UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File No. 0001042810
EQUITY ONE, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
1696 N.E. Miami Gardens Drive
N. Miami Beach, Florida 33179
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(Address of Principal Executive Offices)
(305) 947-1664
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(Issuer's Telephone Number, Including Area Code)
Maryland 52-1794271
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Applicable only to Corporate Issuers:
As of the close of business on August 7, 2000, 11,873,301 shares of the
Company's common stock, par value $0.01 per share, were issued and outstanding.
<PAGE>
EQUITY ONE, INC.
INDEX TO FORM 10-Q
THREE MONTHS ENDED JUNE 30, 2000
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets-
As of June 30, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statements of Operations -
For the three-month and six-month periods ended June 30, 2000 and
1999 (unaudited)
Condensed Consolidated Statements of Comprehensive Income -
For the three-month and six-month periods ended June 30, 2000 and
1999 (unaudited)
Condensed Consolidated Statements of Stockholders' Equity -
For the three-month and six-month periods ended June 30, 2000 and
1999 (unaudited)
Condensed Consolidated Statements of Cash Flows-
For the six-month periods ended June 30, 2000 and 1999 (unaudited)
Notes to the Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Rental Properties:
Land, building and equipment ................................. $ 192,763 $ 186,154
Building improvements ........................................ 7,645 6,311
Land held for development .................................... 14,816 15,401
Construction in progress ..................................... 10,515 8,722
--------- ---------
225,739 216,588
Accumulated depreciation ..................................... (13,630) (11,669)
--------- ---------
Rental properties, net ..................................... 212,109 204,919
Cash and cash equivalents ....................................... 289 427
Securities available for sale ................................... 1,380 1,218
Accounts and other receivables, net ............................. 1,381 2,209
Due from related parties ........................................ 123 33
Deposits ........................................................ 1,850 707
Prepaid and other assets ........................................ 835 567
Deferred expenses, net .......................................... 1,768 1,723
Goodwill, net ................................................... 669 694
--------- ---------
Total assets ............................................. $ 220,404 $ 212,497
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Mortgage notes payable ....................................... $ 100,372 $ 97,752
Credit agreement ............................................. 19,831 19,475
Accounts payable and accrued expenses ........................ 3,363 1,330
Tenants' security deposits ................................... 1,400 1,274
Deferred rental income ....................................... 164 248
Minority interest in equity of consolidated subsidiary ....... 989 989
--------- ---------
Total liabilities ........................................ 126,119 121,068
--------- ---------
Stockholders' Equity:
Common stock ................................................. 118 113
Additional paid-in capital ................................... 94,444 89,990
Retained earnings ............................................ 1,772 2,390
Accumulated other comprehensive income ....................... (381) (519)
Unamortized restricted stock compensation and
notes receivable........................................... (1,668) (545)
--------- ---------
Total stockholders' equity ............................... 94,285 91,429
--------- ---------
Total liabilities and stockholders' equity ...................... $ 220,404 $ 212,497
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Rental income ........................... $ 7,932 $ 6,256 $15,997 $12,241
Investment revenue ...................... 59 72 98 182
------- ------- ------- -------
Total revenues ........................ 7,991 6,328 16,095 12,423
------- ------- ------- -------
Costs and Expenses:
Operating expenses ...................... 2,061 1,629 4,239 3,220
Depreciation and amortization ........... 1,006 823 1,986 1,620
Interest ................................ 1,630 1,039 3,356 2,111
General and administrative expenses...... 482 459 1,055 871
Minority interest in earnings of
consolidated subsidiary .............. 25 24 49 47
------- ------- ------- -------
Total costs and expenses .............. 5,204 3,974 10,685 7,869
------- ------- ------- -------
Net income ................................. $ 2,787 $ 2,354 $ 5,410 $ 4,554
======= ======= ======= =======
Earnings per share:
Basic earnings per share ................... $ 0.24 $ 0.22 $ 0.47 $ 0.44
======= ======= ======= =======
Number of shares used in computing
basic earnings per share ................ 11,480 10,610 11,390 10,455
======= ======= ======= =======
