-----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, WrbcZMdFbD11EUFqHplyF62h3oKNGTgLZF1/HYOxQ1QlqUqmsohER5XnEHNsxjyf fNzj7ihhqYMGtvsm7TNHfg== 0000931763-97-001758.txt : 19971023 0000931763-97-001758.hdr.sgml : 19971023 ACCESSION NUMBER: 0000931763-97-001758 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971022 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDN REALTY CORP CENTRAL INDEX KEY: 0000916836 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 581468053 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12844 FILM NUMBER: 97699302 BUSINESS ADDRESS: STREET 1: 3340 PEACHTREE RD NE STREET 2: STE 1530 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4042623252 MAIL ADDRESS: STREET 1: 3340 PEACHTREE RD NE STREET 2: STE 1530 CITY: ATLANTA STATE: GA ZIP: 30326 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 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 1-12844 -------------- JDN REALTY CORPORATION ---------------------- (Exact name of registrant as specified in its charter) Maryland 58-1468053 - --------------------------- ------------------- (State of Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3340 Peachtree Road, NE, Suite 1530, Atlanta, GA 30326 ------------------------------------------------------- (Address of principal executive offices - zip code) (404) 262-3252 ------------------------------------------------------ (Registrant's telephone number, including area code) Not applicable -------------------------------------------------------- (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 --------- ------- As of October 20, 1997, 15,493,501 shares of the Registrant's Common Stock, $.01 par value, were outstanding. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
Page No. -------- Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 2 Condensed Consolidated Statements of Income - Three Months Ended September 30, 1997 and 1996 3 Condensed Consolidated Statements of Income - Nine Months Ended September 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6
1 JDN REALTY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1997 1996 --------------- --------------- (Unaudited) (In thousands) ASSETS Shopping center properties, at cost: Land $ 66,908 $ 50,455 Buildings and improvements 347,605 262,568 Property under development 65,501 19,646 -------------- -------------- 480,014 332,669 Less: accumulated depreciation and amortization (35,358) (27,973) -------------- -------------- Shopping center properties, net 444,656 304,696 Cash and cash equivalents 2,207 2,709 Restricted cash - escrow 186 3,659 Rents receivable 1,940 2,208 Investments in and advances to unconsolidated entities 69,376 41,253 Deferred costs, net of amortization 4,362 6,181 Other assets 11,470 11,280 -------------- -------------- $ 534,197 $ 371,986 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Unsecured notes payable $ 159,495 $ - Unsecured line of credit 71,715 - Mortgage notes payable 13,657 141,882 Accounts payable and accrued expenses 3,986 1,999 Other liabilities 1,799 1,566 -------------- -------------- Total Liabilities 250,652 145,447 Shareholders' Equity Preferred stock, par value $.01 per share- authorized 20,000,000 shares, none outstanding - - Common stock, par value $.01 per share- authorized 150,000,000 shares, issued and outstanding 15,493,501 and 13,056,054 shares in 1997 and 1996, respectively 155 131 Paid-in capital 290,479 233,497 Accumulated deficit (7,089) (7,089) -------------- -------------- Total Shareholders' Equity 283,545 226,539 -------------- -------------- $ 534,197 $ 371,986 ============= ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2 JDN REALTY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, 1997 1996 ------- ------- (In thousands) Revenues: Minimum and percentage rents $11,070 $ 8,288 Recoveries from tenants 1,238 826 Other revenue 30 45 ------- ------- Total revenues 12,338 9,159 Operating expenses: Operating and maintenance 851 665 Real estate taxes 701 401 General and administrative 976 837 Depreciation and amortization 2,573 1,955 ------- ------- Total operating expenses 5,101 3,858 ------- ------- Income from operations 7,237 5,301 Other income (expense): Interest expense, net (1,450) (1,403) Other income, net 331 - Equity in net income of unconsolidated entities 1,312 413 ------- ------- Income before net loss on real estate sales and extraordinary items 7,430 4,311 Net loss on real estate sales (352) - ------- ------- Income before extraordinary items 7,078 4,311 Extraordinary items (5,539) - ------- ------- Net income $ 1,539 $ 4,311 ======= ======= Income per share Income before extraordinary items $ 0.46 $ 0.39 Extraordinary items (0.36) - ------- ------- Net income $ 0.10 $ 0.39 ======= ======= Weighted average shares outstanding 15,467 11,012 ======= ======= SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 JDN REALTY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Nine Months Ended September 30, 1997 1996 -------------- -------------- (In thousands) Revenues: Minimum and percentage rents $30,303 $24,054 Recoveries from tenants 3,111 2,536 Other revenue 118 167 -------------- -------------- Total revenues 33,532 26,757 Operating expenses: Operating