United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended March 31, 2002
-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) 598-7000
(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 May 14, 2002, there were 58,130,519 shares outstanding of the Registrant's
common stock.
REGENCY CENTERS CORPORATION
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(unaudited)
2002 2001
---- ----
Assets
Real estate investments:
Land $ 672,830,095 600,081,672
Buildings and improvements 2,029,208,095 1,914,961,155
----------------- ----------------
2,702,038,190 2,515,042,827
Less: accumulated depreciation 223,151,449 202,325,324
----------------- ----------------
2,478,886,741 2,312,717,503
Properties in development 357,118,043 408,437,476
Operating properties held for sale 34,469,950 158,121,462
Investments in real estate partnerships 87,134,393 75,229,636
----------------- ----------------
Net real estate investments 2,957,609,127 2,954,506,077
Cash and cash equivalents 29,664,285 27,853,264
Notes receivable 33,564,149 32,504,941
Tenant receivables, net of allowance for uncollectible accounts
of $5,123,887 and $4,980,335 at March 31, 2002 and
December 31, 2001, respectively 40,855,676 47,723,145
Deferred costs, less accumulated amortization of $20,623,110 and
$20,402,059 at March 31, 2002 and December 31, 2001, respectively 37,030,160 34,399,242
Other assets 13,869,616 12,327,567
----------------- ----------------
$ 3,112,593,013 3,109,314,236
================= ================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 1,237,113,808 1,022,720,748
Unsecured line of credit 190,000,000 374,000,000
Accounts payable and other liabilities 52,372,737 73,434,322
Tenants' security and escrow deposits 8,887,265 8,656,456
----------------- ----------------
Total liabilities 1,488,373,810 1,478,811,526
----------------- ----------------
Preferred units 375,403,652 375,403,652
Exchangeable operating partnership units 31,286,984 32,108,191
Limited partners' interest in consolidated partnerships 4,049,123 3,940,011
----------------- ----------------
Total minority interest 410,739,759 411,451,854
----------------- ----------------
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 March 31, 2002 and December 31, 2001,
respectively; liquidation preference $20.83 per share 34,696,112 34,696,112
Common stock $.01 par value per share: 150,000,000 shares
authorized; 61,819,081 and 60,995,496 shares issued
at March 31, 2002 and December 31, 2001, respectively 618,191 609,955
Treasury stock; 3,709,402 and 3,394,045 shares held at
March 31, 2002 and December 31, 2001, respectively, at cost (71,262,497) (67,346,414)
Additonal paid in capital 1,329,668,090 1,327,579,434
Distributions in excess of net income (73,167,823) (68,226,276)
Stock loans (7,072,629) (8,261,955)
----------------- ----------------
Total stockholders' equity 1,213,479,444 1,219,050,856
----------------- ----------------
Commitments and contingencies
$ 3,112,593,013 3,109,314,236
================= ================
See accompanying notes to consolidated financial statements
2
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the Three Months ended March 31, 2002 and 2001
(unaudited)
2002 2001
---- ----
Revenues:
Minimum rent $ 70,532,679 64,666,212
Percentage rent 652,366 1,109,976
Recoveries from tenants 20,317,890 18,765,606
Service operations revenue 2,022,609 5,518,005
Equity in income of investments in
real estate partnerships 1,065,511 1,165,199
----------------- ----------------
Total revenues 94,591,055 91,224,998
----------------- ----------------
Operating expenses:
Depreciation and amortization 17,090,842 15,671,595
Operating and maintenance 12,214,292 12,048,407
General and administrative 3,989,595 4,315,174
Real estate taxes 10,548,307 9,346,261
Other expenses 359,343 1,379,332
----------------- ----------------
Total operating expenses 44,202,379 42,760,769
----------------- ----------------
Interest expense (income):
Interest expense 21,495,499 19,207,623
Interest income (841,638) (1,977,301)
----------------- ----------------
Net interest expense 20,653,861 17,230,322
----------------- ----------------
Gain on sale of operating properties 1,494,225 -
----------------- ----------------
Income before minority interests 31,229,040 31,233,907
Minority interest preferred unit distributions (8,368,752) (8,368,751)
Minority interest of exchangeable partnership units (650,779) (560,668)
Minority interest of limited partners (109,112) (89,786)
----------------- ----------------
Income from continuing operations 22,100,397 22,214,702
Discontinued operations:
Operating income from discontinued operations 1,512,053 931,122
Gain on sale of operating properties 1,664,213 -
----------------- ----------------
Net income 25,276,663 23,145,824
Preferred stock dividends (758,628) (733,837)
----------------- ----------------
Net income for common stockholders $ 24,518,035 22,411,987
================= ================
Income per common share - Basic:
Income from continuing operations $ 0.37 0.37
Discontinued operations 0.05 0.02
----------------- ----------------
Net income for common stockholders per share $ 0.42 0.39
================= ================
Income per common share - Diluted:
Income from continuing operations $ 0.37 0.37
Discontinued operations 0.05 0.02
----------------- ----------------
Net income for common stockholders per share $ 0.42 0.39
================= ================
See accompanying notes to consolidated financial statements
3
REGENCY CENTERS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Three Months ended March 31, 2002
(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, 2001 $ 34,696,112 609,955 (67,346,414) 1,327,579,434 (68,226,276) (8,261,955) 1,219,050,856
Common stock issued as
compensation or purchased by
directors or officers - 6,329 - 1,737,159 - - 1,743,488
Common stock redeemed
under stock loans - 1,735 (1,191,083) (276,413) - 1,189,326 (276,435)
Common stock issued for
partnership units exchanged - 172 - 457,691 - - 457,863
Reallocation of minority interest - - - 170,219 - - 170,219
Repurchase of common stock - - (2,725,000) - - - (2,725,000)
Cash dividends declared:
Common stock ($.51 per share)
and preferred stock - - - - (30,218,210) - (30,218,210)
Net income - - - - 25,276,663 - 25,276,663
--------------- ------- ----------- ------------- ------------- ---------- --------------
Balance at
March 31, 2002 $ 34,696,112 618,191 (71,262,497) 1,329,668,090 (73,167,823) (7,072,629) 1,213,479,444
=============== ======= =========== ============= ============= ========== ==============
See accompanying notes to consolidated financial statements.