Diluted earnings per share ................. $ 0.24 $ 0.22 $ 0.47 $ 0.43
======= ======= ======= =======
Number of shares used in computing
diluted earnings per share .............. 11,684 10,784 11,581 10,628
======= ======= ======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income ................................. $ 2,787 $ 2,354 $ 5,410 $ 4,554
Other comprehensive income:
Net unrealized holding gain on
securities available for sale.......... 82 69 138 28
------- ------- ------- -------
Comprehensive income ....................... $ 2,869 $ 2,423 $ 5,548 $ 4,582
======= ======= ======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Unamortized
restricted
Accumulated stock
Additional Other compensation Total
Common Paid-in Retained Comprehensive and notes Stockholders'
Stock Capital Earnings Income receivable Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended June 30, 2000
Balance, April 1, 2000 ................... $ 116 $ 92,692 $ 2,023 $ (463) $ (1,668) $ 92,700
Issuance of common stock .............. 2 1,752 1,754
Net income ............................ 2,787 2,787
Net unrealized holding gain on
securities available for sale ....... 82 82
Dividends paid ........................ (3,038) (3,038)
-------- -------- -------- -------- -------- --------
Balance, June 30, 2000 (Unaudited) ....... $ 118 $ 94,444 $ 1,772 $ (381) $ (1,668) $ 94,285
======== ======== ======== ======== ======== ========
Three Months Ended June 30,1999
Balance, April 1, 1999 ................... $ 105 $ 82,785 $ (139) $ 82,751
Issuance of common stock .............. 3 2,761 $ (545) 2,219
Net income ............................ $ 2,354 2,354
Net unrealized holding gain on
securities available for sale ....... 69 69
Dividends paid ........................ (350) (2,354) (2,704)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1999 (Unaudited) ....... $ 108 $ 85,196 $ -- $ (70) $ (545) $ 84,689
======== ======== ======== ======== ======== ========
Six Months Ended June 30, 2000
Balance, January 1, 2000 ................. $ 113 $ 89,990 $ 2,390 $ (519) $ (545) $ 91,429
Issuance of common stock .............. 5 4,587 (1,123) 3,469
Stock issuance costs .................. (133) (133)
Net income ............................ 5,410 5,410
Net unrealized holding gain on
securities available for sale ....... 138 138
Dividends paid ........................ (6,028) (6,028)
-------- -------- -------- -------- -------- --------
Balance, June 30, 2000 (Unaudited) ....... $ 118 $ 94,444 $ 1,772 $ (381) $ (1,668) $ 94,285
======== ======== ======== ======== ======== ========
Six Months Ended June 30,1999
Balance, January 1, 1999 ................. $ 102 $ 81,214 $ (98) $ 81,218
Issuance of common stock .............. 6 4,752 $ (545) 4,213
Net income ............................ $ 4554 4,554
Net unrealized holding gain on
securities available for sale ....... 28 28
Dividends paid ........................ (770) (4554) (5,324)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1999 (Unaudited) ....... $ 108 $ 85,196 $ -- $ (70) $ (545) $ 84,689
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
6
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Operating Activities:
Net income ....................................................................... $ 5,410 $ 4,554
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................................. 2,118 1,667
Provision for losses on accounts receivable .................................... (48) 16
Minority interest in earnings of consolidated subsidiary ....................... 49 47
Changes in assets and liabilities:
Restricted cash .............................................................. -- 6,780
Accounts and other receivables ............................................... 876 133
Deposits ..................................................................... (1,143) (985)
Prepaid and other assets ..................................................... (268) 217
Accounts payable and accrued expenses ........................................ 2,033 1,328
Tenants' security deposits ................................................... 126 98
Deferred rental income ....................................................... (84) (55)
Due from related parties ..................................................... (90) 39
-------- --------
Net cash provided by operating activities .................................... 8,979 13,839
-------- --------
Investing Activities:
Additions to rental properties ................................................... (9,151) (20,501)
Purchases of available for sale securities ....................................... (24) (6,709)
Sales and prepayments of securities .............................................. -- 6,723
Change in deposits for acquisition of rental property ............................ -- (38)
-------- --------
Net cash used in investing activities ........................................ (9,175) (20,525)
-------- --------
Financing Activities:
Repayments of mortgage notes payable ............................................. (3,880) (2,280)
Borrowings under mortgage notes payable .......................................... 6,500 5,001