and maintenance 2,263 1,872 Real estate taxes 1,675 1,366 General and administrative 2,943 2,435 Depreciation and amortization 7,125 5,705 -------------- -------------- Total operating expenses 14,006 11,378 -------------- -------------- Income from operations 19,526 15,379 Other income (expense): Interest expense, net (3,588) (4,309) Other income, net 887 43 Equity in net income of unconsolidated entities 2,834 971 -------------- -------------- Income before net loss on real estate sales and extraordinary items 19,659 12,084 Net loss on real estate sales (352) - -------------- -------------- Income before extraordinary items 19,307 12,084 Extraordinary items (5,940) - -------------- -------------- Net income $13,367 $12,084 ============== ============== Income per share Income before extraordinary items $ 1.30 $ 1.12 Extraordinary items (0.40) - -------------- -------------- Net income $ 0.90 $ 1.12 ============== ============== Weighted average shares outstanding 14,854 10,804 ============== ============== SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 JDN REALTY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1997 1996 -------------------- ----------------- (In thousands) Net cash provided by operating activities $ 27,513 $ 20,762 Cash flows from investing activities: Development of shopping center properties (81,126) (23,400) Improvements to shopping center properties (504) (550) Purchase of shopping center properties (34,029) - Investments in and advances to unconsolidated entities (30,269) (24,694) Other (1,996) (5,700) -------------------- ----------------- Net cash used in investing activities (147,924) (54,344) Cash flows from financing activities: Proceeds from mortgages and notes payable 265,428 54,056 Proceeds from issuance of senior unsecured notes 159,486 - Principal payments on mortgages and notes payable (346,960) (22,609) Proceeds from issuance of common shares, net of underwriting commissions and offering expenses 66,424 21,662 Dividends paid (22,786) (14,797) Other (1,683) 319 -------------------- ----------------- Net cash provided by financing activities 119,909 38,631 -------------------- ----------------- Increase (decrease) in cash and cash equivalents (502) 5,049 Cash and cash equivalents, beginning of period 2,709 3,109 -------------------- ----------------- Cash and cash equivalents, end of period $ 2,207 $ 8,158 =================== ================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 JDN REALTY CORPORATION Notes to Condensed Consolidated Financial Statements (UNAUDITED) SEPTEMBER 30, 1997 1. THE COMPANY JDN Realty Corporation (the "Company") is a real estate company which specializes in the development and asset management of retail shopping centers which are located primarily in the Southeast and are anchored by value-oriented retailers. As of September 30, 1997, the Company owned and operated, either directly or through affiliated entities or a joint venture, a total of 61 shopping center properties and had 21 projects under construction. The Company is operating as a real estate investment trust ("REIT") for federal income tax purposes. The Company owns an interest in JDN Development Company, Inc. ("Development Company"), which is structured such that the Company owns 99% of the economic interest while J. Donald Nichols, the Company's Chairman and Chief Executive Officer, owns the remaining 1% and controls Development Company's operations and activities through his voting common stock ownership. Current tax laws restrict the ability of REITs to engage in certain activities, such as the sale of certain properties and third party fee development; because it is not a REIT, Development Company may engage in real estate development activities such as the sale of all or a portion of a development project. As of September 30, 1997, the Company had invested $7.8 million in Development Company in the form of equity capital, $45.0 million in the form of secured notes receivable and $16.6 million in the form of unsecured advances. 2. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 1996 has been derived from the audited consolidated financial statements at that date. Operating results for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997 or any other interim period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986 (the "Code"). As a result, the Company will not be subject to federal income taxes to the extent that it distributes annually at least 95% of its taxable income to its shareholders and satisfies certain other requirements defined in the Code. Accordingly, no provision has been made for federal income taxes in the accompanying condensed consolidated financial statements for the periods presented. 6 Earnings Per Share. Earnings per share for the three and nine months ended September 30, 1997 and 1996 are based on the weighted average number of common shares outstanding during the respective periods. New Accounting Standards. In April 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, Earnings Per Share (the "EPS Standard"). The EPS Standard replaces APB Opinion No. 15, Earnings Per Share, and among other things eliminates "primary" earnings per share and requires the presentation of "basic" earnings per share, which excludes from consideration common stock equivalents. The Company will adopt the EPS Standard in the first quarter of 1998, and based on current circumstances, does not believe the effect of adoption will be material. Reclassifications. Certain amounts as previously reported have been reclassified to conform to the current period's presentation. 