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 September 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 November 6, 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 SEPTMBER 30, 2000
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets-
As of September 30, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statements of Operations-
For the three-month and nine-month periods ended
September 30, 2000 and 1999 (unaudited)
Condensed Consolidated Statements of Comprehensive Income-
For the three-month and nine-month periods ended
September 30, 2000 and 1999 (unaudited)
Condensed Consolidated Statements of Stockholders' Equity-
For the three-month and nine-month periods ended
September 30, 2000 and 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows-
For the nine-month periods ended
September 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)
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- ----------------
(Unaudited)
<S> <C> <C>
Assets
Rental Properties:
Land, building and equipment................................... $ 205,274 $ 186,154
Building improvements.......................................... 8,125 6,311
Land held for development...................................... 11,867 15,401
Construction in progress....................................... 7,568 8,722
---------------- ----------------
232,834 216,588
Accumulated depreciation....................................... (14,686) (11,669)
---------------- ----------------
Rental properties, net....................................... 218,148 204,919
Cash and cash equivalents......................................... 153 427
Securities available for sale..................................... 1,407 1,218
Accounts and other receivables, net............................... 1,778 2,209
Due from related parties.......................................... 125 33
Deposits.......................................................... 9,260 707
Prepaid and other assets.......................................... 771 567
Deferred expenses, net............................................ 1,659 1,723
Goodwill, net..................................................... 656 694
---------------- ----------------
Total assets............................................... $ 233,957 $ 212,497
================ ================
Liabilities and Stockholders' Equity
Liabilities:
Mortgage notes payable......................................... $ 119,534 $ 97,752
Credit agreement............................................... 13,206 19,475
Accounts payable and accrued expenses.......................... 4,487 1,330
Tenants' security deposits..................................... 1,454 1,274
Deferred rental income......................................... 203 248
Minority interest in equity of consolidated subsidiary......... 989 989
---------------- ----------------
Total liabilities.......................................... 139,873 121,068
---------------- ----------------
Stockholders' Equity:
Common stock................................................... 118 113
Additional paid-in capital..................................... 94,494 89,990
Retained earnings.............................................. 1,486 2,390
Accumulated other comprehensive income.......................... (309) (519)
Unamortized restricted stock compensation and notes
receivable.................................................. (1,705) (545)
---------------- ----------------
Total stockholders' equity................................. 94,084 91,429
---------------- ----------------
Total liabilities and stockholders' equity........................ $ 233,957 $ 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 SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------------------------- --------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Rental income...................................$ 8,121 $ 6,978 $ 24,004 $ 19,040
Management fees................................. 176 56 290 235
Investment revenue.............................. 118 78 216 260
---------------- --------------- --------------- --------------
Total revenues................................ 8,415 7,112 24,510 19,535
---------------- --------------- --------------- --------------
Costs and Expenses:
Operating expenses.............................. 2,098 1,903 6,337 5,123
Depreciation and amortization................... 1,069 899 3,055 2,519
Interest........................................ 1,950 1,379 5,306 3,490
General and administrative expenses............. 521 283 1,576 1,154
Minority interest in earnings of
consolidated subsidiary...................... 24 24 73 71
---------------- --------------- --------------- --------------
Total costs and expenses...................... 5,662 4,488 16,347 12,357
---------------- --------------- --------------- --------------
Net income.........................................$ 2,753 $ 2,624 $ 8,163 $ 7,178
================ =============== =============== ==============
Earnings per share:
Basic earnings per share...........................$ 0.24 $ 0.24 $ 0.71 $ 0.67
================ =============== =============== ==============
Number of shares used in computing basic
earnings per share.............................. 11,664 11,006 11,482 10,641
================ =============== =============== ==============