Borrowings under credit agreement ................................................ 356 6,009
Cash dividends paid to stockholders .............................................. (6,028) (5,324)
Stock subscription and issuance .................................................. 3,469 4,213
Stock issuance costs ............................................................. (133) --
Deferred financing expenses, net ................................................. (177) (89)
Change in minority interest ...................................................... (49) (24)
-------- --------
Net cash provided by financing activities .................................... 58 7,506
-------- --------
Net (decrease) increase in Cash and Cash Equivalents ................................ (138) 820
Cash and Cash Equivalents, Beginning of Period ...................................... 427 1,594
-------- --------
Cash and Cash Equivalents, End of Period ............................................ $ 289 $ 2,414
======== ========
(Continued)
</TABLE>
7
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Supplemental Disclosure:
Cash paid for interest, net of amount capitalized................ $ 3,302 $ 2,045
======== ========
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized holding gain on securities available for sale $ 138 $ 28
======== ========
Issuance of restricted stock..................................... $ 1,123
========
Common stock issued for notes receivables........................ $ 545
========
Acquisition of rental property................................... $ 3,800
Change in minority interest...................................... 965
--------
Assumption of mortgage note payable.............................. $ 2,835
========
(Concluded)
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
8
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1999
1. Basis of Presentation
The accompanying interim condensed financial data of Equity One, Inc.
("the Company") are unaudited; however, in the opinion of management,
the interim data include all adjustments necessary for a fair
presentation of the results for the interim periods. 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 as of the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
The results of operations for the three-month and six-month periods
ended June 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000. The December 31, 1999
condensed consolidated balance sheet was derived from the audited
consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles.
The interim unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1999
appearing in the Company's Form 10-K/A filed with the Securities and
Exchange Commission.
2. Significant Accounting Policies
The significant accounting policies applied in the preparation of the
condensed consolidated financial statements are identical to those
applied in the preparation of the most recent annual consolidated
financial statements.
3. Income Tax Status
The Company has claimed a special Real Estate Investment Trust ("REIT")
tax status effective January 1, 1995 and in the opinion of management
continues to meet all of the eligibility requirements for REIT tax
status. Accordingly, the Company has not recorded any provision for
federal income tax.
4. Earnings Per Share
Basic earnings per share is computed by dividing earnings 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 Company.
5. Minority Interest
On January 1, 1999, a wholly-owned subsidiary of the Company, Equity
One (Walden Woods) Inc., entered into a limited partnership as a
general partner. An income producing shopping center ("Walden Woods
9
<PAGE>
Village") was contributed by its owners (the "Minority Partners") and
the Company contributed 93,656 shares of common stock to the limited
partnership at an agreed-upon price of $10.30 per share. Based on this
per share price and the net value of property contributed by the
Minority Partners, each of the Partners received 93,656 limited
partnership units. The Company and the Minority Partners have entered
into a Redemption Agreement whereby the Minority Partners can request
that the Company purchase back all or part of the common stock at
$10.30 per share no earlier than two years nor later than fifteen years
after the exchange date of January 1, 1999. As a result of the
Redemption Agreement, the minority interest has been presented as a
liability. In addition, under the terms of the limited partnership
agreement, the Minority Partners do not have an interest in the common
stock of the Company except to the extent of dividends declared on such
common stock. Accordingly, a preference in earnings has been allocated
to the Minority Partners to the extent of the dividends declared.
6. New Accounting Pronouncement
The Securities and Exchange Commission recently published Staff
Accounting Bulletin No. 101 which summarizes its views in applying
generally accepted accounting principles to revenue recognition in the
financial statements. Management does not believe that this bulletin
will have any impact on the preparation or presentation of the
Company's financial statements.
