United States
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] For the quarterly period ended September 30, 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 0-24763
REGENCY CENTERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 59-3429602
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
(Address of principal executive offices) (Zip Code)
(904) 356-7000
(Registrant's telephone number, including area code)
Unchanged
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
<PAGE>
Item 1. Financial Statments
REGENCY CENTERS, L.P.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Assets
Real estate investments, at cost:
Land $ 201,611,212 134,457,274
Buildings and improvements 716,286,569 467,730,009
Construction in progress - development for investment 7,220,442 13,427,370
Construction in progress - development for sale 16,727,205 20,173,039
----------------- ---------------
941,845,428 635,787,692
Less: accumulated depreciation 30,092,439 22,041,114
----------------- ---------------
911,752,989 613,746,578
Investments in real estate partnerships 24,812,813 999,730
----------------- ---------------
Net real estate investments 936,565,802 614,746,308
Cash and cash equivalents 13,069,033 14,642,429
Tenant receivables, net of allowance for uncollectible accounts
of $2,093,924 and $1,162,570 at September 30, 1998
and December 31, 1997, respectively 13,331,237 7,245,788
Deferred costs, less accumulated amortization of
$1,905,716 and $1,456,933 at September 30, 1998
and December 31, 1997, respectively 3,721,370 2,215,099
Other assets 5,547,600 2,299,521
----------------- ---------------
$ 972,235,042 641,149,145
================= ===============
Liabilities and Partners' Capital
Liabilities:
Notes payable 338,278,896 145,455,989
Acquisition and development line of credit 45,931,185 48,131,185
Accounts payable and other liabilities 23,726,388 9,972,065
Tenants' security and escrow deposits 2,419,249 1,854,700
----------------- ---------------
Total liabilities 410,355,718 205,413,939
----------------- ---------------
Limited partners' interest in consolidated partnerships
(note 2) 7,469,749 7,305,945
----------------- ---------------
Partners' Capital:
Series A preferred units, par value $50, 1,600,000 units
issued and outstanding at September 30, 1998 78,800,000 -
General partner; 23,585,493 and 21,822,226 common units outstanding
at September 30, 1998 and December 31, 1997, respectively 454,666,241 415,112,127
Limited partners; 1,077,808 and 545,357 common units outstanding
at September 30, 1998 and December 31, 1997, respectively 20,943,334 13,317,134
----------------- ---------------
Total partners' capital 554,409,575 428,429,261
----------------- ---------------
Commitments and contingencies
$ 972,235,042 641,149,145
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REGENCY CENTERS, L.P.
Consolidated Statements of Operations
For the Three Months ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Minimum rent $ 22,354,064 14,922,153
Percentage rent 91,356 162,301
Recoveries from tenants 5,080,325 3,338,465
Management, leasing and brokerage fees 2,616,945 2,601,076
Equity in income of investments in
real estate partnerships 364,778 2,557
----------------- --------------
Total revenues 30,507,468 21,026,552
----------------- ---------------
Operating expenses:
Depreciation and amortization 5,328,129 3,255,958
Operating and maintenance 3,654,505 3,042,856
General and administrative 3,375,878 2,545,387
Real estate taxes 2,612,111 1,822,347
----------------- --------------
Total operating expenses 14,970,623 10,666,548
----------------- ---------------
Interest expense (income):
Interest expense 5,272,968 2,782,220
Interest income (405,787) (263,266)
----------------- ---------------
Net interest expense 4,867,181 2,518,954
----------------- ---------------
Income before minority interests and sale
of real estate investments 10,669,664 7,841,050
----------------- ---------------
Minority interest of limited partners (189,385) (220,589)
Loss on sale of real estate investments (8,871) -
----------------- ---------------
Net income 10,471,408 7,620,461
Preferred unit distribution (1,733,333) -
----------------- ---------------
Net income for unitholders 8,738,075 7,620,461
================= ===============
Net income per common unit:
Basic $ 0.30 0.35
================= ===============
Diluted $ 0.30 0.33
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
REGENCY CENTERS, L.P.
