United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended September 30, 2001
-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 CENTERS 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 November 12, 2001, there were 57,590,932 shares outstanding of the
Registrant's common stock.
Independent Accountants' Review Report
The Shareholders and Board of Directors
Regency Centers Corporation:
We have reviewed the consolidated balance sheet of Regency Centers Corporation
as of September 30, 2001, and the related consolidated statements of operations
for the three-month and nine-month periods ended September 30, 2001 and 2000 and
the consolidated statements of stockholders' equity and cash flows for the
nine-month period ended September 30, 2001. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Regency Centers Corporation as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated January 30,
2001, we expressed an unqualified opinion on those consolidated financial
statements.
KPMG LLP
Jacksonville, Florida
October 30, 2001
2
REGENCY CENTERS CORPORATION
Consolidated Balance Sheets
September 30, 2001 and December 31, 2000
(unaudited)
2001 2000
---- ----
Assets
Real estate investments:
Land $ 584,568,078 564,089,984
Buildings and improvements 1,843,618,244 1,813,554,881
------------------- -----------------
2,428,186,322 2,377,644,865
Less: accumulated depreciation 187,099,195 147,053,900
------------------- -----------------
2,241,087,127 2,230,590,965
Properties in development 387,683,122 296,632,730
Operating properties held for sale 151,433,751 184,150,762
Investments in real estate partnerships 66,118,903 85,198,279
------------------- -----------------
Net real estate investments 2,846,322,903 2,796,572,736
Cash and cash equivalents 36,278,495 100,987,895
Notes receivable 30,995,921 66,423,893
Tenant receivables, net of allowance for uncollectible accounts of
$5,278,796 and $4,414,085 at September 30, 2001 and
December 31, 2000, respectively 36,991,993 39,407,777
Deferred costs, less accumulated amortization of $18,221,155 and
$13,910,018 at September 30, 2001 and December 31, 2000, respectively 31,158,643 21,317,141
Other assets 8,895,871 10,434,298
------------------- -----------------
$ 2,990,643,826 3,035,143,740
=================== =================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable 1,027,488,627 841,072,156
Unsecured line of credit 263,000,000 466,000,000
Accounts payable and other liabilities 60,875,670 75,460,304
Tenants' security and escrow deposits 8,522,444 8,262,885
------------------- -----------------
Total liabilities 1,359,886,741 1,390,795,345
------------------- -----------------
Preferred units 375,403,652 375,407,777
Exchangeable operating partnership units 32,109,565 34,899,813
Limited partners' interest in consolidated partnerships 3,832,925 8,625,839
------------------- -----------------
Total minority interest 411,346,142 418,933,429
------------------- -----------------
Stockholders' equity:
Series 2 cumulative convertible preferred stock and paid in
capital, $.01 par value per share: 1,502,532 shares authorized;
1,487,507 shares issued and outstanding at September 30,
2001 and December 31, 2000; liquidation preference $20.83 per share 34,696,112 34,696,112
Common stock $.01 par value per share: 150,000,000 shares
authorized; 60,973,166 and 60,234,925 shares issued
at September 30, 2001 and December 31, 2000; respectively 609,732 602,349
Treasury stock; 3,382,964 and 3,336,754 shares held at
September 30, 2001 and December 31, 2000, respectively, at cost (67,742,454) (66,957,282)
Additonal paid in capital 1,326,266,050 1,317,668,173
Distributions in excess of net income (65,206,754) (51,064,870)
Stock loans (9,211,743) (9,529,516)
------------------- -----------------
Total stockholders' equity 1,219,410,943 1,225,414,966
------------------- -----------------
Commitments and contingencies $ 2,990,643,826 3,035,143,740
=================== =================
See accompanying notes to consolidated financial statements
3
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the Three Months ended September 30, 2001 and 2000
(unaudited)
2001 2000
---- ----
Revenues:
Minimum rent $ 68,917,918 65,487,039
Percentage rent 194,726 325,785
Recoveries from tenants 19,295,760 17,999,790
Service operations revenue 9,075,710 6,021,017
Equity in income of investments in
real estate partnerships 233,262 2,804,787
------------------- -----------------
Total revenues 97,717,376 92,638,418
------------------- -----------------
Operating expenses:
Depreciation and amortization 16,972,770 14,776,780
Operating and maintenance 12,567,112 11,992,681
General and administrative 4,469,616 4,996,685
Real estate taxes 9,582,330 9,004,241
Other expenses 1,315,127 830,000
------------------- -----------------
Total operating expenses 44,906,955 41,600,387
------------------- -----------------
Interest expense (income):
Interest expense 18,389,731 18,791,545
Interest income (1,737,839) (1,160,925)
------------------- -----------------
Net interest expense 16,651,892 17,630,620
------------------- -----------------
Income before loss on sale of operating
properties and minority interests 36,158,529 33,407,411
Loss on sale of operating properties (136,932) -
------------------- -----------------
Income before minority interests 36,021,597 33,407,411
Minority interest preferred unit distributions (8,368,752) (7,977,919)
Minority interest of exchangeable partnership units (478,970) (662,600)
Minority interest of limited partners (324,206) (186,203)
------------------- -----------------
Net income 26,849,669 24,580,689
Preferred stock dividends (743,754) (699,459)
------------------- -----------------
Net income for common stockholders $ 26,105,915 23,881,230
=================== =================
Net income per share:
Basic $ 0.45 0.42
=================== =================
Diluted $ 0.45 0.42
=================== =================
See accompanying notes to consolidated financial statements
4
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the Nine Months ended September 30, 2001 and 2000
(unaudited)
2001 2000
---- ----
Revenues:
Minimum rent $ 201,724,876 189,389,963
Percentage rent 1,855,287 1,378,246
Recoveries from tenants 57,027,191 51,081,827
Service operations revenue 23,246,649 15,387,761
Equity in income of investments in
real estate partnerships 2,125,524 2,865,450
------------------- -----------------
Total revenues 285,979,527 260,103,247
------------------- -----------------
Operating expenses:
Depreciation and amortization 49,741,350 43,163,768
Operating and maintenance 36,876,254 33,095,724
General and administrative 13,387,373 13,253,951
Real estate taxes 28,862,726 25,326,122
Other expenses 4,666,749 1,749,715
------------------- -----------------
Total operating expenses 133,534,452 116,589,280
------------------- -----------------
Interest expense (income):
Interest expense 56,845,009 52,681,417
Interest income (5,003,490) (2,823,483)
------------------- -----------------
Net interest expense 51,841,519 49,857,934