4
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2002 and 2001
(unaudited)
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 25,276,663 23,145,824
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,309,433 15,895,916
Deferred loan cost and debt premium amortization 585,517 134,890
Stock based compensation 2,011,989 1,209,536
Minority interest preferred unit distribution 8,368,752 8,368,751
Minority interest of exchangeable partnership units 650,779 560,668
Minority interest of limited partners 109,112 89,786
Equity in income of investments in real estate partnerships (1,065,511) (1,165,199)
Gain on sale of operating properties (3,158,438) -
Changes in assets and liabilities:
Tenant receivables 1,406,622 11,955,230
Deferred leasing costs (2,912,407) (1,762,012)
Other assets (679,629) 2,928,231
Tenants' security and escrow deposits 264,514 26,407
Accounts payable and other liabilities (22,859,020) (9,198,816)
------------------- --------------------
Net cash provided by operating activities 25,308,376 52,189,212
------------------- --------------------
Cash flows from investing activities:
Acquisition and development of real estate (49,238,640) (64,432,753)
Proceeds from sale of real estate 46,703,287 35,472,335
Acquistion of partners' interest in investments
in real estate partnerships, net of cash acquired - 1,547,043
Investment in real estate partnerships (14,412,286) (7,151,192)
Capital improvements (3,656,100) (2,771,477)
Proceeds from sale of real estate partnerships 2,388,319 -
Repayment of notes receivable - 14,394,060
Funding of note receivable (1,059,208) -
Distributions received from investments in real estate partnerships 5,072,166 4,220,959
------------------- --------------------
Net cash used in investing activities (14,202,462) (18,721,025)
------------------- --------------------
Cash flows from financing activities:
Net proceeds from common stock issuance 3,500,499 -
Repurchase of common stock (2,725,000) -
Redemption of partnership units (83,232) -
Net distributions to limited partners in consolidated partnerships - (5,005,010)
Distributions to exchangeable partnership unit holders (760,672) (797,983)
Distributions to preferred unit holders (8,368,752) (8,368,751)
Dividends paid to common stockholders (29,459,582) (28,549,080)
Dividends paid to preferred stockholders (758,628) (733,837)
Net proceeds from fixed rate unsecured notes 249,625,000 219,707,400
Repayment of unsecured line of credit, net (184,000,000) (245,000,000)
Repayment of notes payable (32,921,532) (7,225,704)
Scheduled principal payments (1,417,068) (1,485,620)
Deferred loan costs (1,925,926) (4,320,500)
------------------- --------------------
Net cash used in financing activities (9,294,893) (81,779,085)
------------------- --------------------
Net increase (decrease) in cash and cash equivalents 1,811,021 (48,310,898)
Cash and cash equivalents at beginning of period 27,853,264 100,987,895
------------------- --------------------
Cash and cash equivalents at end of period $ 29,664,285 52,676,997
=================== ====================
5
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2002 and 2001
(unaudited)
continued
2002 2001
---- ----
Supplemental disclosure of cash flow information - cash paid for interest (net
of capitalized interest of approximately
$3,800,000 and $5,210,000 in 2002 and 2001, respectively) $ 31,534,965 16,461,634
=================== =============
Notes receivable taken in connection with sales of development properties $ - 1,610,807
=================== =============
See accompanying notes to consolidated financial statements.
6
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
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 also partnerships in which it has
voting control (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, 2001 Form 10-K/A filed with
the Securities and Exchange Commission.
(b) Revenues
The Company leases space to tenants under agreements with varying
terms. Leases are accounted for as operating leases with minimum
rent recognized on a straight-line basis over the term of the
lease regardless of when payments are due. Accrued rents are
included in tenant receivables. Minimum rent has been adjusted to
reflect the effects of recognizing rent on a straight-line basis.
Substantially all of the lease agreements contain provisions that
provide additional rents based on tenants' sales volume
(contingent or percentage rent) or reimbursement of the tenants'
share of real estate taxes and certain common area maintenance
(CAM) costs. These additional rents are recognized when the
tenants achieve the specified targets as defined in the lease
agreements.
Service operations revenue includes management fees, commission
income, and development-related profits from the sales of recently
developed real estate properties and land. The Company recorded
gains from the sales of development properties and land of $1.3
million and $5.1 million for the three months ended March 31, 2002
and 2001, respectively. Service operations revenue does not
include gains or losses from the sale of operating properties
previously held for investment which are included in gain or loss
on the sale of operating properties or discontinued operations.
7
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
(b) Revenues (continued)
The Company accounts for profit recognition on sales of real
estate in accordance with FASB Statement No. 66, "Accounting for
Sales of Real Estate." In summary, profits from sales will not be
recognized by the Company unless a sale has been consummated; the
buyer's initial and continuing investment is adequate to
demonstrate a commitment to pay for the property; the Company has
transferred to the buyer the usual risks and rewards of ownership;
and the Company does not have substantial continuing involvement
with the property.
