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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
---------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 001-13499
EQUITY ONE, INC.
Exact name of Registrant as specified in its charter
MARYLAND 52-1794271
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1600 N.E. MIAMI GARDENS DRIVE, SUITE 200
NORTH MIAMI BEACH, FL 33179
(Address of principal executive offices)
Registrant's telephone number: (305) 947-1664
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------------- -----------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 30, 1999 the aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant was $37,382,047.50.
As of March 29, 1999, the number of outstanding shares of Common Stock,
par value $.01 per share, of the Registrant was 10,574,320.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for the 1999 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A is
incorporated by reference into Part III of this Form 10-K/A.
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EQUITY ONE, INC.
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS..........................................................................................1
ITEM 2. PROPERTIES.......................................................................................19
ITEM 3. LEGAL PROCEEDINGS................................................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA................21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................................28
ITEM 11. EXECUTIVE COMPENSATION...........................................................................28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................29
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PART I
ITEM 1. BUSINESS
GENERAL
Equity One, Inc. and subsidiaries (the "Company") is a
self-administered, self-managed real estate investment trust ("REIT") that
principally acquires, renovates, develops and manages community and neighborhood
shopping centers anchored by national and regional supermarket chains
("Supermarket Centers"). At December 31, 1998, the Company's portfolio consisted
of 15 Supermarket Centers, two drug store anchored neighborhood shopping
centers, a shopping center located in Northeast Miami-Dade County, Florida which
is being comprehensively redeveloped into a 280,000 square foot Supermarket
Center ("Sky Lake"), two mixed-use (office/retail) properties, one office
building, one mini-warehouse facility, one residential apartment building and
one restaurant property (collectively, the "Existing Properties"). The Existing
Properties are located primarily in the Miami, Orlando and Jacksonville
metropolitan areas of Florida and in the Houston metropolitan area in Texas and
contain an aggregate of 2.1 million square feet of gross leasable area ("GLA").
The Company also owns an aggregate of 17.75 acres of land adjacent to
certain of the Existing Properties and has agreed to purchase 4.4 acres of
vacant land located in Southwest Miami-Dade County, Florida, substantially all
of which is intended for retail development. The Company also has an option to
purchase (the "Option") 10.0 acres of land in Southwest Miami-Dade County,
Florida ("Coral Way"), which property is commercially zoned and has received
county site plan approval for the development of a 100,000 square foot
Supermarket Center, and 6.2 acres of vacant land adjacent to certain of the
Existing Properties. The Option is exercisable by the Company for a period of
five years.
Supermarket Centers are anchored by national and regional supermarkets
such as Winn-Dixie, Publix, Albertsons and Kroger. Additional tenants
particularly responsible for drawing tenants and shoppers to the Company's
Supermarket Centers (including national and regional supermarkets, "Anchor
Tenants") include national retailers such as K-Mart, Best Buy, Walgreens and
Eckerd. Non-Anchor Tenants of the Supermarket Centers include such well known
national and regional businesses as Einstein Bros. Bagels, Rainbow Shops, Boat
US Marine, Little Caesars, Video Avenue, General Nutrition Center, Radio Shack,
NationsBank, Play It Again Sports, and Chili's, as well as local tenants such as
Swim 'N Fun Pool Supply, Vision Works, Dollar General, Rent A Center and United
Consumer Club. The Company believes that supermarkets and other Anchor Tenants
offering daily necessity items generate regular consumer traffic and enhance the
performance and stability of a center. As of December 31, 1998, the Company's
supermarket Anchor Tenants, other Anchor Tenants and non-Anchor Tenants
contributed 24.0%, 22.3% and 53.7%, respectively, of the Company's aggregate
annualized minimum rents and accounted for approximately 30.4%, 24.1% and 45.5%,
respectively, of GLA.
RECENT DEVELOPMENTS
In January 1999, the Company acquired a Supermarket Center consisting
of an aggregate of approximately 74,340 square feet of GLA located in Plant
City, Florida ("Walden Woods") for a purchase price of approximately $3.8
million. Walden Woods is anchored by a Winn-Dixie supermarket and a Walgreen's
drug store. Additionally, in February 1999, the Company acquired a Supermarket
Center consisting of an aggregate of 126,000 square feet of GLA located in
Orlando, Florida ("Park Promenade") for an aggregate purchase price of $9.1
million. Park Promenade's major anchor tenants include a 55,000 square foot
Publix supermarket, Blockbuster Video and other nationally recognized retailers.
In January 1999, the Company also acquired approximately 28 acres of
undeveloped real estate in Tallahassee, Florida for a purchase price of $2.1
million, for development of a Supermarket Center to be known as Forest Village
Shopping Center ("Forest Village"). The Company has entered into a development
agreement with
<PAGE>
an independent third party with respect to the construction of Forest Village.
This property has already received the requisite county development approvals.
The Company anticipates that Forest Village will be developed in two phases. In
connection with the acquisition of Forest Village, the Company entered into a
lease with Publix for the construction and lease of a 37,866 square foot
supermarket. The Company anticipates that the first phase of Forest Village will
be completed in the first quarter of 2000 and will cost approximately $6.0
million.
In December 1998, the Company exercised an option to purchase a parcel
of vacant land across from its executive offices in Miami Beach, Florida where
it plans to develop a mixed-use office/retail tower with 70,000 square feet of
GLA and a 250 car parking garage.
BUSINESS AND GROWTH STRATEGIES
The Company was organized in June 1992 under the laws of the State of
Maryland to acquire Supermarket Centers in high growth, densely populated areas
throughout the Southeast generating stable cash flows and long-term value. The
Company selects properties for acquisition or development which have, or are
suitable for, supermarket and other Anchor Tenants, and are adaptable over time
for expansion, renovation and redevelopment. In order to take advantage of
property management operating efficiencies and present attractive leasing
opportunities to tenants who seek multiple locations in an area, the Company
also targets properties proximate to its other properties. All properties must
be well located and have high visibility, open air designs, ease of entry and
exit and ample parking. The Company acquires both Supermarket Centers that are
substantially fully leased (i.e., existing tenants occupy 85% or more of GLA),
appropriately tenanted and well maintained ("Performing Supermarket Centers"),
and Supermarket Centers which are not Performing Supermarket Centers which meet
the Company's turnaround criteria ("Underperforming Supermarket Centers"). In
acquiring Performing Supermarket Centers, the Company requires attractive and
sustainable rates of return, and in acquiring Underperforming Supermarket
Centers, the Company seeks opportunities to increase revenues primarily through
renovation and retenanting.
The Company believes that its management team possesses the experience
and expertise necessary to identify, acquire, renovate, develop and manage
additional Supermarket Centers. The Company's principal senior executives and
property managers average 18 years experience in the real estate industry and
have acquired and managed all the Existing Properties. Management believes that
it has cultivated strong relationships with supermarkets and other Anchor
Tenants which, in combination with its in-depth knowledge of the Company's
primary markets, has contributed substantially to the Company's success in
identifying, acquiring and operating its properties.
Since its formation, the Company has experienced sustained growth in
its real estate portfolio, revenues and net income. From December 31, 1993 to
December 31, 1998, the Company increased total real estate assets and GLA to
$148.1 million and 2.1 million square feet, respectively, from $28.5 million and
600,000 square feet, respectively. For the year ended December 31, 1998, total
revenues and net income increased to $25.6 million and $9.1 million,
respectively, from $2.1 million and $49,000, respectively, for the year ended
December 31, 1993. For a discussion of the growth in the Company's funds from
operations, see "Selected Consolidated Financial Data."
The Company intends to maximize total return to stockholders by
increasing cash flow per share and maximizing the value of its real estate
portfolio. The Company believes it can achieve this objective primarily through
the acquisition, renovation, development and management of Supermarket Centers
and other properties which meet the Company's investment criteria. The Company
believes it has certain competitive advantages which enhance its ability to
capitalize on acquisition opportunities, including: (i) management's significant
local market experience and expertise; (ii) the Company's long-standing
relationships with real estate brokers, tenants and institutional and other real
estate owners in its current target markets; (iii) a streamlined acquisition
process; (iv) access to capital; and (v) the ability to offer cash and tax
advantaged structures to sellers.
2
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The Company intends to maintain significant flexibility with respect to
the form of its acquisition transactions, using cash available from operations
or lines of credit for sellers who seek immediate liquidity, as well as
tax-advantaged partnership structures to attract tax-motivated sellers. Such
structures may include entering into joint ventures or other types of
co-ownership with the sellers, whether in the form of limited partnership,
limited liability companies, or otherwise, with the Company expected to acquire
the controlling interests in such ventures. The sellers may be offered interests
in the ventures which are convertible or exchangeable for shares of Common Stock
or otherwise allow the seller to participate in the financial condition of the
Company. The Company may in the future acquire all or substantially all of the
securities of other REITs or similar entities when such investments would be
consistent with the Company's investment objectives.
The Company's principal business and growth strategies are as follows:
ACQUISITION OF PERFORMING SUPERMARKET CENTERS. The Company intends to
acquire Performing Supermarket Centers that offer attractive and sustainable
rates of return in areas throughout the Southeast having demographic
characteristics similar to those of its present markets. Examples of
acquisitions of Performing Supermarket Centers include, (i) Walden Woods and
Park Promenade in the first quarter of 1999, (ii) Lantana Village Shopping
Center ("Lantana Village"), Summerlin Square Shopping Center ("Summerlin
Square") and Beauclerc Village Shopping Center ("Beauclerc Village") in 1998,
(iii) West Lake Plaza Shopping Center ("West Lake") and Forest Edge Shopping
Center ("Forest Edge") in 1996, (iv) Lake Mary Shopping Centre ("Lake Mary") and
Pointe Royale Shopping Center ("Pointe Royale") in 1995 and (v) Bird Ludlum
Shopping Center ("Bird Ludlum") in 1994. The Company will target Performing
Supermarket Centers which are adaptable to expansion, renovation and
redevelopment, and, in order to maximize property management efficiencies and
present attractive leasing opportunities to tenants who seek multiple locations
in one area, are located proximate to other Company owned Supermarket Centers or
to one another. The Company will seek Supermarket Centers which offer daily
necessities and value-oriented merchandise and have high visibility, open-air
designs, ease of entry and exit and ample parking. Given the Company's
relationship with certain Anchor Tenants, particularly supermarkets, and its
operational expertise, the Company anticipates that it will be able to enhance
the performance of properties satisfying its acquisition criteria. When entering
new markets, the Company considers its ability to increase and concentrate
holdings in order to achieve economies of scale.
The Company has developed an integrated methodology for sourcing and
completing acquisitions. The Company believes it has favorable access to
potential acquisition opportunities by virtue of its relationships with brokers,
tenants, financial institutions, development agencies, contractors, and others
involved in the real estate market. Additionally, the Company believes that as
institutional investors in real estate become less willing to own and manage
significant real estate assets and become more comfortable with indirect
investments, such institutions will become significant sellers of properties and
the Company will be an attractive purchaser in its target markets. The Company
conducts its review procedures with the full participation of the Company's
senior officers, which, combined with the Company's access to capital and
knowledge of existing markets, allows the Company to make expedited
determinations and consummate transactions quickly.
When evaluating potential acquisitions and development projects, the
Company considers such factors as (i) economic, demographic, and regulatory and
zoning conditions in the property's local and regional market; (ii) the
location, construction quality, and design of the property; (iii) the current
and projected cash flow of the property and the potential to increase cash flow;
(iv) Anchor Tenants' and other tenants' gross sales per square foot measured
against industry standards; (v) the potential for capital appreciation of the
property; (vi) the terms of tenant leases, including the relationship between
the property's current rents and market rents and the ability to increase rents
upon lease rollover; (vii) the occupancy and demand by tenants for properties of
a similar type in the market area; (viii) the potential to complete a strategic
renovation, expansion, or retenanting of the property; (ix) the property's
current expense structure and the potential to increase operating margins; (x)
the ability of the Company to subsequently sell or refinance the property; and
(xi) competition from comparable retail properties in the market area.
3
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ACQUISITION OF UNDERPERFORMING SUPERMARKET CENTERS. The Company intends
to acquire Underperforming Supermarket Centers that meet the Company's
turnaround criteria, which includes having the potential to increase revenues
and operating cash flows through renovation and retenanting. Underperforming
Supermarket Centers are typically undercapitalized, poorly managed and/or poorly
maintained and may require significant capital improvements. The Company also
requires attractive location and market demographics, availability on favorable
terms, and willingness of supermarket and other Anchor Tenants to commit to
lease space. The Company believes that its market knowledge, strong
relationships with supermarkets and other Anchor Tenants and its capabilities in
renovation and redevelopment, are particularly integral to its ability to
acquire and reposition Underperforming Supermarket Centers.
When evaluating such acquisitions, the Company considers factors
similar to those applied in the acquisition of Performing Supermarket Centers,
and will complete such acquisitions only after a careful due diligence process,
including an in-depth study of the reasons for the center's failure to perform,
the community demographics, the costs of renovation or redevelopment, and the
willingness of acceptable Anchor Tenants and other tenants to commit to the
site. Similarly, the Company believes that its competitive advantage is enhanced
by its ability to conduct an efficient due diligence investigation and to commit
to and fund an acquisition that is structured so as to meet the requirements of
a seller with respect to receiving cash or tax deferred benefits. In addition,
the Company's relationships with Anchor Tenants, who are familiar with the
Company's commitment to quality construction, maintenance and operations, aids
it in obtaining preleasing expressions of interest before the decision to
acquire the property is made.
Examples of the Company's ability to enhance Underperforming
Supermarket Centers include East Bay Plaza ("East Bay"). East Bay, which was
acquired in July 1993 at a 48.0% occupancy rate, was 86.3% occupied at December
31, 1998.
In addition, the acquisition of Underperforming Supermarket Centers
frequently provides the Company with an opportunity to buy adjacent undeveloped
land whose value is depressed by proximity to the Underperforming Supermarket
Center and can be enhanced by the Company's rehabilitation program.
REDEVELOPMENT AND DEVELOPMENT OF SUPERMARKET CENTERS. The Company will
redevelop existing and develop new Supermarket Centers with characteristics
similar to those of the Existing Properties. The Company will consider
development only if the overall economics of developing a property appear to be
more favorable than acquiring and/or redeveloping an existing property. For
example, the Company acquired Sky Lake, which is being comprehensively
redeveloped into approximately 295,000 square foot Supermarket Center. The
redevelopment is expected to cost $18.4 million and to be completed by February,
2000. In addition, the Company owns 17.75 acres of land adjacent to certain of
the Existing Properties, substantially all of which is intended for retail
development. In January, 1999, the Company acquired 28 acres of undeveloped real
property in Tallahassee, Florida for development of Forest Village. The Company
has signed a lease with Publix for the construction of a 37,866 square foot
supermarket to anchor Forest Village. The Company has also recently exercised an
option to purchase a parcel of vacant land across from its executive offices in
Miami Beach, Florida where it plans to develop a mixed-use office/retail tower
with 70,000 square feet of GLA and a 250 car parking garage. The Company also
has agreed to acquire 4.4 acres of vacant land located in Southwest Miami-Dade
County, Florida for future development, contingent upon, among other things, the
rezoning of such property for commercial use. The Company has an Option to
purchase Coral Way, which has received site plan approval for development of a
100,000 square foot Supermarket Center.
The Company has not previously developed shopping centers.
Additionally, the Company has limited experience in redevelopment projects,
although it has done so on both a whole property basis, such as the
comprehensive redevelopment of Sky Lake and the redevelopment of the Company's
mixed use (office/retail) property located in West Palm Beach, Florida ("Diana
Building"), as well as on an individual basis in order to meet specific tenant
needs. In addition, certain members of management have extensive experience in
development and redevelopment activities. Sky Lake is anticipated to be
completed in February 2000, although the first phase of this
4
<PAGE>
project, including the opening of a 51,420 square foot Publix supermarket, is
anticipated to open in the third quarter of 1999.
Although the Company previously has concentrated on the acquisition of
existing Supermarket Centers, the Company believes that, as a result of changing
market conditions, development and redevelopment will provide significant growth
opportunities in the future. Accordingly, it may acquire or option parcels of
land in its target markets which are likely to be subject to increased
development. In connection with its development activities, the Company has
hired a licensed architect and general contractor to head its development
department and recently hired two additional full-time employee to support its
development and redevelopment operations.
INCREASING REVENUES AND INCREASING OPERATING MARGINS. The Company will
continue to seek to improve the financial performance of its portfolio by
increasing revenues (through increased occupancy and/or rental rates),
maintaining high tenant retention rates (i.e., the percentage of tenants who
renew their leases upon expiration), replacing certain existing tenants with
more creditworthy tenants and aggressively managing operating expenses.
Increased competition, changes in economic conditions and declines in tenant
retention levels could adversely affect the Company's ability to improve the
financial performance of its property portfolio. Most of the Company's lease
agreements provide for percentage rents, indexed rent increases (based on CPI or
other criteria) and/or have scheduled rent escalations. While the Company
believes that substantially all its properties are in desirable locations that
are experiencing rising rents, low vacancy rates, and increased demand, allowing
the Company to renew leases, or relet space under expired leases, at favorable
rents, any significant increases in vacancy rates and/or decreases in demand
could adversely affect the Company's ability to renew such leases, or relet
space under expired leases, at favorable rates. There is no assurance that such
trends will continue.
The Company has developed strong relationships with its Anchor Tenants
by continually striving to promote tenant satisfaction by anticipating and
responding to their requirements. A number of the Company's Anchor Tenants have
evidenced this satisfaction by expanding their leased space within the Company's
properties. For example, at Commonwealth, the Company invested $1.3 million to
expand Winn-Dixie's space by 12,000 square feet, and in return Winn-Dixie (i)
increased its annual minimum rent by approximately $144,000, starting in March
1998 and (ii) extended its lease for an additional 20-year period. In addition,
the Company seeks to increase operating results through the strategic renovation
and/or expansion of properties which are typically adaptable for varied tenant
layouts and can be reconfigured to accommodate new tenants or the changing space
needs of existing tenants.
OTHER ACQUISITIONS. The Company may from time to time acquire or
develop, on a highly selective basis, other types of income-producing commercial
properties in markets in which the Company has significant expertise and which
present superior opportunities for a return on its investment.
