UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 ( ) 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 1-12298 REGENCY REALTY CORPORATION (Exact name of registrant as specified in its charter) FLORIDA 59-3191743 (State or 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: Common Stock, $.01 par value (Title of Class) New York Stock Exchange (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None 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 and (2) has been subject to such filing requirements for the past 90 days. YES (X) NO ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant was approximately $463,468,086 based on the closing price on the New York Stock Exchange for such stock on March 10, 1999. The approximate number of shares of Registrant's voting common stock outstanding was 57,831,620 as of March 10, 1999. Documents Incorporated by Reference Portions of the Registrant's Proxy Statement in connection with its 1999 Annual Meeting of Shareholders are incorporated by reference in Part III.
TABLE OF CONTENTS Form 10-K Item No. Report Page - -------- ----------- PART I 1. Business...................................................................1 2. Properties.................................................................5 3. Legal Proceedings.........................................................12 4. Submission of Matters to a Vote of Security Holders.......................12 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters...................................................................12 6. Selected Consolidated Financial Data......................................14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................................15 7a. Quantitative and Qualitative Disclosures About Market Risk................22 8. Consolidated Financial Statements and Supplementary Data..................22 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................................22 PART III 10. Directors and Executive Officers of the Registrant........................23 11. Executive Compensation....................................................23 12. Security Ownership of Certain Beneficial Owners and Management............24 13. Certain Relationships and Related Transactions............................24 PART IV 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.........24
PART I Item 1. Business Regency Realty Corporation ("Regency" or "Company") acquires, owns, develops and manages neighborhood shopping centers in targeted infill markets. As of December 31, 1998, Regency owned, directly or indirectly, 129 properties in the eastern half of the United States, containing approximately 14.7 million square feet of gross leasable area ("GLA"). As of December 31, 1998, Regency had an investment in real estate of approximately $1.3 billion and approximately 58% of Regency's GLA was located in Georgia and Florida. Regency's shopping centers (excluding centers under development) were approximately 93% leased as of December 31, 1998. On February 26, 1999, Regency's shareholders approved the merger of Pacific Retail Trust ("Pacific") into the Company in a stock for stock transaction (0.48 Regency share for 1 Pacific share). At December 31, 1998, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of GLA. The total cost to acquire Pacific is expected to be $1.157 billion based on the value of Regency shares issued, the assumption of $379 million of outstanding debt and other liabilities, and estimated transaction costs. Pacific's shopping centers are located primarily in California and Texas. The Company, a Florida corporation organized in 1993, commenced operations as a real estate investment trust (REIT) in 1993 with the completion of its initial public offering, and was the successor to the real estate business of The Regency Group, Inc. which had operated since 1963. Regency formed Regency Centers, L.P. (RCLP), a limited partnership and a public registrant, in 1996, and consolidated substantially all of its retail shopping centers into RCLP during 1998. RCLP is now the primary entity through which Regency owns its properties and through which Regency intends to expand its ownership and operation of retail shopping centers. At December 31, 1998, Regency owned approximately 96% of the outstanding operating partnership units of RCLP. Regency, the general partner of RCLP, fully controls the operating and investing decisions and activities of RCLP, and accordingly, the following discussion of Regency's business also includes the business of RCLP. Operating and Investment Philosophy Regency's key operating and investment objective is to create long-term shareholder value by: o growing its high quality real estate portfolio of grocery-anchored neighborhood shopping centers in attractive infill markets, o maximizing the value of the portfolio through its "Retail Operating System," developed in conjunction with Security Capital Holdings, S.A. ("SC-USREALTY"), which incorporates research based investment strategies, value-added leasing and management systems, and customer-driven development programs, and o using conservative financial management and Regency's substantial capital base to access the most cost effective capital to fund Regency's 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, Regency'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. Regency 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. Regency has identified approximately 1,000 centers in its target markets as potential acquisition opportunities, of which less than 10% are owned by REITs. As a result, Regency believes that an opportunity exists for it to be a consolidating force in the industry. In addition, Regency 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. Regency's shopping center properties feature some of the most attractive characteristics in the industry: o an average age of 8 years, o an average remaining grocery-anchor lease term of 14 years, and o an average grocery-anchor size of 49,000 square feet (43% of the square footage of the grocery-anchored centers on average). Grocery-Anchored Infill Strategy Regency focuses its investment strategy 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. Regency 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, Regency believes it can attract the best "side shop" merchants and enhance revenue potential. Research Driven Market Selection Regency has identified 21 markets in the eastern half of the United States as 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, Regency believes that it can achieve "critical mass" in these markets (defined as owning or managing 4 to 5 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, Regency's research staff further defines and selects submarkets and trade areas based on additional analysis of the above data. Regency then identifies target properties and their owners (including development opportunities) within these submarkets and trade areas based on 3-mile radius demographic data and ranks potential properties for purchase. The properties currently owned by Regency are in submarkets with an average 3-mile population of 69,000, average household income of $62,000 and projected 5-year population growth of 12%. Retail Operating System Regency's Retail Operating System drives its value-added operating strategy. Its Retail Operating System is characterized by: o proactive leasing and management; o value enhancing remerchandising initiatives; o Regency's "preferred customer initiative"; and o a customer-driven development and redevelopment program. a) Proactive leasing and management Regency's integrated approach to property management strengthens its leasing and management efforts. Property managers are an integral component of the acquisition and integration teams. Thorough, candid tenant interviews by property managers during acquisition due diligence allow Regency 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 Regency's. In addition, Regency's information systems allow managers to spot future lease expirations and to proactively market and remerchandise spaces several years in advance of such expirations. b) Value enhancing remerchandising initiatives Regency believes that certain shopping centers under serve their customers, reducing foot traffic and negatively affecting the tenants located in the shopping center. In response, Regency is initiating a remerchandising program 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, Regency expects to increase sales, and therefore the value of its shopping centers. c) Preferred customer initiative Regency has established a preferred customer initiative with dedicated personnel whose goal is to establish new or strengthen existing strategic relationships with successful retailers at the national, regional and local levels. Regency 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 Regency's shopping centers. Regency monitors retail trends and the operating performance of these preferred customers. Management expects the benefits of the preferred customer initiative to improve the merchandising and performance of the shopping centers, establish brand recognition among leading operators, reduce turnover of tenants and reduce vacancies. Regency 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. d) Customer-driven development and redevelopment program Regency conducts its development and redevelopment program in close cooperation with its major customers, including Kroger, Publix and Eckerd. Regency uses its development capabilities to service its customer's growth needs by building or re-developing modern properties with state of the art supermarket formats that generate higher returns for Regency under new long-term leases. In 1998, Regency began development on 21 retail projects, including new developments, redevelopments and build-to-suits and upon completion, Regency will have invested $152 million in these projects. During 1997, Regency began development on 16 retail projects, including new developments, redevelopments and build-to-suits and upon completion, Regency will have invested $87 million in these projects. Regency manages its development risk by obtaining signed anchor leases prior to beginning construction. Acquisition Track Record Regency has grown its asset base significantly through acquisitions over the last several years, acquiring properties totaling $384.3 million in 1998, $395.7 million in 1997 and $107.1 million in 1996. Through these acquisitions, Regency has diversified geographically from its predominantly Florida-based portfolio and established a presence in many of its target markets. Upon identifying an acquisition target, Regency utilizes expertise from all of its functional areas, including acquisitions, due diligence and property management, to determine the appropriate purchase price and to develop a business plan for the center and design an integration plan for the management of the center. Regency believes that its established acquisition and integration procedures produce higher returns on its portfolio, reduce risk and position Regency to capitalize on consolidation in the shopping center industry. Capital Strategy Regency intends 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, however, neither Regency Realty Corporation's nor Regency Centers, L.P.'s organizational documents limit the amount of debt that may be incurred. Limitations have been established within the covenants of certain loan agreements related to the Partnership's line of credit and medium term notes. As of December 31, 1998, Regency had secured and unsecured debt of $309.2 million and $238.9 million, respectively. Substantially all of Regency's debt is cross-defaulted, but not cross-collateralized. Pursuant to Regency's $300 million unsecured line of credit (increased to $635 million with the merger of Pacific Retail Trust), Regency is required to comply, and is complying with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include (1) maintenance of minimum net worth, (2) ratio of total liabilities to gross asset value, (3) ratio of secured indebtedness to gross asset value, (4) ratio of EBITDA to interest expense, (5) ratio of EBITDA to debt service and reserve for replacements, and (6) ratio of unencumbered net operating income to interest expense on unsecured indebtedness. In addition, Regency may not enter into a negative pledge agreement with another lender and may not incur other floating rate debt in excess of 25% of gross asset value without interest rate protection. The line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. Since Regency's initial public offering in 1993, Regency has financed its growth in part through a series of public and private offerings of Regency equity and RCLP units totaling, as of December 31, 1998, approximately $677 million, including the utilization by RCLP of its units as consideration for acquisitions. RCLP units (with the exception of Series A preferred units) issued and owned by limited partners are convertible into Regency common stock on a one for one basis, and receive quarterly distributions equal to the dividends paid on each Regency common share. Risk Factors Relating to Ownership of Regency Common Stock The Company is subject to certain business risks arising in connection with owning real estate which include, among others: o the bankruptcy or insolvency of, or a downturn in the business of, any of its major tenants could reduce cash flow, o the possibility that such tenants will not renew their leases as they expire or renew at lower rental rates could reduce cash flow, o vacated anchor space will affect the entire shopping center because of the loss of the departed anchor tenant's customer drawing power, o poor market conditions could create an over supply of space or a reduction in demand for real estate in markets where the Company owns shopping centers, o the Company's rapid growth could place strains on its resources, o risks relating to leverage, including uncertainty that the Company will be able to refinance its indebtedness, and the risk of higher interest rates, o unsuccessful development activities could reduce cash flow, o the Company's inability to satisfy its cash requirements for operations and the possibility that the Company may be required to borrow funds to meet distribution requirements in order to maintain its qualification as a REIT, o potential liability for unknown or future environmental matters and costs of compliance with the Americans with Disabilities Act, o the risk of uninsured losses, and o 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 Company's ability to attract and retain desirable tenants. Compliance with Governmental Regulations Under various federal, state and local laws, ordinances and regulations, an owner or manager of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The cost of required remediation and the owner's liability for remediation could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent the property or borrow using the property as collateral. Regency has approximately 31 properties that will require or are currently undergoing varying levels of environmental remediation. These remediations are not expected to have a material financial effect on the Company due to financial statement reserves and various state-regulated programs that shift the responsibility and cost for remediation to the state. Competition The Company believes the ownership of shopping centers is highly fragmented, with less than 10% owned by REITs. Regency faces competition from other REITs in the acquisition, ownership and leasing of shopping centers as well as from numerous small owners. Regency competes for the development of shopping centers with other REITs engaged in development activities as well as with local, regional and national real estate developers. Regency develops properties by applying its proprietary research methods to identify development and leasing opportunities and by pre-leasing an average of 85% of a center before beginning construction. Regency competes for the acquisition of properties through proprietary research that identifies opportunities in markets with high barriers to entry and higher-than-average population growth and household income. Regency seeks to maximize rents per square foot by establishing relationships with supermarket chains that are first or second in their markets and leasing non-anchor space in multiple centers to national or regional tenants. There can be no assurance, however, that other real estate owners or developers will not utilize similar research methods and target the same markets and anchor tenants that Regency targets or that such entities will successfully control these markets and tenants to the exclusion of Regency. Changes in Policies The Company's Board of Directors determines policies with respect to certain activities, including its debt capitalization, growth, distributions, REIT status, and investment and operating strategies. 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 the Company's stockholders. Employees The Company's headquarters are located in Jacksonville, Florida. The Company presently maintains offices in which it conducts management and leasing activities located in Florida, Georgia, North Carolina, Ohio, and Missouri. As of December 31, 1998, the Company had approximately 240 employees and believes that relations with its employees are good. Item 2. Properties <TABLE> The Company's properties summarized by state including their gross leasable areas (GLA) follows: <CAPTION> Location December 31, 1998 December 31, 1997 -------- ----------------- ----------------- # Properties GLA % Leased # Properties GLA % Leased ------------ --- -------- ------------ --- -------- <S> <C> <C> <C> <C> <C> <C> Florida 46 5,728,347 91.4% 45 5,267,894 91.5% Georgia 27 2,737,590 93.1% 25 2,539,507 92.4% Ohio 13 1,786,521 93.4% 2 629,920 89.1% North Carolina 12 1,239,783 98.3% 6 554,332 99.0% Alabama 5 516,060 99.0% 5 516,080 99.9% Texas 5 479,900 84.7% - - - Colorado 5 447,569 89.4% - - - Tennessee 4 295,179 96.8% 3 208,386 98.5% Virginia 2 197,324 97.7% - - - Mississippi 2 185,061 97.6% 2 185,061 96.9% Michigan 2 177,929 81.5% - - - South Carolina 2 162,056 100.0% 1 79,743 84.3% Delaware 1 232,752 94.8% - - - Kentucky 1 205,060 95.6% - - - Illinois 1 178,600 86.9% - - - Missouri 1 82,498 99.8% - - - ------------- ---------- ------- ------------ --------- ------ Total 129 14,652,229 92.9% 89 9,980,923 92.8% ============= ========== ======= ============ ========= ====== </TABLE> The following table summarizes the largest tenants occupying the Company's shopping centers based upon a percentage of total annualized base rent exceeding .5% at December 31, 1998: <TABLE> Summary of Principal Tenants > .5% of Annualized Base Rent (including Properties Under Development) <CAPTION> % to Company % of Annualized # of Tenant SF Owned GLA Rent Base Rent Stores ------ -- ------------ ---- --------------- ------ <S> <C> <C> <C> <C> <C> Kroger 2,180,363 14.9% $18,496,049 13.8% 36 Publix 1,439,762 9.8% 9,254,154 6.9% 33 Winn Dixie 748,329 5.1% 5,131,795 3.8% 16 Blockbuster 214,818 1.5% 3,163,928 2.4% 35 K-Mart 507,645 3.5% 2,615,359 2.0% 6 Harris Teeter 187,363 1.3% 2,261,650 1.7% 4 Walgreens 206,795 1.4% 2,070,754 1.5% 15 Wal-Mart 486,168 3.3% 1,993,728 1.5% 6 Eckerd 218,305 1.5% 1,670,155 1.2% 22 A & P 116,666 0.8% 866,593 0.6% 3 CVS Drugs 103,206 0.7% 818,721 0.6% 11 Albertsons 55,377 0.4% 630,772 0.5% 1 Delchamps 82,845 0.6% 613,122 0.5% 2 </TABLE> The Company'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. Many of the anchor leases contain provisions allowing the tenant the option of extending the term of the lease at expiration. The Company's leases provide for the monthly payment in advance of fixed minimum rentals, additional rents calculated as a percentage of the tenant's sales, 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 a schedule of lease expirations for the next ten years, assuming that no tenants exercise renewal options: Future Percent of Minimum Percent of Lease Total Rent Total Expiration Expiring Company Expiring Minimum Year GLA GLA Leases Rent (2) ---- --- --- ------ -------- (1) 88,448 0.7% $941,247 0.8% 1999 933,156 7.5% $10,973,054 9.0% 2000 892,964 7.2% $10,484,173 8.6% 2001 1,163,072 9.3% $13,710,368 11.3% 2002 1,212,519 9.7% $13,155,318 10.8% 2003 992,177 8.0% $10,360,431 8.5% 2004 492,469 4.0% $4,018,968 3.3% 2005 254,877 2.0% $2,644,771 2.2% 2006 598,066 4.8% $4,993,560 4.1% 2007 435,154 3.5% $3,853,728 3.2% 2008 759,825 5.9% $5,311,987 4.3% -------------------------------------------------------- 10 Yr Total 7,822,727 60.7% 80,447,605 65.5% -------------------------------------------------------- (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 Item 7, Management's Discussion and Analysis for further information about the Company's properties.
