequently, the information required by this item is reflected in and is hereby incorporated by reference to the information contained in Regency's definitive proxy statement for its 1998 Annual Meeting of Shareholders under the caption "Executive Compensation." ITEM 7. CERTAIN RELATIONSHIPS The Partnership is managed by Regency as the general partner of the Partnership. The information required by this item is hereby incorporated by 25 reference to the information contained in Regency's definitive proxy statement for its 1998 Annual Meeting of Shareholders under the caption "Certain Transactions." STOCKHOLDERS AGREEMENT WITH SC-USREALTY General The Company and SC-USREALTY are parties to a stockholders agreement dated as of July 10, 1996, as amended. The Company and SC-USREALTY have entered into a third amendment to the stockholders agreement that will take effect simultaneously with the pending merger of Pacific Retail Trust into the Company. See Item 3 ("Properties"). SC-USREALTY has agreed in the stockholders agreement to a "standstill" which expires on September 10, 2001 and is renewable for additional one year terms thereafter. A "standstill" is an agreement by a shareholder to refrain from changing its position. As part of its standstill, SC-USREALTY has agreed not to acquire additional Company shares and not to take certain actions relating to management or control, such as replacing members of the Company's Board of Directors. The stockholders agreement also gives SC-USREALTY certain rights such as the right to nominate directors, to participate in equity offerings by the Company and to be consulted on certain significant actions. In addition, the Company has also agreed to certain restrictions in the stockholders agreement including the amount of debt it can incur and the types of investments it can make. Limit on Ownership of the Company Common Stock during Standstill Under the stockholders agreement, during its standstill SC-USREALTY is prohibited from beneficially owning more than 45% of the outstanding Company Common Stock on a fully diluted basis. The amendment will permit SC-USREALTY to exchange all of its Pacific Retail Trust shares in the merger by limiting SC- USREALTY's ownership of Company Common Stock during the term of its standstill to 60% on a fully diluted basis until such time as SC-USREALTY's ownership of Company Common Stock falls below 45% on a fully diluted basis for a continuous period of 180 days, at which time the limit will be reduced from 60% to 49% on a fully diluted basis. SC-USREALTY will own approximately 52.5% of the outstanding Company Common Stock on a fully diluted basis upon completion of the merger with Pacific Retail Trust. Board Representation Under the stockholders agreement, SC-USREALTY has the right (but not the obligation) to name five nominees to the Company's 13-person Board of Directors, which is proportionate to its ownership of Company Common Stock. SC-USREALTY presently has two representatives on the Company's Board. The amendment provides that at and after the first election of directors to occur after the merger and until SC-USREALTY no longer owns 15% (as opposed to 20% under the present stockholders agreement) of the outstanding Company Common Stock on a fully diluted basis for a continuous period of 180 days, or until any earlier expiration of the standstill provisions of the stockholders agreement, SC- USREALTY will have the right to nominate the greater of (1) three (as opposed to two under the present stockholders agreement) and (2) that number of directors corresponding to the percentage of Company Common Stock owned by SC-USREALTY, but not more than 49% of the Board, rounded down to the nearest whole number. If its standstill ends but SC-USREALTY continues to own at least 15% (as opposed to 20% under the present stockholders agreement) of the outstanding Company Common Stock on a fully diluted basis for a continuous period of 180 days, SC- USREALTY will have the right to nominate the lesser of (1) three directors (as opposed to two under the present stockholders agreement), and (2) the number corresponding to the percentage of Company Common Stock owned by SC-USREALTY. Voting On most matters, during the term of its standstill, SC-USREALTY must vote its shares at its option either (1) in accordance with the recommendation of the Company's Board or (2) proportionately in accordance with the vote of the other holders of Company Common Stock. Under the stockholders agreement, SC-USREALTY may, however, vote all its shares in its own discretion with respect to the election of its nominees to the Board and all its shares up to 40% (49% under the amendment) of the outstanding shares of Company Common Stock in its own discretion with respect to votes requiring the approval of holders of a majority of the outstanding shares on (i) any amendment to the Company's Articles or bylaws which would reasonably be expected to materially adversely affect SC- USREALTY and (ii) any merger, consolidation, sale of a material amount of assets, recapitalization, liquidation, or similar action out of the ordinary course of business, or the issuance of securities to a person which requires shareholder approval under the rules of the New York Stock Exchange. Participation Rights SC-USREALTY generally has the right under the stockholders agreement to purchase additional equity securities (at the same price offered to other purchasers) each time that the Company sells additional shares of capital stock (or options or other rights to acquire capital stock), in order to preserve SC-USREALTY's pro rata ownership of the Company, except that it may not purchase more than 37.5% of the securities offered. Under the amendment, the percentage of securities offered that SC-USREALTY may purchase in any offering by the Company will be increased from 37.5% to 49%. Investments in Shopping Center Properties The amendment will extend to the geographic region in which the Company may operate and in which SC-USREALTY's investment activities are restricted from a defined portion in the U.S. where the Company's current properties are located to the entire U.S. The effect of this amendment will be to permit the Company to invest in shopping centers of less than 350,000 square feet located anywhere in the U.S. The amendment also will restrict SC-USREALTY and its controlled affiliates from directly or indirectly owning, purchasing, developing or otherwise acquiring shopping centers anywhere in the U.S. except through their investment in (1) the Company, (2) other shopping center companies in which SC- USREALTY is not represented on the board of directors and does not participate in the management of such other company, and (3) shopping centers representing an incidental part of a portfolio investment provided that they are offered to the Company upon acquisition and, if not then purchased by the Company, again upon resale. Limitations on Foreign Ownership Section 5.14 of the Company's Articles of Incorporation presently invalidates any issuance or transfer of shares that would (1) result in 5% or more of the fair market value of the Company's outstanding capital stock being owned directly or indirectly by Non-U.S. Persons (as defined in the Articles), excluding SC-USREALTY and its affiliates, or (2) result in 50% or more of such fair market value being held by Non-U.S. Persons, including SC-USREALTY and its affiliates. SC-USREALTY has the right to waive any of these restrictions. Non- U.S. Persons who hold 5% or more by value of the outstanding capital stock of a domestically controlled REIT may not be required to pay any U.S. federal income tax on any gain when they sell such stock. At the request of SC-USREALTY, the Company's Board of Directors has proposed amendments to Section 5.14, subject to consummation of the Pacific Retail Trust merger, to expressly permit SC-USREALTY and its affiliates to increase their ownership limit to 60% of the Company's Common Stock on a fully diluted basis, even though the Company will cease to be a domestically controlled REIT as a result of the merger. SC-USREALTY owns approximately 69.9% of Pacific Retail Trust's outstanding capital stock and will own approximately 52.5% of the Company's outstanding Common Stock on a fully diluted basis after the merger. The proposed amendments to Section 5.14 of the Company's Articles will prohibit transfers of the Company's stock by any person other than SC-USREALTY and certain related parties that would result in such stock being owned directly or indirectly by Non-U.S. Persons so long as Non-U.S. Persons own 50% or more of the fair market value of the Company's outstanding capital stock. In order to enable continuing maintenance of the Company's status as a domestically controlled REIT in the future once ownership by Non-U.S. Persons drops below 50% by value of the Company's outstanding capital stock, the proposed amendments to Section 5.14 of the Company's Articles also will invalidate issuances and transfers of shares thereafter by persons other than SC-USREALTY and its affiliates that would (1) result in 4.9% or more of the fair market value of the Company's outstanding capital stock being owned directly or indirectly by Non-U.S. Persons, other than SC-USREALTY and its affiliates, or (2) result in 50% or more of such fair market value being owned directly or indirectly by Non-U.S. Persons, including SC-USREALTY and its affiliates (who will be presumed to be Non-U.S. Persons). ITEM 8. LEGAL PROCEEDINGS The Partnership is not presently involved in any litigation nor, to its knowledge, is any litigation threatened against the Partnership, except for routine litigation arising in the ordinary course of business such as "slip and fall" litigation which is expected to be covered by insurance. In the opinion of management of Regency, such litigation is not expected to have a material adverse effect on the business, financial condition or results of operations of the Partnership. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS There is no established public trading market for the Units, and Units may be transferred only with the consent of the general partner as provided in the Second Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). As of July 31, 1998, Regency was the only holder of Class B Units, and there were approximately 72 holders of record of other Units, determined in accordance with Rule 12g5-1 under the Securities Exchange Act of 1934, as amended. To the Partnership's knowledge, there have been no bids for the Units and, accordingly, there is no available information with respect to the high and low quotation of the Units for any quarter since January 1996. Each outstanding Unit other than Class B Units and Series A Preferred Units is exchangeable, on a one share per Unit basis, for the common stock of Regency. At the present time, (i) there are no Units subject to outstanding options or warrants to purchase, or securities convertible into, Units of the Partnership, although additional units may be issued in payment of contingent consideration for the Branch and Midland Acquisitions and (ii) there are no Units that have been, or are proposed to be publicly offered by the Partnership. The Partnership Agreement provides that the Partnership will make priority distributions of Available Cash (as defined in the Partnership Agreement) first to Series A Preferred Units on each March 31, June 30, September 30 and December 31 in a distribution amount equal to 8.125% of the original capital contribution per Series A Preferred Unit. Subject to the prior right of the holders of Series A Preferred Units to receive all distributions accumulated on such Units in full, at the time of each distribution to holders of common stock of Regency distributions of Available Cash will then be made to the holders of Original Limited Partnership Units, first, and to the holders of Class 2 Units, second, in an amount per Unit identical to the amount that is distributed with respect to each share of common stock. The Partnership Agreement provides that all remaining Available Cash will be distributed to the general partner. The following table sets forth the quarterly distributions paid by the Partnership to its limited partners (other than holders of Series A Preferred Units) with respect to each full quarterly period for which Regency or its affiliate has been the general partner of the Partnership. 26 DISTRIBUTION QUARTER ENDED PER LP UNIT - ------------- ------------- March 31, 1998................................................. $0.44 December 31, 1997.............................................. 0.44 September 30, 1997............................................. 0.42 June 30, 1997.................................................. 0.42 Under the loan agreement governing the Line, distributions may not exceed 95% of funds from operations ("FFO") based on the immediately preceding four quarters. The Partnership considers 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. In the event of any monetary default, the Partnership will not make distributions to partners. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES The Partnership has engaged in the following sales of unregistered securities, each based upon Rule 506 of the Securities Act: On March 7, 1997, the Partnership acquired substantially all of the assets of Branch in exchange for the issuance of 3,888,699 Original Limited Partnership and Class A Units, valued for purposes of such transaction at $22.125 per Unit, the fair market value of the Regency common stock on the date the terms of the Branch transaction were reached. Pursuant to the Branch Acquisition, the principals of Branch could receive additional Units and shares of Regency common stock after the first, second and third anniversaries of the Branch closing based on the performance of certain properties, up to an aggregate of 1,020,061 Units. On March 23, 1998, in connection with the first anniversary of the Branch closing, the Partnership issued 721,997 additional Units representing property earn-outs pursuant to the Branch transaction, also valued at $22.125 per Unit. On March 11, 1998, the Partnership acquired substantially all of the assets of the Midland Group, in exchange for cash plus the issuance of 392,163 Class 2 Units, valued for purposes of such transaction at $26.5813. Certain equity owners of the Midland Group may also be entitled to receive contingent consideration in the form of Units on the first, second and third anniversaries of the Midland closing, also valued at $26.5813 per Unit. On June 25, 1998, the Partnership issued $80,000,000 8.125% Series A Cumulative Redeemable Preferred Units to Belair Capital Fund, LLC. On July 20, 1998, the Partnership sold an aggregate of $100,000,000 7-1/8% Notes due July 20, 2005 to Goldman Sachs & Co., Morgan Stanley & Co. Incorporated and PaineWebber Incorporated in a private placement pursuant to 27 Section 4(2) of the Securities Act at a purchase price equal to 99.758% of the face value of the Notes, less an underwriting discount of 0.625%. Such initial purchasers agreed to resell the Notes only to qualified institutional buyers pursuant to Rule 144A under the Securities Act, to institutional accredited investors in a manner exempt from registration under the Securities Act or to non-U.S. persons in compliance with Regulation S under the Securities Act. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED The securities registered by this Registration Statement are the general partnership interests in the Partnership represented by Class B Units, all of which are held by the Company and are subordinate to the limited partnership interests of the Partnership. All Units acquired by the Company (and any of its affiliates that acquire interests in the Partnership) will be Class B Units; provided, however, that Units acquired by the Company upon the exercise by limited partners of redemption rights will be limited partnership interests represented by Class B Units. The following is a summary of certain provisions of the Partnership Agreement and is subject to, and qualified in its entirety by, the Partnership Agreement, which has been filed as an exhibit to this Registration Statement. DISTRIBUTIONS The holders of Series A Preferred Units are entitled to a preferred payment of quarterly distributions at the rate of 8.125% of the original capital contribution per Unit. Likewise, before the General Partner or any of its affiliates will be entitled to any distributions of operating cash flow ("Available Cash"), each Original Limited Partner and holder of Class 2 Units (the "Additional Limited Partners") must receive an amount equal to such partner's Cumulative Unpaid Priority Distribution Account (as defined in the Partnership Agreement), together with an amount thereon accruing at the prime rate plus 2% per annum (the "Cumulative Unpaid Accrued Return Account"). However, once the holders of Series A Preferred Units, first, Original Limited Partners, second, and the Additional Limited Partners, third, have received an amount per Unit equal to the cash dividend paid on the common stock (together with any amounts in such partners' Cumulative Unpaid Priority Distribution Account and Cumulative Unpaid Accrued Return Account), the Limited Partners will not be entitled to any further distributions of Available Cash from the Partnership, and the remainder will be paid to the General Partner and any of its affiliates that acquire Units. The General Partner is required to restore any negative balance in its capital account upon liquidation of the Partnership. As a general rule, the General Partner will not be required to contribute funds to the Partnership in order to avoid arrearages in distributions of Available Cash. Conversely, to the extent that the Partnership's properties produce substantially more cash flow per Unit than the cash dividend on the common stock during the same period, the General Partner and its affiliates will be entitled to 100% of the excess. 