Diluted earnings per share.........................$ 0.23 $ 0.24 $ 0.71 $ 0.67
================ =============== =============== ==============
Number of shares used in computing
diluted earnings per share...................... 11,874 11,147 11,680 10,775
================ =============== =============== ==============
</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 SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
--------------- -------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income....................................... $ 2,753 $ 2,624 $ 8,163 $ 7,178
Other comprehensive income:
Net unrealized holding gain (loss) on
securities available for sale............... $ 72 $ (240) $ 210 (212)
--------------- -------------- ------------ -------------
Comprehensive income............................. $ 2,825 $ 2,384 $ 8,373 $ 6,966
=============== ============== ============ =============
</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 SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Unamortized
restricted
Accumulated stock
Additional Other compensation Total
Common Paid-in Retained Comprehensive and note Stockholders'
Stock Capital Earnings Income receivables Equity
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended September 30, 2000
Balance, July 1, 2000............... $ 118 $ 94,444 $ 1,772 $ (381) $ (1,668) $ 94,285
Issuance of common stock......... 56 (37) 19
Stock issuance cost.............. (6) (6)
Net income....................... 2,753 2,753
Dividends paid................... (3,039) (3,039)
Net unrealized holding gain on
securities available for sale.. 72 72
------------ ------------ ------------ ------------ ------------ -------------
Balance, September 30, 2000
(Unaudited).................... $ 118 $ 94,494 $ 1,486 $ (309) $ (1,705) $ 94,084
============ ============ ============ ============ ============ =============
Three Months Ended September 30, 1999
Balance, July 1, 1999............... $ 108 $ 85,196 $ (70) $ (545) $ 84,689
Issuance of common stock......... 5 3,913 3,918
Net income....................... $ 2,624 2,624
Dividends paid................... (313) (2,624) (2,937)
Net unrealized holding loss on
securities available for sale.. (240) (240)
------------ ------------ ------------ ------------ ------------ -------------
Balance, September 30, 1999
(Unaudited).................... $ 113 $ 88,796 $ --- $ (310) $ (545) $ 88,054
============ ============ ============ ============ ============ =============
Nine Months Ended September 30, 2000
Balance, January 1, 2000............ $ 113 $ 89,990 $ 2,390 $ (519) $ (545) $ 91,429
Issuance of common stock......... 5 4,643 (1,160) 3,488
Stock issuance costs............. (139) (139)
Net income....................... 8,163 8,163
Dividends paid................... (9,067) (9,067)
Net unrealized holding gain on
securities available for sale.. 210 210
------------ ------------ ------------ ------------ ------------ -------------
Balance, September 30, 2000
(Unaudited).................... $ 118 $ 94,494 $ 1,486 $ (309) $ (1,705) $ 94,084
============ ============ ============ ============ ============ =============
Nine Months Ended September 30, 1999
Balance, January 1, 1999............ $ 102 $ 81,214 $ (98) $ 81,218
Issuance of common stock......... 11 8,665 $ (545) 8,131
Net income....................... $ 7,178 7,178
Dividends paid................... (1,083) (7,178) (8,261)
Net unrealized holding loss on
securities available for sale.. (212) (212)
------------ ------------ ------------ ------------ ------------ -------------
Balance, September 30, 1999
(Unaudited).................... $ 113 $ 88,796 $ --- $ (310) $ (545) $ 88,054
============ ============ ============ ============ ============ =============
</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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
2000 1999
--------------------------------------
(Unaudited)
<S> <C> <C>
Operating Activities:
Net income....................................................... $ 8,163 $ 7,178
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.................................. 3,267 2,655
Provision for losses on accounts receivable.................... (32) 80
Minority interest in earnings of consolidated subsidiary....... 73 71
Changes in assets and liabilities:
Restricted cash.............................................. -- 6,780
Accounts and other receivables............................... 463 (768)
Deposits..................................................... (8,553) (1,651)
Prepaid and other assets..................................... (204) 219
Accounts payable and accrued expenses........................ 3,157 2,996
Tenants' security deposits................................... 180 271
Deferred rental income....................................... (45) 10
Due from related parties..................................... (92) 39
------------------- -----------------
Net cash provided by operating activities.................... 6,377 17,880
------------------- -----------------
Investing Activities:
Additions to rental property..................................... (16,246) (56,318)
Purchases of available for sale securities....................... (34) (6,720)
Sales and prepayments of securities.............................. 55 6,724
Change in deposits for acquisition of rental property............ -- (38)