THE PROPERTIES
At December 31, 1998, the Company's Existing Properties, consisting
primarily of Supermarket Centers, contained an aggregate of 2.1 million square
feet of GLA. All of the Company's Supermarket Centers were developed after 1982.
Management believes that the location and quality of its Existing Properties
have enabled the Company to develop and retain an attractive and diverse tenant
base. As of December 31, 1998, the Existing Properties were 95% leased to 407
tenants (not including 465 tenants and 17 tenants of the Company's
mini-warehouse facility and apartment building, respectively). The following
table provides a brief description of each of the Company's properties:
5
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<TABLE>
<CAPTION>
NET OPERATING AVERAGE
GLA (SQ. INCOME FOR MINIMUM
FT.) THE YEAR RENT PER SQ. PERCENT
DATE AT NUMBER OF ENDED FT. AS OF LEASED AT CERTAIN
PROPERTY(1) ACQUIRED DEC. 31, 1998 TENANTS DEC. 31, 1998 DEC. 31, 1998 DEC. 31, 1998 TENANTS
----------- -------- ------------- --------- -------------- -------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTH FLORIDA
Bird Ludlum August 192,327 47 $ 2,512,659 $13.10 99% Winn-Dixie,
Shopping Center 1994 Eckerd,
Miami, FL Blockbuster
Video, Vision
Works, Rainbow
Shops, Radio
Shack, Boat US
Marine,
NationsBank, GNC
Plaza Del Rey December 50,146 21 $ 591,119 $12.21 100% Navarro, Rent A
Shopping Center 1992 Center
Miami, FL
Pointe Royale July 199,068 22 $ 1,018,890 $5.92 100% Winn-Dixie, Best
Shopping Center(2) 1995 Buy, Eckerd,
Miami, FL Dollar Bills,
Household Finance
Company
West Lake Plaza November 100,747 26 $ 991,495 $9.27 100% Winn-Dixie,
Shopping Center 1996 Burger King,
Miami, FL United Consumer
Club
Sky Lake August 43,667(4) 13 $ 304,998 $10.41 95% Humana, First
N. Miami Beach, FL 1997 Union Bank,
McDonald's
Lantana Village January 85,300 26 $ 741,599 $9.63 100% Winn-Dixie,
Shopping Center 1998 Rite-Aid, Denny's
Lantana, FL
CENTRAL FLORIDA
East Bay Plaza July 81,826 18 $ 458,228 $7.67 86% Scotty's,
Shopping Center 1993 Hollywood Video,
Largo, FL Albertsons(5)
Eustis Square October 126,791 20 $ 746,423 $6.81 90% Publix, Bealls,
Shopping Center 1993 Walgreens, US Pak
Eustis, FL N Ship
Forest Edge December 68,631 13 $ 381,653 $6.81 100% Winn-Dixie, Auto
Shopping Center 1996 Zone
Orlando, FL
Lake Mary Shopping November 288,450 53 $ 3,076,846 $11.21 99% K-Mart,
Center 1995 Albertsons,
Lake Mary, FL General Cinema,
Play It Again
Sports, Chili's,
Einstein Bros.
Bagels,
NationsBank, Swim
N Fun
Summerlin Square May 109,156 24 $ 535,495 $10.42 96% Winn-Dixie,
Shopping Center 1998 Eckerd, Mobil,
Fort Myers, FL Perkins
NORTH FLORIDA
Atlantic Village June 100,559 23 $ 940,831 $9.21 93% Publix,
Shopping Center 1995 Blockbuster
Atlantic Beach, FL Music, Village
Shoe Box, JoAnne
Fabrics
</TABLE>
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<TABLE>
<CAPTION>
NET OPERATING AVERAGE
GLA (SQ. INCOME FOR MINIMUM
FT.) THE YEAR RENT PER SQ. PERCENT
DATE AT NUMBER OF ENDED FT. AS OF LEASED AT CERTAIN
PROPERTY(1) ACQUIRED DEC. 31, 1998 TENANTS DEC. 31, 1998 DEC. 31, 1998 DEC. 31, 1998 TENANTS
----------- -------- ------------- --------- -------------- -------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Commonwealth February 81,467 13 $ 546,064 $7.89 90% Winn-Dixie, Subway
Shopping Center(6) 1994
Jacksonville, FL
Fort Caroline January 74,546 9 $ 456,946 $7.02 92% Winn-Dixie,
Trading Post(6) 1994 Eckerd, McDonalds
Jacksonville, FL
Monument Pointe January 75,328 12 $ 426,379 $6.18 98% Winn-Dixie, Eckerd
Shopping Center 1997
Jacksonville, FL
Oak Hill Shopping December 78,492 16 $ 489,807 $6.47 92% Publix,
Center 1995 Walgreens,
Jacksonville, FL Blockbuster
Video, Little
Caesars
Beauclerc Village June 67,927 10 $ 210,691 $6.08 100% Walgreens, Old
Shopping Center 1998 America, Big Lots
Jacksonville, FL
TEXAS
Houston Area
Four Corners January 115,178 26 $ 820,684 $8.95 99% Kroger, Eckerd,
Shopping Center 1993 Wendy's,
Tomball, TX Mailboxes Etc.,
--------- --- ------------ ----- -- Rent A Center
Total/Weighted 1,939,606 392 $ 15,250,807 $8.83 97%
Average
--------- --- ------------ ----- --
OTHER PROPERTIES:
Equity One Office April 28,980(3) 10 $ 281,216 $11.16 100% City of Miami
Building 1992 Beach Parking
Department
Miami Beach, FL
Pointe Royale July 18,000 -- -- -- -- --
Office Building 1995
Miami, FL
Diana Building February 18,707 4 $ 98,815 $14.77 55% Fat Tuesday's
West Palm Beach, FL 1995
Mandarin May 52,880 465 $ 211,672 $5.88 87%
Mini-Storage 1994
Jacksonville, FL
</TABLE>
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<TABLE>
<CAPTION>
NET OPERATING AVERAGE
GLA (SQ. INCOME FOR MINIMUM
FT.) THE YEAR RENT PER SQ. PERCENT
DATE AT NUMBER OF ENDED FT. AS OF LEASED AT CERTAIN
PROPERTY(1) ACQUIRED DEC. 31, 1998 TENANTS DEC. 31, 1998 DEC. 31, 1998 DEC. 31, 1998 TENANTS
----------- -------- ------------- --------- -------------- -------------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Montclair Apartments August 9,375 17 $ 8,989 $10.77 85% --
Miami Beach, FL 1998
Restaurant Property May 10,000 1 $ 108,137 $16.25 100% LHD Restaurant
Miami Beach, FL 1998 --------- --- ---------- ------ --- Corp., d/b/a El
Novillo
Total/Weighted 137,942 497 $ 708,829 $9.30 68%
Average Other --------- --- ---------- ----- ---
Properties
Total/Weighted 2,077,548 889 $ 15,959,636 8.85 95%
Average All ========= === ============ ===== ===
Properties
RECENTLY ACQUIRED
PROPERTIES
Walden Woods January 74,336 9 N/A N/A N/A Winn-Dixie,
Shopping Center(7) 1999 Walgreens
Plant City, FL
Park Promenade February 125,806 27 N/A N/A N/A Publix,
Shopping Center(8) 1999 Blockbuster Video
Orlando, FL
</TABLE>
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(1) Does not include any redevelopment and development properties other than Sky
Lake.
(2) Eckerd has vacated this site, but continues to make lease payments.
(3) Includes 3,000 square feet of GLA which is occupied by the Company.
(4) Does not include approximately 251,000 square feet of vacant GLA which is to
be redeveloped. See "Redevelopment and Development Properties".
(5) Albertsons is located on property contiguous to the Company's property which
is not owned by the Company. Accordingly, Albertsons does not pay base rent
or make payments to the Company for common area maintenance and similar
charges at this location.
(6) Since the acquisition of Fort Caroline and Commonwealth, Winn-Dixie's space
has been increased by an aggregate of 7,200 square feet and 10,000 square
feet, respectively.
(7) The acquisition cost of this property was $3.8 million.
(8) The acquisition cost of this property was $9.1 million.
REDEVELOPMENT AND DEVELOPMENT PROPERTIES
SKY LAKE. In August 1997 the Company acquired Sky Lake, an existing
community shopping center, for $11.8 million. Sky Lake is located in the North
Miami Beach, Florida area. The Company is conducting a comprehensive
redevelopment program at Sky Lake in order to create a Supermarket Center
containing approximately 295,000 square feet of GLA. The Company expects that
the redevelopment will cost approximately $18.4 million and will occur in
several phases which are expected to be completed by February 2000. The Company
has entered into an agreement with Publix for the lease of 51,420 square feet of
redeveloped GLA at Sky Lake. During the redevelopment, the Company has and will
continue to receive certain rental revenue from tenants who are continuing
operations during the redevelopment process. As of December 31, 1998, 43,667
square feet of such GLA, representing approximately $431,000 of aggregate
annualized minimum rental revenue, had been leased, substantially all of which
related to out-parcels located on the property.
8
<PAGE>
LAND FOR DEVELOPMENT. The Company owns 17.75 acres of vacant land
adjacent to certain of the Existing Properties, substantially all of which the
Company intends to develop as retail space. The Company expects to commence
construction on 5.0 acres adjacent to Lake Mary and 0.5 acres adjacent to its
Commonwealth Shopping Center ("Commonwealth") by September, 1999. The Company
expects to complete these projects by March 2000, at a cost of approximately
$3.0 million and $450,000, respectively. In addition, the Company has agreed to
acquire 4.4 acres of land located in Southwest Miami-Dade County, Florida for
future development contingent upon, among other things, the rezoning of such
property for commercial use.
In January 1999, the Company acquired approximately 28 acres of
undeveloped commercially zoned land in Tallahassee, Florida on which it intends
to develop the Forest Village Shopping Center. The acquisition price of this
land was $2.1 million. The Company has entered into a lease with Publix
supermarket for the construction of a 37,866 square foot supermarket at this
development. The Company has commenced the development of the first phase of
this project and anticipates that this phase will be completed in the first
quarter of 2000 at a cost of approximately $6.0 million.
OPTION PROPERTY
CORAL WAY. The Company has an Option, exercisable until May 2003, to
acquire 10.0 acres of vacant land at Coral Way for $2.0 million. Coral Way is
commercially zoned and has received county site plan approval for the
development of a 100,000 square foot Supermarket Center. Coral Way is located in
a newly rezoned high growth area of Southwest Miami-Dade County, Florida. The
Company anticipates that it will exercise this Option and develop this property
as a Supermarket Center to be completed by December 2000, although there can be
no assurance that it will do so. The acquisition and development costs of Coral
Way are anticipated to be $12.0 million.
LAND FOR DEVELOPMENT. The Company also has an Option, exercisable until
May 2003, to purchase 6.20 acres of vacant land adjacent to Bird Ludlum, which
property is residentially zoned, for a purchase price of $1.1 million.
9
<PAGE>
The following table provides additional information with respect to
properties held for redevelopment and development and properties under Option.
<TABLE>
<CAPTION>
NUMBER OF DEVELOPABLE CURRENT
PROPERTY LOCATION ACREAGE PARCELS SQUARE FEET ZONING
-------- -------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
REDEVELOPMENT/DEVELOPMENT PROPERTIES
Sky Lake(1).............................. Miami-Dade, FL 24.00 1 280,000 Retail
Sky Lake(1).............................. Miami-Dade, FL 1.50 2 15,000 Retail
Adjacent to Commonwealth................. Jacksonville, FL 0.50 1 6,000 Retail
Adjacent to Fort Caroline................ Jacksonville, FL 0.50 1 7,000 Retail
Adjacent to Oak Hill..................... Jacksonville, FL 0.25 1 6,000 Retail
Adjacent to Lake Mary.................... Lake Mary, FL 5.00 1 70,000 Retail
Adjacent to Lantana Village.............. Lantana, FL 0.50 1 6,000 Retail
Adjacent to Summerlin Square............. Fort Myers, FL 10.50 2 95,000 Retail
Adjacent to Equity One Office Building... Miami Beach, FL 0.50 2 70,000 Office
Vacant Land(2)........................... Miami-Dade, FL 4.40 2 40,000 Retail
Vacant Land(3)........................... Tallahassee, FL 28.00 1 160,000 Retail
------ --- -------
Total--Redevelopment/Development Properties 75.65 15 755,000
===== == =======
OPTION PROPERTIES
Coral Way (4)............................ Miami-Dade, FL 10.00 1 100,000 Retail
Adjacent to Bird Ludlum.................. Miami, FL 6.20 1 150 Units Residential
----- --- ---
Total--Option Properties.................. 16.20 2 100,000
----- --- -------
Total.................................... 91.85 17 855,000
===== == =======
</TABLE>
- -------------------------
(1) See "Additional Information Concerning the Existing Properties".
(2) Under contract to purchase.
(3) Represents commercially zoned vacant land on which the Company intends to
develop Forest Village Shopping Center acquired in January 1999.
(4) The Company anticipates that it will exercise the Option to purchase this
property and expects that development of this property will be completed by
December 2000.
MAJOR TENANTS
The following table sets forth the GLA of the Existing Properties
leased to Supermarket Anchor Tenants, other Anchor Tenants and non-Anchor
Tenants as of December 31, 1998.
<TABLE>
<CAPTION>
SUPERMARKET
ANCHOR OTHER ANCHOR NON-ANCHOR
TENANTS TENANTS TENANTS TOTAL
----------- ------------- ----------- -----
<S> <C> <C> <C> <C>
Existing Properties (sq. ft.)............ 631,060 500,202 946,286 2,077,548
Percentage of Total Leased GLA........... 30.4% 24.1% 45.5% 100.00%
</TABLE>
10
<PAGE>
The following table sets forth as of December 31, 1998, information
regarding the leases with the Company's largest tenants based upon annualized
minimum rents of at least $250,000:
<TABLE>
<CAPTION>
PERCENT OF
ANNUALIZED AGGREGATE
GLA NUMBER OF MINIMUM ANNUALIZED
TENANT (SQ. FT.) STORES RENTS MINIMUM RENTS
------ --------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Winn-Dixie(1)....................... 404,283 9 $2,583,359 14.77%
General Cinemas..................... 35,712 1 633,888 3.62
Albertsons.......................... 63,139 1 568,251 3.25
Eckerd(2)........................... 59,700 6 544,346 3.11
K-Mart.............................. 86,479 1 497,254 2.84
Publix(3)........................... 118,110 3 673,668 3.85
Kroger.............................. 45,528 1 373,332 2.13
Best Buy............................ 91,472 1 365,888 2.09
Blockbuster Video/Music(4).......... 17,615 3 239,737 1.37
Walgreens(5)........................ 33,193 3 270,590 1.55
------ --- ------------ -----
Total.......................... 955,231 29 $6,750,313 38.58%
======= == ========== =====
</TABLE>
- -------------------------
(1) Does not include Winn-Dixie at Walden Woods, acquired in January 1999, which
occupies 46,636 square feet of GLA and represents approximately $261,625
of annualized minimum rents.
(2) Includes one store which Eckerd has vacated but for which it continues to
pay rent.
(3) Does not include (a) Publix being developed at Sky Lake which will occupy
51,420 square feet of GLA and will represent approximately $635,000 of
annualized minimum rents, (b) Publix at Park Promenade, acquired in February
1999, which occupies 55,000 square feet of GLA and represents approximately
$371,250 annualized minimum rents and (c) Publix being developed at Forest
Village which will occupy approximately 37,870 square feet of GLA.
(4) Does not include Blockbuster Video at Park Promenade, acquired in February
1999, which occupies 5,886 square feet of GLA and represents approximately
$79,520 of annualized minimum rents. Two of the leases under the name of
Warehouse Entertainment, Inc. are guaranteed by Blockbuster.
(5) Does not include Walgreens at Walden Woods, acquired in January 1999, which
occupies 13,000 square feet of GLA and represents approximately $87,750 of
annualized minimum rents.
11
<PAGE>
LEASE EXPIRATIONS
The following table sets forth the anticipated expirations of the
Company's leases at December 31, 1998 (excluding renewal options and
month-to-month leases) for each year from 1999 through 2008 and thereafter.
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF ANNUALIZED AGGREGATE AVERAGE ANNUAL
NUMBER OF GLA TOTAL MINIMUM ANNUALIZED MINIMUM RENT
DECEMBER 31, LEASES (SQ. FT.) OCCUPIED GLA RENT MINIMUM RENT PER SQ. FT.
------------ --------- --------- ------------ ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1999..................... 93 184,886 9.61% $1,668,242 9.49% $ 9.03
2000..................... 84 176,005 9.15 1,890,876 10.76 10.75
2001..................... 85 205,577 10.69 2,275,706 12.95 11.07
2002..................... 35 75,095 3.91 955,498 5.44 12.73
2003..................... 37 93,370 4.86 1,219,365 6.94 13.06
2004..................... 13 111,077 5.78 739,780 4.21 6.66
2005(1).................. 10 183,051 9.52 1,185,686 6.75 6.48
2006..................... 6 85,902 4.47 627,577 3.57 7.31
2007..................... 13 139,239 7.24 1,598,263 9.10 11.48
2008..................... 9 93,516 4.86 981,765 5.59 10.50
Thereafter............... 22 575,149 29.91 4,428,831 25.20 7.70
---- ---------- ------- ----------- ------- ----
Total/Average(2)(3)(4)... 407 1,922,867 100.00% $17,571,589 100.00% $9.14
=== ========== ====== =========== ====== =====
</TABLE>
- -------------------------
(1) Does not include three lease agreements with Walgreens expiring in the years
2019, 2019 and 2024, respectively, which Walgreens may terminate in 2004.
(2) The table does not include the lease with Publix at Sky Lake or Forest
Village.
(3) Does not include Montclair Apartments nor Mandarin Mini-Storage.
(4) Does not include Walden Woods nor Park Promenade, both purchased in 1999.