------------------- -----------------
Income before gain, provision on real estate
investments and minority interests 100,603,556 93,656,033
Gain on sale of operating properties 961,373 18,310
Provison for loss on operating properties held for sale - (6,909,625)
------------------- -----------------
Income before minority interests 101,564,929 86,764,718
Minority interest preferred unit distributions (25,106,255) (21,232,432)
Minority interest of exchangeable partnership units (1,857,468) (1,848,094)
Minority interest of limited partners (456,707) (666,517)
------------------- -----------------
Net income 74,144,499 63,017,675
Preferred stock dividends (2,221,345) (2,098,377)
------------------- -----------------
Net income for common stockholders $ 71,923,154 60,919,298
=================== =================
Net income per share:
Basic $ 1.25 1.07
=================== =================
Diluted $ 1.25 1.07
=================== =================
See accompanying notes to consolidated financial statements
5
REGENCY CENTERS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Nine Months ended September 30, 2001
(unaudited)
Additional Distributions Total
Series 2 Common Treasury Paid In in exess of Stock Stockholders'
Preferred Stock Stock Stock Capital Net Income Loans Equity
--------------- --------- ------------ -------------- ------------- ------------ --------------
Balance at
December 31, 2000 $ 34,696,112 602,349 (66,957,282) 1,317,668,173 (51,064,870) (9,529,516) 1,225,414,966
Common stock issued net, as
compensation for directors
or officers, or issued under
stock options - 6,218 (701,592) 6,340,661 - - 5,645,287
Common stock cancelled
under stock loans - (51) (45,494) (278,539) - 317,773 (6,311)
Common stock issued for
partnership units exchanged - 1,216 - 3,219,237 - - 3,220,453
Common stock issued to
acquire real estate - 16 - 43,180 - - 43,196
Reallocation of minority interest - - - (726,662) - - (726,662)
Repurchase of common stock - (16) (38,086) - - - (38,102)
Cash dividends declared:
Common stock ($1.50 per share)
and preferred stock - - - - (88,286,383) - (88,286,383)
Net income - - - - 74,144,499 - 74,144,499
---------- -------- ----------- ------------- ------------- ------------ --------------
Balance at
September 30, 2001 $ 34,696,112 609,732 (67,742,454) 1,326,266,050 (65,206,754) (9,211,743) 1,219,410,943
========== ======== =========== ============= ============= ============ ==============
See accompanying notes to consolidated financial statements.
6
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
(unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 74,144,499 63,017,675
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49,741,350 43,163,768
Deferred loan cost and debt premium amortization 790,671 554,273
Stock based compensation 5,181,067 3,592,406
Minority interest preferred unit distribution 25,106,255 21,232,432
Minority interest of exchangeable partnership units 1,857,468 1,848,094
Minority interest of limited partners 456,707 666,517
Equity in income of investments in real estate partnerships (2,125,524) (2,865,450)
Gain on sale of operating properties (961,373) (18,310)
Provision for loss on operating properties held for sale - 6,909,625
Changes in assets and liabilities:
Tenant receivables 991,906 5,549,265
Deferred leasing costs (6,550,023) (5,385,197)
Other assets 12,141 (1,448,389)
Tenants' security and escrow deposits 169,728 313,158
Accounts payable and other liabilities (14,438,585) (9,448,374)
------------------ ------------------
Net cash provided by operating activities 134,376,287 127,681,493
------------------ ------------------
Cash flows from investing activities:
Acquisition and development of real estate, net (102,596,176) (238,488,759)
Acquistion of partners' interest in investments
in real estate partnerships, net of cash acquired 2,416,621 (1,402,371)
Investment in real estate partnerships (48,469,245) (49,515,795)
Capital improvements (11,210,416) (12,920,698)
Proceeds from sale of operating properties 37,550,387 7,491,870
Proceeds from sale of real estate partnership 2,967,481 -
Repayment of notes receivable 65,350,068 15,673,125
Distributions received from investments in real estate partnerships 15,096,764 -
------------------ ------------------
Net cash used in investing activities (38,894,516) (279,162,628)
------------------ ------------------
Cash flows from financing activities:
Net proceeds from common stock issuance 53,164 22,476
Repurchase of common stock (38,102) (11,088,419)
Purchase of limited partner's interest in consolidated partnership - (2,527,264)
Redemption of partnership units (110,487) (1,396,946)
Net distributions to limited partners in consolidated partnerships (5,169,010) (2,099,886)
Distributions to exchangeable partnership unit holders (2,542,126) (2,847,960)
Distributions to preferred unit holders (25,106,255) (21,232,432)
Dividends paid to common stockholders (86,065,038) (81,438,401)
Dividends paid to preferred stockholders (2,221,345) (2,098,377)
Net proceeds from fixed rate unsecured notes 215,382,284 149,728,500
(Additional costs) net proceeds from issuance of preferred units (4,125) 91,621,978
(Repayment) proceeds of unsecured line of credit, net (203,000,000) 57,820,690
Proceeds from notes payable 50,670 8,118,953
Repayment of notes payable (42,074,671) (40,881,096)
Scheduled principal payments (4,562,245) (4,785,445)
Deferred loan costs (4,783,885) (2,681,766)
------------------ ------------------
Net cash (used in) provided by financing activities (160,191,171) 134,234,605
------------------ ------------------
Net decrease in cash and cash equivalents (64,709,400) (17,246,530)
Cash and cash equivalents at beginning of period 100,987,895 54,117,443
------------------ ------------------
Cash and cash equivalents at end of period $ 36,278,495 36,870,913
================== ==================
7
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
(unaudited)
continued
2001 2000
---- ----
Supplemental disclosure of cash flow information - cash paid for
interest (net of capitalized interest of approximately
$15,745,000 and $8,873,000 in 2001 and 2000, respectively) $ 61,239,008 59,643,181
================== ==================
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed for the acquisition of real estate $ 5,470,479 19,947,565
================== ==================
Exchangeable operating partnership units and common stock issued
for investments in real estate partnerships $ - 329,948
================== ==================
Exchangeable operating partnership units and common stock
issued for the acquisition of partners' interest in investments
in real estate partnerships $ 541,884 1,287,111
================== ==================
Exchangeable operating partnership units issued for the
acquisition of real estate $ - 103,885
================== ==================
Notes receivable taken in connection with sales of development properties $ 29,922,096 37,962,720
================== ==================
See accompanying notes to consolidated financial statements.
