FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 1-12298 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 Jacksonville, Florida 32202 (Address of principal executive offices) (Zip code) (904) 356-7000 (Registrant's telephone number including area code) Not applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ____ No ____ (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of November 14, 1996, there were 7,886,684 shares outstanding of the registrant's common stock.
Part I. Financial Information Item 1. Financial Statements REGENCY REALTY CORPORATION Consolidated Balance Sheets September 30, December 31, 1996 1995 ---- ---- Assets Real estate rental property, at cost $ 332,175,327 278,731,167 Less: accumulated depreciation 23,871,345 18,631,310 ----------- ----------- Real estate rental property, net 308,303,982 260,099,857 Construction in progress 10,344,554 0 Investment in unconsolidated real estate partnerships 1,226,670 315,389 ----------- ----------- Total investments in real estate, net 319,875,206 260,415,246 Cash and cash equivalents 15,039,661 3,401,701 Accounts receivable, net of allowance for uncollectible accounts of $444,801 and $474,019 at September 30, 1996 and December 31, 1995, respectively 3,061,427 2,620,763 Deferred costs, less accumulated amortization of $2,408,262 and $1,660,662 at September 30, 1996 and December 31, 1995, respectively 3,919,949 3,598,011 Other assets 2,141,159 969,676 ----------- ----------- $ 344,037,402 271,005,397 =========== =========== Liabilities and Stockholders' Equity Mortgage loans payable 101,502,725 93,277,273 Revolving line of credit 71,301,185 22,339,803 Tenant security and escrow deposits 1,168,737 976,515 Accrued expenses 3,859,282 936,695 Accounts payable and other liabilities 4,144,499 6,468,537 ----------- ----------- Total liabilities 181,976,428 123,998,823 ----------- ----------- Convertible operating partnerships units 520,169 0 Stockholders' Equity Preferred stock - 10,000,000 shares authorized: Series A 8% cumulative convertible, 1,916 shares issued and outstanding at December 31, 1995 0 1,916,268 Common stock $.01 par value per share: 25,000,000 shares authorized; 7,883,197 and 6,728,723 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively 78,832 67,287 Special common stock - 10,000,000 shares authorized: Class B $.01 par value per share, 2,500,000 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively 25,000 25,000 Additional paid in capital 175,713,697 155,221,241 Distributions in excess of net income (11,106,635) (8,073,188) Stock loans (3,170,089) (2,150,034) ----------- ----------- Total stockholders' equity 161,540,805 147,006,574 ----------- ----------- $ 344,037,402 271,005,397 =========== =========== See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Consolidated Statements of Operations For the Three Month Period Ended September 30, September 30, 1996 1995 ---- ---- Real estate operation revenues: Minimum rent $ 8,897,421 6,249,030 Percentage rent 175,065 162,437 Recoveries from tenants 1,806,339 1,230,583 Other recoveries and income 159,392 149,615 Leasing and brokerage 833,949 576,387 Management fees 157,478 201,425 ---------- ---------- Total real estate operation revenues 12,029,644 8,569,477 ---------- ---------- Real estate operation expenses: Depreciation and amortization 2,202,859 1,611,973 Operating and maintenance 1,896,479 1,462,984 General and administrative 1,294,469 1,326,580 Real estate taxes 1,059,950 681,332 ---------- ---------- Total real estate operation expenses 6,453,757 5,082,869 ---------- ---------- Interest expense (income): Interest expense 2,742,023 2,315,192 Interest income (191,408) (118,538) ---------- ---------- Net interest expense 2,550,615 2,196,654 ---------- ---------- Net income 3,025,272 1,289,954 Preferred stock dividends 0 76,650 ---------- ---------- Net income for common stockholders $ 3,025,272 1,213,304 ========== ========== Net income per common share outstanding $ 0.28 0.18 ========== ========== Weighted average common shares outstanding 10,802,711 6,610,532 ========== ========== See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Consolidated Statements of Operations For the Nine Month Period Ended September 30, September 30, 1996 1995 ---- ---- Real estate operation revenues: Minimum rent $ 24,898,572 18,255,167 Percentage rent 598,785 479,258 Recoveries from tenants 5,089,798 3,614,005 Other recoveries and income 384,211 404,348 Leasing and brokerage 2,077,766 1,122,708 Management fees 434,163 658,218 ---------- ---------- Total real estate operation revenues 33,483,295 24,533,704 ---------- ---------- Real estate operation expenses: Depreciation and amortization 6,107,968 4,665,736 Operating and maintenance 5,356,131 4,120,260 General and administrative 3,898,109 3,385,683 Real estate taxes 2,971,807 2,026,977 ---------- ---------- Total real estate operation expenses 18,334,015 14,198,656 ---------- ---------- Interest expense (income): Interest expense 7,372,401 6,506,945 Interest income (478,586) (324,078) ---------- ---------- Net interest expense 6,893,815 6,182,867 ---------- ---------- Net income 8,255,465 4,152,181 Preferred stock dividends 57,721 284,833 ---------- ---------- Net income for common stockholders $ 8,197,744 3,867,348 ========== ========== Net income per common share outstanding $ 0.81 0.59 ========== ========== Weighted average common shares outstanding 10,150,394 6,525,569 ========== ========== See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1996 and 1995 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 8,170,465 4,152,181 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,107,968 4,665,736 Equity in income of unconsolidated real estate partnership investments (38,132) (11,423) Changes in assets and liabilities: (Increase)decrease in accounts receivable (440,663) 866,657 (Increase) in deferred leasing commissions (377,021) (354,436) (increase) in other assets (1,291,818) (996,188) Increase in tenants' security and escrow deposits 192,222 71,003 Increase in accrued expenses 3,177,075 1,757,984 (Decrease) increase in accounts payable and other liabilities (1,225,161) 98,489 ----------- ----------- Net cash provided by operating activities 14,274,935 10,250,003 ----------- ----------- Cash flows from investing activities: Investment in real estate (51,586,884) (10,957,528) Investment in unconsolidated real estate partnership (881,308) 0 Capital expenditures (1,857,276) (1,243,787) Construction in progress (10,259,554) (2,037,675) Distribution received from unconsolidated real estate