------------------- -----------------
Net cash used in investing activities........................ (16,225) (56,352)
------------------- -----------------
Financing Activities:
Repayments of mortgage notes payable............................. (4,584) (2,877)
Borrowings under mortgage notes payable.......................... 26,366 31,235
Borrowings (repayments) under credit agreement................... (6,269) 10,643
Cash dividends paid to stockholders.............................. (9,067) (8,261)
Stock subscription and issuance.................................. 3,488 8,131
Stock issuance costs............................................. (139) --
Deferred financing expenses, net................................. (148) (324)
Change in minority interest...................................... (73) (47)
------------------- -----------------
Net cash provided by financing activities.................... 9,574 38,500
------------------- -----------------
Net (decrease) increase in Cash and Cash Equivalents................ (274) 28
Cash and Cash Equivalents, Beginning of Period...................... 427 1,594
------------------- -----------------
Cash and Cash Equivalents, End of Period............................ $ 153 $ 1,622
=================== =================
(Continued)
</TABLE>
7
<PAGE>
EQUITY ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
2000 1999
-------------------------------------
(Unaudited)
<S> <C> <C>
Supplemental Disclosure:
Cash paid for interest, net of amount capitalized........................ $ 5,102 $ 3,365
================ ===============
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized holding gain (loss) on securities available
for sale............................................................... $ 210 $ (212)
================ ===============
Issuance of restricted stock............................................. $ 1,160
================
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 NINE-MONTH PERIODS ENDED
SEPTEMBER 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 nine-month periods
ended September 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.
9
<PAGE>
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
Village") was contributed by its owners (the "Minority Partners") and
the Company contributed 93,656 unregistered 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 summarize 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 Company's financial statements.
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 September 30, 2000 Compared To Three Months Ended
September 30, 1999
Total revenues increased by approximately $1.3 million, or 18.3% to
$8.4 million for the three months ended September 30, 2000 from $7.1 million for
the comparable period of 1999. The majority of the increase (approximately $1.1
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; Mandarin Landing, a
Supermarket Shopping Center (as defined in the Company's Form 10-K/A), located
in Jacksonville, Florida on December 9, 1999 and Mariners Crossing, a
Supermarket Shopping Center, located in Spring Hill, Florida on September 12,
2000. Additional sources of increased revenues were the opening of phase one at
Forest Village, a Supermarket Shopping Center located in Tallahassee, Florida,
which contributed $118,500 and an increase in same property revenues of
$228,348, and an increase in other revenues of $196,000 offset by the loss of
$318,000 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 $195,000, or 10.3% to
$2.1 million for the three months ended September 30, 2000 from $1.9 million for
the comparable period of 1999. The primary cause for the increase was a $365,000
increase relating to the aforementioned acquisitions, a decrease in all other
property operating expenses of $96,000 and a reduction of $74,000 in operating
expenses relating to the sale of Four Corners.
Depreciation and amortization expense increased by approximately
$170,000, or 18.9% to $1.1 million for the three months ended September 30, 2000
from $899,000 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 $571,000, or 40.8% to $2.0
million for the three months ended September 30, 2000 from $1.4 million for the
comparable period of 1999. The increase resulted primarily from an increase in
the Company's line of credit interest of $73,000, an increase in mortgage note
interest on new loans of $712,000, offset by a $98,000 increase in capitalized
interest to a total of $503,000, a decline in interest on same mortgage notes of
$51,000 and a decline in interest of $65,000 relating to the payoff of the
Monument Point loan.
General and administrative expenses increased by approximately
$238,000, or 84.1% to $521,000 for the three months ended September 30, 2000
from $283,000 for the comparable period of 1999. The increase resulted primarily
from increases in payroll costs of $322,000, increase in office rent of $42,000
a decline in professional fees of $54,000, and a net increase in all other
expenses totaling $63,000 offset by a $135,000 increase in capitalization of
costs relating to development projects to a total of $210,000.
As a result of the foregoing, net income increased by approximately
$129,000, or 5.0% to $2.8 million for the three months ended September 30, 2000,
compared to $2.6 million for the comparable period of 1999.