8
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Regency Centers 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 ("Units")
of Regency Centers, L.P., ("RCLP"). Regency invests in real estate
through its partnership interest in RCLP. All of the acquisition,
development, operations and financing activity of Regency
including the issuance of Units or preferred units are executed by
RCLP. The equity interests of third parties held by RCLP and the
majority owned or controlled partnerships are included in the
consolidated financial statements as preferred or exchangeable
operating partnership units ("Units") and limited partners'
interest in consolidated partnerships. The Company is a qualified
real estate investment trust ("REIT") which began operations in
1993 as Regency Realty Corporation. In February 2001, the Company
changed its name to Regency Centers Corporation.
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 accounting principles generally accepted in the United States
of America 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, 2000 Form 10-K filed with
the Securities and Exchange Commission.
(b) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct
and indirect costs clearly associated with the acquisition,
development and construction of real estate projects are
capitalized as buildings and improvements.
Maintenance and repairs which do not improve or extend the useful
lives of the respective assets are reflected in operating and
maintenance expense. The property cost includes the capitalization
of interest expense incurred during construction based on average
outstanding expenditures.
Depreciation is computed using the straight line method over
estimated useful lives of up to forty years for buildings and
improvements, term of lease for tenant improvements, and three to
seven years for furniture and equipment.
9
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
(b) Real Estate Investments (continued)
Operating properties held for sale include properties that no
longer meet the Company's long-term investment standards such as
expected growth in revenue or market dominance. Once identified
and marketed for sale, these properties are segregated on the
balance sheet as operating properties held for sale. The Company
also develops shopping centers and stand-alone retail stores for
resale. Once completed, these developments are also included in
operating properties held for sale. Operating properties held for
sale are carried at the lower of cost or fair value less estimated
selling costs. Depreciation and amortization are suspended during
the period held for sale. Net income from the operating properties
held for sale was $1.2 and $7.1 for the three months and nine
months ended September 30, 2001.
The Company reviews its real estate investments for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
(c) Reclassifications
Certain reclassifications have been made to the 2000 amounts to
conform to classifications adopted in 2001.
2. 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 management fees and
commissions earned from third parties, and development related profits
and fees earned from the sales of shopping centers, outparcels and build
to suit properties to third parties (Service operations 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 segment and income for the Service
operations segment and converts such amounts into a performance measure
referred to as Funds From Operations ("FFO"). The operating results for
the individual retail shopping centers have been aggregated since all of
the Company's shopping centers exhibit highly similar economic
characteristics as neighborhood shopping centers, and offer similar
degrees of risk and opportunities for growth. FFO as defined by the
National Association of Real Estate Investment Trusts consists of net
income (computed in accordance with generally accepted accounting
principles) excluding gains (or losses) from debt restructuring and sales
of income producing property held for investment, plus depreciation and
amortization of real estate, and adjustments for unconsolidated
investments in real estate partnerships and joint ventures. The Company
further adjusts FFO by distributions made to holders of Units and
preferred stock that results in a diluted FFO amount. The Company
considers diluted FFO to be the industry standard for reporting the
operations of REITs. Adjustments for investments in real estate
partnerships are calculated to reflect diluted FFO on the same basis.
While management believes that diluted FFO is the most relevant and
widely used measure of the Company's performance, such amount does not
10
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
2. Segments (continued)
represent cash flow from operations as defined by accounting principles
generally accepted in the United States of America, 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 diluted
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, diluted FFO, and assets for each of the
reportable segments are summarized in the following tables for the three
month and nine month periods ended September 30, 2001 and 2000. Assets
not attributable to a particular segment consist primarily of cash and
deferred costs.