7. Subsequent Event
On July 6, 2000, the Company closed a $16.35 million fixed rate loan
secured by a portion of the Shops at Skylake located in North Miami
Beach, Florida. In connection with the financing, approximately $6.5
million of the proceeds were escrowed subject to meeting certain
leasing requirements over a period not to exceed fourteen months. The
net proceeds of the financing in the amount of $9.7 million were used
to reduce the Company's borrowing under the Credit Agreement, as
defined herein. Contemporaneous with the financing, the limitation on
advances under the Credit Agreement was reduced from $30.5 million to
$20.6 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following should be read in conjunction with the Company's
Condensed Consolidated Financial Statements, including the notes thereto, which
are included elsewhere herein.
(1) Results of Operations
Three Months Ended June 30, 2000 Compared To Three Months Ended June 30,
1999
Total revenues increased by approximately $1.7 million, or 27.0% to
$8.0 million for the three months ended June 30, 2000 from $6.3 million for the
comparable period of 1999. The majority of the increase (approximately $1.5
million) can be attributed to the following acquisitions: Pine Island Plaza, a
Supermarket and Home Depot Expo anchored Shopping Center, and the adjacent Ridge
Plaza, both located in Davie, Florida on August 26, 1999; and Mandarin Landing,
a Supermarket Shopping Center (as defined in the Company's Form 10-K/A), located
in Jacksonville, Florida on December 9, 1999. Additional sources of increased
revenues were the opening of phase one at The Shops at Skylake, a Supermarket
Shopping Center located in North Miami Beach, Florida, which contributed
$341,000 and an increase in same property revenues of $164,000, offset by the
loss of $296,000 in revenues relating to the sale of Four Corners, a Supermarket
Shopping Center located in Tomball, Texas, on December 7, 1999.
10
<PAGE>
Operating expenses increased by approximately $432,000, or 27.0% to
$2.1 million for the three months ended June 30, 2000 from $1.6 million for the
comparable period of 1999. The primary cause for the increase was a $559,000
increase relating to the aforementioned acquisitions and the opening of phase
one at Skylake reported above, a decrease in same property operating expenses of
$55,000 and a reduction of $71,000 in operating expenses relating to the sale of
Four Corners.
Depreciation and amortization expense increased by approximately
$183,000, or 22.2% to $1,006,000 for the three months ended June 30, 2000 from
$823,000 for the comparable period of 1999. The increase resulted primarily from
the net addition of properties to the Company's portfolio reported above.
Interest expense increased by approximately $591,000, or 59.1% to $1.6
million for the three months ended June 30, 2000 from $1.0 million for the
comparable period of 1999. The increase resulted primarily from an increase in
the Company's line of credit interest of $257,000, an increase in mortgage note
interest on new loans of $594,000, offset by a $236,000 increase in capitalized
interest to a total of $687,000, and a decline in interest on same mortgage
notes of $24,000.
General and administrative expenses increased by approximately $23,000,
or 5.0% to $482,000 for the three months ended June 30, 2000 from $459,000 for
the comparable period of 1999. The increase resulted primarily from increases in
payroll costs of $211,000, a decline in professional fees and promotion/printing
of $77,000 and $58,000, respectively, and a net increase in all other expenses
totaling $40,000 offset by a $93,000 increase in capitalization of costs
relating to development projects to a total of $217,000. In the second quarter
1999, capitalized development costs were allocated solely to the Skylake
project, whereas in the second quarter 2000, capitalized development costs were
allocated to several development projects.
As a result of the foregoing, net income increased by approximately
$433,000, or 18.0% to $2.8 million for the three months ended June 30, 2000,
compared to $2.4 million for the comparable period of 1999.