Historically, the Company has not incurred substantial costs associated
with Tenant Improvements relating to lease expirations or renewals. However, the
Company recently incurred an expenditure of $1.3 million in connection with the
expansion of Winn-Dixie's space at Commonwealth. Additionally, because leasing
activities are performed in-house, the Company has not historically incurred
substantial costs associated with leasing commissions. No assurance can be given
that such expenses will not increase in the future.
ADDITIONAL INFORMATION CONCERNING THE EXISTING PROPERTIES
As of December 31, 1998, two of the Supermarket Centers, Bird Ludlum
and Lake Mary, had either a book value equal to or greater than 10.0% of the
total assets of the Company or gross revenues which accounted for more than
10.0% of the Company's aggregate gross revenues. Set forth below is additional
information with respect to each of such properties.
BIRD LUDLUM. Bird Ludlum is a 192,327 square foot Supermarket Center
occupied by 47 tenants which is located at the intersection of Bird Road and
Ludlum Road in Miami, Florida. Traffic count at the Bird Ludlum center averages
approximately 85,000 vehicles per day. The property is located approximately one
mile east of the Palmetto Expressway, a major Miami roadway. Bird Ludlum is
located in a densely populated trade area of Miami with a population of over
155,000 within a three mile radius and an average household income of $51,000
per year. This property includes five out-parcel buildings, and has attracted a
full range of national and regional chain store tenants including Winn-Dixie,
Eckerd, Blockbuster, Radio Shack and Little Caesars. Outparcel buildings are
occupied by Visionworks, McDonalds, Dairy Queen, Jiffy Lube and NationsBank.
12
<PAGE>
In 1996, the Company purchased 7.4 acres of vacant land adjacent to
Bird Ludlum for a purchase price of $1.1 million. During early 1997, the Company
utilized approximately 1.2 acres of this land to build a parking lot for 150
automobiles. The remaining 6.2 acres of vacant land was transferred to a
partnership controlled by affiliates of the Company and is subject to the
Option. See "Option Property."
Winn-Dixie, the only tenant which occupies more than 10.0% of the GLA
at Bird Ludlum, occupies 44,400 square feet of GLA under a lease which expires
in December 2007 and contains five renewal options of five years each. The
annual minimum rent payable by Winn-Dixie under this lease is $399,600. For the
years ended June 30, 1996, 1997 and 1998, Winn-Dixie reported sales of $23.6
million, $23.3 million and $24.8, respectively.
The following table sets forth a schedule of lease expirations and
other information concerning leases at Bird Ludlum, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AVERAGE ANNUAL
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
DECEMBER 31, LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ.FT.
------------ --------- --------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1999.................. 5 5,717 3.01% $71,112 2.70% $12.44
2000.................. 8 32,426 17.05 357,687 13.55 11.03
2001.................. 12 22,757 11.97 323,857 12.27 14.24
2002.................. 4 9,875 5.19 186,337 7.06 18.87
2003.................. 11 37,285 19.61 568,475 21.54 15.25
2004.................. 0 0 0.00 0 0.00 0.00
2005.................. 0 0 0.00 0 0.00 0.00
2006.................. 0 0 0.00 0 0.00 0.00
2007.................. 4 63,952 33.63 822,284 31.15 12.86
2008.................. 3 18,148 9.54 309,684 11.73 17.07
Thereafter............ 0 0 0.00 0 0.00 0.00
-- ----------- ------- ---------- ------- --------
Total/Average......... 47 190,160 100.00% $2,639,436 100.00% $13.88
== ======= ======= ========== ======= ======
</TABLE>
The average annual rental income per square foot of GLA at Bird Ludlum
for the years ended December 31, 1996, 1997 and 1998 was $16.89, $17.00 and
$17.72, respectively.
At the time of its acquisition by the Company, Bird Ludlum was 96.0%
leased. For the years ended December 31, 1996, 1997 and 1998, the percentage of
Bird Ludlum that was leased was 100.0%, 100.0%, and 99.0%, respectively.
Depreciation (for tax purposes) on Bird Ludlum is taken as follows: (i)
approximately $14.2 million of the basis is being depreciated on a straight line
basis over 40 years, and (ii) approximately $1.3 million of the basis uses a
15-year Accelerated Cost Recovery System ("ACRS") depreciation. Depreciation for
book purposes is calculated on a straight-line basis over 40 years.
LAKE MARY. Lake Mary is a 288,450 square foot Supermarket Center
occupied by 53 tenants which is located at the southeast corner of Lake Mary
Boulevard and Lake Emma Road in Lake Mary, Seminole County, Florida, in the
Orlando metropolitan area. The property was originally constructed during 1987
and 1988. Certain improvements and additions were made to Lake Mary in 1990.
Lake Mary, which is situated on a 47.0 acre parcel, has attracted a full range
of national and regional chain store tenants including K-Mart, Albertsons,
General Cinemas, Chili's, Burger King, Einstein Bros. Bagels, Carvel Ice Cream,
Radio Shack, Little Caesars and H&R Block.
Three tenants, K-Mart, Albertsons and General Cinemas, each occupy in
excess of 10.0% of the GLA at Lake Mary. K-Mart occupies 86,479 square feet of
GLA under a lease which expires in August, 2013. The annual minimum rent is
$497,254. For the years ended August 31, 1996, 1997 and 1998, K-Mart reported
sales of $8.2 million, $9.8 million and $11.9 million, respectively. Albertsons
occupies 63,139 square feet of GLA under a lease which expires in June 2012 and
has four renewal options of five years each. The annual minimum rent under the
13
<PAGE>
Albertsons lease is $568,251, increasing to $599,820 in June 2002 and $631,390
in June 2007. For the years ended May 31, 1996, 1997 and 1998, Albertsons
reported sales of $27.5 million, $28.3 million and $29.5 million, respectively.
General Cinemas occupies 35,712 square feet of GLA under a lease which expires
in June 2010. The annual minimum rent is $633,888.
The following table sets forth a schedule of lease expirations and
other information concerning leases at Lake Mary, assuming none of the tenants
exercise renewal options:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AVERAGE ANNUAL
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ.FT.
---- --------- --------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1999.................. 13 19,801 6.97% 271,187 8.18% 13.70
2000.................. 8 14,185 5.00 185,693 5.60 13.09
2001.................. 12 22,978 8.08 298,450 9.00 12.99
2002.................. 7 17,628 6.20 266,170 8.03 15.10
2003.................. 5 6,957 2.44 108,269 3.27 15.56
2004.................. 1 2,000 0.70 22,992 0.69 11.50
2005.................. 0 0 0.00 0 0.00 0.00
2006.................. 0 0 0.00 0 0.00 0.00
2007.................. 1 3,909 1.38 138,000 4.16 35.31
2008.................. 1 3,900 1.37 111,191 3.35 28.51
Thereafter............ 5 192,872 67.86 1,913,946 57.72 9.93
--- ------- ------- --------- ------ -------
Total/Average......... 53 284,230 100.00% $3,315,898 100.00% $11.67
== ======= ====== ========== ====== ======
</TABLE>
The average annual rental income per square foot of GLA at Lake Mary
for the years ended December 31, 1996, 1997 and 1998 was $12.30, $12.95 and
$13.19, respectively.
At the time of its acquisition by the Company, Lake Mary was 97.0%
leased. For the years ended December 31, 1996, 1997 and 1998, the percentage of
Lake Mary that was leased was 100.0%, 99.8% and 99.4% respectively.
Depreciation (for tax purposes) on Lake Mary is taken as follows: (i)
approximately $11.3 million of the basis is being depreciated on a straight line
basis over 40 years, and (ii) $2.0 million of the basis uses a 15-year ACRS
depreciation. Depreciation for book purposes is calculated on a straight-line
basis over 40 years.
Set forth below is additional information with respect to each of the
Company's other Existing Properties and other properties acquired since December
31, 1998:
ATLANTIC VILLAGE. Atlantic Village is a 100,559 square foot Supermarket
Center occupied by 23 tenants which is located in Atlantic Beach, Florida (in
the Jacksonville metropolitan area). Atlantic Village is situated on 14.0 acres
and is anchored by a Publix. For the year ended December 31, 1998, Publix
reported sales of $20.6 million. The Company invested $850,000 to remodel the
property and in return, Publix has renewed its lease for another 10 years
starting August 1998.
COMMONWEALTH. Commonwealth is a 81,467 square foot Supermarket Center
occupied by 13 tenants which is located in Jacksonville, Florida. Commonwealth
is situated on 12.8 acres and is anchored by a Winn-Dixie. For the year ended
June 30, 1998, Winn-Dixie reported sales of $11.0 million. In February 1998, the
Company invested $1.3 million to expand Winn-Dixie's space by 12,000 square feet
and in return Winn-Dixie (i) increased its monthly minimum rent by approximately
$12,000, starting March 1998 and (ii) extended its lease for an additional
20-year period. Additionally, the Company intends to build 6,000 square feet of
retail space on an existing out-parcel to accommodate an existing tenant at a
cost of approximately $450,000.
FORT CAROLINE. Fort Caroline is a 74,546 square foot Supermarket Center
occupied by 9 tenants which is located in Jacksonville, Florida. Fort Caroline
is situated on 9.6 acres and is anchored by a Winn-Dixie. For the
14
<PAGE>
year ended June 30, 1998, Winn-Dixie reported sales of $15.3 million. During
1994 and 1995 the Company expanded Winn-Dixie's occupied space by an aggregate
of approximately 7,200 square feet, and Winn-Dixie agreed to extend its lease
for an additional 20-year period.
MONUMENT POINTE. Monument Pointe is a 75,328 square foot Supermarket
Center occupied by 12 tenants located in Jacksonville, Florida. Monument Pointe
is situated on 7.3 acres and is anchored by a Winn-Dixie and Eckerd. For the
year ended June 30, 1998, Winn-Dixie reported sales of $16.1 million.
OAK HILL. Oak Hill is a 78,492 square foot Supermarket Center occupied
by 16 tenants located in Jacksonville, Florida. Oak Hill is situated on 11.7
acres and is anchored by a Publix and Walgreens. For the year ended December 31,
1998, Publix reported sales of $13.7 million.
EAST BAY. East Bay is a 81,826 square foot Supermarket Center occupied
by 18 tenants located in Largo, Florida (in the Tampa metropolitan area). East
Bay is situated on 10.3 acres and is anchored by an Albertsons, Scotty's and
Hollywood Video. Albertsons is located on property contiguous to the Company's
property which is not owned by the Company.
EUSTIS SQUARE. Eustis Square is a 126,791 square foot Supermarket
Center occupied by 20 tenants located in Eustis, Florida. Eustis Square is
situated on 13.5 acres and is anchored by a Publix, Beall's and Walgreens. For
the year ended December 31, 1998, Publix reported sales of $10.8 million.
FOREST EDGE. Forest Edge is a 68,631 square foot Supermarket Center
occupied by 13 tenants located in Orlando, Florida. Forest Edge is situated on
8.2 acres and is anchored by a Winn-Dixie and AutoZone. For the year ended June
30, 1998, Winn-Dixie reported sales of $12.6 million.
PLAZA DEL REY. Plaza Del Rey is a 50,146 square foot shopping center
occupied by 21 tenants located in Miami-Dade County, Florida. Plaza Del Rey is
situated on 4.6 acres and is anchored by a Navarro's. For the year ended
December 31, 1998, Navarro's drug store reported sales of $10.4 million.
POINTE ROYALE. Pointe Royale is a 199,068 square foot Supermarket
Center occupied by 22 tenants located in Cutler Ridge, Miami-Dade County,
Florida. Pointe Royale is situated on 14.5 acres and is anchored by a Best Buy
and Winn-Dixie. For the year ended June 30, 1998, Winn-Dixie reported sales of
$16.5 million. The Company intends to invest $800,000 during 1999 to renovate a
currently vacant 18,000 square foot office building situated on the property.
WEST LAKE. West Lake is a 100,747 square foot Supermarket Center
occupied by 26 tenants located in Kendall Lakes, Miami-Dade County, Florida.
West Lake is situated on 8.8 acres and is anchored by a Winn-Dixie and Burger
King. For the year ended June 30, 1998, Winn-Dixie reported sales of $13.0
million.
SKY LAKE. Sky Lake is a Community Shopping Center which is being
comprehensively redeveloped into approximately a 295,000 square foot Supermarket
Center. Sky Lake is situated on 25.5 acres and is to be anchored by a Publix
occupying 51,420 square feet of GLA. As of December 31, 1998, 43,667 square feet
of GLA were leased (other than to Publix). As of December 31, 1998, the Company
had invested $4.4 million towards the redevelopment of this property.
FOUR CORNERS. Four Corners is a 115,178 square foot Supermarket Center
occupied by 26 tenants located in Tomball, Texas (Houston metropolitan area).
Four Corners is situated on 12.0 acres and is anchored by a Kroger and Eckerd.
For the year ended October 31, 1998, Kroger reported sales of $24.0 million.
LANTANA VILLAGE. Lantana Village is a 85,300 square foot Supermarket
Center occupied by 26 tenants located in Lantana, Florida. Lantana Village is
situated on 8.5 acres and is anchored by Winn-Dixie. For the year ended June 30,
1998, Winn-Dixie reported sales of $16.2 million.
15
<PAGE>
SUMMERLIN SQUARE. Summerlin Square is a 109,156 square foot Supermarket
Center occupied by 24 tenants located in Fort Myers, Florida. Summerlin Square
is situated on 13.0 acres and is anchored by Winn-Dixie and Eckerd. For the year
ended June 30, 1998, Winn-Dixie reported sales of $12.4 million.
BEAUCLERC VILLAGE. Beauclerc Village is a 67,927 square foot drug store
anchored neighborhood shopping center occupied by 10 tenants located in
Jacksonville, Florida. Beauclerc Village is situated on 6.0 acres and is
anchored by a Walgreens. For the year ended December 31, 1998, Walgreens
reported sales of $1.8 million.
EQUITY ONE OFFICE BUILDING. The Equity One Office Building is a 28,980
square foot mixed use (office/retail) property occupied by 10 tenants, including
the Company's administrative offices, located in Miami Beach, Florida. The
property is comprised of three parcels, which, in the aggregate, total 0.7
acres. Purchased in 1992, this property was completely redeveloped by the
Company. The property is adjacent to the Miami Beach City Hall and proximate to
the Miami Beach Convention Center. The Company exercised an option granted to it
by a partnership controlled by affiliates to purchase 0.5 acres of land adjacent
to the Equity One Office Building and purchased property consisting of an
apartment building across the street, to complete the land assemblage for
redevelopment.
DIANA BUILDING. The Diana building is a 18,707 square foot mixed use
(office/retail) property currently occupied by four tenants located in West Palm
Beach, Florida. This property was purchased in 1995 and was completely
redeveloped by the Company.
MANDARIN MINI-STORAGE. Mandarin is a 52,880 square foot mini-storage
warehouse occupied by 465 tenants located in Jacksonville, Florida. The property
is situated on 2.8 acres.
RESTAURANT PROPERTY. The Company purchased a 10,000 square foot
restaurant property in Miami Beach, Florida for one of the Company's tenants,
which is leasing the facility pursuant to a long-term operating lease. This
property is situated on 2.1 acres.
WALDEN WOODS. Walden Woods was purchased in January 1999 and is a
74,336 square foot Supermarket Center occupied by 9 tenants located in Plant
City, Florida. Walden Woods is situated on 6.0 acres and is anchored by
Winn-Dixie and Walgreens.
PARK PROMENADE. Park Promenade was purchased in February 1999 is a
125,806 square foot Supermarket Center occupied by 27 tenants located in
Orlando, Florida. Park Promenade is situated on 12.0 acres and is anchored by
Publix and Blockbuster Video. For year ended December 31, 1998, Publix reported
sales of $20.3 million.
PROPERTY MANAGEMENT, LEASING AND RELATED SERVICE BUSINESS
The Company's property management and substantially all of its leasing
activities and operating and administrative functions (including leasing,
construction, data processing, finance and accounting) are administered or
coordinated by Company personnel. On-site functions such as maintenance,
landscaping, sweeping, plumbing and electrical are subcontracted out at each
location and, to the extent permitted by their respective leases, the cost of
these functions is passed on to the tenants. Personnel from the Company's
corporate headquarters conduct regular inspections of each property and maintain
frequent contact with major tenants.
The Company maintains an active leasing and maintenance program that,
combined with the quality and locations of the properties, has made the Existing
Properties attractive to tenants. The Company intends to continue to hold the
properties for long-term investment and, accordingly, places a strong emphasis
on quality construction and an on-going program of regular maintenance. The
properties are designed to require minimal capital improvements.
The Company's management information systems provide operating data
necessary to make informed business decisions on a timely basis. These systems
allow instant access to store availability, lease data, tenants'
16
<PAGE>
sales history, cash flow budgets and forecasts and enable the Company to
maximize cash flow from operations and closely monitor corporate expenses.
In addition to managing the Existing Properties, the Company provides
management and leasing services to certain third party owned properties.
Services are provided to third-party owners pursuant to contracts that are of
varying lengths of time and which generally provide for management fees of up to
4.0% of monthly base rent property receipts. The management contracts are
typically cancelable upon 30 days' notice or upon certain events, including the
sale of the property. Leasing fees typically range from $2 to $3 per square
foot. During the years ended December 31, 1996, 1997 and 1998, the Company
earned management fees of $229,995, $247,782 and $144,196, respectively, in
connection with its management of third party owned properties. At present, the
Company has no plans to expand these activities.
COMPETITION
There are numerous commercial developers, real estate companies,
including REITs such as Regency Realty Corp. and Excel Realty Trust, and other
owners of real estate in the areas in which the Company's properties are located
that compete with the Company in seeking land for development, properties for
acquisition, financing and tenants. Many of such competitors have substantially
greater resources than the Company. All of the Company's Supermarket Centers are
located in developed areas that include other Supermarket Centers. The number of
retail properties in a particular area could materially adversely affect the
Company's ability to lease vacant space and maintain the rents charged at the
Supermarket Centers or at any newly acquired property or properties. One
shopping center constructed less than two years ago stands within a two-mile
radius of Bird Ludlum. In addition, several smaller and older strip centers are
located along Bird Road in Miami. Lake Mary is located on a retail thoroughfare
which includes direct and proximate competition from a free-standing Home Depot,
a Target store and two shopping centers anchored by Winn-Dixie and Publix,
respectively. West Lake and Four Corners each competes with nearby shopping
centers anchored by supermarkets. Pointe Royale is proximate to Cutler Ridge
Mall and a Publix-anchored shopping center. Free-standing retailers such as
Circuit City and Toys R' Us within one mile of Pointe Royale compete directly
with tenants in such Supermarket Center. In addition, there are several strip
shopping centers in the vicinity. When completed, Sky Lake will compete with a
nearby Publix anchored shopping center. The Company's other properties are
subject to similar competition. Certain of the Company's competitors may possess
greater resources than the Company and may have management with more experience
than the Company's management.