partnership investment 8,160 0 ----------- ------------ Net cash used in investing (64,576,862) (14,238,990) ----------- ----------- Cash flows from financing activities: Dividends paid in cash (11,548,562) (8,070,729) Proceeds (repayments) from revolving line of credit, net 48,961,382 (12,736,629) Proceeds from mortgage loans payable 3,918,750 27,635,098 Net proceeds from construction loans 4,900,576 13,413 Principal payments on mortgage loans payable (593,875) (256,180) Issuance of convertible operating partnership units 525,331 0 Proceeds from common stock issuance 16,468,800 0 Payment of loan closing costs (692,515) (269,988) ----------- ------------ Net cash provided by financing activities 61,939,887 6,314,985 ----------- ------------ Net increase in cash and cash equivalents 11,637,960 2,325,998 ----------- ------------ Cash and cash equivalents at beginning of period 3,401,701 2,860,837 ----------- ------------ Cash and cash equivalents at end of period $ 15,039,661 5,186,835 =========== ============ See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements 1. The Company Regency Realty Corporation (the Company) was incorporated in the State of Florida for the purpose of managing, leasing, brokering, acquiring, and developing shopping centers. At September 30, 1996, the Company owned 39 shopping centers and 4 office complexes in five states in the southeastern United States. The Company also provides management, leasing, brokerage and development services for real estate not owned by the Company (third parties). The Company commenced operations effective with the completion of its initial public offering on November 5, 1993. The accompanying consolidated financial statements include the accounts of Regency Realty Group, Inc. (the "Management Company"), it's wholly owned or majority owned shopping centers and office complexes and its joint ventures. All significant intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 19, 1996. Certain amounts for 1995 have been reclassified to conform to the presentation adopted in 1996. 2. Basis of Presentation The accompanying interim unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are of a normal recurring nature, and in the opinion of management, are necessary to properly state the results of operations and financial position. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. 3. Acquisition and Development Through September 30, 1996, the Company has completed the acquisition of seven shopping centers and one parcel of land for development of a new shopping center. These properties are 100% owned unless noted otherwise and are summarized as follows: Date Acquired Company Shopping Center Location Year Built by the Company GLA Parkway Station Warner Robbins, GA 1983/1987 02-28-96 94,290 Welleby Plaza Sunrise, FL 1982 05-31-96 109,949 Union Square S.C. Monroe, N.C. 1989 07-16-96 97,191 City View S.C. Charlotte, N.C. 1993 07-16-96 77,550 Palm Harbour Palm Coast, FL 1978/1991 08-01-96 159,369 Sandy Plains Village Atlanta, GA 1979/1990 08-09-96 168,513 Ocean East Mall (1) Stuart, FL - 01-31-96 104,772 South Monroe (2) Tallahassee, FL - 03-21-96 80,440 (1) Redevelopment project to be completed in 1997. The Company acquired a 25% interest. (2) New shopping center development to be completed in 1997.
4. Secured Line of Credit The Company closed on a $75 million unsecured acquisition and development revolving line of credit (the "Wells Line") on May 17, 1996. The initial proceeds were used to pay off an existing secured line of credit. The Line will be used to finance future real estate acquisitions and developments. The interest rate is Libor + 162.5 basis points with interest only for two years, and if then terminated, becomes a two year term loan maturing in May, 2000 with principal due in seven equal quarterly installments. However, the borrower may request a one year extension of the interest only revolving period annually in May of each year beginning in 1997. On September 16, 1996 the credit agreement was amended to increase the commitment amount to $90 million. 5. Sale of Common Stock On June 11, 1996, the Company entered into a Stock Purchase Agreement (the "Agreement") with Security Capital U. S. Realty and Security Capital Holdings S.A. (collectively, "US Realty"). Under the agreement, the Company will sell an aggregate of 7,499,400 shares of Common Stock to U.S. Realty at a price of $17.625 per share for an aggregate purchase price of up to $132,176,925. At the initial closing on July 10, 1996, the Company sold 934,400 shares to US Realty for a total purchase price of $16,468,800. Not later than December 1, 1996 (the "Second Closing") and June 1, 1997 ("Subsequent Closings"), the Company may sell 2,717,400 shares at the Second Closing for a total of $47,894,175, and up to 3,847,600 shares at Subsequent Closings for a total of $67,813,950.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Realty Corporation (the "Company") appearing elsewhere in this Form 10-Q. Business The Company's principal business is owning, managing, and developing neighborhood and community shopping centers in Florida and the Southeast. At September 30, 1996 the Company owned and managed 39 shopping centers and 4 suburban office buildings. Of the total 43 properties owned, 29 are located in Florida, and 33 are anchored by supermarkets. The Company's three largest tenants in order by number of store locations are Publix Supermarkets (14), Winn-Dixie Stores (8), and Wal-Mart (5). Acquisition and Development During 1996, the Company has acquired six shopping centers (the "1996 Acquisitions") for $51.7 million (including certain necessary building improvements) for a total of 706,862 square feet. The Company also acquired a parcel of land to begin development of a new shopping center, and entered into a joint venture to redevelop an existing shopping center. Total cost at completion of these two development projects will be $12.3 million and are expected to be completed during the second quarter of 1997. During 1995, the Company acquired five shopping centers and completed the development or expanded four shopping centers for a total cost of $62 million (the "1995 Acquisitions") of which approximately $9.1 million were closed during the nine months ended September 30, 1995. Liquidity and Capital Resources The Company's total indebtedness at September 30, 1996 was $173 million, of which $94 million or 55% bears a fixed rate of interest averaging 7.55%. Based upon the Company's total market capitalization (debt and equity) at September 30, 1996 of $416.4 million (the stock price was $22.375 per share and the total shares and common stock equivalents outstanding were 10,888,507), the Company's debt to total market capitalization ratio was 41.5%. The Company funded the 1995 Acquisitions from borrowings on its line of credit (the "Line"), origination of new mortgage loans, and the proceeds from a $50 million private placement (the "Private Placement"). The Private Placement was completed on December 20, 1995 by issuing 2,500,000 shares of non-voting Class B common stock to a single investor. The Class B common shares are convertible into 2,975,468 shares of common stock beginning on the third anniversary of the issuance date subject to limitations that the holder may not beneficially own more than 4.9% of the Company's outstanding common stock except in certain circumstances. On May 17, 1996, the Company obtained an unsecured $75 million revolving line of credit from Wells Fargo National Bank ("Wells Line") with an interest rate of Libor plus 1.625%. The proceeds were used to pay off the balance of the Line, and will be used to finance future acquisition and development activity. On September 16, 1996 the Wells Line credit agreement was amended to increase the revolving line to $90 million. On June 11, 1996, the Company entered into a Stock Purchase Agreement (the "Agreement") with Security Capital U. S. Realty and Security Capital Holdings S.A. (collectively, "US Realty"). Under the agreement, the Company will sell an aggregate of 7,499,400 shares of Common Stock to U.S. Realty at a price of $17.625 per share for an aggregate purchase price of up to $132,176,925. At the initial closing on July 10, 1996, the Company sold 934,400 shares to US Realty for a total purchase price of $16,468,800 which was used to paydown the Wells Line. Not later than December 1, 1996 (the "Second Closing") and June 1, 1997 ("Subsequent Closings"), the Company may sell 2,717,400 shares at the Second Closing for a total of $47,894,175, and up to 3,847,600 shares at Subsequent Closings for a total of $67,813,950. Proceeds from the sale of common stock at the Second and Subsequent Closings will be used to reduce the balance of the Wells Line.
The Company's principal demands for liquidity are dividends to stockholders, the operations, maintenance and improvement of real estate, and scheduled interest and principal payments. The Company paid common and preferred dividends of $11.5 million and $8.0 million to its stockholders during 1996 and 1995, respectively. The percentage of funds from operations paid out in cash dividends, or "dividend payout ratio", was 81.7% and 85.9% during the nine months ended September 30, 1996 and 1995, respectively. In January 1996, the Company increased its quarterly common dividend to $.405 per share or $1.62 annually. As a result of the Private Placement, the Company has outstanding 2,500,000 shares of Class B common with a current annual dividend rate of $1.9845 ($1.6674 on a converted common stock basis). Accordingly, dividends paid by the Company during 1996 have increased substantially over 1995 due to the common stock dividend increase and the Private Placement. During 1996 and 1995, the Company's net cash used in investing activities was $64.6 million and $14.2 million, respectively, related primarily to real estate acquisitions, construction and building improvements. The Company invested approximately $1.9 million and $1.2 million for improvements to its properties as of September 30, 1996 and 1995, respectively. The Company anticipates that cash provided by operating activities, unused amounts under the Wells Line, and cash reserves are adequate to meet liquidity requirements. At September 30, 1996, the Company had cash of $15 million of which $4.8 million was restricted and $8.4 million was funded from the Wells Line for an acquisition to close on October 1, 1996. The Company has made an election to be taxed, and is operating so as to qualify, as a Real Estate Investment Trust ("REIT") for Federal income tax purposes, and accordingly has paid no Federal income tax subsequent to its IPO in 1993. While the Company intends to continue to pay dividends to its stockholders, the Company 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 1996 and 1995 as a result of the acquisitions and developments discussed above. The Company expects to continue this level of growth in the future and intends to meet the related capital requirements, principally for the acquisition or development of new properties, from borrowings on the Wells Line, new mortgage loans and from additional public or private equity offerings. 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. Results of Operations Comparison of Three Months Ended September 30, 1996 to 1995 Total real estate operation revenues increased $3.5 million, or 40%, to $12 million for the three months ended September 30, 1996 as compared to $8.6 million for the comparable period in 1995. The increase in revenue was primarily attributable to a $2.6 million increase in minimum rent. The Company experienced this growth primarily as a result of its 1996 and fourth quarter 1995 Acquisitions which contributed approximately $2.44 million of additional minimum rent in the three month period ended September 30, 1996. At September 30, 1996, the real estate portfolio was 94.8% leased compared to 95.2% at September 30, 1995. Average rents per sf were $8.58 and $8.30 at September 30, 1996 and 1995, respectively. The increase is due primarily from the 1996 Acquisitions which had higher average rents than the average of the portfolio prior to the 1995 Acquisitions. Revenues from property management, leasing, brokerage, and development services provided on properties not owned by the Company were $.99 million vs. $.78 million for the three month period ending September 30, 1996 and 1995, respectively. Total real estate operation expenses increased $1.4 million for the three months ended September 30, 1996, or 27%, to $6.5 million as compared to $5.1 million for the comparable period in 1995. Operating, maintenance and real estate taxes increased $.81 million to $2.9 million or 38%. This increase was primarily attributable to $.76 million in operating expenses associated with the 1996 and fourth quarter 1995 Acquisitions. General and administrative expenses decreased 2% during 1996 to $1.3 million. Depreciation and amortization was $2.2 million or 37% higher than 1995, predominately a result of additional depreciation and amortization on the Company's 1996 and fourth quarter 1995 Acquisitions.
