United States SECURITIES AND EXCHANGE COMMISSION Washington DC 20549 FORM 10-Q (Mark One) [X] For the quarterly period ended June 30, 1999 -or- [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission File Number 1-12298 REGENCY REALTY CORPORATION (Exact name of registrant as specified in its charter) Florida 59-3191743 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 121 West Forsyth Street, Suite 200 Jacksonville, Florida 32202 (Address of principal executive offices) (Zip Code) (904) 356-7000 (Registrant's telephone number, including area code) Unchanged (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] (Applicable only to Corporate Registrants) As of August 10, 1999, there were 59,562,612 shares outstanding of the Registrant's common stock.
REGENCY REALTY CORPORATION Consolidated Balance Sheets June 30, 1999 and December 31, 1998 <TABLE> <CAPTION> 1999 1998 (unaudited) <S> <C> <C> Assets Real estate investments, at cost: Land $ 557,375,983 257,669,018 Buildings and improvements 1,801,402,593 925,514,995 Construction in progress - development for investment 54,783,730 15,647,659 Construction in progress - development for sale 84,535,053 20,869,915 --------------- --------------- 2,498,097,359 1,219,701,587 Less: accumulated depreciation 79,822,694 58,983,738 --------------- --------------- 2,418,274,665 1,160,717,849 Investments in real estate partnerships 43,737,090 30,630,540 --------------- --------------- Net real estate investments 2,462,011,755 1,191,348,389 Cash and cash equivalents 14,781,701 19,919,693 Tenant receivables, net of allowance for uncollectible accounts of $1,823,732 and $1,787,686 at June 30, 1999 and December 31, 1998, respectively 29,656,201 16,758,917 Deferred costs, less accumulated amortization of $6,616,985 and $5,295,336 at June 30, 1999 and December 31, 1998 11,002,944 6,872,023 Other assets 6,354,589 5,208,278 --------------- --------------- $ 2,523,807,190 1,240,107,300 =============== =============== Liabilities and Stockholders' Equity Liabilities: Notes payable 787,274,210 430,494,910 Acquisition and development line of credit 243,879,310 117,631,185 Accounts payable and other liabilities 45,322,871 19,936,424 Tenants' security and escrow deposits 6,899,230 3,110,370 --------------- --------------- Total liabilities 1,083,375,621 571,172,889 --------------- --------------- Series A preferred units 78,800,000 78,800,000 Exchangeable operating partnership units 46,468,357 27,834,330 Limited partners' interest in consolidated partnerships 11,050,830 11,558,618 --------------- --------------- Total minority interest 136,319,187 118,192,948 --------------- --------------- Stockholders' equity: Convertible Preferred stock Series 1 and paid in capital $.01 par value per share: 542,532 shares authorized issued and outstanding; liquidation preference $20.83 per share 12,654,570 - Convertible Preferred stock Series 2 and paid in capital $.01 par value per share: 1,502,532 shares authorized issued and outstanding; liquidation preference $20.83 per share 22,392,000 - Common stock $.01 par value per share: 150,000,000 shares authorized; 59,560,212 and 25,488,989 shares issued and outstanding at June 30, 1999 and December 31, 1998 595,602 254,889 Special common stock - 10,000,000 shares authorized: Class B $.01 par value per share, 2,500,000 shares issued and outstanding at December 31, 1998 - 25,000 Additonal paid in capital 1,302,631,875 578,466,708 Distributions in excess of net income (22,180,227) (19,395,744) Stock loans (11,981,438) (8,609,390) --------------- --------------- Total stockholders' equity 1,304,112,382 550,741,463 --------------- --------------- Commitments and contingencies $ 2,523,807,190 1,240,107,300 ============== ============== </TABLE> See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION Consolidated Statements of Operations For the Three Months ended June 30, 1999 and 1998 (unaudited) <TABLE> <CAPTION> 1999 1998 <S> <C> <C> Revenues: Minimum rent $ 58,489,977 25,405,644 Percentage rent 466,022 558,514 Recoveries from tenants 15,081,065 5,817,685 Management, leasing and brokerage fees 4,118,783 3,259,509 Equity in income of investments in real estate partnerships 1,395,100 145,425 --------------- ------------ Total revenues 79,550,947 35,186,777 --------------- ------------ Operating expenses: Depreciation and amortization 12,369,778 5,928,251 Operating and maintenance 9,816,763 4,355,499 General and administrative 5,143,534 3,529,341 Real estate taxes 7,431,874 2,999,053 Other expenses 375,000 300,000 ------------- ------------ Total operating expenses 35,136,949 17,112,144 ------------- ------------ Interest expense (income): Interest expense 17,171,139 8,015,818 Interest income (654,485) (631,179) --------------- ------------ Net interest expense 16,516,654 7,384,639 --------------- ------------ Income before minority interests and sale of real estate investments 27,897,344 10,689,994 Gain on sale of real estate investments - 508,678 --------------- ------------ Income before minority interests 27,897,344 11,198,672 Minority interest of exchangeable partnership units (760,305) (297,500) Minority interest of limited partners (486,094) (103,009) Minority interest preferred unit distribution (1,625,001) - --------------- ------------ Net income 25,025,944 10,798,163 Preferred stock dividends (696,000) - --------------- ------------ Net income for common stockholders $ 24,329,944 10,798,163 =============== ============ Net income per share: Basic $ 0.41 0.38 =============== ============ Diluted $ 0.41 0.36 =============== ============ </TABLE> See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION Consolidated Statements of Operations For the Six Months ended June 30, 1999 and 1998 (unaudited) <TABLE> <CAPTION> 1999 1998 <S> <C> <C> Revenues: Minimum rent $ 97,622,093 47,660,793 Percentage rent 876,468 1,661,861 Recoveries from tenants 24,324,213 10,638,415 Management, leasing and