<TABLE> <CAPTION> Gross Year Leasable Year Con- Area Percent Grocery Property Name Acquired structed (1) (GLA) Leased (2) Anchor - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> FLORIDA Jacksonville / North Florida Anastasia 1993 1988 102,342 95.1% Publix Bolton Plaza 1994 1988 172,938 100.0% -- Carriage Gate 1994 1978 76,833 100.0% -- Courtyard (3) 1993 1987 67,794 45.8% Albertsons(4) Ensley Square (5) 1997 1977 62,361 100.0% Delchamps Fleming Island 1998 1994 80,205 98.9% Publix Highlands Square (6) 1998 1999 226,682 87.1% Publix/Winn-Dixie Millhopper (3) 1993 1974 84,064 97.0% Publix Newberry Square 1994 1986 180,524 98.0% Publix Old St. Augustine Plaza 1996 1990 170,220 98.2% Publix Palm Harbour 1996 1991 171,891 94.6% Publix Pine Tree Plaza (6) 1997 1999 60,752 94.1% Publix Regency Court 1997 1992 218,665 78.3% -- South Monroe 1996 1998 80,187 97.0% Winn-Dixie Tampa / Orlando Beneva 1998 1987 141,532 97.1% Publix Bloomingdale Square 1998 1987 267,935 99.0% Publix Mainstreet Square 1997 1988 107,159 90.5% Winn-Dixie Mariner's Village 1997 1986 117,665 94.4% Winn-Dixie Market Place - St. Petersburg 1995 1983 90,296 100.0% Publix Peachland Promenade 1995 1991 82,082 96.5% Publix Regency Square 1993 1986 341,446 87.3% -- at Brandon (3) Seven Springs 1994 1986 162,580 93.1% Winn-Dixie Terrace Walk (3) 1993 1990 50,926 40.4% -- Town Square 1997 1986 42,969 40.2% -- University Collections 1996 1984 106,627 96.8% Kash N Karry(4) Village Center-Tampa 1995 1993 181,110 95.5% Publix West Palm Beach / Treasure Coast Boynton Lakes Plaza 1997 1993 130,724 91.0% Winn-Dixie Chasewood Plaza (3) 1993 1986 141,034 87.5% Publix Chasewood Storage (3) 1993 1986 42,810 99.9% -- East Port Plaza 1997 1991 235,842 94.9% Publix Martin Downs Village Center(3) 1993 1985 121,956 90.9% -- Martin Downs 1993 1998 49,773 94.0% -- Village Shop (3)(6) Ocean Breeze (3) 1993 1985 111,551 83.9% Publix Ocean East (5) 1996 1997 112,894 60.5% Stuart Foods Tequesta Shoppes 1996 1986 109,766 92.9% Publix Town Center at Martin Downs 1996 1996 64,546 93.5% Publix Wellington Market Place 1995 1990 178,155 94.1% Winn-Dixie Wellington Town Square 1996 1982 105,150 98.2% Publix Miami / Ft. Lauderdale Aventura (3) 1994 1974 102,876 96.4% Publix Berkshire Commons 1994 1992 106,534 99.8% Publix Garden Square 1997 1991 90,258 97.1% Publix North Miami (3) 1993 1988 42,500 100.0% Publix Palm Trails Plaza 1997 1998 76,067 95.9% Winn-Dixie Shoppes @ 104 1998 1990 108,189 95.4% Winn Dixie Tamiami Trail 1997 1987 110,867 100.0% Publix University Market Place 1993 1990 129,121 73.3% Albertsons(4) Welleby 1996 1982 109,949 93.5% Publix ------------------------------ Subtotal/Weighted Average(Florida) 5,728,347 91.4% ------------------------------
GEORGIA Atlanta Ashford Place 1997 1993 53,345 100.0% -- Braelin Village (5) 1997 1991 226,522 98.8% Kroger Briarcliff LaVista 1997 1962 39,201 100.0% -- Briarcliff Village (6) 1997 1990 192,660 89.0% Publix Buckhead Court 1997 1984 55,227 93.9% -- Cambridge Square 1996 1979 68,725 77.8% -- Cromwell Square 1997 1990 81,826 81.7% -- Cumming 400 1997 1994 126,899 94.8% Publix Delk Spectrum (3)(5) 1998 1991 100,880 100.0% A&P Dunwoody Hall 1997 1986 82,525 97.6% A&P Dunwoody Village (5) 1997 1975 114,657 94.1% Ingles Loehmann's Plaza 1997 1986 137,635 90.8% -- Lovejoy Station 1997 1995 77,336 98.3% Publix Memorial Bend 1997 1995 182,778 93.9% Publix Orchard Square 1995 1987 85,940 94.6% A&P Paces Ferry Plaza 1997 1987 61,693 91.4% -- Powers Ferry Square 1997 1987 97,809 96.1% Harry's Powers Ferry Village 1997 1994 78,995 100.0% Publix Rivermont Station 1997 1996 90,267 100.0% Harris Teeter Roswell Village (6) 1997 1997 143,980 97.2% Publix Russell Ridge 1994 1995 98,556 96.6% Kroger Sandy Plains Village 1996 1992 175,034 94.4% Kroger Sandy Springs Village 1997 1997 48,245 11.2% -- Trowbridge Crossing (5) 1997 1997 62,558 86.8% Publix Other Markets Evans Crossing 1998 1993 83,680 100.0% Kroger LaGrangeMarketplace(3) 1993 1989 76,327 95.5% Winn-Dixie Parkway Station (5) 1996 1983 94,290 94.5% Kroger ------------------------------ Subtotal/Weighted Average(Georgia) 2,737,590 93.1% ------------------------------ OHIO Cincinnati Beckett Commons 1998 1995 80,434 100.0% Kroger Cherry Grove 1998 1997 186,040 93.5% Kroger Hamilton Meadows 1998 1989 126,251 97.8% Kroger(4) Hyde Park Plaza (5) 1997 1995 374,743 97.4% Kroger/Winn-Dixie Shoppes at Mason 1998 1997 80,880 95.1% Kroger Silverlake 1998 1988 100,245 91.0% Kroger Westchester Plaza 1998 1988 88,181 100.0% Kroger Columbus East Pointe 1998 1993 86,520 100.0% Kroger Kingsdale (3)(6) 1997 1999 259,011 73.0% Big Bear North Gate/(Maxtown) 1998 1996 85,100 95.9% Kroger Park Place 1998 1988 106,832 96.2% Big Bear Windmiller Plaza 1998 1997 119,192 97.1% Kroger Worthington 1998 1991 93,092 100.0% Kroger ------------------------------ Subtotal/Weighted Average(Ohio) 1,786,521 93.4% ------------------------------
NORTH CAROLINA Asheville Oakley Plaza 1997 1988 118,727 98.7% Bi-Lo Charlotte Carmel Commons 1997 1979 132,648 95.3% Fresh Market City View 1996 1993 77,550 100.0% Winn-Dixie Union Square 1996 1989 97,191 100.0% Harris Teeter Raleigh / Durham Bent Tree Plaza 1998 1994 79,503 100.0% Kroger Garner Town Square 1998 1998 221,450 100.0% Kroger Glenwood Village 1997 1983 42,864 100.0% Harris Teeter Lake Pine Plaza 1998 1997 87,690 97.6% Kroger Maynard Crossing 1998 1997 122,813 100.0% Kroger Southpoint Crossing (7) 1998 1998 101,404 89.4% Kroger Woodcroft 1996 1984 85,353 100.0% Food Lion Winston-Salem Kernersville Marketplace 1998 1997 72,590 100.0% Kroger ------------------------------ Subtotal/Weighted Average(North Carolina) 1,239,783 98.3% - ------------------------------------------------------------------------------------------------------------- ALABAMA Birmingham Villages of Trussville (3) 1993 1987 69,280 97.7% Bruno's West County Marketplace (3) 1993 1987 129,155 100.0% Food World (4) Montgomery Country Club (3) 1993 1991 67,622 96.3% Winn-Dixie Other Markets Bonner's Point (3) 1993 1985 87,280 98.6% Winn-Dixie Marketplace - 1993 1987 162,723 100.0% Winn-Dixie Alexander City (3) ------------------------------ Subtotal/Weighted Average(Alabama) 516,060 99.0% ------------------------------ COLORADO Colorado Springs Cheyenne Meadows (5) 1998 1998 89,085 97.6% King Soopers Jackson Creek (6)(7) 1998 1999 85,259 89.4% Kroger Woodman Plaza (6)(7) 1998 1998 103,313 70.4% King Soopers Denver Lloyd King Center (5) 1998 1998 83,286 98.4% King Soopers Stroh Ranch (6)(7) 1998 1998 86,626 95.2% King Soopers ------------------------------ Subtotal/Weighted Average(Colorado) 447,569 89.4% ------------------------------
TEXAS Dallas Bethany Lake (5)(6) 1998 1998 91,674 68.3% Kroger Creekside (5) 1998 1998 96,816 94.2% Kroger Preston Brook - Frisco (5)(6) 1998 1998 91,373 77.8% Kroger Shiloh Springs (7) 1998 1998 81,865 94.0% Kroger Village Center - Southlake (5) 1998 1998 118,172 88.6% Kroger ------------------------------ Subtotal/Weighted Average(Texas) 479,900 84.7% ------------------------------ TENNESSEE Nashville Harpeth Village (5) 1997 1998 70,091 100.0% Albertsons Marketplace - 1997 1997 23,500 100.0% -- Murphreesburo (5) Nashboro Village (7) 1998 1998 86,793 89.1% Kroger Peartree Village 1997 1997 114,795 100.0% Harris Teeter ------------------------------ Subtotal/Weighted Average(Tennessee) 295,179 96.8% ------------------------------ VIRGINIA Brookville Plaza 1998 1991 63,664 97.6% Kroger Statler Square 1998 1996 133,660 97.7% Kroger ------------------------------ Subtotal/Weighted Average(Virginia) 197,324 97.7% ------------------------------ MISSISSIPPI Columbia Marketplace(3) 1993 1988 136,002 98.7% Winn-Dixie Lucedale Marketplace(3) 1993 1989 49,059 94.7% Delchamps ------------------------------ Subtotal/Weighted Average(Mississippi) 185,061 97.6% ------------------------------ MICHIGAN Lakeshore 1998 1996 85,478 99.0% Kroger Waterford 1998 1998 92,451 65.3% Kroger ------------------------------ Subtotal/Weighted Average(Michigan) 177,929 81.5% ------------------------------ SOUTH CAROLINA Merchants Village 1997 1997 79,723 100.0% Publix Queensborough (5) 1998 1993 82,333 100.0% Publix ------------------------------ Subtotal/Weighted Average(South Carolina) 162,056 100.0% -----------------------------
DELAWARE Pike Creek 1998 1981 232,752 94.8% Acme KENTUCKY Franklin Square 1998 1988 205,060 95.6% Kroger ILLINOIS Hinsdale Lake Commons 1998 1986 178,600 86.9% Dominick's MISSOURI St. Ann Square 1998 1986 82,498 99.8% National ------------------------------ Total Weighted Average 14,652,229 92.9% ============================== <CAPTION> Drug Store & Other Property Name Other Anchors Tenants - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> FLORIDA Jacksonville / North Florida Anastasia -- Hallmark, Schmagel's Bagels, Mailboxes Bolton Plaza Wal-Mart Radio Shack, Payless Shoes, Mailboxes Carriage Gate TJ Maxx Brueggers Bagels, Bedfellows, Alterations Courtyard (3) -- Olan Mills, Heavenly Ham, Beauty Warehouse Ensley Square (5) -- Radio Shack, Hallmark, Amsouth Bank Fleming Island -- Mail Boxes, Etc., Radio Shack, GNC Highlands Square (6) Eckerd, Consolidated Stores Hair Cuttery, Rent Way, Precision Printing Millhopper (3) Eckerd Book Gallery, Postal Svc., Chesapeake Bagel Newberry Square Kmart H & R Block, Cato Fashions, Olan Mills Old St. Augustine Plaza Eckerd, Waccamaw Mail Boxes, Etc., Hallmark, Hair Cuttery Palm Harbour Eckerd, Bealls Mail Boxes, Etc., Hallmark, Meale Norman Pine Tree Plaza (6) -- Great Clips, CiCi's Pizza, Soupersalad Regency Court CompUSA, Office Depot H & R Block, Mail Boxes Etc. Sports Authority Loop Restaurant South Monroe Eckerd Rent-A-Center, H & R Block Tampa / Orlando Beneva Walgreen's Stride Rite, GNC, Subway Bloomingdale Square Eckerd, Wal-Mart, Beall's Radio Shack, H&R Block, Hallmark Mainstreet Square Walgreen's Rent-A-Center, Discount Auto Parts, Norwest Mariner's Village Walgreen's Supercuts. Pak Mail, Allstate Insurance Market Place - St. Petersburg Eckerd Mail Boxes, Etc., Republic, Weight Watchers Peachland Promenade Ace Hardware State Farm, Subway, GNC Regency Square TJ Maxx, AMC, Pak Mail, Lens Crafter at Brandon (3) Staples, Marshalls Famous Footware Seven Springs Kmart State Farm, Subway, H & R Block Terrace Walk (3) -- Olan Mills, Norwest, Cellular Mart Town Square -- Baskin Robbins, Coldwell Banker, Hallmark University Collections Eckerd Hallmark, Pak Mail, Dockside Imports Village Center-Tampa Walgreen's, Stein Mart Hallmark, Pak Mail, Mens Warehouse West Palm Beach / Treasure Coast Boynton Lakes Plaza Walgreen's Radio Shack, Baskin Robbins, Dunkin Donuts Chasewood Plaza (3) Walgreen's Hallmark, GNC, Supercuts Chasewood Storage (3) -- East Port Plaza Walgreen's, Kmart, Sears H & R Block, Pak Mail, Subway Martin Downs Village Center(3) Coastal Care Burger King, Hallmark, Barnett Bank Martin Downs Walgreen's Mailbox Plus, Allstate, Optical Outlet Village Shop (3)(6) Ocean Breeze (3) Walgreen's, Coastal Care Mail Boxes, Barnett Bank, World Travel Ocean East (5) Coastal Care Mail Boxes, Nations Bank, Ocean Cleaners Tequesta Shoppes Walgreen's Mail Boxes, Etc., Hallmark, Radio Shack Town Center at Martin Downs -- Mail Boxes, Health Exchange, Champs Hair Wellington Market Place Walgreen's, United Artists Pak Mail, Subway, Papa John's Wellington Town Square Eckerd Mail Boxes, Hallmark, Coldwell Banker Miami / Ft. Lauderdale Aventura (3) Eckerd, Humana Pak Mail, Bank United, City of Aventura Berkshire Commons Walgreen's H & R Block, Century 21, Postal Station Garden Square Eckerd Subway, GNC, Hair Cuttery North Miami (3) Eckerd Palm Trails Plaza -- Mail Boxes, Sal's Pizza, Personnel One Shoppes @ 104 Rite Aid Mail Boxes Etc., GNC, Pet Superstore Tamiami Trail Eckerd Mail Boxes, Etc., Radio Shack, Pizza Hut University Market Place -- H & R Block, Mail Boxes Etc., Olan Mills Welleby Walgreen's H & R Block, Mail Boxes Plus, Pizza Hut Subtotal/Weighted Average(Florida)
GEORGIA Atlanta Ashford Place Pier 1 Imports Baskin Robbin, Mail Boxes Merle Norman Braelin Village (5) Kmart Baskin Robbins, Mail Boxes Etc., Manhattan Bagel Briarcliff LaVista Drug Emporium Supercuts, Trust Company Bank Briarcliff Village (6) Eckerd, TJ Maxx, Office Depot Subway, Hair Cuttery, Famous Footware Buckhead Court -- Hallmark, Bellsouth Mobility Outback Steakhouse Cambridge Square -- Papa John's, AAA Mail & Pkg., Wachovia Cromwell Square CVS Drug First Union, Bellsouth Mobility Haverty's Furniture Hancock Fabrics Cumming 400 Big Lots Pizza Hut, Hair Cuttery, Autozone Delk Spectrum (3)(5) -- Mail Boxes, Etc., GNC, Wolf Camera Dunwoody Hall Eckerd Texaco, Blimpie, Nations Bank Dunwoody Village (5) -- Federal Express, Jiffy Lube, Hallmark Loehmann's Plaza Eckerd, Loehmann's Mail Boxes, Etc., GNC, H & R Block Lovejoy Station -- State Farm, Pizza Hut, Supercuts Memorial Bend TJ Maxx Pizza Hut, GNC, H & R Block Orchard Square CVS Drug Mail Boxes Unlimited, State Farm, Remax Paces Ferry Plaza -- Chapter 11 Bookstore, Banksouth Sherwin Williams Powers Ferry Square Drugs for Less Domino's Pizza, Dunkin Donuts, Supercuts Powers Ferry Village CVS Drug Mail Boxes, Etc., Southtrust Bank, Blimpies Rivermont Station CVS Drug Pak Mail, GNC, Wolf Camera Roswell Village (6) Eckerd, Ace Hardware Hallmark, Pizza Hut, Scholtzyky's Russell Ridge -- Pizza Hut, Pak Mail, Hallmark Sandy Plains Village Ace Hardware H & R Block, Mail Boxes Etc., Subway Sandy Springs Village -- Air Touch Trowbridge Crossing (5) -- Domino's, Postal Services, Hair Cuttery Other Markets Evans Crossing -- Subway, Hair Cuttery, Dollar Tree LaGrangeMarketplace(3) Eckerd Lee's Nails, It's Fashions, One Price Clothing Parkway Station (5) -- H & R Block, Pizza Hut, Olan Mills Subtotal/Weighted Average(Georgia) OHIO Cincinnati Beckett Commons -- Mail Boxes, Etc., Subway, Taco Bell Cherry Grove CVS Drug, TJ Maxx GNC, Hallmark, Sally Beauty Supply Hancock Fabrics Hamilton Meadows Kmart Radio Shack, H&R Block, GNC Hyde Park Plaza (5) Walgreen's, Micheals Radio Shack, H&R Block, Hallmark Barnes & Noble, Old Navy Shoppes at Mason -- Pizza Hut, GNC, Great Clips Silverlake -- Radio Shack, H&R Block, Great Clips Westchester Plaza -- Pizza Hut, Subway, GNC Columbus East Pointe -- Mail Boxes, Etc., Hallmark, Liberty Mutual Kingsdale (3)(6) Stein Mart, Limited Hallmark, Sherwin Williams S&K Menswear Famous Footware North Gate/(Maxtown) -- Domino's Pizza, GNC, Great Clips Park Place -- Mail Boxes, Etc., Domino's, Subway Windmiller Plaza Sears Hardware Radio Shack, Sears Optical, Great Clips Worthington CVS Drug Little Caesar's, Hallmark, Radio Shack Subtotal/Weighted Average(Ohio)
NORTH CAROLINA Asheville Oakley Plaza CVS Drug, Western Auto Little Caesar's, Subway Baby Superstore Life Uniform Charlotte Carmel Commons Eckerd, Piece Goods Little Caesar's, Radio Shack, Blimpies City View VS Drug, Public Library Little Caesar's, Bellsouth, Willie's Union Square CVS Drug Mail Boxes, Etc., Subway, TCBY Consolidated Theatres Raleigh / Durham Bent Tree Plaza Pizza Hut, Manhattan Bagel, Parcel Plus Garner Town Square United Artists, Office Max Sears Optical, Friedman's Jewelers Petsmart H & R Block Glenwood Village -- Domino's Pizza, Threadbenders II Lake Pine Plaza -- H & R Block, GNC, Great Clips Maynard Crossing -- Mail Boxes, Etc., GNC, Hallmark Southpoint Crossing (7) -- Wolf Camera, GNC, Manhattan Bagel Woodcroft Eckerd, True Value Domino's Pizza, Subway, Allstate Winston-Salem Kernersville Marketplace -- Mail Boxes, Little Caesar's, Great Clips Subtotal/Weighted Average(North Carolina) ALABAMA Birmingham Villages of Trussville (3) CVS Drug Head Start, Cellular One, Mattress Max West County Marketplace (3) Harco, Wal-Mart Domino's Pizza, GNC, Cato Plus Montgomery Country Club (3) Rite Aid Radio Shack, Subway, Beltone Other Markets Bonner's Point (3) Wal-Mart Subway, Domino's Pizza, It's Fashion Marketplace - Wal-Mart Domino's Pizza, Subway, Hallmark Alexander City (3) Subtotal/Weighted Average(Alabama) COLORADO Colorado Springs Cheyenne Meadows (5) -- Hallmark, Nail Center, Cost Cutters Jackson Creek (6)(7) -- Cost Cutters, Polo Cleaners Woodman Plaza (6)(7) -- Cost Cutters Denver Lloyd King Center (5) -- GNC, Cost Cutters, Hollywood Video Stroh Ranch (6)(7) -- Cost Cutters, Post Net, Dry Clean Station Subtotal/Weighted Average(Colorado)
TEXAS Dallas Bethany Lake (5)(6) -- Boss Cleaners, Mr. Parcel, Fantastic Sams Creekside (5) -- Hollywood Video, CICI's,Fantastic Sams Preston Brook - Frisco (5)(6) -- Coldwell Banker Shiloh Springs (7) -- GNC, Great Clips, Cardsmart Village Center - Southlake (5) -- Radio Shack, Papa Johns, Smoothie King Subtotal/Weighted Average(Texas) TENNESSEE Nashville Harpeth Village (5) -- Mail Boxes, Etc., Heritage Cleaners, Cat's Marketplace - Office Max Shoe Carnival Murphreesburo (5) Nashboro Village (7) -- Hallmark, Fantastic Sams, Cellular Peartree Village Eckerd, Office Max Hollywood Video, AAA Auto, Royal Thai Subtotal/Weighted Average(Tennessee) VIRGINIA Brookville Plaza -- H&R Block, House of Frames, Jenny Craig Statler Square CVS Drugs, Staples Hallmark, H & R Block, Hair Cuttery Subtotal/Weighted Average(Virginia) MISSISSIPPI Columbia Marketplace(3) Wal-Mart GNC, Radio Shack, Cato Lucedale Marketplace(3) Wal-Mart(4) Subway, First Family Financial, Byrd's Cleaners Subtotal/Weighted Average(Mississippi) MICHIGAN Lakeshore Rite Aid Hallmark, Subway, Baskin Robins Waterford -- Subtotal/Weighted Average(Michigan) SOUTH CAROLINA Merchants Village -- Mail Boxes, Hollywood Video, Hallmark Queensborough (5) -- Mail Boxes, Etc., Supercuts, Pizza Hut Subtotal/Weighted Average(South Carolina)