Interest expense increased to $2.7 million in 1996 from $2.3 million in 1995 or 18% due primarily to increased average outstanding loan balances as a result of the 1996 and 1995 Acquisitions. There were no preferred stock dividends in the third quarter as a result of the full conversion of the remaining Series A preferred stock into common stock on June 29, 1996. Net income for common stockholders was $3 million or $.28 per share in 1996 vs. $1.2 million or $.18 per share in 1995. The increase is due primarily to the 1996 and 1995 Acquisitions which contributed to a 40% increase in real estate operation revenues, a 38% increase in operating, maintenance and real estate taxes, a 37% increase in depreciation expense and an 18% increase in interest expense. Comparison of Nine Months Ended September 30, 1996 to 1995 Total real estate operation revenues increased $8.9 million, or 36%, to $33.5 million for the nine months ended September 30, 1996 as compared to $24.5 million for the comparable period in 1995. The increase in revenue was primarily attributable to a $6.6 million increase in minimum rent. The Company experienced this growth primarily as a result of its 1996 and 1995 Acquisitions which contributed approximately $5.7 million of additional minimum rent in the nine month period ended September 30, 1996. Revenues from property management, leasing, brokerage, and development services provided on properties not owned by the Company were $2.5 million vs. $1.8 million for the period ending September 30, 1996 and 1995, respectively. Total real estate operation expenses increased $4.1 million for the nine months ended September 30, 1996, or 29%, to $18.3 million as compared to $14.2 million for the comparable period in 1995. Operating, maintenance and real estate taxes increased $2.2 million to $8.3 million or 35%. This increase was primarily attributable to $1.8 million in operating expenses associated with the 1996 and 1995 Acquisitions. General and administrative expense increased 15% during 1996 to $3.9 million due to accruing higher amounts for performance based deferred compensation that potentially could be earned. Depreciation and amortization was $6.1 million or 31% higher than 1995, predominately a result of additional depreciation and amortization on the Company's 1996 and fourth quarter 1995 Acquisitions. Interest expense increased to $7.4 million in 1996 from $6.5 million in 1995 or 13% due primarily to increased average outstanding loan balances as a result of the 1996 and 1995 Acquisitions. The preferred stock dividends declined as a result of the full conversion of the remaining Series A preferred stock into common stock at the end of the second quarter. Net income for common stockholders was $8.2 million or $.81 per share in 1996 vs. $3.9 million or $.59 per share in 1995. The increase is due primarily to the 1996 and 1995 Acquisitions which contributed to a 36% increase in real estate operation revenues, a 35% increase in operating, maintenance and real estate taxes, a 31% increase in depreciation expense and a 13% increase in interest expense. Funds from Operations The Company considers funds from operations ("FFO") to be one measure of REIT performance and defines it as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property, adjusted for certain noncash amounts, primarily depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO as defined above has become a measure used by many industry analysts; however, FFO should not be considered an alternative to net income as an indication of the Company's performance or to cash flow as a measure of liquidity determined in accordance with generally accepted accounting principles.
FFO for the nine months ended September 30, 1996 and 1995 are summarized in the following table: 1996 1995 ---- ---- Net income for common stockholders $ 8,198 3,867 Add: non-cash amounts: Real estate depreciation and amortization 5,557 4,216 Common stock compensation: Board of directors' fees and 401 (k) compensation 362 333 Long-term compensation plans 955 435 Straight-lining of rents charge 21 147 ------ ----- Funds from operations $ 15,093 8,998 Weighted average shares outstanding 10,150 6,526 ====== ===== Funds from operations per share $ 1.49 1.38 ====== ===== In May 1995 the National Association of Real Estate Investment Trusts (NAREIT) amended the definition of FFO and recommended the following changes to become effective for fiscal years ending in 1996: (1) amortization of loan costs and depreciation of office furniture and equipment should not be added back to net income, (2) non-recurring gains (losses) should be excluded from FFO, and (3) gains (losses) from the sale of undepreciated real estate considered to be part of a company's recurring business may be included in FFO. The Company modified its definition of FFO for these changes effective January 1, 1996 and also has restated amounts reported for 1995 for comparison purposes. Environmental Matters The Company like others in the commercial real estate industry, is subject to numerous environmental laws and regulations including the operation of dry cleaning plants by tenants at several of its shopping centers. The Company believes that these dry cleaners are operating in accordance with current laws and regulations. Based on information presently available, no 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. Economic Conditions A substantial number of the Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation on the Company's net income. Such provisions include percentage rentals, rental escalation clauses and reimbursements for common area maintenance, insurance, and real estate taxes. In addition, 41% of the Company's leases have terms of five years or less, which allows the Company the opportunity to increase rents upon lease expiration. Approximately 43% of the Company's leases expire beyond 10 years and are generally anchor tenants. Unfavorable economic conditions could result in the inability of certain tenants to meet their lease obligations and otherwise could adversely affect the Company's ability to attract and retain desirable tenants. Recently, several national and regional retailers have publicized their financial difficulties and several have filed for protection under the bankruptcy laws. National or regional tenants of which the Company has leases that have filed for bankruptcy protection are Pic N Pay Shoes ("PNP") and Discovery Zone ("DZ"). Total annual rent from PNP is less than one percent of total annual rent from all tenants, and all stores continue to operate and pay rent. Total rent from DZ is less than one percent of total annual rent from all tenants. The Company has two leases with DZ of which the store located at Regency Square in Brandon has closed and the other remains open and has guarantees extending to Blockbuster Entertainment. Regency Square, the Company's only "Power Center" containing approximately 342,000 sf is currently 94% occupied. The Company has had no other significant tenant bankruptcies. At September 30, 1996 approximately 9%, 5% and 4% of the Company's total rent is received from Publix, Winn-Dixie, and Wal-Mart, respectively (the "Three Major Tenants"). In February, 1996, Wal-Mart closed its store located at The Marketplace in Alexander City, Alabama in order to relocate to a new larger store nearby. Wal-Mart will continue to pay rent due under its lease at The Marketplace which expires in October, 2007. During 1995, the Company added a new Winn-Dixie store to The Marketplace. Although the Company considers the financial condition and its relations with the Three Major Tenants to be very solid, a significant downturn in business or the non-renewal of expiring leases of the Three Major Tenants could adversely effect the Company. Management also believes that the shopping centers are relatively well positioned to withstand adverse economic conditions since they typically are anchored by supermarkets, drug stores and discount department stores that offer day-to-day necessities rather than luxury goods.