brokerage fees 6,013,830 5,988,181 Equity in income of investments in real estate partnerships 2,136,203 146,411 --------------- --------------- Total revenues 130,972,807 66,095,661 --------------- --------------- Operating expenses: Depreciation and amortization 21,781,052 11,384,555 Operating and maintenance 16,801,471 8,471,901 General and administrative 8,780,893 6,962,449 Real estate taxes 12,191,959 5,787,804 Other expenses 525,000 300,000 --------------- --------------- Total operating expenses 60,080,375 32,906,709 --------------- --------------- Interest expense (income): Interest expense 27,992,343 13,455,183 Interest income (1,121,003) (966,383) --------------- --------------- Net interest expense 26,871,340 12,488,800 --------------- --------------- Income before minority interests and sale of real estate investments 44,021,092 20,700,152 Gain on sale of real estate investments - 10,746,097 --------------- --------------- Income before minority interests 44,021,092 31,446,249 Minority interest of exchangeable partnership units (1,338,511) (891,824) Minority interest of limited partners (747,033) (200,159) Minority interest preferred unit distribution (3,250,002) - --------------- --------------- Net income 38,685,546 30,354,266 Preferred stock dividends (900,000) - --------------- --------------- Net income for common stockholders $ 37,785,546 30,354,266 =============== =============== Net income per share: Basic $ 0.76 1.11 =============== =============== Diluted $ 0.76 1.06 =============== =============== </TABLE> See accompanying notes to consolidated financial statements
REGENCY REALTY CORPORATION Consolidated Statement of Stockholders' Equity For the Six Months ended June 30, 1999 (unaudited) <TABLE> <CAPTION> Class B Series 1 Series 2 Common Common Preferred Stock Preferred Stock Stock Stock --------------- --------------- ------------- -------------- <S> <C> <C> <C> <C> Balance at December 31, 1998 $ - - 254,889 - Common stock issued as compensation, purchased by directors or officers, or issued under stock options - - 1,380 - Common stock issued for partnership units exchanged - - 3,909 - Common stock issued for class B conversion - - 29,755 (25,000) Preferred stock issued to acquire Pacific Retail Trust 12,654,570 22,392,000 - - Common stock issued to acquire Pacific Retail Trust - - 305,669 - Cash dividends declared: Common and preferred stock, $.46 per share - - - - Net income for common stockholders - - - - --------------- ------------- ------------- -------------- Balance at June 30, 1999 $ 12,654,570 22,392,000 595,602 (25,000) =============== ============= ============= ============== </TABLE> See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Consolidated Statement of Stockholders' Equity For the Six Months ended June 30, 1999 (unaudited) (continued) <TABLE> <CAPTION> Additional Distributions Total Paid In in exess of Stock Stockholders' Capital Net Income Loans Equity --------------- ------------- ------------- -------------- <S> <C> <C> <C> <C> Balance at December 31, 1998 $ 578,466,708 (19,395,744) (8,609,390) 550,741,463 Common stock issued as compensation, purchased by directors or officers, or issued under stock options 1,156,250 - 626,906 1,784,536 Common stock issued for partnership units exchanged 7,579,457 - - 7,583,366 Common stock issued for class B conversion (4,755) - - 0 Preferred stock issued to acquire Pacific Retail Trust - - - 35,046,570 Common stock issued to acquire Pacific Retail Trust 715,434,215 - (3,998,954) 711,740,930 Cash dividends declared: Common and preferred stock, $.46 per share - (41,470,029) - (41,470,029) Net income for common stockholders - 38,685,546 - 38,685,546 --------------- ------------- ------------- -------------- Balance at June 30, 1999 $ 1,302,631,875 (22,180,227) (11,981,438) 1,304,112,382 =============== ============= ============= ============== </TABLE> See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1999 and 1998 (unaudited) <TABLE> <CAPTION> 1999 1998 <S> <C> <C> Cash flows from operating activities: Net income $ 38,685,546 30,354,266 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,781,052 11,384,555 Deferred financing cost and debt premium amortization 125,466 46,002 Stock based compensation 1,264,038 1,306,757 Minority interest of exchangeable partnership units 1,338,511 891,824 Minority interest preferred unit distribution 3,250,002 - Minority interest of limited partners 747,033 200,159 Equity in income of investments in real estate partnerships (2,136,203) (146,411) Gain on sale of real estate investments - (10,746,097) Changes in assets and liabilities: Tenant receivables (9,255,288) (676,428) Deferred leasing commissions (2,086,950) (554,373) Other assets 1,791,661 (5,917,878) Tenants' security deposits 70,943 442,565 Accounts payable and other liabilities 8,577,067 6,100,218 ----------------- ------------------ Net cash provided by operating activities 64,152,878 32,685,159 ----------------- ------------------ Cash flows from investing activities: Acquisition and development of real estate (45,209,185) (120,592,104) Acquisition of Pacific, net of cash acquired (9,046,230) - Investment in real estate partnerships (10,104,935) (21,276,350) Capital improvements (6,648,509) (2,842,069) Construction in progress for sale, net of reimbursement (30,934,188) (1,013,407) Proceeds from sale of real estate investments - 30,662,197 Distributions received from real estate partnership investments 704,474 21,123 ----------------- ------------------ Net cash used in investing activities (101,238,573) (115,040,610) ----------------- ------------------ Cash flows from financing activities: Net proceeds from common stock issuance 70,809 9,685,435 Proceeds from issuance of exchangeable partnership units - 7,667 Distributions to partnership unit holders (1,634,263) (897,817) Net distributions to limited partners in consolidated partnerships (458,450) (157,292) Distributions to preferred unit holders (3,250,002) - Dividends paid to stockholders (40,570,029) (24,361,304) Net proceeds from term notes 249,845,300 - Net proceeds from issuance of Series A preferrerd units - 78,800,000 (Repayment) proceeds from acquisition and development line of credit, net (145,351,875) 41,600,000 Proceeds from mortgage loans payable - 7,345,000 Repayment of mortgage loans payable (23,138,753) (32,903,271) Deferred financing costs (3,565,034) (616,359) ----------------- ------------------ Net cash provided by financing activities 31,947,703 78,502,059 ----------------- ------------------ Net decrease in cash and cash equivalents (5,137,992) (3,853,392) Cash and cash equivalents at beginning of period 19,919,693 16,586,094 ----------------- ------------------ Cash and cash equivalents at end of period $ 14,781,701 12,732,702 ================= ================== </TABLE>