11
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
2. Segments (continued)
For the three months ended
September 30, September 30,
2001 2000
---- ----
Revenues:
Retail segment $ 88,641,666 86,617,401
Service operations segment 9,075,710 6,021,017
------------------ --------------------
Total revenues $ 97,717,376 92,638,418
================== ====================
Funds from Operations:
Retail segment net operating income $ 66,355,292 65,602,170
Service operations segment income 9,075,710 6,021,017
Adjustments to calculate diluted FFO:
Interest expense (18,389,731) (18,791,545)
Interest income 1,737,839 1,160,925
General and administrative and other (5,784,743) (5,826,685)
Non-real estate depreciation (601,589) (351,817)
Minority interest of limited partners (324,206) (186,203)
Loss on sale of operating properties 136,932 -
Minority interest in depreciation
and amortization (57,377) (111,946)
Share of joint venture depreciation
and amortization 124,861 168,578
Distributions on preferred units (8,368,752) (7,977,919)
------------------ --------------------
Funds from Operations - diluted 43,904,236 39,706,575
------------------ --------------------
Reconciliation to net income for common stockholders:
Real estate related depreciation
and amortization (16,371,181) (14,406,654)
Minority interest in depreciation
and amortization 57,377 111,946
Share of joint venture depreciation
and amortization (124,861) (168,578)
Loss on sale of operating properties (136,932) -
Minority interest of exchangeable
operating partnership units (478,970) (662,600)
------------------ --------------------
Net income $ 26,849,669 24,580,689
================== ====================
12
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
2. Segments (continued)
For the nine months ended
September 30, September 30,
2001 2000
---- ----
Revenues:
Retail segment $ 262,732,878 244,715,486
Service operations segment 23,246,649 15,387,761
------------------ --------------------
Total revenues $ 285,979,527 260,103,247
================== ====================
Funds from Operations:
Retail segment net operating income $ 197,955,271 186,311,950
Service operations segment income 23,246,649 15,387,761
Adjustments to calculate diluted FFO:
Interest expense (56,845,009) (52,681,417)
Interest income 5,003,490 2,823,483
General and administrative and other (18,054,122) (15,003,666)
Non-real estate depreciation (1,451,437) (952,598)
Minority interest of limited partners (456,707) (666,517)
Gain on sale of operating properties including
depreciation on developments sold (1,954,840) (18,310)
Minority interest in depreciation
and amortization (155,801) (411,774)
Share of joint venture depreciation
and amortization 496,553 1,102,167
Distributions on preferred units (25,106,255) (21,232,432)
------------------ --------------------
Funds from Operations - diluted 122,677,792 114,658,647
------------------ --------------------
Reconciliation to net income for common stockholders:
Real estate related depreciation
and amortization (48,289,913) (42,211,170)
Minority interest in depreciation
and amortization 155,801 411,774
Share of joint venture depreciation
and amortization (496,553) (1,102,167)
Provision for loss on operating properties
held for sale - (6,909,625)
Gain on sale of operating properties including
depreciation on developments sold 1,954,840 18,310
Minority interest of exchangeable
operating partnership units (1,857,468) (1,848,094)
------------------ --------------------
Net income $ 74,144,499 63,017,675
================== ====================
September 30, December 31,
Assets (in thousands): 2001 2000
---------------------- ---- ----
Retail segment $ 2,468,110 2,454,476
Service operations segment 446,201 447,929
Cash and other assets 76,333 132,739
------------------ --------------------
Total assets $ 2,990,644 3,035,144
================== ====================
13
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
3. Investments in Real Estate Partnerships
The Company uses the equity method to account for all investments in
which it owns 50% or less and does not have a controlling financial
interest. The Company's combined investment in these partnerships was
$66.1 million and $85.2 million at September 30, 2001 and December 31,
2000, respectively. Net income is allocated to the Company in accordance
with the respective partnership agreements.
During the second quarter, Regency formed a joint venture with an
affiliate of Macquarie CountryWide Trust of Australia ("CountryWide").
CountryWide is a Sydney, Australia based property trust with a similar
investment philosophy to Regency, focusing on grocery-anchored shopping
centers. The venture purchased five Regency centers, consisting of three
operating properties and two recently completed developments. Regency has
a 25% ownership in the venture.
On December 31, 2000, the Company contributed $4.5 million to Columbia
Regency Retail Partners, LLC ("Columbia") representing a 10% equity
interest. During the second quarter, the Company contributed $24.3
million and increased its ownership to a 20% equity interest.
4. Notes Payable and Unsecured Line of Credit
The Company's outstanding debt at September 30, 2001 and December 31,
2000 consists of the following (in thousands):
2001 2000
---- ----
Notes Payable:
Fixed rate mortgage loans $ 266,753 270,491
Variable rate mortgage loans 19,616 40,640
Fixed rate unsecured loans 741,120 529,941
-------------- ---------------
Total notes payable 1,027,489 841,072
Unsecured line of credit 263,000 466,000
-------------- ---------------
Total $ 1,290,489 1,307,072
============== ===============
On April 30, 2001, the Company modified the terms of its line of credit
(the "Line") by reducing the commitment to $600 million, reducing the
interest rate spread from 1.0% to .85% and extending the maturity date to
April 2004. Interest rates paid on the Line at September 30, 2001 and
2000 were based on LIBOR plus .85% and 1.0% or 3.538% and 7.625%,
respectively. The spread that the Company pays on the Line is dependent
upon maintaining specific investment grade ratings. The Company is
required to comply and is in compliance with certain financial and other
covenants customary with this type of unsecured financing. The Line is
used primarily to finance the acquisition and development of real estate,
but is also available for general working capital purposes.
14
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
4. Notes Payable and Unsecured Line of Credit (continued)
On January 22, 2001 the Company, through RCLP, completed a $220 million
unsecured debt offering with an interest rate of 7.95%. The notes were
priced at 99.867%, are due on January 15, 2011 and are guaranteed by the
Company. 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 may be
prepaid, but could be subject to 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 135 basis points. Fixed interest rates on mortgage
loans range from 6.82% to 9.5%.