Consolidated Statements of Operations
For the Nine Months ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Minimum rent $ 59,555,899 38,021,981
Percentage rent 714,255 689,100
Recoveries from tenants 13,424,928 8,466,101
Management, leasing and brokerage fees 8,023,313 6,288,601
Equity in income of investments in
real estate partnerships 511,189 19,694
----------------- ---------------
Total revenues 82,229,584 53,485,477
----------------- ---------------
Operating expenses:
Depreciation and amortization 14,068,450 8,407,931
Operating and maintenance 10,025,253 7,490,702
General and administrative 10,638,327 7,761,401
Real estate taxes 7,010,606 4,542,042
----------------- ---------------
Total operating expenses 41,742,636 28,202,076
----------------- ---------------
Interest expense (income):
Interest expense 14,522,548 10,414,048
Interest income (1,339,259) (686,282)
----------------- ---------------
Net interest expense 13,183,289 9,727,766
----------------- ---------------
Income before minority interests and sale
of real estate investments 27,303,659 15,555,635
----------------- ---------------
Minority interest of limited partners (389,544) (565,731)
Gain on sale of real estate investments 10,737,226 -
----------------- ---------------
Net income 37,651,341 14,989,904
Preferred unit distribution (1,733,333) -
----------------- ---------------
Net income available for common unit holders 35,918,008 14,989,904
================= ===============
Net income per common unit:
Basic $ 1.34 0.67
================= ===============
Diluted $ 1.31 0.63
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
REGENCY CENTERS, L.P.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,651,341 14,989,904
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 14,068,450 8,407,931
Deferred financing cost and debt premium amortization (366,616) -
Minority interest of limited partners 389,544 565,731
Equity in income of investments in real estate partnerships (511,189) (19,694)
Gain on sale of real estate investments (10,737,226) -
Changes in assets and liabilities:
Tenant receivables (6,085,449) 515,449
Deferred leasing commissions (1,260,601) (406,449)
Other assets (4,975,156) (824,376)
Tenants' security deposits 564,549 363,657
Accounts payable and other liabilities 12,020,990 4,663,184
--------------- ---------------
Net cash provided by operating activities 40,758,637 28,255,337
--------------- ---------------
Cash flows from investing activities:
Acquisition and development of real estate (178,953,026) (130,993,385)
Investment in real estate partnerships (23,337,738) -
Capital improvements (3,650,658) (1,863,824)
Construction in progress for sale, net of reimbursement 3,445,834 (8,094,704)
Proceeds from sale of real estate investments 30,662,197 -
Distributions received from real estate partnership investments 35,844 50,000
--------------- ---------------
Net cash used in investing activities (171,797,547) (140,901,913)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of limited partnership units 7,694 2,255,140
Cash contributions from the issuance of Regency stock 9,733,060 208,356,926
Contributions from limited partners in consolidated partnerships 164,785 -
Cash distributions for preferred units (1,733,333) -
Cash distributions for dividends (38,783,993) (24,733,456)
Other contributions (distributions), net 12,195,873 1,860,910
Net proceeds from issuance of Series A preferred units 78,800,000 -
Net proceeds from term notes 99,758,000 -
Repayment of acquisition and development line of credit, net (2,200,000) (69,870,000)
Proceeds from mortgage loans payable 7,345,000 14,649,706
Repayment of mortgage loans payable (34,576,785) (14,905,241)
Deferred financing costs (1,244,787) (564,586)
--------------- ---------------
Net cash provided by financing activities 129,465,514 117,049,399
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (1,573,396) 4,402,823
Cash and cash equivalents at beginning of period 14,642,429 6,466,899
--------------- ---------------
Cash and cash equivalents at end of period $ 13,069,033 10,869,722
=============== ===============
</TABLE>
<PAGE>
REGENCY CENTERS, L.P.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed from sellers of real estate $ 121,166,552 117,698,966
============== ===============
Limited and general partnership units
issued to acquire real estate $ 35,389,254 94,769,706
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
September 30, 1998
1. Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
Regency Centers, L.P. (the Partnership) is the primary entity
through which Regency Realty Corporation ("Regency"), a
self-administered and self-managed real estate investment trust
("REIT"), conducts substantially all of its business and owns
substantially all of its assets. In 1993, Regency was formed for
the purpose of managing, leasing, brokering, acquiring, and
developing shopping centers. The Partnership also provides
management, leasing, brokerage and development services for real
estate not owned by Regency (i.e., owned by third parties).