REGENCY REALTY CORPORATION Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1999 and 1998 (unaudited) -continued- <TABLE> <CAPTION> 1999 1998 <S> <C> <C> Supplemental disclosure of cash flow information - cash paid for interest (net of capitalized interest of approximately $3,935,000 and $1,700,000 in 1999 and 1998 respectively) $ 21,346,560 12,414,983 ================= ================== Supplemental disclosure of non-cash transactions: Mortgage loans assumed for the acquisition of Pacific and real estate $ 402,582,015 113,945,176 ================= ================== Common stock and exchangeable operating partnership units issued to acquire investments in real estate partnerships $ 1,949,020 - ================= ================== Exchangeable operating partnership units, preferred and common stock issued for the acquisition of Pacific and real estate $ 771,351,617 33,938,977 ================= ================== Other liabilities assumed to acquire Pacific $ 13,897,643 - ================= ================== </TABLE> See accompanying notes to consolidated financial statements.
REGENCY REALTY CORPORATION Notes to Consolidated Financial Statements June 30, 1999 (unaudited) 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 97% of the outstanding common units of Regency Centers, L.P., ("RCLP" or the "Partnership") 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 preferred or exchangeable operating partnership units and limited partners' interests in consolidated partnerships. The Company is a qualified real estate investment trust ("REIT") which began operations in 1993. The financial statements reflect all adjustments which are of a normal recurring nature, and in the opinion of management, are necessary to properly state the results of operations and financial position. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted although management believes that the disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1998 Form 10-K filed with the Securities and Exchange Commission. (b) Reclassifications Certain reclassifications have been made to the 1998 amounts to conform to classifications adopted in 1999. 2. Acquisitions On September 23, 1998, the Company entered into an Agreement of Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real estate investment trust. The Agreement, among other matters, provided for the merger of Pacific into Regency, and the exchange of each Pacific common or preferred share into 0.48 shares of Regency common or preferred stock. The stockholders approved the merger at a Special Meeting of Stockholders held February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of gross leaseable area. On February 28, 1999, the effective date of the merger, the Company issued equity instruments valued at $770.6 million to the Pacific stockholders in exchange for their outstanding common and preferred shares and units. The total cost to acquire Pacific was approximately $1.157 billion based on the value of Regency shares issued, including the assumption of $379 million of outstanding debt and other liabilities of Pacific, and estimated closing costs of $7.5 million. The price per share used to determine the purchase price was $23.325 based on the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The merger was accounted for as a purchase with the Company as the acquiring entity.
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. 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. On April 16, 1999, the Company paid $5.2 million related to this contingent consideration. The operating results of Pacific and the 1998 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 Pacific and all 1998 Acquisitions had occurred on January 1, 1998. Such pro forma information reflects adjustments to 1) increase depreciation, interest expense, and general and administrative costs, 2) remove the office buildings sold, and 3) adjust the weighted average common shares, and common equivalent shares outstanding issued to acquire the properties. Pro forma revenues would have been $153.8 and $144.9 million as of June 30, 1999 and 1998, respectively. Pro forma net income for common stockholders would have been $44.3 and $40.5 million as of June 30, 1999 and 1998, respectively. Pro forma basic net income per share would have been $.74 and $.68 as of June 30, 1999 and 1998, respectively. Pro forma diluted net income per share would have been $.74 and $.67, as of June 30, 1999 and 1998, respectively. This data does not purport to be indicative of what would have occurred had Pacific and the 1998 Acquisitions been made on January 1, 1998, or of results which may occur in the future. 3. Segments The 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 were sold in 1998 (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), on a diluted basis. 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 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 and FFO for each of the reportable segments are summarized as follows for the six month periods ended as of June 30, 1999 and 1998.