As of September 30, 2001, scheduled principal repayments on notes payable
and the Line were as follows (in thousands):
Scheduled
Principal Term Loan Total
Scheduled Payments by Year Payments Maturities Payments
-------------------------- -------------- --------------- ---------------
2001 $ 1,466 24,750 26,216
2002 5,051 44,093 49,144
2003 4,803 22,866 27,669
2004 (includes the Line) 5,185 472,689 477,874
2005 4,011 148,040 152,051
Beyond 5 Years 33,024 516,168 549,192
Unamortized debt premiums - 8,343 8,343
-------------- --------------- ---------------
Total $ 53,540 1,236,949 1,290,489
============== =============== ===============
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $65.1 million at September 30, 2001 and the Company's proportionate
share of these loans was $14.2 million.
The fair value of the Company's notes payable and Line are estimated
based on the current rates available to the Company for debt of the same
remaining maturities. Variable rate notes payable, and the Line, are
considered to be at fair value since the interest rates on such
instruments reprice based on current market conditions. Fixed rate loans
assumed in connection with real estate acquisitions are recorded in the
accompanying financial statements at fair value. Based on the borrowing
rates currently available to the Company for loans with similar terms and
average maturities, the fair value of long-term debt is $1.32 billion.
15
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
5. Stockholders' Equity and Minority Interest
At September 30, 2001 and 2000, the face value of total preferred units
issued was $384 million with an average fixed distribution rates of
8.72%.
Terms and conditions of the Preferred Units are summarized as follows:
Units Issue Issuance Distribution Callable
Series Issued Price Amount Rate By Company
- -------------------------------------------------------------------------------------------------------
Series A 1,600,000 $ 50.00 $ 80,000,000 8.125% 06/25/03
Series B 850,000 100.00 85,000,000 8.750% 09/03/04
Series C 750,000 100.00 75,000,000 9.000% 09/03/04
Series D 500,000 100.00 50,000,000 9.125% 09/29/04
Series E 700,000 100.00 70,000,000 8.750% 05/25/05
Series F 240,000 100.00 24,000,000 8.750% 09/08/05
-----------------
-------------
4,640,000 $ 384,000,000
============= =================
16
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
6. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three month periods ended September 30, 2001 and 2000
(in thousands except per share data):
2001 2000
---------------------------
Basic Earnings Per Share (EPS) Calculation:
-------------------------------------------
Weighted average common shares
outstanding 57,556 56,895
===========================
Net income for Basic EPS $ 26,106 23,881
===========================
Basic EPS $ 0.45 0.42
===========================
Diluted Earnings Per Share (EPS) Calculation
--------------------------------------------
Weighted average shares outstanding
for Basic EPS 57,556 56,895
Exchangeable operating partnership units 1,556 1,685
Incremental shares to be issued under
common stock options using the Treasury
method 272 103
---------------------------
Total diluted shares 59,384 58,683
===========================
Net income for Basic EPS $ 26,106 23,881
Add: minority interest of exchangeable
operating partnership units 479 663
---------------------------
Net income for Diluted EPS $ 26,585 24,544
===========================
Diluted EPS $ 0.45 0.42
===========================
The Series 2 preferred stock is not included in the above calculation
because the effect is anti-dilutive.
17
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
(unaudited)
6. Earnings Per Share (continued)
The following summarizes the calculation of basic and diluted earnings
per share for the nine month periods ended September 30, 2001 and 2000
(in thousands except per share data):
2001 2000
------------- --------------
Basic Earnings Per Share (EPS) Calculation:
-------------------------------------------
Weighted average common shares
outstanding 57,421 56,697
============= ==============
Net income for Basic EPS $ 71,923 60,919
============= ==============
Basic EPS $ 1.25 1.07
============= ==============
Diluted Earnings Per Share (EPS) Calculation
--------------------------------------------
Weighted average shares outstanding
for Basic EPS 57,421 56,697
Exchangeable operating partnership units 1,595 1,909
Incremental shares to be issued under
common stock options using the Treasury
method 213 45
------------- --------------
Total diluted shares 59,229 58,651
============= ==============
Net income for Basic EPS $ 71,923 60,919
Add: minority interest of exchangeable
operating partnership units 1,858 1,848
------------- --------------
Net income for Diluted EPS $ 73,781 62,767
============= ==============
Diluted EPS $ 1.25 1.07
============= ==============
The Series 2 preferred stock is not included in the above calculation
because the effect is anti-dilutive.
18
Item 2. 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
Centers Corporation ("Regency" or "Company") appearing elsewhere within.
Organization
- ------------
Regency is a qualified real estate investment trust ("REIT") which
began operations in 1993. Regency had previously operated under the name Regency
Realty Corporation, but changed its name to Regency Centers Corporation in
February 2001 to more appropriately acknowledge its brand and position in the
shopping center industry. Regency invests in retail shopping centers through its
partnership interest in Regency Centers, L.P., ("RCLP") an operating partnership
in which Regency currently owns approximately 97% of the outstanding common
partnership units ("Units"). The acquisition, development, operations and
financing activity of Regency including the issuance of Units or preferred units
is executed by RCLP.