(c) Real Estate Investments
Land, buildings and improvements are recorded at cost. All direct
and indirect costs clearly associated with the acquisition,
development and construction of real estate projects 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.
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("Statement
144"). Prior to January 1, 2002, operating properties held for
sale included properties that no longer met the Company's
long-term investment standards, such as expected growth in revenue
or market dominance. Once identified and marketed for sale, these
properties were 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 were also included in operating properties held
for sale.
With the adoption of Statement 144, we evaluated our portfolio of
operating properties held for sale at December 31, 2001, and
determined that those assets did not meet the six criteria set
forth in Statement 144 and thus have been reclassified as
properties to be held and used. The reclassified properties have
been carried at fair value, which is lower than the depreciated
carrying amount the properties would have been, had they been
continuously classified as held and used. Subsequent to January 1,
2002, and in accordance with Statement 144, operating properties
held for sale includes only those properties available for
immediate sale in their present condition and for which management
believes that it is probable that a sale of the property will be
completed within one year. 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.
The Company reviews its real estate portfolio for value impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Regency
determines impairment based upon the difference between estimated
sales value (less estimated costs to sell) and net book value.
8
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
(c) Real Estate Investments (continued)
The Company's properties have operations and cashflows that can be
clearly distinguished from the rest of the Company. In accordance
with Statement 144, the operations and gains on sales of operating
properties sold to third parties are reported in discontinued
operations. The operations and gains on sales of operating
properties sold to real estate partnerships in which the Company
has continuing involvement are reported as income from continuing
operations.
(d) Reclassifications
Certain reclassifications have been made to the 2001 amounts to
conform to classifications adopted in 2002.
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 inter-segment sales or transfers.
The Company assesses and measures operating results starting with net
operating income for the Retail segment and revenues 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. In connection
with the effective date of Statement 144, the definition of FFO was
amended to include amounts reported as gain/losses from the operations of
discontinued operations. 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 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 as follows for the three month periods
ended March 31, 2002, and 2001. Assets not attributable to a particular
segment consist primarily of cash and deferred costs.
9
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
2. Segments (continued)
2002 2001
---- ----
Revenues:
Retail segment $ 92,568,446 85,706,993
Service operations segment 2,022,609 5,518,005
--------------------------------------------------
Total revenues $ 94,591,055 91,224,998
==================================================
Funds from Operations:
Retail segment net operating income $ 74,476,338 65,243,447
Service operations segment revenues 2,022,609 5,518,005
Adjustments to calculate diluted FFO:
Interest expense (21,495,499) (19,207,623)
Interest income 841,638 1,977,301
General and administrative and other (4,348,938) (5,694,506)
Non-real estate depreciation (475,125) (389,032)
Minority interest of limited partners (109,112) (89,786)
Gain on sale of operating properties (1,494,225) -
Gain on sale of operating properties -
discontinued operations (1,664,213) -
Depreciation and amortization of
discontinued operations 298,700 224,321
Minority interest in depreciation
and amortization (48,514) -
Share of joint venture depreciation
and amortization 331,707 134,435
Distributions on preferred units (8,368,752) (8,368,751)
--------------------------------------------------
Funds from Operations - diluted 39,966,614 39,347,811
--------------------------------------------------
Reconciliation to net income for common stockholders:
Real estate related depreciation
and amortization (16,914,417) (15,506,884)
Minority interest in depreciation
and amortization 48,514 -
Share of joint venture depreciation
and amortization (331,707) (134,435)
Gain on sale of operating properties 1,494,225 -
Gain on sale of operating properties -
discontinued operations 1,664,213 -
Minority interest of exchangeable
operating partnership units (650,779) (560,668)
--------------------------------------------------
Net income $ 25,276,663 23,145,824
==================================================
March 31, 2002 December 31, 2001
-------------- -----------------
Assets (in thousands):
Retail segment $ 2,614,289 2,631,592
Service operations segment 417,740 403,142
Cash and other assets 80,564 74,580
--------------------------------------------------
Total assets $ 3,112,593 3,109,314
==================================================
10
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
3. Discontinued Operations and Operating Properties Held for Sale
During the first quarter, the Company sold one operating property for
proceeds of $18.1 million. This sale resulted in a gain of $1.7 million
which is reflected as a gain on sale within discontinued operations. The
Company also sold two assets to Macquarie CountryWide-Regency, LLC,
("MCWR"), a joint venture in which the Company has a 25% interest, for
$17.8 million (see note 4). Since the Company has a continuing
involvement in these properties, the gain on the sale is recorded as gain
on sale of operating properties in the Company's consolidated statements
of operations.
The Company sold three operating properties in the second quarter of 2002
for $38.5 million. The carrying amount of these properties, which are
classified as operating properties held for sale on the Company's
consolidated balance sheet, is $34.5 million. The gain from the sale of
these assets will be recorded in the second quarter of 2002.
The revenues from the properties disposed of or held for sale was $1.9
million and $1.8 million for the three months ended March 31, 2002 and
2001, respectively. The operating income from these propeties was $1.5
million and $0.9 million for the three months ended March 31, 2002 and
2001, respectively.
4. Investments in Real Estate Partnerships
The Company accounts for all investments in which it owns 50% or less and
does not have controlling financial interest using the equity method. The
Company's combined investment in these partnerships was $87.1 million and
$75.2 million at March 31, 2002 and December 31, 2001, respectively. Net
income is allocated to the Company in accordance with the respective
partnership agreements.