<TABLE> 1999 1998 <CAPTION> <S> <C> <C> Revenues: Retail segment $ 124,958,977 59,574,786 Service operations segment 6,013,830 5,988,181 Office buildings segment - 532,694 ---------------- ---------------- Total revenues $ 130,972,807 66,095,661 ================ ================ Funds from Operations: Retail segment net operating income $ 95,965,547 45,384,373 Service operations segment income 6,013,830 5,988,181 Office buildings segment net operating income - 463,402 Adjustments to calculate consolidated FFO: Interest expense (27,992,343) (13,455,183) Interest income 1,121,003 966,383 Earnings from recurring land sales - 901,854 General and administrative and other expenses (9,305,893) (7,262,449) Non-real estate depreciation (391,511) (285,147) Minority interests of limited partners (747,033) (200,159) Minority interests in depreciation and amortization (359,452) (256,722) Share of joint venture depreciation and amortization 286,549 154,599 Dividends on preferred units (3,250,002) - ---------------- ---------------- Funds from Operations 61,340,695 32,399,132 ---------------- ---------------- Reconciliation to net income: Real estate related depreciation and amortization (21,389,541) (11,099,408) Minority interests in depreciation and amortization 359,452 256,722 Share of joint venture depreciation and amortization (286,549) (154,599) Earnings from property sales - 9,844,243 Minority interests of exchangeable partnership units (1,338,511) (891,824) ---------------- ---------------- Net income $ 38,685,546 30,354,266 ================ ================ </TABLE> Assets by reportable segment as of June 30, 1999 and December 31, 1998 are as follows. Non-segment assets to reconcile to total assets include cash, accounts receivable and deferred financing costs. Assets (in thousands): 1999 1998 ---------------------- ---- ---- Retail segment $ 2,377,477 1,170,478 Service operations segment 84,535 20,870 Office buildings segment - - Cash and other assets 61,795 48,759 ---------------- ---------------- Total assets $ 2,523,807 1,240,107 ================ ================ 4. Notes Payable and Acquisition and Development Line of Credit The Company's outstanding debt at June 30, 1999 and December 31, 1998 consists of the following (in thousands): 1999 1998 ---- ---- Notes Payable: Fixed rate mortgage loans $ 392,469 298,148 Variable rate mortgage loans 23,862 11,051 Fixed rate unsecured loans 370,944 121,296 -------------- --------------- Total notes payable 787,275 430,495 Acquisition and development line of credit 243,879 117,631 -------------- --------------- Total $ 1,031,154 548,126 ============== ===============
During February, 1999, the Company modified the terms of its unsecured line of credit (the "Line") by increasing the commitment to $635 million. This credit agreement also provides for a competitive bid facility of up to $250 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 February 2001, but may be extended annually for one year periods. The Company is required to comply, and is in compliance, with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include among others (i) maintenance of minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii) ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to debt service and reserve for replacements, and (vi) ratio of unencumbered net operating income to interest expense on unsecured indebtedness. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. Mortgage loans are secured by certain real estate properties, and may be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2019. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%. During 1999, the Company assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which includes debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. On April 15, 1999 the Company, through RCLP, completed a $250 million unsecured debt offering in two tranches. The Company issued $200 million 7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50 million 7.75% notes due April 1, 2009, priced at 100%. The net proceeds of the offering were used to reduce the balance of the Line. As of June 30, 1999, scheduled principal repayments on notes payable and the Line were as follows (in thousands): <TABLE> <CAPTION> Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments <S> <C> <C> <C> 1999 $ 3,377 12,899 16,276 2000 5,711 98,590 104,301 2001 5,621 291,689 297,310 2002 4,943 44,120 49,063 2003 4,933 13,286 18,219 Beyond 5 Years 42,205 490,225 532,430 Net unamortized debt payments - 13,555 13,555 --------------- -------------- --------------- Total $ 66,790 964,364 1,031,154 =============== ============== =============== </TABLE> Unconsolidated partnerships and joint ventures had mortgage loans payable of $64.0 million at June 30, 1999, and the Company's proportionate share of these loans was $28.1 million.
5. 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. In connection with the Units and shares of common stock issued in March 1998 related to earnout payments, SC-USREALTY acquired 435,777 shares at $22.125 per share in accordance with their rights as provided for in the Agreement. In conjunction with the acquisition of Pacific, SC-USREALTY exchanged their Pacific shares for 22.6 million Regency common shares. As of June 30, 1999, SC-USREALTY owned approximately 34.3 million shares of common stock or 57.5% of the outstanding common shares. 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. 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. As part of the acquisition of Pacific Retail Trust, the Company issued Series 1 and Series 2 preferred shares. Series 1 preferred shares are convertible into Series 2 preferred shares on a one-for-one basis and contain provisions for adjustment to prevent dilution. The Series 1 preferred shares are entitled to a quarterly dividend in an amount equal to $0.0271 less than the common dividend and are cumulative. Series 2 preferred shares are convertible into common shares on a one-for-one basis. The Series 2 preferred shares are entitled to quarterly dividends in an amount equal to the common dividend and are cumulative. The Company may redeem the preferred shares any time after October 20, 2010 at a price of $20.83 per share, plus all accrued but unpaid dividends. During 1999, the holders of all of Regency's Class B stock converted 2,500,000 shares into 2,975,468 shares of common stock.