Part II. Other Information Item 1. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders A Special Meeting of Shareholders was held on Tuesday, September 10, 1996 to vote on Proposal 1 to approve a Stock Purchase Agreement with Security Capital U. S. Realty and Security Capital Holdings S.A. (together, "U.S. Realty"), to invest a total of up to approximately $132 million in Regency Realty Corporation (the "Company") and Proposal 2 to approve and adopt the Amendment to the Charter to expressly authorize US Realty to acquire up to 45% of the outstanding Common Stock, on a fully diluted basis, to permit individuals who are treated as owning shares of Company capital stock as a result of the ownership of shares by US Realty and its affiliates to own up to 9.8% of the Company's outstanding capital stock and to make certain other modifications to facilitate the Company's continued qualification as a domestically controlled REIT for Federal income tax purposes. Proposal 1 received 6,856,404 votes FOR, 25,477 AGAINST and 25,483 ABSTAIN. Proposal 2 received 6,863,751 votes FOR, 19,652 AGAINST and 23,961 ABSTAIN. Total votes received 6,907,364.
Item 5. Other Information Acquisition of Asset Regency Realty Corporation (the "Company") acquired 100% fee simple interests in two shopping centers, Sandy Plains Village and Tequesta Shoppes. Sandy Plains Village was acquired on August 9, 1996 for $13,302,000 and Tequesta Shoppes was acquired on October 1, 1996 for $8,398,600. Both acquisitions were funded from the Company's Wells Line. Sandy Plains contains approximately 168,513 SF and Tequesta Shoppes contains approximately 109,766 SF. The combined purchase price represents approximately 8% of the Company's total assets as of December 31,1995. A) Pro Forma Financial Information: Regency Realty Corporation: Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 (Unaudited). Pro Forma Condensed Statements of Operations for the Nine Month Period ended September 30, 1996 and the year ended December 31, 1995 (Unaudited). B) Statements of Revenue and Certain Expenses Sandy Plains Village Independent Auditors' Report Statement of Revenues and Certain Expenses for the year ended December 31, 1995 Tequesta Shoppes Independent Auditors' Report Statement of Revenues and Certain Expenses for the year ended December 31, 1995
REGENCY REALTY CORPORATION Pro Forma Condensed Consolidated Balance Sheet September 30, 1996 (Unaudited) (in thousands) The following unaudited pro forma consolidated balance sheet is based upon the historical consolidated balance sheet of the Company as of September 30, 1996 and as if the Company had acquired the Acquisition Properties as of that date. This pro forma consolidated balance sheet should be read in conjunction with the Company's financial statements included in this Form 10-Q, and the pro forma consolidated statement of operations of the Company and notes thereto included elsewhere herein. The unaudited pro forma consolidated balance sheet is not necessarily indicative of what the actual financial position of the Company would have been at September 30, 1996, nor does it purport to represent the future financial position of the Company. <TABLE> <CAPTION> Regency Regency Realty Realty Corporation Acquisition Corporation Assets Historical Properties Pro Forma <S> <C> <C> <C> Real estate rental property, at cost, less accumulated depreciation $ 319,875 8,399 (a) 328,274 Cash and cash equivalents 15,040 (8,399) (b) 6,641 Deferred costs, accounts receivable, and other assets 9,122 - 9,122 ------------ ------------- ------------- $ 344,037 0 344,037 ============ ============= ============= Liabilities and Stockholders' Equity Liabilities: Mortgage loans payable 101,503 - 101,503 Unsecured line of credit 71,301 - 71,301 Accounts payable and other liabilities 9,172 - 9,172 ------------ ------------- ------------- Total liabilities 181,976 0 181,976 ------------ ------------- ------------- Convertible operating partnership units 520 - 520 ------------ ------------- ------------- Stockholders' equity: Common stock $.01 par value per share 79 - 79 Class B common stock 25 - 25 Additional paid in capital 175,714 - 175,714 Distributions in excess of net income (11,107) - (11,107) Executive officer stock loans (3,170) - (3,170) ------------ ------------- ------------- Total stockholders' equity 161,541 0 161,541 ------------ ------------- ------------- $ 344,037 0 344,037 ============ ============= ============= </TABLE> See accompanying notes to unaudited pro forma condensed consolidated balance sheet.