DELAWARE Pike Creek Eckerd, K-mart Radio Shack, H & R Block, TCBY KENTUCKY Franklin Square Rite Aid, JC Penney Mail Boxes, Baskin Robbins, Kay Jewelers ILLINOIS Hinsdale Lake Commons Ace Hardware Hallmark, McDonalds, Fannie Mae MISSOURI St. Ann Square Vic Tanny Great Clips, US Navy, US Marines Total Weighted Average </TABLE> - ------------------------------------------------------- (1) Or latest renovation (2) Includes development properties. If development properties are excluded, the total percentage leased would be 94.6% for Partnership shopping centers and 94.0% for Company shopping centers. (3) Company-owned property not owned by the 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. Item 3. Legal Proceedings The Company is, from time to time, a party to legal proceedings which arise in the ordinary course of its business. The Company is not currently involved in any litigation nor, to management's knowledge, is any litigation threatened against the Company, the outcome of which would, in management's judgement based on information currently available, have a material adverse effect on the financial position or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted for shareholder vote during the fourth quarter of 1998. PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "REG". The Company currently has approximately 3,500 shareholders. The following table sets forth the high and low prices and the cash dividends declared on the Company's common stock by quarter for 1998 and 1997. All amounts are in thousands except per share data. <TABLE> <CAPTION> 1998 1997 ----------------------------------- ----------------------------------- Cash Cash High Low Dividends High Low Dividends Price Price Declared Price Price Declared ----- ----- --------- ----- ----- -------- <S> <C> <C> <C> <C> <C> <C> March 31 $ 27.812 24.750 .44 28.000 25.000 .42 June 30 26.687 24.062 .44 28.125 24.875 .42 September 30 26.500 20.500 .44 28.250 24.875 .42 December 31 23.437 20.250 .44 28.000 24.250 .42 </TABLE> The following describes the registrant's sales of unregistered securities during the periods covered by this report, each sold in reliance on Rule 506 of the Securities Act. During 1998, the Company acquired 32 shopping centers from various entities comprising the Midland Group ("Midland"). The Company's investment in the properties acquired from Midland is $236.6 million at December 31, 1998. As part of the acquisition of Midland, the Company issued 425,982 Operating Partnership Units ("Units") of Regency Centers, L.P. to the Midland principals. Units are exchangeable into Regency common stock on a one for one basis. In addition, during 1999 and 2000, the Company may pay contingent consideration of up to an estimated $23 million, through the issuance of Units and the payment of cash. The amount of such consideration, if issued, will depend on the satisfaction of certain performance criteria relating to the assets acquired from Midland. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than Units. The acquisition of Midland is discussed further in note 2, Acquisitions of Shopping Centers, of the notes to the 1998 consolidated financial statements. On June 29, 1998, the Company through RCLP issued $80 million of 8.125% Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to Belair Capital Fund LLC in a private placement. The issuance involved the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred Units, which may be called by the Company at par on or after June 25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of the Company. In November 1998, the Company acquired Park Place shopping center in exchange for 79,466 Units of Regency Centers, L.P. valued at $26 per Unit plus the assumption of debt secured by Park Place. The Company acquired 35 shopping centers during 1997 (the "1997 Acquisitions") for approximately $395.7 million. Included in the 1997 Acquisitions are 26 shopping centers acquired from Branch Properties ("Branch") for $232.4 million. During 1998, the Company issued 721,997 additional Units and shares of common stock valued at $18.2 million to Branch as contingent consideration for the satisfaction of certain performance criteria of the properties acquired. The Company expects to issue the remaining contingent consideration, 298,064 Units, during 1999. In connection with the Units and shares of common stock issued to Branch in March 1998, SC-USREALTY acquired 435,777 shares at $22.125 per share in accordance with their rights to purchase common stock. The acquisition of Branch is discussed further in note 2, Acquisitions of Shopping Centers, of the notes to the 1998 consolidated financial statements. The Company intends to pay regular quarterly distributions to its common shareholders. Future distributions will be declared and paid at the discretion of the Board of Directors, and will depend upon cash generated by operating activities, the Company's financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as the Board of Directors deems relevant. The Company anticipates that for the foreseeable future cash available for distribution will be greater than earnings and profits due to non-cash expenses, primarily depreciation and amortization, to be incurred by the Company. Distributions by the Company to the extent of its current and accumulated earnings and profits for federal income tax purposes will be taxable to shareholders as ordinary dividend income. Distributions in excess of earnings and profits generally will be treated as a non-taxable return of capital. Such distributions have the effect of deferring taxation until the sale of a shareholder's common stock. In order to maintain its qualification as a REIT, the Company must make annual distributions to shareholders of at least 95% of its taxable income. Under certain circumstances, which management does not expect to occur, the Company could be required to make distributions in excess of cash available for distributions in order to meet such requirements. The Company currently maintains the Regency Realty Corporation Dividend Reinvestment and Stock Purchase Plan which enables its shareholders to automatically reinvest distributions as well as make voluntary cash payments towards the purchase of additional shares. The Company declares quarterly cash dividends on the 2.5 million Class B common shares outstanding. At December 31, 1998 the Class B common was owned by a single shareholder. During 1998 a distribution of $.5378 per share was paid quarterly. The 2.5 million Class B common shares are convertible into 2,975,468 common shares, subject to certain ownership limitations. Under the loan agreement with the lenders of the Company's line of credit, distributions may not exceed 95% of Funds from Operations ("FFO") based on the immediately preceding four quarters. FFO is defined in accordance with the NAREIT definition as described under Item 7., Management's Discussion and Analysis. Also in the event of any monetary default, the Company will not make distributions to shareholders.
Item 6. Selected Consolidated Financial Data (in thousands, except per share data and number of properties) The following table sets forth Selected Financial Data on a historical basis for the five years ended December 31, 1998, for the Company. This information should be read in conjunction with the financial statements of the Company (including the related notes thereto) and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Financial Data has been derived from the audited financial statements. <TABLE> <CAPTION> 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Operating Data: Revenues: Rental revenues $ 130,487 88,855 43,433 31,555 25,673 Management, leasing and brokerage fees 11,863 8,448 3,444 2,426 2,332 Equity in income of investments in real estate partnerships 946 33 70 4 17 ------------- ----------- ----------- ----------- ------------ Total revenues 143,296 97,336 46,948 33,985 28,022 ------------- ----------- ----------- ----------- ------------ Operating expenses: Operating, maintenance and real estate taxes 30,844 22,904 12,065 8,683 7,140 General and administrative 15,064 9,964 6,048 4,894 4,531 Depreciation and amortization 25,046 16,303 8,059 5,854 5,266 ------------- ----------- ----------- ----------- ------------ Total operating expenses 70,954 49,171 26,172 19,431 16,937 ------------- ----------- ----------- ----------- ------------ Interest expense, net of income 26,829 18,667 10,811 8,969 5,701 ------------- ----------- ----------- ----------- ------------ Income before minority interests and sale of real estate investments 45,513 29,498 9,965 5,585 5,384 Gain on sale of real estate investments 10,726 451 - - - ------------- ----------- ----------- ----------- ------------ Income before minority interests 56,239 29,948 9,965 5,585 5,384 Minority interest of exchangeable operating partnership units (1,826) (2,042) - - - Minority interest of limited partners (464) (505) - - - Minority interest preferred unit distribution (3,359) - - - - ------------- ----------- ----------- ----------- ------------ Net income 50,590 27,402 9,965 5,585 5,384 Preferred stock dividends - - 58 591 283 ----------- ----------- ------------ ============= =========== Net income for common stockholders $ 50,590 $27,402 9,907 4,994 5,101 ============= =========== =========== =========== ============ Earnings per share: Basic $ 1.80 1.28 0.82 0.75 0.80 ============= =========== =========== =========== ============ Diluted $ 1.75 1.23 0.82 0.75 0.80 ============= =========== =========== =========== ============ Other Data: Common stock outstanding including Class B common if converted 28,464 26,967 13,590 9,704 6,455 Exchangeable operating partnership units outstanding 1,361 574 29 - - Company owned gross leasable area 14,652 9,981 5,512 3,981 3,182 Number of properties (at end of period) 129 89 50 36 30 Ratio of earnings to fixed 2.1 2.3 1.8 1.5 1.7 charges Balance Sheet Data: Real estate investments at cost $ 1,250,332 $834,402 393,403 279,046 217,539 Total assets 1,240,107 826,849 386,524 271,005 214,082 Total debt 548,126 278,050 171,607 115,617 107,998 Stockholders' equity 550,741 513,627 206,726 147,007 101,760 </TABLE> Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Realty Corporation ("Regency" or "Company") appearing elsewhere within. Organization - ------------ The Company is a qualified real estate investment trust ("REIT") which began operations in 1993. The Company invests in real estate primarily through its general partnership interest in Regency Centers, L.P., ("RCLP" or "Partnership") an operating partnership in which the Company currently owns approximately 96% of the outstanding common partnership units ("Units"). Of the 129 properties included in the Company's portfolio at December 31, 1998, 109 properties were owned either fee simple or through partnerships interests by RCLP. At December 31, 1998, the Company had an investment in real estate, at cost, of approximately $1.3 billion of which $1.1 billion or 86% was owned by RCLP. Shopping Center Business - ------------------------ The Company'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 Company's properties summarized by state and in order by largest holdings including their gross leasable areas (GLA) follows: <TABLE> <CAPTION> Location December 31, 1998 December 31, 1997 -------- ----------------- ----------------- # Properties GLA % Leased # Properties GLA % Leased ------------ --- -------- ------------ --- -------- <S> <C> <C> <C> <C> <C> <C> Florida 46 5,728,347 91.4% 45 5,267,894 91.5% Georgia 27 2,737,590 93.1% 25 2,539,507 92.4% Ohio 13 1,786,521 93.4% 2 629,920 89.1% North Carolina 12 1,239,783 98.3% 6 554,332 99.0% Alabama 5 516,060 99.0% 5 516,080 99.9% Texas 5 479,900 84.7% - - - Colorado 5 447,569 89.4% - - - Tennessee 4 295,179 96.8% 3 208,386 98.5% Virginia 2 197,324 97.7% - - - Mississippi 2 185,061 97.6% 2 185,061 96.9% Michigan 2 177,929 81.5% - - - South Carolina 2 162,056 100.0% 1 79,743 84.3% Delaware 1 232,752 94.8% - - - Kentucky 1 205,060 95.6% - - - Illinois 1 178,600 86.9% - - - Missouri 1 82,498 99.8% - - - ------------- ---------- ------- ------------ --------- ------ Total 129 14,652,229 92.9% 89 9,980,923 92.8% ============= ========== ======= ============ ========= ====== </TABLE> The Company 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 Company's current investment markets have continued to offer strong stable economies, and accordingly, the Company expects to realize growth in net income as a result of increasing occupancy in the portfolio, increasing rental rates, development and acquisition of shopping centers in targeted markets, and redevelopment of existing shopping centers. The following table summarizes the four largest grocery tenants occupying the Company's shopping centers at December 31, 1998: Grocery Number of % of % of Annualized Avg Remaining Anchor Stores Total GLA Base Rent Lease Term ------- --------- --------- --------------- ------------- Kroger 36 14.9% 13.8% 19 yrs Publix 33 9.8% 6.9% 13 yrs Winn-Dixie 16 5.1% 3.8% 13 yrs Harris Teeter 4 1.3% 1.7% 11 yrs Acquisition and Development of Shopping Centers - ----------------------------------------------- During 1998, the Company acquired 31 shopping centers fee simple for approximately $355.9 million and also invested $28.4 million in 12 joint ventures ("JV Properties"), for a total investment of $384.3 million in 43 shopping centers ("1998 Acquisitions"). Included in the 1998 Acquisitions are 32 shopping centers acquired from various entities comprising the Midland Group ("Midland"). Of the 32 Midland centers, 31 are anchored by Kroger, and 12 are owned through joint ventures in which the Company's ownership interest is 50% or less. The Company's investment in the properties acquired from Midland is $236.6 million at December 31, 1998. The Company expects to acquire all of the interests in two of the JV Properties for approximately $20.3 million during 1999 which will increase its total investment in the Midland properties to $256.9 million. In addition, during 1999 and 2000, the Company may pay contingent consideration of up to an estimated $23 million, through the issuance of Partnership units and the payment of cash. The amount of such consideration, if issued, will depend on the satisfaction of certain performance criteria relating to the assets acquired from Midland. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than units. The Company acquired 35 shopping centers during 1997 (the "1997 Acquisitions") for approximately $395.7 million. Included in the 1997 Acquisitions are 26 shopping centers acquired from Branch Properties ("Branch") for $232.4 million. During 1998, the Company issued 721,997 additional Units and shares of common stock valued at $18.2 million to Branch as contingent consideration for the satisfaction of certain performance criteria of the properties acquired. The Company expects to issue the remaining contingent consideration, 298,064 Units, during 1999. Results from Operations - ----------------------- Comparison of 1998 to 1997 Revenues increased $46.0 million or 47% to $143.3 million in 1998. The increase was due primarily to the 1998 and 1997 Acquisitions providing increases in revenues of $37.5 million during 1998. At December 31, 1998, the real estate portfolio contained approximately 14.7 million SF and was 92.9% leased. Minimum rent increased $33.3 million or 47%, and recoveries from tenants increased $7.5 million or 45%. On a same property basis (excluding the 1998 and 1997 Acquisitions, and the office portfolio sold during 1998) gross rental revenues increased $3.4 million or 6.7%, primarily due to higher base rents. Revenues from property management, leasing, brokerage, and development services (service operation segment) provided on properties not owned by the Company were $11.9 million in 1998 compared to $8.4 million in 1997, the increase due primarily to increased brokerage fees and increased activity in construction and development for third parties. During 1998, the Company 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 Company's real estate portfolio is comprised entirely of retail shopping centers. The proceeds from the sale were used to reduce the balance of the line of credit. Operating expenses increased $21.8 million or 44% to $71.0 million in 1998. Combined operating and maintenance, and real estate taxes increased $7.9 million or 35% during 1998 to $30.8 million. The increases are due to the 1998 and 1997 Acquisitions generating operating and maintenance expenses and real estate tax increases of $9.4 million during 1998, partially offset by the sale of the office buildings. On a same property basis, operating and maintenance expenses and real estate taxes increased $100,000 or 1%. General and administrative expenses increased 51% during 1998 to $15.1 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 the Company began managing for third parties during 1998 and 1997. Depreciation and amortization increased $8.7 million during 1998 or 54% primarily due to the 1998 and 1997 Acquisitions. Interest expense increased to $28.8 million in 1998 from $19.7 million in 1997 or 46% 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. Weighted average interest rates increased 0.1% during 1998. See further discussion under Acquisition and Development of Shopping Centers and Liquidity and Capital Resources. Net income for common stockholders was $50.6 million in 1998 vs. $27.4 million in 1997, a $23.2 million or 85% increase for the reasons previously described. Diluted earnings per share in 1998 was $1.75 vs. $1.23 in 1997 due to the increase in net income combined with the dilutive impact from the increase in weighted average common shares and equivalents of 7.2 million primarily due to the acquisition of Branch and Midland, the issuance of shares to SC-USREALTY during 1998 and 1997, and the public offering completed in July, 1997. (see notes 2, 6 and 7, to the 1998 consolidated financial statements for related discussions). Comparison of 1997 to 1996 Revenues increased $50.4 million or 107% to $97.3 million in 1997. The increase was due primarily to the 1997 Acquisitions and properties acquired in 1996 (the "1996 Acquisitions") providing increases in revenues of $49.8 million during 1997. At December 31, 1997, the real estate portfolio contained approximately 10 million SF and was 92.8% leased. Minimum rent increased $35.4 million or 102%, and recoveries from tenants increased $8.9 million or 115%. On a same property basis (excluding the 1997 and 1996 Acquisitions) revenues increased $925,000 or 2%, primarily due to higher percentage rents and operating expense recoveries from tenants. Revenues from property management, leasing, brokerage, and development services provided on properties not owned by the Company were $8.4 million in 1997 compared to $3.4 million in 1996, the increase due to fees earned from third party property management and leasing contracts acquired as part of the acquisition of Branch. Operating expenses increased $23.0 million or 88% to $49.2 million in 1997. Combined operating and maintenance, and real estate taxes increased $10.8 million or 89% during 1997 to $22.9 million. The increases are due to the 1997 and 1996 Acquisitions generating operating and maintenance expenses, and real estate tax increases of $10.6 million during 1997. On a same property basis, operating and maintenance expenses and real estate taxes increased $226,000, or 2%. General and administrative expense increased 64.7% 