6. Earnings Per Share The following summarizes the calculation of basic and diluted earnings per share for the three month periods ended, June 30, 1999 and 1998 (in thousands except per share data): <TABLE> <CAPTION> 1999 1998 <S> <C> <C> Basic Earnings Per Share (EPS) Calculation: Weighted average common shares outstanding 58,987 24,945 =============== =============== Net income for common stockholders $ 24,330 10,798 Less: dividends paid on Class B common stock (1,344) (235) --------------- --------------- Net income for Basic EPS $ 24,095 9,454 =============== =============== Basic EPS 0.41 0.38 =============== =============== Diluted Earnings Per Share (EPS) Calculation: Weighted average shares outstanding for Basic EPS 58,987 24,945 Exchangeable operating partnership units 2,142 1,294 Incremental shares to be issued under common stock options using the Treasury Method 6 - Contingent units or shares for the acquisition of real estate - 519 --------------- --------------- Total diluted shares 61,135 26,758 =============== =============== Net income for Basic EPS $ 24,095 9,454 Add: minority interest of exchangeable partnership units 760 297 --------------- --------------- Net income for Diluted EPS $ 24,855 9,751 =============== =============== Diluted $ EPS 0.41 0.36 =============== =============== </TABLE> The Preferred Series 1 and Series 2 stock and the Class B common stock are not included in the above calculation because they are anti-dilutive.
The following summarizes the calculation of basic and diluted earnings per share for the six month periods ended, June 30, 1999 and 1998 (in thousands except per share data): <TABLE> <CAPTION> 1999 1998 <S> <C> <C> Basic Earnings Per Share (EPS) Calculation: Weighted average common shares outstanding 47,824 24,837 =============== =============== Net income for common stockholders $ 37,786 30,354 Less: dividends paid on Class B common stock (1,410) (2,689) --------------- --------------- Net income for Basic EPS $ 36,376 27,665 =============== =============== Basic $ EPS 0.76 1.11 =============== =============== Diluted Earnings Per Share (EPS)Calculation: Weighted average shares outstanding for Basic 47,824 24,837 EPS Exchangeable operating partnership units 1,924 1,135 Incremental shares to be issued under common stock options using the Treasury Method 3 - Class B common stock - 2,975 Contingent units or shares for the acquisition of real estate - 428 --------------- -------------- Total diluted shares 49,751 29,375 =============== =============== Net income for Basic EPS $ 36,376 27,665 Add: Class B dividends - 2,689 Add: minority interest of exchangeable partnership units 1,338 892 --------------- --------------- Net income for Diluted EPS $ 37,714 31,246 =============== =============== Diluted $ EPS 0.76 1.06 =============== =============== </TABLE> The Preferred Series 1 and Series 2 stock and the Class B common stock are not included in the above calculation for 1999 because they are anti-dilutive.
PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds On February 28, 1999, the Company issued 542,532 shares of its Series 1 Convertible Preferred Stock and 960,000 shares of its Series 2 Convertible Preferred Stock as partial consideration for the Company's acquisition of Pacific. The two classes of Preferred Stock are entitled to a preference in the payment of dividends and both have a liquidation preference of $20.83 per share. See Note 5 to the financial statements included elsewhere herein for additional information concerning the terms of the Preferred Stock. No dividends may be paid to holders of common stock in the event of any arrearages in the payment of dividends on the Preferred Stock, and no liquidating distributions may be made to holders of common stock until the holders of the Preferred Stock have received an amount equal to their liquidation preferences. 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 97% of the outstanding common partnership units ("Units"). Of the 214 properties included in the Company's portfolio at June 30, 1999, 196 properties were owned either fee simple or through partnerships interests by RCLP. At June 30, 1999, the Company had an investment in real estate, at cost, of approximately $2.5 billion of which $2.4 billion or 95% was owned by 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 (including properties under development) in order by their gross leasable areas (GLA) follows:
<TABLE> <CAPTION> June 30, 1999 December 31, 1998 ------------- ----------------- <S> <C> <C> <C> <C> <C> <C> Location # Properties GLA % Leased # Properties GLA % Leased -------- ------------ --------- -------- ------------ ----------- -------- Florida 48 5,894,467 90.5% 46 5,728,347 91.4% Texas 30 4,084,686 85.6% 5 479,900 84.7% California 36 3,820,264 96.0% - - - Georgia 27 2,718,554 93.1% 27 2,737,590 93.1% Ohio 14 1,892,686 93.3% 13 1,786,521 93.4% North Carolina 12 1,241,633 97.5% 12 1,239,783 98.3% Colorado 9 865,031 95.8% 5 447,569 89.4% Washington 8 851,485 93.7% - - - Oregon 6 583,704 94.3% - - - Alabama 5 516,060 99.5% 5 516,060 99.0% Tennessee 4 388,357 96.8% 4 295,179 96.8% Arizona 2 326,984 99.8% - - - Delaware 1 232,752 96.1% 1 232,752 94.8% Kentucky 1 205,060 92.3% 1 205,060 95.6% Virginia 2 197,324 96.1% 2 197,324 97.7% Mississippi 2 185,061 94.7% 2 185,061 97.6% Illinois 1 178,600 85.9% 1 178,600 86.9% Michigan 2 177,399 81.5% 2 177,929 81.5% South Carolina 2 162,056 98.2% 2 162,056 100.0% Missouri 1 82,498 98.4% 1 82,498 99.8% Wyoming 1 75,000 81.3% - - - -------------- --------------- ---------------- -------------- --------------- ------------- Total 214 24,679,661 92.3% 129 14,652,229 92.9% ============== =============== ================ ============== =============== ============= </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 or expected to occupy shopping centers currently under construction at June 30, 1999: Grocery Anchor Number of % of % of Annualized Stores Total GLA Base Rent Kroger 49 11.7% 10.42% Publix 35 6.2% 4.29% Albertson's 14 3.1% 3.01% Winn-Dixie 17 3.2% 