REGENCY REALTY CORPORATION Notes to Pro Forma Condensed Consolidated Balance Sheet Septeber 30, 1996 (Unaudited) (a) Represents the aggregate purchase price of Tequesta Shoppes only. Sandy Plains Village was acquired on August 9, 1996 for a purchase price of $13,302 and is included in the historical balance sheet as of September 30, 1996. (b) The Company borrowed 100% of the purchase price of Tequesta Shoppes on the unsecured line of credit on September 30, 1996, and accordingly, the drawn amount was deposited into the Company's cash account. The Company subsequently acquired Tequesta Shoppes on October 1, 1996.
REGENCY REALTY CORPORATION Pro Forma Consolidated Statements of Operations For the Nine Month Period ended September 30, 1996 and the Year Ended December 31, 1995 Unaudited (in thousands, except per share data) The following unaudited pro forma consolidated statements of operations are based upon the historical consolidated statements of operations for the nine months ended September 30, 1996 and the year ended December 31, 1995 and are presented as if the Company had acquired the Acquisition Properties as of these dates. These pro forma consolidated statements of operations should be read in conjunction with the Company's financial statements for the quarter ended September 30, 1996, the pro forma consolidated balance sheet of the Company, and the Statements of Revenue and Certain Expenses of the Acquisition Properties and notes thereto included elsewhere herein. The unaudited pro forma consolidated statements of operations are not necessarily indicative of what the actual results of the Company would have been assuming the transactions had been completed as set forth above, nor does it purport to represent the Company's results of operations in future periods. <TABLE> <CAPTION> For the Nine Months Ended September 30, 1996 ------------------------------------------------------- Regency Regency Realty Realty Corporation Acquisition Pro Forma Corporation Historical Properties Adjustments Pro Forma (a) <S> <C> <C> <C> <C> Real estate operation revenues: Minimum rent $ 24,898 1,517 0 26,415 Percentage rent 599 0 0 599 Recoveries from tenants and other charges 5,474 391 0 5,865 Leasing and brokerage 2,078 0 0 2,078 Management fees 434 0 0 434 ------------- ------------- ------------- ------------- Total real estate operation revenues 33,483 1,908 0 35,391 ------------- ------------- ------------- ------------- Real estate operation expenses: Depreciation and amortization 6,108 0 274 (b) 6,382 Operating and maintenance 5,356 368 0 5,724 General and administrative 3,898 0 0 3,898 Real estate taxes 2,972 190 0 3,162 ------------- ------------- ------------- ------------- Total real estate operation expenses 18,334 558 274 19,166 ------------- ------------- ------------- ------------- Interest expense (income): Interest expense 7,372 0 1,040 (c) 8,412 Interest income (479) 0 0 (479) ------------- ------------- ------------- ------------- Net interest expense 6,893 0 1,040 7,933 ------------- ------------- ------------- ------------- Net income 8,256 1,350 (1,314) 8,292 Preferred stock dividends 58 0 0 58 ------------- ------------- ------------- ------------- Net income for common stockholders $ 8,198 1,350 (1,314) 8,234 ============= ============= ============= ============= Net income for common stockholders $ 0.81 0.81 ============= ============= Weighted average common shares outstanding 10,150 10,150 ============= ============= </TABLE> See accompanying notes to unaudited pro forma statement of operations.
REGENCY REALTY CORPORATION Pro Forma Consolidated Statement of Operations (Continued) Unaudited (in thousands, except per share data) <TABLE> <CAPTION> For the Year Ended December 31, 1995 --------------------------------------------------------- Regency Regency Realty Realty Corporation Acquisition Pro Forma Corporation Historical Properties Adjustments Pro Forma (a) <S> <C> <C> <C> <C> Real estate operation revenues: Minimum rent $ 25,044 2,076 0 27,120 Percentage rent 673 0 0 673 Recoveries from tenants and other charges 5,842 532 0 6,374 Leasing and brokerage 1,639 0 0 1,639 Management fees 787 0 0 787 ------------- ------------- ------------- ------------- Total real estate operation revenues 33,985 2,608 0 36,593 ------------- ------------- ------------- ------------- Real estate operation expenses: Depreciation and amortization 6,436 0 423 (b) 6,859 Operating and maintenance 5,683 465 0 6,148 General and administrative 4,894 0 0 4,894 Real estate taxes 3,001 265 0 3,266 ------------- ------------- ------------- ------------- Total real estate operation expenses 20,014 730 423 21,167 ------------- ------------- ------------- ------------- Interest expense (income): Interest expense 8,840 0 1,606 (c) 10,446 Interest income (454) 0 0 (454) ------------- ------------- ------------- ------------- Net interest expense 8,386 0 1,606 9,992 ------------- ------------- ------------- ------------- Net income 5,585 1,878 (2,029) 5,434 Preferred stock dividends 591 0 0 591 ------------- ------------- ------------- ------------- Net income for common stockholders $ 4,994 1,878 (2,029) 4,843 ============= ============= ============= ============= Net income for common stockholders $ 0.75 0.73 ============= ============= Weighted average common shares outstanding 6,630 6,630 ============= ============= </TABLE> See accompanying notes to unaudited pro forma statement of operations.