The Partnership was formed in 1996 for the purpose of acquiring
certain real estate properties. The historical financial
statements of the Partnership reflect the accounts of the
Partnership since its inception, together with the accounts of
certain predecessor entities (including Regency Centers, Inc., a
wholly-owned subsidiary of Regency through which Regency owned a
substantial majority of its properties), which were merged with
and into the Partnership as of February 26, 1998.
The accompanying interim unaudited financial statements (the
"Financial Statements") include the accounts of the Partnership,
and its majority owned subsidiaries and partnerships. All
significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
The Financial Statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission, and
reflect all adjustments which are of a normal recurring nature,
and in the opinion of management, are necessary to properly state
the results of operations and financial position. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information
presented not misleading. The Financial Statements should be read
in conjunction with the financial statements and notes thereto
included in the Partnership's December 31, 1997 Form 10 filed with
the Securities and Exchange Commission.
(b) Statement of Financial Accounting Standards No. 130
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes
standards for reporting total comprehensive income in financial
statements, and requires that Companies explain the differences
between total comprehensive income and net income. Management has
adopted this statement in 1998. No differences between total
comprehensive income and net income existed in the interim
financial statements reported at September 30, 1998 and 1997.
<PAGE>
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
September 30, 1998
1. Summary of Significant Accounting Policies (continued)
(c) Statement of Financial Accounting Standards No. 131
The FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"), which is effective for fiscal years
beginning after December 15, 1997. FAS 131 establishes standards
for the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports. Management does
not believe that FAS 131 will effect its current disclosures.
(d) Emerging Issues Task Force Issue 97-11
Effective March 19, 1998, the Emerging Issues Task Force (EITF)
ruled in Issue 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions", that only internal costs of
identifying and acquiring non-operating properties that are
directly identifiable with the acquired properties should be
capitalized, and that all internal costs associated with
identifying and acquiring operating properties should be expensed
as incurred. The Partnership had previously capitalized direct
costs associated with the acquisition of operating properties as a
cost of the real estate. The Partnership has adopted EITF 97-11
effective March 19, 1998. During 1997, the Partnership capitalized
approximately $1.5 million of internal costs related to acquiring
operating properties. Through the effective date of EITF 97-11,
the Partnership has capitalized $474,000 of internal acquisition
costs. For the remainder of 1998, the Partnership expects to incur
$1.1 million of internal costs related to acquiring operating
properties which will be expensed.
(e) Emerging Issues Task Force Issue 98-9
On May 22, 1998, the EITF reached a consensus on Issue 98-9
"Accounting for Contingent Rent in Interim Financial Periods". The
EITF has stated that lessors should defer recognition of
contingent rental income that is based on meeting specified
targets until those specified targets are met and not ratably
throughout the year. The Partnership has previously recognized
contingent rental income (i.e. percentage rent) ratably over the
year based on the historical trends of its tenants. The
Partnership has adopted Issue 98-9 prospectively and has ceased
the recognition of contingent rents until such time as their
tenants have achieved its specified target. The Partnership
believes this will affect the interim period in which percentage
rent is recognized, however it will not have a material impact on
the annual recognition of percentage rent.
(f) Reclassifications
Certain reclassifications have been made to the 1997 amounts to
conform to classifications adopted in 1998.