The Company has a 25% equity interest in MCWR, a joint venture with an
affiliate of Macquarie CountryWide Trust of Australia, a Sydney,
Australia-based property trust focused on investing in grocery-anchored
shopping centers. During the first quarter of 2002, MCWR acquired two
shopping centers from the Company for $17.8 million for which the Company
received net proceeds of $13.3 million. The Company recognized gains on
the sales of $1.5 million, which represents gain recognition on only that
portion of the sale to MCWR not owned by the Company. At March 31, 2002,
this joint venture has seven properties for total gross leasable area
("GLA") of 560,624 sq. ft.and a net book value of $54.7 million.
The Company also has a 20% equity interest in Columbia Regency Retail
Partners, LLC ("Columbia"), a joint venture with Columbia PERFCO
Partners, L.P. ("PERFCO") that was formed for the purpose of investing in
retail shopping centers. At March 31, 2002, this joint venture has nine
properties for total GLA of 1,604,672 sq. ft. and a net book value of
$192.3 million.
With the exception of Columbia and MCWR, both of which intend to continue
expanding their investment in shopping centers, the investments in real
estate partnerships represent single asset entities formed for the
purpose of developing or owning a retail shopping center.
11
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
4. Investments in Real Estate Partnerships (continued)
The Company's investments in real estate partnerships as of March 31,
2002 and December 31, 2001 consist of the following (in thousands):
Ownership 2002 2001
--------- ---- ----
Columbia Regency Retail Partners, LLC 20% $ 30,289 31,092
Macquarie CountryWide-Regency, LLC 25% 8,188 4,180
OTR/Regency Texas Realty Holdings, L.P. 30% 16,519 16,590
Regency Ocean East Partnership, L.P. 25% - 2,783
RRG-RMC Tracy, LLC 50% 16,172 12,339
Tinwood, LLC 50% 9,357 7,177
GME/RRG I, LLC 50% - 1,069
Jog Road, LLC 50% 2,286 -
Valleydale, LLC 50% 4,323 -
--------------------------------
$ 87,134 75,230
================================
Summarized financial information for the unconsolidated investments on a
combined basis, is as follows (in thousands):
March 31, December 31,
2002 2001
---- ----
Balance Sheets:
Investment property, net $ 309,992 286,096
Other assets 9,331 8,581
------------- -------------
Total assets $ 319,323 294,677
============= =============
Notes payable and other debt $ 62,054 67,489
Other liabilities 11,167 5,983
Equity and partners' capital 246,102 221,205
------------- -------------
Total liabilities and equity $ 319,323 294,677
============= =============
The revenues and expenses are summarized as follows for the three month
periods ended March 31, 2002 and 2001:
2002 2001
---- ----
Statements of Operations:
Total revenues $ 10,071 5,052
Total expenses 5,315 2,086
------------- -------------
Net income $ 4,756 2,966
============= ==================
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $62.0 million at March 31, 2002 and the Company's proportionate share
of these loans was $13.3 million. These mortgage loans payable are
non-recourse and contain no other provisions that would result in a
contingent liability to the Company.
12
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
5. Notes Payable and Unsecured Line of Credit
The Company's outstanding debt at March 31, 2002 and December 31, 2001
consists of the following (in thousands):
2002 2001
---- ----
Notes Payable:
Fixed rate mortgage loans $ 204,868 240,091
Variable rate mortgage loans 21,725 21,691
Fixed rate unsecured loans 1,010,521 760,939
------------------------------
Total notes payable 1,237,114 1,022,721
Unsecured line of credit 190,000 374,000
------------------------------
Total $ 1,427,114 1,396,721
==============================
Interest rates paid on the line of credit (the "Line") at March 31, 2002
and 2001 were based on LIBOR plus .85% and 1.0% or 2.725% and 6.1875%,
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 15, 2002, the Company, through RCLP, completed a $250 million
unsecured debt offering with an interest rate of 6.75%. These notes were
priced at 99.850%, are due on January 15, 2012 and are guaranteed by the
Company. The net proceeds of these offerings 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
130 basis points to 175 basis points. Fixed interest rates on mortgage
loans range from 6.82% to 9.5%.
As of March 31, 2002, 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
-------------------------- ---------------------------------------------
2002 $ 3,713 17,789 21,502
2003 4,678 22,867 27,545
2004 (includes the Line) 5,049 401,928 406,977
2005 3,862 148,033 151,895
2006 3,415 24,093 27,508
Beyond 5 Years 27,845 756,934 784,779
Unamortized debt premiums - 6,908 6,908
---------------------------------------------
Total $ 48,562 1,378,552 1,427,114
=============================================
13
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
5. Notes Payable and Unsecured Line of Credit (continued)
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 $1.44 billion.
6. Stockholders' Equity and Minority Interest
The Company, through RCLP, has issued Cumulative Redeemable Preferred
Units ("Preferred Units") in various amounts since 1998. The issues were
sold primarily to institutional investors in private placements for
$100.00 per unit. The Preferred Units, which may be called by the
Partnership at par after certain dates, have no stated maturity or
mandatory redemption, and pay a cumulative, quarterly dividend at fixed
rates. At any time after 10 years from the date of issuance, the
Preferred Units may be exchanged for Cumulative Redeemable Preferred
Stock ("Preferred Stock") at an exchange rate of one share for one unit.
The Preferred Units and the related Preferred Stock are not convertible
into common stock of the Company. The net proceeds of these offerings
were used to reduce the Line. At March 31, 2002 and December 31, 2001 the
face value of total preferred units issued was $384 million with an
average fixed distribution rate of 8.72%.