REGULATIONS AND INSURANCE
REGULATIONS. Retail properties are subject to various laws, ordinances
and regulations. The Company believes that each of the Existing Properties
maintains all material operating permits and approvals required to be maintained
by the Company.
INSURANCE. Under their leases, the Company's tenants are generally
responsible for providing adequate insurance on the property they lease. The
Company believes that its properties are covered by adequate fire, flood and
property insurance provided by reputable companies. However, certain of the
Company's properties are not covered by disaster insurance with respect to
certain hazards (such as hurricanes) for which coverage is not available or
available only at rates which, in the opinion of the Company, are not
economically justifiable.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and
regulations, including, without limitation, CERCLA, Chapter 403 of the Florida
Statutes, the Florida Dry Cleaning Contamination Clean-Up Act and the Miami-Dade
County (Florida) Pollution Protection Ordinance, an owner or operator of real
estate may be required to investigate and clean up hazardous or toxic substances
or petroleum product releases at such property and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with
contamination. Many such laws, including CERCLA, typically impose
17
<PAGE>
such liability without regard for whether the owner knew of, or was responsible
for, the presence of such hazardous or toxic substances and the liability under
such laws has been interpreted to be joint and several unless divisible and
there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances may also be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Some environmental laws create a lien on a contaminated site in favor of
the government for damages and costs it incurs in connection with the
contamination. The owner of a contaminated site also may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company is generally considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and
injuries to persons and property. Certain federal, state and local laws,
regulations and ordinances also govern the removal, encapsulation or disturbance
of asbestos-containing materials ("ACMs") when such materials are in poor
condition or in the event of construction, remodeling, renovation or demolition
of a building. Such laws may impose liability for release of ACMs and may permit
third parties to seek recovery from owners or operators of such properties for
personal injury associated with ACMs. Some of the environmental site assessments
conducted at the Existing Properties to date indicate that a number of the
Existing Properties contain ACMs. The Company is not aware, however, of any ACMs
at the properties that are friable or in otherwise poor condition. Assessments
for these properties are being conducted at this time.
The Company believes that the environmental studies conducted to date
have not revealed any significant environmental liability that would have a
material adverse effect on the Company's financial condition, results of
operations, liquidity and FFO; however, no assurance can be given that
environmental studies obtained by the Company reveal all environmental
liabilities, that any prior owner of land or a property owned or acquired by the
Company did not create any material environmental condition not known to the
Company, or that a material environmental condition does not otherwise exist (or
may not exist in the future). Tenants at the Company's properties include
plant-on-premises dry cleaners, gasoline service stations and tire centers,
photo development firms and other retailers which use hazardous substances in
their businesses. Although leases with such tenants contain provisions intended
to minimize environmental risks and to shift the financial risks to the tenants,
there is no assurance that the Company will not incur liability in this regard.
A limited monitoring program with respect to groundwater testing has
been implemented at Plaza Del Rey based on questions raised by environmental
studies conducted at the time of purchase. Groundwater impacts have also been
detected at Atlantic Village, which is located in an area where a former
municipal landfill was operated. Buried refuse consistent with known landfill
parameters has been identified by the Company's consultants on the Atlantic
Village site. While these sites are not regarded by management as significant
environmental risks, if a material environmental condition does in fact exist
(or exists in the future) at these or other properties, it could have a
significant adverse impact upon the Company's financial condition, results of
operations, liquidity and FFO. No assurance can be given that the environmental
studies that were performed at the properties would disclose all environmental
liabilities thereon, that any prior owner thereof did not create a material
environmental condition not known to the Company or that a material
environmental condition does not otherwise exist as to any of the properties.
As noted, tenants at the shopping centers include plant-on-premises dry
cleaners. As a result of environmental site assessments conducted in the past
few months, low levels of perchloroethylene have been detected in soils at the
Company's Commonwealth, Fort Caroline and Eustis Square properties. The Company
understands that the owners of these cleaners are applying to participate in
state funded dry cleaner's programs. In connection with the Company's
acquisition of Sky Lake, a Phase II Environmental Site Assessment dated July 15,
1997 has revealed the existence of perchloroethylene at levels above regulatory
limits caused by a dry cleaning
18
<PAGE>
business operated on the premises. The Company has learned that the site is
included in the Florida Dry Cleaners State Program, and as a condition to the
Company's purchase of the property, the seller agreed to pay all remediation
costs, which environmental consultants have estimated to be approximately
$250,000. In addition, $500,000 has been placed into an escrow account at
closing to pay for the remediation. Based on the remediation cost estimates,
guarantees by the seller to pay for the clean-up and the establishment of the
escrow account, the Company has concluded that the property does not pose a
material environmental liability.
EMPLOYEES
At December 31, 1998, the Company had 32 full-time employees. The
Company's employees are not represented by a collective bargaining group, and
the Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company maintains its principal executive offices in an office
building located on an outparcel at Sky Lake in North Miami Beach, Florida. The
Company also maintains its administrative offices in the Equity One Office
Building, in Miami Beach, Florida. For a description of these properties as well
as the Company's other properties please refer to Item 1--Business.
ITEM 3. LEGAL PROCEEDINGS
On February 26, 1998, Albertsons commenced an action against a
subsidiary of the Company (the "Subsidiary") in the Circuit Court for the
Eleventh Judicial District in and for Miami-Dade County, Florida, alleging
breach of a letter agreement and seeking injunctive relief and the payment of
damages in excess of $10,000,000 representing lost profits and other damages.
This action was commenced in response to the Subsidiary's entering into a lease
agreement with Publix respecting Publix's lease of anchor space at Sky Lake.
Among other things, the complaint alleged that Albertsons and the Subsidiary
entered into a letter agreement which the parties intended to be memorialized
into a formal lease agreement and as to which the parties intended to be bound.
In February, 1999, Albertsons voluntarily dismissed its complaint relating to
this action in its entirety.
Except as described above, neither the Company nor the Company's
properties are subject to any material litigation. Further, to the Company's
knowledge, except as described above, there is no litigation threatened against
the Company or any of its properties, other than routine litigation and
administrative proceedings arising in the ordinary course of business, which
collectively are not expected to have a material adverse effect on the business,
financial condition, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on the New York Stock Exchange
("NYSE") on May 18, 1998, under the symbol "EQY". On March 29, 1999, the Company
had approximately 155 stockholders of record representing in excess of 400
beneficial owners. The following table sets forth for the periods indicated the
high and low sales prices as reported by the NYSE and the distributions declared
by the Company.
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW DECLARED
------ ----- -------------
<S> <C> <C> <C>
Second Quarter, 1998 (from May 18, 1998).................. $10.44 $9.56 $.13
Third Quarter, 1998....................................... $10.63 $8.31 $.25
Fourth Quarter, 1998...................................... $ 9.81 $8.63 $.25
</TABLE>
Dividends paid during 1998 totaled approximately $9.0 million. All
distributions will be made by the Company at the discretion of the Board of
Directors and will depend upon the earnings of the Company, its financial
condition and such other factors as the Board of Directors deem relevant. In
order to qualify for the beneficial tax treatment accorded to real estate
investment trusts under the Internal Revenue Code of 1986, as amended (the
"Code"), the Company is required to make distributions to holders of its shares
in an amount at least equal to 95% of the Company's "real estate investment
trust taxable income," as defined in Section 857 of the Code.
20
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA
The summary consolidated financial data and balance sheet data set
forth below have been derived from the consolidated financial statements of the
Company, including the consolidated financial statements for the years ended
December 31, 1996, 1997 and 1998 contained elsewhere herein. The consolidated
financial statements as of and for the years ended December 31, 1994, 1995,
1996, 1997 and 1998 have been audited by Deloitte & Touche LLP, independent
auditors. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
PRO FORMA(5) HISTORICAL
------------------ --------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................... $26,452 $22,523 $25,626 $20,545 $16,714 $11,348 $6,198
Operating expenses..................... 6,182 5,764 5,965 5,245 4,370 3,293 2,236
Depreciation and amortization.......... 3,202 2,703 2,881 2,392 2,067 1,496 996
Interest............................... 4,248 5,106 5,014 5,681 5,380 3,498 2,099
Put option expense..................... 1,320 -- -- -- --
General and administrative expenses.... 1,381 1,029 1,381 1,029 977 549 504
------- ------- ------- ------- ------- ------- ------
Total expenses.................... 15,013 14,602 16,561 14,347 12,794 8,836 5,835
------- ------- ------- ------- ------- ------- ------
Net income............................. $11,439 $7,921 $9,065 $6,198 $3,920 $2,512 $233(2)
======= ====== ====== ====== ====== ====== ======
Basic earnings per share(1)............ $1.12 $.81 $1.01 $0.96 $0.79 $0.56 $0.07
======= ====== ====== ====== ====== ====== ======
Diluted earnings per share(1).......... $1.11 $.77 $1.00 $0.87 $0.69 $0.47 $0.07
======= ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total rental properties, before accumulated depreciation..... $148,087 $126,441 $106,706 $92,770 $52,047
Total assets................................................. 152,955 126,903 111,822 94,470 63,644
Mortgage notes payable....................................... 67,145 71,004 66,831 60,583 32,690
Total liabilities............................................ 71,737 73,323 68,727 64,331 33,846
Shareholders' equity......................................... 81,218 53,580 43,095 29,139 28,798
OTHER DATA:
Funds from operations(3)..................................... $10,580 $8,658 $6,136 $3,973 $1,308
Ratio of earnings to fixed charges(4)........................ 2.58 2.09 1.73 1.72 1.11
Cash flows from:
Operating activities...................................... 3,697 8,843 6,680 3,469 2,433
Investing activities...................................... (23,824) (6,173) (18,277) (37,211) (29,755)
Financing activities...................................... 19,123 (2,023) 12,778 27,441 32,726
Gross leasable area (square feet) (at end of period)......... 2,078 2,004 1,807 1,670 1,003
Occupancy (at end of period)................................. 95% 93% 91% 90% 80%
</TABLE>
- -------------------------
(1) Calculated in accordance with SFAS No. 128, Earnings Per Share.
(2) Represents net income after income tax expense of $130.
(3) In March 1995, the National Association of Real Estate Investment Trusts
("NAREIT") adopted the NAREIT White Paper on Funds from Operations (the
"White Paper") which provided additional guidance on the calculation of
funds from operations. The White Paper defines funds from operations as net
income (loss) (computed in accordance with generally accepted accounting
principles ("GAAP")), excluding gains (or losses) from debt restructuring
and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures ("FFO"). Management believes FFO is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt and make capital expenditures. The Company computes
FFO in accordance with standards established by the White Paper, which may
differ from the methodology for calculating FFO utilized by other equity
REITs, and, accordingly, may not be comparable to such other REITs. Further,
FFO does not represent amounts available for management's discretionary use
because of needed capital replacement or expansion, debt service
obligations, or other commitments and uncertainties. The Company believes
that in order to facilitate a clear understanding of the consolidated
historical operating results of the
21
<PAGE>
Company, FFO should be examined in conjunction with the income (loss) as
presented in the audited consolidated financial statements and information
included elsewhere herein. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions. FFO is
derived from pro forma and historical net income as follows:
<TABLE>
<CAPTION>
PRO FORMA(5) HISTORICAL
--------------------- -----------------------------------------------------------
DECEMBER 31, DECEMBER 31,
--------------------- -----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income........... $11,439 $7,921 $9,065 $6,198 $3,920 $2,512 $233
Add:
Real estate
depreciation and
amortization..... 2,975 2,684 2,845 2,371 2,037 1,461 945
Non-recurring
items(*)......... (2,650) 89 (1,330) 89 179 - 130
------- ------ ------ ------ ------ ------ ------
FFO.................. 11,764 10,694 10,580 $8,658 $6,136 $3,973 $1,308
======= ====== ====== ====== ====== ====== ======
Diluted FFO per share $1.14 $1.04 $1.17 $1.22 $1.09 $.75 $.75
======= ====== ====== ====== ====== ====== ======
</TABLE>
- -------------------------
* Reflects pre-payment penalties, write-offs of unamortized loan costs related
to repayment of debt, lease termination fees, gain on sale of real estate,
put option expense and income tax expense as non-recurring.
(4) For the purposes of calculating the ratio of earnings to fixed charges,
earnings include pre-tax income plus interest expense, amortization of
interest previously capitalized, and amortization of financing costs. Fixed
charges include all interest costs consisting of interest expense, interest
capitalized, and amortization of financing costs.
(5) The pro forma consolidated statement of operations data and pro forma FFO
information for the years ended December 31, 1997 and 1998 does not purport
to represent the Company's actual operations for these periods. The pro
forma adjustments present the information as if the proceeds from the
initial public offering were used to acquire the Summerlin Square Shopping
Center, the Beauclerc Village Shopping Center and the Restaurant Property on
January 1, 1997 and makes adjustments to interest expense and amortization
to report loan payoffs and mortgage note payable refinancing effective
January 1, 1997. Also, the put option expense was excluded as non-recurring.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with "Selected Consolidated Financial Data" and the Company's consolidated
financial statements, and the notes thereto, appearing elsewhere herein.
The Company receives income primarily from rental revenue (including
recoveries from tenants) from the Existing Properties. As a result of the
Company's acquisition and redevelopment programs, the financial data shows
increases in total revenue from year to year, largely attributable to the
acquisitions of properties placed into operation during the year and the benefit
of a full period of rental and other revenue for properties acquired or placed
into operation in the preceding year.
The following table sets forth as of December 31, 1998, 1997 and 1996,
respectively, information regarding the nature and composition of the Company's
revenues and expenses expressed as a percentage of the Company's total revenues
which are set forth in the consolidated financial statements included elsewhere
herein. For purposes of the following table, "aggregate minimum rental revenue"
is the fixed base rental amount in effect throughout the relevant periods.
"Percentage rent" is additional rent paid by tenants based upon achievements of
certain specified levels of gross sales. "Recoveries from tenants" is the
tenants' share of real estate taxes, insurance and common area maintenance
expenses. The information set forth below presents an analysis of certain trends
relating to the components of the Company's revenues and expenses.
22
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Aggregate minimum rental revenue........................... 68.25% 73.36% 75.55%
Percentage rent............................................ .45% 0.84% 0.92%
Recoveries from tenants.................................... 16.97% 18.03% 18.34%
Gain on sale of real estate................................ 10.27% - -
Other income............................................... 4.06% 7.77% 5.19%
------ ------ ------
Total Revenues............................................. 100.00% 100.00% 100.00%
------ ------ ------
Operating expenses......................................... 23.28% 25.53% 26.14%
Depreciation and amortization.............................. 11.24% 11.64% 12.37%
Interest................................................... 19.57% 27.65% 32.19%
General and administrative expenses........................ 5.39% 5.01% 5.85%
Put option expense......................................... 5.15%
------ ------ ------
Total costs and expenses................................... 64.63% 69.83% 76.55%
------ ------ ------
Net income................................................. 35.37% 30.17% 23.45%
====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenues increased by approximately $5.1 million, or 24.8%, to
$25.6 million in 1998 from $20.5 million in 1997. This increase was primarily
the result of a $2.6 million gain on the sale of Parker Towne Center in October
1998, as well as the operations of Lantana Village (acquired in January 1998);
Summerlin Square (acquired in May 1998); Beauclerc Village (acquired in June
1998); and a restaurant property (acquired in May 1998). Of such increase,
approximately $994,000, $726,000, $315,000 and $111,000 were attributable to
Lantana Village, Summerlin Square, Beauclerc Village and the restaurant
property, respectively. The remaining increase was attributable to increased
occupancy at the Company's Existing Properties.
Operating expenses increased by approximately $720,000, or 13.7%, to
$5.9 million in 1998 from $5.2 million in 1997, primarily as a result of the
operations of Lantana Village, Summerlin Square, Beauclerc Village and the
restaurant property. Notwithstanding the foregoing, as a percentage of revenue,
operating expenses decreased from 25.5% in 1997 to 23.3% in 1998.
Depreciation and amortization increased by approximately $489,000, or
20.9%, to $2.9 million in 1998 from $2.4 million in 1997 primarily as a result
of an increase in depreciable assets resulting from the Company's acquisitions
of Lantana Village, Summerlin Square, Beauclerc Village and the restaurant
property and from capital expenditures incurred by the Company in connection
with tenant and leasehold improvements.
Interest expense decreased by approximately $667,000 or 11.7% to $5.0
million in 1998 from $5.7 million in 1997. This decrease was primarily due to an
increase of approximately $488,000 in capitalized interest, to $633,000 in 1998
from $145,000 in 1997, as a result of the comprehensive redevelopment at Sky
Lake and the use of proceeds derived from the Company's IPO to pay off certain
loans and to refinance certain properties at lower interest rates. This achieved
a net reduction in mortgage notes payable of $3.2 million and an overall
reduction in recurring interest costs of $358,000 before considering prepayment
penalties of $119,000 and the write-off of amortized loan costs of $88,000.
23
<PAGE>
General and administrative expenses increased by approximately
$352,000, or 34.2%, to $1.4 million in 1998 from $1.0 million in 1997. As a
percentage of revenue, general and administrative expenses increased from 5.0%
in 1997 to 5.4% in 1998. A substantial portion of this increase is attributable
to a $216,000 increase in professional and legal fees. Professional fees have
increased due to the increase costs of becoming a public company, including
stock exchange listing fees, public relations and other consulting fees. Legal
fees increased due to the lawsuit relating to Sky Lake, which lawsuit has been
voluntarily dismissed by the plaintiff.