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 Company began managing for third parties during 1997. Depreciation and amortization increased $8.2 million during 1997 or 102% primarily due to the 1997 and 1996 Acquisitions generating $7.7 million in depreciation and amortization. Interest expense increased to $19.7 million in 1997 from $11.5 million in 1996 or 71% 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. Weighted average interest rates decreased 0.2% during 1997. See further discussion under Acquisition and Development of Shopping Centers and Liquidity and Capital Resources. Net income for common stockholders was $27.4 million in 1997 vs. $9.9 million in 1996, a $17.5 million or 177% increase for the reasons previously described. Diluted earnings per share in 1997 was $1.23 vs. $0.82 in 1996, an increase of 50% due to the increase in net income combined with the dilutive impact from the increase in weighted average common shares and equivalents of 12.4 million primarily due to the Acquisition of the Branch Properties, the issuance of shares to SC-USREALTY, and the public offering discussed previously. Funds from Operations The Company considers funds from operations ("FFO"), as defined by the National Association of Real Estate Investment Trusts as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of income producing property held for investment, plus depreciation and amortization of real estate, and after adjustments for unconsolidated investments in real estate partnerships and joint ventures, to be the industry standard for reporting the operations of real estate investment trusts ("REITs"). Adjustments for investments in real estate partnerships are calculated to reflect FFO on the same basis. While management believes that FFO is the most relevant and widely used measure of the Company's performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered an alternative to net income as an indicator of the Company's operating performance, and is not indicative of cash available to fund all cash flow needs. Additionally, the Company's calculation of FFO, as provided below, may not be comparable to similarly titled measures of other REITs. FFO increased by 50% from 1997 to 1998 as a result of the activity discussed above under "Results of Operations". FFO for the periods ended December 31, 1998, 1997 and 1996 are summarized in the following table (in thousands): <TABLE> <CAPTION> 1998 1997 1996 ---- ---- ---- <S> <C> <C> <C> Net income for common stockholders $ 50,590 27,402 9,907 Add (subtract): Real estate depreciation and amortization 24,529 15,671 8,049 Gain on sale of operating property (9,824) (451) - Minority interests in net income of Exchangeable partnership units 1,826 2,042 - ----------- --------- --------- Funds from operations $ 67,121 44,664 17,956 =========== ========= ========= Cash flow provided by (used in): Operating activities $ 65,002 43,044 16,004 Investing activities (236,393) (188,533) (109,842) Financing activities 174,725 153,782 98,730 </TABLE> Liquidity and Capital Resources - ------------------------------- Management anticipates that cash generated from operating activities will provide the necessary funds on a short-term basis for its operating expenses, interest expense and scheduled principal payments on outstanding indebtedness, recurring capital expenditures necessary to properly maintain the shopping centers, and distributions to share and unit holders. Net cash provided by operating activities was $65 million and $43 million for the twelve months ended December 31, 1998 and 1997, respectively. The Company incurred recurring and non-recurring capital expenditures (non-recurring expenditures pertain to immediate building improvements on new acquisitions and anchor tenant improvements on new leases) of $8.3 million and $5.2 million, during 1998 and 1997, respectively. The Company paid scheduled principal payments of $3.4 million and $2.2 million during 1998 and 1997, respectively. The Company paid dividends and distributions of $54.9 million and $35.9 million, during 1998 and 1997, respectively, to its share and unit holders. Management expects to meet long-term liquidity requirements for term debt payoffs at maturity, non-recurring capital expenditures, and acquisition, renovation and development of shopping centers from: (i) excess cash generated from operating activities, (ii) working capital reserves, (iii) additional debt borrowings, and (iv) additional equity raised in the public markets. Net cash used in investing activities was $236.4 million and $188.5 million, during 1998 and 1997, respectively, primarily for purposes discussed above under Acquisitions and Development of Shopping Centers. Net cash provided by financing activities was $174.7 million and $153.8 million during 1998 and 1997, respectively, primarily related to the proceeds from the preferred unit and debt offerings completed during 1998, and the proceeds from the common stock offering in 1997, further discussed below. At December 31, 1998, the Company had 12 shopping centers under construction or undergoing major renovations, with costs to date of $121.7 million. Total committed costs necessary to complete the properties under development is estimated to be $47.4 million and will be expended through 1999. The Company's outstanding debt at December 31, 1998 and 1997 consists of the following (in thousands): 1998 1997 ---- ---- Notes Payable: Fixed rate mortgage loans $ 298,148 199,078 Variable rate mortgage loans 11,051 30,841 Fixed rate unsecured loans 121,296 - ------- ------- Total notes payable 430,495 229,919 Acquisition and development line of credit 117,631 48,131 ------- ------- Total $ 548,126 278,050 ======= ======= The weighted average interest rate on total debt at December 31, 1998 and 1997 was 7.4% and 7.3%, respectively. The Company's debt is typically cross-defaulted, but not cross-collateralized, and includes usual and customary affirmative and negative covenants. The Company 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, First Union, Wachovia Bank, NationsBank, AmSouth Bank, Commerzbank AG, PNC Bank, and Star Bank. This credit agreement provides for a $300 million commitment, and incorporates 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 Company'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 Company's investment grade rating. The Company's ratings are currently Baa2 from Moody's Investor Service, BBB from Duff and Phelps, and BBB- from Standard and Poors. The Company is required to comply, and is in compliance, with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include among others (i) maintenance of minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii) ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to debt service and reserve for replacements, and (vi) ratio of unencumbered net operating income to interest expense on unsecured indebtedness. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. On February 26, 1999, the Company entered into an agreement with the various banks that provide the Line to increase the unsecured commitment amount to $635 million. On June 29, 1998, the Company through RCLP issued $80 million of 8.125% Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an institutional investor, Belair Capital Fund, LLC, in a private placement. The issuance involved the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred Units, which may be called by the Company at par on or after June 25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the Line. On July 17, 1998 the Company, through RCLP, completed a $100 million offering of seven year 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 were used to reduce the balance of the Line. Mortgage loans are secured by certain real estate properties, but generally may be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2018. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%. During 1998, the Company assumed mortgage loans with a fair value of $132.8 million related to the acquisition of shopping centers, which includes debt premiums of $12.4 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. As of December 31, 1998, scheduled principal repayments on notes payable and the Line for the next five years were as follows (in thousands): Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments -------------------------- --------- ---------- -------- 1999 $ 3,771 21,579 25,350 2000 3,996 174,674 178,670 2001 3,911 41,928 45,839 2002 3,098 44,117 47,215 2003 2,914 13,291 16,205 Beyond 5 Years 17,811 206,607 224,418 Net unamortized debt payments - 10,429 10,429 ------- ------- ------- Total $ 35,501 512,625 548,126 ======= ======= ======= Unconsolidated partnerships and joint ventures had mortgage loans payable of $76.7 million at December 31, 1998, and the Company's proportionate share of these loans was $34.4 million. The Company qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code. As a REIT, the Company is allowed to reduce taxable income by all or a portion of its distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made. While the Company intends to continue to pay dividends to its stockholders, it also will reserve such amounts of cash flow as it considers necessary for the proper maintenance and improvement of its real estate, while still maintaining its qualification as a REIT. The Company's real estate portfolio has grown substantially during 1998 as a result of the acquisitions and development discussed above. The Company intends to continue to acquire and develop shopping centers in the near future, and expects to meet the related capital requirements from borrowings on the Line. The Company expects to repay the Line from time to time from additional public and private equity and debt offerings, such as those completed during 1997 and 1998. Because such acquisition and development activities are discretionary in nature, they are not expected to burden the Company's capital resources currently available for liquidity requirements. The Company expects that cash provided by operating activities, unused amounts available under the Line, and cash reserves are adequate to meet liquidity requirements. Pacific Retail Trust Merger - --------------------------- On September 23, 1998, the Company entered into an Agreement of Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real estate investment trust. The Agreement, among other matters, provides for the merger of Pacific into Regency, and the exchange of each Pacific common or preferred share into 0.48 shares of Regency common or preferred stock. The stockholders approved the merger at a Special Meeting of Stockholders held February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of gross leaseable area. On February 28, 1999, the effective date of the merger, the Company issued equity instruments valued at $770.6 million to the Pacific stockholders in exchange for their outstanding common and preferred shares, and units. The total cost to acquire Pacific is expected to be $1.157 billion based on the value of Regency shares issued including the assumption of $379 million of outstanding debt and other liabilities of Pacific, and estimated closing costs of $7.5 million. The price per share used to determine the purchase price is $23.325 based on the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The merger will be accounted for as a purchase with the Company as the acquiring entity. New Accounting Standards and Accounting Changes - ----------------------------------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities " (FAS 133), which is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. FAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires entities to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not believe FAS 133 will materially effect its financial statements. g. Environmental Matters - --------------------- The Company 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 Company's shopping centers is the principal environmental concern. The Company believes that the dry cleaners are operating in accordance with current laws and regulations and has established procedures to monitor their operations. The Company has approximately 31 properties that will require or are currently undergoing varying levels of environmental remediation. These remediations are not expected to have a material financial effect on the Company due to financial statement reserves and various state-regulated programs that shift the responsibility and cost for remediation to the state. Based on information presently available, no additional environmental accruals were made and management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position, liquidity, or operations of the Company. 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 Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company 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 Company's leases are for terms of less than ten years, which permits the Company to seek increased rents upon re-rental at market rates. Most of the Company'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 Company's exposure to increases in costs and operating expenses resulting from inflation. Year 2000 System Compliance - --------------------------- Management recognizes the potential effect Year 2000 may have on the Company'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 1998 and 1997, 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 June 30, 1999. 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, and the Company expects to be compliant upon completion of these phases. 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 7a. Quantitative and Qualitative Disclosures About Market Risk Market Risk - ----------- The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company has no plans to enter into derivative or interest rate transactions for speculative purposes, and at December 31, 1998, the Company did not have any borrowings hedged with derivative financial instruments. The Company's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts maturing (in thousands), weighted average interest rates of remaining debt, and the fair value of total debt (in thousands), by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. <TABLE> <CAPTION> Fair 1999 2000 2001 2002 2003 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> Fixed rate debt $23,243 60,907 37,027 47,215 16,205 224,418 409,014 419,444 Average interest rate for all debt 7.83% 7.75% 7.91% 7.87% 7.70% 7.62% - - Variable rate LIBOR debt 2,107 117,763 8,813 - - - 128,682 128,682 Average interest rate for all debt 6.16% 6.16% 6.55% - - - - - </TABLE> As the table incorporates only those exposures that exist as of December 31, 1998, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company's hedging strategies at that time, and interest rates. Forward Looking Statements - -------------------------- The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to the Company's stockholders. All statements that express expectations and projections with respect to future matters, including the launching or prospective development of new business initiatives; anticipated yields on real estate acquisitions or developments; "Year 2000" remediation efforts; and environmental remediation efforts, are forward-looking within the meaning of the Act. Such statements 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 Company in the future to significantly differ from any future results that may be implied by such forward-looking statements. Item 8. Consolidated Financial Statements and Supplementary Data The Consolidated Financial Statements and supplementary data included in this Report are listed in Part IV, Item 14(a). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information concerning the directors of the Company is incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 1999 Annual Meeting of Shareholders. The following table provides information concerning the executive officers of the Company Executive Officer Positions with the Company (Age) Principal Occupations During the Past Five Years ----------------- ------------------------------------------------ Martin E. Stein, Jr. Chairman, Chief Executive Officer, and Director (age 46) of the Company since its initial public offering in October 1993; previously President of the Company's predecessor real estate division since 1976. MaryLou Rogers President and Chief Operating Officer since (age 47) January, 1999 and Director of the Company since March, 1997; Managing Director - Security Capital U.S. Realty Strategic Group From March 1997 to January 1999; Senior Vice President and Director of Stores, New England - Macy's East/ Federated Department Stores from 1994 to March 1997; various retailing positions since joining Macy's in 1977, including Senior Vice President for Federated's Burdines Division and Henri Bendel. James G. Buis Managing Director - Southwestern U.S. Investments (age 54) of the Company since February 1999; Managing Director - Pacific Retail Trust from October, 1995 to February 1999; Executive Vice President - Madison Property Corporation from 1993 to October, 1995; Executive Vice President - Rosewood Property Company from 1989 to 1993; Retail Partner - Lincoln Property Company from 1979 to 1989. John S. Delatour Managing Director - Western U.S. Operations of the (age 40) Company since February, 1999; Managing Director - Pacific Retail Trust from June, 1996 to February 1999; Senior Vice President - Lincoln Property Company from 1983 to June, 1996. Robert C. Gillander Managing Director - Eastern U.S. Investments of the (age 45) Company since its initial public offering in October 1993, and Vice President of the Company's predecessor real estate division since 1978. Bruce M. Johnson Managing Director and Chief Financial Officer of (age 51) the Company since its initial public offering in October 1993, and Executive Vice President of the Company's predecessor real estate division since 1979. Brian M. Smith Managing Director - Pacific Investments of the (age 44) Company since February, 1999; Managing Director - Pacific Retail Trust from February, 1997 to February 1999; Senior Vice President - Lowe Enterprises, Inc. from 1994 to February 1997; Managing Director - Trammell Crow Company from 1983 to 1994. James D. Thompson Managing Director - Eastern Operations of the (age 42) Company since its initial public offering in October 1993, and Vice President of the Company's predecessor real estate division since 1981. Lee S. Wielansky Managing Director - Investments and Director of the (age 48) Company since March 1998; President and Chief Executive Officer - Midland Development Group from 1983 to March 1998. Item 11. Executive Compensation Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 1999 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owner and Management Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 1999 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 1999 Annual Meeting of Shareholders. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Financial Statements and Financial Statement Schedules: The Company's 1998 financial statements and financial statement schedule, together with the report of KPMG LLP dated February 1, 1999, except for Note 13 as to which the date is March 1, 1999, are listed on the index immediately preceding the financial statements at the end of this report. (b) Reports on Form 8-K: None (c) Exhibits: 2. Agreement and Plan of Merger dated as of September 23, 1998 between Regency Realty Corporation and Pacific Retail Trust (incorporated by reference to Exhibit 2.1 to the registration statement on Form S-4 of Regency Realty Corporation, No. 333-65491) 3. Articles of Incorporation # (i) Restated Articles of Incorporation of Regency Realty Corporation as amended. #(ii) Restated Bylaws of Regency Realty Corporation. 4. (a) See exhibits 3(i) and 3(ii) for provisions of the Articles of Incorporation and Bylaws of Regency Realty Corporation defining rights of security holders. (b) Indenture dated July 20, 1998 between Regency Centers, L.P., the guarantors named therein and First Union National Bank, as trustee (incorporated by reference to Exhibit 4.1 to the registration statement on Form S-4 of Regency Centers, L.P., No. 333-63723). 10. Material Contracts ~*(a) Regency Realty Corporation 1993 Long Term Omnibus Plan ~*(b) Form of Stock Purchase Award Agreement ~*(c) Form of Management Stock Pledge Agreement, relating to the Stock Purchase Award Agreement filed as Exhibit 10(b) ~*(d) Form of Promissory Note, relating to the Stock Purchase Award Agreement filed as Exhibit 10(b) ~*(e) Form of Option Award Agreement for Key Employees ~*(f) Form of Option Award Agreement for Non-Employee Directors ~*(g) Annual Incentive for Management Plan ~*(h) Form of Director/Officer Indemnification Agreement ~*(i) Form of Non-Competition Agreement between Regency Realty Corporation and Joan W. Stein, Robert L. Stein, Richard W. Stein, the Martin E. Stein Testamentary Trust A and the Martin E. Stein Testamentary Trust B. ~*(j) Form of Employment Agreement with Martin E. Stein, Jr. ~*** (k) Form of Employment Agreements entered into with the following executive officers: (i) Bruce M. Johnson (ii) Robert C. Gillander, Jr. (iii) James D. Thompson (l) The following documents, all dated November 5, 1993, relating to a $51 million loan from Salomon Brothers Inc. to corporations and subsidiaries wholly owned by the Company. ** (i) Loan Agreement between RSP IV Criterion, Ltd., Regency Rosewood Temple Terrace, Ltd., Treasure Coast Investors, Ltd., Landcom Regency Mandarin, Ltd., RRC FL SPC, Inc., RRC AL SPC, Inc., RRC MS SPC, Inc., and RRC GA SPC, Inc.(as borrowers) and RRC Lender, Inc. (as lender) ** (ii) Promissory Note in the original principal amount of $51 million ** (iii) Undertaking executed by the Registrant and RRC FL SPC, Inc., RRC AL SPC, Inc., RRC MS SPC, Inc., and RRC GA SPC, Inc. ** (iv) Certificate Purchase Agreement between RRC Lender, Inc. (as seller) and Salomon Brothers, Inc. (as lender) (m) The following documents relating to the purchase by Security Capital U.S. Realty and Security Capital Holdings, S.A. of up to 45% of the Registrant's outstanding common stock: ++ (i) Stock Purchase Agreement dated June 11, 1996. ++ (ii) Stockholders' Agreement dated July 10, 1996. +++ (A) First Amendment of Stockholders' Agreement dated February 10, 1997. (B) Amendment No. 2 to Stockholders' Agreement dated December 4, 1997 (incorporated by reference to Exhibit 6.2 to Schedule 13D/A filed by Security Capital U.S. Realty on December 11, 1997) ++ (iii) Registration Rights Agreement dated July 10, 1996. + (n) Stock Grant Plan adopted on January 31, 1994 to grant stock to employees. ~@ (o) Criteria for Restricted Stock Awards under 1993 Long Term Omnibus Plan. ~@ (p) Form of 1996 Stock Purchase Award Agreement. ~@ (q) Form of 1996 Management Stock Pledge Agreement relating to the Stock Purchase Award Agreement filed as Exhibit 10(p). ~@ (r) Form of Promissory Note relating to 1996 Stock Purchase Award Agreement filed as Exhibit 10(p). +++ Filed as an exhibit to the Company's Form 8-K report filed March 14, 1997 and incorporated herein by reference. @ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and incorporated herein by reference. @@ Included as an exhibit to the Company's Form 10-Q filed May 15, 1997 and incorporated herein by reference. @@@ Included as an exhibit to the Company's Form 8-K/A report filed March 19, 1998 and incorporated herein by reference. @@@ (s) Second Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P. (t) Amendment No. 1 to the Second Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 10 of Regency Centers, L.P.) (u) Amended and Restated Credit Agreement dated as of February 26, 1999 by and among Regency Centers, L.P., a Delaware limited partnership (the "Borrower"), Regency Realty Corporation, a Florida corporation (the "Parent"), each of the financial institutions initially a signatory hereto together with their assignees, (the "Lenders"), and Wells Fargo Bank, National Association, as contractual representative of the Lenders to the extent and in the manner provided. (v) Assignment and Acceptance Agreement dated as of February 26, 1999 by and among Regency Centers, L.P., Regency Realty Corporation and Wells Fargo Bank, National Association, as Agent. - ------------------------- ~ Management contract or compensatory plan or arrangement filed pursuant to S-K 601(10)(iii)(A). # Included as an exhibit to the Company's Form 10-Q filed August 11, 1997 and incorporated herein by reference. * Included as an exhibit to the Pre-effective Amendment No. 2 to the Company's S-11 filed October 5, 1993, and incorporated herein by reference ** Included as an exhibit to the Company's Form 10-Q filed December 13, 1993, and incorporated herein by reference *** Included as an exhibit to the Company's Form 10-Q filed November 14, 1996, and incorporated herein by reference + Included as an exhibit to the Company's Form 10-Q filed May 12, 1994, and incorporated herein by reference ++ Filed as appendices to the Company's definitive proxy statement dated August 2, 1996 and incorporated herein by reference. +++ Filed as an exhibit to the Company's Form 8-K report filed March 14, 1997 and incorporated herein by reference. @ Filed as an exhibit to the Company's Form 10-K filed March 25, 1997 and incorporated herein by reference. @@ Included as an exhibit to the Company's Form 10-Q filed May 15, 1997 and incorporated herein by reference. @@@ Included as an exhibit to the Company's Form 8-K/A report filed March 19, 1998 and incorporated herein by reference. 21. Subsidiaries of the Registrant 23. Consent of KPMG LLP 27. Financial Data Schedule
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. REGENCY REALTY CORPORATION Date: March 12, 1999 By: /s/ Martin E. Stein, Jr. ----------------------------------------- Martin E Stein, Jr., Chairman of the Board and Chief Executive Officer Date: March 12, 1999 By: /s/ Bruce M. Johnson ------------------------------------------ Bruce M. Johnson, Managing Director and Principal Financial Officer Date: March 12, 1999 By: /s/ J. Christian Leavitt ------------------------------------------ J. Christian Leavitt, Senior Vice President, Finance and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: March 12, 1999 /s/ Martin E. Stein, Jr. --------------------------------------------- Martin E. Stein, Jr., Chairman of the Board and Chief Executive Officer Date: March 12, 1999 /s/ Mary Lou Rogers --------------------------------------------- Mary Lou Rogers, President, Chief Operating Officer and Director Date: March 12, 1999 /s/ Thomas B. Allin --------------------------------------------- Thomas B. Allin, Director Date: March 12, 1999 /s/ Raymond L. Bank --------------------------------------------- Raymond L. Bank, Director Date: March 12, 1999 /s/ A. R. Carpenter --------------------------------------------- A. R. Carpenter, Director Date: March 12, 1999 /s/ Jeffrey A. Cozad --------------------------------------------- Jeffrey A. Cozad, Director Date: March 12, 1999 /s/ J. Dix Druce, Jr. --------------------------------------------- J. Dix Druce, Jr., Director Date: March 12, 1999 /s/ John T. Kelley --------------------------------------------- John T. Kelley, Director Date: March 12, 1999 /s/ Douglas S. Luke --------------------------------------------- Douglas S. Luke, Director Date: March 12, 1999 /s/ John C. Schweitzer --------------------------------------------- John C. Schweitzer, Director Date: March 12, 1999 /s/ Lee Wielansky --------------------------------------------- Lee Wielansky, Director Date: March 12, 1999 /s/ Terry N. Worrell --------------------------------------------- Terry N. Worrell, Director
REGENCY REALTY CORPORATION INDEX TO FINANCIAL STATEMENTS Regency Realty Corporation Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3 Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996 F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996 F-6 Notes to Consolidated Financial Statements F-8 Financial Statement Schedule Independent Auditors' Report on Financial Statement Schedule S-1 Schedule III - Regency Realty Corporation Combined Real Estate and Accumulated Depreciation - December 31, 1998 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-2 Independent Auditors' Report The Shareholders and Board of Directors Regency Realty Corporation: We have audited the accompanying consolidated balance sheets of Regency Realty Corporation as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company'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 Regency Realty Corporation as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles. KPMG LLP Jacksonville, Florida February 1, 1999, except for Note 13, as to which the date is March 1, 1999
F-3 <TABLE> <CAPTION> REGENCY REALTY CORPORATION Consolidated Balance Sheets December 31, 1998 and 1997 1998 1997 ---- ---- <S> <C> <C> Assets Real estate investments, at cost (notes 2, 5 and 9): Land $ 257,669,018 177,245,784 Buildings and improvements 925,514,995 622,555,583 Construction in progress - development for investment 15,647,659 13,427,370 Construction in progress - development for sale 20,869,915 20,173,039 ------------------ ------------------ 1,219,701,587 833,401,776 Less: accumulated depreciation 58,983,738 40,795,801 ------------------ ------------------ 1,160,717,849 792,605,975 Investments in real estate partnerships (note 4) 30,630,540 999,730 ------------------ ------------------ Net real estate investments 1,191,348,389 793,605,705 Cash and cash equivalents 19,919,693 16,586,094 Tenant receivables, net of allowance for uncollectible accounts of $1,787,686 and $1,162,570 at December 31, 1998 and 1997, respectively 16,758,917 9,546,584 Deferred costs, less accumulated amortization of $5,295,336 and $3,842,914 at December 31, 1998 and 1997, respectively 6,872,023 4,252,991 Other assets 5,208,278 2,857,217 ------------------ ------------------ $ 1,240,107,300 826,848,591 ================== ================== Liabilities and Stockholders' Equity Liabilities: Notes payable (note 5) 430,494,910 229,919,242 Acquisition and development line of credit (note 5) 117,631,185 48,131,185 Accounts payable and other liabilities 19,936,424 11,597,232 Tenants' security and escrow deposits 3,110,370 2,319,941 ------------------ ------------------ Total liabilities 571,172,889 291,967,600 ------------------ ------------------ Series A preferred units (note 6) 78,800,000 - Exchangeable operating partnership units (notes 2 and 6) 27,834,330 13,777,156 Limited partners' interest in consolidated partnerships 11,558,618 7,477,182 ------------------ ------------------ 118,192,948 21,254,338 ------------------ ------------------ Stockholders' equity (notes 2, 6, 7 and 8): Common stock $.01 par value per share: 150,000,000 shares authorized; 25,488,989 and 23,992,037 shares issued and outstanding at December 31, 1998 and 1997 254,889 239,920 Special common stock - 10,000,000 shares authorized: Class B $.01 par value per share, 2,500,000 shares issued and outstanding 25,000 25,000 Additional paid in capital 578,466,708 535,498,878 Distributions in excess of net income (19,395,744) (20,494,893) Stock loans (8,609,390) (1,642,252) ------------------ ------------------ Total stockholders' equity 550,741,463 513,626,653 ------------------ ------------------ Commitments and contingencies (notes 9, 10 and 13) $ 1,240,107,300 826,848,591 ================== ================== </TABLE> See accompanying notes to consolidated financial statements.
F-4 <TABLE> <CAPTION> REGENCY REALTY CORPORATION Consolidated Statements of Operations Years ended December 31, 1998, 1997 and 1996 1998 1997 1996 ---- ---- ---- <S> <C> <C> <C> Revenues: Minimum rent (note 9) $ 103,365,322 70,102,765 34,705,905 Percentage rent 3,012,105 2,151,379 997,981 Recoveries from tenants 24,109,519 16,600,925 7,729,404 Management, leasing and brokerage fees 11,862,784 8,447,615 3,444,287 Equity in income of investments in real estate partnerships (note 4) 946,271 33,311 69,990 ---------------- ---------------- ---------------- Total revenues 143,296,001 97,335,995 46,947,567 ---------------- ---------------- ---------------- Operating expenses: Depreciation and amortization 25,046,001 16,303,159 8,058,643 Operating and maintenance 18,455,672 14,212,555 7,655,934 General and administrative 15,064,148 9,963,926 6,048,140 Real estate taxes 12,388,521 8,691,576 4,409,460 ---------------- ---------------- ---------------- Total operating expenses 70,954,342 49,171,216 26,172,177 ---------------- ---------------- ---------------- Interest expense (income): Interest expense 28,786,431 19,667,483 11,476,555 Interest income (1,957,575) (1,000,227) (666,031) ---------------- ---------------- ---------------- Net interest expense 26,828,856 18,667,256 10,810,524 ---------------- ---------------- ---------------- Income before minority interests and sale of real estate investments 45,512,803 29,497,523 9,964,866 Gain on sale of real estate investments 10,725,975 450,902 - ---------------- ---------------- ---------------- Income before minority interest 56,238,778 29,948,425 9,964,866 Minority interest of exchangeable partnership units (1,826,273) (2,041,823) - Minority interest of limited partners (464,098) (504,947) - Minority interest preferred unit distribution (3,358,333) - - ---------------- ---------------- ---------------- Net income 50,590,074 27,401,655 9,964,866 Preferred stock dividends - - (57,721) ---------------- ---------------- ---------------- Net income for common stockholders $ 50,590,074 27,401,655 9,907,145 ================ ================ ================ Net income per share (note 7): Basic $ 1.80 1.28 0.82 ================ ================ ================ Diluted $ 1.75 1.23 0.82 ================ ================ ================ </TABLE> See accompanying notes to consolidated financial statements
F-5 <TABLE> <CAPTION> REGENCY REALTY CORPORATION Consolidated Statements of Stockholders' Equity Years ended December 31, 1998, 1997 and 1996 Class B Additional Distributions Total Preferred Common Common Paid In in excess of Stock Stockholders' Stock Stock Stock Capital Net Income Loans Equity ----------- --------- -------- ------------- ------------ ------------ -------------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 1995 $ 1,916,268 67,287 25,000 155,221,241 (8,073,188) (2,150,034) 147,006,574 Common stock issued to SC-USREALTY (note 6) - 36,518 - 63,373,745 - - 63,410,263 Common stock issued as compensation, purchased by directors or officers, or issued under stock options - 1,401 - 2,570,506 - (1,273,000) 1,298,907 Series A Preferred stock converted to common stock (1,916,268) 943 - 1,915,339 - - 14 Partial forgiveness of stock loans - - - - - 918,601 918,601 Cash dividends declared: Preferred stock - - - - (57,721) - (57,721) Common stock, $1.62 per share - - - - (15,815,727) - (15,815,727) Net income - - - - 9,964,866 - 9,964,866 ----------- --------- -------- ------------- ------------ ------------ ------------- Balance at December 31, 1996 $ - 106,149 25,000 223,080,831 (13,981,770) (2,504,433) 206,725,777 Common stock issued to SC-USREALTY (note 6) - 75,135 - 158,475,802 - - 158,550,937 Common stock issued in secondary offering, net - 25,448 - 65,487,586 - - 65,513,034 Common stock issued as compensation, purchased by directors or officers, or issued under stock options - 1,359 - 3,026,241 - - 3,027,600 Common stock issued for partnership units redeemed - 30,271 - 81,246,827 - - 81,277,098 Common stock issued to acquire real estate (note 2) - 1,558 - 4,181,591 - - 4,183,149 Partial forgiveness or repayment of stock loans - - - - - 862,181 862,181 Cash dividends declared: Common stock, $1.68 per share - - - - (33,914,778) - (33,914,778) Net income - - - - 27,401,655 - 27,401,655 ----------- --------- -------- ------------- ------------ ------------ ------------- Balance at December 31, 1997 $ - 239,920 25,000 535,498,878 (20,494,893) (1,642,252) 513,626,653 Common stock issued to SC-USREALTY (note 6) - 4,358 - 9,637,208 - - 9,641,566 Common stock issued as compensation, purchased by directors or officers, or issued under stock options - 4,208 - 10,746,701 - (7,409,151) 3,341,758 Common stock issued for partnership units redeemed - 752 - 1,670,631 - - 1,671,383 Common stock issued to acquire real estate (note 2) - 5,651 - 14,263,472 - - 14,269,123 Reallocation of minority interest - - - 6,649,818 - - 6,649,818 Partial forgiveness or repayment of stock loans - - - - - 442,013 442,013 Cash dividends declared: Common stock, $1.76 per share - - - - (49,490,925) - (49,490,925) Net income - - - - 50,590,074 - 50,590,074 ----------- --------- -------- ------------- ------------ ------------ ------------- Balance at December 31, 1998 $ - 254,889 25,000 578,466,708 (19,395,744) (8,609,390) 550,741,463 =========== ========= ======== ============= ============ ============ ============= </TABLE> See accompanying notes to consolidated financial statements.