Shopping Center Business
- ------------------------
Regency is a national owner, operator and developer of primarily
grocery-anchored neighborhood retail shopping centers. Regency's retail
properties summarized by state and in order by largest holdings including their
gross leasable areas (GLA) are as follows:
September 30, 2001 December 31, 2000
Location # Properties GLA % Leased * # Properties GLA % Leased *
------------ --------- ---------- ------------ ----------- ----------
Florida 54 6,578,447 92.0% 55 6,558,734 92.7%
Texas 37 4,507,987 94.5% 33 4,125,058 94.2%
California 36 4,442,298 98.8% 39 4,922,329 98.4%
Georgia 26 2,556,472 93.9% 26 2,553,041 95.2%
Ohio 14 1,870,044 94.9% 13 1,760,955 96.7%
North Carolina 13 1,302,751 98.1% 13 1,302,751 97.4%
Colorado 12 1,192,452 98.8% 10 897,788 97.9%
Washington 9 1,095,456 97.5% 10 1,180,020 95.8%
Oregon 9 786,911 91.8% 9 776,853 91.7%
Alabama 7 665,440 95.6% 5 516,062 97.9%
Arizona 9 627,158 98.4% 8 522,014 97.9%
Tennessee 10 493,860 99.4% 10 493,860 99.7%
Virginia 6 408,368 97.6% 6 419,440 95.3%
Missouri 2 370,157 95.8% 2 369,045 95.8%
Kentucky 5 337,845 98.9% 5 325,347 100.0%
Illinois 2 300,162 91.6% 1 178,601 86.4%
Michigan 3 274,987 90.2% 3 274,987 94.1%
Delaware 2 239,077 99.5% 2 239,077 98.6%
Mississippi 2 185,061 100.0% 2 185,061 97.7%
South Carolina 4 183,872 100.0% 4 183,872 97.4%
New Jersey 3 112,640 100.0% 3 112,514 100.0%
Wyoming 1 87,777 - 1 87,777 -
Maryland 1 6,763 - - - -
Pennsylvania 1 6,000 100.0% 1 6,000 100.0%
-------------- --------------- ---------------- -------------- --------------- -------------
Total 268 28,631,985 95.3% 261 27,991,186 95.4%
============== =============== ================ ============== =============== =============
* Excludes pre-stabilized properties under development
19
The table on the previous page includes properties owned by joint
ventures in which Regency has an ownership position. Historically, Regency
excluded single tenant properties from the table, but beginning with March 31,
2001 began including these properties. Amounts reported for December 31, 2000
have been restated to include these properties for comparative purposes.
Regency 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. Regency's current investment
markets have continued to offer stable economies, and accordingly, Regency
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 Regency's shopping centers at September 30, 2001:
Grocery Number of % of % of Annualized Average Remaining
Anchor Stores Total GLA Base Rent Lease Term
------ ------ --------- --------- ----------
Kroger 58 11.4% 9.4% 16 yrs
Publix 46 7.4% 5.2% 13 yrs
Safeway 47 5.9% 4.9% 12 yrs
Albertsons 23 2.9% 2.2% 14 yrs
Number of stores includes tenant owned stores. All reported amounts
above include properties owned through joint ventures.
Acquisition and Development of Shopping Centers
- -----------------------------------------------
Regency has implemented a growth strategy dedicated to developing
high-quality shopping centers. This development process can require 12 to 36
months from initial land or redevelopment acquisition through construction and
lease-up and finally stabilized income, depending upon the size and type of
project. Generally, anchor tenants begin operating their stores prior to
construction completion of the entire center, resulting in rental income during
the development phase. At September 30, 2001, Regency had 52 projects under
construction or undergoing major renovations, which when complete will represent
an investment of $720 million. Total cost necessary to complete these
developments is estimated to be $240 million and will be expended through 2002.
These developments are approximately 67% complete and over 73% pre-leased.
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 $134.4 million and $127.7 million for the nine
months ended September 30, 2001 and 2000, respectively. During the first nine
months of 2001 and 2000, respectively, Regency incurred capital expenditures of
$11.2 million and $12.9 million, paid scheduled principal payments of $4.6
million and $4.8 million, and paid dividends and distributions of $115.9 million
and $107.6 million to its share and unit holders.
Management expects to meet long-term liquidity requirements for
maturing debt, 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 private and public markets.
Net
20
cash used in investing activities was $38.9 million and $279.2 million
during the first nine months of 2001 and 2000, respectively, primarily for the
purposes discussed under Acquisition and Development of Shopping Centers. Net
cash used in financing activities was $160.2 million for the nine months ended
September 30, 2001 and net cash provided from financing activities was $134.2
million for the nine months ended September 30, 2000.
Regency's outstanding debt at September 30, 2001 and December 31, 2000
consists of the following (in thousands):
2001 2000
---- ----
Notes Payable:
Fixed rate mortgage loans $ 266,753 270,491
Variable rate mortgage loans 19,616 40,640
Fixed rate unsecured loans 741,120 529,941
------------------------------
Total notes payable 1,027,489 841,072
Unsecured line of credit 263,000 466,000
------------------------------
Total $ 1,290,489 1,307,072
==============================
Mortgage loans are secured by certain real estate properties, and may
be prepaid, but could be subject to 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 135
basis points. Fixed interest rates on mortgage loans range from 6.82% to 9.5%.
On April 30, 2001, the Company modified the terms of its line of
credit (the "Line") by reducing the commitment to $600 million, reducing the
interest rate spread from 1.0% to .85% and extending the maturity date to April
2004. Interest rates paid on the Line at September 30, 2001 and 2000 were based
on LIBOR plus .85% and 1.0% or 3.538% and 7.625%, respectively. The spread that
the Company pays on the Line is dependent upon maintaining specific investment
grade ratings. The Company is required to comply and is in compliance with
certain financial and other covenants customary with this type of unsecured
financing. The Line is used primarily to finance the acquisition and development
of real estate, but is also available for general working capital purposes.
On January 22, 2001 the Company, through RCLP, completed a $220
million unsecured debt offering with an interest rate of 7.95%. The notes were
priced at 99.867%, are due on January 15, 2011 and are guaranteed by the
Company. The net proceeds of the offering were used to reduce the balance of the
Line.
At September 30, 2001 and 2000, the face value of total preferred units
issued was $384 million with an average fixed distribution rates of 8.72%.