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Total revenues increased by approximately $3.7 million or 29.8% to
$16.1 million for the six months ended June 30, 2000 from $12.4 million for the
comparable period of 1999. The majority of the increase (approximately $3.3
million) can be attributed to the following acquisitions: Park Promenade, a
Supermarket Shopping Center located in Orlando, Florida, on January 31, 1999; a
K-Mart lease and building located in the Company's Lantana Village Shopping
Center in Lantana, Florida on March 31, 1999; Pine Island Plaza, a Supermarket
and Home Depot Expo anchored Shopping Center, and the adjacent Ridge Plaza, both
located in Davie, Florida on August 26, 1999; and Mandarin Landing, a
Supermarket Shopping Center located in Jacksonville, Florida, on December 9,
1999. Additional sources of increased revenues were the opening of phase one at
The Shops at Skylake, a Supermarket Shopping Center located in North Miami
Beach, Florida, which contributed $630,000 and an increase in same property
revenues of $456,000, offset by the loss of $611,100 in revenues relating to the
sale of Four Corners, a Supermarket Shopping Center located in Tomball, Texas,
on December 7, 1999.
Operating expenses increased by approximately $1.0 million, or 31.3% to
$4.2 million for the six months ended June 30, 2000 from $3.2 million for the
comparable period of 1999. The primary cause for the increase was a $1.2 million
increase relating to the aforementioned acquisitions and the opening of phase
one at Skylake reported above, offset by a reduction in same property operating
expenses of $44,000 and a $145,000 reduction in operating expenses relating to
the sale of Four Corners.
Depreciation and amortization expense increased by approximately
$366,000, or 22.9% to $2.0 million for the six months ended June 30, 2000 from
$1.6 million for the comparable period of 1999. The increase resulted primarily
from the net addition of properties to the Company's portfolio reported above.
11
<PAGE>
Interest expense increased by approximately $1.2 million, or 57.1% to
$3.4 million for the six months ended June 30, 2000 from $2.1 million for the
comparable period of 1999. The increase resulted primarily from an increase in
the Company's line of credit interest of $564,000, an increase in mortgage note
interest on new loans of $1.1 million, offset by a $384,000 increase in
capitalized interest to a total of $1.2 million and a decline in interest on
same mortgage notes of $58,000.
General and administrative expenses increased by approximately
$184,000, or 21.1% to $1.1 million for the six months ended June 30, 2000 from
$871,000 for the comparable period of 1999. The net increase resulted primarily
from an increase in payroll costs of $477,000 and a net decrease in all other
expenses totaling $71,000, offset by a $222,000 increase in capitalization of
costs relating to development projects to a total of $452,000. In the first six
months of 1999, capitalized development costs were allocated solely to the
Skylake project, whereas in the first six months of 2000, capitalized
development costs were allocated to several development projects.
As a result of the foregoing, net income increased by approximately
$856,000, or 18.6% to $5.4 million for the six months ended June 30, 2000,
compared to $4.6 million for the comparable period of 1999.
Funds from Operations
The National Association of Real Estate Investment Trusts ("NAREIT")
has adopted the NAREIT White Paper on Funds from Operations (the "White Paper")
which provides additional guidance on the calculation of funds from operations.
The White Paper, originally released in March 1995 and revised effective January
1, 2000, defines funds from operations ("FFO") as net income (computed in
accordance with generally accepted accounting principles ("GAAP")), excluding
gains sales of property, plus real estate related depreciation and amortization.
Management believes that FFO is a helpful measure of the performance of an
equity REIT because, along with cash flows from operating activities, investing
activities and financing activities, it provides an understanding of the
Company's ability 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 Company, FFO should be examined in conjunction with the
net income as presented in the condensed 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.