Terms and conditions of the Preferred Units are summarized as follows:
Units Issue Issuance Distribution Callable Redeemable
Series Issued Price Amount Rate by Company by Unitholder
- ----------------------------------------------------------------------------------------------------------------------
Series A 1,600,000 $ 50.00 $ 80,000,000 8.125% 06/25/03 06/25/08
Series B 850,000 100.00 85,000,000 8.750% 09/03/04 09/03/09
Series C 750,000 100.00 75,000,000 9.000% 09/03/04 09/03/09
Series D 500,000 100.00 50,000,000 9.125% 09/29/04 09/29/09
Series E 700,000 100.00 70,000,000 8.750% 05/25/05 05/25/10
Series F 240,000 100.00 24,000,000 8.750% 09/08/05 09/08/10
------------- ----------------
4,640,000 $ 384,000,000
============= ================
Security Capital owns approximately 59.5% of the outstanding common stock
of Regency; however, its ability to exercise voting control over these
shares is limited by the Stockholders Agreement by and among Regency,
Security Capital Holdings S.A., Security Capital U.S. Realty and The
Regency Group, Inc. dated as of July 10, 1996, as amended, including
amendments to reflect Security Capital's purchase of Security Capital
Holdings S.A. and the shareholder approval of the liquidation of Security
Capital U.S. Realty (as amended, the "Stockholders Agreement").
14
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
6. Stockholders' Equity and Minority Interest (continued)
The Stockholders Agreement provides that Security Capital will vote all
of its shares of Regency in accordance with the recommendations of
Regency's board of directors or proportionally in accordance with the
votes of the other holders of Regency common stock. This broad voting
restriction is subject to a limited qualified exception pursuant to which
Security Capital can vote its shares of Regency in its sole and absolute
discretion with regard to amendments to Regency's charter or by-laws that
would materially adversely affect Security Capital and with regard to
"Extraordinary Transactions" (which include mergers, consolidations, sale
of a material portion of Regency's assets, issuances of securities in an
amount which requires a shareholder vote and other similar transactions
out of the ordinary course of business). However, the limited exception
is itself further qualified. Even with respect to charter and by-law
amendments and Extraordinary Transactions, Security Capital may only vote
shares representing ownership of 49% of the outstanding Regency common
stock at its discretion, any shares owned by Security Capital in excess
of 49% must be voted in accordance with the recommendations of Regency's
board of directions or proportionally in accordance with the votes of the
other holders of Regency common stock. With regard to Extraordinary
Transactions which require a 2/3rds vote (i.e. where Security Capital
could block the outcome if it voted 49% of the stock), Security Capital
may only vote shares representing ownership of 32% of the outstanding
Regency common stock. Security Capital may vote its shares to elect a
certain number of nominees to the Regency board of directors, however
this right is similarly limited. Security Capital has the right to
nominate the greater of three directors or the number of directors
proportionate to its ownership, however Security Capital may not nominate
more than 49% of the Regency board of directors.
The effect of these limitations is such that notwithstanding the fact
that Security Capital owns more than a majority of the currently
outstanding shares of Regency common stock, Security Capital may not, in
compliance with the Stockholders Agreement, exercise voting control with
respect to more than 49% of the outstanding shares of Regency (and may
vote those shares in its discretion only with respect to the limited
matters listed above).
On December 14, 2001 Security Capital entered into an agreement with GE
Capital pursuant to which, assuming consummation, an indirect wholly
owned subsidiary of GE Capital will be merged with and into Security
Capital with Security Capital surviving as an indirect wholly owned
subsidiary of GE Capital. The acquisition closed on May 14, 2002.
Assuming that Security Capital continues in existence following its
acquisition by GE Capital, Regency believes that the Stockholders'
Agreement will remain in full force and effect; however, Regency is not a
party to any of the agreements between Security Capital and GE Capital.
15
REGENCY CENTERS CORPORATION
Notes to Consolidated Financial Statements
March 31, 2002
7. Earnings Per Share
The following summarizes the calculation of basic and diluted earnings
per share for the three month periods ended March 31, 2002, and 2001 (in
thousands except per share data):
2002 2001
----- ----
Numerator:
---------
Income from continuing operations $ 22,100 22,215
Discontinued operations 3,176 931
---------- ----------
Net income 25,276 23,146
Less: Preferred stock dividends 758 734
---------- ----------
Net income for common stockholders - Basic 24,518 22,412
Add: Minority interest of exchangeable operating
partnership units 651 560
---------- ----------
Net income for common stockholders - Diluted $ 25,169 22,972
========== ==========
Denominator:
-----------
Weighted average common shares
outstanding for Basic EPS 57,856 57,205
Exchangeable operating partnership units 1,542 1,642
Incremental shares to be issued under
common stock using the Treasury Method 392 165
---------- ----------
Weighted average common shares outstanding
for Diluted EPS 59,790 59,012
---------- ----------
Income per common share - Basic
-------------------------------
Income from continuing operations $ 0.37 0.37
Discontinued operations 0.05 0.02
---------- ----------
Net income for common stockholders
per share $ 0.42 0.39
========== ==========
Income per common share - Diluted
---------------------------------
Income from continuing operations $ 0.37 0.37
Discontinued operations 0.05 0.02
---------- ----------
Net income for common stockholders
per share $ 0.42 0.39
========== ==========
The Series 2 preferred stock is not included in the above calculation
because its effect is anti-dilutive.