4. DISTRIBUTION On August 26, 1997, the Company's Board of Directors declared a cash distribution of $0.50 to shareholders of record on September 19, 1997. This distribution was paid on September 30, 1997. 5. BOND OFFERING On August 4, 1997, the Company issued $75.0 million of 6.80% seven-year senior unsecured notes maturing on August 1, 2004 and $85.0 million of 6.95% ten-year senior unsecured notes maturing on August 1, 2007 in a public offering (the "Bond Offering"). The seven-year notes were sold at 99.670% of par to yield 6.860% . The ten-year notes were sold at 99.686% of par to yield 6.994%. The Company used the proceeds from this offering to prepay a mortgage loan with an outstanding principal balance of $71.2 million (the "Term Debt") and to reduce amounts outstanding under its unsecured line of credit. In conjunction with the Bond Offering on July 7, 1997, the Company executed two Treasury Locks in the notional amounts of $50.0 million and $75.0 million, respectively, which terminated August 4, 1997. The Company entered into these transactions in an effort to lock interest rates on a portion of the Bond Offering. The $50.0 million transaction effectively locked the underlying Treasury bond rate for that portion of the seven-year bonds at 6.275%. The $75.0 million transaction effectively locked the underlying Treasury bond rate for that portion of the ten-year bonds at 6.295%. The Company is amortizing the payments made on these transactions over the lives of the related bonds as adjustments to interest expense. 6. ACQUISITIONS During the quarter ended September 30, 1997, the Company acquired four shopping center properties from four third party sellers whose purchase prices aggregated $23.2 million. Information on 7 these acquisitions is as follows:
Leasable Acquisition Square Purchase Location Date Feet Price - -------- ----------- -------- ---------- Murfreesboro, TN 7/21/97 71,028 $3,488,000 Midlothian, VA 9/09/97 79,407 5,485,000 Ocala, FL 9/11/97 151,338 5,590,000 Chester, VA 9/16/97 116,310 8,683,000
7. EXTRAORDINARY ITEMS As a result of the prepayment of the Term Debt with proceeds from the Bond Offering, the Company charged $5,539,000 in unamortized deferred loan costs and prepayment penalties to earnings as extraordinary items in the quarter ended September 30, 1997. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY JDN Realty Corporation (the "Company") is a real estate development company which specializes in the development and asset management of retail shopping centers which are located primarily in the Southeast and are anchored by value- oriented retailers. As of September 30, 1997, the Company owned and operated, either directly or through affiliated entities or a joint venture, a total of 61 shopping center properties and had 21 projects under construction. The Company is operating as a real estate investment trust ("REIT") for federal income tax purposes. The Company owns an interest in JDN Development Company, Inc. ("Development Company"), which is structured such that the Company owns 99% of the economic interest while J. Donald Nichols, the Company's Chairman and Chief Executive Officer, owns the remaining 1% and controls Development Company's operations and activities through his voting common stock ownership. Current tax laws restrict the ability of REITs to engage in certain activities, such as the sale of certain properties and third party fee development; because it is not a REIT, Development Company may engage in real estate development activities such as the sale of all or a portion of a development project. As of September 30, 1997, the Company had invested $7.8 million in Development Company in the form of equity capital, $45.0 million in the form of secured notes receivable and $16.6 million in the form of unsecured advances. RESULTS OF OPERATIONS Comparison of the Three Months Ended September 30, 1997 to the Three Months Ended September 30, 1996 Minimum and percentage rents increased $2.8 million or 33.6% to $11.1 million for the three months ended September 30, 1997 from $8.3 million for the same period in 1996. During 1996 and 1997, the Company began operations of 1.1 million square feet from 11 properties which it developed (the "Development Properties"). Minimum and percentage rents increased $1.4 million for the three months ended September 30, 1997 over the same period in 1996 due to Development Properties. During 1996 and 1997, the Company acquired seven shopping center properties from unrelated third parties totaling 1.0 million square feet of gross leasable area. In addition, during 1997, the Company acquired unaffiliated joint venture partners interests in the limited liability companies which owned the Asheville, North Carolina and Loganville, Georgia properties and changed its accounting for these two properties from the equity method to the consolidated method. Minimum and percentage rents increased $1.3 million for the three months ended September 30, 1997 over the same period in 1996 due to the operations of the nine properties noted above (collectively, the "Acquisition Properties"). The remaining increase relates to higher rental revenues at existing properties. Recoveries from tenants increased $412,000 or 49.9% to $1.2 million for the three months ended September 30, 1997 from $826,000 for the same period in 1996. Of this increase, $120,000 relates to the Development Properties and $243,000 relates to the Acquisition Properties. The remaining increase relates to an increase in recoverable expenses at existing properties. 