As a result of the foregoing, net income increased by $2.9 million, or
46.3%, to $9.1 million in 1998 from $6.2 million in 1997; and FFO increased by
$2.4 million, or 28.7%, to $10.6 million in 1998 from $8.2 million in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues increased by approximately $3.8 million, or 22.7%, to
$20.5 million in 1997 from $16.7 million in 1996 primarily due to the first full
year of operations for West Lake, acquired by the Company in November 1996, and
Forest Edge, acquired in December 1996, and the acquisition of Monument Pointe
in January 1997 and Sky Lake in August 1997. Of such increase, approximately
$1.0 million, $532,000, $535,000 and $769,000 were attributable to West Lake,
Forest Edge, Monument Pointe and Sky Lake, respectively.
Operating expenses increased by approximately $875,000, or 20.0%, to
$5.3 million in 1997 from $4.4 million in 1996, primarily as a result of a full
year of operations for West Lake and Forest Edge, as well as the Company's
acquisition of Monument Pointe and Sky Lake. However, for such periods,
operating expenses as a percent of revenues decreased to 25.5% from 26.1% due to
operating efficiencies based, in part, on owning more properties and in
concentrated areas.
Depreciation and amortization expense increased by approximately
$325,000, or 15.5%, to $2.4 million in 1997 from $2.1 million in 1996 primarily
as a result of an increase in depreciable assets resulting from the Company's
purchase of West Lake, Forest Edge, Monument Pointe and Sky Lake.
Interest expense increased by approximately $301,000, or 5.5%, to $5.7
million in 1997 from $5.4 million in 1996 primarily as a result of increased
mortgage indebtedness incurred by the Company in connection with its purchase of
West Lake, Forest Edge, Monument Pointe and Sky Lake.
General and administrative expenses increased by approximately $52,000,
or 5.3%, to $1.0 million in 1997 from $977,000 in 1996, primarily as a result of
the increase in the Company's portfolio of Supermarket Centers. However, for
such periods, general and administrative expenses as a percent of revenues
decreased to approximately 5.0% from approximately 5.8% due to operating
efficiencies based in part on owning more properties in a concentrated area.
As a result of the foregoing, net income increased by $2.3 million, or
59.0%, to $6.2 million in 1997 from $3.9 million in 1996, and FFO increased by
$2.1 million, or 34.4%, to $8.2 million in 1997 from $6.1 million in 1996.
YEAR 2000 ISSUES
The Company has undertaken a study of its functional application
systems to determine their compliance with year 2000 issues and, to the extent
of noncompliance, the required remediation. As a result of such study, the
Company believes the majority of its systems are year 2000 compliant. To date,
the expenses incurred by the Company in order to become year 2000 compliant,
including computer software costs, have been approximately $25,000. Costs other
than software have been expensed as incurred.
24
<PAGE>
An assessment of the readiness of year 2000 compliance of third party
entities with which the Company has relationships, such as its banking
institutions; tenants and others is ongoing. The Company has inquired, or is in
the process of inquiring, of the significant aforementioned third party entities
as to their readiness with respect to year 2000 compliance and to date has
received indications that many of them are either compliant or in the process of
remediation. The Company will continue to monitor these third party entities to
determine the impact on the business of the Company and the actions the Company
must take, if any, in the event of non-compliance by any of these third parties.
The Company's initial assessment of compliance by third party entities is that
there is not a material business risk to the Company posed by any such
noncompliance and, as such, the Company has not yet developed any related
contingency plans.
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding mortgage
indebtedness of the Company related to the Existing Properties as of December
31, 1998:
<TABLE>
<CAPTION>
INTEREST PROJECTED ANNUAL BALANCE DUE
RATE AMOUNT INTEREST PAYMENTS MATURITY DATE AT MATURITY
-------- ------ ----------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SOUTH FLORIDA
Bird Ludlam......................... 7.68% $12,709 $963 February 2015 $ 0
Plaza Del Rey....................... 8.125 2,783 222 September 2011 0
Pointe Royal........................ 7.95 5,519 433 July 2010 2,502
West Lake........................... 7.875 5,679 442 June 2006 4,157
CENTRAL FLORIDA
Eustis Square....................... 9.00 5,125 454 July 2002 4,322
Lake Mary........................... 7.85 12,459 967 December 2010 5,569
Lantana............................. 6.95 4,311 296 February 2005 3,484
Forest Village...................... 6.90 1,923 130 October 2002 1,558
NORTH FLORIDA
Fort Caroline....................... 9.35 2,308 210 March 2002 2,078
Monument Pointe..................... 10.06 2,591 267 June 2001 2,564
Oak Hill............................ 7.625 2,321 175 February 2006 1,703
Commonwealth........................ 7.00 3,235 224 March 2008 2,204
Mandarin Mini Storage............... 6.375 1,192 24 May 1999 1,172
Atlantic Village.................... 6.85 4,990 337 November 2018 0
</TABLE>
The Company's mortgage indebtedness outstanding at December 31, 1998
will require balloon principal payments of approximately $1.2 million, $2.6
million, $8.0 million, $3.5 million, $5.9 million, $2.2 million and $8.1
million in 1999, 2001, 2002, 2005, 2006, 2008 and 2010, respectively, in
addition to normal amortization throughout the terms of the mortgages. The
Company may not have sufficient funds on hand to repay these balloon amounts at
maturity. Therefore, the Company expects to refinance such debt either through
additional debt financings secured by individual properties or groups of
properties, by unsecured private or public debt offerings or by additional
equity offerings.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the principal sources of funding for the Company's
operations, including the renovation, expansion, development and acquisition of
shopping centers, have been operating cash flows, the issuance of equity
securities and mortgage loans. The Company's principal demands for liquidity are
maintenance, repair and tenant improvements of existing properties, acquisitions
and development activities, debt service and repayment obligations and
distributions to its stockholders.
As of December 31, 1998, the Company had total mortgage indebtedness of
$67.1 million, all of which was fixed rate mortgage indebtedness bearing
interest at a weighted average annualized rate of 8.0% and collateralized by 14
of the Existing Properties. As of such date, the percentage of the net book
value of the Company's rental properties that were encumbered by debt was
68.69%. None of the existing mortgages are subject to cross default
25
<PAGE>
provisions of mortgages on other properties or is cross collateralized. However,
in connection with the Company's acquisition of Lake Mary, the Company has
provided a $1.5 million letter of credit to secure certain obligations, which
letter of credit is collateralized by a mixed-use property located in West Palm
Beach, Florida.
As of December 31, 1998, the Company had an outstanding balance of
$560,000 under a $2.0 million line of credit at 0.50% over prime with City
National Bank of Florida which was due on demand. The purpose of the line of
credit was to provide working capital until a new $35.0 million credit facility
was in place. The $560,000 outstanding thereunder was paid in January 1999 and
on February 4, 1999, the Company secured a $35,000,000 Master Revolving Credit
Agreement (the "Credit Agreement") with City National Bank of Florida. Advances
under this Agreement are limited to $16,590,000, with any excess advances being
conditioned on the lender securing participation from other lenders. The Credit
Agreement accrues interest at 225 basis points over the thirty day LIBOR rate,
payable monthly, adjusted every six months and matures February 4, 2000.
Advances under the Credit Agreement will be used to fund property acquisitions,
development activities and other Company activities, and is secured by four of
the Company's unencumbered properties.
In addition, the terms of the Credit Agreement allow the lender to
cease funding and/or accelerate the maturity date if neither Mr. Katzman nor Mr.
Valero remains as the executives in control of the Company. The Credit Agreement
also limits the amount that can be borrowed for the purchase of vacant land and
other customary conditions, including, among other things, the payment of
commitment fees and the required delivery of various title, insurance, zoning
and environmental assurances on the secured properties, and will contain various
covenants, such as a prohibition on secondary financing on any of the secured
properties.
The Company is in the process of constructing one major redevelopment
project that will add approximately an additional 240,000 square feet of retail
space to the Company's portfolio. This project is expected to be completed
during the first quarter of 2000. It is anticipated that future funding required
for this project is estimated to be $14.0 million and will come from borrowings
under the Credit Agreement and other sources of cash including obtaining
permanent debt on certain unencumbered existing properties. Management expects
this development to have a positive effect on cash generated by operating
activities and FFO.
The Company completed an initial public offering ("IPO") of its common
stock in May 1998. Pursuant to the IPO, an aggregate of 4,700,000 shares of the
Company's common stock were sold, of which 3,330,398 shares, generating net
proceeds of approximately $33.5 million, were sold by the Company and 1,369,602
shares were sold by a stockholder of the Company. As of March 29, 1999, no
proceeds from the IPO remained available for use.
The Company believes, based on currently proposed plans and assumptions
relating to its operations, that the proceeds from its initial public offering
and the Company's existing financial arrangements, together with cash flows from
operations, will be sufficient to satisfy its cash requirements for a period of
at least 12 months. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the proceeds from the initial
public offering or available financing arrangements prove to be insufficient to
fund the Company's expansion and development efforts, the Company would be
required to seek additional sources of financing. There can be no assurance that
any additional financing will be available to the Company on acceptable terms,
or at all. If adequate funds are not available, the Company's business
operations could be materially adversely affected.
During the year ended December 31, 1998, the Company declared cash
dividends of $.25, $.13, $.12, $.25 and $.25 per outstanding share of common
stock. The dividends were paid to stockholders of record on March 24, 1998, May
18, 1998, June 29, 1998, October 6, 1998 and December 23, 1998, respectively.
INFLATION
Most of the Company's leases contain provisions designed to partially
mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rents based on a tenant's gross sales
above predetermined levels, which rents generally increase as prices rise, or
escalation clauses which are typically related to increases in the Consumer
Price Index or similar inflation indices. Most of the Company's leases require
the tenant to pay its share of operating expenses, including common area
maintenance, real estate taxes and
26
<PAGE>
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation.
The Company's financial results are affected by general economic
conditions in the markets in which its properties are located. An economic
recession, or other adverse changes in general or local economic conditions,
could result in the inability of some existing tenants of the Company to meet
their lease obligations and could otherwise adversely affect the Company's
ability to attract or retain tenants. The properties are typically anchored by
supermarkets, drug stores and other consumer necessity and service retailers
which typically offer day-to-day necessities rather than luxury items. These
types of tenants, in the experience of the Company, generally maintain more
consistent sales performance during periods of adverse economic conditions.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including, but not limited to, statements regarding growth in
rental revenues and sufficiency of the Company's cash flow for its future
liquidity and capital resource needs. These forward looking statements are
further qualified by important factors that could cause actual events to differ
materially from those in such forward looking statements. These factors include,
without limitations, increased competition, dependence on key tenants,
geographic concentration, lack of development experience, reliance on key
personnel and maintaining its REIT status. Results actually achieved may differ
materially from expected results included in these forward looking statements as
a result of these or other factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments consist of cash, accounts
receivable and debt. Cash and accounts receivable are short-term, non-interest
bearing instruments and not subject to significant market risk.
Substantially all of the Company's debt have fixed interest rates.
Accordingly, interest rate changes affect fair market value of the debt but do
not impact earnings or cash flows. The Company's future cash requirements and
the related weighted-average interest rates for its debt are: 1999, $3,150,000
and 7.31%; 2000, $2,120,000 and 7.88%; 2001, $4,753,000 and 9.01%; 2002,
$10,206,000 and 8.47%; 2003, $2,139,000 and 7.68%; and, thereafter $44,777,000
and 7.60%, respectively.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required
by Regulation S-X are included in this Annual Report on Form 10-K commencing on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's definitive proxy statement
to be filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's definitive proxy statement
to be filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's definitive proxy statement
to be filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's definitive proxy statement
to be filed within 120 days after the end of the fiscal year covered by this
Form 10-K.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. Consolidated Financial Statements:
Reference is made to the "Table of
Contents" in Part II, Item 8 of this
Form 10-K.
2. Consolidated Financial Statement Schedules
Page
----
Report of Deloitte & Touche
LLP, Independent Auditors......... S-1
Schedule III--Real Estate and
Accumulated Depreciation.......... S-2
Schedules I, II, IV and V are not
required to be filed.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Articles of Amendment and Restatement of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (1)
4.1 Form of Common Stock Certificate. (1)
10.1 Form of Indemnification Agreement. (1)
10.2 Employment Agreement, dated as of January 1, 1996 by and between the Company and Chaim
Katzman. (1)
10.3 Employment Agreement, dated as of January 1, 1996 by and between the Company and Doron
Valero. (1)
10.4 Form of 1995 Stock Option Plan, as amended. (1)
10.5 Form of Stock Option Agreement. (1)
10.6 Registration Rights Agreement, dated as of January 1, 1996 by and among the Company,
Chaim Katzman, Gazit Holdings, Inc., Dan Overseas Ltd., Globe Reit Investments, Ltd., Eli
Makavy, Doron Valero and David Wulkan. (1)
10.7 Stock Pledge Agreement, dated June 17, 1996, by and between Chaim Katzman and the
Company. (1)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.8 Promissory Note, in the amount of $1,128,750 from Chaim Katzman, payable to the Company.
(1)
10.9 Stock Pledge Agreement, dated December 30, 1996, by and between the Company and Doron
Valero. (1)
10.10 Promissory Note, in the amount of $396,000 from Doron Valero payable to the Company.(1)
10.11 Use Agreement, regarding use of facilities, by and between Gazit (1995), Inc. and the
Company, dated January 1, 1996.(1)
10.12 Pledge Agreement, dated November 9, 1995 among Equity One (Lake Mary), Inc. and The
Mutual Life Insurance Company of New York.(1)
10.13 Note Secured by First Real Estate Lien, dated November 9, 1995 in the amount of
$13,422,500 from Equity One (Lake Mary), Inc. in favor of The Mutual Life Insurance
Company of New York.(1)
10.14 Purchase and Sale Agreement, dated October 24, 1995 by and between 1740 Ventures, Inc.
and Equity One (Lake Mary), Inc.(1)
10.15 Florida Real Estate Mortgage and Security Agreement, dated November 9, 1995 by and
between Equity One (Lake Mary), Inc. and The Mutual Life Insurance Company of New York.(1)
10.16 Agreement for Purchase and Sale, dated June 12, 1997 by and between Equity One (Gamma)
Inc. and Isidoro Lerman, Trustee.(1)
10.17 Contract for Sale and Purchase, dated March 31, 1997 by and among Equity One (Gamma)
Inc., Angel Pena and Hermilio Concepcion.(1)
10.18 Property Management Agreement, dated as of January 1, 1996, by and between the Company
and Global Realty and Management, Inc.(1)
10.19 Agreement for Purchase and Sale (Lantana Village Square), dated September 24, 1997,
by and between Equity One (Gamma) Inc. and Commercial Ventures Services, Inc.(1)
10.20 Mortgage Promissory Note, dated August 19, 1997, by and between Equity One (Sky Lake)
Inc. and Isidoro Lerman, as Trustee.(1)
10.21 Mortgage, dated August 19, 1997, by and between Equity One (Sky Lake) Inc. and Isidoro
Lerman, as Trustee.(1)
10.22 Settlement Agreement, dated March 6, 1998 by and among Gazit Inc., Danbar Resources and
Development Ltd. and Dan Overseas Ltd.(1)
10.23 Mortgage and Security Agreement, dated February 27, 1998, by and between Equity One
(Commonwealth) Inc. and Principal Mutual Life Insurance Company.(1)
10.24 Secured Promissory Note, dated February 27, 1998 in the amount of $3,300,000 by and
between Equity One (Commonwealth) Inc. and Principal Mutual Life Insurance Company.(1)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.25 Mortgage and Securities Agreement, dated as of February 18, 1998, by and between Equity
One (Lantana) Inc. and Principal Mutual Life Insurance Company.(1)
10.26 Secured Promissory Note, dated February 18, 1998 in the amount of $2,700,000 by and
between Equity One (Lantana) Inc. and Principal Mutual Life Insurance Company.(1)
10.27 Agreement for Purchase and Sale Between Equity One (Gamma) Inc. and Sunrise Limited
Partnership, dated March 12, 1998. (Summerlin Square) (2)
10.28 Bill of Sale Between Sunrise Limited Partnership and Equity One (Summerlin) Inc., dated
June 5, 1998. (Summerlin Square) (2)
10.29 Escrow Agreement Between Sunrise Limited Partnership and Equity One (Gamma) Inc., dated
March 12, 1998. (Summerlin Square) (2)
10.30 Agreement for Purchase and Sale, dated August 19, 1998 Between Equity (Parker Towne
Center), Inc. and Dunhill Partners. (3)
10.31 Promissory Note, dated October 30, 1998 issued by Equity One (Atlantic Village), Inc. to
Southern Farm Bureau Life Insurance Company. (3)
10.32 Mortgage Security Agreement and Assignment of Leases, dated October 30, 1998 between
Equity One (Atlantic Village), Inc. and Southern Farm Bureau Life Insurance Company. (3)
21.1 List of Subsidiaries of the Registrant. (4)
27.1 Financial Data Schedule. (4)
</TABLE>
- --------------------------
(1) Previously filed with the Company's Registration Statement on Form S-11
(Registration No. 333-3397) and incorporated herein by reference.
(2) Previously filed with the Company's quarterly report on Form 10-Q filed on
August 12, 1998, and incorporated herein by reference.
(3) Previously filed with the Company's quarterly report on Form 10-Q filed on
November 16, 1998, and incorporated herein by reference.
(4) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EQUITY ONE, INC.