28 POWERS OF THE GENERAL PARTNER The Partnership Agreement grants the General Partner broad powers to manage the business of the Partnership. The General Partner has agreed in Section 7.1(h) of the Partnership Agreement to use its reasonable best efforts as a fiduciary to manage the Partnership's business to prevent arrearages in distributions of Available Cash. However, Section 7.8(b) of the Partnership Agreement provides that, except as expressly otherwise provided, the General Partner is under no obligation to consider the separate interests of the Limited Partners in deciding whether to take any actions which the General Partner has undertaken in good faith on behalf of the Partnership. There are also numerous other provisions granting authority to the General Partner to take actions for specified reasons regardless of the consequences to the Limited Partners. For example, Section 7.9(d) of the Partnership Agreement authorizes actions by the General Partner undertaken in the good faith belief that such actions are necessary to protect Regency's continued qualification as a REIT or to avoid the incurrence by Regency of taxes under the Code. While section 7.1(a)(iii) of the Partnership Agreement requires the General Partner to use reasonable efforts to effect dispositions of the Partnership's assets in non-taxable exchanges under Section 1031 of the Code, section 7.1(f) of the Partnership Agreement permits the General Partner to take actions permitted under the Partnership Agreement even though such actions could result in income tax liability to the Limited Partners. Under Section 7.1(a)(iii) of the Partnership Agreement, the General Partner is authorized to encumber assets of the Partnership for loans made to the General Partner, the proceeds of which are not required to be contributed to or loaned to the Partnership. However, Regency is required to make capital contributions to the Partnership where necessary (up to the amount of debt service and closing costs paid by the Partnership with respect to any such loan) to enable the Partnership to make the maximum permitted quarterly distribution of Available Cash. Section 7.8(b) of the Partnership Agreement acknowledges Regency's contractual commitment to SC-USREALTY that Regency take actions so as to avoid classification of SC-USREALTY as a "passive foreign investment company" as defined in Section 1296 of the Code. In general, this obligation will require, among other things, that (i) the Partnership manage its assets directly through employees of the Partnership and not through employees of Affiliates, (ii) that SC-USREALTY own (within the meaning of Section 1296(c) of the Code) at least 27.5% by value of Regency's capital stock at the end of each quarter, and (iii) that the General Partner maintain at least a 75% interest in the capital or profits of the Partnership. TRANSFER RESTRICTIONS The Partnership Agreement provides that the General Partner may not transfer its general partnership interest (other than to an affiliate of the General Partner) or withdraw as general partner other than under certain conditions in connection with a merger, consolidation or other business combination or transaction with or into another person or sale of all or substantially all of its assets, or any reclassification or recapitalization. The General Partner may transfer all or any of its limited partnership interests to any party without the consent of the Partnership or any other partner. 29 ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Delaware Revised Uniform Limited Partnership Act provides that a limited partnership has the power to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever, subject to such standards and restrictions, if any, as are set forth in its partnership agreement. The Partnership Agreement provides that the General Partner shall not be liable for monetary damages to the Partnership or the Limited Partners for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. The Partnership Agreement also provides for the indemnification of the General Partner, a Limited Partner, a director or officer of the Partnership and affiliates of the General Partner or Partnership acting in good faith on behalf of the Partnership as determined by the General Partner in its good faith judgment other than for any action by such person involving fraud, willful misconduct or gross negligence. ITEM 13. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Index to Pro Forma Condensed Consolidated Financial Statements" on page P-1 of this Form 10 and "Index to Financial Statements" on page F-1 of this Form 10. The Partnership's Form 10-Q filed November 16, 1998, and incorporated herein by reference, updates the financial statements and pro forma financial information of the Partnership through September 30, 1998. The financial information for acquired properties required by Rule 3-14 of Regulation S-X is included in the following Form 8-K reports of Regency Realty Corporation and incorporated herein by reference: Form 8-K Report of Regency Realty Corporation filed July 4, 1998 as amended by Form 8-K/A filed March 19, 1998; Form 8-K Report of Regency Realty Corporation filed July 20, 1998; Form 8-K Report of Regency Realty corporation filed October 7, 1998. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS (A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. See "Index to Pro Forma Condensed Consolidated Financial Statements" on page P-1 of this Form 10 and "Index to Financial Statements" on page F-1 of this Registration Statement on Form 10. (B) EXHIBITS: The following exhibits are included in this Registration Statement on Form 10: 3.1 Second Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P., dated as of March 5, 1998, incorporated by reference to Exhibit 10(a) to the Company's Current Report on Form 8- K/A filed March 19, 1998 3.2 Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership Relating to 8.125% Series A Cumulative Redeemable Preferred Units 30 4.1 Amended and Restated Redemption Agreement dated as of March 5, 1998 by and among Regency Centers, L.P., Regency Realty Corporation and the limited partners party thereto, incorporated by reference to Exhibit 10(c) to the Company's Current Report on Form 8-K/A filed March 19, 1998 10.1 Credit Agreement dated as of March 27, 1998 among Regency Centers, L.P., as the Borrower, Regency Realty Corporation, as the Parent, the financial institutions party thereto, as the Lenders, and Wells Fargo Bank, N.A., as the Agent, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q filed May 15, 1998. 10.2 Indenture dated as of July 20, 1998 among Regency Centers, L.P., the Guarantors named therein and First Union National Bank, as trustee 31 10.3 Exchange and Registration Rights Agreement dated as of July 15, 1998 among Regency Centers, L.P., the Guarantors named therein and the Purchasers named therein 21.1 Subsidiaries of the Registrant 27.1 Financial Data Schedule 99.1 The following sections of Regency Realty Corporation's definitive proxy statement for its 1998 Annual Meeting of Shareholders, which sections are incorporated by reference to such Proxy Statement: (a) The section captioned "Voting Securities" at pages 1 through 3. (b) The section captioned "Executive Compensation at pages 18 through 21. (c) The section captioned "Certain Transactions" at pages 21 through 23. 99.2 The following sections of Regency Realty Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, which sections are incorporated by reference to such Annual Report: (a) The response to item 10, "Directors and Executive Officers of the Registrant." 99.3 The Partnership's Form 10-Q/A filed October 20, 1998. *99.4 The Partnership's Form 10-Q for the quarter ended September 30, 1998. 99.5 The following Form 8-K Reports of Regency Realty Corporation: Form 8-K Report of Regency Realty Corporation filed July 4, 1998 as amended by Form 8-K/A filed March 19, 1998; Form 8-K Report of Regency Realty Corporation filed July 20, 1998; Form 8-K Report of Regency Realty corporation filed October 7, 1998. - ---------------- * Filed herewith 32 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this amended registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. REGENCY CENTERS, L.P. By: REGENCY REALTY CORPORATION, its general partner Date: November 19, 1998 By: /s/ J. Christian Leavitt ------------------------------------- J. Christian Leavitt, Vice President, Secretary, Treasurer and Principal Accounting Officer 33 REGENCY CENTERS, L.P. INDEX TO PRO FORM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Pro Form Condensed Consolidated Balance Sheet as of March 31, 1998 (unaudited)................................. P-3 Notes to Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998 (unaudited)........................... P-4 Pro Forma Consolidated Statements of Operations for the three month period ended March 31, 1998 and the year ended December 31, 1997 (unaudited)................. P-5 Notes to Pro Forma Consolidated Statements of Operations for the three month period ended March 31, 1998 and the year ended December 31, 1997 (unaudited)................. P-7 P-1 REGENCY CENTERS, L.P. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated balance sheet is based upon the historical consolidated balance sheet of the Partnership as of March 31, 1998 as if the Partnership had completed the acquisition of all the Midland Properties and the Financings as of that date. The following unaudited pro forma consolidated statements of operations of the Partnership are based upon the historical consolidated statements of operations for the three-month period ended March 31, 1998 and the year ended December 31, 1997, and are presented as if the Partnership had acquired the Branch Properties, the Midland Properties, the additional 12 grocery-anchored shopping centers acquired in 1997 and 1998 (the "Acquisition Properties") and had completed the Financings as of January 1, 1997. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements of the Partnership included elsewhere in this Registration Statement. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of what the actual financial position or results of operations of the Partnership would have been at March 31, 1998 or December 31, 1997 assuming the transactions had been completed as set forth above, nor does it purport to represent the financial position or results of operations of the Partnership in future periods. P-2 REGENCY CENTERS, L.P. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (UNAUDITED) (IN THOUSANDS)
MIDLAND OTHER HISTORICAL PROPERTIES (A) ADJUSTMENTS PRO FORMA ---------- -------------- ----------- --------- ASSETS Real estate investments, at cost................. $737,251 $56,100 $ -- $793,351 Construction in progress. 40,765 -- -- 40,765 Less: accumulated depre- ciation................ 20,812 -- -- 20,812 -------- ------- --------- -------- Real estate rental property, net......... 757,204 56,100 -- 813,304 -------- ------- --------- -------- Investments in real es- tate partnerships....... 992 -- -- 992 -------- ------- --------- -------- Net real estate invest- ments.................. 758,196 56,100 -- 814,296 -------- ------- --------- -------- Cash and cash equiva- lents................... 5,556 -- 36,777 (b) 42,333 Tenant receivables, net of allowance for uncollectible accounts.. 7,651 -- -- 7,651 Deferred costs, less ac- cumulated amortization.. 2,570 -- -- 2,570 Other assets............. 2,238 -- 1,250 (b) 3,488 -------- ------- --------- -------- Total Assets........... $776,211 $56,100 $ 38,027 $870,338 ======== ======= ========= ======== LIABILITIES AND PARTNERS' CAPITAL Mortgage loans payable... $212,028 $31,732 $ (25,774)(b) $217,986 Acquisition and develop- ment line of credit..... 90,231 24,368 (114,599)(b)(c) -- Notes offered hereby..... -- -- 100,000 (b) 100,000 -------- ------- --------- -------- Total debt............. 302,259 56,100 (40,373) 317,986 Tenants' security and es- crow deposits........... 2,049 -- -- 2,049 Accounts payable and other liabilities....... 8,881 -- -- 8,881 -------- ------- --------- -------- Total liabilities...... 313,189 56,100 (40,373) 328,916 -------- ------- --------- -------- Limited partners' inter- est in consolidated partnerships............ 7,246 -- -- 7,246 -------- ------- --------- -------- Series A preferred units......... -- -- 80,000 (c) 80,000 General and limited partnership units................... 455,776 -- (1,600)(c) 454,176 -------- ------- --------- -------- Total partners' capi- tal................... 455,776 -- 78,400 534,176 -------- ------- --------- -------- Total liabilities and partners' capital... $776,211 $56,100 $ 38,027 $870,338 ======== ======= ========= ========
See accompanying notes to pro forma condensed consolidated balance sheet. P-3 REGENCY CENTERS, L.P. NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (UNAUDITED) (IN THOUSANDS) (a) Acquisitions of Shopping Centers: In January 1998, the Partnership entered into an agreement to acquire shopping centers from various entities comprising the Midland Group consisting of 21 shopping centers plus eleven shopping centers under development. The Partnership acquired 13 of the Midland shopping centers during March 1998 containing 1.3 million square feet for approximately $111,000. Those shopping centers are included in the Partnership's March 31, 1998 balance sheet. Subsequent to March 31, 1998, the Partnership has acquired or will acquire six additional shopping centers for $56,100 and during August 1998, expects to acquire an additional three properties under development for $41,300. In addition, during 1998, the Partnership expects to pay $4,600 in additional costs related to joint venture investments and other transaction costs related to acquiring the various shopping centers from Midland, and during 1999 and 2000 may pay contingent consideration of $23,000. The following table sets forth the aggregate purchase price for East Point, Maxtown, Worthington, Franklin Square, Windmiller and St. Ann Square, which were acquired or will be acquired subsequent to March 31, 1998.
PURCHASE PRICE -------- East Point.......................... $ 8,215 Maxtown............................. 7,712 Worthington......................... 10,691 Franklin Square..................... 11,375 Windmiller.......................... 11,464 St. Ann Square...................... 6,653 ------- $56,100 =======
The following table represents the properties under development which the Partnership expects to acquire from Midland upon completion of construction during 1998. These properties are not included in these pro forma condensed consolidated financial statements.
EXPECTED ACQUISITION PURCHASE DATE PRICE ----------- -------- Garner Festival....................................... Aug-98 20,571 Nashboro.............................................. Aug-98 7,260 Crooked Creek......................................... Aug-98 13,471 ------- $41,302 =======
(b) Represents the proceeds from the offering of the Notes less offering costs of 1.25%. The Partnership used the net proceeds from the offering of the Notes in the amount of $98,800, for (a) the repayment of the balance outstanding on the Line ($36,200 on the pro forma basis presented herein after giving effect to the repayment described below in connection with the Offering of the Series A Preferred Units (the "Preferred Offering"), and (b) the repayment of existing mortgage loans ($25,800) and, for purposes of these pro forma financial statements, will retain the remainder ($36,800) as cash and cash equivalents to be used to complete the Midland Acquisition. The $1,200 of financing costs will be recorded as an "Other Asset" to be amortized over the term of the Notes. The mortgage loans were repaid during April 1998 without any premium or penalty, had average interest rates of 7.14% and were to mature from November 1998 to December 2001. (c) Represents the proceeds from the offering of the Series A Preferred Units, less offering costs of 2%. At closing, the Partnership used the net proceeds from the Preferred Offering, in the amount of $78,400, for the repayment of outstanding balances on the Line. P-4 REGENCY CENTERS, L.P. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 ----------------------------------------------------------------- MIDLAND ACQUISITION OTHER HISTORICAL PROPERTIES (E) PROPERTIES (F) ADJUSTMENTS PRO FORMA ---------- -------------- -------------- ----------- --------- Revenues: Minimum rent........... $17,064 $3,332 $214 $ (697)(j) $19,913 Percentage rent........ 419 -- -- (8)(j) 411 Recoveries from tenants............... 3,811 410 47 (67)(j) 4,201 Management, leasing and brokerage fees........ 2,504 -- -- -- 2,504 Equity in income of investments in real estate partnerships... 1 -- -- -- 1 ------- ------ ---- -------- ------- 23,799 3,742 261 (772) 27,030 ------- ------ ---- -------- ------- Operating expenses: Depreciation and amortization.......... 4,145 676(g) 49(g) (453)(j) 4,417 Operating and maintenance........... 3,044 228 42 (122)(j) 3,192 General and administrative........ 3,433 180 -- (25)(j) 3,588 Real estate taxes...... 2,094 385 24 (81)(j) 2,422 ------- ------ ---- -------- ------- 12,716 1,469 115 (681) 13,619 ------- ------ ---- -------- ------- Interest expense (income): Interest expense....... 3,410 2,058(h) 133(i) (895)(k) 4,706 Interest income........ (318) -- -- -- (l) (318) ------- ------ ---- -------- ------- 3,092 2,058 133 (895) 4,388 ------- ------ ---- -------- ------- Income before minority interest and gain on sale of real estate investments........... 7,991 215 13 804 9,023 Gain on sale of real es- tate investments....... 10,237 -- -- (9,336)(j) 901 Minority interest....... (97) -- -- -- (97) ------- ------ ---- -------- ------- Net income............. 18,131 215 13 (8,532) 9,827 Preferred distribu- tions........... -- -- -- (1,625)(m) (1,625) ------- ------ ---- -------- ------- Net income for unit holders............... $18,131 $ 215 $ 13 $(10,157) $ 8,202 ======= ====== ==== ======== ======= Net income per unit (note (n)): Basic.................. $ 0.71 $ 0.29 ======= ======= Diluted................ $ 0.70 $ 0.29 ======= =======
See accompanying notes to pro forma consolidated statements of operations. P-5 REGENCY CENTERS, L.P. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------------------------------ BRANCH MIDLAND ACQUISITION OTHER HISTORICAL PROPERTIES(D) PROPERTIES (E) PROPERTIES (F) ADJUSTMENTS PRO FORMA ---------- ------------- -------------- -------------- ----------- --------- Revenues: Minimum rent........... $53,330 $3,596 $16,482 $6,834 $(4,136)(j) $76,106 Percentage rent........ 898 167 -- 17 -- 1,082 Recoveries from tenants............... 12,993 751 2,240 1,701 (548)(j) 17,137 Management, leasing and brokerage fees........ 7,997 1,060 -- -- -- 9,057 Equity in income of investments in real estate partnerships... 33 -- -- -- -- 33 ------- ------ ------- ------ ------- ------- 75,251 5,574 18,722 8,552 (4,684) 103,415 ------- ------ ------- ------ ------- ------- Operating expenses: Depreciation and amortization.......... 11,905 972 2,994(g) 1,590(g) (855)(j) 16,606 Operating and maintenance........... 10,688 595 1,194 1,604 (1,260)(j) 12,821 General and administrative........ 9,964 683 1,042 -- (49)(j) 11,640 Real estate taxes...... 6,451 404 1,635 925 (447)(j) 8,968 ------- ------ ------- ------ ------- ------- 39,008 2,654 6,865 4,119 (2,611) 50,035 ------- ------ ------- ------ ------- ------- Interest expense (income): Interest expense....... 13,614 1,517 10,353(h) 4,385(i) (5,091)(k) 24,778 Interest income........ (935) (33) -- -- -- (l) (968) ------- ------ ------- ------ ------- ------- 12,679 1,484 10,353 4,385 (5,091) 23,810 ------- ------ ------- ------ ------- ------- Income before minority interest and gain on sale of real estate investments........... 23,564 1,436 1,504 48 3,018 29,570 Gain on sale of real estate investments..... 451 -- -- -- (451)(j) -- Minority interest....... (505) (313) -- -- -- (818) ------- ------ ------- ------ ------- ------- Net income............. 23,510 1,123 1,504 48 2,567 28,752 Preferred distribu- tions................... -- -- -- -- (6,500)(m) (6,500) ------- ------ ------- ------ ------- ------- Net income for unit holders............... $23,510 $1,123 $ 1,504 $ 48 $(3,933) $22,252 ======= ====== ======= ====== ======= ======= Net income per unit (note (n)): Basic.................. $ 1.20 $ 1.12 ======= ======= Diluted................ $ 1.12 $ 1.05 ======= =======
See accompanying notes to pro forma consolidated statements of operations. P-6 REGENCY CENTERS, L.P. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA) (d) Reflects pro forma results of operations for the Branch Properties for the period from January 1, 1997 to March 7, 1997 (acquisition date). (e) Reflects revenues and certain expenses for the Midland Properties for the period from January 1, 1998 to the earlier of respective acquisition date of the property or March 31, 1998 and for the year ended December 31, 1997.