F-6 <TABLE> <CAPTION> REGENCY REALTY CORPORATION Consolidated Statements of Cash Flows Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996 ---- ---- ---- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 50,590,074 27,401,655 9,964,866 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation and amortization 25,046,001 16,303,159 8,058,643 Deferred financing cost and debt premium amortization (822,276) 907,224 699,424 Stock based compensation 2,422,547 2,561,139 2,940,414 Minority interest of redeemable partnership units 1,826,273 2,041,823 - Minority interest preferred unit distribution 3,358,333 - - Minority interest of limited partners 464,098 504,947 - Equity in income of investments in real estate partnerships (946,271) (33,311) (69,990) Gain on sale of real estate investments (10,725,975) (450,902) - Changes in assets and liabilities: Tenant receivables (5,143,938) (3,596,964) (2,660,656) Deferred leasing commissions (2,337,253) (1,120,184) (585,889) Other assets (4,059,535) (1,641,108) (1,019,637) Tenants' security deposits 517,396 480,743 405,158 Accounts payable and other liabilities 4,811,991 (314,001) (1,728,414) ---------------- ----------------- ----------------- Net cash provided by operating activities 65,001,465 43,044,220 16,003,919 ---------------- ----------------- ----------------- Cash flows from investing activities: Acquisition and development of real estate (229,348,139) (162,244,207) (102,933,980) Investment in real estate partnerships (29,068,392) - (881,309) Capital improvements (8,325,492) (5,226,138) (2,898,250) Construction in progress for sale, net of reimbursement (696,876) (23,776,953) (3,360,206) Proceeds from sale of real estate investments 30,662,197 2,645,229 - Distributions received from real estate partnership investments 383,853 68,688 231,581 ---------------- ----------------- ----------------- Net cash used in investing activities (236,392,849) (188,533,381) (109,842,164) ---------------- ----------------- ----------------- Cash flows from financing activities: Net proceeds from common stock issuance 10,225,529 225,094,980 63,617,263 Proceeds from issuance of partnership units 7,694 2,255,140 - Distributions to partnership unit holders (2,023,132) (1,954,375) (16,846) Contributions from limited partners in consolidated partnerships 4,289,995 - - Net distributions to limited partners in consolidated partnerships (672,656) (1,124,480) - Distributions to preferred unit holders (3,358,333) - - Dividends paid to stockholders (49,490,925) (33,914,778) (16,179,518) Net proceeds from issuance of Series A preferred units 78,800,000 - - Net proceeds from term notes 99,758,000 - - Proceeds (repayment) of acquisition and development line of credit, net 69,500,000 (25,570,000) 51,361,382 Proceeds from mortgage loans payable 7,345,000 15,972,920 1,518,331 Repayment of mortgage loans payable (37,354,368) (26,408,932) (808,068) Deferred financing costs (2,301,821) (568,449) (762,771) ---------------- ----------------- ----------------- Net cash provided by financing activities 174,724,983 153,782,026 98,729,773 ---------------- ----------------- ----------------- Net increase in cash and cash equivalents 3,333,599 8,292,865 4,891,528 Cash and cash equivalents at beginning of year 16,586,094 8,293,229 3,401,701 ---------------- ----------------- ----------------- Cash and cash equivalents at end of year $ 19,919,693 16,586,094 8,293,229 ================ ================= ================= Supplemental disclosure of cash flow information - cash paid for interest (net of capitalized interest of approximately $3,417,000, $1,896,000 and $381,000 in 1998, 1997 and 1996, respectively) $ 24,693,895 18,631,091 10,598,841 ================ ================= ================= Supplemental disclosure of non-cash transactions: Mortgage loans assumed to acquire real estate $ 132,832,342 142,448,966 3,918,752 ================ ================= ================= Exchangeable operating partnership units and common stock issued to acquire real estate $ 37,023,849 96,380,706 525,332 ================ ================= ================= </TABLE> See accompanying notes to consolidated financial statements.
F-8 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 1. Summary of Significant Accounting Policies (a) Organization and Principles of Consolidation The accompanying consolidated financial statements include the accounts of Regency Realty Corporation, its wholly owned qualified REIT subsidiaries, and its majority owned or controlled subsidiaries and partnerships (the "Company" or "Regency"). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The Company owns approximately 96% of the outstanding common units of Regency Centers, L.P. ("RCLP" or the "Partnership" formerly known as Regency Retail Partnership, L.P.) and partnership interests ranging from 51% to 93% in five majority owned real estate partnerships (the "Majority Partnerships"). The equity interests of third parties held in RCLP and the Majority Partnerships are included in the consolidated financial statements as exchangeable operating partnership units and limited partners' interests in consolidated partnerships, respectively. The Company is a qualified real estate investment trust ("REIT") which began operations in 1993. (b) Revenues The Company 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. Substantially all of the lease agreements contain provisions which provide additional rents based on tenants' sales volume (contingent or percentage rent) or 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. On May 22, 1998, the Emerging Issues Task Force (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 rent that is based on meeting specified targets until those specified targets are met and not ratably throughout the year. The Company has previously recognized contingent rent ratably over the year based on the historical trends of its tenants. Although the EITF subsequently reversed its original consensus related to contingent rent, the Company has adopted the provisions of Issue 98-9 prospectively and has ceased the recognition of contingent rents until such time as its tenants have achieved their specified target. The effect of the adoption was not material to the financial statements during 1998, since most of the Company's tenants had met their specified targets prior to year end and contingent rents were appropriately recognized. Management, leasing, brokerage and development fees are recognized as revenue when earned.
F-9 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 (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 Company are capitalized as buildings and improvements except for operating properties acquired. Effective March 19, 1998, the 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 Company had previously capitalized direct costs associated with the acquisition of operating properties as a cost of the real estate. The Company has adopted EITF 97-11 effective March 19, 1998. During 1997, the Company capitalized approximately $1.5 million of internal costs related to acquiring operating properties. Through the effective date of EITF 97-11, the Company has capitalized $855,000 of internal acquisition costs. For the remainder of 1998, the Company incurred approximately $1.5 million of internal costs related to acquiring operating properties which was expensed. Maintenance and repairs which do not improve or extend the useful lives of the respective assets are reflected in operating and 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 Company qualifies and intends to continue to qualify as a REIT under the Internal Revenue Code. As a REIT, the Company is allowed to reduce taxable income by all or a portion of its distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made in the accompanying consolidated financial statements. Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes primarily because of different depreciable lives and bases of rental properties and differences in the timing of recognition of earnings upon disposition of properties. Regency Realty Group, Inc., the Company's management company subsidiary ("RRG"), is subject to Federal and State income taxes and files separate tax returns. RRG had taxable income of $1,052,233, $918,763 and $0 for the years ended December 31, 1998, 1997 and 1996, respectively. RRG incurred Federal and State income tax of $344,833 and $327,021 in 1998 and 1997, respectively, and paid no tax in 1996.
F-10 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 (d) Income Taxes (continued) At December 31, 1998 and 1997, the net book basis of real estate assets exceeds the tax basis by approximately $122 million and $39.6 million, respectively, primarily due to the difference between the cost basis of the assets acquired and their carryover basis recorded for tax purposes. The following summarizes the tax status of dividends paid during the years ended December 31 (unaudited): 1998 1997 1996 ---- ---- ---- Dividend per share $1.76 1.68 1.62 Ordinary income 71% 85% 77% Capital gain 2% - - Return of capital 27% 15% 23% (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 $3.3 and $1.7 million at December 31, 1998 and 1997, respectively. The net loan cost balance was $3.5 and $2.5 million at December 31, 1998 and 1997, respectively. Such costs are deferred and amortized over the terms of the respective leases and loans. (f) Earnings Per Share The Company applies the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" to the computation, presentation, and disclosure requirements of earnings per share. Basic net income per share of common stock is computed based upon the weighted average number of common shares outstanding during the year. Diluted net income per share also includes common share equivalents for stock options, exchangeable partnership units, and Class B common stock when dilutive. See note 7 for the calculation of earnings per share. (g) Cash and Cash Equivalents Any instruments which have an original maturity of ninety days or less when purchased are considered cash equivalents. (h) Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Company'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.
F-11 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 (i) Impairment of Long-Lived Assets The Company applies the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". 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 Company's financial position, results of operations, or liquidity. (j) Stock Option Plan The Company applies the provisions of SFAS No. 123, "Accounting for Stock Based Compensation", which allows companies a choice in the method of accounting for stock options. Entities may recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant or SFAS No. 123 also permits 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 as if the fair-value-based method defined in SFAS No. 123 had been applied. APB Opinion No. 25 "Accounting for Stock Issued to Employees", and related interpretations states that compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (k) 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 and annual financial reports. The Company adopted FAS 131 as disclosed in note 3. (l) Reclassifications Certain reclassifications have been made to the 1997 amounts to conform to classifications adopted in 1998.
F-12 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 2. Acquisitions of Shopping Centers During 1998, the Company acquired 31 shopping centers fee simple for approximately $355.9 million and also invested $28.4 million in 12 joint ventures ("JV Properties"), for a total investment of $384.3 million in 43 shopping centers ("1998 Acquisitions"). Included in the 1998 Acquisitions are 32 shopping centers acquired from various entities comprising the Midland Group ("Midland"). Of the 32 Midland centers, 31 are anchored by Kroger, and 12 are owned through joint ventures in which the Company's ownership interest is 50% or less. The Company's investment in the properties acquired from Midland is $236.6 million at December 31, 1998. The Company expects to acquire all of the interests in two of the JV Properties for approximately $20.3 million during 1999 which will increase its total investment in the Midland properties to $256.9 million. In addition, during 1999 and 2000, the Company may pay contingent consideration of up to an estimated $23 million, through the issuance of Partnership units and the payment of cash. The amount of such consideration, if issued, will depend on the satisfaction of certain performance criteria relating to the assets acquired from Midland. Transferors who received cash at the initial Midland closing will receive contingent future consideration in cash rather than units. The Company acquired 35 shopping centers during 1997 (the "1997 Acquisitions") for approximately $395.7 million. Included in the 1997 Acquisitions are 26 shopping centers acquired from Branch Properties ("Branch") for $232.4 million. During 1998, the Company issued 721,997 additional Units and shares of common stock valued at $18.2 million to Branch as contingent consideration for the satisfaction of certain performance criteria of the properties acquired. The Company expects to issue the remaining contingent consideration, 298,064 Units, during 1999. The operating results of the 1998 and 1997 Acquisitions are included in the Company'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 all 1998 and 1997 Acquisitions had occurred on January 1, 1997. Such pro forma information reflects adjustments to 1) increase depreciation, interest expense, and general and administrative costs, 2) remove the office buildings sold, and 3) adjust the weighted average common shares, and common equivalent shares outstanding issued to acquire the properties. Pro forma revenues would have been $156.4 and $144.4 million in 1998 and 1997, respectively. Pro forma net income for common stockholders would have been $44.5 and $28.0 million in 1998 and 1997, respectively. Pro forma basic net income per share would have been $1.55 and $1.31 in 1998 and 1997, respectively. Pro forma diluted net income per share would have been $1.52 and $1.22, in 1998 and 1997, respectively. This data does not purport to be indicative of what would have occurred had the Acquisitions been made on January 1, 1997, or of results which may occur in the future.
F-13 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 3. Segments The Company was formed, and currently operates, for the purpose of 1) operating and developing Company owned retail shopping centers (Retail segment), and 2) providing services including property management, leasing, brokerage, and construction and development management for third-parties (Service operations segment). The Company had previously operated four office buildings, all of which have been sold during 1998 and 1997 (Office buildings segment). The Company's reportable segments offer different products or services and are managed separately because each requires different strategies and management expertise. There are no material inter-segment sales or transfers. The Company assesses and measures operating results starting with Net Operating Income for the Retail and Office Buildings segments and Income for the Service operations segment and converts such amounts into a performance measure referred to as Funds From Operations (FFO). The operating results for the individual retail shopping centers have been aggregated since all of the Company's shopping centers exhibit highly similar economic characteristics as neighborhood shopping centers, and offer similar degrees of risk and opportunities for growth. FFO as defined by the National Association of Real Estate Investment Trusts consists of net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of income producing property held for investment, plus depreciation and amortization of real estate, and adjustments for unconsolidated investments in real estate partnerships and joint ventures. The Company considers FFO to be the industry standard for reporting the operations of real estate investment trusts ("REITs"). Adjustments for investments in real estate partnerships are calculated to reflect FFO on the same basis. While management believes that FFO is the most relevant and widely used measure of the Company's performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered an alternative to net income as an indicator of the Company's operating performance, and is not indicative of cash available to fund all cash flow needs. Additionally, the Company's calculation of FFO, as provided below, may not be comparable to similarly titled measures of other REITs. The accounting policies of the segments are the same as those described in note 1. The revenues, FFO, and assets for each of the reportable segments are summarized as follows for the years ended as of December 31, 1998, 1997, and 1996. Non-segment assets to reconcile to total assets include cash, accounts receivable and deferred financing costs.
F-14 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 3. Segments (continued) <TABLE> <CAPTION> 1998 1997 1996 ---- ---- ---- <S> <C> <C> <C> Revenues: Retail segment $ 130,900,785 84,203,386 39,004,931 Service operations segment 11,862,784 8,447,615 3,444,287 Office buildings segment 532,432 4,684,994 4,498,349 ================ ================ ================= Total revenues $ 143,296,001 97,335,995 46,947,567 ================ ================ ================= Funds from Operations: Retail segment net operating income $ 100,239,863 63,056,124 28,652,114 Service operations segment income 11,862,784 8,447,615 3,444,287 Office buildings segment net operating income 349,161 2,928,125 2,785,772 Adjustments to calculate consolidated FFO: Interest expense (28,786,431) (19,667,483) (11,476,555) Interest income 1,957,575 1,000,227 666,031 Earnings from recurring land sales 901,853 - - General and administrative (15,064,148) (9,963,926) (6,048,140) Non-real estate depreciation (679,740) (406,113) (49,200) Minority interests of limited partners (464,098) (504,947) - Minority interests in depreciation and amortization (526,018) (285,280) - Share of joint venture depreciation and amortization 688,686 59,038 39,626 Dividends on preferred shares and units (3,358,333) 0 (57,721) ---------------- ---------------- ----------------- Funds from Operations 67,121,154 44,663,380 17,956,214 ---------------- ---------------- ----------------- Reconciliation to net income for common stockholders: Real estate related depreciation and amortization (24,366,261) (15,897,046) (8,009,443) Minority interests in depreciation and amortization 526,018 285,280 - Share of joint venture depreciation and amortization (688,686) (59,038) (39,626) Earnings from property sales 9,824,122 450,902 - Minority interests of exchangeable partnership units (1,826,273) (2,041,823) - ---------------- ---------------- ----------------- Net income available for common stockholders $ 50,590,074 27,401,655 9,907,145 ================ ================ ================= As of December 31 Assets (in thousands): 1998 1997 1996 ---------------------- ---- ---- ---- Retail segment $ 1,170,478 754,174 342,900 Service operations segment 20,870 20,173 1,695 Office buildings segment - 19,258 21,559 Cash and other assets 48,759 33,244 20,370 ================ ================ ================= Total assets $ 1,240,107 826,849 386,524 ================ ================ ================= </TABLE>
F-15 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 4. Investments in Real Estate Partnerships The Company accounts for all investments in which it owns less than 50% and does not have controlling financial interest, using the equity method. The Company's combined investment in these partnerships was $30.6 million and $999,730 at December 31, 1998 and 1997, respectively. Net income is allocated in accordance with each of the partnership agreements. 5. Notes Payable and Acquisition and Development Line of Credit The Company's outstanding debt at December 31, 1998 and 1997 consists of the following (in thousands): 1998 1997 ---- ---- Notes Payable: Fixed rate mortgage loans $ 298,148 199,078 Variable rate mortgage loans 11,051 30,841 Fixed rate unsecured loans 121,296 - ------- ------- Total notes payable 430,495 229,919 Acquisition and development line of credit 117,631 48,131 ------- ------- Total $ 548,126 278,050 ======= ======= The Company has an acquisition and development line of credit (the "Line") which provides for a commitment up to $300 million, and incorporates 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 less the amount of the Company's outstanding unsecured liabilities. The Line, which is unsecured, 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 Company's investment grade rating. The interest rate on the Line was 6.56% at December 31, 1998. The Company's ratings are currently Baa2 from Moody's Investor Service, BBB from Duff and Phelps, and BBB- from Standard and Poors. The Company is required to comply, and is in compliance, with certain financial covenants customary with this type of unsecured financing. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. On July 17, 1998 the Company through RCLP, completed a $100 million offering of seven year 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 notes are unsecured and mature on July 15, 2005. The net proceeds of the offering were used to repay borrowings under the Line. Mortgage loans are secured by certain real estate properties, but generally may be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2018. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%.