Date: April 1, 1999 By: /s/ CHAIM KATZMAN
---------------------------------------------
Chaim Katzman
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment No. 1 to this report has been signed below by the following
persons on behalf of the registrant in the capacities, and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ CHAIM KATZMAN Chairman of the Board, President, April 1, 1999
- ---------------------------------------- Chief Executive Officer (Principal
Chaim Katzman Executive Officer)
/s/ PETER SACKMANN Chief Accounting Officer (Principal April 1, 1999
- ---------------------------------------- Financial and Accounting Officer)
Peter Sackmann
/s/ DORON VALERO Vice President, Chief Operating April 1, 1999
- ---------------------------------------- Officer and Director
Doron Valero
/s/ NOAM BEN OZER Director April 1, 1999
- ----------------------------------------
Noam Ben Ozer
/s/ DR. SHAIY PILPEL Director April 1, 1999
- ----------------------------------------
Dr. Shaiy Pilpel
/s/ ROBERT COONEY Director April 1, 1999
- ----------------------------------------
Robert Cooney
/s/ RONALD CHASE Director April 1, 1999
- ----------------------------------------
Ronald Chase
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- ---------------------------------------------------------------------------------------------
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
Consolidated balance sheets, as of December 31, 1998
and 1997, and the related consolidated statements
of operations, comprehensive income, stockholders' equity and cash flows
for the years ended December 31, 1998, 1997 and 1996:
Consolidated Balance Sheets F-2-3
Consolidated Statements of Operations F-4
Consolidated Statements of Comprehensive Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7-8
Notes to the Consolidated Financial Statements F-9-23
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Equity One, Inc.:
We have audited the accompanying consolidated balance sheets of Equity One, Inc.
and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income,
stockholders' equity and cash flows for the years ended December 31, 1998, 1997
and 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Equity One, Inc. and subsidiaries
as of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the years ended December 31, 1998, 1997 and 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 12, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (In Thousands Except Share Data)
- -----------------------------------------------------------------------------------------------
ASSETS 1998 1997
<S> <C> <C>
RENTAL PROPERTY (Notes 1, 4):
Land, buildings, and equipment $ 134,330 $ 120,241
Building improvements 6,580 4,412
Land held for development 2,680 1,394
Construction in progress 4,497 394
--------- ---------
Total rental property 148,087 126,441
Less: accumulated depreciation 9,464 7,191
--------- ---------
Rental Property, net 138,623 119,250
--------- ---------
Cash and cash equivalents (Note 1) 1,594 2,598
Restricted cash (Note 1) 6,780
Securities available for sale (Notes 1, 2) 1,633 45
Accounts and other receivables (net of allowance for doubtful accounts
of $113 and $29 for 1998 and 1997, respectively) (Note 3) 1,142 892
Due from related parties (Note 12) 39 48
Deposits (Note 1) 529 1,339
Prepaid and other assets 671 410
Deferred expenses (net of accumulated amortization of
$265 and $280 for 1998 and 1997, respectively) (Note 1) 1,200 1,527
Goodwill (net of accumulated amortization of $248 and
$198 for 1998 and 1997, respectively) (Note 1) 744 794
--------- ---------
TOTAL $ 152,955 $ 126,903
========= =========
(Continued)
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (In Thousands Except Share Data)
- --------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 868 $ 1,281
Deferred rental income 152 274
Note payable (Note 5) 560
Mortgage notes payable (Note 5) 67,145 71,004
Put option liability (Note 6) 2,127
Tenants' security deposits 885 764
--------- ---------
Total liabilities 71,737 73,323
--------- -------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - 5,000,000 shares authorized
but unissued (Note 6)
Common stock, $0.01 par value - 40,000,000 shares authorized,
10,238,528 and 6,908,130 shares issued and outstanding for
1998 and 1997, respectively (Note 6) 102 69
Additional paid-in capital 81,214 55,036
Accumulated other comprehensive income (98)
Notes receivable from issuance of common stock (1,525)
--------- ---------
Total stockholders' equity 81,218 53,580
--------- ---------
TOTAL $ 152,955 $ 126,903
========= =========
(Concluded)
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands Except Per Share Amounts)
- --------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
RENTAL INCOME (Notes 1, 9) $ 22,598 $ 19,816 $ 16,337
-------- -------- --------
GAIN ON SALE OF REAL ESTATE 2,632
-------- -------- --------
INVESTMENT REVENUE:
Interest 162 424 239
Dividends 234 224 111
Realized gain on securities, net (Note 2) 81 27
-------- -------- --------
Total investment revenue 396 729 377
-------- -------- --------
Total revenues 25,626 20,545 16,714
-------- -------- --------
COSTS AND EXPENSES:
Operating expenses (Note 10) 5,965 5,245 4,370
Depreciation (Notes 1, 4) 2,831 2,342 2,017
Interest (Note 10) 5,014 5,681 5,380
Put option expense (Note 6) 1,320
General and administrative expenses (Notes 11, 12) 1,381 1,029 977
Amortization expense - goodwill 50 50 50
-------- -------- --------
Total costs and expenses 16,561 14,347 12,794
-------- -------- --------
NET INCOME $ 9,065 $ 6,198 $ 3,920
======== ======== ========
EARNINGS PER SHARE (Notes 1, 8):
BASIC EARNINGS PER SHARE $ 1.01 $ 0.96 $ 0.79
======== ======== ========
NUMBER OF SHARES USED IN COMPUTING
BASIC EARNINGS PER SHARE 8,979 6,446 4,991
======== ======== ========
DILUTED EARNINGS PER SHARE $ 1.00 $ 0.87 $ 0.69
======== ======== ========
NUMBER OF SHARES USED IN COMPUTING
DILUTED EARNINGS PER SHARE 9,074 7,106 5,673
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
- --------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
NET INCOME $ 9,065 $ 6,198 $ 3,920
------- ------- -------
OTHER COMPREHENSIVE INCOME
Net unrealized holding loss on securities
available for sale (98)
-------
Total (98)
------- ------- -------
COMPREHENSIVE INCOME $ 8,967 $ 6,198 $ 3,920
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands)
- ----------------------------------------------------------------------------------------------------------
NOTES
ACCUMULATED RECEIVABLE TOTAL
ADDITIONAL OTHER FROM STOCK-
COMMON PAID-IN COMPREHENSIVE ISSUANCE OF RETAINED HOLDERS'
STOCK CAPITAL INCOME COMMON STOCK EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1995 $ 44 $ 29,095 $ 29,139
Issuance of common stock 13 14,727 14,740
Notes receivable from
issuance of common stock $ (1,525) (1,525)
Conversion of common
stock issued with
put option to equity 1 999 1,000
Net income $3,920 3,920
Dividends paid (259) (3,920) (4,179)
----- -------- ----- ----- ------- -------
BALANCE,
DECEMBER 31, 1996 58 44,562 (1,525) 43,095
Issuance of common stock 11 10,596 10,607
Net income 6,198 6,198
Dividends paid (122) (6,198) (6,320)
----- -------- ----- ----- ------- -------
BALANCE,
DECEMBER 31, 1997 69 55,036 (1,525) 53,580
Issuance of common stock 33 34,088 34,121
Stock issuance costs (1,087) (1,087)
Put option liability (Note 6) (807) (807)
Property and notes receivable
distributed (4,758) 1,525 (3,233)
Net income 9,065 9,065
Dividends paid (8,973) (8,973)
Distribution to stockholders -
exercise of land purchase
options (Note 4) (1,258) (92) (1,350)
Net unrealized holding loss
on securities available for sale $ (98) (98)
----- -------- ----- ----- ------- -------
BALANCE,
DECEMBER 31, 1998 $ 102 $ 81,214 $ (98) $ $ $81,218
===== ======== ===== ===== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands)
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,065 $ 6,198 $ 3,920
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,072 2,611 2,282
Provision for losses on accounts receivable 84 29
Gain on sales of securities (81) (27)
Gain on sale of real estate (2,632)
Put option liability 1,320
Changes in assets and liabilities:
Restricted cash (6,780)
Accounts and other receivables (357) (121) 122
Deposits 114 (79) 113
Prepaid and other assets (261) (133) (112)
Accounts payable and accrued expenses 19 331 67
Deferred rental income (122) 22 189
Tenants' security deposits 166 70 142
Due from related party 9 (4) 18
Income tax liability (34)
------- ------- -------
Net cash provided by operating activities 3,697 8,843 6,680
------- ------- -------
INVESTING ACTIVITIES:
Acquisition of rental property (22,227) (6,386) (13,936)
Acquisition of building improvements (3,244) (1,507)
Construction costs incurred (4,103) (2,094)
Sale of rental property 6,740
Purchases of securities (1,715) (5,237) (7,029)
Sales and prepayments of securities 29 9,801 2,688
Change in deposits for acquisition of rental property 696 (750)
------- ------- -------
Net cash used in investing activities (23,824) (6,173) (18,277)
------- ------- -------
FINANCING ACTIVITIES:
Due to stockholders (2,216)
Repayments of mortgage notes payable (16,559) (19,455) (4,352)
Borrowings under mortgage notes payable 12,700 13,880 10,599
Borrowings under note payable 560
Deferred financing expenses (513) (735) (289)
Stock subscription and issuance 34,121 10,607 13,215
Stock issuance costs (863)
Cash dividends paid to stockholders (8,973) (6,320) (4,179)
Distribution to stockholders (1,350)
------- ------- -------
Net cash provided by (used in) financing activities 19,123 (2,023) 12,778
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,004) 647 1,181
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,598 1,951 770
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,594 $ 2,598 $ 1,951
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands)
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 4,769 $ 5,476 $ 4,752
======= ======= =======
SUPPLEMENTAL SCHEDULE OF CASH AND
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of common stock issued with put option to equity $ 1,000
=======
Common stock issued for notes receivable $ 1,525
=======
Acquisition of rental property $15,402
Cash paid for rental property (5,654)
-------
Assumption of mortgage note payable $ 9,748
=======
Put option liability charged to stockholders' equity $ 807
=======
Property and notes receivable distributed to stockholders $ 4,758
=======
(Concluded)
</TABLE>
See accompanying notes to the consolidated financial statements.
F-8
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Equity One, Inc. (the "Company") was incorporated in Maryland on
June 15, 1992, as a wholly-owned subsidiary of Gazit Holdings, Inc., a
wholly-owned subsidiary of Gazit, Inc. During 1996, as a result of a
merger, Gazit Holdings, Inc. transferred all of its stock ownership to
Gazit (1995), Inc. ("Gazit"), a wholly-owned subsidiary of Gazit, Inc.
(See Note 6). Since 1993, additional shares of stock were issued to both
affiliated and unaffiliated entities. As of December 31, 1998 (and
pursuant to a transfer of interests between Gazit, Inc. and Globe-Reit
Investments, Ltd. ("Globe") whereby Gazit became a wholly-owned subsidiary
of Globe), Globe's holdings (directly and indirectly) in the Company
approximated 55%. The Company was formed for the purpose of holding
various real estate subsidiaries located in the United States of America
("U.S." or "United States").
The Company completed its Initial Public Offering ("IPO") on May 19, 1998
of 4,700,000 common shares, $0.01 par value per share. Of the shares sold
in the offering, 3,330,398 shares, generating net proceeds of
approximately $33,500 were sold by the Company and 1,369,602 shares were
sold by a stockholder of the Company. All of the common shares were sold
at $11.00 per share.
The Company currently owns and operates twenty-two properties in Florida
and one property in Texas, comprising approximately 94% and 6% of the
total rentable square footage, respectively. In addition, Winn-Dixie
Stores Inc., and Publix Supermarkets, Inc., rent approximately 19% and 6%
of the total rentable square footage, respectively.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of Equity One, Inc. and its wholly-owned subsidiaries. All
subsidiaries hereinafter are referred to as "the consolidated companies."
All intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the Company considers certificates of deposit with an initial maturity of
three months or less to be cash equivalents. Cash and cash equivalents
consist of the following as of December 31, 1998 and 1997:
1998 1997
Cash $ 1,461 $ 2,475
Certificates of deposit 133 123
------- -------
Total $ 1,594 $ 2,598
======= =======
RESTRICTED CASH - At December 31, 1998, $6,780 of cash was received from
the sale of a property and is being held in escrow to accomplish a
like-kind exchange in 1999, pursuant to Internal Revenue Code ("IRC")
Section 1031.
INVESTMENT SECURITIES - As of December 31, 1998 and 1997, all of the
Company's securities are classified as securities available for sale and
are carried at fair value. Unrealized gains and losses are reported as a
separate component of stockholders' equity in accumulated other
comprehensive income until realized.
F-9
<PAGE>
DEPOSITS - Deposits are comprised of funds held by various institutions
for future payments of taxes and insurance, utility and other service
deposits and deposits for acquisition of rental property.
RENTAL PROPERTY - Rental property is stated at cost. Major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals are
charged to operating expense as incurred. Depreciation is provided for
using the straight-line method over the estimated useful lives of the
assets which range from 5 to 40 years, except for building improvements
related to leasehold improvements which are depreciated over the lesser of
the assets' useful lives or the terms of the related leases.
LAND HELD FOR DEVELOPMENT - Land held for development is stated at cost
(which is not in excess of fair value less costs to sell). Interest, real
estate taxes and other costs directly related to the properties and
projects under development are capitalized until the property is ready for
its intended use. Similar costs related to properties not under
development are expensed as incurred.
Fair value is based upon the ultimate realizable value of the Company's
land held for development and is dependent upon future economic, market
and entitlement conditions. Such economic, market, and entitlement
conditions may affect management's development plans. Accordingly,
ultimate realization could be materially different from amounts presently
estimated.
LONG-LIVED ASSETS - The Company's long-lived assets, such as property,
certain identifiable intangibles, and goodwill related to those assets to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of an asset may not be
recoverable. The Company periodically assesses the recoverability of the
long-lived assets based on its expectations of future profitability and
undiscounted cash flow of the related operations. These factors, along
with management's plans with respect to the operations, are considered in
assessing the recoverability of long-lived assets. If the Company
determines, based on such measures, that the carrying amount is impaired,
the long-lived assets will be written down to its recoverable value with
corresponding charge to earnings. During the periods presented, no such
impairment was incurred.
DEFERRED EXPENSES - Deferred expenses consist of loan origination and
other fees directly related to rental property financing with third
parties. The fees are being amortized using the straight-line method over
the term of the notes, ranging from 5 to 30 years.
GOODWILL - Goodwill arising from the excess of cost over fair value of net
assets acquired in the acquisition of Global Realty and Management, Inc.
(See Note 6), is amortized on a straight-line basis over a period of 20
years. Amortization expense amounted to $50 for each of the years ended
December 31, 1998, 1997 and 1996.
RENTAL INCOME - Rental income is comprised of minimum rentals and
contingent rentals. Contingent rentals are generally received from tenants
based on their gross sales. For the years ended December 31, 1998, 1997
and 1996, contingent rentals recognized by the Company were approximately
$127, $172 and 153, respectively.
INCOME TAXES - There is no provision for income tax expense as a result of
the Company changing to real estate investment trust ("REIT") status
effective January 1, 1995. The Company is not taxed on its taxable
operating income if it distributes such income to stockholders in
conformity with the requirements of the Internal Revenue Code and meets
certain other requirements. Company management is of the opinion that they
are complying with the requirements of REIT status; and hence starting
from January 1, 1995, the Company is a REIT for income tax purposes. The
Company intends to continue to meet such requirements and distribute any
of its future taxable operating income in conformity with such
F-10
<PAGE>
requirements. Distributed capital gains on sales of real estate are not
subject to tax; however, undistributed capital gains are taxed as capital
gain.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NEW ACCOUNTING PRONOUNCEMENTS - In February 1997, SFAS No. 128, EARNINGS
PER SHARE, was issued. SFAS No. 128, which supersedes APB Opinion No. 15
and was adopted by the Company as of December 31, 1997, requires a dual
presentation of basic and diluted earnings per share on the face of the
income statement. Basic earnings per share excludes dilution and is
computed by dividing income or loss attributable to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The 1996
earnings per share data have been restated to conform with this
pronouncement.
In February 1997, SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL
STRUCTURE, was issued. SFAS No. 129, which applies to all entities that
have issued securities, requires in summary form the pertinent rights and
privileges of the various securities outstanding. Examples of information
that shall be disclosed are dividends and liquidation preferences,
participation rights, call prices and dates, conversion or exercise prices
or rates and pertinent dates, sinking-fund requirements, unusual voting
rights, and significant terms of contracts to issue additional shares. The
Company adopted SFAS No. 129 in 1997, and the effects of adoption are
reflected in the consolidated financial statements.
In June 1997, SFAS No. 130, REPORTING COMPREHENSIVE INCOME, was issued.
This standard requires disclosure of total nonowner changes in partner's
capital, which is defined as net income plus direct adjustments to
partner's capital such as equity and cash investment adjustments. This
standard also requires reclassification of comparative financial
statements for all earlier periods presented. The Company adopted SFAS No.
130 in 1998, and has presented consolidated statements of comprehensive
income herein.
In June 1997, SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, was issued and is effective beginning in 1998.
This statement requires public business enterprises to report financial
and descriptive information about reportable operating segments and about
certain geographic information. The Company operates in one reportable
segment: real estate income producing properties. The Company adopted SFAS
No. 131 in 1998 with no material impact on the consolidated financial
statements or accompanying notes.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values of
financial instruments have been determined by the Company using available
market information and appropriate valuation methods. Considerable
judgment is required in interpreting market data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methods may have a material effect on the estimated fair value
amounts. The Company has used the following market assumptions and/or
estimation methods:
F-11
<PAGE>
CASH AND CASH EQUIVALENTS - The carrying amounts reported in the
consolidated balance sheets are reasonable estimates of fair value.
INVESTMENT SECURITIES - Fair values are based on quoted market
prices, dealer quotes, and independent pricing services. The carrying
value approximates fair value due to the nature of the investments.
MORTGAGE NOTES PAYABLE - The estimated fair value at December 31,
1998 and 1997 was $60,926 and $64,693, respectively, calculated based
on the net present value of payments over the term of the notes using
estimated market rates for similar notes payable.
2. SECURITIES AVAILABLE FOR SALE
Composition in the consolidated balance sheets:
1998 1997
Equity securities $ 1,617 $
Mortgage-backed securities 16 45
------- ---
Total $ 1,633 $45
======= ===
As of December 31, 1998 and 1997, gross unrealized gains were $0 and $0,
respectively, and gross unrealized losses were $98 and $0, respectively.
For the years ended December 31, 1998, 1997 and 1996, the Company had
gross securities sales of $0, $8,815 and $2,411, resulting in gross
realized gains of $0, $116 and $32, and gross realized losses of $0, $35
and $5, respectively.