Terms and conditions of the Preferred Units are summarized as follows:
Units Issue Issuance Distribution Callable
Series Issued Price Amount Rate By Company
- ------------------------------------------------------------------------------------------------------
Series A 1,600,000 $ 50.00 $ 80,000,000 8.125% 06/25/03
Series B 850,000 100.00 85,000,000 8.750% 09/03/04
Series C 750,000 100.00 75,000,000 9.000% 09/03/04
Series D 500,000 100.00 50,000,000 9.125% 09/29/04
Series E 700,000 100.00 70,000,000 8.750% 05/25/05
Series F 240,000 100.00 24,000,000 8.750% 09/08/05
--------------------
-------------
4,640,000 $ 384,000,000
============= ====================
21
As of September 30, 2001, scheduled principal repayments on notes
payable and the Line were as follows (in thousands):
Scheduled
Principal Term Loan Total
Scheduled Payments by Year Payments Maturities Payments
-------------------------- ----------------------------------------------
2001 $ 1,466 24,750 26,216
2002 5,051 44,093 49,144
2003 4,803 22,866 27,669
2004 (includes the Line) 5,185 472,689 477,874
2005 4,011 148,040 152,051
Beyond 5 Years 33,024 516,168 549,192
Unamortized debt premiums - 8,343 8,343
----------------------------------------------
Total $ 53,540 1,236,949 1,290,489
==============================================
Unconsolidated partnerships and joint ventures had mortgage loans
payable of $65.1 million at September 30, 2001, and Regency's proportionate
share of these loans was $14.2 million.
Regency believes it qualifies and intends to qualify as a REIT under
the Internal Revenue Code. As a REIT, Regency is allowed to reduce taxable
income by all or a portion of its distributions to stockholders. As
distributions have exceeded taxable income, no provision for federal income
taxes has been made. While Regency 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.
Regency's real estate portfolio has grown substantially as a result of
the development activity discussed above. Regency 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. Regency expects to repay the
Line from time to time from additional public and private equity or debt
offerings and from proceeds from the sale of real estate. Because acquisition
and development activities are discretionary in nature, they are not expected to
burden Regency's capital resources currently available for liquidity
requirements. Regency expects that cash provided by operating activities, unused
amounts available under the Line, and cash reserves are adequate to meet
liquidity requirements.
Results from Operations
Comparison of the three months ended September 30, 2001 to 2000
Revenues increased $5.1 million or 5% to $97.7 million in 2001. The
increase was due primarily to revenues from newly completed developments that
only partially operated during 2000, and from growth in rental rates at the
operating properties. Minimum rent increased $3.4 million or 5%, and recoveries
from tenants increased $1.3 million or 7%.
Service operations revenue includes fees earned in Regency's service
operations segment which includes property management and leasing commissions
earned from third parties, and development profits earned from the sale of
shopping centers, build to suit properties, and land to third parties. Service
operations revenue increased by $3.1 million to $9.1 million in 2001, or 51%.
The increase was primarily due to a $2.6 million increase in development
profits.
22
Operating expenses increased $3.3 million or 8% to $44.9 million in
2001. Combined operating and maintenance, and real estate taxes increased $1.2
million or 5% during 2001 to $22.1 million. The increase was primarily due to
expenses incurred by newly completed developments that only partially operated
during 2000, and general increases in operating expenses on the stabilized
properties. General and administrative expenses were $4.5 million during 2001
vs. $5.0 million in 2000 or a decrease of 11%. Depreciation and amortization
increased $2.2 million during 2001 or 15% primarily due to developments that
only partially operated during 2000.
Interest expense decreased to $18.4 million in 2001 from $18.8 million
in 2000 or 2%. The decrease was primarily due to lower interest rates on the
Line. Preferred unit distributions increased $391,000 to $8.4 million during
2001 as a result of the preferred units issued in September 2000.
Net income for common stockholders was $26.1 million in 2001 vs. $23.9
million in 2000, or a 9% increase. Diluted earnings per share was $0.45 in 2001
vs. $0.42 in 2000, or 7% higher as a result of the increase in net income.
Comparison of the nine months ended September 30, 2001 to 2000
Revenues increased $25.9 million or 10% to $286.0 million in 2001. The
increase was due primarily to revenues from newly completed developments that
only partially operated during 2000, and from growth in rental rates at the
operating properties. Minimum rent increased $12.3 million or 7%, and recoveries
from tenants increased $5.9 million or 12%. At September 30, 2001, Regency was
operating or developing 268 retail properties. Regency identifies its properties
as either development properties or stabilized properties. Development
properties are defined as properties that are in the construction and initial
lease-up process that are not yet 93% leased and occupied. Stabilized properties
are all properties not identified as development. At September 30, 2001, Regency
had 216 stabilized properties that were 95.3% leased. At December 31, 2000,
stabilized properties were 95.4% leased. In 2001, rental rates grew by 11% from
renewal leases and new leases replacing previously occupied spaces in the
stabilized properties.
Service operations revenue includes fees earned in Regency's service
operations segment which includes property management and leasing commissions
earned from third parties, and development profits earned from the sale of
shopping centers, build to suit properties, and land to third parties. Service
operations revenue increased by $7.9 million to $23.2 million in 2001, or 51%.
The increase was primarily due to a $7.0 million increase in development
profits.
Operating expenses increased $16.9 million or 15% to $133.5 million in
2001. Combined operating and maintenance, and real estate taxes increased $7.3
million or 13% during 2001 to $65.7 million. The increase was primarily due to
expenses incurred by newly completed developments that only partially operated
during 2000, and general increases in operating expenses on the stabilized
properties. General and administrative expenses were $13.4 million during 2001
vs. $13.3 million in 2000 or an increase of 1%. Depreciation and amortization
increased $6.6 million during 2001 or 15% primarily due to developments that
only partially operated during 2000.
In June 2000, the Company identified six operating properties that did
not meet its long-term investment standards, and accordingly classified these
properties as operating properties held for sale on its balance sheet and ceased
the depreciation and amortization of these assets. The Company reduced the
carrying value of these properties to the lower of cost or fair value, net of
selling costs and this reduction resulted in a $6.9 million provision for loss
on operating properties held for sale that was charged against net income at
June 30, 2000.