2.29% Acquisition and Development of Shopping Centers On September 23, 1998, the Company entered into an Agreement of Merger ("Agreement") with Pacific Retail Trust ("Pacific"), a privately held real estate investment trust. The Agreement, among other matters, provided for the merger of Pacific into Regency, and the exchange of each Pacific common or preferred share into 0.48 shares of Regency common or preferred stock. The stockholders approved the merger at a Special Meeting of Stockholders held February 26, 1999. At the time of the merger, Pacific owned 71 retail shopping centers that are operating or under construction containing 8.4 million SF of gross leaseable area. On February 28, 1999, the effective date of the merger, the Company issued equity instruments valued at $770.6 million to the Pacific stockholders in exchange for their outstanding common and preferred shares and units. The total cost to acquire Pacific was approximately $1.157 billion based on the value of Regency shares issued including the assumption of $379 million of outstanding debt and other liabilities of Pacific, and estimated closing costs of $7.5 million. The price per share used to determine the purchase price was $23.325 based on the five day average of the closing stock price of Regency's common stock as listed on the New York Stock Exchange immediately before, during and after the date the terms of the merger were agreed to and announced to the public. The merger was accounted for as a purchase with the Company as the acquiring entity.
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. 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. On April 16, 1999, the Company paid $5.2 million related to this contingent consideration. Results from Operations Comparison of the six months ended June 30, 1999 to 1998 Revenues increased $64.9 million or 98% to $131 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions providing increases in revenues of $62.1 million during 1999. At June 30, 1999, the real estate portfolio contained approximately 24.7 million SF and was 92.3% leased. Minimum rent increased $50 million or 105%, and recoveries from tenants increased $13.7 million or 129%. On a same property basis (excluding Pacific, the 1998 Acquisitions, and the office portfolio sold during 1998) gross rental revenues increased $4.7 million or 9.3%, 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 $6 million in both 1999 and 1998. During 1998, the Company sold four office buildings and a parcel of land for $26.7 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 $27.2 million or 83% to $60.1 million in 1999. Combined operating and maintenance, and real estate taxes increased $14.7 million or 103% during 1999 to $29 million. The increases are due to Pacific and the 1998 Acquisitions generating operating and maintenance expenses and real estate tax increases of $14.6 million during 1999. On a same property basis, operating and maintenance expenses and real estate taxes increased $580,000 or 4.7%. General and administrative expenses increased 26% during 1999 to $8.8 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $10.4 million during 1999 or 91% primarily due to Pacific and the 1998 Acquisitions. Interest expense increased to $28 million in 1999 from $13.5 million in 1998 or 108% due to increased average outstanding loan balances related to the financing of the 1998 Acquisitions on the Line and the assumption of debt for Pacific. Weighted average interest rates decreased .15% during 1999. See further discussion under Acquisition and Development of Shopping Centers and Liquidity and Capital Resources. Net income for common stockholders was $37.8 million in 1999 vs. $30.4 million in 1998, a $7.4 million or 24.5% increase for the reasons previously described. Diluted earnings per share in 1999 was $.76 vs. $1.06 in 1998 due to the gain offset by the dilutive impact from the increase in weighted average common shares and equivalents of 20.4 million primarily due to the acquisition of Pacific Retail Trust and the issuance of shares to SC-USREALTY during 1998. Comparison of the three months ended June 30, 1999 to 1998 Revenues increased $44.4 million or 126% to $79.6 million in 1999. The increase was due primarily to Pacific and the 1998 Acquisitions providing increases in revenues of $41.4 million during 1999. At June 30, 1999, the real estate portfolio contained approximately 24.7 million SF and was 92.3% leased. Minimum rent increased $33.1 million or 130%, and recoveries from tenants increased $9.3 million or 159%. On a same property basis (excluding Pacific, the 1998 Acquisitions, and the office portfolio sold during 1998) gross rental revenues increased $3.2 million or 13%, 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 $4.1 million in 1999 compared to $3.3 million in 1998, the increase is due primarily to a increase in brokerage fees. During 1998, the Company sold four office buildings and a parcel of land for $26.7 million, and recognized a gain on the sale of $509,000 relating to the transaction in the second quarter of 1998, after recording a gain of $10.2 million in the first quarter of 1998. 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 $18 million or 105% to $35.1 million in 1999. Combined operating and maintenance, and real estate taxes increased $9.9 million or 134% during 1999 to $17.2 million. The increases are due to Pacific and the 1998 Acquisitions generating operating and maintenance expenses and real estate tax increases of $9.7 million during 1999. On a same property basis, operating and maintenance expenses and real estate taxes increased $430,000 or 7.1%. General and administrative expenses increased 46% during 1999 to $5.1 million due to the hiring of new employees and related office expenses necessary to manage the shopping centers acquired during 1999 and 1998. Depreciation and amortization increased $6.4 million during 1999 or 109% primarily due to Pacific and the 1998 Acquisitions. Interest expense increased to $17.2 million in 1999 from $8 million in 1998 or 114% due to increased average outstanding loan balances related to the financing of the 1998 Acquisitions on the Line and the assumption of debt for Pacific. Weighted average interest rates decreased .15% during 1999. See further discussion under Acquisition and Development of Shopping Centers and Liquidity and Capital Resources. Net income for common stockholders was $24.3 million in 1999 vs. $10.8 million in 1998, a $13.5 million or 125% increase for reasons previously described. Diluted earnings per share in 1999 was $.41 vs. $.36 in 1998 due to the increase in net income offset by the dilutive impact from the increase in weighted average common shares and equivalents of 34.4 million primarily due to the acquisition of Pacific Retail Trust and the issuance of shares to SC-USREALTY during 1998. 