FOR THE PERIOD FROM JANUARY 1, 1998 TO THE ACQUISITION DATE --------------------------------------- PROPERTY ACQUISITION MINIMUM RECOVERIES OPERATING AND REAL GENERAL AND NAME DATE RENT FROM TENANTS MAINTENANCE ESTATE TAXES ADMINISTRATIVE -------- ----------- ------- ------------ ------------- ------------ -------------- Windmiller.............. 7/15/98 $ 289 $ 45 $ 17 $ 36 $ 16 Franklin Square......... 4/29/98 303 19 27 25 13 St. Ann Square.......... 4/17/98 184 3 17 -- 5 East Pointe............. 4/29/98 223 19 15 46 8 Maxtown Road............ 4/29/98 181 51 12 46 22 Worthington............. 4/29/98 227 74 17 61 7 Beckett Commons......... 3/1/98 113 7 6 14 4 Cherry Grove............ 3/1/98 239 11 13 22 21 Bent Tree Plaza......... 3/1/98 137 11 7 59 8 Westchester Plaza....... 3/1/98 130 12 13 42 7 Brookville Plaza........ 3/1/98 95 5 5 -- 4 Lakeshore............... 3/1/98 123 10 5 -- 6 Evans Crossing.......... 3/1/98 116 4 5 -- 6 Statler Square.......... 3/1/98 164 15 13 1 8 Kernersville Plaza...... 3/1/98 120 4 8 -- 8 Maynard Crossing........ 3/1/98 272 38 13 -- 15 Shoppes at Mason........ 3/1/98 116 27 15 33 6 Lake Pine Plaza......... 3/1/98 152 13 10 -- 9 Hamilton Meadows........ 3/1/98 148 42 10 -- 7 ------ ---- ---- ---- ---- $3,332 $410 $228 $385 $180 ====== ==== ==== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------- PROPERTY ACQUISITION MINIMUM RECOVERIES OPERATING AND REAL GENERAL AND NAME DATE RENT FROM TENANTS MAINTENANCE ESTATE TAXES ADMINISTRATIVE -------- ----------- ------- ------------ ------------- ------------ -------------- Windmiller.............. 7/15/98 $ 1,157 $ 181 $ 69 $ 143 $ 64 Franklin Square......... 4/29/98 1,270 171 158 94 98 St. Ann Square.......... 4/17/98 741 149 60 119 42 East Pointe............. 4/29/98 821 159 50 107 51 Maxtown Road............ 4/29/98 718 100 56 84 32 Worthington............. 4/29/98 862 208 67 124 59 Beckett Commons......... 3/1/98 687 140 38 83 47 Cherry Grove............ 3/1/98 1,445 175 85 131 105 Bent Tree Plaza......... 3/1/98 786 130 64 59 48 Westchester Plaza....... 3/1/98 807 70 72 84 45 Brookville Plaza........ 3/1/98 571 42 34 50 30 Lakeshore............... 3/1/98 759 156 55 96 32 Evans Crossing.......... 3/1/98 613 84 34 50 33 Statler Square.......... 3/1/98 913 76 43 54 60 Kernersville Plaza...... 3/1/98 605 58 29 51 33 Maynard Crossing........ 3/1/98 1,367 133 78 95 104 Shoppes at Mason........ 3/1/98 644 56 61 65 38 Lake Pine Plaza......... 3/1/98 827 93 54 51 46 Hamilton Meadows........ 3/1/98 889 59 87 95 75 ------- ------ ------ ------ ------ $16,482 $2,240 $1,194 $1,635 $1,042 ======= ====== ====== ====== ======
P-7 REGENCY CENTERS, L.P. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA) (f) Reflects revenues and certain expenses of the Acquisition Properties for the periods from January 1, 1998 and 1997 to the respective acquisition date of the property.
FOR THE PERIOD FROM JANUARY 1, 1998 TO THE ACQUISITION DATE ------------------------------------------------------------------------------ PROPERTY ACQUISITION MINIMUM PERCENTAGE RECOVERIES OPERATING AND REAL NAME DATE RENT RENT FROM TENANTS MAINTENANCE ESTATE TAXES -------- ----------- ------------ ----------- ------------- -------------- ------------- Bloomingdale Square............... 2/11/98 $ 214 $ -- $ 47 $ 42 $ 24 ------- ------------ ----------- ----------- ----------- ----------- $ 214 $ -- $ 47 $ 42 $ 24 ============ =========== =========== =========== ===========
FOR THE PERIOD FROM JANUARY 1, 1997 TO THE ACQUISITION DATE -------------------------------------------------------------------------- PROPERTY ACQUISITION MINIMUM PERCENTAGE RECOVERIES OPERATING AND REAL NAME DATE RENT RENT FROM TENANTS MAINTENANCE ESTATE TAXES -------- ----------- ------------ ----------- ------------- -------------- ------------- Oakley Plaza............ 3/14/97 $ 142 $ -- $ 14 $ 21 $ 13 Mariner's Village....... 3/25/97 185 6 37 52 33 Carmel Commons.......... 3/28/97 297 11 63 61 35 Mainstreet Square....... 4/15/97 193 -- 34 57 30 East Port Plaza......... 4/25/97 543 -- 107 129 65 Rivermont Station....... 6/30/97 642 -- 124 99 56 Lovejoy Station......... 6/30/97 306 -- 63 45 29 Tamiami Trails.......... 7/10/97 508 -- 163 154 66 Gardens Square.......... 9/19/97 671 -- 232 194 99 Boynton Lakes Plaza..... 12/1/97 1,159 -- 391 347 250 Pinetree Plaza.......... 12/23/97 279 -- 51 71 37 Bloomingdale Square..... 2/11/98 1,909 -- 422 376 212 ------------ ---------- ------------ ------------ ---------- $ 6,834 $ 17 $ 1,701 $ 1,604 $ 925 ============ ========== ============ ============ ==========
(g) Depreciation expense is based on the estimated useful life of the properties acquired. For properties under construction, depreciation expense is calculated from the date the property is placed in service through the end of the period. In addition, the calculation reflects depreciation expense on the properties for the year ended December 31, 1997 and for the period from January 1, 1998 to the earlier of the respective acquisition date or March 31, 1998.
FOR THE PERIOD FROM JANUARY 1, 1998 TO THE ACQUISITION DATE ------------------------------------------------------ PROPERTY BUILDING AND YEAR PROPERTY DEPRECIATION NAME IMPROVEMENTS BUILT/RENOVATED USEFUL LIFE ADJUSTMENT -------- ------------ --------------- ------------ ------------ Bloomingdale Square.. $ 13,189 1987 30 $ 49 ==== Midland Properties... $180,435 Ranging from Ranging from 1986 to 1996 29 to 40 $676 ====
P-8 REGENCY CENTERS, L.P. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
FOR THE PERIOD FROM JANUARY 1, 1997 TO THE ACQUISITION DATE ----------------------------------------------------------- PROPERTY BUILDING AND YEAR PROPERTY DEPRECIATION NAME IMPROVEMENTS BUILT/RENOVATED USEFUL LIFE ADJUSTMENT -------- ------------ --------------- ------------ ------------ Oakley Plaza............ $ 6,428 1988 31 $41 Mariner's Village....... 5,979 1986 29 47 Carmel Commons.......... 9,335 1979 22 101 Mainstreet Square....... 4,581 1988 31 43 East Port Plaza......... 8,179 1991 34 76 Rivermont Station....... 9,548 1996 39 121 Lovejoy Station......... 5,560 1995 38 73 Tamiami Trails.......... 7,598 1987 30 133 Garden Square........... 7,151 1991 34 151 Boynton Lakes Plaza..... 9,618 1993 36 244 Pinetree Plaza.......... 3,057 1982 25 120 Bloomingdale Square..... 13,189 1987 30 440 Acquisition Properties -------- pro forma depreciation adjustment............ $ 1,590 ======= Midland Properties...... $180,435 Ranging from Ranging from $ 2,994 1986 to 1996 29 to 40 ======= (h) To reflect interest expense on the Line required to complete the acquisition of the Midland Properties at the average interest rate afforded the Partnership (6.525%) and the assumption of $97,000 of debt. For properties under construction, interest expense is calculated from the date the property is placed in service through the end of the period. Pro forma interest adjustment for the three-month period ended March 31, 1998................................................... $ 2,058 ======= Pro forma interest adjustment for the year ended December 31, 1997............................................................. $10,353 ======= (i) To reflect interest expense on the Line required to complete the acquisition of the Acquisition Properties at the average interest rate afforded the Partnership (6.525%). The three-month period ended March 31, 1998 and year ended December 31, 1997 calculation reflects interest expense on the properties from January 1, 1997 to the respective acquisition date of the property. Pro forma interest adjustment for the three-month period ended March 31, 1998................................................... $ 133 ======= Pro forma interest adjustment for the year ended December 31, 1997............................................................. $ 4,385 =======
P-9 REGENCY CENTERS, L.P. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA) (j) In December 1997, the Partnership sold one office building for $2,600 and recognized a gain on the sale of $451. During the first quarter of 1998, the Partnership sold three office buildings and a parcel of land for $26,700, and recognized a gain on the sale of $9,300. The adjustments to the pro forma consolidated statements of operations reflect the reversal of the revenues and expenses from the office buildings generated during 1997 and 1998, including the gains on the sale of the office buildings as if the sale had been completed on January 1, 1997. The Partnership believes that excluding the results of operations and gains related to the office buildings sold is necessary for an understanding of the continuing operations of the Partnership as the Partnership does not intend to own, operate or sell office buildings in the future. (k) To reflect (i) interest expense and loan cost amortization on the Notes offset by (ii) the reduction of interest expense on the Line and mortgage loans from the proceeds of the offering of the Notes, the issuance of the Series A Preferred Units and the proceeds from the sale of the office buildings referred to in note (j). Pro forma interest adjustment for the three-month period ended March 31, 1998................................................... $ (895) ======= Pro forma interest adjustment for the year ended December 31, 1997............................................................. $(5,091) =======
(l) Proforma interest income earned has not been reflected in these Consolidated Pro Forma Statements of Operations for available proceeds in excess of the amounts needed to pay down the Line and mortgage loans. Pro forma interest income on the excess proceeds, assuming a 5% interest rate, would have amounted to $1,600 and $400 for the year ended December 31, 1997 and the three months ended March 31, 1998, respectively. (m) To reflect the distribution on the Series A Preferred Units at an annual rate of 8.125% for the three-month period ended March 31, 1998 and year ended December 31, 1997. P-10 REGENCY CENTERS, L.P. NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA) (n) The following summarizes the calculation of basic and diluted earnings per unit for the three-month period ended March 31, 1998 and the year ended December 31, 1997:
FOR THE THREE FOR THE YEAR MONTHS ENDED ENDED MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- Basic earnings per unit (EPU) calculation: Weighted average common units outstanding. 23,496 15,327 ======= ======= Net income for unit holders............... $ 8,202 $22,252 Regency Class B common stock dividends.... (1,344) (5,140) ------- ------- Net income for Basic and Diluted EPU...... $ 6,858 $17,112 ======= ======= Basic EPU.................................. $ 0.29 $ 1.12 ======= ======= Diluted earnings per unit (EPU) calculation: Weighted average common units outstanding per basic EPU............................ 23,496 15,327 Incremental shares to be issued under common stock options using the Treasury method................................... 54 80 Contingent units or shares for the acquisition of real estate............... 334 955 ------- ------- Total diluted units...................... 23,884 16,362 ======= ======= Diluted EPU................................ $ 0.29 $ 1.05 ======= =======
P-11 REGENCY CENTERS, L.P. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Regency Centers, L.P. Independent Auditors' Report........................................... F-2 Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 and 1996 ........................................... F-3 Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996 and 1995 ........................................................ F-4 Consolidated Statements of Changes in Capital for the three months ended March 31, 1998 (unaudited) and the years ended December 31, 1997, 1996 and 1995................................................... F-5 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996 and 1995......................................................... F-6 Notes to Consolidated Financial Statements............................. F-8 Financial Statement Schedule Independent Auditors' Report on Financial Statement Schedule.......................................................... S-1 Schedule III - Regency Centers, L.P. Combined Real Estate and Accumulated Depreciation - December 31, 1997...................... S-2 All other schedules are omitted because they are not applicable or because information required therein is shown in the financial statements or notes thereto.
F-1 INDEPENDENT AUDITORS' REPORT The Unit Holders of Regency Centers, L.P. and the Board of Directors of Regency Realty Corporation: We have audited the accompanying consolidated balance sheets of Regency Centers, L.P. (the "Partnership") as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in capital and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Jacksonville, Florida June 9, 1998 F-2 REGENCY CENTERS, L.P. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (UNAUDITED) ASSETS Real estate investments, at cost (notes 2, 4, 5 and 9): Land................................... $161,686,129 $134,457,274 $ 55,713,109 Buildings and improvements............. 575,565,348 467,730,009 196,957,090 Construction in progress--development for investment........................ 18,988,365 13,427,370 1,665,144 Construction in progress--development for sale.............................. 21,776,546 20,173,039 1,695,062 ------------ ------------ ------------ 778,016,388 635,787,692 256,030,405 Less: accumulated depreciation......... 20,812,516 22,041,114 11,669,690 ------------ ------------ ------------ 757,203,872 613,746,578 244,360,715 Investments in real estate partnerships (note 3).............................. 992,122 999,730 1,035,107 ------------ ------------ ------------ Net real estate investments........... 758,195,994 614,746,308 245,395,822 Cash and cash equivalents (note 4)...... 5,556,513 14,642,429 6,466,899 Tenant receivables, net of allowance for uncollectible accounts of $1,357,948, $1,162,570 and $832,091 at March 31, 1998 and December 31, 1997 and 1996, respectively........................... 7,651,036 7,245,788 3,608,727 Deferred costs, less accumulated amortization of $1,352,682, $1,456,933 and $788,108 at March 31, 1998 and December 31, 1997 and 1996, respectively........................... 2,569,952 2,215,099 1,538,874 Other assets............................ 2,237,699 2,299,521 1,173,286 ------------ ------------ ------------ $776,211,194 $641,149,145 $258,183,608 ============ ============ ============ LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgage loans payable (note 4)........ $212,027,750 $145,455,989 $ 34,281,064 Acquisition and development line of credit (note 5)....................... 90,231,185 48,131,185 73,701,185 Accounts payable and other liabilities. 8,881,063 9,972,065 5,489,236 Tenants' security and escrow deposits.. 2,049,465 1,854,700 987,902 ------------ ------------ ------------ Total liabilities..................... 313,189,463 205,413,939 114,459,387 ------------ ------------ ------------ Limited partners' interest in consolidated partnerships (note 2)..... 7,245,598 7,305,945 -- ------------ ------------ ------------ Partners' capital: General partner; 22,695,394, 21,822,226 and 10,282,575 units outstanding at March 31, 1998, December 31, 1997 and 1996, respectively 433,087,436 415,112,127 143,724,221 Limited partners; 1,008,706 and 545,347 units outstanding at March 31, 1998 and December 31, 1997, respectively. No units outstanding at December 31, 1996 22,705,597 13,317,134 - -------------------------------------- Total partners' capital 455,776,133 428,429,261 143,724,221 -------------------------------------- Commitments and contingencies (notes 9, 11 and 12) $776,211,194 $641,149,145 $258,183,608 ============ ============ ============
See accompanying notes to consolidated financial statements. F-3 REGENCY CENTERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ----------------------- ------------------------------------- 1998 1997 1997 1996 1995 ----------- ---------- ----------- ----------- ----------- (UNAUDITED) Revenues: Minimum rent (note 9).. $17,064,484 $ 8,936,405 $53,330,305 $20,537,939 $12,065,182 Percentage rent........ 419,114 121,886 897,686 91,233 18,494 Recoveries from tenants............... 3,810,543 2,264,502 12,993,162 4,269,126 2,278,539 Management, leasing and brokerage fees........ 2,504,106 1,641,191 7,996,714 3,444,287 2,425,733 Equity in income of investments in real estate partnerships (note 3).............. 985 26,791 33,311 69,990 4,226 ----------- ---------- ----------- ----------- ----------- Total revenues........ 23,799,232 12,990,775 75,251,178 28,412,575 16,792,174 ----------- ---------- ----------- ----------- ----------- Operating expenses: Depreciation and amortization.......... 4,145,466 1,921,334 11,904,788 4,344,985 2,573,278 Operating and maintenance........... 3,044,254 1,692,230 10,688,596 4,528,222 2,769,756 General and administrative (note 10)................... 3,433,108 2,221,006 9,963,928 6,048,141 4,894,432 Real estate taxes...... 2,093,995 1,375,284 6,451,058 2,683,144 1,360,435 ----------- ---------- ----------- ----------- ----------- Total operating expenses............. 12,716,823 7,209,854 39,008,370 17,604,492 11,597,901 ----------- ---------- ----------- ----------- ----------- Interest expense (income): Interest expense....... 3,409,517 2,488,443 13,613,704 6,475,909 4,799,577 Interest income........ (318,246) (158,690) (934,473) (609,892) (401,531) ----------- ---------- ----------- ----------- ----------- Net interest expense.. 3,091,271 2,329,753 12,679,231 5,866,017 4,398,046 ----------- ---------- ----------- ----------- ----------- Income before minority interest and gain on sale of real estate investments.......... 7,991,138 3,451,168 23,563,577 4,942,066 796,227 Gain on sale of real estate investments..... 10,237,419 -- 450,902 -- -- Minority interest....... (97,149) (130,735) (504,957) -- -- ----------- ---------- ----------- ----------- ----------- Net income............ $18,131,408 $3,320,433 $23,509,522 $ 4,942,066 $ 796,227 =========== ========== =========== =========== =========== Net income per unit (note 7): Basic.................. $ 0.71 $ 0.20 $ 1.20 $ 0.19 $ 0.04 =========== ========== =========== =========== =========== Diluted................ $ 0.70 $ 0.20 $ 1.12 $ 0.19 $ 0.04 =========== ========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 REGENCY CENTERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
PREDECESSOR GENERAL LIMITED TOTAL EQUITY PARTNER PARTNERS CAPITAL ------------- ------------ ------------ ------------ Balance December 31, 1994................... $ 30,385,480 $ -- $ -- $ 30,385,480 Net income............. 796,227 -- -- 796,227 Cash contributions from the issuance of Regency stock......... 49,515,522 -- -- 49,515,522 Cash distributions for dividends............. (10,760,237) -- -- (10,760,237) Other contributions (distributions), net.. 15,925,801 -- -- 15,925,801 ------------- ------------ ------------ ------------ Balance December 31, 1995................... 85,862,793 -- -- 85,862,793 Net income............. 4,942,066 -- -- 4,942,066 Cash contributions from the issuance of Regency stock......... 63,617,263 -- -- 63,617,263 Cash distributions for dividends............. (16,196,364) -- -- (16,196,364) Other contributions (distributions), net.. 5,498,463 -- -- 5,498,463 ------------- ------------ ------------ ------------ Balance December 31, 1996................... 143,724,221 -- -- 143,724,221 Reclassification of predecessor equity upon formation of the Partnership........... (143,724,221) 143,724,221 -- -- Net income............. -- 21,467,699 2,041,823 23,509,522 Units issued for acquisitions of real estate................ -- -- 98,635,846 98,635,846 Cash contributions from the issuance of Regency stock......... -- 227,501,120 -- 227,501,120 Cash distributions for dividends............. -- (35,093,345) (1,900,288) (36,993,633) Other contributions (distributions), net.. -- (27,947,815) -- (27,947,815) Units exchanged for common stock of Regency............... -- 85,460,247 (85,460,247) -- ------------- ------------ ------------ ------------ Balance December 31, 1997................... -- 415,112,127 13,317,134 428,429,261 Net income............. -- 17,537,084 594,324 18,131,408 Cash contributions from the issuance of Regency stock......... -- 6,769 -- 6,769 Cash distributions for dividends............. -- (12,219,915) (276,876) (12,496,791) Other contributions (distributions), net.. -- (4,560,723) -- (4,560,723) Units issued for acquisitions of real estate................ -- -- 26,266,209 26,266,209 Units exchanged for common stock of Regency............... -- 14,155,883 (14,155,883) -- Reallocation of limited partners interest..... -- 3,036,211 (3,036,211) -- ------------- ------------ ------------ ------------ Balance March 31, 1998 (unaudited)............ $ -- $433,067,436 $ 22,708,697 $455,776,133 ============= ============ ============ ============