16
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. We previously operated under the name Regency Realty
Corporation, but changed our name to Regency Centers Corporation in February
2001 to more appropriately acknowledge our brand and position in the shopping
center industry. We invest in retail shopping centers through our 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
- ------------------------
We are a national owner, operator and developer of grocery-anchored
neighborhood retail shopping centers. Our shopping centers summarized by state
and in order by largest holdings including their gross leasable areas (GLA)
follows:
March 31, 2002 December 31, 2001
Location # Properties GLA % Leased * # Properties GLA % Leased *
------------ --------- ---------- ------------ ----------- ----------
Florida 56 6,532,162 91.9% 56 6,535,254 92.0%
California 38 4,736,342 98.7% 39 4,879,051 98.8%
Texas 37 4,663,462 91.8% 36 4,579,263 92.8%
Georgia 26 2,556,322 95.0% 26 2,556,471 93.3%
Ohio 14 1,870,079 89.5% 14 1,870,079 93.5%
North Carolina 13 1,302,751 98.4% 13 1,302,751 98.1%
Colorado 12 1,195,480 98.4% 12 1,188,480 99.2%
Washington 9 1,095,481 98.1% 9 1,095,457 98.1%
Oregon 8 739,910 91.6% 8 740,095 93.2%
Alabama 8 783,801 95.4% 7 665,440 95.3%
Arizona 9 627,576 86.3% 9 627,612 98.6%
Tennessee 9 479,955 98.2% 10 493,860 99.4%
Virginia 6 408,368 97.6% 6 408,368 97.6%
Missouri 2 370,176 94.0% 2 370,176 92.9%
South Carolina 6 350,167 100.0% 5 241,541 100.0%
Kentucky 5 325,311 93.2% 5 321,689 94.2%
Illinois 2 300,536 98.8% 2 300,162 91.6%
Michigan 3 275,085 92.5% 3 275,085 89.5%
Delaware 2 240,418 99.3% 2 240,418 99.3%
Mississippi 2 185,061 98.3% 2 185,061 98.3%
New Jersey 2 99,901 100.0% 3 112,640 100.0%
Wyoming 1 87,771 100.0% 1 87,777 100.0%
Pennsylvania 1 6,000 100.0% 1 6,000 100.0%
Maryland - - - 1 6,763 -
-------------- --------------- ---------------- -------------- -------------- -------------
Total 271 29,232,115 94.3% 272 29,089,493 94.9%
============== =============== ================ ============== =============== =============
* Excludes pre-stabilized properties under development
17
We are focused on building a portfolio of grocery-anchored
neighborhood shopping centers that should withstand adverse economic conditions
by providing convenient shopping for daily necessities and foot traffic for
adjacent local tenants. Regency's current investment markets have continued to
offer stable economies, and accordingly, we expect 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 our shopping centers at March 31, 2002:
Percentage of Percentage of
Grocery Number of Company- Annualized Average Remaining
Anchor Stores (a) owned GLA Base Rent (b) Lease Term
------ ---------- ------------- ------------- -----------------
Kroger 59 11.2% 9.1% 15 yrs
Publix 52 8.1% 5.9% 13 yrs
Safeway 48 6.0% 4.8% 11 yrs
Albertsons 25 3.1% 2.5% 15 yrs
(a) Includes grocery tenant owned stores
(b) Includes properties owned through joint ventures
On January 22, 2002, Kmart Corporation, a tenant in four of the
Company's shopping centers, filed for Chapter 11 bankruptcy. As of March 31,
2002, Kmart has announced the store closing of two of the Company's four leases,
representing approximately $0.9 million of Company annualized base rent. Under
Chapter 11 bankruptcy protection, Kmart has the ability to affirm or reject
pre-petition lease agreements. The Company's four Kmart leases represent
approximately .56% of Company annualized base rent and 1.1% of Company GLA.
There can be no assurance that Kmart will accept the Company's leases or that
the leases will not be accepted under reduced rental rates. Rejection of any or
all of the Company's Kmart leases should not have an adverse effect on the
Company's results of operations.
Acquisition and Development of Shopping Centers
- -----------------------------------------------
We have implemented a growth strategy dedicated to developing and
acquiring high-quality shopping centers. Our development program makes a
significant contribution to our overall growth. Development is customer-driven,
meaning we generally have an executed lease in hand from the anchor before we
begin construction. Developments serve the growth needs of our grocery and
specialty retail customers, result in modern shopping centers with 20-year
leases from the grocer anchors, and produce either attractive returns on
invested capital or profits from sale. 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 March 31, 2002, we had 38 projects under construction or undergoing
major renovations, which, when complete will represent an investment of $508
million before reimbursement of certain tenant-related costs and expected sale
proceeds from adjacent land and outparcels. Total costs necessary to complete
these developments are estimated to be $174 million and will be expended through
2005. These developments are approximately 66% complete and 73% pre-leased.
Regency has a 20% equity interest in Columbia Regency Retail
Partners, LLC ("Columbia"), a joint venture with Columbia PERFCO
Partners, L.P. ("PERFCO") that was formed for the purpose of
investing in retail shopping centers. At March 31, 2002, this
joint venture has nine properties for total GLA of 1,604,672 sq.
ft. and a net book value of $192.3 million.
18
Regency has a 25% equity interest in Macquarie CountryWide-
Regency, LLC, ("MCWR") a joint venture with an affiliate of
Macquarie CountryWide Trust of Australia, a Sydney, Australia-
based property trust focused on investing in grocery-anchored
shopping centers. During the first quarter, MCWR acquired two
shopping centers from the Company for $17.8 million for which the
Company received net proceeds of $13.3 million. The Company
recognized gains on the sales of these centers of $1.5
million, which represents gain recognition on only that portion of
the sales to MCWR not owned by the Company. At March 31, 2002,
this joint venture has seven properties for total GLA of 560,624
sq. ft. and a net book value of $54.7 million.