F-16 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 5. Notes Payable and Acquisition and Development Line of Credit (continued) During 1998, the Company assumed mortgage loans with a fair value of $132.8 million related to the acquisition of shopping centers, which includes debt premiums of $12.4 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. As of December 31, 1998, scheduled principal repayments on notes payable and the Line were as follows (in thousands): Scheduled Scheduled Principal Term Loan Total Payments by Year Payments Maturities Payments ---------------- --------- ---------- -------- 1999 $ 3,771 21,579 25,350 2000 3,996 174,674 178,670 2001 3,911 41,928 45,839 2002 3,098 44,117 47,215 2003 2,914 13,291 16,205 Beyond 5 Years 17,811 206,607 224,418 Net unamortized debt payments - 10,429 10,429 ------- ------- ------- Total $ 35,501 512,625 548,126 ======= ======= ======= Unconsolidated partnerships and joint ventures had mortgage loans payable of $76.7 million at December 31, 1998, and the Company's proportionate share of these loans was $34.4 million. The fair value of the Company's notes payable and Line are estimated based on the current rates available to the Company for debt of the same remaining maturities. Variable rate notes payable, and the Company's Line, are considered to be at fair value since the interest rates on such instruments reprice based on current market conditions. Notes payable with fixed rates, that have been assumed in connection with acquisitions, are recorded in the accompanying financial statements at fair value. The Company considers the carrying value of all other fixed rate notes payable to be a reasonable estimation of their fair value based on the fact that the rates of such notes are similar to rates available to the Company for debt of the same terms. 6. Stockholders' Equity On June 11, 1996, the Company entered into a Stockholders Agreement (the "Agreement") with SC-USREALTY granting it certain rights such as purchasing common stock, nominating representatives to the Company's Board of Directors, and subjecting SC-USREALTY to certain restrictions including voting and ownership restrictions. 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 the Company, at the same price as that 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 position; and (ii) the right to nominate a
F-17 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 6. Stockholders' Equity (continued) proportionate number of directors on the Company'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). SC-USREALTY has acquired all of the 7,499,400 shares related to the Agreement. In connection with the Units and shares of common stock issued in exchange for Branch's assets. 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. In connection with the Units and shares of common stock issued for Branch in March 1998, SC-USREALTY acquired 435,777 shares at $22.125 per share in accordance with their rights as provided for in the Agreement. The acquisition of Branch is discussed further in note 2. 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 common stock on a diluted basis, (ii) transferring shares without the Company's approval in a negotiated transaction that would result in any transferee beneficially owning more than 9.8% of the Company'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 stockholders. On July 11, 1997, the Company 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 the Company. On August 11, 1997, the Underwriters exercised the over-allotment option and the Company 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 Line. In connection with the acquisition of shopping centers, RCLP has issued Exchangeable Operating Partnership Units to limited partners convertible on a one for one basis into shares of common stock of the Company. There are currently 1,361,396 Exchangeable Operating Partnership Units outstanding. On June 29, 1998, the Company through RCLP issued $80 million of 8.125% Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an institutional investor in a private placement. The issuance involved the sale of 1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred Units, which may be called by the Partnership at par on or after June 25, 2003, have no stated maturity or mandatory redemption, and pay a cumulative, quarterly dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the Series A Preferred Units may be exchanged for shares of 8.125% Series A Cumulative Redeemable Preferred Stock of the Company at an exchange rate of one share of Series A Preferred Stock for one Series A Preferred Unit. The Series A Preferred Units and Series A Preferred Stock are not convertible into common stock of the Company. The net proceeds of the offering were used to reduce the acquisition and development line of credit.
F-18 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 <TABLE> 7. Earnings Per Share The following summarizes the calculation of basic and diluted earnings per share for the years ended, December 31, 1998, 1997 and 1996 (in thousands except per share data): <CAPTION> 1998 1997 1996 ---- ---- ---- <S> <C> <C> <C> Basic Earnings Per Share (EPS) Calculation: Weighted average common shares outstanding 25,150 17,424 7,331 ======= ======= ====== Net income for common $ 50,590 27,402 9,907 stockholders Less: dividends paid on Class B common stock 5,378 5,140 3,879 ------- ------- ------ Net income for Basic EPS 45,212 22,262 6,028 ======= ======= ====== Basic EPS $ 1.80 1.28 .82 ======= ======= ====== Diluted Earnings Per Share (EPS) Calculation: Weighted average shares outstanding for Basic EPS 25,150 17,424 7,331 Exchangeable operating partnership units 1,223 1,243 18 Incremental shares to be issued under common stock options using the Treasury method 14 80 3 Contingent units or shares for the acquisition of real estate 511 955 - ------- ------- ------ Total diluted shares 26,898 19,702 7,352 ======= ======= ====== Net income for Basic EPS $ 45,212 22,262 6,028 Add: minority interest of exchangeable partnership units 1,826 2,042 - ------- ------- ------ Net income for Diluted EPS 47,038 24,304 6,028 ======= ======= ====== Diluted EPS $ 1.75 1.23 .82 ======= ======= ====== </TABLE> Class B common stock is not included in the above calculation because it is anti-dilutive. 8. Long-Term Stock Incentive Plans In 1993, the Company 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 the Company's common shares outstanding not to exceed 3.0 million shares. 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
F-19 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 8. Long-Term Stock Incentive Plans (continued) officers and other key employees, become fully exercisable after four years from the date of grant, and with respect to directors, become fully exercisable after one year. At December 31, 1998, there were approximately 300,000 shares available for grant under the Plan. The per share weighted-average fair value of stock options granted during 1998 and 1997 was $2.22 and $3.26 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1998 - expected dividend yield 7.5%, risk-free interest rate of 4.8%, expected volatility 21%, and an expected life of 6.5 years; 1997 - expected dividend yield 6.3%, risk-free interest rate of 6.3%, expected volatility 21%, and an expected life of 5.7 years; The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income for common stockholders would have been reduced to the pro forma amounts indicated below (in thousands except per share data): Net income for Common stockholders 1998 1997 1996 ------------------- ---- ---- ---- As reported: $50,590 $27,402 $9,907 Net income per share: Basic $ 1.80 $ 1.28 $ 0.82 Diluted $ 1.75 $ 1.23 $ 0.82 Pro forma: $49,565 $25,777 $9,897 Net income per share: Basic $ 1.76 $ 1.18 $ 0.82 Diluted $ 1.71 $ 1.15 $ 0.82 Pro forma net income for common stockholders reflects only options granted subsequent to the issuance of SFAS 123 in 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 common stockholders 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.
F-20 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 8. Long-Term Stock Incentive Plans (continued) Stock option activity during the periods indicated is as follows: Weighted Average Number of Exercise Shares Price --------- -------- 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 --------- Granted 741,265 24.39 Forfeited (123,495) 25.33 Exercised (227,700) 24.97 --------- Outstanding, December 31, 1998 1,708,577 $ 24.71 ========= The following table presents information regarding all options outstanding at December 31, 1998. Weighted Average Weighted Number of Remaining Range of Average Options Contractual Exercise Exercise Outstanding Life Prices Price ----------- ----------- -------- -------- 51,731 5.0 years $ 16.75 - 19.25 $ 18.93 1,231,578 8.6 years 22.25 - 25.25 24.26 425,268 8.4 years 26.19 - 27.75 26.69 ----------- --------- ----------------- ------------ 1,708,577 8.5 years $ 16.75 - 27.75 $ 24.71 =========== ========= ================= ============
F-21 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 8. Long-Term Stock Incentive Plans (continued) The following table presents information regarding options currently exercisable at December 31, 1998: Weighted Number of Range of Average Options Exercise Exercise Exercisable Prices Price ----------- -------- --------- 51,731 $ 16.75 - 19.25 $ 18.93 98,300 25.25 25.25 88,881 26.25 - 27.75 26.99 ------ ------------- -------- 238,912 $ 16.75 - 27.75 $ 24.53 ======= ================== ======== Also as part of the Plan, in 1993, 1996 and 1998, certain officers and employees purchased common stock at fair market value directly from the Company, of which 90%, 95% 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 6% 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 the Company's achievement of specified financial objectives, and total stockholder return performance targets. During 1998, 1997, and 1996, $662,196, $601,516, and $646,598 was forgiven, respectively, and is included as a charge to income on the consolidated statements of operations. The Company 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 1998, 1997 and 1996, the Company charged $250,000, $259,600 and $809,400 to income on the consolidated statement of operations related to the restricted stock plan. In addition, the Company provided it's officers, directors and employees with other stock based compensation totaling $1.5, $1.7, and $1.5 million during 1998, 1997 and 1996, respectively. 9. Operating Leases The Company's properties are leased to tenants under operating leases with expiration dates extending to the year 2028. Future minimum rent under noncancelable operating leases as of December 31,1998, excluding tenant reimbursements of operating expenses and excluding additional contingent rentals based on tenants' sales volume are as follows: Year ending December 31, Amount 1999 110,538,266 2000 105,061,943 2001 89,224,053 2002 74,990,466 2003 64,644,898 Thereafter 481,164,703 ------------ Total $ 925,624,329 ============
F-22 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 9. Operating Leases (continued) At December 31, 1998, the real estate portfolio as a whole was approximately 93% leased. 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. There were no tenants which individually represented 10% or more of the Company's combined minimum rent. The combined annualized rent from the Company's four largest retail tenants represented approximately 26.9% of annualized base rent at December 31, 1998. 10. Contingencies The Company 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 Company's shopping centers is the principal environmental concern. The Company believes that the dry cleaners are operating in accordance with current laws and regulations and has established procedures to monitor their operations. While the Company 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 Company also has established due diligence procedures to identify and evaluate potential environmental issues on properties under consideration for acquisition. In connection with acquisitions during 1998 and 1997, the Company has established environmental reserves which amounted to $2.2 million and $1.9 million at December 31, 1998 and 1997, 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 Company'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 Company. 11. Market and Dividend Information (Unaudited) The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "REG". The Company currently has approximately 3,500 shareholders. The following table sets forth the high and low prices and the cash dividends declared on the Company's common stock by quarter for 1998 and 1997. All amounts are in thousands except per share data. <TABLE> <CAPTION> 1998 1997 ----------------------------------- ----------------------------------- Cash Cash High Low Dividends High Low Dividends Price Price Declared Price Price Declared ----- ----- --------- ----- ----- -------- <S> <C> <C> <C> <C> <C> <C> March 31 $ 27.812 24.750 .44 28.000 25.000 .42 June 30 26.687 24.062 .44 28.125 24.875 .42 September 30 26.500 20.500 .44 28.250 24.875 .42 December 31 23.437 20.250 .44 28.000 24.250 .42 </TABLE>
F-23 REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements December 31, 1998 12. Summary of Quarterly Financial Data (Unaudited) <TABLE> Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 1998 and 1997 (amounts in thousands, except per share data): <CAPTION> First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1998: <S> <C> <C> <C> <C> Revenues $ 30,909 35,187 37,199 40,001 Net income for common stockholders 19,556 10,798 10,061 10,175 Net income per share: Basic .74 .38 .34 .35 Diluted .72 .36 .34 .34 1997: Revenues $ 17,733 24,626 26,790 28,187 Net income for common stockholders 4,037 4,727 8,743 9,895 Net income per share: Basic .25 .26 .34 .37 Diluted .25 .26 .32 .35 </TABLE> 13. Subsequent Event On September 23, 1998, the Company entered into an Agreement of Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real estate investment trust. The Agreement, among other matters, provides for the merger of Pacific into Regency, and the exchange of each Pacific common or preferred share into 0.48 shares of Regency common or preferred stock. The stockholders approved the merger at a Special Meeting of Stockholders held February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of gross leaseable area. On February 28, 1999, the effective date of the merger, the Company issued equity instruments valued at $770.6 million to the Pacific stockholders in exchange for their outstanding common and preferred shares, and units. The total cost to acquire Pacific is $1.157 billion based on the value of Regency shares issued, including the assumption of $379 million of outstanding debt and other liabilities of Pacific, and estimated closing costs of $7.5 million. The price per share used to determine the purchase price is $23.325 based on the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The merger will be accounted for as a purchase with the Company as the acquiring entity. On February 26, 1999, the Company entered into an agreement with the various banks that provide the Line to increase the unsecured commitment amount to $635 million.
S-1 Independent Auditors' Report On Financial Statement Schedule The Shareholders and Board of Directors Regency Realty Corporation Under date of February 1, 1999, except for Note 13 as to which the date is March 1, 1999, we reported on the consolidated balance sheets of Regency Realty Corporation as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, as contained in the annual report on Form 10-K for the year 1998. 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 annual report on Form 10-K for the year 1998. 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 LLP Jacksonville, Florida February 1, 1999