See accompanying notes to consolidated financial statements. F-5 REGENCY CENTERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, -------------------------- --------------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ ------------ ------------ ----------- (UNAUDITED) Cash flows from operat- ing activities: Net income.............. $ 18,131,408 $ 3,320,433 $ 23,509,522 $ 4,942,066 $ 796,227 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......... 4,145,466 1,921,334 11,904,788 4,344,985 2,573,278 Deferred financing cost amortization..... 135,221 93,290 434,826 227,026 115,215 Debt premium amortization.......... (76,341) -- -- -- -- Minority interest...... 97,149 130,735 504,957 -- -- Equity in income of investments in real estate partnerships... (985) (26,791) (33,311) (69,990) (4,226) Gain on sale of real estate investments.... (10,237,419) -- (450,902) -- -- Changes in assets and liabilities: (Increase) decrease in tenant receivables.......... 229,608 1,560,191 (3,637,071) (2,532,102) 231,969 Increase (decrease) in deferred leasing commissions.......... 341,020 (40,777) (849,786) (254,073) (261,351) Increase (decrease) in other assets...... 60,473 (400,398) (1,703,970) (644,864) (477,270) (Decrease) increase in tenants' security deposits............. (41,953) 516,069 866,798 427,192 285,581 Increase (decrease) in accounts payable and other liabilities.......... 205,177 1,727,267 (432,171) 1,601,729 1,142,629 ------------ ------------ ------------ ------------ ----------- Net cash provided by operating activities......... 12,988,824 8,801,353 30,113,680 8,041,969 4,402,052 ------------ ------------ ------------ ------------ ----------- Cash flows from investing activities: Acquisition, development and improvements of real estate................ (74,475,438) (50,478,519) (153,030,917) (106,611,222) (57,093,867) Investment in real estate partnership.... -- -- -- (881,309) -- Distributions received from real estate partnership investments........... 8,593 -- 68,688 231,581 12,146 Proceeds from sale of real estate........... 26,734,955 -- 2,645,229 -- -- ------------ ------------ ------------ ------------ ----------- Net cash used in investing activities.......... (47,731,890) (50,478,519) (150,317,000) (107,260,950) (57,081,721) ------------ ------------ ------------ ------------ ----------- Cash flows from financing activities: Cash contributions from the issuance of Regency stock......... 6,769 26,000,012 227,501,120 63,617,263 49,515,522 Cash distributions for dividends............. (12,496,791) (5,787,475) (36,993,633) (16,196,364) (10,760,237) Other contributions (distributions), net.. (4,560,723) (544,094) (27,947,815) 5,498,463 15,925,801 Proceeds or (repayment) from acquisition and development line of credit, net........... 42,100,000 31,150,000 (25,570,000) 51,361,382 (18,736,629) Proceeds from mortgage loans payable......... 1,774,207 -- 15,972,920 1,518,331 17,773,540 Repayments of mortgage loans payable......... (574,690) (3,098,454) (24,015,293) (583,130) (349,263) Deferred financing costs................. (591,622) (351,416) (568,449) (762,771) (215,043) ------------ ------------ ------------ ------------ ----------- Net cash provided by financing activities......... 25,657,150 47,368,573 128,378,850 104,453,174 53,153,691 ------------ ------------ ------------ ------------ ----------- Net (decrease) increase in cash and cash equivalents.... (9,085,916) 5,691,407 8,175,530 5,234,193 474,022 ------------ ------------ ------------ ------------ ----------- Cash and cash equivalents at beginning of period.... 14,642,429 6,466,899 6,466,899 1,232,706 758,684 ------------ ------------ ------------ ------------ ----------- Cash and cash equivalents at end of period................. $ 5,556,513 $ 12,158,306 $ 14,642,429 $ 6,466,899 $ 1,232,706 ============ ============ ============ ============ ===========
F-6 REGENCY CENTERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------ ---------------------------------- 1998 1997 1997 1996 1995 ----------- ------------ ------------ ---------- ---------- (UNAUDITED) Supplemental disclosure of cash flow information--cash paid for interest (net of capitalized interest of approximately $1,064,000, $257,000, $1,896,000, $381,000, and $285,000 for the three months ended March 31, 1998 and 1997 and years ended December 31, 1997, 1996 and 1995, respectively)......... $ 3,158,926 $ 2,273,822 $ 13,247,209 $5,999,587 $4,776,868 =========== ============ ============ ========== ========== Supplemental disclosure of non cash transactions: Mortgage loans assumed from sellers of real estate............... $65,448,585 $105,302,169 $117,698,966 -- -- =========== ============ ============ ========== ========== General and limited partnership units issued to acquire real estate.......... $26,266,209 $ 94,769,706 $ 98,635,846 -- -- =========== ============ ============ ========== ==========
See accompanying notes to consolidated financial statements. F-7 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Principles of Consolidation Regency Centers, L.P. (the "Partnership") is the primary entity through which Regency Realty Corporation ("Regency"), a self-administered and self- managed real estate investment trust ("REIT"), conducts substantially all of its business and owns substantially all of its assets. In 1993, Regency was formed for the purpose of managing, leasing, brokering, acquiring, and developing shopping centers. The Partnership also provides management, leasing, brokerage and development services for real estate not owned by Regency (i.e., owned by third parties). 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. The Partnership has a total of 22,367,573 units outstanding at December 31, 1997. Units are issued for several purposes, including (i) the acquisition of real estate from third parties, (ii) the contribution of real estate by Regency, and (iii) the contribution of cash by Regency. Regency owns approximately 97.5% of such units and is the General Partner in the Partnership. Units not owned by Regency are exchangeable for Regency's common stock on a one for one basis and units are paid the same amount of distributions as such units would have received had they been exchanged for common stock of Regency. The Limited Partners are holders of units that have not yet exchanged for Regency common stock. Regency has the right to assume the Partnership's obligation to exchange units and anticipates exercising such right when units are presented for exchange. Upon such exchange, Regency's ownership in the Partnership increases and the Limited Partners interest decreases. The accompanying consolidated financial statements include the accounts of the Partnership, its wholly owned subsidiaries, and its majority owned subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. (b) Revenues The Partnership leases space to tenants under agreements with varying terms. Leases are accounted for as operating leases with minimum rent recognized on a straight-line basis over the term of the lease regardless of when payments are due. Accrued rents are included in tenant receivables. Minimum rent has been adjusted to reflect the effects of recognizing rent on a straight line basis. Certain of the lease agreements contain provisions which provide additional rents based on tenants' sales volume. Substantially all of the lease agreements provide for reimbursement of the tenants' share of real estate taxes and certain common area maintenance ("CAM") costs. These additional rents are reflected on the accrual basis. Management, leasing, brokerage and development fees are recognized as revenue when earned. (c) Real Estate Investments Land, buildings and improvements are recorded at cost. All direct and indirect costs clearly associated with the acquisition, development and construction of real estate projects owned by the Partnership are capitalized as buildings and improvements, while maintenance and repairs which do not improve or extend the useful lives of the respective assets are reflected in operating and F-8 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED maintenance expense. The property cost includes the capitalization of interest expense incurred during construction in accordance with generally accepted accounting principles. Depreciation is computed using the straight line method over estimated useful lives up to forty years for buildings and improvements, term of lease for tenant improvements, and five to seven years for furniture and equipment. (d) Income Taxes The Partnership is not liable for federal income taxes and each partner reports its allocable share of income and deductions on its respective return; accordingly no provision for income taxes is required in the consolidated financial statements. Regency Realty Group, Inc. and Regency Realty Group II, Inc., two of the Partnership's subsidiaries, file separate tax returns and are subject to Federal and State income taxes. The two companies had combined taxable income of $277,227 and $150,674 for the years ended December 31, 1997 and 1996, respectively and incurred a taxable loss for the year ended December 31, 1995. Regency Realty Group, Inc. had a net operating loss carryforward of $1,057,644 at December 31, 1997, and accordingly paid no income tax in 1997 and 1996. No income tax benefit has been recorded for the net operating loss carryforwards. Regency Realty Group II, Inc. paid $330,441 in Federal and State income tax in 1997, and had no operations prior to 1997. At December 31, 1997, the net book basis of real estate assets exceeded the tax basis by approximately $25.4 million, primarily due to the difference between the cost basis of the assets acquired and their carryover basis recorded for tax purposes. At December 31, 1996, the tax basis exceeded the book basis by approximately $7.5 million primarily due to higher depreciation expense for book purposes. (e) Deferred Costs Deferred costs consist of internal and external commissions associated with leasing the rental property and loan costs incurred in obtaining financing which are limited to initial direct and incremental costs. The net leasing commission balance was $1,089,557 and $546,995 at December 31, 1997 and 1996, respectively. The net loan cost balance was $1,125,542 and $991,879 at December 31, 1997 and 1996, respectively. Such costs are deferred and amortized using the straight-line method over the terms of the respective leases and loans. (f) Fair Value of Financial Instruments The fair value of the Partnership's mortgage loans payable and acquisition and development line of credit are estimated based on the current rates available to the Partnership for debt of the same remaining maturities. Therefore, the Partnership considers their carrying value to be a reasonable estimation of their fair value. (g) Earnings Per Unit The Partnership adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," on December 31, 1997. This statement governs the computation, F-9 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED presentation, and disclosure requirements for earnings per share for entities with publicly held common stock. The Partnership has applied the provisions of SFAS No. 128 to its calculation of basic and diluted earnings per unit. Earnings per unit are based on the weighted average number of units outstanding during each year (see note 7). (h) Cash and Cash Equivalents Any instruments which have an original maturity of ninety days or less when purchased are considered cash equivalents. (i) Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Partnership's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (j) Impairment of Long-Lived Assets The Partnership adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Adoption of this Statement did not have a material impact on the Partnership's financial position, results of operations or liquidity. (k) Stock Option Plan Prior to January 1, 1996, Regency and the Partnership accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, Regency and the Partnership adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair- value-based method defined in SFAS No. 123 had been applied. Regency and the Partnership have elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (l) Allocation of Expenses All general and administrative expenses incurred by Regency and the Partnership have been paid by the Partnership. All other expenses have been allocated between Regency and the Partnership F-10 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED based upon the direct relationship to the real estate asset for which they were incurred. The Partnership provides property management services for the real estate properties within the Partnership as well as other entities, and earns a fee for these services. Such fees are recorded as management fee revenue for third parties or as a reduction of general and administrative expenses for properties owned by Regency. These fees are charged based on a percentage of total revenues, as defined. (m) Interim Unaudited Financial Statements The accompanying interim financial statements have been prepared by the Partnership, without audit, and in the opinion of management reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. (n) Recent Accounting Pronouncements Effective March 19, 1998, the Emerging Issues Task Force ("EITF") ruled in Issue 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions," that only internal costs of identifying and acquiring non- operating properties that are directly identifiable with the acquired properties should be capitalized, and that all internal costs associated with identifying and acquiring properties should be expensed as incurred. The Partnership had previously capitalized direct costs associated with the acquisition of operating properties as a cost of the real estate. The Partnership has adopted EITF 97-11 effective March 19, 1998. During 1997, the Partnership capitalized approximately $1.5 million of internal costs related to acquiring operating properties. Through the effective date of EITF 97-11, the Partnership has capitalized $474,000 of internal acquisition costs. For the remainder of 1998, the Partnership expects to incur $1.1 million of internal costs related to acquiring properties, which will be expensed. 2. ACQUISITIONS OF SHOPPING CENTERS On March 7, 1997, the Partnership acquired substantially all of the assets of Branch Properties, L.P. ("Branch"), a privately held real estate firm based in Atlanta, Georgia, for $232.4 million. The assets acquired from Branch included 100% fee simple interests in 19 operating shopping centers and one center under development, and also partnership interests (ranging from 50% to 93%) in four partnerships with outside investors that owned four operating shopping centers and two centers under development. The Partnership also assumed the third party property management contracts of Branch on approximately three million square feet of shopping center GLA that generate management fees and leasing commission revenues. At closing and during 1997, the Partnership issued 3,728,224 units in exchange for the assets acquired and the liabilities assumed from Branch. The Units are redeemable on a one-for-one basis in exchange for shares of Regency common stock. On June 13, 1997, 3,027,080 partnership units were converted to Regency common stock. The purchase price of Branch, as recorded in the Partnership's consolidated financial statements, includes approximately $100.1 million for Units issued (based upon $26.85, the fair market value of Regency's common stock on the date the acquisition was publicly announced), $27.3 million in cash, $7.8 million for transaction costs and to establish reserves, and F-11 REGENCY CENTERS, L.P. NOTES CONSOLIDATED TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 2. ACQUISITIONS OF SHOPPING CENTERS, CONTINUED $97.2 million of assumed debt. Limited partners' interest in consolidated partnerships of $7,910,253 was recorded for the four partnerships with outside investors. Additional units may be issued on the fifteenth day after the first, second and third anniversaries of the closing (each an "Earn-Out Closing"), based on the performance of the properties acquired (the "Property Earn-Out"). The formula for the Property Earn-Out provides for calculating increases in value on a property-by-property basis, based on increases in net income of the year of calculation. The Property Earn-Out is limited to 721,997 units at the first Earn-Out Closing and 1,020,061 units at all Earn-Out Closings (including the first Earn-Out Closing). During March 1998, the Partnership issued 721,997 units valued at $18.2 million to the partners of Branch (based upon fair market value of Regency's common stock at the time of issuance). Including the acquisition of the properties from Branch, the Partnership acquired or completed development of 36 shopping centers in 1997 and 12 shopping centers in 1996 (the "Acquisitions") accounted for as purchases, at cost totaling approximately $346.0 million and $101.7 million, respectively, through the issuance of units, assumed mortgage loans and cash. The operating results 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 the Acquisitions had occurred on January 1, 1996, after giving effect to certain adjustments including depreciation expense, additional general and administration costs, interest expense on new debt incurred, and an increase in the weighted average operating partnership units issued to acquire the shopping centers as if units had been issued on January 1, 1996. Pro forma revenues would have been $107.3 million and $90.5 million in 1997 and 1996, respectively. Pro forma net income for unit holders would have been $24.1 million and $7.4 million in 1997 and 1996, respectively. Diluted pro forma net income per unit would have been $1.16 per unit and $0.21 per unit in 1997 and 1996, respectively. This data does not purport to be indicative of what would have occurred had the Acquisitions been made on January 1, 1996, or of results which may occur in the future. In January 1998, the Partnership entered into an agreement to acquire the shopping centers from various entities comprising the Midland Group ("Midland") consisting of 21 shopping centers plus 11 shopping centers under development. Of the 32 centers to be acquired or developed, 31 are anchored by Kroger or its affiliate. Eight of the shopping centers under development will be owned through a joint venture in which the Partnership will own less than a 50% interest upon completion of construction. The Partnership acquired 13 of the Midland shopping centers containing 1.3 million square feet for approximately $111 million during March 1998. During 1998, 1999 and 2000, including all payments made to date, the Partnership will pay approximately $213 million for the 32 properties, including the assumption of debt, and in addition may pay contingent consideration of up to an estimated $23 million through the issuance of Partnership units and the payment of cash. Whether contingent consideration will be issued, and if issued, the amount of such consideration, will depend on the satisfaction during 1998, 1999 and 2000 of performance criteria relating to the assets acquired from Midland. For example, if a property acquired as part of Midland's development pipeline satisfies specified performance criteria at closing and when development is completed, the transferors of the property will be entitled to additional Partnership units based on the development cost of the properties and their net operating income. Transferors who redeemed their Partnership units for cash at the initial Midland closing will receive any contingent future consideration in cash rather than units. 3. INVESTMENTS IN REAL ESTATE PARTNERSHIPS The Partnership accounts for all investments in which it owns less than 50% using the equity method. The Partnership has a 10% investment in Village Commons Shopping Center and during 1996 acquired a 25% investment in Ocean East Mall. The Partnership's combined investment in these two partnerships was $999,730 and $1,035,107 at December 31, 1997 and 1996, respectively. Net income is allocated in accordance with each of the partnership agreements. F-12 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 4. MORTGAGE LOANS PAYABLE At December 31, 1997 and 1996, the following mortgage loans payable have been assigned by Regency to the Partnership since they are secured by real estate rental property which is included within the Partnership:
1997 1996 ---- ---- 7.04% to 7.97% mortgage notes, payable in monthly installments of $206,108, including principal and interest, maturing from December 15, 2000 to December 15, 2010................................ $29,064,254 $ -- 7.60% to 8.01% mortgage notes, payable in monthly principal installments of $39,646 plus interest maturing from June 28, 2001 to August 17, 2002... 22,005,752 22,465,410 7.92% to 8.95% mortgage notes, payable in monthly installments of $117,628, including principal and interest, maturing from October 1, 2005 to August 1, 2009.......................................... 13,282,672 -- 8.40% mortgage note, payable in monthly installments of $102,646, including principal and interest, maturing on June 1, 2017............... 12,916,746 -- 7.84% mortgage note, payable in monthly installments of $92,119, including principal and interest, maturing on September 1, 2005.......... 12,490,525 -- 9.80% mortgage note, payable in monthly installments of $73,899, including principal and interest, maturing on February 1, 1999........... 7,892,935 8,000,421 7.94% mortgage note, payable in monthly installments of $52,214, including principal and interest, maturing on December 21, 2002.......... 6,612,868 -- 9.75% mortgage note, payable in monthly installments of $55,630, including principal and interest, maturing on January 1, 1998............ 5,864,972 -- 8.625% mortgage note, payable in monthly installments of $23,225, including principal and interest, maturing on June 1, 2003............... 2,295,238 -- 7.90% to 8.10% mortgage notes, payable in monthly installments of $21,595, including principal and interest, maturing from April 1, 2012 to June 1, 2017............................................. 2,189,049 -- 6.987% to 7.863% (LIBOR + 1.25%) mortgage notes, interest only, payable monthly maturing from November 30, 1998 to June 12, 2000............... 24,122,500 --
F-13 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 4. MORTGAGE LOANS PAYABLE, CONTINUED
1997 1996 ---- ---- Construction notes payable, interest only payable monthly at LIBOR + 1.5% and Prime + .25% maturing December 2001.................................... 4,682,835 1,518,331 7.375% (LIBOR + 1.5%) mortgage note, payable in monthly principal installments of $4,438, maturing on August 1, 1998....................... 2,035,643 -- 8.72% mortgage note, rate adjusts annually, payable in monthly installments of $23,105, including principal and interest, paid in full during 1997...................................... -- 2,296,902 ------------ ----------- Total mortgage loans payable...................... $145,455,989 $34,281,064 ============ ===========
Principal maturities on the mortgage loans are as follows:
YEAR AMOUNT ---- ------ 1998................................. $ 27,048,272 1999................................. 9,386,671 2000................................. 13,488,153 2001................................. 14,452,126 2002................................. 18,712,015 Thereafter........................... 62,368,752 ------------ Total................................ $145,455,989 ============
As part of its borrowing arrangements, the Partnership is expected to maintain escrow balances for the payment of real estate taxes on the mortgaged properties. Escrow balances recorded as cash and cash equivalents were $1,394,612 and $96,353 at December 31, 1997 and 1996, respectively. In conjunction with the acquisition of the Midland properties during the first quarter of 1998, the Partnership assumed mortgage loans of $66,191,790. The mortgage loans have interest rates in a range of 7.2% to 9.6%, and mature from June 10, 1999 to December 10, 2007. Principal and interest payments are due monthly on the loans. 5. ACQUISITION AND DEVELOPMENT LINE OF CREDIT At December 31, 1997, Regency had a $150 million unsecured revolving line of credit which is used to finance real estate acquisitions and developments which are included within the Partnership. Accordingly, Regency has assigned this line of credit to the Partnership. The interest rate is based upon LIBOR plus 1.5% with interest only for two years, and if then terminated, becomes a two year term loan maturing in May 2000 with principal due in seven equal quarterly installments. During March 1998, the line terms were modified by increasing the commitment to $300 million, reducing the interest rate and incorporating a competitive bid facility of up to $150 million of the commitment amount. The borrower may request a one year extension of the interest only revolving period annually in May of each year. F-14 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 6. REGENCY STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Allocation of profits and losses and distributions to unit holders are made in accordance with the partnership agreement. Distributions to Limited Partners are made in the same amount as the dividends declared and paid on Regency common stock. Distributions to the General Partner are made at the General Partner's discretion. The following represent equity transactions initiated by Regency. The proceeds from such transactions are the primary source of capital from which the Partnership acquires and develops new real estate. On June 11, 1996, Regency entered into a Stockholders Agreement (the "Agreement") with Security Capital Holdings S.A. (together with its parent company Security Capital U.S. Realty, "SC-USREALTY") granting it certain rights such as purchasing Regency common stock, nominating representatives to Regency's Board of Directors, and subjecting SC-USREALTY to certain restrictions including voting and ownership restrictions. The Agreement primarily granted SC-USREALTY (i) the right to acquire 7,499,400 shares for approximately $132 million and also participation rights entitling it to purchase additional equity in Regency, at the same price as that offered to other purchasers, each time that Regency sells additional shares of capital stock or options or other rights to acquire capital stock, in order to preserve SC-USREALTY's pro rata ownership position; and (ii) the right to nominate a proportionate number of directors on Regency's Board, rounded down to the nearest whole number, based upon SC-USREALTY's percentage ownership of outstanding common stock (but not to exceed 49% of the Board). As of December 31, 1997, SC-USREALTY has acquired all of the 7,499,400 shares related to the Agreement. In connection with the units and shares of Regency common stock issued in exchange for Branch's assets (see note 2, Acquisitions of Shopping Centers), SC-USREALTY acquired 1,750,000 shares during August and December, 1997 at $22.125 per share in accordance with their rights as provided for in the Agreement. For a period of at least five years (subject to certain exceptions), SC- USREALTY is precluded from, among other things, (i) acquiring more than 45% of the outstanding Regency common stock on a diluted basis, (ii) transferring shares without Regency's approval in a negotiated transaction that would result in any transferee beneficially owning more than 9.8% of Regency's capital stock, or (iii) acting in concert with any third parties as part of a 13D group. Subject to certain exceptions, SC-USREALTY is required to vote its shares either as recommended by the Board of Directors or proportionately in accordance with the vote of the other shareholders. On July 11, 1997, Regency sold 2,415,000 shares to the public at $27.25 per share. In connection with that offering, SC-USREALTY purchased an additional 1,785,000 shares at $27.25 directly from Regency. On August 11, 1997, the Underwriters exercised the over-allotment option and Regency issued an additional 129,800 shares to the public and 95,939 shares to SC-USREALTY at $27.25 per share. Total proceeds from the sale of common stock to the public and SC-USREALTY of approximately $117 million net of offering expenses was used to reduce the balance of the Partnership's line of credit. Regency completed a $50 million private placement by issuing 2,500,000 shares of non-voting Class B common stock to a single investor on December 20, 1995 (the "Private Placement"). The proceeds from the Private Placement were used to acquire five shopping centers. Regency initially issued $18,250,000 of Series B preferred stock on October 26, 1995 to fund the acquisition of a shopping center. These shares were subsequently converted into Class B common stock. The Class B common stock is convertible into 2,975,468 shares of common stock beginning on the third F-15 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 6. REGENCY STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL, CONTINUED anniversary of the issuance date, subject to certain limitations defined in the agreement. The dividend on each share of Class B common stock is payable when and if declared by the Board of Directors pari passu with any dividend on the common stock of Regency. 7. EARNINGS PER UNIT The following summarizes the calculation of basic and diluted earnings per unit for the years ended, December 31, 1997, 1996 and 1995 (in thousands except per unit data):
1997 1996 1995 ------- ------ ------ Basic earnings per unit ("EPU") calculation: Weighted average common units outstanding............. 15,327 5,191 4,712 ======= ====== ====== Net income............................................ $23,510 $4,942 $ 796 Less dividends paid on Class B common stock and preferred stock...................................... 5,140 3,937 591 ------- ------ ------ Net income for Basic and Diluted EPU.................. $18,370 $1,005 $ 205 ======= ====== ====== Basic EPU.............................................. $ 1.20 $ 0.19 $ 0.04 ======= ====== ====== Diluted EPU calculation: Weighted average units outstanding per basic EPU...... 15,327 5,191 4,712 Incremental shares to be issued under common stock options using the Treasury method.................... 80 3 -- Contingent units or shares for the acquisition of real estate............................................... 955 -- -- ------- ------ ------ Total diluted units................................... 16,362 5,194 4,712 ======= ====== ====== Diluted EPU............................................ $ 1.12 $ 0.18 $ 0.04 ======= ====== ======
The Class B common stock dividends and the preferred stock dividends are deducted from net income in computing earnings per unit since the proceeds of these offerings were transferred to and reinvested by the Partnership. Accordingly, payment of such dividends is dependent upon the operations of the Partnership. 8. LONG-TERM STOCK INCENTIVE PLANS Regency is committed to contribute to the Partnership all proceeds from the exercise of options or other stock-based awards granted under Regency's Stock Option and Incentive Plan. Regency's ownership in the Partnership will be increased based on the amount of proceeds contributed to the Partnership. In 1993, Regency adopted a Long Term Omnibus Plan (the "Plan") pursuant to which the Board of Directors may grant stock and stock options to officers, directors and other key employees. The Plan provides for the issuance of up to 12% of Regency's common shares outstanding not to exceed 3 million shares of authorized but unissued common stock. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All stock options granted have ten year terms, and with respect to officers and other key employees, become fully exercisable after five years from the date of grant, and with respect to directors, become fully exercisable after one year. F-16 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 8. LONG-TERM STOCK INCENTIVE PLANS, CONTINUED At December 31, 1997, there were approximately 1.3 million shares available for grant under the Plan. The per share weighted-average fair value of stock options granted during 1997 and 1996 was $3.26 and $3.04 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1997--expected dividend yield 6.3%, risk-free interest rate of 6.3%, expected volatility 21%, and an expected life of 5.7 years; 1996--expected dividend yield 6.6%, risk-free interest rate of 5.9%, expected volatility 21%, and an expected life of five years. The Partnership applies APB Opinion No. 25 in accounting for this Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Partnership determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Partnership's net income would have been reduced to the pro forma amounts indicated below (in thousands except per unit data):
1997 1996 1995 ------- ------ ---- Net income as reported................................... $23,510 $4,942 $796 Net income per unit: Basic.................................................. 1.20 0.19 0.04 Diluted................................................ 1.12 0.19 0.04 Pro forma net income..................................... 21,884 4,932 796* Net income per unit: Basic.................................................. 1.09 0.19 0.04 Diluted................................................ 1.02 0.19 0.04
* The options granted during 1995 were issued on December 31, 1995 and accordingly had no effect to income. Pro forma net income for unitholders reflects only options granted in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income for unitholders amounts presented above because compensation cost is reflected over the options' vesting period and compensation cost for options granted prior to January 1, 1995 is not considered. Stock option activity during the periods indicated is as follows:
NUMBER OF WEIGHTED-AVERAGE SHARES EXERCISE PRICE --------- ---------------- Outstanding, December 31, 1994................... 191,000 $19.16 Granted......................................... 6,000 17.25 Forfeited....................................... (11,000) 19.25 --------- ------ Outstanding, December 31, 1995................... 186,000 19.09 Granted......................................... 12,000 24.67 --------- ------ Outstanding, December 31, 1996................... 198,000 19.43 Granted......................................... 1,252,276 25.39 Forfeited....................................... (7,000) 23.54 Exercised....................................... (124,769) 19.25 --------- ------ Outstanding, December 31, 1997................... 1,318,507 $25.08 ========= ======
F-17 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 8. LONG-TERM STOCK INCENTIVE PLANS, CONTINUED The following table presents information regarding all options outstanding at December 31, 1997.
WEIGHTED AVERAGE NUMBER OF REMAINING RANGE OF WEIGHTED AVERAGE OPTIONS OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES EXERCISE PRICE ------------------- ---------------- --------------- ---------------- 61,231 6.1 years $16.75--19.25 $18.77 1,155,800 9.0 years 25.25 25.25 101,476 6.8 years 26.25--27.75 26.99 --------- --------- ------------- ------ 1,318,507 8.7 years $16.75--27.75 25.08 ========= ========= ============= ======
The following table presents information regarding options currently exercisable at December 31, 1997.
NUMBER OF RANGE OF WEIGHTED AVERAGE OPTIONS EXERCISABLE EXERCISE PRICES EXERCISE PRICE ------------------- --------------- ---------------- 61,231 $16.75--19.25 $18.77 240,500 25.25--26.25 25.27 76,476 26.88 26.88 ------- ------------- ------ 378,207 $16.75--26.88 $24.54 ======= ============= ======
Also as part of the Plan, in 1993 and 1996, certain officers purchased common stock at fair market value directly from Regency, of which 90% and 95%, respectively, was financed by a stock purchase loan provided by the Plan. These recourse loans are fully secured by stock, bear interest at fixed rates of 7.34% to 7.79% and mature after ten years. The Board of Directors may authorize the forgiveness of all or a portion of the principal balance based on Regency's achievement of specified financial objectives, and total stockholder return performance targets. During 1997, 1996 and 1995, $601,516, $646,598 and $379,418 was forgiven, respectively, and is included as a charge to income on the Partnership's consolidated statements of operations. Regency also has a performance based restricted stock plan for officers whereby a portion of the shares authorized under the Plan may be granted upon the achievement of certain total stockholder return performance targets. Shares granted under the plan become fully vested by January 1, 2000. During 1997 and 1996, related to the restricted stock plan, Regency allocated $259,600 and $809,400, respectively, to the Partnership, which has been offset against income on the Partnership's consolidated statement of operations. 9. OPERATING LEASES The Partnership's properties are leased to tenants under operating leases with expiration dates extending to the year 2041. Future minimum rent under noncancelable operating leases as of December 31, 1997, excluding tenant reimbursements of operating expenses and excluding additional contingent rentals based on tenants' sales volume are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ ------------ 1998......................... $ 63,513,327 1999......................... 57,715,603 2000......................... 51,604,223 2001......................... 41,306,315 2002......................... 35,169,738 Thereafter................... 253,648,003 ------------ Total........................ $502,957,209 ============
F-18 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 At December 31, 1997, the real estate portfolio as a whole was approximately 93.6% leased. 9. OPERATING LEASES, CONTINUED The shopping centers' tenant base includes primarily national and regional supermarkets, drug stores, discount department stores and other retailers and, consequently, the credit risk is concentrated in the retail industry. During 1997, there was one tenant which individually represented 10.51% of the combined minimum rent, no other tenants individually exceeded 10%. The combined annualized rent from the Partnership's four largest retail tenants represented approximately 21% of annualized minimum rent at December 31, 1997. 10. RELATED PARTY TRANSACTIONS The Partnership provides management, leasing, and brokerage services for certain commercial real estate properties of The Regency Group, Inc. ("TRG"), a corporation wholly-owned by certain officers and stockholders of Regency, and its affiliates. Fees for such services are charged to TRG based on current market rates. From time to time, certain personnel of the Partnership may provide administrative services to TRG, pursuant to an agreement. The cost of such services are reimbursed by TRG based on percentage allocations of management time and general overhead made in compliance with applicable regulations of the Internal Revenue Service. 11. CONTINGENCIES The Partnership like others in the commercial real estate industry, is subject to numerous environmental laws and regulations and the operation of dry cleaning plants at the Partnership's shopping centers is the principal environmental concern. The Partnership believes that the dry cleaners are operating in accordance with current laws and regulations and has established procedures to monitor their operations. While the Partnership has registered the plants located in Florida under a state funded program designed to substantially fund the clean up, if necessary, of any environmental issues, the owner or operator is not relieved from the ultimate responsibility for clean up. The Partnership also has established due diligence procedures to identify and evaluate potential environmental issues on properties under consideration for acquisition. In connection with acquisitions during 1997 and 1996, the Partnership established environmental reserves of $1,944,633 and $600,000, respectively. While it is not possible to predict with certainty, management believes that the reserves are adequate to cover future clean-up costs related to these sites. The Partnership's policy is to accrue environmental clean-up costs when it is probable that a liability has been incurred and that amount is reasonably estimable. Based on information presently available, no additional environmental accruals were made and management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity or operations of the Partnership. F-19 REGENCY CENTERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 12. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED) Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 1997 and 1996.