Nine months ended September 30, 2000 compared to nine months ended June 30,
1999
Total revenues increased by approximately $5.0 million or 25.6% to
$24.5 million for the nine months ended September 30, 2000 from $19.5 million
for the comparable period of 1999. The majority of the increase (approximately
$4.3 million) can be attributed to the following acquisitions: 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; Mandarin Landing, a Supermarket Shopping
Center located in Jacksonville, Florida, on December 9, 1999 and Mariners
Crossing, a Supermarket Shopping Center, located in Spring Hill, Florida on
September 12, 2000. Additional sources of increased revenues was the opening of
Forest Village, a Supermarket Shopping Center located in Tallahassee, Florida,
which contributed $195,000 and an increase in same property revenues of $1.4,
offset by the loss of $928,000 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 $1.2 million, or 23.5% to
$6.3 million for the nine months ended September 30, 2000 from $5.1 million for
the comparable period of 1999. The primary cause for the increase was a $1.4
million increase relating to the aforementioned acquisitions and the opening of
Forest Village reported above, an increase in other property operating expenses
of $61,000, and a $219,000 reduction in operating expenses relating to the sale
of Four Corners.
Depreciation and amortization expense increased by approximately
$536,000, or 21.4% to $3.0 million for the nine months ended September 30, 2000
from $2.5 million 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 $1.8 million, or 51.4% to
$5.3 million for the nine months ended September 30, 2000 from $3.5 million for
the comparable period of 1999. The increase resulted primarily from an increase
in the Company's line of credit interest of $629,000, an increase in mortgage
note interest on new loans of $1.8 million, offset by a $482,000 increase in
capitalized interest to a total of $1.7 million, a decline in
11
<PAGE>
interest on same mortgage notes of $305,000, and a decrease in interest of
$124,000 relating to the payoff of the Monument Point loan.
General and administrative expenses increased by approximately
$422,000, or 35.2% to $1.6 million for the nine months ended September 30, 2000
from $1.2 for the comparable period of 1999. The net increase resulted primarily
from an increase in payroll costs of $843,000 and a net decrease in all other
expenses totaling $115,000, offset by a $306,000 increase in capitalization of
costs relating to development projects to a total of $663,000.
As a result of the foregoing, net income increased by approximately
$985,000, or 13.7% to $8.2 million for the nine months ended September 30, 2000,
compared to $7.2 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 or losses from 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 nine-month periods ended September 30, 2000 and 1999 (in
thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
--------------- -------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income............................................$ 2,753 $ 2,624 $ 8,163 $ 7,178
Depreciation of real estate assets..................... 1,042 879 2,989 2,463
Amortization of leasing costs.......................... 61 13 118 34
Minority interest...................................... 24 24 73 71
Lease termination fee.................................. -- -- -- 224
--------------- -------------- ------------- --------------
Funds from operations.................................$ 3,880 $ 3,540 $ 11,343 $ 9,970
=============== ============== ============= ==============
Funds from operations per share
(Diluted)..........................................$ 0.33 $ 0.32 $ 0.97 $ 0.93
=============== ============== ============= ==============
Weighted average shares outstanding
(Diluted).......................................... 11,874 11,147 11,680 10,775
=============== ============== ============= ==============
</TABLE>
FFO increased by approximately $340,000, or 9.7% to $3.9 million for
the three months ended September 30, 2000, from $3.5 million for the comparable
period of 1999. FFO increased by approximately $1.4 million or 14.0 % to $11.3
million for the nine months ended September 30, 2000, from $10.0 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 September 30, 2000, the Company had total mortgage indebtedness
of approximately $119.5 million, all of which was fixed rate mortgage
indebtedness bearing interest at a weighted average rate of 7.5% and
collateralized by 19 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"). 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. On July 6, 2000, the limitation on advances under the
Credit Agreement was decreased from approximately $30.5 million to approximately
$17.6 million as a result of releasing a portion of the Skylake collateral to
secure permanent financing, with future increases conditioned on the posting of
additional collateral. On October 10, 2000 the limitation was increased to
approximately $20.6 million, with future increases conditioned on the posting of
additional collateral. As of September 30, 2000 the Credit Agreement was secured
by mortgages on East Bay Plaza, Beauclerc Village, Mandarin Landing, Mandarin
Mini Storage, the Equity One Office Building and a portion of Skylake. As of
September 30, 2000, the outstanding
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balance under the Credit Agreement had been decreased to $13.2 million from
$19.5 million as of December 31, 1999.