S-2 <TABLE> Schedule III <CAPTION> REGENCY REALTY CORPORATION Combined Real Estate and Accumulated Depreciation December 31, 1998 Initial Cost Total Cost ---------------------------- Cost Capitalized ------------------------------------------ Building & Subsequent to Building & Land Improvements Acquisition Land Improvements Total ----------- ------------ ---------------- ---------- -------------- ------------ <S> <C> <C> <C> <C> <C> <C> ANASTASIA SHOPPING PLAZA 1,072,451 3,617,493 159,607 1,072,451 3,777,100 4,849,551 ASHFORD PLACE 2,803,998 9,943,994 (761,970) 2,583,998 9,402,024 11,986,022 AVENTURA SHOPPING CENTER 2,751,094 9,317,790 157,829 2,751,094 9,475,619 12,226,713 BECKETT COMMONS 1,625,242 5,844,871 - 1,625,242 5,844,871 7,470,113 BENEVA 2,483,547 8,851,199 - 2,483,547 8,851,199 11,334,746 BENT TREE PLAZA 1,927,712 6,659,082 - 1,927,712 6,659,082 8,586,794 BERKSHIRE COMMONS 2,294,960 8,151,236 76,079 2,294,960 8,227,315 10,522,275 BLOOMINGDALE 3,861,759 14,100,891 - 3,861,759 14,100,891 17,962,650 BOLTON PLAZA 2,660,227 6,209,110 1,219,398 2,634,664 7,454,071 10,088,735 BONNERS POINT 859,854 2,878,641 166,034 859,854 3,044,675 3,904,529 BOYNTON LAKES PLAZA 2,783,000 10,043,027 37,669 2,783,000 10,080,696 12,863,696 BRAELINN VILLAGE EQUIPORT 4,191,214 12,389,585 876,936 4,191,214 13,266,521 17,457,735 BRIARCLIFF LA VISTA 694,120 2,462,819 - 694,120 2,462,819 3,156,939 BRIARCLIFF VILLAGE 4,597,018 16,303,813 334,677 4,597,018 16,638,490 21,235,508 BROOKVILLE PLAZA 1,208,012 4,205,994 - 1,208,012 4,205,994 5,414,006 BUCKHEAD COURT 1,737,569 6,162,941 1,229,361 1,627,569 7,502,302 9,129,871 CAMBRIDGE SQUARE 792,000 2,916,034 59,747 792,000 2,975,781 3,767,781 CARMEL COMMONS 2,466,200 8,903,187 1,526,996 2,466,200 10,430,183 12,896,383 CARRIAGE GATE 740,960 2,494,750 1,101,049 740,960 3,595,799 4,336,759 CENTER OF SEVEN SPRINGS 1,737,994 6,290,048 1,452,432 1,757,440 7,723,034 9,480,474 CHASEWOOD PLAZA 1,675,000 11,390,727 4,500,773 2,476,486 15,090,014 17,566,500 CHERRY GROVE 3,533,146 12,710,297 - 3,533,146 12,710,297 16,243,443 CITY VIEW SHOPPING CENTER 1,207,204 4,341,304 46,444 1,207,204 4,387,748 5,594,952 COLUMBIA MARKETPLACE 1,280,158 4,285,745 177,291 1,280,158 4,463,036 5,743,194 COUNTRY CLUB 1,105,201 3,709,452 87,739 1,105,201 3,797,191 4,902,392 COURTYARD SHOPPING CENTER 1,761,567 4,187,039 263,527 1,761,567 4,450,566 6,212,133 CROMWELL SQUARE 1,771,892 6,285,288 27,249 1,771,892 6,312,537 8,084,429 CUMMING 400 2,374,562 8,420,776 134,871 2,374,562 8,555,647 10,930,209 DELK SPECTRUM 2,984,577 11,048,896 - 2,984,577 11,048,896 14,033,473 DUNWOODY HALL 1,819,209 6,450,922 329,740 1,819,209 6,780,662 8,599,871 DUNWOODY VILLAGE 2,326,063 7,216,045 2,064,462 2,326,063 9,280,507 11,606,570 EAST POINTE 1,868,120 6,742,983 - 1,868,120 6,742,983 8,611,103 EAST PORT PLAZA 3,257,023 11,611,363 164,282 3,257,023 11,775,645 15,032,668 ENSLEY SQUARE 915,493 3,120,928 410,219 915,493 3,531,147 4,446,640 EVANS CROSSING 1,468,743 5,123,617 - 1,468,743 5,123,617 6,592,360 FLEMING ISLAND 3,076,701 6,291,505 - 3,076,701 6,291,505 9,368,206 FRANKLIN SQUARE 2,584,025 9,379,749 - 2,584,025 9,379,749 11,963,774 GARDEN SQUARE 2,073,500 7,614,748 361,367 2,136,135 7,913,480 10,049,615 GARNER FESTIVAL 5,591,099 19,897,197 - 5,591,099 19,897,197 25,488,296 GLENWOOD VILLAGE 1,194,198 4,235,476 81,175 1,194,198 4,316,651 5,510,849 HAMILTON MEADOWS 2,034,566 6,582,429 - 2,034,566 6,582,429 8,616,995 HARPETH VILLAGE FIELDSTONE 2,283,874 5,559,498 3,537,926 2,283,874 9,097,424 11,381,298 HIGHLAND SQUARE 2,615,250 9,359,722 - 2,615,250 9,359,722 11,974,972 HINSDALE LAKE COMMONS 4,217,840 15,039,854 - 4,217,840 15,039,854 19,257,694 HYDE PARK 9,240,000 33,340,181 2,625,631 9,735,102 35,470,710 45,205,812 KERNERSVILLE PLAZA 1,741,562 6,081,020 - 1,741,562 6,081,020 7,822,582 KINGSDALE SHOPPING CENTER 3,866,500 14,019,614 153,027 3,866,500 14,172,641 18,039,141 LAGRANGE MARKETPLACE 983,923 3,294,003 98,595 983,923 3,392,598 4,376,521 LAKE PINE PLAZA 2,008,110 6,908,986 - 2,008,110 6,908,986 8,917,096 LAKESHORE 1,617,940 5,371,499 - 1,617,940 5,371,499 6,989,439 LOEHMANNS PLAZA 3,981,525 14,117,891 11,371 3,981,525 14,129,262 18,110,787 LOVEJOY STATION 1,540,000 5,581,468 1,654 1,540,000 5,583,122 7,123,122 LUCEDALE MARKETPLACE 641,565 2,147,848 64,089 641,565 2,211,937 2,853,502 MAINSTREET SQUARE 1,274,027 4,491,897 34,392 1,274,027 4,526,289 5,800,316 MARINERS VILLAGE 1,628,000 5,907,835 134,497 1,628,000 6,042,332 7,670,332 MARKETPLACE ST PETE 1,287,000 4,662,740 223,490 1,287,000 4,886,230 6,173,230 MARKETPLACE CENTER OLD FORT 2,432,942 1,755,643 1,813,070 2,432,942 3,568,713 6,001,655 MARTIN DOWNS VILLAGE CENTER 2,000,000 5,133,495 2,981,179 2,437,664 7,677,010 10,114,674 MARTIN DOWNS VILLAGE SHOPPES 700,000 1,207,861 879,527 817,135 1,970,253 2,787,388 MAXTOWN ROAD (NORTHGATE) 1,753,136 6,244,449 - 1,753,136 6,244,449 7,997,585 MAYNARD CROSSING 4,066,381 14,083,800 - 4,066,381 14,083,800 18,150,181 MEMORIAL BEND SHOPPING CENTER 3,256,181 11,546,660 1,481,282 3,366,181 12,917,942 16,284,123 MERCHANTS VILLAGE 1,054,306 3,162,919 3,185,485 1,054,306 6,348,404 7,402,710 MILLHOPPER 1,073,390 3,593,523 928,847 1,073,390 4,522,370 5,595,760 NEWBERRY SQUARE 2,341,460 8,466,651 784,841 2,341,460 9,251,492 11,592,952 NORTH MIAMI SHOPPING CENTER 603,750 2,021,250 85,433 603,750 2,106,683 2,710,433 OAKLEY PLAZA 1,772,540 6,406,975 65,103 1,772,540 6,472,078 8,244,618 OCEAN BREEZE 1,250,000 3,341,199 2,424,031 1,527,400 5,487,830 7,015,230 OLD ST AUGUSTINE PLAZA 2,047,151 7,355,162 233,330 2,047,151 7,588,492 9,635,643 ORCHARD SQUARE 1,155,000 4,135,353 252,060 1,155,000 4,387,413 5,542,413 PACES FERRY PLAZA 2,811,522 9,967,557 1,627,529 2,811,622 11,594,986 14,406,608 PALM HARBOUR SHOPPING VILLAGE 2,899,928 10,998,230 1,058,599 2,899,928 12,056,829 14,956,757 PALM TRAILS PLAZA 2,438,996 5,818,523 - 2,438,996 5,818,523 8,257,519 PARAGON BRANDON JV 570,000 2,472,537 (3,042,537) - - - PARK PLACE 2,231,745 7,974,362 - 2,231,745 7,974,362 10,206,107 PARKWAY STATION 1,123,200 4,283,917 142,744 1,123,200 4,426,661 5,549,861 PEACHLAND PROMENADE 1,284,562 5,143,564 61,087 1,284,561 5,204,652 6,489,213 PEARTREE VILLAGE 5,196,653 8,732,711 10,122,933 5,196,653 18,855,644 24,052,297 PIKE CREEK 5,077,406 18,860,183 - 5,077,406 18,860,183 23,937,589 PINE TREE PLAZA 539,000 1,995,927 (84,927) 539,000 1,911,000 2,450,000 POWERS FERRY SQUARE 3,607,647 12,790,749 3,253,948 3,607,647 16,044,697 19,652,344 POWERS FERRY 1,190,822 4,223,606 19,564 1,190,822 4,243,170 5,433,992 QUADRANT AT SOUTHPOINT I 2,342,823 15,541,967 (17,884,790) - - - QUEENSBOROUGH 1,826,000 6,501,056 - 1,826,000 6,501,056 8,327,056 REGENCY COURT 3,571,337 12,664,014 285,562 3,571,337 12,949,576 16,520,913 REGENCY SQUARE BRANDON 577,975 18,156,719 7,542,763 4,491,461 21,785,996 26,277,457 RIVERMONT STATION 2,887,213 10,445,109 79,795 2,887,213 10,524,904 13,412,117 ROSWELL VILLAGE 2,304,345 6,777,200 181,066 2,304,345 6,958,266 9,262,611 RUSSELL RIDGE 2,153,214 - 6,565,264 2,215,341 6,503,137 8,718,478 SANDY PLAINS VILLAGE 2,906,640 10,412,440 433,698 2,906,640 10,846,138 13,752,778 SANDY SPRINGS VILLAGE 733,126 2,565,411 168,915 733,126 2,734,326 3,467,452 SHOPPES @ 104 2,651,000 9,523,429 - 2,651,000 9,523,429 12,174,429 SHOPPES AT MASON 1,576,656 5,357,855 - 1,576,656 5,357,855 6,934,511 SILVERLAKE 2,004,860 7,161,869 - 2,004,860 7,161,869 9,166,729 SOUTH MONROE 1,200,000 6,566,974 - 1,200,000 6,566,974 7,766,974 SOUTH POINTE CROSSING - 13,000 - - 13,000 13,000 ST ANN SQUARE 1,541,883 5,597,282 - 1,541,883 5,597,282 7,139,165 STATLER SQUARE 2,227,819 7,479,952 - 2,227,819 7,479,952 9,707,771 TAMIAMI TRAILS 2,046,286 7,462,646 108,330 2,046,286 7,570,976 9,617,262 TEQUESTA SHOPPES 1,782,000 6,426,042 235,213 1,782,000 6,661,255 8,443,255 TERRACE WALK 1,196,286 2,935,683 105,916 1,196,286 3,041,599 4,237,885 THE MARKETPLACE 1,211,605 4,056,242 2,840,716 1,758,434 6,350,129 8,108,563 TOWN CENTER AT MARTIN DOWNS 1,364,000 4,985,410 17,547 1,364,000 5,002,957 6,366,957 TOWN SQUARE 438,302 1,555,481 1,501,322 768,302 2,726,803 3,495,105 TROWBRIDGE CROSSING EQUIPORT 910,263 1,914,551 1,050,010 910,263 2,964,561 3,874,824 UNION SQUARE SHOPPING CENTER 1,578,654 5,933,889 386,260 1,578,656 6,320,147 7,898,803 UNIVERSITY COLLECTION 2,530,000 8,971,597 108,317 2,530,000 9,079,914 11,609,914 UNIVERSITY MARKETPLACE 3,250,562 7,044,579 2,409,463 3,532,046 9,172,558 12,704,604 VILLAGE CENTER 6 3,885,444 10,799,316 337,899 3,885,444 11,137,215 15,022,659 VILLAGE IN TRUSSVILLE 973,954 3,260,627 109,895 973,954 3,370,522 4,344,476 WELLEBY 1,496,000 5,371,636 346,882 1,496,000 5,718,518 7,214,518 WELLINGTON MARKET PLACE 5,070,384 13,308,972 319,657 5,070,384 13,628,629 18,699,013 WELLINGTON TOWN SQUARE 1,914,000 7,197,934 609,258 1,914,000 7,807,192 9,721,192 WEST COUNTY 1,491,462 4,993,155 126,744 1,491,462 5,119,899 6,611,361 WESTCHESTER PLAZA 1,857,048 6,456,178 - 1,857,048 6,456,178 8,313,226 WESTLAND I 198,344 1,747,391 (1,945,735) - - - WINDMILLER PLAZA PHASE I 2,620,355 11,190,526 - 2,620,355 11,190,526 13,810,881 WOODCROFT SHOPPING CENTER 1,419,000 5,211,981 384,592 1,419,000 5,596,573 7,015,573 WORTHINGTON PARK CENTRE 3,346,203 10,053,858 - 3,346,203 10,053,858 13,400,061 -------------------------------------------------------------------------------------------- 253,680,855 871,635,824 57,867,342 257,669,018 925,514,995 1,183,184,013 ============================================================================================ <CAPTION> Total Cost Net of Accumulated Accumulated Depreciation Depreciation Mortgages -------------- ------------ --------- <S> <C> <C> <C> ANASTASIA SHOPPING PLAZA 575,105 4,274,446 - ASHFORD PLACE 580,642 11,405,380 4,651,887 AVENTURA SHOPPING CENTER 2,111,008 10,115,705 8,602,768 BECKETT COMMONS 128,560 7,341,553 - BENEVA - 11,334,746 - BENT TREE PLAZA 148,955 8,437,839 5,615,296 BERKSHIRE COMMONS 1,062,021 9,460,254 7,784,755 BLOOMINGDALE 300,874 17,661,776 - BOLTON PLAZA 928,470 9,160,265 - BONNERS POINT 535,045 3,369,484 1,613,000 BOYNTON LAKES PLAZA 251,445 12,612,251 - BRAELINN VILLAGE EQUIPORT 729,122 16,728,613 12,356,039 BRIARCLIFF LA VISTA 139,030 3,017,909 1,649,897 BRIARCLIFF VILLAGE 968,021 20,267,487 13,282,120 BROOKVILLE PLAZA 103,342 5,310,664 3,668,969 BUCKHEAD COURT 389,391 8,740,480 - CAMBRIDGE SQUARE 151,176 3,616,605 - CARMEL COMMONS 434,794 12,461,589 - CARRIAGE GATE 735,440 3,601,319 - CENTER OF SEVEN SPRINGS 1,115,924 8,364,550 - CHASEWOOD PLAZA 2,660,845 14,905,655 8,000,000 CHERRY GROVE 265,335 15,978,108 - CITY VIEW SHOPPING CENTER 273,129 5,321,823 - COLUMBIA MARKETPLACE 679,672 5,063,522 2,586,000 COUNTRY CLUB 563,066 4,339,326 2,264,000 COURTYARD SHOPPING CENTER 1,228,647 4,983,486 1,378,000 CROMWELL SQUARE 372,007 7,712,422 4,464,426 CUMMING 400 501,697 10,428,512 6,419,476 DELK SPECTRUM 304,219 13,729,254 8,138,553 DUNWOODY HALL 387,763 8,212,108 - DUNWOODY VILLAGE 459,895 11,146,675 7,264,800 EAST POINTE 129,414 8,481,689 5,267,546 EAST PORT PLAZA 534,694 14,497,974 - ENSLEY SQUARE 206,478 4,240,162 - EVANS CROSSING 117,619 6,474,741 4,379,981 FLEMING ISLAND 78,219 9,289,987 3,522,104 FRANKLIN SQUARE 198,248 11,765,526 9,136,752 GARDEN SQUARE 244,096 9,805,519 6,516,686 GARNER FESTIVAL 124,404 25,363,892 - GLENWOOD VILLAGE 257,101 5,253,748 2,211,233 HAMILTON MEADOWS 167,943 8,449,052 5,612,141 HARPETH VILLAGE FIELDSTONE 213,202 11,168,096 - HIGHLAND SQUARE 135,556 11,839,416 3,942,071 HINSDALE LAKE COMMONS 31,394 19,226,300 - HYDE PARK 1,381,919 43,823,893 24,750,000 KERNERSVILLE PLAZA 123,771 7,698,811 5,218,476 KINGSDALE SHOPPING CENTER 447,889 17,591,252 - LAGRANGE MARKETPLACE 510,946 3,865,575 1,645,000 LAKE PINE PLAZA 144,204 8,772,892 5,986,557 LAKESHORE 113,706 6,875,733 3,729,331 LOEHMANNS PLAZA 835,982 17,274,805 - LOVEJOY STATION 209,663 6,913,459 - LUCEDALE MARKETPLACE 340,083 2,513,419 1,390,000 MAINSTREET SQUARE 204,362 5,595,954 - MARINERS VILLAGE 273,727 7,396,605 - MARKETPLACE ST PETE 375,700 5,797,530 - MARKETPLACE CENTER OLD FORT 167,760 5,833,895 1,986,409 MARTIN DOWNS VILLAGE CENTER 1,298,279 8,816,395 4,150,000 MARTIN DOWNS VILLAGE SHOPPES 337,325 2,450,063 1,313,000 MAXTOWN ROAD (NORTHGATE) 107,300 7,890,285 5,440,112 MAYNARD CROSSING 286,993 17,863,188 11,711,134 MEMORIAL BEND SHOPPING CENTER 696,953 15,587,170 8,335,963 MERCHANTS VILLAGE 196,291 7,206,419 - MILLHOPPER 932,895 4,662,865 2,401,000 NEWBERRY SQUARE 1,366,907 10,226,045 - NORTH MIAMI SHOPPING CENTER 605,557 2,104,876 1,160,000 OAKLEY PLAZA 290,343 7,954,275 - OCEAN BREEZE 929,096 6,086,134 2,805,000 OLD ST AUGUSTINE PLAZA 440,733 9,194,910 - ORCHARD SQUARE 332,356 5,210,057 - PACES FERRY PLAZA 630,953 13,775,655 - PALM HARBOUR SHOPPING VILLAGE 700,457 14,256,300 - PALM TRAILS PLAZA 84,337 8,173,182 - PARAGON BRANDON JV - - - PARK PLACE 33,228 10,172,879 - PARKWAY STATION 319,124 5,230,737 - PEACHLAND PROMENADE 571,096 5,918,117 - PEARTREE VILLAGE 673,528 23,378,769 12,777,420 PIKE CREEK 226,061 23,711,528 12,442,166 PINE TREE PLAZA 48,350 2,401,650 - POWERS FERRY SQUARE 798,322 18,854,022 - POWERS FERRY 238,707 5,195,285 2,917,943 QUADRANT AT SOUTHPOINT I - - - QUEENSBOROUGH 13,544 8,313,512 - REGENCY COURT 718,475 15,802,438 - REGENCY SQUARE BRANDON 6,100,596 20,176,861 12,000,000 RIVERMONT STATION 395,653 13,016,464 - ROSWELL VILLAGE 300,168 8,962,443 - RUSSELL RIDGE 633,539 8,084,939 - SANDY PLAINS VILLAGE 640,709 13,112,069 - SANDY SPRINGS VILLAGE 131,641 3,335,811 - SHOPPES @ 104 138,509 12,035,920 - SHOPPES AT MASON 111,748 6,822,763 3,925,611 SILVERLAKE 104,315 9,062,414 - SOUTH MONROE 54,424 7,712,550 - SOUTH POINTE CROSSING - 13,000 - ST ANN SQUARE 143,068 6,996,097 4,972,117 STATLER SQUARE 157,923 9,549,848 5,472,654 TAMIAMI TRAILS 275,743 9,341,519 - TEQUESTA SHOPPES 385,668 8,057,587 - TERRACE WALK 624,306 3,613,579 683,000 THE MARKETPLACE 857,541 7,251,022 2,647,000 TOWN CENTER AT MARTIN DOWNS 260,896 6,106,061 - TOWN SQUARE 97,568 3,397,537 - TROWBRIDGE CROSSING EQUIPORT 109,285 3,765,539 1,800,000 UNION SQUARE SHOPPING CENTER 374,850 7,523,953 - UNIVERSITY COLLECTION 502,408 11,107,506 - UNIVERSITY MARKETPLACE 1,826,835 10,877,769 - VILLAGE CENTER 6 878,291 14,144,368 - VILLAGE IN TRUSSVILLE 529,193 3,815,283 1,775,000 WELLEBY 554,962 6,659,556 - WELLINGTON MARKET PLACE 1,127,296 17,571,717 - WELLINGTON TOWN SQUARE 486,760 9,234,432 - WEST COUNTY 844,740 5,766,621 3,190,000 WESTCHESTER PLAZA 172,301 8,140,925 5,815,752 WESTLAND I - - - WINDMILLER PLAZA PHASE I 141,017 13,669,864 - WOODCROFT SHOPPING CENTER 299,819 6,715,754 - WORTHINGTON PARK CENTRE 192,029 13,208,032 4,967,081 ------------------------------------------------ 58,983,738 1,124,200,275 297,736,226 ================================================ </TABLE>
REGENCY REALTY CORPORATION Combined Real Estate and Accumulated Depreciation December 31, 1998 Depreciation and amortization of the Company's investment in buildings and improvements reflected in the statement of operation 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 $1.029 billion at December 31, 1998. The changes in total real estate assets for the period ended December 31, 1998, 1997 and 1996: <TABLE> <CAPTION> 1998 1997 1996 --------------- -------------- ------------ <S> <C> <C> <C> Balance, beginning of period 799,801,367 389,007,481 278,731,167 Developed or acquired properties 399,305,955 408,475,251 107,378,064 Sale of property (24,248,801) (2,907,503) - Improvements 8,325,492 5,226,138 2,898,250 ---------------- -------------- ------------ Balance, end of period 1,183,184,013 799,801,367 389,007,481 ================ ============== ============ The changes in accumulated depreciation for the period ended December 31, 1998, 1997 and 1996: 1998 1997 1996 --------------- -------------- ------------ Balance, beginning of period 40,795,801 26,213,225 18,631,310 Sale of property (5,121,929) (713,176) - Depreciation for period 23,309,866 15,295,752 7,581,915 --------------- -------------- ------------ Balance, end of period 58,983,738 40,795,801 26,213,225 =============== ============== ============ </TABLE>