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- (AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA) 1997: Revenues................ $12,991 19,468 21,027 22,216 Net income.............. 3,320 4,028 7,624 8,538 Basic net income per unit................... 0.20 0.20 0.35 0.37 Diluted net income per unit................... 0.20 0.19 0.33 0.35 1996: Revenues................ $ 5,965 6,213 7,478 8,757 Net income.............. 1,315 1,276 1,837 514 Basic net income per unit................... 0.06 0.06 0.16 (0.08) Diluted net income per unit................... 0.06 0.06 0.16 (0.08)
F-20 Independent Auditors' Report On Financial Statement Schedule ------------------------------- The Unit Holders of Regency Centers, L.P. and the Board of Directors of Regency Realty Corporation: Under date of June 9, 1998 we reported on the consolidated balance sheets of Regency Centers, L.P. as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in the report on Form 10. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index on page F-1 of the report on Form 10. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Jacksonville, Florida June 9, 1998 S-1 REGENCY CENTERS, L.P. Combined Real Estate and Accumulated Depreciation December 31 ,1997
Schedule III Initial Cost Total Cost ------------------------------- Cost Capitalized ------------------------------ Building & Subsequent to Building & Land Improvements Acquisition Land Improvements ---- ------------ ----------- ---- ------------ Anastasia Shopping Plaza 1,072,451 3,617,493 112,404 1,072,451 3,729,897 Ashford Place 2,803,998 9,943,994 79,313 2,803,998 10,023,307 Berkshire Commons 2,294,960 8,151,236 36,131 2,294,960 8,187,367 Bolton Plaza 2,660,227 6,209,110 1,168,755 2,634,663 7,403,429 Boynton Lakes 2,783,000 10,043,027 - 2,783,000 10,043,027 Braelin Village 4,191,214 12,389,585 29,000 4,191,214 12,418,585 Briarcliff LaVista 694,120 2,462,819 - 694,120 2,462,819 Briarcliff Village 4,597,018 16,303,813 - 4,597,018 16,303,813 Buckhead Court 1,737,569 6,162,941 101,703 1,737,569 6,264,644 Cambridge Square 792,000 2,916,034 9,503 792,000 2,925,537 Carmel Commons 2,466,200 8,903,187 394,450 2,466,200 9,297,637 Carriage Gate 740,960 2,494,750 973,938 740,960 3,468,688 City View 1,207,204 4,341,304 23,534 1,207,204 4,364,838 Cromwell Square 1,771,892 6,285,288 - 1,771,892 6,285,288 Cumming 400 2,374,562 8,420,776 1,506 2,374,562 8,422,282 Dunwoody Hall 1,819,209 6,450,922 13,824 1,819,209 6,464,746 Dunwoody Village 2,326,063 7,216,045 107,404 2,326,063 7,323,449 East Port Plaza 3,257,023 11,611,363 98,247 3,257,023 11,709,610 Ensley Square 915,493 3,120,928 - 915,493 3,120,928 Garden Square 2,073,500 7,614,748 5,250 2,073,500 7,619,998 Glenwood Village 1,194,198 4,235,476 48,930 1,194,198 4,284,406 Harpeth Village 2,283,874 5,559,498 - 2,283,874 5,559,498 Loehmann's Plaza 3,981,525 14,117,891 - 3,981,525 14,117,891 Lovejoy Station 1,540,000 5,581,468 1,654 1,540,000 5,583,122 Mainstreet Square 1,274,027 4,491,897 9,666 1,274,027 4,501,563 Mariner's Village 1,628,000 5,907,835 106,970 1,628,000 6,014,805 Marketplace 546,831 2,189,267 - 546,831 2,189,267 Marketplace - Murphreesburo 2,432,942 1,755,643 1,813,070 2,432,942 3,568,713 Market Place - St. Petersburg 1,287,000 4,662,740 145,115 1,287,000 4,807,855 Memorial Bend 3,256,181 11,546,660 - 3,256,181 11,546,660 Merchants Village 1,054,306 3,162,919 - 1,054,306 3,162,919
Total Cost, Net of Accumulated Accumulated Total Depreciation Depreciation Mortgages ----- ------------ ------------ --------- Anastasia Shopping Plaza 4,802,348 454,375 4,347,973 - Ashford Place 12,827,305 270,924 12,556,381 4,737,136 Berkshire Commons 10,482,327 833,858 9,648,469 7,892,935 Bolton Plaza 10,038,092 703,549 9,334,543 - Boynton Lakes 12,826,027 - 12,826,027 - Braelin Village 16,609,799 303,120 16,306,679 12,490,525 Briarcliff LaVista 3,156,939 59,584 3,097,355 1,667,855 Briarcliff Village 20,900,831 438,272 20,462,559 13,439,036 Buckhead Court 8,002,213 150,456 7,851,757 - Cambridge Square 3,717,537 72,374 3,645,163 - Carmel Commons 11,763,837 173,087 11,590,750 - Carriage Gate 4,209,648 544,405 3,665,243 2,377,489 City View 5,572,042 162,095 5,409,947 - Cromwell Square 8,057,180 168,957 7,888,223 4,518,368 Cumming 400 10,796,844 226,366 10,570,478 6,489,309 Dunwoody Hall 8,283,955 173,531 8,110,424 - Dunwoody Village 9,649,512 138,770 9,510,742 5,864,972 East Port Plaza 14,966,633 221,661 14,744,972 - Ensley Square 4,036,421 60,018 3,976,403 - Garden Square 9,693,498 47,723 9,645,775 6,612,868 Glenwood Village 5,478,604 102,842 5,375,762 2,295,238 Harpeth Village 7,843,372 - 7,843,372 4,682,835 Loehmann's Plaza 18,099,416 379,505 17,719,911 10,000,000 Lovejoy Station 7,123,122 69,796 7,053,326 - Mainstreet Square 5,775,590 89,814 5,685,776 - Mariner's Village 7,642,805 111,949 7,530,856 - Marketplace 2,736,098 154,947 2,581,151 2,286,946 Marketplace - Murphreesburo 6,001,655 76,255 5,925,400 2,035,643 Market Place - St. Petersburg 6,094,855 245,981 5,848,874 - Memorial Bend 14,802,841 279,358 14,523,483 8,545,536 Merchants Village 4,217,225 67,584 4,149,641 -
(*) The year acquired or year constructed is in Item 3. Properties in the Company's Form 10. REGENCY CENTERS, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1997
Schedule III -continued- Initial Cost Total Cost -------------------------------- Cost Capitalized -------------------------------- Building & Subsequent to Building & Land Improvements Acquisition Land Improvements ---- ------------ ----------- ---- ------------ Newberry Square 2,341,460 8,466,651 671,840 2,341,460 9,138,491 Oakley Plaza 1,772,540 6,406,975 20,481 1,772,540 6,427,456 Old St. Augustine Plaza 2,047,151 7,355,162 36,833 2,047,151 7,391,995 Orchard Square 1,155,000 4,135,353 248,460 1,155,000 4,383,813 Paces Ferry Plaza 2,811,522 9,967,557 222,957 2,811,522 10,190,514 Palm Harbour 2,899,928 10,998,230 315,287 2,899,928 11,313,517 Paragon Cable Building 570,000 2,472,537 - 570,000 2,472,537 Peachland Promenade 1,284,562 5,143,564 58,119 1,284,562 5,201,683 Peartree Village 5,196,653 8,732,711 4,408,150 5,196,653 13,140,861 Pine Tree Plaza 539,000 1,995,927 - 539,000 1,995,927 Powers Ferry Square 3,607,647 12,790,749 6,762 3,607,647 12,797,511 Powers Ferry Village 1,190,822 4,223,606 - 1,190,822 4,223,606 Quadrant 2,342,823 15,541,967 1,315,295 2,343,699 16,856,386 Regency Court 3,571,337 12,664,014 3,480 3,571,337 12,667,494 Rivermont Station 2,887,213 10,445,109 - 2,887,213 10,445,109 Roswell Village 2,304,345 6,777,200 - 2,304,345 6,777,200 Russell Ridge 2,153,214 0 6,546,957 2,215,341 6,484,830 Sandy Plains Village 2,906,640 10,412,440 1,635 2,906,640 10,414,075 Sandy Springs Village 733,126 2,565,411 65,000 733,126 2,630,411 Seven Springs 1,737,994 6,290,048 1,424,083 1,757,441 7,694,684 Tamiami Trails 2,046,286 7,462,646 - 2,046,286 7,462,646 Tequesta Shoppes 1,782,000 6,426,042 120,447 1,782,000 6,546,489 Town Center at Martin Downs 1,364,000 4,985,410 7,903 1,364,000 4,993,313 Town Square 438,302 1,555,481 - 438,302 1,555,481 Trowbridge Crossing 910,263 1,914,551 - 910,263 1,914,551 Union Square 1,578,654 5,933,889 108,926 1,578,654 6,042,815 University Collection 2,530,000 8,971,597 90,249 2,530,000 9,061,846 University Marketplace 3,250,562 7,044,579 2,209,804 3,532,046 8,972,899 Village Center 3,010,586 10,799,316 295,220 3,010,585 11,094,537 Welleby Plaza 1,496,000 5,371,636 253,171 1,496,000 5,624,807 Wellington Market Place 5,070,384 13,308,972 222,784 5,070,384 13,531,756 Wellington Town Square 1,914,000 7,197,934 574,179 1,914,000 7,772,113 Westland One 198,344 1,747,391 60,445 198,344 1,807,836 Woodcroft Shopping Center 1,419,000 5,211,981 312,251 1,419,000 5,524,232 ----------- ----------- ---------- ----------- ----------- 134,118,905 443,187,293 24,881,085 134,457,274 467,730,009 =========== =========== ========== =========== ===========
Total Cost, Net of Accumulated Accumulated Total Depreciation Depreciation Mortgages ----- ------------ ------------ --------- Newberry Square 11,479,951 1,072,541 10,407,410 6,656,968 Oakley Plaza 8,199,996 126,236 8,073,760 - Old St. Augustine Plaza 9,439,146 209,150 9,229,996 - Orchard Square 5,538,813 219,788 5,319,025 - Paces Ferry Plaza 13,002,036 269,031 12,733,005 5,065,000 Palm Harbour 14,213,445 393,904 13,819,541 - Paragon Cable Building 3,042,537 242,120 2,800,417 - Peachland Promenade 6,486,245 420,484 6,065,761 4,280,979 Peartree Village 18,337,514 196,402 18,141,112 12,916,746 Pine Tree Plaza 2,534,927 0 2,534,927 - Powers Ferry Square 16,405,158 309,526 16,095,632 - Powers Ferry Village 5,414,428 102,184 5,312,244 2,949,686 Quadrant 19,200,085 4,356,804 14,843,281 - Regency Court 16,238,831 306,445 15,932,386 5,732,000 Rivermont Station 13,332,322 130,374 13,201,948 - Roswell Village 9,081,545 125,446 8,956,099 - Russell Ridge 8,700,171 445,001 8,255,170 6,403,370 Sandy Plains Village 13,320,715 368,719 12,951,996 - Sandy Springs Village 3,363,537 56,976 3,306,561 - Seven Springs 9,452,125 868,180 8,583,945 - Tamiami Trails 9,508,932 77,983 9,430,949 - Tequesta Shoppes 8,328,489 216,001 8,112,488 - Town Center at Martin Down 6,357,313 135,242 6,222,071 - Town Square 1,993,783 37,632 1,956,151 1,525,500 Trowbridge Crossing 2,824,814 36,818 2,787,996 1,800,000 Union Square 7,621,469 211,085 7,410,384 - University Collection 11,591,846 270,068 11,321,778 - University Marketplace 12,504,945 1,553,812 10,951,133 - Village Center 14,105,122 577,869 13,527,253 - Welleby Plaza 7,120,807 336,416 6,784,391 - Wellington Market Place 18,602,140 767,986 17,834,154 - Wellington Town Square 9,686,113 292,551 9,393,562 - Westland One 2,006,180 391,646 1,614,534 - Woodcroft Shopping Center 6,943,232 135,538 6,807,694 - ----------- ---------- ----------- ----------- 602,187,283 22,041,114 580,146,169 143,266,940 =========== ========== =========== ===========
(*) The year acquired or year constructed is in Item 3. Properties in the Company's Form 10. REGENCY CENTERS, L.P. Combined Real Estate and Accumulated Depreciation December 31, 1997 Schedule III -continued- Depreciation and amortization of the Company's investment in buildings and improvements reflected in the statement of operations is calculated over the estimated useful lives of the assets as follows: Buildings and improvements up to 40 years The aggregate cost for Federal income tax purposes was approximately $568,586,056 at December 31, 1997. The changes in total real estate assets for the period ended December 31, 1997 and 1996: 1997 1996 ------------ ----------- Balance, beginning of period 252,670,199 149,419,123 Developed or acquired properties 348,747,973 101,924,556 Sale of property (2,907,503) - Improvements 3,676,614 1,326,520 ------------ ----------- Balance, end of period $ 602,187,283 252,670,199 ============ =========== The changes in accumulated depreciation for the period ended December 31, 1997 and 1996: 1997 1996 ----------- ---------- Balance, beginning of period 11,669,690 7,647,935 Sale of property (713,176) - Depreciation for period 11,084,600 4,021,755 ----------- ---------- Balance, end of period $22,041,114 11,669,690 =========== ========== EX-99.4 2 FORM 10-Q FOR 09/30/1998 EXHIBIT 99.4 United States SECURITIES AND EXCHANGE COMMISSION Washington DC 20549 FORM 10-Q (Mark One) [X] For the quarterly period ended September 30, 1998 -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 [ ] Item 1. Financial Statements REGENCY CENTERS, L.P. Consolidated Balance Sheets September 30, 1998 and December 31, 1997
1998 1997 ---- ---- (unaudited) Assets Real estate investments, at cost: Land $ 201,611,212 134,457,274 Buildings and improvements 716,286,569 467,730,009 Construction in progress - development for investment 7,220,442 13,427,370 Construction in progress - development for sale 16,727,205 20,173,039 ----------------- --------------- 941,845,428 635,787,692 Less: accumulated depreciation 30,092,439 22,041,114 ----------------- --------------- 911,752,989 613,746,578 Investments in real estate partnerships 24,812,813 999,730 ----------------- --------------- Net real estate investments 936,565,802 614,746,308 Cash and cash equivalents 13,069,033 14,642,429 Tenant receivables, net of allowance for uncollectible accounts of $2,093,924 and $1,162,570 at September 30, 1998 and December 31, 1997, respectively 13,331,237 7,245,788 Deferred costs, less accumulated amortization of $1,905,716 and $1,456,933 at September 30, 1998 and December 31, 1997, respectively 3,721,370 2,215,099 Other assets 5,547,600 2,299,521 ----------------- --------------- $ 972,235,042 641,149,145 ================= =============== Liabilities and Partners' Capital Liabilities: Notes payable 338,278,896 145,455,989 Acquisition and development line of credit 45,931,185 48,131,185 Accounts payable and other liabilities 23,726,388 9,972,065 Tenants' security and escrow deposits 2,419,249 1,854,700 ----------------- --------------- Total liabilities 410,355,718 205,413,939 ----------------- --------------- Limited partners' interest in consolidated partnerships (note 2) 7,469,749 7,305,945 ----------------- --------------- Partners' Capital: Series A preferred units, par value $50, 1,600,000 units issued and outstanding at September 30, 1998 78,800,000 - General partner; 23,585,493 and 21,822,226 common units outstanding at September 30, 1998 and December 31, 1997, respectively 454,666,241 415,112,127 Limited partners; 1,077,808 and 545,357 common units outstanding at September 30, 1998 and December 31, 1997, respectively 20,943,334 13,317,134 ----------------- --------------- Total partners' capital 554,409,575 428,429,261 ----------------- --------------- Commitments and contingencies $ 972,235,042 641,149,145 ================= ===============
See accompanying notes to consolidated financial statements. 2 REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Three Months ended September 30, 1998 and 1997 (unaudited)
1998 1997 ---- ---- Revenues: Minimum rent $ 22,354,064 14,922,153 Percentage rent 91,356 162,301 Recoveries from tenants 5,080,325 3,338,465 Management, leasing and brokerage fees 2,616,945 2,601,076 Equity in income of investments in real estate partnerships 364,778 2,557 ----------------- -------------- Total revenues 30,507,468 21,026,552 ----------------- --------------- Operating expenses: Depreciation and amortization 5,328,129 3,255,958 Operating and maintenance 3,654,505 3,042,856 General and administrative 3,375,878 2,545,387 Real estate taxes 2,612,111 1,822,347 ----------------- -------------- Total operating expenses 14,970,623 10,666,548 ----------------- --------------- Interest expense (income): Interest expense 5,272,968 2,782,220 Interest income (405,787) (263,266) ----------------- --------------- Net interest expense 4,867,181 2,518,954 ----------------- --------------- Income before minority interests and sale of real estate investments 10,669,664 7,841,050 ----------------- --------------- Minority interest of limited partners (189,385) (220,589) Loss on sale of real estate investments (8,871) - ----------------- --------------- Net income 10,471,408 7,620,461 Preferred unit distribution (1,733,333) - ----------------- --------------- Net income for unitholders 8,738,075 7,620,461 ================= =============== Net income per common unit: Basic $ 0.30 0.35 ================= =============== Diluted $ 0.30 0.33 ================= ===============
See accompanying notes to consolidated financial statements 3 REGENCY CENTERS, L.P. Consolidated Statements of Operations For the Nine Months ended September 30, 1998 and 1997 (unaudited)
1998 1997 ---- ---- Revenues: Minimum rent $ 59,555,899 38,021,981 Percentage rent 714,255 689,100 Recoveries from tenants 13,424,928 8,466,101 Management, leasing and brokerage fees 8,023,313 6,288,601 Equity in income of investments in real estate partnerships 511,189 19,694 ----------------- --------------- Total revenues 82,229,584 53,485,477 ----------------- --------------- Operating expenses: Depreciation and amortization 14,068,450 8,407,931 Operating and maintenance 10,025,253 7,490,702 General and administrative 10,638,327 7,761,401 Real estate taxes 7,010,606 4,542,042 ----------------- --------------- Total operating expenses 41,742,636 28,202,076 ----------------- --------------- Interest expense (income): Interest expense 14,522,548 10,414,048 Interest income (1,339,259) (686,282) ----------------- --------------- Net interest expense 13,183,289 9,727,766 ----------------- --------------- Income before minority interests and sale of real estate investments 27,303,659 15,555,635 ----------------- --------------- Minority interest of limited partners (389,544) (565,731) Gain on sale of real estate investments 10,737,226 - ----------------- --------------- Net income 37,651,341 14,989,904 Preferred unit distribution (1,733,333) - ----------------- --------------- Net income available for common unit holders 35,918,008 14,989,904 ================= =============== Net income per common unit: Basic $ 1.34 0.67 ================= =============== Diluted $ 1.31 0.63 ================= ===============
See accompanying notes to consolidated financial statements 4 REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1998 and 1997 (unaudited)