The Columbia and MCWR joint ventures intend to continue to acquire
retail shopping centers, some of which may be sold to them by Regency. We are
required to provide our pro rata share of the purchase price of real estate to
be acquired by these ventures from third parties.
Liquidity and Capital Resources
- -------------------------------
We expect that cash generated from revenues will provide the necessary
funds on a short-term basis to pay our operating expenses, interest expense,
scheduled principal payments on outstanding indebtedness, recurring capital
expenditures necessary to maintain our shopping centers properly, and
distributions to share and unit holders. Net cash provided by operating
activities was $25.3 million and $52.2 million for the three months ended March
31, 2002 and 2001, respectively. During the first three months of 2002 and 2001,
respectively, we incurred capital expenditures of $3.7 million and $2.8 million
to improve our shopping center portfolio, paid scheduled principal payments of
$1.4 million and $1.5 million to our lenders, and paid dividends and
distributions of $39.3 million and $38.4 million to our share and unit holders.
Although no tenant represents more than 10% of our annual base rental
revenues, and base rent is supported by long-term lease contracts, tenants who
file bankruptcy have the right to cancel their leases and close the related
stores. In the event that a tenant with a significant number of leases in our
shopping centers filed bankruptcy and cancelled its leases, it could cause a
significant reduction to our revenues. We are not currently aware of any current
or pending bankruptcy of any of our tenants that would cause a significant
reduction to our revenues.
We expect to meet long-term capital requirements for maturing debt, the
acquisition of real estate, and the renovation or development of shopping
centers from: (i) cash generated from operating activities after the payments
described above, (ii) proceeds from the sale of real estate, (iii) joint
venturing of real estate, (iv) increases in debt, and (v) equity raised in the
private or public markets. Proceeds from the sale of real estate includes the
sale of out-parcels and developments as well as the sale of low-growth shopping
centers. Our commitment to maintaining a high-quality portfolio dictates that we
continually assess the value of all of our properties and sell those that no
longer meet our long-term investment standards to third parties. Joint venturing
of assets provides Regency with a capital source for new development and
acquisitions, while earning market based fees as the asset manager. During the
first quarter of 2002 and 2001, proceeds from the sale of real estate to third
parties and joint ventures were $46.7 million and $35.5 million, respectively.
Net cash used in investing activities was $14.2 million and $18.7
million for the three months ended March 31, 2002 and 2001, respectively,
primarily for the purposes discussed under Acquisition and Development of
Shopping Centers. These amounts are net of the proceeds from sales of real
estate discussed above. Net cash used in financing activities was $9.3 million
and $81.8 million for the three months ended March 31, 2002 and 2001,
respectively.
19
Outstanding debt at March 31, 2002 and December 31, 2001 consists of
the following (in thousands):
2002 2001
---- ----
Notes Payable:
Fixed rate mortgage loans $ 204,868 240,091
Variable rate mortgage loans 21,725 21,691
Fixed rate unsecured loans 1,010,521 760,939
-------------- ---------------
Total notes payable 1,237,114 1,022,721
Unsecured line of credit 190,000 374,000
-------------- ---------------
Total $ 1,427,114 1,396,721
============== ===============
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 130 basis points to 175
basis points. Fixed interest rates on mortgage loans range from 6.82% to 9.5%.
Interest rates paid on the Line at March 31, 2002 and 2001 were based
on LIBOR plus .85% and 1.0%, or 2.725% and 6.1875%, respectively. The spread
that we pay on the Line is dependent upon maintaining specific investment grade
ratings. We are also required to comply, and are 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 15, 2002, the Company, through RCLP completed a $250 million
unsecured debt offering with an interest rate of 6.75%. These notes were priced
at 99.850%, are due on January 15, 2012 and are guaranteed by the Company. The
net proceeds of these offerings were used to reduce the balance of the Line.
As of March 31, 2002, 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
-------------------------- -------------- --------------- ---------------
2002 $ 3,713 17,789 21,502
2003 4,678 22,867 27,545
2004 (includes the Line) 5,049 401,928 406,977
2005 3,862 148,033 151,895
2006 3,415 24,093 27,508
Beyond 5 Years 27,845 756,934 784,779
Unamortized debt premiums - 6,908 6,908
----------- --------------- ---------------
Total $ 48,562 1,378,552 1,427,114
=========== =============== ===============
Unconsolidated partnerships and joint ventures in which we have an
investment also had mortgage loans payable of $62.0 million at March 31, 2002
and the Company's proportionate share of these loans is $13.3 million. The
mortgage loans payable are non-recourse and contain no other provisions that
would result in a contingent liability to the Company.
The fair value of our notes payable and the Line are estimated
based on the current rates available to us 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 the connection with real estate
acquisitions are recorded in the accompanying financial statements at fair
value. Based on the borrowing rates currently available to us for loans with
similar terms and average maturities, the fair value of long-term debt is $1.44
billion.
20
RCLP has issued Cumulative Redeemable Preferred Units ("Preferred
Units") in various amounts since 1998. The issues were sold primarily to
institutional investors in private placements. The Preferred Units, which may be
called by RCLP at par after certain dates ranging from 2003 to 2005, have no
stated maturity or mandatory redemption, and pay a cumulative, quarterly
dividend at fixed rates ranging from 8.125% to 9.125%. At any time after 10
years from the date of issuance, the Preferred Units may be exchanged for
Cumulative Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of
one share for one unit. The Preferred Units and the related Preferred Stock are
not convertible into Regency common stock. The net proceeds of these offerings
were used to reduce the Line. At March 31, 2002 and 2001 the face value of total
preferred units issued was $384 million with an average fixed distribution rate
of 8.72%.