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 September 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 54.1%. 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 Shops at
Skylake, which 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. Completion of an additional 24,000 square feet is underway with
construction of the balance of the project expected to commence in 2001. Future
funding required to complete this project is expected to total approximately
$7.9 million. Upon stabilization, management expects this development to have a
positive effect on cash generated by operating activities and FFO.
During the nine months ended September 30, 2000, the Company paid a
cash dividend of $0.26, $0.26 and $0.26 per outstanding share of common stock on
March 31, June 30, and September 29, respectively, totaling $3.0 million, $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
and certain other investors reinvested cash dividends totaling approximately
$1.7 million and $1.8 million for the purchase of 180,935 and 183,459 shares,
respectively, of the Company's authorized but unissued shares of common stock.
Effective September 1, 2000 the Plan was suspended by the Company.
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 $6.4 million for
the nine months ended September 30, 2000 included: (1) net income of $8.2
million, (2) adjustment for non-cash items of $3.3 million, and (3) a net change
in operating assets and liabilities of $5.1 million, compared to net cash
provided by operations of approximately $17.8 million for the nine months ended
September 30, 1999, which included (1) net income of $7.2 million, (2)
adjustment for non-cash items of $2.8 million, and (3) a change in operating
assets and liabilities of $7.9 million of which $6.8 million was an escrow
deposit relating to the sale of one of the Company's properties.
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Net cash used in investing activities of approximately $16.2 million
for the nine months ended September 30, 2000 included the purchase of one
building, building improvements and completion of development projects for $16.2
million, compared to cash used in investing activities of approximately $56.3
million for the nine months ended September 30, 1999 which included (1) the
acquisition of three Supermarket Shopping Centers and the K-Mart lease and
building located at the Company's Lantana Village Shopping Center for $44.7
million, (2) Skylake phase one construction and development cost of $3.9 million
and $3.3 million for the acquisition of undeveloped land, and (3) construction
costs relating to the Skylake phase two and the Forest Village project, in the
amount of $4.4 million.
Net cash provided by financing activities of $9.6 million for the nine
months ended September 30, 2000 included (1) a mortgage notes payoff of $2.5
million and principal payments on mortgage notes of $2.1 million, (2) borrowings
under new mortgage notes of $26.4 million, (3) net reduction on the Credit
Agreement and other floating rate facilities of $6.3 million, (4) cash dividends
paid to common stock shareholders of $9.1 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 uses of $360,000, compared to
net cash provided by financing activities of approximately $38.5 million for the
nine months ended September 30, 1999, which included (1) a mortgage note payoff
of $1.2 million and principal payments on mortgage notes of $1.7 million, (2)
borrowings under new mortgage notes of $31.2 million, (3) net borrowings under
the Credit Agreement of $10.6 million, (4) cash dividends paid to common stock
shareholders of $8.3 million, (5) proceeds from the exercise of C-Warrants to
purchase common stock of $8.1 million, and (6) and other miscellaneous uses of
$200,000.
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
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of real estate markets including, development and acquisition; governmental
actions and initiatives; and environment/safety requirements.
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 January 21, 2000 the Company issued to two employees 90,000 shares
of unregistered restricted stock that vest one-third each year on December 31
over a three year period. On January 21, 2000 the Company issued to members of
the Board of Directors 10,000 shares of unregistered restricted stock that vest
one-half each year on December 31 over a two year period. On March 14, 2000 the
Company issued to an employee 2,529 shares of unregistered restricted stock that
vest one-half each year on March 14 over a two year period. On July 1, 2000 the
Company issued to an employee 4,000 shares of unregistered restricted stock that
vest one-third each year on December 31, over a thirty month period. On July 1,
2000 the Company issued to an employee 2000 shares of unregistered restricted
stock that vest one-half each year on December 31, over an eighteen month
period. The shareholders will receive dividend payments during the vesting
period and the Company received no cash consideration for any of the above
issued unregistered restricted stock.
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: November 13, 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 NO. EXHIBIT DESCRIPTION
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27.1 Financial Data Schedule