1998 1997 ---- ---- Cash flows from operating activities: Net income $ 37,651,341 14,989,904 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation and amortization 14,068,450 8,407,931 Deferred financing cost and debt premium amortization (366,616) - Minority interest of limited partners 389,544 565,731 Equity in income of investments in real estate partnerships (511,189) (19,694) Gain on sale of real estate investments (10,737,226) - Changes in assets and liabilities: Tenant receivables (6,085,449) 515,449 Deferred leasing commissions (1,260,601) (406,449) Other assets (4,975,156) (824,376) Tenants' security deposits 564,549 363,657 Accounts payable and other liabilities 12,020,990 4,663,184 --------------- --------------- Net cash provided by operating activities 40,758,637 28,255,337 --------------- --------------- Cash flows from investing activities: Acquisition and development of real estate (178,953,026) (130,993,385) Investment in real estate partnerships (23,337,738) - Capital improvements (3,650,658) (1,863,824) Construction in progress for sale, net of reimbursement 3,445,834 (8,094,704) Proceeds from sale of real estate investments 30,662,197 - Distributions received from real estate partnership investments 35,844 50,000 --------------- --------------- Net cash used in investing activities (171,797,547) (140,901,913) --------------- --------------- Cash flows from financing activities: Net proceeds from issuance of limited partnership units 7,694 2,255,140 Cash contributions from the issuance of Regency stock 9,733,060 208,356,926 Contributions from limited partners in consolidated partnerships 164,785 - Cash distributions for preferred units (1,733,333) - Cash distributions for dividends (38,783,993) (24,733,456) Other contributions (distributions), net 12,195,873 1,860,910 Net proceeds from issuance of Series A preferred units 78,800,000 - Net proceeds from term notes 99,758,000 - Repayment of acquisition and development line of credit, net (2,200,000) (69,870,000) Proceeds from mortgage loans payable 7,345,000 14,649,706 Repayment of mortgage loans payable (34,576,785) (14,905,241) Deferred financing costs (1,244,787) (564,586) --------------- --------------- Net cash provided by financing activities 129,465,514 117,049,399 --------------- --------------- Net (decrease) increase in cash and cash equivalents (1,573,396) 4,402,823 Cash and cash equivalents at beginning of period 14,642,429 6,466,899 --------------- --------------- Cash and cash equivalents at end of period $ 13,069,033 10,869,722 =============== ===============
5 REGENCY CENTERS, L.P. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1998 and 1997 (unaudited)
1998 1997 ---- ---- Supplemental disclosure of non-cash transactions: Mortgage loans assumed from sellers of real estate $ 121,166,552 117,698,966 ============== =============== Limited and general partnership units issued to acquire real estate $ 35,389,254 94,769,706 =============== ===============
See accompanying notes to consolidated financial statements. 6 REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements September 30, 1998 1. Summary of Significant Accounting Policies (a) Organization and Principles of Consolidation Regency Centers, L.P. (the Partnership) is the primary entity through which Regency Realty Corporation ("Regency"), a self- administered and self-managed real estate investment trust ("REIT"), conducts substantially all of its business and owns substantially all of its assets. In 1993, Regency was formed for the purpose of managing, leasing, brokering, acquiring, and developing shopping centers. The Partnership also provides management, leasing, brokerage and development services for real estate not owned by Regency (i.e., owned by third parties). 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. The accompanying interim unaudited financial statements (the "Financial Statements") include the accounts of the Partnership, and its majority owned subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and 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 pursuant to such rules and regulations, 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, 1997 Form 10 filed with the Securities and Exchange Commission. (b) Statement of Financial Accounting Standards No. 130 The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which is effective for fiscal years beginning after December 15, 1997. FAS 130 establishes standards for reporting total comprehensive income in financial statements, and requires that Companies explain the differences between total comprehensive income and net income. Management has adopted this statement in 1998. No differences between total comprehensive income and net income existed in the interim financial statements reported at September 30, 1998 and 1997. 7 REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements September 30, 1998 1. Summary of Significant Accounting Policies--(continued) (c) Statement of Financial Accounting Standards No. 131 The FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"), which is effective for fiscal years beginning after December 15, 1997. FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Management does not believe that FAS 131 will effect its current disclosures. (d) Emerging Issues Task Force Issue 97-11 Effective March 19, 1998, the Emerging Issues Task Force (EITF) ruled in Issue 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions", that only internal costs of identifying and acquiring non-operating properties that are directly identifiable with the acquired properties should be capitalized, and that all internal costs associated with identifying and acquiring operating properties should be expensed as incurred. The Partnership had previously capitalized direct costs associated with the acquisition of operating properties as a cost of the real estate. The Partnership has adopted EITF 97-11 effective March 19, 1998. During 1997, the Partnership capitalized approximately $1.5 million of internal costs related to acquiring operating properties. Through the effective date of EITF 97-11, the Partnership has capitalized $474,000 of internal acquisition costs. For the remainder of 1998, the Partnership expects to incur $1.1 million of internal costs related to acquiring operating properties which will be expensed. (e) Emerging Issues Task Force Issue 98-9 On May 22, 1998, the EITF reached a consensus on Issue 98-9 "Accounting for Contingent Rent in Interim Financial Periods". The EITF has stated that lessors should defer recognition of contingent rental income that is based on meeting specified targets until those specified targets are met and not ratably throughout the year. The Partnership has previously recognized contingent rental income (i.e. percentage rent) ratably over the year based on the historical trends of its tenants. The Partnership has adopted Issue 98-9 prospectively and has ceased the recognition of contingent rents until such time as their tenants have achieved its specified target. The Partnership believes this will affect the interim period in which percentage rent is recognized, however it will not have a material impact on the annual recognition of percentage rent. (f) Reclassifications Certain reclassifications have been made to the 1997 amounts to conform to classifications adopted in 1998. 8 REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements September 30, 1998 2. Acquisitions of Shopping Centers During the first nine months of 1998, the Partnership acquired 26 shopping centers for approximately $303.2 million (the "1998 Acquisitions"). In January, 1998, the Partnership entered into an agreement to acquire 32 shopping centers from various entities comprising the Midland Group ("Midland") Of the 32 centers to be acquired or developed, 31 are anchored by Kroger, or its affiliate. The Partnership currently owns 20 of the shopping centers fee simple and 12 through joint ventures. All of the shopping centers included in the development pipeline are owned through various joint ventures in which the Partnership owns less than a 50% interest (the "JV Properties"). The Partnership's investment in the properties acquired from Midland is $220.4 million at September 30, 1998. The Partnership expects to acquire the un-owned interests in two of the JV Properties for approximately $20.7 million prior to year-end. During 1998, 1999 and 2000, including all payments made to date, the Partnership will pay approximately $241 million for the properties, including the assumption of debt, and in addition may pay contingent consideration of up to an estimated $23 million, through the issuance of Partnership units and the payment of cash. Whether contingent consideration will be issued, and if issued, the amount of such consideration, will depend on the satisfaction during 1998, 1999, and 2000 of performance criteria relating to the assets acquired from Midland. For example, if a property acquired as part of Midland's development pipeline satisfies specified performance criteria at closing and when development is completed, the transferors of the property may be entitled to additional Partnership units based on the development cost of the properties and their net operating income. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than units. In March, 1997, the Partnership acquired 26 shopping centers from Branch Properties ("Branch") for $232.4 million. Additional Units and shares of common stock may be issued after the first, second and third anniversaries of the closing with Branch (each an "Earn-Out Closing"), based on the performance of the properties acquired. The formula for the earn-out provides for calculating any increases in value on a property-by-property basis, based on any increases in net income for the properties acquired, as of February 15 of the year of calculation. The earn-out is limited to 721,997 Units at the first Earn-Out Closing and 1,020,061 Units for all Earn-Out Closings (including the first Earn-Out Closing). During March, 1998, the Partnership issued 721,997 Units and shares valued at $18.2 million to the partners of Branch. 3. Notes Payable and Unsecured Line of Credit The Partnership's outstanding debt at September 30, 1998 and December 31, 1997 consists of the following: 1998 1997 ---- ---- Notes Payable: Fixed rate mortgage loans $ 204,218,450 114,615,011 Variable rate mortgage loans 12,620,514 30,840,978 Fixed rate unsecured loans 121,439,932 - Unsecured line of credit 45,931,185 48,131,185 ----------- ----------- Total $ 384,210,081 193,587,174 =========== =========== During March, 1998, the Partnership modified the terms of its unsecured line of credit (the "Line") by increasing the commitment to $300 million, reducing the interest rate, and incorporating a competitive bid facility of up to $150 million of the commitment amount. Maximum availability under the Line is subject to a pool of unencumbered assets which cannot have an aggregate value less 9 REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements September 30, 1998 3. Notes Payable and Unsecured Line of Credit (continued) than 175% of the amount of the Partnership's outstanding unsecured liabilities. The Line matures in May 2000, but may be extended annually for one year periods. Borrowings under the Line bear interest at a variable rate based on LIBOR plus a specified spread, (.875% currently), which is dependent on the Partnership's investment grade rating. The Partnership's ratings are currently Baa2 from Moody's Investor Service, BBB from Duff and Phelps, and BBB- from Standard and Poors. The Partnership is required to comply with certain financial covenants consistent with this type of unsecured financing. The Line is used primarily to finance the acquisition and development of real estate, but is 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 Regency at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of Regency. The net proceeds of the offering were used to reduce the Partnership's bank line of credit. On July 17, 1998 the Partnership completed a $100 million private offering of term notes at an effective interest rate of 7.17%. The Notes were priced at 162.5 basis points over the current yield for seven year US Treasury Bonds. The net proceeds of the offering will be used to repay borrowings under the line of credit. 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 the first nine months of 1998, the Partnership assumed mortgage loans with a face value of $112,124,875 related to the acquisition of shopping centers. The Partnership has recorded the loans at fair value which created debt premiums of $9,041,677 related to assumed debt based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. Unconsolidated partnerships and joint ventures had mortgage loans payable of $74,905,055 at September 30, 1998, and the Partnership's share of these loans was $31,250,636. 10 REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements September 30, 1998 3. Notes Payable and Unsecured Line of Credit (continued) As of September 30, 1998, scheduled principal repayments on notes payable and the unsecured line of credit were as follows: 1998 $ 8,359,366 1999 15,058,956 2000 55,880,179 2001 19,026,352 2002 38,742,477 Thereafter 238,970,935 ----------- Subtotal 376,038,265 Net unamortized debt premiums 8,171,816 ----------- Total $ 384,210,081 =========== 4. Earnings Per Unit The following summarizes the calculation of basic and diluted earnings per unit for the three months ended, September 30, 1998 and 1997 (in thousands except per unit data):
1998 1997 ---- ---- Basic Earnings Per Unit (EPU) Calculation: Weighted average units outstanding 24,404 18,148 Net income for unitholders $ 8,738 7,620 Less: dividends paid on Class B common stock 1,344 1,285 ----- ----- Net income for Basic Earnings per Unit $ 7,394 6,335 ===== ===== Basic Earnings per Unit $ .30 .35 === === Diluted Earnings Per Unit (EPU) Calculation: Weighted average units outstanding for Basic EPU 24,404 18,148 Incremental units to be issued under common stock options using the Treasury method - 83 Contingent units for the acquisition of real estate 492 1,151 ------ ------ Total diluted units 24,896 19,382 ====== ====== Diluted Earnings per Unit $ .30 .33 === ===
The Class B common stock dividends are deducted from income in computing earnings per unit since the proceeds of this offerings was transferred to and reinvested by the Partnership. Accordingly, payment of such dividends is dependent upon the operations of the Partnership. 11 REGENCY CENTERS, L.P. Notes to Consolidated Financial Statements September 30, 1998 4. Earnings Per Unit (continued) The following summarizes the calculation of basic and diluted earnings per unit for the nine months ended, September 30, 1998 and 1997 (in thousands except per unit data):
1998 1997 ---- ---- Basic Earnings Per Unit (EPU) Calculation: Weighted average units outstanding $ 23,872 16,516 Net income for unitholders $ 35,918 14,990 Less: dividends paid on Class B common stock 4,033 3,855 ----- ----- Net income for Basic Earnings per Unit $ 31,885 11,135 ====== ====== Basic Earnings per Unit $ 1.34 .67 ==== === Diluted Earnings Per Unit (EPU) Calculation: Weighted average units outstanding for Basic EPU 23,872 16,516 Incremental units to be issued under common stock options using the Treasury method - 87 Contingent units for the acquisition of real estate 418 1,151 ------ ------ Total diluted units 24,290 17,754 ====== ====== Diluted Earnings per Unit $ 1.31 .63 ==== ===
The Class B common stock dividends are deducted from income in computing earnings per unit since the proceeds of this offerings was transferred to and reinvested by the Partnership. Accordingly, payment of such dividends is dependent upon the operations of the Partnership. 12 PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in thousands). The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers, L.P. ("RCLP" or the "Partnership") appearing elsewhere in this Form 10-Q, and with the Partnership's Form 10 filed August 7, 1998. Certain statements made in the following discussion may constitute forward-looking statements which involve unknown risks and uncertainties of business and economic conditions pertaining to the operation, acquisition, or development of shopping centers including the retail business sector, and may cause actual results of the Partnership in the future to significantly differ from any future results that may be implied by such forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which the Company operates, management's beliefs and assumptions made by management. Organization RCLP is the primary entity through which Regency Realty Corporation ("Regency"), a self-administered and self-managed real estate investment trust ("REIT") conducts substantially all of its business and owns substantially all of its assets. In 1993, Regency was formed for the purpose of managing, leasing, brokering, acquiring, and developing shopping centers. The Partnership also provides management, leasing, brokerage and development services for real estate not owned by Regency (i.e., owned by third parties). Of the 125 properties included in Regency's portfolio at September 30, 1998, 104 properties were owned either fee simple or through partnership interests by the Partnership. At September 30, 1998, Regency had an investment in real estate, at cost, of approximately $1.2 billion of which $967 million or 82% 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 summarized by state including their gross leasable areas (GLA) follows:
Location September 30, 1998 December 31, 1997 -------- ------------------ ----------------- # Properties GLA % Leased # Properties GLA % Leased ------------ ------------- -------- ------------ ------------ -------- Florida 36 4,580,112 92.5% 35 4,168,458 93.5% Georgia 25 2,537,552 90.7% 23 2,368,890 92.4% North Carolina 12 1,241,784 97.7% 6 554,332 99.0% Ohio 10 1,045,630 96.7% - - - Texas 5 451,227 89.4% - - - Colorado 5 447,663 84.3% - - - Tennessee 4 295,257 98.7% 3 208,386 98.5% Kentucky 1 205,060 95.6% - - - South Carolina 1 79,723 100.0% 1 79,743 84.3% Virginia 2 197,324 99.5% - - - Michigan 1 85,478 99.0% - - - Delaware 1 232,752 95.5% - - - Missouri 1 82,498 99.8% - - - ------------ ------------- --------- ------------ --------- -------- Total 104 11,482,060 93.1% 68 7,379,778 93.6% ============ ============= ========= ============ ========= ========