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 89% from 1998 to 1999 as a result of the activity discussed above under "Results of Operations". FFO for the six months ended June 30, 1999 and 1998 are summarized in the following table (in thousands): 1999 1998 ------------ ------------ Net income for common stockholders $ 37,786 30,354 Real estate depreciation and amortization 21,317 10,997 (Gain) on sale of operating property - (9,844) Convertible preferred stock distribution 900 - Minority interests in net income of exchangeable partnership units 1,338 892 ------------ ------------ Funds from operations $ 61,341 32,399 ============ ============ Cash flow provided by (used in): Operating activities $ 64,153 32,685 Investing activities (101,239) (115,041) Financing activities 31,948 78,502
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 $64.2 million and $32.7 million for the six months ended June 30, 1999 and 1998, 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 $6.6 million and $2.8 million, during 1999 and 1998, respectively. The Company paid scheduled principal payments of $2.7 million and $1.6 during 1999 and 1998, respectively. The Company paid dividends and distributions of $45.5 million and $25.3 million, during 1999 and 1998, 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 $101.2 million and $115.0 million, during 1999 and 1998, respectively, primarily for purposes discussed above under Acquisitions and Development of Shopping Centers. Net cash provided by financing activities was $31.9 million and $78.5 million during 1999 and 1998, respectively. At June 30, 1999, the Company had 45 retail properties under construction or undergoing major renovations, with costs to date of $203 million. Total committed costs necessary to complete the properties under development is estimated to be $174 million and will be expended through 1999 and 2000. The Company's outstanding debt at June 30, 1999 and December 31, 1998 consists of the following (in thousands): 1999 1998 -------------- --------------- Notes Payable: Fixed rate mortgage loans $ 392,469 298,148 Variable rate mortgage loans 23,862 11,051 Fixed rate unsecured loans 370,944 121,296 -------------- --------------- Total notes payable 787,275 430,495 Acquisition and development line of credit 243,879 117,631 -------------- --------------- Total $ 1,031,154 548,126 ============== =============== The weighted average interest rate on total debt at June 30, 1999 and December 31, 1998 and was 7.2% and 7.4%, respectively. The Company's debt is typically cross-defaulted, but not cross-collateralized, and includes usual and customary affirmative and negative covenants. During February, 1999, the Company modified the terms of its unsecured line of credit (the "Line") by increasing the commitment to $635 million. Maximum availability under the Line is based on the discounted value of a pool of eligible unencumbered assets (determined on the basis of capitalized net operating income) less the amount of the Company's outstanding unsecured liabilities. The Line matures in February 2001, but may be extended annually for one year periods. The Company is required to comply, and is in compliance, with certain financial and other covenants customary with this type of unsecured financing. These financial covenants include among others (i) maintenance of minimum net worth, (ii) ratio of total liabilities to gross asset value, (iii) ratio of secured indebtedness to gross asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA to debt service and reserve for replacements, and (vi) ratio of unencumbered net operating income to interest expense on unsecured indebtedness. The Line is used primarily to finance the acquisition and development of real estate, but is also available for general working capital purposes. On June 29, 1998, the 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 April 15, 1999 the Company, through RCLP, completed a $250 million debt offering in two tranches. The Company issued $200 million, 7.4% notes due April 1, 2004, priced at 99.922% to yield 7.42%, and $50 million, 7.75% notes due April 1, 2009, priced at 100%. The net proceeds of the offering were used to reduce the balance of the Line. Mortgage loans are secured by certain real estate properties, and generally may be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage loans are generally due in monthly installments of interest and principal and mature over various terms through 2019. Variable interest rates on mortgage loans are currently based on LIBOR plus a spread in a range of 125 basis points to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to 9.8%. During 1999, the Company assumed debt with a fair value of $402.6 million related to the acquisition of real estate, which includes debt premiums of $4.1 million based upon the above market interest rates of the debt instruments. Debt premiums are being amortized over the terms of the related debt instruments. As of June 30, 1999, scheduled principal repayments on notes payable and the Line for the next five years were as follows (in thousands): <TABLE> <CAPTION> Scheduled Principal Term Loan Total Scheduled Payments by Year Payments Maturities Payments <S> <C> <C> <C> --------------- -------------- --------------- 1999 $ 3,377 12,899 16,276 2000 5,711 98,590 104,301 2001 5,621 291,689 297,310 2002 4,943 44,120 49,063 2003 4,933 13,286 18,219 Beyond 5 Years 42,205 490,225 532,430 Net unamortized debt payments - 13,555 13,555 --------------- -------------- --------------- Total $ 66,790 964,364 1,031,154 =============== ============== =============== </TABLE> Unconsolidated partnerships and joint ventures had mortgage loans payable of $64.0 million at June 30, 1999 and the Company's proportionate share of these loans was $28.1 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 1999 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 or debt offerings, such as those completed in previous years. 