REGENCY REALTY CORPORATION Notes to Pro Forma Consolidated Statements of Operations For the Nine Month Period Ended September 30, 1996 and the Year Ended December 31, 1995 Unaudited (in thousands, except per share data) (a) Reflects revenues and certain expenses of the Acquisition Properties for the periods ended as follows: <TABLE> <CAPTION> For the nine months ended September 30, 1996 ------------------------------------------------------------- Minimum Tenant Operating & Real Shopping Center Rents Recoveries Maintenance Estate Taxes --------------- ----- ---------- ----------- ------------ <S> <C> <C> <C> <C> Sandy Plains Village (note 1) $ 870 99 153 72 Tequesta Shoppes 647 292 215 118 ------------- ------------- ------------- ------------- $ 1,517 391 368 190 ============= ============= ============= ============= <FN> Note 1: Sandy Plains was acquired on August 9, 1996 and accordingly 1996 amounts are for the period from January 1, 1996 thru August 8, 1996. </FN> </TABLE> <TABLE> <CAPTION> For the year ended December 31, 1995 ------------------------------------------------------------- Minimum Tenant Operating & Real Shopping Center Rents Recoveries Maintenance Estate Taxes --------------- ----- ---------- ----------- ------------ <S> <C> <C> <C> <C> Sandy Plains Village $ 1,267 223 215 109 Tequesta Shoppes 809 309 250 156 ------------- ------------- ------------- ------------- $ 2,076 532 465 265 ============= ============= ============= ============= <FN> (b) Depreciation expense is based upon the costs allocated to the buildings acquired with a useful life equal to forty years. </FN> </TABLE> <TABLE> <CAPTION> For the year ended December 31, 1995 ------------------------------------------------------------- Building Annual Shopping Center Cost Year Built Useful Life Depreciation --------------- ---- ---------- ----------- ------------ <S> <C> <C> <C> <C> Sandy Plains Village $ 10,376 1982 40 259 Tequesta Shoppes 6,551 1986 40 164 ------------- Annual depreciation expense adjustment $ 423 ============= Sandy Springs depreciation expense from January 1, 1996 to August 9, 1996, the date of acquisition 151 Tequesta Shoppes depreciation expense from January 1, 1996 to September 30, 1996 123 ------------- September 30, 1996 depreciation expense adjustment $ 274 ============= </TABLE> (c) To reflect interest expense on the Wells Line of credit for amounts borrowed to acquire Tequesta Shoppes and Sandy Plains Village in the amount of $21,701 at an average interest rate of 7.4%. Interest Expense Annual interest expense adjustment $ 1,606 ============= Nine months interest expense on Tequesta Shoppes and interest expense on Sandy Plains Village for the period from January 1, 1996 to August 9, 1996, the date of acquisition. $ 1,040 =============
Independent Auditors' Report The Board of Directors Regency Realty Corporation: We have audited the accompanying statement of revenues and certain expenses (defined as being gross income less operating costs and expenses, exclusive of expenses not directly related to the operation of the property) of Sandy Plains Village for the year ended December 31, 1995. This financial statement is the responsibility of management. Our responsibility is to express an opinion on this statement of revenues and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenues and certain expenses of Sandy Plains Village was prepared for the purposes of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K of Regency Realty Corporation and excludes material amounts, described in note 1 to the statement of revenues and certain expenses, that would not be comparable to those resulting from the proposed future operations of the property. In our opinion, the statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenue and certain expenses (as defined above) of Sandy Plains Village for the year ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Certified Public Accountants Jacksonville, Florida August 21, 1996
SANDY PLAINS VILLAGE Statement of Revenues and Certain Expenses Year ended December 31, 1995 Real estate operation revenues: Minimum rent $ 1,262,332 Percentage rent 4,626 Recoveries from tena 222,684 --------- 1,489,642 --------- Real estate operation expenses: Operating and maintenance 157,062 Management fees 54,627 Real estate taxes 108,666 General and administrative 2,835 --------- 323,190 --------- Revenues in excess of certain expenses $ 1,166,452 ========= See accompanying notes to statement of revenues and certain expenses.
SANDY PLAINS VILLAGE Notes to Statement of Revenues and Certain Expenses Year ended December, 31, 1995 1. Basis of Presentation The statement of revenues and certain expenses relates to the operation of a 168,513 square foot shopping center (the "Property") located in Atlanta, Georgia. The Property's records are maintained on the cash basis which is used for Federal income tax reporting purposes. Adjustments have been made to present the accompanying financial statement on the accrual basis of accounting in conformity with generally accepted accounting principles. Subsequent to December 31, 1995, the Property was acquired by Regency Realty Corporation (RRC) in a transaction accounted for as a purchase. All operations of the Property will be included in the consolidated financial statements of RRC beginning at the acquisition date. The accompanying financial statement is not representative of the actual operations for the period presented as certain expenses, which may not be comparable to the expenses expected to be incurred by RRC in the proposed future operation of the Property, have been excluded. RRC is not aware of any material factors relating to the Property that would cause the reported financial information not to be necessarily indicative of future operating results. Costs not directly related to the operation of the Property have been excluded, and consist of interest, depreciation, professional fees, and various other non operating expenses. 2. Operating Leases During 1995, one tenant paid minimum rent that exceeded 10% of the total minimum rent earned by the Property. The tenant, and the minimum rent paid, are as follows: Kroger Supermarkets $ 525,084 =========
SANDY PLAINS VILLAGE Notes to Statement of Revenues and Certain Expenses Year ended December, 31, 1995 2. Operating Leases, continued The Property is leased to tenants under operating leases with expiration dates extending to the year 2010. Future minimum rent under noncancelable operating, excluding tenant reimbursements of operating expenses and excluding additional contingent rentals based on tenants' sales volume, as of December 31, 1995 are as follows: Year ending December 31, Amount 1996 $ 1,417,657 1997 1,467,446 1998 1,192,708 1999 1,110,105 2000 957,307 =========
Independent Auditors' Report The Board of Directors Regency Realty Corporation: We have audited the accompanying statement of revenues and certain expenses (defined as being gross income less operating costs and expenses, exclusive of expenses not directly related to the operation of the property) of The Tequesta Shoppes for the year ended December 31, 1995. This financial statement is the responsibility of management. Our responsibility is to express an opinion on this statement of revenues and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenues and certain expenses of The Tequesta Shoppes was prepared for the purposes of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 10-Q of Regency Realty Corporation and excludes material amounts, described in note 1 to the statement of revenues and certain expenses, that would not be comparable to those resulting from the proposed future operations of the property. In our opinion, the statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenue and certain expenses (as defined above) of The Tequesta Shoppes for the year ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Certified Public Accountants Jacksonville, Florida October 9, 1996
THE TEQUESTA SHOPPES Statement of Revenues and Certain Expenses Year ended December 31, 1995 Real estate operation revenues: Minimum rent $ 803,220 Percentage rent 6,392 Recoveries from tenants 308,812 --------- 1,118,424 --------- Real estate operation expenses: Operating and maintenance 179,466 Management fees 63,602 Real estate taxes 156,108 General and administrative 7,422 --------- 406,598 --------- Revenues in excess of certain expenses $ 711,826 ========= See accompanying notes to statement of revenues and certain expenses.