We intend to continue to grow our portfolio through acquisitions and
development, either directly or through our joint venture relationships. Because
acquisition and development activities are discretionary in nature, they are not
expected to burden our 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 March 31, 2002 to 2001
Revenues increased $3.4 million or 4% to $94.6 million in 2002. The
increase was due primarily to revenues from newly completed developments that
only partially operated during 2001, and from growth in rental rates at the
operating properties. Minimum rent increased $5.9 million or 9%, and recoveries
from tenants increased $1.6 million or 8%. At March 31, 2002, we were operating
or developing 271 shopping centers. We identify our shopping centers 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 fully leased (fully leased generally means greater than 90%
leased) and occupied. Stabilized properties are all properties not identified as
development. At March 31, 2002, we had 233 stabilized shopping centers that were
94.3% leased. In 2002, rental rates grew by 2.2% from renewal leases and new
leases replacing previously occupied spaces in the stabilized properties.
Service operations revenue includes management fees and commission
income, profits and losses from the sale of developed properties and gains or
losses from the sale of land and outparcels. The Company accounts for profit
recognition on sales of real estate in accordance with FASB Statement No. 66,
"Accounting for Sales of Real Estate." Profits from sales of real estate will
not be recognized by the Company unless a sale has been consummated; the buyer's
initial and continuing investment is adequate to demonstrate a commitment to pay
for the property; the Company has transferred to the buyer the usual risks and
rewards of ownership; and the Company does not have substantial continuing
involvement with the property. Service operations revenue decreased by $3.5
million to $2.0 million in 2002, or 63%. The decrease was primarily due to a
$1.9 million decrease in gains from the sale of land and outparcels and by a
$2.0 million reduction in development profits offset by a $0.4 million increase
in management fees primarily related to the Columbia and MCWR joint ventures.
The reduction in development profits was a result of selling fewer developments
during 2002 vs. 2001.
Operating expenses increased $1.4 million or 3% to $44.2 million in
2002. Combined operating and maintenance, and real estate taxes increased $1.4
million or 6% during 2002 to $22.8 million. The increase was primarily due to
expenses incurred by newly completed developments that only partially operated
during 2001, and general increases in operating expenses on the stabilized
properties. General and administrative expenses were $4.0 million during 2002
vs. $4.3 million in 2001. Depreciation and amortization increased $1.4 million
during 2002 or 9% primarily due to developments that only partially operated
during 2001.
21
We review our real estate portfolio for value impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. We determine impairment based upon the difference
between estimated sales value (less estimated costs to sell) and net book value.
Interest expense increased to $21.5 million in 2002 from $19.2 million
in 2001 or 12%. 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 $1.4 billion and $1.3
billion of outstanding debt at March 31, 2002 and March 31, 2001, respectively.
On March 31, 2002, 85% of outstanding debt had fixed interest rates vs. 80% on
March 31, 2001.
Income from discontinued operations was $3.2 million in 2002 compared
to $0.9 million in 2001 primarily due to the gain recognized on the sale of an
operating property in 2002 of $1.7 million.
Net income for common stockholders was $24.5 million in 2002 vs. $22.4
million in 2001, or a 10% increase. Diluted earnings per share was $0.42 in
2002 vs. $0.39 in 2001, or 8% higher as a result of the increase in net income.
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 our shopping centers is the principal environmental concern. We
believe that the tenants who operate these plants do so in accordance with
current laws and regulations and have established procedures to monitor their
operations. Additionally, we use all legal means to cause tenants to remove dry
cleaning plants from our shopping centers. Where available, we have applied and
been accepted into state-sponsored environmental programs. We have a blanket
environmental insurance policy that covers Regency against third party
liabilities and remediation costs on shopping centers that currently have no
known environmental contamination. We have also placed environmental insurance
on specific properties with known contamination in order to mitigate Regency's
environmental risk. We believe that the ultimate disposition of currently known
environmental matters will not have a material effect on the financial position,
liquidity, or operations of Regency.
Inflation
- ---------
Inflation has remained relatively low and has had a minimal impact on
the operating performance of the shopping centers; however, substantially all of
our long-term leases contain provisions designed to mitigate the adverse impact
of inflation. Such provisions include clauses enabling us 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 our
leases are for terms of less than ten years, which permits us to seek increased
rents upon re-rental at market rates. Most of our leases require the tenants to
pay their share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing our exposure to
increases in costs and operating expenses resulting from inflation.
22
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
-----------
Regency is exposed to interest rate changes primarily as a result of
the Line 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 March 31, 2002,
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 cash flows (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
2002 2003 2004 2005 2006 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Fixed rate debt 21,331 17,982 204,986 151,895 27,508 784,778 1,208,480 1,225,388
Average interest rate
for all debt 7.63% 7.61% 7.65% 7.64% 7.65% 7.63% - -
Variable rate LIBOR debt 171 9,563 201,991 - - - 211,725 211,725
Average interest rate
for all debt 2.72% 2.70% - - - - - -
As the table incorporates only those exposures that exist as of March
31, 2002, 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, 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.
23
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
--------
10. Material Contracts
None
(b) Reports on Form 8-K
None
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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: May 15, 2002 REGENCY CENTERS CORPORATION
By: /s/ J. Christian Leavitt
-------------------------------------
Senior Vice President,
and Chief Accounting Officer
25