12
<PAGE>
The following table illustrates the calculation of FFO for the
three-month and six-month periods ended June 30, 2000 and 1999 (in thousands
except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income ..................................... $ 2,787 $ 2,354 $ 5,410 $ 4,554
Depreciation of real estate assets ............. 987 808 1,948 1,584
Amortization of leasing costs .................. 30 13 56 21
Minority interest .............................. 25 24 49 47
Lease termination fee .......................... -- 112 -- 224
------- ------- ------- -------
Funds from operations .......................... $ 3,829 $ 3,311 $ 7,463 $ 6,430
======= ======= ======= =======
Funds from operations per share
(Diluted) ................................... $ 0.33 $ 0.31 $ 0.64 $ 0.61
======= ======= ======= =======
Weighted average shares outstanding
(Diluted) ................................... 11,684 10,784 11,581 10,628
======= ======= ======= =======
</TABLE>
FFO increased by approximately $518,000, or 15.6% to $3.8 million for
the three months ended June 30, 2000, from $3.3 million for the comparable
period of 1999. FFO increased by approximately $1.0 million or 16.1% to $7.5
million for the six months ended June 30, 2000, from $6.4 million for the
comparable period of 1999. The increase is primarily the result of the
acquisition of additional properties, the opening of Skylake phase one and the
difference between the increases in same property revenues and expenses, as
noted above.
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 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 June 30, 2000, the Company had total mortgage indebtedness of
approximately $100.3 million, all of which was fixed rate mortgage indebtedness
bearing interest at a weighted average rate of 7.52% and collateralized by 17 of
the Company's existing properties. The Company also has provided a $1.5 million
letter of credit to secure certain obligations in connection with the
acquisition of one of the Company's properties. This letter of credit is
collateralized by a mixed-use property located in West Palm Beach, Florida.
In order to meet the Company's expansion objectives, the Company
secured a $35.0 million Credit Agreement with City National Bank of Florida on
February 4, 1999 (the "Credit Agreement"). On May 15, 2000, the limitation on
advances under the Credit Agreement was increased from approximately $22.2
million to approximately $30.5 million, with future increases conditioned on the
posting of additional collateral (see Subsequent Event footnote). As of June 30,
2000 the Credit Agreement was secured by mortgages on Skylake, East Bay Plaza,
Beauclerc Village, Mandarin Landing, Mandarin Mini Storage and the Equity One
Office Building. 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, 2002. Advances under the Credit Agreement will be used to
fund property acquisitions, development activities and other Company activities.
As of June 30, 2000, the outstanding balance under the Credit Agreement and the
floating rate facilities had been increased to $19.8 million from $19.5 million
as of December 31, 1999.
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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
contains other customary conditions and covenants, 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 a prohibition on secondary financing on any of the secured properties.
As of June 30, 2000, the percentage of the total real estate cost of
the Company's Existing Properties (as defined in the Company's Form 10-K/A) that
was encumbered by debt was 53.1%. None of the existing mortgages are subject to
cross default provisions of a mortgage on any other property nor are any
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 the mixed-use
property located in West Palm Beach, Florida.
The Company has one major development project underway. The Skylake
development project will add an aggregate of 280,000 square feet of retail space
to the Company's portfolio. Phase one was completed in July 1999, and phase two
was completed in July 2000 bringing the total developed space to 150,702 square
feet. It is anticipated that construction of the third phase will commence by
year end 2000, with future funding required to complete this project totaling
approximately $7.9 million. Upon stabilization, management expects these
developments to have a positive effect on cash generated by operating activities
and FFO.
During the six months ended June 30, 2000, the Company paid a cash
dividend of $0.26 and $0.26 per outstanding share of common stock on March 31
and June 30, 2000, respectively, totaling $3.0 million and $3.0 million,
respectively.
On February 22, 2000, the Company instituted a Dividend Reinvestment
and Stock Purchase Plan (the "Plan") that allows its shareholders to reinvest
all or a portion of their cash dividends in additional shares of the Company's
common stock and to purchase shares of the Company's common stock. On March 8,
2000, Gazit (1995), Inc., M.G.N. (USA), Inc. and Gazit-Globe (1982), Ltd.,
affiliates of the Company, enrolled in the Plan with respect to the majority of
their shares of common stock. On March 31 and June 30, 2000, these affiliates
reinvested cash dividends totaling approximately $1.7 million and $1.8 million
for the purchase of 180,797 and 183,350 shares, respectively, of the Company's
authorized but unissued shares of common stock. While the affiliates have
expressed a desire to participate in the Plan, no assurances can be made that
they will continue to do so.