9 Other revenue decreased $15,000 or 33.3% to $30,000 for the three months ended September 30, 1997 from $45,000 for the same period in 1996. This decrease is the result of a reduction in revenues associated with managing and leasing fewer properties for third-party owners. Operating and maintenance expenses increased $186,000 or 28.0% to $851,000 for the three months ended September 30, 1997 from $665,000 for the same period in 1996. Of this increase, $49,000 relates to the Development Properties and $108,000 relates to the Acquisition Properties. The remaining increase relates to increased expenses at the existing properties. Real estate taxes increased $300,000 or 74.8% to $701,000 for the three months ended September 30, 1997 from $401,000 for the same period in 1996. Of this increase, $84,000 relates to the Development Properties and $166,000 relates to the Acquisition Properties. The remaining increase relates to increased taxes at the existing properties. General and administrative expenses increased $139,000 or 16.6% to $976,000 for the three months ended September 30, 1997 from $837,000 for the same period in 1996. This increase primarily reflects the cost of additional employees and other expenses associated with the increased number of properties owned and operated by the Company. Depreciation and amortization expense increased $618,000 or 31.6% to $2.6 million for the three months ended September 30, 1997 from $2.0 million for the same period in 1996. Of this increase, $244,000 relates to the Development Properties and $295,000 relates to the Acquisition Properties. The remaining increase relates primarily to the amortization of tenant improvements, tenant allowances and leasing commissions for new tenants and to the amortization of leasehold improvements and depreciation of furniture and fixtures at the Company's corporate offices. Interest expense, net of capitalized amounts, increased $47,000 or 3.3% to $1.5 million for the three months ended September 30, 1997 from $1.4 million for the same period in 1996. This increase is due primarily to an increase in average debt balances between 1997 and 1996. Other income for the three months ended September 30, 1997 of $331,000 primarily represents interest income earned on cash equivalent balances and on a $10.5 million mortgage note receivable purchased in December 1996. There were no significant items of other income or other expense for the three months ended September 30, 1996. Equity in net income of unconsolidated entities increased $899,000 to $1.3 million for the three months ended September 30, 1997 from $413,000 for the same period in 1996. This increase is due primarily to the operations of the recently developed properties operated by Development Company and an affiliated entity in Canton, Georgia; Conyers, Georgia; Warner Robins, Georgia; and Steubenville, Ohio. In addition, Development Company recorded gains due to increased land sales activity and the sale of two recently development shopping centers in Steubenville, Ohio and Winston-Salem, North Carolina. Net loss on real estate sales was $352,000 for the three months ended September 30, 1997. The loss is associated with the sale of two parcels of land in Wilmington, North Carolina. There were no real estate sales for the three months ended September 30, 1996. Extraordinary items of $5.5 million for the three months ended September 30, 1997 represent charges to earnings of unamortized deferred loan costs and prepayment penalties associated with the 10 prepayment of a mortgage loan with an outstanding principal balance of $71.2 million (the "Term Debt"). There were no extraordinary items for the three months ended September 30, 1996. Comparison of the Nine Months Ended September 30, 1997 to the Nine Months Ended September 30, 1996 Minimum and percentage rents increased $6.2 million or 26.0% to $30.3 million for the nine months ended September 30, 1997 from $24.1 million for the same period in 1996. Of this increase, $3.5 million relates to the Development Properties and $2.4 million relates to the Acquisition Properties. The remaining increase is the result of increased rentals and increased occupancy at the existing properties. Recoveries from tenants increased $575,000 or 22.7% to $3.1 million for the nine months ended September 30, 1997 from $2.5 million for the same period in 1996. Of this increase, $231,000 relates to the Development Properties and $381,000 relates to the Acquisition Properties. These