23
Interest expense increased to $56.8 million in 2001 from $52.7 million
in 2000 or 8%. The increase was primarily due to higher debt balances and a
higher percentage of outstanding debt with fixed interest rates, which are
generally higher than variable interest rates. Regency had $1.3 billion and $1.2
billion of outstanding debt at September 30, 2001 and 2000, respectively. On
September 30, 2001, 78% of outstanding debt had fixed interest rates vs. 72% on
September 30, 2000.
Preferred unit distributions increased $3.9 million to $25.1 million
during 2001 as a result of the preferred units issued in the second and third
quarters of 2000.
Net income for common stockholders was $71.9 million in 2001 vs. $60.9
million in 2000, or a 18% increase. Diluted earnings per share was $1.25 in 2001
vs. $1.07 in 2000, or 17% higher as a result of the increase in net income.
New Accounting Standards and Accounting Changes
- -----------------------------------------------
In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (Statement 144), which supercedes FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (Statement 121). Statement 144 retains the fundamental provisions in
Statement 121 for recognizing and measuring impairment losses on long-lived
assets held for use and long-lived assets to be disposed of by sale, while also
resolving significant implementation issues associated with Statement 121. The
Company is required to adopt Statement 144 no later than the year beginning
after December 15, 2001, and plans to adopt its provisions for the quarter
ending March 31, 2002. Management does not expect the adoption of Statement 144
to have a material impact on the Company's financial statements because the
impairment assessment under Statement 144 is largely unchanged from Statement
121. The provisions of the Statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, management cannot determine the
potential effects that adoption of Statement 144 will have on the Company's
financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an Amendment to FASB Statement No. 133" ("FAS 138"),
which was effective for the Company on January 1, 2001. FAS 138 and FAS 133
establish accounting and reporting standards for derivative instruments and
hedging activities. FAS 138 and FAS 133 require entities to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. FAS 138 and FAS 133 had no impact to the
financial statements as Regency has no derivative instruments.
Environmental Matters
- ---------------------
Regency, like others in the commercial real estate industry, is subject
to numerous environmental laws and regulations. The operation of dry cleaning
plants at Regency's shopping centers is the principal environmental concern.
Regency believes that the tenants who operate these plants do so in accordance
with current laws and regulations and has established procedures to monitor
their operations. Additionally, Regency uses all legal means to cause tenants to
remove dry cleaning plants from its shopping centers. Where available, Regency
has applied and been accepted into state sponsored environmental programs.
Regency has a blanket environmental insurance policy that covers it against
third party liabilities and remediation costs on shopping centers that currently
have no known environmental contamination. Regency has also placed environmental
insurance on specific properties with known contamination in order to mitigate
its environmental risk. Management believes that the ultimate disposition of
currently known environmental matters will not have a material effect on the
financial position, liquidity, or operations of Regency.
24
Inflation
- ---------
Inflation has remained relatively low during 2001 and 2000 and has had
a minimal impact on the operating performance of the shopping centers; however,
substantially all of Regency's long-term leases contain provisions designed to
mitigate the adverse impact of inflation. Such provisions include clauses
enabling Regency 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 Regency's leases are for terms of less
than ten years, which permits Regency to seek increased rents upon re-rental at
market rates. Most of Regency's leases require the tenants to pay their share of
operating expenses, including common area maintenance, real estate taxes,
insurance and utilities, thereby reducing Regency's exposure to increases in
costs and operating expenses resulting from inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
- -----------
Regency 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 Regency's real estate investment portfolio
and operations. Regency'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 Regency 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. Regency has no plans to enter into derivative
or interest rate transactions for speculative purposes, and at September 30,
2001, Regency did not have any borrowings hedged with derivative financial
instruments.
Regency'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.
Fair
2001 2002 2003 2004 2005 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Fixed rate debt 24,750 44,093 13,303 199,921 148,040 569,423 999,530 1,034,164
Weighted average interest rate
for all debt 7.92% 7.88% 7.86% 7.99% 8.08% 8.11%
Variable rate LIBOR debt - - 9,848 272,768 - - 282,616 282,616
Weighted average interest rate
for all debt - - 5.35% - - - - -
As the table incorporates only those exposures that exist as of
September 30, 2001, it does not consider those exposures or positions which
could arise after that date. Regency's ultimate realized gain or loss with
respect to interest rate fluctuations will depend on the exposures that arise
during the period, Regency's hedging strategies at that time, and interest
rates.
25
Forward Looking Statements
- --------------------------
This report on Form 10-Q contains certain forward-looking statements
under the federal securities law. These statements are based on current
expectations, estimates, and projections about the industry and markets in which
Regency Centers Corporation operates, management's beliefs, and assumptions.
Forward-looking statements are not guarantees of future performance and involve
certain risks and uncertainties, which are difficult to predict. Actual
operating results may be affected by changes in national and local economic
conditions, competitive market conditions, obtaining governmental approvals and
meeting development schedules, and other factors cited in our reports filed with
the SEC and therefore, may differ materially from what is expressed or
forecasted in this report.
26
Part II
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
15. Letter Regarding Unaudited Interim Financial Information.
(b) Reports on Form 8-K
None
27
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 13, 2001 REGENCY CENTERS CORPORATION
By: /s/ J. Christian Leavitt
---------------------------------
Senior Vice President,
and Chief Accounting Officer
28
EXHIBIT 15
The Board of Directors
Regency Centers Corporation
Re: Registration Statement Nos. 333-930, 333-52089,
333-44724, 333-24971, 333-55062 and 333-58966
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 30, 2001 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
/s/ KPMG LLP
Jacksonville, Florida
November 13, 2001