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. New Accounting Standards and Accounting Changes The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities " (FAS 133), which is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. FAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires entities to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not believe FAS 133 will materially effect its financial statements.
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 38 properties that will require or are currently undergoing varying levels of environmental remediation. These remediations are not expected to have a material financial effect on the Company 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 1999 and 1998 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, financial institutions, and utility companies. 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 have tested, and remedied as needed, our general accounting and property management information system, all servers and their operating systems, all principal desktop software applications, and 70% of our personal computers and PC operating systems. Based on the test results, Management does not anticipate any Year 2000 problems that will materially impact operations or operating results. An assessment of the 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. These non-compliant systems are in the process of being replaced. All such replacements will be completed prior to September 30, 1999. It is expected that the additional costs associated with these replacements will be less than $100,000.
The Company has surveyed its major tenants, financial institutions, and utility companies in order to determine the extent to which the Company is vulnerable to third party Year 2000 failures. We have received responses from 100% of our principal tenants and financial institutions and 98% of the utility companies that provide service to our shopping centers. All parties have indicated that they are Year 2000 compliant or will be by September 30, 1999. However, there are no assurances that these entities will not experience failures that might disrupt the operations of the Company. Management believes the Year 2000 Compliance Project, summarized above, has adequately addressed the Year 2000 risk. Certain events are beyond the control of Management, primarily related to the readiness of customers and suppliers, and can not be tested. Management believes this risk is mitigated by the fact that the Company deals with numerous geographically disbursed customers and suppliers. Any third party failures should be isolated and short term, however, there can be no guarantee that the systems of unrelated entities will be corrected on a timely basis and will not have an adverse effect on the Company. While the Company does not expect major business interruptions as a result of the Year 2000 issue, we are currently developing a formal Year 2000 contingency plan, which is expected to be in place by November 1999. 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 June 30, 1999, 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> <S> <C> <C> <C> <C> <C> <C> <C> <C> Fair 1999 2000 2001 2002 2003 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Fixed rate debt $3,317 104,170 42,660 49,063 18,218 532,430 749,858 763,413 Average interest rate for all debt 7.73% 7.81% 7.78% 7.70% 7.66% 7.81% - - Variable rate LIBOR debt 12,959 132 254,650 - - - 267,741 267,741 Average interest rate for all debt 6.13% 6.13% - - - - - - </TABLE> As the table incorporates only those exposures that exist as of June 30, 1999, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the 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 This report contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that is based on the beliefs of the Company's management, as well as assumptions made by and information currently available to management. When used in this report, the words "estimate," "project," "believe," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; changes in customer preferences; competition; changes in technology; the integration of acquisitions, including Pacific; changes in business strategy; the indebtedness of the Company; quality of management, business abilities and judgment of the Company's personnel; the availability, terms and deployment of capital; and various other factors referenced in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Item 1. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders None Item 6 Exhibits and Reports on Form 8-K: 3 Articles of Incorporation (a) Restated Articles of Incorporation of Regency Realty Corporation as amended to date. (i) Amendment to Restated Articles of Incorporation of Regency Realty Corporation as amended to date. (ii) Amendment to Restated Articles of Incorporation, as last amended February 28, 1999. 10. Material Contracts Purchase and sale agreement, dated September 25, 1998 between James Center Associates, L.P. and Pacific Retail Trust (prior to merger) relating to the acquisition of James Center Shopping Center. (a) Long-term Omnibus Plan, as last amended to date. Reports on Form 8-K None 27. Financial Data Schedule
SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 10, 1999 REGENCY REALTY CORPORATION By: /s/ J. Christian Leavitt Senior Vice President and Secretary