increases are offset by a $37,000 reduction due to a decrease in recoverable expenses at the existing properties. Other revenue decreased $49,000 or 29.3% to $118,000 for the nine months ended September 30, 1997 from $167,000 for the same period in 1996. This decrease is the result of a reduction in revenues associated with managing and leasing fewer properties for third-party owners. Operating and maintenance expenses increased $391,000 or 20.9% to $2.3 million for the nine months ended September 30, 1997 from $1.9 million for the same period in 1996. Of this increase, $149,000 relates to the operations of the Development Properties and $204,000 relates to the Acquisition Properties. The remaining increase relates to increased expenses at the existing properties. Real estate taxes increased $309,000 or 22.6% to $1.7 million for the nine months ended September 30, 1997 from $1.4 million for the same period in 1996. Of this increase, $118,000 relates to the Development Properties and $232,000 relates to the Acquisition Properties. These increases are offset by a decrease in property taxes at the existing properties due primarily to the separate tax platting of an anchor tenant tract. General and administrative expenses increased $508,000 or 20.9% to $2.9 million for the nine months ended September 30, 1997 from $2.4 million for the same period in 1996. This increase primarily reflects the cost of additional employees and other expenses associated with the increase in the number of properties owned and operated by the Company. Depreciation and amortization expense increased $1.4 million or 24.9% to $7.1 million for the nine months ended September 30, 1997 from $5.7 million for the same period in 1996. Of this increase, $735,000 relates to the Development Properties and $516,000 relates to the Acquisition Properties. The remaining increase relates primarily to amortization of tenant improvements, tenant allowances and leasing commissions for new tenants and to amortization of leasehold improvements and depreciation of furniture and fixtures at the Company's corporate offices. Interest expense, net of capitalized amounts, decreased $721,000 or 16.7% to $3.6 million for the nine months ended September 30, 1997 from $4.3 million for the same period in 1996. This decrease is primarily attributable to the repayment of debt with the proceeds from equity offerings in 1996 and 1997. 11 Other income increased $844,000 to $887,000 for the nine months ended September 30, 1997 from $43,000 for the same period in 1996. This increase is due primarily to interest income earned on a $10.5 million mortgage note receivable purchased in December 1996. Equity in net income of unconsolidated entities increased $1.9 million to $2.8 million for the nine months ended September 30, 1997 from $971,000 for the same period in 1996. This increase is due primarily to the operations of recently developed properties owned by limited liability companies in which the Company held 50% interests in Asheville, North Carolina and Loganville, Georgia, and to the operations of the recently developed properties operated by Development Company in Canton, Georgia; Conyers, Georgia; Warner Robins, Georgia; and Steubenville, Ohio. In addition, Development Company recorded gains due to increased land sales activity by Development Company and the sale of two recently developed shopping centers in Steubenville, Ohio and Winston- Salem, North Carolina. Net loss on real estate sales was $352,000 for the nine months ended September 30, 1997. The loss is associated with the sale of two parcels of land in Wilmington, North Carolina. There were no real estate sales for the nine months ended September 30, 1996. Extraordinary items of $5.9 million for the nine months ended September 30, 1997 represent charges to earnings of unamortized deferred financing costs and prepayment penalties associated with the prepayment of the Term Debt and the termination of a secured line of credit in May 1997. There were no extraordinary items for the nine months ended September 30, 1996. Funds From Operations Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts, Inc. to mean net income, computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. The Company's method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash provided by operating activities as defined by generally accepted accounting principles ("GAAP"), should not be considered an alternative to net income (determined in accordance with GAAP) as an indication of operating performance and is not indicative of cash available to fund all cash flow needs, including the Company's ability to make cash distributions. The Company has presented below the calculation of FFO for the periods indicated: 12