13 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 tenants occupying the Partnership's shopping centers: Average Grocery Anchor Number of % of % of Annual Remaining Lease Stores Total GLA Base Rent Term Kroger * 35 18.2% 18.0% 20 yrs Publix 26 10.7% 8.4% 13 yrs Winn Dixie 11 4.8% 3.5% 13 yrs Blockbuster 29 1.6% 2.5% 4 yrs *includes properties under development scheduled for opening in 1998 and 1999. Excluding development properties, Kroger would represent 15.4% of GLA and 14.9% of annual base rent. Acquisition and Development of Shopping Centers During the first nine months of 1998, the Partnership acquired 26 shopping centers for approximately $303.2 million (the "1998 Acquisitions"). In January, 1998, the Partnership entered into an agreement to acquire 32 shopping centers from various entities comprising the Midland Group ("Midland"). Of the 32 centers to be acquired or developed, 31 are anchored by Kroger, or its affiliate. The Partnership currently owns 20 of the shopping centers fee simple and 12 through joint ventures. All of the shopping centers included in the development pipeline are owned through various joint ventures in which the Partnership owns less than a 50% interest (the "JV Properties"). The Partnership's investment in the properties acquired from Midland is $220.4 million at September 30, 1998. The expects to acquire the un-owned interests in two of the JV Properties for approximately $20.7 million prior to year-end. During 1998, 1999 and 2000, including all payments made to date, the Partnership will pay approximately $241 million for the properties, including the assumption of debt, and in addition may pay contingent consideration of up to an estimated $23 million, through the issuance of Partnership units and the payment of cash. Whether contingent consideration will be issued, and if issued, the amount of such consideration, will depend on the satisfaction during 1998, 1999, and 2000 of performance criteria relating to the assets acquired from Midland. For example, if a property acquired as part of Midland's development pipeline satisfies specified performance criteria at closing and when development is completed, the transferors of the property may be entitled to additional Partnership units based on the development cost of the properties and their net operating income. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than units. The Partnership acquired 36 shopping centers during 1997 (the "1997 Acquisitions") for approximately $346.1 million. The 1997 Acquisitions include the acquisition of 26 shopping centers from Branch Properties ("Branch") for $232.4 million in March, 1997. The real estate acquired from Branch included 100% fee simple interests in 20 shopping centers, and also partnership interests (ranging from 50% to 93%) in four partnerships with outside investors that owned six shopping centers. The Partnership was also assigned the third party property management contracts of Branch on approximately 3 million SF of shopping center GLA that generate management fees and leasing commission revenues. Additional Units and shares of common stock may be issued after the first, second and third anniversaries of the closing with Branch (each an "Earn-Out Closing"), based on the performance of the properties acquired. The formula for the earn-out provides for calculating any increases in value on a property-by-property basis, based on any increases in net income for the properties acquired, as of February 15 of the year of calculation. The earn-out is limited to 721,997 Units at the first Earn-Out Closing and 1,020,061 Units for all Earn-Out Closings (including the first Earn-Out Closing). During March, 1998, the Partnership issued 721,997 Units and shares valued at $18.2 million to the partners of Branch. 14 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 unit holders. Net cash provided by operating activities was $40.8 million and $28.2 million for the nine months ended September 30, 1998 and 1997, respectively. The Partnership paid distributions of $40.5 million and $24.7 million, during 1998 and 1997, respectively. In 1998, the Partnership increased its quarterly distribution to $.44 per unit vs. $.42 per unit in 1997, had more outstanding units in 1998 vs. 1997; and accordingly, expects distributions paid during 1998 to increase substantially over 1997. Management expects to meet long-term liquidity requirements for debt maturities, 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 $171.8 million and $140.9 million, during 1998 and 1997, respectively, as discussed above in Acquisitions and Development of Shopping Centers. Net cash provided by financing activities was $129.4 million and $117 million during 1998 and 1997, respectively. At September 30, 1998, the Partnership had 14 shopping centers under construction or undergoing major renovations. Total committed costs necessary to complete the properties under development is estimated to be $35.1 million and will be expended through August 1999. The Partnership's outstanding debt at September 30, 1998 and December 31, 1997 consists of the following: 1998 1997 ---- ---- Notes Payable: Fixed rate mortgage loans $ 204,218 114,615 Variable rate mortgage loans 12,621 30,841 Fixed rate unsecured loans 121,440 - Unsecured line of credit 45,931 48,131 ---------- -------- Total $ 384,210 193,587 ========== ======== The weighted average interest rate on total debt at September 30, 1998 and 1997 was 7.5% and 7.4% respectively. The Partnership's debt is typically cross-defaulted, but not cross-collateralized, and includes usual and customary affirmative and negative covenants. The Partnership is a party to a credit agreement dated as of March 27, 1998, providing for an unsecured line of credit (the "Line") from a group of lenders currently consisting of Wells Fargo Bank, National Association, First Union National Bank, Wachovia Bank, N.A., NationsBank, N.A., AmSouth Bank, Commerzbank AG, Atlanta Branch, PNC Bank, National Association, and Star Bank, N.A. This credit agreement modified the terms of the Partnership's prior line of credit by increasing the commitment to $300 million, reducing the interest rate, and incorporating a competitive bid facility of up to $150 million of the commitment amount. Maximum availability under the Line is based on the discounted value of a pool of eligible unencumbered assets (determined on the basis of capitalized net operating income) less the amount of the Partnership's outstanding unsecured liabilities. The Line matures in May 2000, but may be extended annually for one year periods. Borrowings under the Line bear interest at a variable rate based on LIBOR plus a specified spread, (.875% currently), which is dependent on the Partnership's investment grade rating. The Partnership's ratings are currently Baa2 from Moody's Investor Service, BBB from Duff and Phelps, and BBB- from Standard and Poors. The Partnership is required to comply with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include (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 available for general working capital purposes. 15 On June 29, 1998, the Partnership issued $80 million of 8.125% Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred Units, which may be called by the Partnership at par on or after June 25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred Stock of Regency at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of Regency. The net proceeds of the offering were used to reduce the Partnership's bank line of credit. On July 17, 1998 the Partnership completed a $100 million private offering of term notes at an effective interest rate of 7.17%. The Notes were priced at 162.5 basis points over the current yield for seven year US Treasury Bonds. The net proceeds of the offering will be used to repay borrowings under the line of credit. 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 the first nine months of 1998, the Partnership assumed mortgage loans with a face value of $112.1 million related to the acquisition of shopping centers. The Partnership has recorded the loans at fair value which created debt premiums of $9 million related to assumed debt based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. Unconsolidated partnerships and joint ventures had mortgage loans payable of $74.9 million at September 30, 1998, and the Partnership's share of these loans was $31.2 million. As of September 30, 1998, scheduled principal repayments on notes payable and the unsecured line of credit were as follows: 1998 $ 8,359 1999 15,059 2000 55,880 2001 19,026 2002 38,742 Thereafter 238,972 ------- Subtotal 376,038 Net unamortized debt premiums 8,172 ------- Total $ 384,210 ======= Regency qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code. As a REIT, Regency is allowed to reduce taxable income by all or a portion of its distributions to stockholders. Since Regency's distributions have exceeded it's taxable income, Regency has made no provision for federal income taxes. While the Partnership intends to continue to pay distributions such that Regency can continue to pay dividends to its stockholders, the Partnership will reserve such amounts of cash flow as it considers necessary for the proper maintenance and improvement of its real estate, while still allowing Regency to maintain its qualification as a REIT. 16 Results from Operations Comparison of the Nine Months Ended September 30, 1998 to 1997 Revenues increased $28.7 million or 54% to $82.2 million in 1998. The increase was due primarily to the 1998 and 1997 Acquisitions. At September 30, 1998, the real estate portfolio contained approximately 11.5 million SF, was 93.1% leased and had average rents of $9.35 per SF. Minimum rent increased $21.5 million or 57%, and recoveries from tenants increased $5.0 million or 59%. Revenues from property management, leasing, brokerage, and development services provided on properties not owned by the Partnership were $8.0 million in 1998 compared to $6.3 million in 1997, the increase due primarily to fees earned from third party property management and leasing contracts acquired as part of the acquisition of Branch. 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 neighborhood shopping centers. The proceeds from the sale were applied toward the purchase of the 1998 acquisitions. Operating expenses increased $13.5 million or 48% to $41.7 million in 1998. Combined operating and maintenance, and real estate taxes increased $5.0 million or 42% during 1998 to $17.0 million. The increases are due to the 1998 and 1997 Acquisitions. General and administrative expenses increased 37% during 1998 to $10.6 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1998 and 1997, as well as, the shopping centers that the Partnership began managing for third parties during 1998 and 1997. Depreciation and amortization increased $5.7 million during 1998 or 67% primarily due to the 1998 and 1997 Acquisitions. Interest expense increased to $14.5 million in 1998 from $10.4 million in 1997 or 40% due to increased average outstanding loan balances related to the financing of the 1998 and 1997 Acquisitions on the Line and the assumption of debt. Net income for unitholders was $35.9 million in 1998 vs. $15.0 million in 1997, a $20.9 million or 140% increase for the reasons previously described. Diluted earnings per unit in 1998 was $1.31 vs. $0.63 in 1997 due to the increase in net income combined with the dilutive impact from the increase in weighted average common units and equivalents of 6.5 million primarily due to the acquisition of Branch and Midland, the issuance of units to SC-USREALTY during 1997, and the public offering completed in July, 1997. Comparison of the Three Months Ended September 30, 1998 to 1997 Revenues increased $9.5 million or 45% to $30.5 million in 1998. The increase was due primarily to the 1998 and 1997 Acquisitions. Minimum rent increased $7.4 million or 50%, and recoveries from tenants increased $1.7 million or 52%. Revenues from property management, leasing, brokerage, and development services provided on properties not owned by the Partnership were $2.6 million in 1998 and 1997. Operating expenses increased $4.3 million or 40% to $15.0 million in 1998. Combined operating and maintenance, and real estate taxes increased $1.4 million or 29% during 1998 to $6.3 million. The increases are due to the 1998 and 1997 Acquisitions. General and administrative expenses increased 33% during 1998 to $3.4 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1998 and 1997, as well as, the shopping centers that the Partnership began managing for third parties during 1997. Depreciation and amortization increased $2.1 million during 1998 or 64% primarily due to the 1998 and 1997 Acquisitions. Interest expense increased to $5.3 million in 1998 from $2.8 million in 1997 or 90% due to increased average outstanding loan balances related to the financing of the 1998 and 1997 Acquisitions on the Line and the assumption of debt. New Accounting Standards and Accounting Changes The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which is effective for fiscal years beginning after December 15, 1997. FAS 130 establishes standards for reporting total comprehensive income in financial statements, and requires that Companies explain the differences between total comprehensive income and net income. Management has adopted this statement in 1998. No differences between total comprehensive income and net income existed in the interim financial statements reported at June 30, 1998 and 1997. 17 The FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"), which is effective for fiscal years beginning after December 15, 1997. FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Management does not believe that FAS 131 will effect its current disclosures. Effective March 19, 1998, the Emerging Issues Task Force (EITF) ruled in Issue 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions", that only internal costs of identifying and acquiring non-operating properties that are directly identifiable with the acquired properties should be capitalized, and that all internal costs associated with identifying and acquiring operating properties should be expensed as incurred. The Partnership had previously capitalized direct costs associated with the acquisition of operating properties as a cost of the real estate. The Partnership has adopted EITF 97-11 effective March 19, 1998. During 1997, the Partnership capitalized approximately $1.5 million of internal costs related to acquiring operating properties. Through the effective date of EITF 97-11, the Partnership has capitalized $474,000 of internal acquisition costs. For the remainder of 1998, the Partnership expects to incur $1.1 million internal costs related to acquiring operating properties which will be expensed. On May 22, 1998, the EITF reached a consensus on Issue 98-9 "Accounting for Contingent Rent in Interim Financial Periods". The EITF has stated that lessors should defer recognition of contingent rental income that is based on meeting specified targets until those specified targets are met and not ratably throughout the year. The Partnership has previously recognized contingent rental income (i.e. percentage rent) ratably over the year based on the historical trends of its tenants. The Partnership has adopted Issue 98-9 prospectively and has ceased the recognition of contingent rents until such time as their tenants have achieved its specified target. The Partnership believes this will effect the interim period in which percentage rent is recognized, however it will not have a material impact on the annual recognition of percentage rent. 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. Based on information presently available, no additional environmental accruals were made and management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity, or operations of the Partnership. Inflation Inflation has remained relatively low during 1998 and 1997 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. 18 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 and financial institutions. 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 are currently testing these systems, and expect to complete the testing phase by December 31, 1998. Based on initial testing, Management does not anticipate any Year 2000 issues that will materially impact operations or operating results. Total costs incurred to date associated with the Partnership's Year 2000 compliance project have been reflected in the Partnership's income statement throughout 1997 and 1998, and were approximately $250,000. 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. While we have not yet begun renovations, Management believes that the cost of upgrading these systems will not exceed $500,000. It is anticipated that the renovation and testing phases will be complete by June 30, 1999. The Partnership has surveyed its major tenants and financial institutions to determine the extent to which the Partnership is vulnerable to third parties' failure to resolve their Year 2000 issues. The Partnership will be able to more adequately assess its third party risk when responses are received from the majority of the entities contacted. Management believes its planning efforts are adequate to address the Year 2000 Issue and that its risk factors are primarily those that it cannot directly control, including the readiness of its major tenants and financial institutions. Failure on the part of these entities to become Year 2000 compliant could result in disruption in the Partnership's cash receipt and disbursement functions. There can be no guarantee, however, that the systems of unrelated entities upon which the Partnership's operations rely will be corrected on a timely basis and will not have a material adverse effect on the Partnership. The Partnership does not have a formal contingency plan or a timetable for implementing one. Contingency plans will be established, if they are deemed necessary, after the Partnership has adequately assessed the impact on operations should third parties fail to properly respond to their Year 2000 issues. 19 PART II Item 1. Legal Proceedings None Item 6. Exhibits and Reports on Form 8-K A. Exhibits Item 10. Material contracts Reports on Form 8-K: A report on Form 8-K was filed on October 7, 1998 reporting under Item 5. Acquisition of Pike Creek Shopping Center to include audited Statement of Revenues and Certain Expenses as of December 31, 1997, as well as, pro forma condensed consolidated financial statements of operations for the six months ended June 30, 1998 and the year ended December 31, 1997. 27. Financial Data Schedule September 30, 1998 20 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 16, 1998 REGENCY CENTERS, L.P. By: /s/ J. Christian Leavitt Vice President, Treasurer and Secretary 21 [ARTICLE] 5 [CIK] 0001066247 [NAME] REGENCY CENTERS, LP [MULTIPLIER] 1 [PERIOD-TYPE] 9-MOS [FISCAL-YEAR-END] DEC-31-1998 [PERIOD-END] SEP-30-1998 [CASH] 13,069,033 [SECURITIES] 0 [RECEIVABLES] 15,425,161 [ALLOWANCES] 2,093,924 [INVENTORY] 0 [CURRENT-ASSETS] 0 [PP&E] 966,658,241 [DEPRECIATION] 30,092,439 [TOTAL-ASSETS] 972,235,042 [CURRENT-LIABILITIES] 0 [BONDS] 0 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 0 [OTHER-SE] 554,409,575 [TOTAL-LIABILITY-AND-EQUITY] 972,235,042 [SALES] 0 [TOTAL-REVENUES] 82,229,584 [CGS] 0 [TOTAL-COSTS] 17,035,859 [OTHER-EXPENSES] 14,068,450 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 14,522,548 [INCOME-PRETAX] 35,918,008 [INCOME-TAX] 0 [INCOME-CONTINUING] 35,918,008 [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 35,918,008 [EPS-PRIMARY] 1.34 [EPS-DILUTED] 1.31
-----END PRIVACY-ENHANCED MESSAGE-----