Mortgage-backed securities mature in 1999. Actual maturities may differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
3. ACCOUNTS AND OTHER RECEIVABLES
Composition in the consolidated balance sheets:
1998 1997
Tenants $ 1,150 $ 876
Accrued interest receivable - institutions 63 25
Employee loans and advances 42 20
Allowance for doubtful accounts (113) (29)
------- -----
Total $ 1,142 $ 892
======= =====
F-12
<PAGE>
4. RENTAL PROPERTY
Composition in the consolidated balance sheets:
<TABLE>
<CAPTION>
LAND, LAND,
HELD BUILDINGS CONSTRUCTION
FOR AND BUILDING IN
COST DEVELOPMENT EQUIPMENT IMPROVEMENTS PROGRESS TOTAL
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,394 $ 120,241 $ 4,412 $ 394 $ 126,441
--------- --------- --------- --------- ---------
Additions in the reporting year 1,286 20,941 3,244 4,103 29,574
Dispositions in reporting year (6,852) (1,076) (7,928)
--------- --------- --------- --------- ---------
Balance at end of year 2,680 134,330 6,580 4,497 148,087
--------- --------- --------- --------- ---------
Accumulated Depreciation
Balance at beginning of year 6,577 614 7,191
Depreciation for the year 2,445 386 2,831
Reduction of depreciation (481) (77) (558)
--------- --------- --------- --------- ---------
Balance at end of year 8,541 923 9,464
--------- --------- --------- --------- ---------
Undepreciated balance
as of December 31, 1998 $ 2,680 $ 125,789 $ 5,657 $ 4,497 $ 138,623
========= ========= ========= ========= =========
Undepreciated balance
as of December 31, 1997 $ 1,394 $ 113,664 $ 3,798 $ 394 $ 119,250
========= ========= ========= ========= =========
</TABLE>
Certain of the Company's rental property serves as collateral to recourse
mortgage notes payable totaling $67,145 and $71,004 as of December 31,
1998 and 1997, respectively (See Note 5).
Immediately prior to the consummation of the IPO, the Company adopted a
plan to distribute certain assets to its stockholders. The plan provided
for the transfer to a newly formed limited partnership, 16.7 acres of land
with a book value at December 31, 1997 of $3,211 and the notes receivable
from issuance of common stock totaling $1,525. The Company then
distributed all of the partnership interests to its stockholders, and the
book value of the assets has been treated as a distribution and charged to
additional paid-in capital. The Company retained an option for five years
to repurchase the land at option prices totaling $5,650. In December 1998,
the Company exercised an option to acquire land at a price of $1,700. The
land was recorded at its original historical cost prior to distribution of
$350, and $1,350 was charged to retained earnings and additional paid-in
capital.
Assets are depreciated on a straight-line basis, based on the following
annual percentages:
Buildings 2.50% - 3.33%
Building/leasehold improvements 2.50% - 20.00%
Equipment 14.00% - 20.00%
F-13
<PAGE>
5. NOTES PAYABLE
Composition in the consolidated balance sheets:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Mortgage payable, 8.125%, payable in monthly
installments of $29 including interest,
unpaid balance due August 31, 2011,
collateralized by rental property $ 2,783 $ 2,903
Mortgage payable, 9.49%, payable in monthly
installments of $26 including interest, unpaid
balance due March 1, 2003, collateralized
by rental property. Mortgage payable was repaid in 1998 2,974
Mortgage payable, 8.25%, payable in monthly
installments of $8 including interest, unpaid
balance due August 1, 2000, collateralized by
rental property. Mortgage payable was repaid in 1998 908
Mortgage payable, 9%, payable in monthly
installments of $55 including interest,
unpaid balance due July 1, 2002, collateralized
by rental property 5,125 5,311
Mortgage payable, 7.68%, through February 15,
2015 payable in monthly installments of $115
including interest, unpaid balance due February 15,
2015, collaterized by rental property 12,709 13,093
Mortgage payable, 6.95%, payable in monthly
installments of $34 including interest, unpaid
balance due February 15, 200, collateralized by
rental property 4,311
Mortgage payable, 7.00%, payable in monthly
installments of $26 including interest, unpaid
balance due March 1, 2008 3,235
Mortgage payable, 6.375%, payable in monthly
installments of $8 including interest, unpaid
balance due May 10, 1999, collateralized by
rental property 1,192 1,210
Mortgage payable, 6.85% and 8.15%, payable
in monthly installments of $38 and $47 including
interest, for 1998 and 1997, respectively,
unpaid balance due November 1, 2018,
collateralized by rental property 4,990 3,929
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Mortgage payable, 7.625%, payable in monthly
installments of $20 including interest, unpaid
balance due January 1, 2006, collateralized
by rental property $ 2,321 $ 2,385
Mortgage payable, 9.35%, payable in monthly
installments of $23 including interest, unpaid
balance due March 1, 2002, collateralized
by rental property 2,308 2,366
Mortgage payable, 7.95%, payable in monthly
installments of $50 including interest, unpaid
balance due July 15, 2010, collateralized
by rental property 5,519 5,674
Mortgage payable, 7.85%, payable in monthly
installments of $111 including interest, unpaid
balance due December 1, 2010, collateralized
by rental property 12,459 12,796
Mortgage payable, 6.90% and 8.25%, payable
in monthly installments of $18 and $19 including
interest, for 1998 and 1997, respectively,
unpaid balance due October 1, 2002,
collateralized by rental property 1,923 1,997
Mortgage payable, 7.875%, through July 1, 2006
payable in monthly installments of $50 including
interest, at which time the lender will adjust
the rate of interest equal to the sum of Moody's
"A" corporate bond index daily rated plus
.375%, rounded to the next highest one-eight
percentage rate. The unpaid balance is due
June 30, 2016, collateralized by rental property 5,679 5,822
Mortgage payable, 10.06%, payable in monthly
installments of $26 including interest, unpaid
balance due June 1, 2001, collateralized by
rental property 2,591 2,636
Mortgage payable, 7.00%, interest only payable
in monthly installments of $49, unpaid balance
is due February 15, 1998, collateralized by
rental property -- 7,000
------- -------
Total $67,145 $71,004
======= =======
Note payable, 0.5% over Bank basis rate (8.25%
at December 31, 1998), commitment of $2,000,
payable February 21, 1999 $ 560
=======
</TABLE>
F-15
<PAGE>
Principal maturities of the mortgage notes payable as of December 31, 1998
are as follows:
YEAR ENDING
DECEMBER 31,
1999 $ 3,150
2000 2,120
2001 4,753
2002 10,206
2003 2,139
Thereafter 44,777
--------
Total $ 67,145
========
On February 19, 1998, the Company extended the mortgage note payable of
7.00% with a principal balance of $7,000 as of December 31, 1997 referred
to above. The Company retired this note during 1998.
Interest costs incurred under the notes payable were $5,456 and $5,607 of
which $633 and $145 were capitalized in the years ended December 31, 1998
and 1997, respectively.
6. STOCKHOLDERS' EQUITY
The Company had a two-for-one stock split on July 15, 1997 and changed the
par value of its common and preferred stock from $1.00 to $0.01. All share
and per share data and stockholders' equity accounts have been restated to
reflect the stock split and change in par value.
As of December 31, 1998 and 1997, the Company has authority to issue
45,000,000 shares, of which 5,000,000 are shares of preferred stock. On
December 30, 1996, Class B warrants totaling 906,124 were exchanged
proportionately for 1,340,000 Class C warrants at an exercise price of
$8.25 per share and expire on December 31, 1999. During 1997, all Class A
warrants were exercised at $5.125 per share. The Company had Class C
warrants issued and outstanding to purchase 1,306,124 shares of the
Company's common stock as of December 31, 1998 and 1997.
The Company has granted a stockholder an option to put 293,430 shares of
common stock issuable upon exercise of Series C warrants to the Company at
a price of $15.50 per share or to put the Series C warrants to the Company
at a price of $7.25 per warrant, which equals the put option price of
$15.50 per warrant less the Series C warrant exercise price of $8.25 per
warrant. The put option is exercisable in whole or in part by the former
stockholder from December 1, 1999 until December 15, 1999. The put option
would involve a maximum net expenditure of $2,100 if the shares of common
stock are not sold by the former stockholder prior to the exercise of such
option. For the year ended December 31, 1998, the Company has recognized
$1,320 as a current period expense and $807 as a reduction of paid-in
capital related to the Company's IPO.
During 1998, the Company paid cash dividends of $.25, $.13, $.12, $.25 and
$.25 per share on March 24, May 18, June 29, October 6, and December 23,
respectively, to all stockholders of record on those dates. Gross
dividends paid were $8,973 for the year ended December 31, 1998.
During 1997, the Company paid cash dividends of $.215, $.225, $.2625 and
$.25 per share on March 31, June 18, September 30, and December 31,
respectively, to all stockholders of record on those dates. Gross
dividends paid were $6,320 for the year ended December 31, 1997.
F-16
<PAGE>
During 1996, the Company paid cash dividends of $.375, $.20 and $.225 and
$.25 per share on March 31, June 18, September 30, and December 31,
respectively, to all stockholders of record on those dates. Gross
dividends paid were $4,179 for the year ended December 31, 1996.
Effective January 1, 1994 the Company acquired Global Realty and
Management, Inc. ("Global"), the property manager for all Florida rental
properties held by the Company. The acquisition was accounted for as a
purchase. The outstanding common stock of Global was exchanged for 144,000
shares of the Company's common stock and 48,000 Class B warrants to
purchase the Company's common stock at $8.25 per share through December
31, 1996. In November 1998, Global changed its name to Equity One Realty
and Management, Inc. The former stockholder of Global was granted an
option to "put" his newly acquired Company stock to the Company for $1,000
for a five-year period. During 1996, the Company canceled the put option
in exchange for a similar put option to be issued by certain stockholders
of the Company. On December 30, 1996, the former stockholder exercised the
48,000 Class B warrants to purchase the Company's common stock at $8.25
per share. The Company provided a $396 loan for a six year period for the
purpose of exercising the Class B warrants held by the former stockholder.
The loan bears interest at 5.25% per year. The loan was offset against
stockholders' equity and distributed immediately prior to the IPO (See
Note 4). Additionally, the Company entered into an employment agreement
with the former stockholder for a period of 7 years with an option to
extend the agreement for another 7 years. The former stockholder is
entitled to remuneration of $180 per year, effective January 1, 1996, and
options to purchase 150,000 shares in the Company at an exercise price of
$12.375 per share under the Company's 1995 Stock Option Plan (the "Plan").
During 1996, two officers, including the former stockholder of Global
discussed above, exercised stock options for promissory notes. These notes
are full recourse promissory notes bearing interest at 5.25% and 6.86%,
respectively, and are collateralized by the stock issued upon exercise of
the stock options. Interest is payable annually and principal is due on
December 30, 2002 and June 16, 2003, respectively. The notes have been
reflected in the consolidated financial statements as a reduction of
stockholders' equity. Immediately prior to the IPO, the Notes were
distributed to certain shareholders (See Note 4).
7. STOCK BASED COMPENSATION
On October 23, 1996, the Company adopted the Equity One, Inc. 1995 Stock
Option Plan, (the "Plan") which was amended December 10, 1998 and is
described below. The Company applies the intrinsic value method in
accounting for the Plan. The purpose of the Plan is to further the growth
of the Company, by offering an incentive to directors, officers and other
key employees of the Company, and to increase the interest of these
employees in the Company, through additional ownership of its common
stock. The effective date of the Plan is January 1, 1996. The maximum
number of shares of common stock as to which options may be granted to
this Plan is 1,000,000 shares, which shall be reduced each year by the
required or discretionary grant of options. The term of each option shall
be determined by the Stock Option Committee of the Company (the
"Committee"), but in no event shall be longer than ten years from the date
of the grant. The vesting of the options shall be determined by the
Committee, in its sole and absolute discretion, at the date of grant of
the option.
During 1996, the Company issued 450,000 options under the Plan to two
officers and two non-employee members of the Board of the Company at an
exercise price of $12.375 per share, fair market value on the date of
grant as determined by an independent valuation, which shall vest over a
four year period, 112,500 shares each year, commencing on January 1, 1997,
and on the first day of each year, until all options vest. The per share
option price is subject to a downward adjustment to the extent that
dividends declared and paid by the Company in each year subsequent to 1995
exceed dividends declared and paid by the Company in the year ended
December 31, 1995. During 1998, 100,000 of these options were
F-17
<PAGE>
forfeited. On December 10, 1998, the Plan was amended (the "Amendment")
for the two officers by adjusting the option exercise price to $10.00 per
share, increasing their original number of options from 350,000 shares to
503,331 shares and eliminating the downward adjustment.
On December 31, 1996, the Company issued 48,000 options under the Plan to
one officer of the Company at an exercise price of $8.25 per share, fair
market value on the date of grant as determined by an independent
valuation. These options were fully vested as of December 31, 1996 and
expire on December 31, 1999 (See Note 6).
During 1997, the Company issued 146,000 options under the Plan to certain
employees, at an exercise price of $12.375 per share, fair market value on
the date of grant as determined by an independent valuation, which shall
vest over a period of three to four years, commencing on January 1, 1998,
and on the first day of each year, until all options vest.
During 1998, 160,000 options were forfeited, including the 100,000 options
discussed above. The Amendment reduced the exercise price from $12.375 to
$10.00 per share on 46,000 options in addition to those discussed above.
The Company applies Accounting Principles Board Opinion No. 25 ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in measuring
stock based compensation, including options. Accordingly, no compensation
expense has been recognized for options granted under the Plan. Had
compensation expense been determined based upon the fair value at the
grant date for awards under the Plan consistent with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income and
earnings per share on a pro forma basis, using a recent independent
valuation, would have been:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income As reported $ 9,065 $ 6,198 $ 3,920
Proforma $ 9,033 $ 6,198 $ 3,920
Basic earnings per share As reported $ 1.01 $ 0.96 $ 0.79
Proforma $ 1.01 $ 0.96 $ 0.79
Diluted earnings per share As reported $ 1.00 $ 0.87 $ 0.69
Proforma $ 1.00 $ 0.87 $ 0.69
</TABLE>
F-18
<PAGE>
In accordance with SFAS No. 123, the following is a summary of the
Company's stock option activity for the years ended December 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
-------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 644,000 $ 11.840 498,000 $ 11.819
Granted 293,331 11.040 146,000 12.375 498,000 $ 11.819
Forfeited (160,000) 12.375
-------- ---------- ------- --------- ------- ---------
Outstanding, end of year 777,331 $ 10.407 644,000 $ 11.840 498,000 $ 11.819
======== ========== ======= ========= ======= =========
Exercisable, end of year 327,416 $ 9.852 160,500 $ 10.914 48,000 $ 8.250
======== ========== ======= ========= ======= =========
Weighted average fair value
of options granted under
SFAS No. 123 during the year $ 0.920 $ 0.000 $ 0.000
========== ========= =========
</TABLE>
The following table summarizes information about the stock option plan as
of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
---------------- -------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 8.250 48,000 1.0 $ 8.250 48,000 $ 8.250
10.000 549,331 7.1 10.000 264,416 10.000
11.000 20,000 9.4 11.000 7,500 11.000
12.375 160,000 7.2 12.375 7,500 12.375
</TABLE>
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Dividend yield 7.42% - 8.71% 6.30% - 7.42% 6.30%
Risk-free interest rate 4.53% - 5.65% 6.14% - 6.23% 5.37% - 6.11%
Expected option life (years) 3 3 3
Expected volatility 0% - 32.23% 0% 0%
</TABLE>
F-19
<PAGE>
8. EARNINGS PER SHARE
In accordance with SFAS No. 128, the following is a reconciliation of the
numerators and denominators of the basic and diluted per-share
computations for income for the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------
<S> <C> <C> <C>
NET INCOME $ 9,065
=======
Basic EPS
Income available to common stockholders $ 9,065 8,979,364 $ 1.01
======= --------- ======
Effect of Dilutive Securities
Series C Warrants 90,793
Stock Options 4,304
---------
95,097
---------
DILUTED EPS
Income available
to common stockholders + assumed conversions $ 9,065 9,074,461 $ 1.00
======= ========= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------------------------------
<S> <C> <C> <C>
NET INCOME $ 6,198
=======
BASIC EPS
Income available to common stockholders $ 6,198 6,446,320 $ 0.96
======= --------- ======
Effect of Dilutive Securities
Series A Warrants 142,955
Series C Warrants 466,909
Stock Options 50,133
---------
659,997
---------
DILUTED EPS
Income available to common
stockholders + assumed conversions $ 6,198 7,106,317 $ 0.87
======= ========= ======
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------------
<S> <C> <C> <C>
NET INCOME $ 3,920
=======
Basic EPS
Income available to common stockholders $ 3,920 4,991,321 $ 0.79
======= --------- ======
Effect of Dilutive Securities
Series A Warrants 199,504
Series C Warrants 450,924
Stock Options 30,857
---------
681,285
---------
DILUTED EPS
Income available
to common stockholders + assumed conversionis $ 3,920 5,672,606 $ 0.69
======= ========= ======
</TABLE>
9. FUTURE MINIMUM RENTAL INCOME, COMMITMENTS AND CONTINGENT LIABILITIES
Future minimum rental income under noncancelable operating leases
approximates the following as of December 31, 1998:
YEAR ENDING
DECEMBER 31,
1999 $ 16,664
2000 14,964
2001 12,883
2002 11,259
2003 10,455
Thereafter 73,001
---------
Total $ 139,226
=========
During 1996, the Company obtained a line of credit of $2,500 secured by
rental property. As of December 31, 1997, no amounts on this line of
credit had been used. This line of credit was terminated in 1998.
During 1996, the Company pledged a letter of credit for $1,500 as
additional security on one of its properties. As of December 31, 1998,
this pledged letter of credit remains outstanding. The letter of credit is
collateralized by rental property.
In February 1998, a prospective anchor tenant (the "Plaintiff") filed a
claim against the Company for breach of contract relating to a proposed
lease agreement with the Plaintiff. On March 10, 1999, the Plaintiff filed
a Notice of Voluntary Dismissal of this action without prejudice.
The Company is subject to other litigation in the normal course of
business, none of which, in the opinion of management, will have a
material adverse effect on the financial condition or results of
operations of the Company.