(Dollars in thousands) Three Months Ended September 30, 1997 1996 ------------ ------------ Net income $ 1,539 $ 4,311 Depreciation of real estate assets 2,404 1,832 Amortization of tenant allowances and tenant improvements 38 22 Amortization of deferred leasing commissions 81 67 Net loss on real estate sales 352 - Extraordinary items 5,539 - Adjustments related to activities in unconsolidated entities (396) 23 ------------ ------------ FFO $ 9,557 $ 6,255 ============ ============ Nine Months Ended September 30, 1997 1996 ------------ ------------ Net income $ 13,367 $ 12,084 Depreciation of real estate assets 6,661 5,353 Amortization of tenant allowances and tenant improvements 106 81 Amortization of deferred leasing commissions 217 187 Net loss on real estate sales 352 15 Extraordinary items 5,940 - Adjustments related to activities in unconsolidated entities 30 55 ------------ ------------ FFO $ 26,673 $ 17,775 =========== ============
Leasing and Property Information As of September 30, 1997, Wal-Mart, Lowe's, and Kroger represented 20.4%, 10.7%, and 6.5%, respectively, of the combined annualized base rent of the Company, Development Company and an affiliated entity. In addition, at that date, anchor tenants represented 67.7% of combined annualized base rent and national and regional tenants represented 85.1% of combined annualized base rent. As of September 30, 1997, properties owned and operated by the Company, Development Company, and an affiliated entity were 98.3% leased. On a same property basis, net operating income increased 2.2% between the three months ended September 30, 1997 and 1996 and 1.7% between the nine months ended September 30, 1997 and 1996. Net operating income represents property revenues less property expenses excluding interest expense, depreciation and amortization. As of September 30, 1997, the Company, Development Company and an affiliated entity operated in 11 states, and 45.7%, 16.1%, and 11.2% of annualized base rent was represented by shopping centers located in Georgia, North Carolina and Tennessee, respectively. FORWARD-LOOKING STATEMENTS Management has included herein certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. When used, statements which are not historical in nature including the words "anticipate," "estimate," "should," "expect," "believe," "intend" and similar expressions are intended to 13 identify forward-looking statements. Such statements are, by their nature, subject to certain risks and uncertainties. Among the factors that could cause actual results to differ materially from those projected are the following: business conditions and the general economy, especially as they affect interest rates; business conditions, especially as they affect value-oriented retailers; the federal, state and local regulatory environment; availability of debt and equity capital with favorable terms and conditions; availability of new development and acquisition opportunities; changes in the financial condition or corporate strategy of the Company's primary retail tenants and in particular Wal-Mart and Lowe's; ability to complete and lease existing development and redevelopment projects on schedule and within budget; and inability of the Company to maintain its qualification as a REIT. Other risks, uncertainties and factors that could cause actual results to differ materially than those projected are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are cash generated from operating activities and proceeds from lines of credit, debt offerings and equity offerings. The Company's primary uses of funds are development, redevelopment and acquisition of shopping center properties, distributions to shareholders, and capital improvements to its existing shopping center properties. The Company generally uses cash provided by operations to fund its distributions to shareholders and capital improvements to existing properties. The Company uses proceeds from its lines of credit to finance its development, redevelopment and acquisition activities. The Company uses proceeds from debt and equity offerings to repay outstanding indebtedness and to fund its ongoing development, redevelopment and acquisition activities. During 1997, the Company has restructured its balance sheet by issuing common stock and changing the character of its debt instruments with the overriding goal of reducing its cost of capital. In March 1997, the Company completed a pubic offering of 2,400,000 shares of common stock which netted proceeds of approximately $65.7 million to the Company. The Company used the proceeds from this offering to repay construction loans and amounts outstanding under its line of credit. This offering reduced the Company's debt to total market capitalization ratio from 28.2% as of December 31, 1996 to 19.5% as of March 31, 1997. In May 1997, the Company terminated its $40.0 million secured line of credit and replaced it with a $150.0 million unsecured line of credit (the "Unsecured Credit Facility"). This replacement of the secured line of credit with the Unsecured Credit Facility unencumbered 17 of the Company's shopping center properties and initially reduced the rate on the line from the 30-day Eurodollar plus 1.50% to LIBOR plus 1.40%. In July, the interest rate decreased to LIBOR plus 1.25%. In August 1997, the Company issued $75.0 million of 6.80% seven-year senior unsecured notes (the "Seven Year Notes") and $85.0 million of 6.95% ten-year senior unsecured notes (the "Ten Year Notes") in a public offering. The Seven Year Notes were sold at 99.670% of par to yield 6.860%. The Ten Year Notes were sold at 99.686% of par to yield 6.994%. The Company used the proceeds of this offering to prepay a mortgage loan with an outstanding principal balance of $71.2 million and reduce amounts outstanding under the Unsecured Credit Facility. This offering had the effect of unencumbering 20 of the Company's shopping center properties, reducing the effective rate on $71.2 million of outstanding debt from 8.64% to an average effective rate of 7.16%, and extending the average maturity date on the Company's debt. As a result of these transactions, the weighted average cost of the Company's debt decreased from 8.42% as of December 31, 1996 to 7.45% as of September 30, 1997. As of September 30, 1997, the Company's debt to total market capitalization ratio was 32.1%. 14 The Company's total indebtedness as of September 30, 1997, consisted of the following:
OUTSTANDING DEBT: Percent Principal Interest Maturity of Total Balance Rate Date Indebtedness -------------- ----------- -------- ------------ (in thousands) Fixed Rate 2004 Bonds Payable $ 74,758 7.09%(1) 04-Aug-04 30.6% 2007 Bonds Payable 84,737 7.22%(1) 04-Aug-07 34.6% Mortgage note payable - Richmond, Kentucky 6,461 7.38% 01-Dec-03 2.6% Mortgage note payable - Jackson, Mississippi 7,196 9.25% 01-Mar-17 2.9% ----------- ---------- ---------- 173,152 7.25% 70.7% Floating Rate Unsecured Credit Facility 71,715 7.24%(2) 22-May-00 29.3% ----------- ---------- ---------- 71,715 7.24% 29.3% ----------- ---------- ---------- $ 244,867 7.25% 100.0% ========== ========== ========== WEIGHTED AVERAGE INTEREST RATES: Weighted Weighted Principal Average Average Balance Interest Rate (3) Interest Rate (4) -------------- ----------------- -------------------- Fixed Rate Debt $ 173,152 7.25% 7.00% Hedged Floating Rate Debt 50,000 8.22% 7.88% Floating Rate Debt 21,715 7.24% 6.91% ------------ ---------- ---------- Total Debt $ 244,867 7.45% 7.17% =========== ========== ========== (1) Represents stated rate plus amortization of deferred loan costs. (2) Stated rate of LIBOR plus 1.25% plus amortization of deferred loan costs. (3) Interest when the amortization of deferred loan costs is included. (4) Interest when the amortization of deferred loan costs is not included.
As of September 30, 1997, the Company had $78.3 million available under the Unsecured Credit Facility. During 1996, the Company and Morgan Guaranty Trust Company of New York ("Morgan") entered into a swap transaction as a hedge against increasing rates on its floating rate debt. Under the initial terms of the agreement, the Company paid a fixed rate of 6.44% and received a variable rate equal to the rate for the one-month LIBOR rate based on the notional amount in the contract. As of December 31, 1996, the notional amount was $70.0 million; on January 1, 1997, the notional amount increased to $80.0 million. On February 12, 1997, the Company amended the terms of the swap transaction by reducing the notional amount to $50.0 million, increasing the fixed rate the Company pays to 6.48% and extending the maturity date to January 1, 2001. As of September 30, 1997, the Company, Development Company and affiliated entities had 21 projects under construction which are expected to add approximately 2.7 million square feet of gross leasable area which the Company expects to own. The Company expects to place approximately 900,000 square feet into operations in the fourth quarter of 1997 and 1.8 million square feet into operations in 1998. Of these projects under construction, ten are located in Georgia, four are located in North Carolina, and two are located in Florida. Of the total square feet under construction, 86.8% is either leased by tenants or committed to be leased by tenants. For the space committed, the tenant has not yet delivered a signed lease and there can be no assurance that a lease agreement will be executed. Additional funding to complete the construction of these projects is estimated to be $113.5 million. 15 Management expects to fund the remaining costs of these projects and the cost of any future projects undertaken by the Company or Development Company, or any affiliated joint ventures, with additional advances on the Unsecured Credit Facility and with proceeds from public or private placements of debt or equity. However, there can be no assurance that these sources will be available and the inability to obtain this capital could have an adverse effect on the Company's ability to fund its development, redevelopment, and acquisition activities. In order for the Company to continue to qualify as a REIT, it must annually distribute to shareholders at least 95% of its taxable income. Management believes that the Company will meet this requirement in 1997 with cash generated by operating activities. In addition, management believes that cash generated by operating activities will be adequate to fund improvements to the Company's shopping center properties, leasing costs and scheduled debt amortization in 1997. In order to meet the Company's long term liquidity requirements, management anticipates that the Company's cash from operating activities will continue to increase as a result of new developments, redevelopments, acquisitions and improved operations at existing centers. These activities should enable the Company to make its