THE TEQUESTA SHOPPES Notes to Statement of Revenues and Certain Expenses Year ended December, 31, 1995 1. Basis of Presentation The statement of revenues and certain expenses relates to the operation of a 109,766 square foot shopping center (the "Property") located in Tequesta, Florida. The Property's records are maintained on the modified cash basis which is used for Federal income tax reporting purposes. Adjustments have been made to present the accompanying financial statement on the accrual basis of accounting in conformity with generally accepted accounting principles. Subsequent to December 31, 1995, the Property was acquired by Regency Realty Corporation (RRC) in a transaction accounted for as a purchase. All operations of the Property will be included in the consolidated financial statements of RRC beginning at the acquisition date. The accompanying financial statement is not representative of the actual operations for the period presented as certain expenses, which may not be comparable to the expenses expected to be incurred by RRC in the proposed future operation of the Property, have been excluded. RRC is not aware of any material factors relating to the Property that would cause the reported financial information not to be necessarily indicative of future operating results. Costs not directly related to the operation of the Property have been excluded, and consist of interest, depreciation, professional fees, and various other non operating expenses. 2. Operating Leases During 1995, two tenants paid minimum rent that exceeded 10% of the total minimum rent earned by the Property. The tenants, and the minimum rent paid, are as follows: Publix Supermarkets $ 224,842 Walgreens 143,000 --------- $ 367,842 =========
THE TEQUESTA SHOPPES Notes to Statement of Revenues and Certain Expenses Year ended December, 31, 1995 2. Operating Leases, continued The Property is leased to tenants under operating leases with expiration dates extending to the year 2026. Future minimum rent under noncancelable operating leases, excluding tenant reimbursements of operating expenses and excluding additional contingent rentals based on tenants' sales volume, as of December 31, 1995 are as follows: Year ending December 31, Amount 1996 $ 864,483 1997 844,203 1998 830,321 1999 711,695 2000 616,330 Independent Auditors' Report
Item 6. Exhibits and Reports on Form 8-K (c) Exhibits: 3. Articles of Incorporation Restated Articles of Incorporation of Regency Realty Corporation as amended to date. 4. See exhibit 3 for provisions of the restated Articles of Incorporation of Regency Realty Corporation defining rights of security holders. 10. Material Contracts (a) Purchase and Sale Agreement dated July 8, 1996, between VF Sandy Plains Associates, L.P., a Georgia limited partnership as ("Seller") and RRC Acquisitions, Inc., a Florida corporation and wholly-owned subsidiary of the Company as ("Buyer"), relating to the acquisition of Sandy Plains Village. (b) Purchase and Sale Agreement dated July 24, 1996 between CIGNA Real Estate Fund S, L.P., a Connecticut limited partnership as ("Seller") and RRC Acquisitions, Inc., a Florida corporation and wholly-owned subsidiary of the Company as ("Buyer"), relating to the acquisition of University Collection. (c) Purchase and Sale Agreement dated August 9, 1996 between Sterling Tequesta/Trails L.P., a Florida limited partnership as ("Seller") and RRC Acquisitions, Inc. a Florida corporation and wholly-owned subsidiary of the Company as ("Buyer"), relating to the acquisition of Tequesta Shoppes. (d) First Amendment to Credit Agreement dated as of July 18, 1996 by and among Regency Realty Corporation as ("Borrower"), each of the Lenders signatory hereto as ("Lenders"), and Wells Fargo Realty Advisors Funding, Inc., as ("Agent") (e) Second Amendment to Credit Agreement dated as of September 16, 1996 by and among Regency Realty Corporation as ("Borrower"), each of the Guarantors signatory hereto as ("Guarantors"), each of the Lenders signatory hereto as ("Lenders), and Wells Fargo Realty Advisors Funding, Inc., individually ("Wells Fargo") and as Agent ("Agent"). (f) Form of Employment Agreement entered into with the following: i) Bruce M. Johnson ii) Robert C. Gillander, Jr. iii) James D. Thompson iv) Richard E. Cook v) A. Chester Skinner, III vi) J. Christian Leavitt vii) Robert L. Miller, Jr.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGENCY REALTY CORPORATION November 14, 1996 By: \s\ J. Christian Leavitt Date ----------------------------- J. Christian Leavitt, Vice President and Treasurer