F-21
<PAGE>
10. OPERATING EXPENSES
Composition in the consolidated statements of operations:
1998 1997 1996
Commissions $ 308 $ 175 $ 147
Payroll 467 350 325
Insurance expense 464 386 349
Real estate property tax 2,425 2,152 1,786
Repairs and maintenance 1,205 1,061 730
Utilities 508 488 472
Other 588 633 561
------ ------ ------
Total $5,965 $5,245 $4,370
====== ====== ======
11. GENERAL AND ADMINISTRATIVE EXPENSES
Composition in the consolidated statements of operations:
1998 1997 1996
Office expenses $ 86 $ 101 $ 77
Professional fees 323 101 120
Management fees 93 64 60
Payroll 628 618 621
Other 251 145 99
------ ------ ------
Total $1,381 $1,029 $ 977
====== ====== ======
12. RELATED PARTY TRANSACTIONS
The Company provided an affiliated entity, Gazit (1995), Inc., with office
space, office services and certain management and consulting services for
which the Company receives a management fee. For the years ended December
31, 1998, 1997 and 1996, such fees totaled $10, $10 and $10, respectively,
and are included as an offset in general and administrative expenses in
the accompanying consolidated statements of operations.
The Company entered into consulting agreements with two directors of
Danbar to provide consulting services. Each director is entitled to
receive $30 per year, effective as of January 1, 1996 and options to
purchase 50,000 shares each under the Plan described above. On May 18,
1998, both consulting agreements were terminated and the option to
purchase 50,000 shares were forfeited.
On December 10, 1998, the Company exercised an option to purchase land
from a partnership controlled by affiliates of the Company, including two
officers of the Company (See Note 4).
As of December 31, 1998, 1997 and 1996, balances due from related parties
are non-interest bearing with no specified due dates.
F-22
<PAGE>
For the years ended December 31, 1998, 1997 and 1996, the Company had
compensated Chaim Katzman, President, Doron Valero, Vice President, and
significant stockholders $269 and $302 in 1998, respectively, $254 and
$191 in 1997, respectively, and $240 and $230 in 1996, respectively.
Warrants have been issued to certain officers, directors and affiliates
(See Note 6).
13. SUBSEQUENT EVENT
On February 4, 1999, the Company secured a $35,000 Master Revolving Credit
Agreement (the "Credit Agreement") with a bank. Advances under this
Agreement are limited to $16,590, with any excess advances being
conditioned on the lender securing participation from other lenders. The
Credit Agreement accrues interest at 225 basis points over the thirty day
LIBOR rate, payable monthly, adjusted every six months and matures
February 4, 2000. Advances under the Credit Agreement will be used to fund
property acquisitions, development activities and other Company
activities, and will be secured by four of the Company's unencumbered
existing properties.
* * * * *
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Equity One, Inc.:
We have audited the consolidated financial statements of Equity One, Inc., and
subsidiaries (the "Company") as of December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, and have issued our
report thereon dated March 12, 1999; such report is included elsewhere in this
Form 10-K. Our audits also included the consolidated financial statement
schedule of the Company, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Miami, Florida
March 12, 1999
S-1
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
INITIAL COST GROSS AMOUNTS AT
TO COMPANY CAPITALIZED WHICH CARRIED AT
-------------------- SUBSEQUENT THE CLOSE OF THE PERIOD
BUILDINGS & TO ACQUISITION- -----------------------
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
-------- -------- ------------ ---- ------------ --------------- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village
Shopping Center Atlantic Beach, FL $4,990 $1,190 $4,760 $853 $1,190 $5,613
Commonwealth Shopping Center Jacksonville, FL 3,235 730 2,920 1,380 730 4,300
Fort Caroline Trading Post Jacksonville, FL 2,308 738 2,432 541 738 2,973
Mandarin Mini-Storage Jacksonville, FL 1,192 362 1,448 10 362 1,458
Monument Pointe
Shopping Center Jacksonville, FL 2,591 1,336 2,330 87 1,336 2,417
Oak Hill Village
Shopping Center Jacksonville, FL 2,321 690 2,760 37 690 2,797
Beauclerc Village
Shopping Center Jacksonville, FL 0 560 2,242 4 561 2,245
CENTRAL FLORIDA
East Bay Plaza
Shopping Center Largo, FL 0 314 1,296 551 325 1,836
Eustis Square Shopping Center Eustis, FL 5,125 1,450 5,799 52 1,463 5,838
Forest Edge Shopping Center Orlando, FL 1,923 1,250 1,850 5 1,250 1,855
Lake Mary Centre
Shopping Center Lake Mary, FL 12,459 5,578 13,878 40 5,578 13,918
Summerlin Square
Shopping Center Fort Myers, FL 0 1,043 7,989 93 1,043 8,082
SOUTH FLORIDA
Bird Ludlam
Shopping Center Miami, FL 12,709 4,080 16,318 94 4,088 16,404
Diana Building W. Palm Beach, FL 0 123 493 909 123 1,402
Equity One Office Building Miami Beach, FL 0 229 423 759 229 1,182
Plaza Del Rey Shopping Center Miami, FL 2,783 740 2,961 147 740 3,108
Point Royale Shopping Center Miami, FL 5,519 3,720 5,005 153 3,720 5,158
West Lakes Plaza
Shopping Center Miami, FL 5,679 2,141 5,789 134 2,141 5,923
Sky Lake Miami, FL 0 9,472 2,250 1,959 11,172 2,509
Restaurant Properties Miami, FL 0 250 1,000 0 250 1,000
Montclair Apartments Miami, FL 0 199 801 0 199 801
Lantana Village
Village Shopping Center Lantana, FL 4,311 1,350 5,400 124 1,350 5,524
TEXAS
Four Corners Shopping Center Tomball,TX 0 950 3,800 337 958 4,185
------- ------- ------- ------ ------- --------
TOTAL $67,145 $38,495 $93,944 $8,269 $40,236 $100,528
======= ======= ======= ====== ======= ========
</TABLE>
S-2
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DATE DEPRECIABLE
PROPERTY TOTAL DEPRECIATION ACQUIRED LIVES
-------- ----- ------------ -------- -----------
<S> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village
Shopping Center $6,803 $433 JUNE 30, 1995 40
Commonwealth Shopping Center $5,030 408 FEBRUARY 28, 1994 40
Fort Caroline Trading Post $3,711 354 JANUARY 24, 1994 40
Mandarin Mini-Storage $1,820 174 MAY 10, 1994 40
Monument Pointe
Shopping Center $3,753 120 JANUARY 31, 1997 40
Oak Hill Village
Shopping Center $3,487 220 DECEMBER 7, 1995 40
Beauclerc Village
Shopping Center $2,806 35 MAY 15, 1998 40
CENTRAL FLORIDA
East Bay Plaza
Shopping Center $2,161 411 JULY 27, 1993 30
Eustis Square Shopping Center $7,301 1,019 OCTOBER 22, 1993 30
Forest Edge Shopping Center $3,105 93 DECEMBER 31, 1996 40
Lake Mary Centre
Shopping Center $19,496 1,119 NOVEMBER 9, 1995 40
Summerlin Square
Shopping Center $9,125 121 JUNE 10, 1998 40
SOUTH FLORIDA
Bird Ludlam
Shopping Center $20,492 1,836 AUGUST 11, 1994 40
Diana Building $1,525 96 FEBRUARY 15, 1995 40
Equity One Office Building $1,411 154 APRIL 10, 1992 40
Plaza Del Rey Shopping Center $3,848 821 AUGUST 22, 1991 30
Point Royale Shopping Center $8,878 454 JULY 27, 1995 40
West Lakes Plaza
Shopping Center $8,064 338 NOVEMEBR 6, 1996 40
Sky Lake $13,681 77 AUGUST 19, 1997 40
Restaurant Properties $1,250 25 APRIL 30, 1998 40
Montclair Apartments $1,000 1 AUGUST 31, 1998 40
Lantana Village
Village Shopping Center $6,874 139 JANUARY 6, 1998 40
TEXAS
Four Corners Shopping Center $5,143 962 JANUARY 22, 1993 30
-------- ------
TOTAL $140,764 $9,410
======== ======
</TABLE>
S-3
<PAGE>
SCHEDULE III
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNTS
AT WHICH CARRIED
AT THE CLOSE OF
INITIAL COST TO COMPANY THE PERIOD
------------------------ CAPITALIZED -----------------------
SUBSEQUENT TO
BUILDINGS & ACQUISITION-
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------- -------------------- ------------- --------- -------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village
Shopping Center Atlantic Beach, FL $ 3,929 $ 1,190 $ 4,760 $ 18 $ 1,190 $ 4,778
Commonwealth
Shopping Center Jacksonville, FL 0 730 2,920 4 730 2,924
Fort Caroline
Trading Post Jacksonville, FL 2,366 738 2,432 541 738 2,973
Mandarin Mini-Storage Jacksonville, FL 1,211 362 1,448 5 362 1,453
Monument Pointe Jacksonville, FL 2,636 1,336 2,330 87 1,336 2,417
Oak Hill Village
Shopping Center Jacksonville, FL 2,385 690 2,760 37 690 2,797
CENTRAL FLORIDA
East Bay Plaza Largo, FL 908 314 1,296 309 325 1,594
Eustis Square
Shopping Center Eustis, FL 5,311 1,450 5,799 52 1,463 5,838
Forest Edge
Shopping Center Orlando, FL 1,997 1,250 1,850 6 1,250 1,856
Lake Mary Centre Lake Mary, FL 12,796 5,578 13,878 34 5,578 13,912
SOUTH FLORIDA
Bird Ludlam
Shopping Center Miami, FL 13,093 4,080 16,318 68 5,433 16,378
Diana Building W. Palm Beach, FL 0 123 493 909 123 1,402
Equity One
Office Building Miami Beach, FL 0 579 423 752 579 1,175
Plaza Del Rey
Shopping Center Miami, FL 2,903 740 2,961 134 740 3,095
Point Royale
Shopping Center Miami, FL 5,673 3,720 5,005 109 3,720 5,114
West Lakes Plaza Miami, FL 5,822 2,141 5,789 134 2,141 5,923
Sky Lake Miami, FL 7,000 9,472 2,250 2,094 9,472 4,344
TEXAS
Four Corners
Shopping Center Tomball,TX 2,974 950 3,800 337 958 4,129
Parker Towne Centre Plano, TX 0 720 2,881 914 720 3,797
------- ------- ------- ------ ------- -------
TOTAL $71,004 $36,163 $79,393 $6,544 $37,548 $85,899
======= ======= ======= ====== ======= =======
</TABLE>
S-4
<PAGE>
SCHEDULE III
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DATE DEPRECIABLE
PROPERTY TOTAL DEPRECIATION ACQUIRED LIVES
- ---------------------------------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village Shopping Center $ 5,968 $ 299 JUNE 30, 1995 40
Commonwealth Shopping Center $ 3,654 280 FEBRUARY 28, 1994 40
Fort Caroline Trading Post $ 3,711 280 JANUARY 24, 1994 40
Mandarin Mini-Storage $ 1,815 132 MAY 10, 1994 40
Monument Pointe $ 3,753 57 JANUARY 31, 1997 40
Oak Hill Village Shopping Center $ 3,487 148 DECEMBER 7, 1995 40
CENTRAL FLORIDA
East Bay Plaza $ 1,919 279 JULY 27, 1993 30
Eustis Square Shopping Center $ 7,301 823 OCTOBER 22, 1993 30
Forest Edge Shopping Center $ 3,106 46 DECEMBER 31, 1996 40
Lake Mary Centre $ 19,490 764 NOVEMBER 9, 1995 40
SOUTH FLORIDA
Bird Ludlam Shopping Center $ 21,811 1,413 AUGUST 11, 1994 40
Diana Building $ 1,525 60 FEBRUARY 15, 1995 40
Equity One Office Building $ 1,754 118 APRIL 10, 1992 40
Plaza Del Rey Shopping Center $ 3,835 711 AUGUST 22, 1991 30
Point Royale Shopping Center $ 8,834 315 JULY 27, 1995 40
West Lakes Plaza $ 8,064 178 NOVEMBER 6, 1996 40
Sky Lake $ 13,816 21 AUGUST 19, 1997 40
TEXAS
Four Corners Shopping Center $ 5,087 780 JANUARY 22, 1993 30
Parker Towne Centre $ 4,517 440 DECEMBER 9, 1993 30
-------- ------
TOTAL $123,447 $7,144
======== ======
</TABLE>
S-5
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNTS
AT WHICH CARRIED
INITIAL COST TO COMPANY CAPITALIZED AT THE CLOSE OF
------------------------ SUBSEQUENT TO THE PERIOD
BUILDINGS & ACQUISITION- ------------------------
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------- -------------------- -------------- --------- -------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village
Shopping Center Atlantic Beach, FL $ 4,044 $ 1,190 $ 4,760 $ 18 $ 1,190 $ 4,778
Commonwealth
Shopping Center Jacksonville, FL 2,247 730 2,920 730 2,920
Fort Caroline
Trading Post Jacksonville, FL 2,419 738 2,432 535 738 2,967
Mandarin Mini-Storage Jacksonville, FL 1,227 362 1,448 5 362 1,453
Oak Hill Village
Shopping Center Jacksonville, FL 2,445 690 2,760 37 690 2,797
CENTRAL FLORIDA
East Bay Plaza Largo, FL 924 314 1,296 241 314 1,537
Eustis Square
Shopping Center Eustis, FL 5,482 1,450 5,799 23 1,450 5,822
Forest Edge
Shopping Center Orlando, FL 2,058 1,250 1,850 1,250 1,850
Lake Mary Centre Lake Mary, FL 13,109 5,578 13,878 30 5,578 13,908
SOUTH FLORIDA
Bird Ludlam
Shopping Center Miami, FL 13,221 4,080 16,318 1,403 5,425 16,376
Diana Building W. Palm Beach, FL 0 123 493 898 123 1,391
Equity One
Office Building Miami Beach, FL 0 579 423 746 579 1,169
Plaza Del Rey
Shopping Center Miami, FL 3,015 740 2,961 130 740 3,091
Point Royale
Shopping Center Miami, FL 5,816 3,720 5,005 106 3,720 5,111
West Lakes Plaza Miami, FL 5,472 2,141 5,789 65 2,141 5,854
TEXAS
Four Corners
Shopping Center Tomball,TX 3,001 950 3,800 278 950 4,078
Parker Towne Centre Plano, TX 2,351 720 2,881 556 720 3,437
------- ------- ------- ------ ------- -------
TOTAL $66,831 $25,355 $74,813 $5,071 $26,700 $78,539
======= ======= ======= ====== ======= =======
</TABLE>
S-6
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DATE DEPRECIABLE
PROPERTY TOTAL DEPRECIATION ACQUIRED LIVES
- ---------------------------------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C>
NORTH FLORIDA
Atlantic Village Shopping Center $ 5,968 $ 179 JUNE 30, 1995 40
Commonwealth Shopping Center $ 3,650 207 FEBRUARY 28, 1994 40
Fort Caroline Trading Post $ 3,705 205 JANUARY 24, 1994 40
Mandarin Mini-Storage $ 1,815 96 MAY 10, 1994 40
Oak Hill Village Shopping Center $ 3,487 76 DECEMBER 7, 1995 40
CENTRAL FLORIDA
East Bay Plaza $ 1,851 186 JULY 27, 1993 30
Eustis Square Shopping Center $ 7,272 627 OCTOBER 22, 1993 30
Forest Edge Shopping Center $ 3,100 0 DECEMBER 31, 1996 40
Lake Mary Centre $ 19,486 406 NOVEMBER 9, 1995 40
SOUTH FLORIDA
Bird Ludlam Shopping Center $ 21,801 994 AUGUST 11, 1994 40
Diana Building $ 1,514 25 FEBRUARY 15, 1995 40
Equity One Office Building $ 1,748 84 APRIL 10, 1992 40
Plaza Del Rey Shopping Center $ 3,831 605 AUGUST 22, 1991 30
Point Royale Shopping Center $ 8,831 182 JULY 27, 1995 40
West Lakes Plaza $ 7,995 22 NOVEMBER 6, 1996 40
TEXAS
Four Corners Shopping Center $ 5,028 601 JANUARY 22, 1993 30
Parker Towne Centre $ 4,157 320 DECEMBER 9, 1993 30
-------- ------
TOTAL $105,239 $4,815
======== ======
</TABLE>
S-7
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
21.1 List of Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
SUBSIDIARY NAME
1 EQUITY ONE (ALPHA), INC.
2 EQUITY ONE (ATLANTIC VILLAGE), INC.
3 EQUITY ONE (BETA), INC.
4 EQUITY ONE (BEUCLERC), INC.
5 EQUITY ONE (COMMONWEALTH), INC.
6 EQUITY ONE (DELTA), INC.
7 EQUITY ONE (EL NOVILLO), INC.
8 EQUITY ONE (EPSILON), INC.
9 EQUITY ONE (EUSTIS), INC.
10 EQUITY ONE (FOREST EDGE), INC.
11 EQUITY ONE (LANTANA), INC.
12 EQUITY ONE (LAKE MARY), INC.
13 EQUITY ONE (MANDARIN), INC.
14 EQUITY ONE (MONUMENT), INC.
15 EQUITY ONE (OAK HILL), INC.
16 EQUITY ONE (PARKER TOWNE CENTRE), INC.
17 EQUITY ONE (POINT ROYALE), INC.
18 EQUITY ONE (SKYLAKE), INC.
19 EQUITY ONE (SUMMERLIN), INC.
20 EQUITY ONE (WEST LAKE), INC.
21 EQUITY ONE REALTY & MANAGEMENT, INC.
22 FLORIDA DEL REY HOLDINGS, INC.
23 FOUR CORNERS EQUITY CORP.
24 GAZIT (MERIDIAN), INC.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,374,000
<SECURITIES> 1,633,000
<RECEIVABLES> 1,142,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 148,087,000
<DEPRECIATION> 9,464,000
<TOTAL-ASSETS> 152,955,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 102,000
<OTHER-SE> 81,116,000
<TOTAL-LIABILITY-AND-EQUITY> 152,955,000
<SALES> 25,626,000
<TOTAL-REVENUES> 25,626,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,547,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,014,000
<INCOME-PRETAX> 9,065,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,065,000
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
</TABLE>