distribution payments to shareholders, maintain and improve its properties, make scheduled debt payments, and obtain debt or equity financing for its development, redevelopment and acquisition projects. All but $7.2 million of the Company's debt requires balloon payments in the future. The Unsecured Credit Facility matures in 2000; a note payable of $6.5 million matures in 2003; the Seven Year Notes mature in 2004; and the Ten Year Notes mature in 2007. Management intends to refinance or repay these maturing debt instruments with proceeds from other sources of capital at or prior to their respective maturities. Management will evaluate various alternatives and select the best options based on market conditions at the time. Management expects to seek additional equity financing when market conditions are favorable in order to maintain its debt-to-total-market-capitalization ratio within acceptable limits. There can be no assurance that debt or equity markets will be favorable in the future, and unfavorable markets could limit the Company's ability to grow its business or repay or refinance maturing debt. INFLATION The Company's leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the Company to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Certain of the Company's leases contain clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the Company's non-anchor leases are for terms of less than ten years, which permits the Company to seek increased rents upon re-leasing at higher market rates. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12 Statement re: Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule (b) Reports on Form 8-K During the three months ended September 30, 1997, the Company filed the following reports on Form 8-K: (i) Form 8-K dated August 1, 1997, related to the Company's execution of an Underwriting Agreement dated July 30, 1997 with Merrill Lynch, Pierce, Fenner and Smith Incorporated, and a Terms Agreement, dated July 30, 1997 with Merrill Lynch, BT Securities Corporation and Smith Barney, Inc. (the "Underwriters") in connection with the sale by the Company to the Underwriters of the Company's 6.80% Notes due August 1, 2004 and 6.95% Notes due August 1, 2007. (ii) Form 8-K dated September 26, 1997 relating to the acquisition of four shopping center properties in 1997 (the "Acquired Properties"). This Form 8-K included audited statements of revenue and certain expenses of each of the Acquired Properties and unaudited statements of revenue and certain expenses for the period from January 1, 1997 to the dates of acquisition or June 30, 1997, whichever was earlier. This Form 8-K also included an unaudited pro forma consolidated balance sheet of the Company as of June 30, 1997, and unaudited consolidated statements of income of the Company for the year ended December 31, 1996 and the six months ended June 30, 1997. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. October 22, 1997 /s/ J. Donald Nichols - -------------------------------- --------------------------------- (Date) J. Donald Nichols Chief Executive Officer October 22, 1997 /s/ William J. Kerley - -------------------------------- ---------------------------------- (Date) William J. Kerley Chief Financial Officer 18 INDEX TO EXHIBITS Exhibit Number EXHIBIT - ------ ------- 12 Statement re: Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule 19 EX-12 2 COMPUTATION OF RATIO OF EARNINGS
EXHIBIT 12 JDN REALTY CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) Nine Months Ended September 30, Year Ended December 31, ----------------- --------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- ------- ------- Fixed Charges: Interest expense (including $ 6,338 $ 6,873 $ 9,414 $ 8,747 $ 7,276 $ 6,444 $ 7,898 amortization of deferred debt cost) Interest capitalized 2,918 1,455 1,993 1,538 343 - 102 ------- ------- ------- ------- ------- ------- ------- Total Fixed Charges $ 9,256 $ 8,328 $11,407 $10,285 $ 7,619 $ 6,444 $ 8,000 ======= ======= ======= ======= ======= ======= ======= Earnings: Income (loss) before income tax benefit, net gain (loss) on real estate sales extraordinary items and cumulative effect of change in accounting principle $19,659 $12,084 $16,682 $10,782 $ 5,227 $(1,196) $(1,650) Plus: Fixed charges 9,256 8,328 11,407 10,285 7,619 6,444 8,000 Less: Capitalized interest 2,918 1,455 1,993 1,538 343 - 102 ------- ------- ------- ------- ------- ------- ------- Total earnings $25,997 $18,957 $26,096 $19,529 $12,503 $ 5,248 $ 6,248 ======= ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.81 2.28 2.29 1.90 1.64 * *
* The Company's earnings were inadequate to cover fixed charges for the years ended December 31, 1993 and 1992 by $1.2 million and $1.8 million, respectively. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 9-MOS DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 SEP-30-1997 SEP-30-1996 2,207 8,158 0 0 1,940 2,087 0 0 0 0 0 0 480,014 300,769 35,358 25,933 534,197 347,577 0 0 159,495 0 0 0 0 0 155 110 283,390 178,151 534,197 347,577 0 0 33,532 26,757 0 0 0 0 14,006 11,378 0 0 3,588 4,309 19,659 12,084 0 0 19,659 12,084 0 0 5,940 0 0 0 14,854 12,084 0.90 1.12 0 0
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