The Company believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at its
properties) and payment of distributions by the Company in accordance with REIT
requirements under the Internal Revenue Code.
Cash Flow
The net cash provided by operations of approximately $8.9 million for
the six months ended June 30, 2000 included: (1) net income of $5.4 million, (2)
adjustment for non-cash items of $2.1 million, and (3) a net change in operating
assets and liabilities of $1.4 million, compared to net cash provided by
operations of approximately $13.8 million for the six months ended June 30,
1999, which included (1) net income of $4.6 million, (2) adjustment for non-cash
items of $1.7 million, and (3) a change in operating assets and liabilities of
$7.5 million of which $6.8 million was an escrow deposit relating to the sale of
one of the Company's properties.
Net cash used in investing activities of approximately $9.2 million for
the six months ended June 30, 2000 included: (1) the purchase of one building
and lease for $312,000, and (2) improvements to Existing Properties and
construction expenditures relating to development projects totaling $8.9
million, compared to cash used in investing activities of approximately $20.5
million for the six months ended June 30, 1999 which included (1) the
acquisition of
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a Supermarket Shopping Center and a K-Mart lease and building located at the
Company's Lantana Village Shopping Center for $12.1 million and 28 acres of
undeveloped land for $2.1 million, and (2) construction costs relating to the
Skylake and Forest Village projects, in the amount of $6.2 million.
Net cash provided by financing activities of $58,000 for the six months
ended June 30, 2000 included (1) a mortgage note payoff of $2.5 million and
principal payments on mortgage notes of $1.4 million, (2) borrowings under a new
mortgage note of $6.5 million, (3) net borrowings on the Credit Agreement and
other floating rate facilities of $356,000, (4) cash dividends paid to common
stock shareholders of $6.0 million, (5) proceeds from the issuance of stock
under the Company's Dividend Reinvestment and Stock Purchase Plan of $3.5
million, and (6) other miscellaneous expenditures of $358,000, compared to net
cash provided by financing activities of approximately $7.5 million for the six
months ended March 31, 1999, which included (1) a mortgage note payoff of $1.2
million and principal payments on mortgage notes of $1.1 million, (2) borrowing
under a new mortgage note of $5.0 million, (3) net borrowings under the Credit
Agreement of $6.0 million, (4) cash dividends paid to common stock shareholders
of $5.3 million, (5) proceeds from the exercise of C-Warrants to purchase common
stock of $4.2 million, and (6) and other miscellaneous expenditures of $113,000.
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 tenant 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 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
Certain statements made in this report may constitute "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. Such
forward looking statements include statements regarding the intent, belief or
current expectations of the company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: maintaining REIT status; general economic and business conditions
which will, among other things, affect the demand for retail space or retail
goods; availability and creditworthiness of prospective tenants; lease rents and
the terms and availability of financing; competition with other companies; risks
of real estate markets including, development and acquisition; governmental
actions and initiatives; and environment/safety requirements.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Company's properties are subject to any
material litigation. Further, to the Company's knowledge 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 affect
on the business, financial condition, results of operations or cash flows of the
Company.
Item 2. Changes in Securities and Use of Proceeds
On February 22, 2000 the Company instituted a Dividend Reinvestment and
Stock Purchase Plan. On March 31 and June 30, 2000 shareholders owning 6,567,592
and 6,747,406 shares of common stock, respectively, participated in the Plan, by
acquiring 180,935 and 183,459 shares of common stock, respectively. The issuance
of shares generated cash proceeds to the Company of approximately $1.7 and $1.8
million, respectively. Affiliates of the Company owning 6,562,592 and 6,743,389
shares of common stock, respectively, participated in the Plan.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - Financial Data Schedule
(b) Reported on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 2000 EQUITY ONE, INC.
/S/ CHAIM KATZMAN
-----------------------------------------
Chaim Katzman
Chief Executive Officer
(Principal Executive Officer)
/S/ HOWARD M. SIPZNER
-----------------------------------------
Howard M. Sipzner
Chief Financial Officer
(Principal Accounting Financial Officer)
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27.1 Financial Data Schedule