<PAGE>
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
September 30, 1998
2. Acquisitions of Shopping Centers
During the first nine months of 1998, the Partnership acquired 26
shopping centers for approximately $303.2 million (the "1998
Acquisitions"). In January, 1998, the Partnership entered into an
agreement to acquire 32 shopping centers from various entities comprising
the Midland Group ("Midland") Of the 32 centers to be acquired or
developed, 31 are anchored by Kroger, or its affiliate. The Partnership
currently owns 20 of the shopping centers fee simple and 12
through joint ventures. All of the shopping centers included in the
development pipeline are owned through various joint ventures in which
the Partnership owns less than a 50% interest (the "JV Properties"). The
Partnership's investment in the properties acquired from Midland is
$220.4 million at September 30, 1998. The Partnership expects to acquire
the un-owned interests in two of the JV Properties for approximately
$20.7 million prior to year-end. During 1998, 1999 and 2000, including
all payments made to date, the Partnership will pay approximately $241
million for the properties, including the assumption of debt, and in
addition may pay contingent consideration of up to an estimated $23
million, through the issuance of Partnership units and the payment of
cash. Whether contingent consideration will be issued, and if issued, the
amount of such consideration, will depend on the satisfaction during
1998, 1999, and 2000 of performance criteria relating to the assets
acquired from Midland. For example, if a property acquired as part of
Midland's development pipeline satisfies specified performance criteria
at closing and when development is completed, the transferors of the
property may be entitled to additional Partnership units based on the
development cost of the properties and their net operating income.
Transferors who received cash at the initial Midland closing will receive
contingent future consideration in cash rather than units.
In March, 1997, the Partnership acquired 26 shopping centers from Branch
Properties ("Branch") for $232.4 million. Additional Units and shares of
common stock may be issued after the first, second and third
anniversaries of the closing with Branch (each an "Earn-Out Closing"),
based on the performance of the properties acquired. The formula for the
earn-out provides for calculating any increases in value on a
property-by-property basis, based on any increases in net income for the
properties acquired, as of February 15 of the year of calculation. The
earn-out is limited to 721,997 Units at the first Earn-Out Closing and
1,020,061 Units for all Earn-Out Closings (including the first Earn-Out
Closing). During March, 1998, the Partnership issued 721,997 Units and
shares valued at $18.2 million to the partners of Branch.
3. Notes Payable and Unsecured Line of Credit
The Partnership's outstanding debt at September 30, 1998 and December 31,
1997 consists of the following:
1998 1997
---- ----
Notes Payable:
Fixed rate mortgage loans $ 204,218,450 114,615,011
Variable rate mortgage loans 12,620,514 30,840,978
Fixed rate unsecured loans 121,439,932 -
Unsecured line of credit 45,931,185 48,131,185
----------- -----------
Total $ 384,210,081 193,587,174
=========== ===========
During March, 1998, the Partnership modified the terms of its unsecured
line of credit (the "Line") by increasing the commitment to $300 million,
reducing the interest rate, and incorporating a competitive bid facility
of up to $150 million of the commitment amount. Maximum availability
under the Line is subject to a pool of unencumbered assets which cannot
have an aggregate value less
<PAGE>
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
September 30, 1998
3. Notes Payable and Unsecured Line of Credit (continued)
than 175% of the amount of the Partnership's outstanding unsecured
liabilities. The Line matures in May 2000, but may be extended annually
for one year periods. Borrowings under the Line bear interest at a
variable rate based on LIBOR plus a specified spread, (.875% currently),
which is dependent on the Partnership's investment grade rating. The
Partnership's ratings are currently Baa2 from Moody's Investor Service,
BBB from Duff and Phelps, and BBB- from Standard and Poors. The
Partnership is required to comply with certain financial covenants
consistent with this type of unsecured financing. The Line is used
primarily to finance the acquisition and development of real estate, but
is available for general working capital purposes.
On June 29, 1998, the Partnership issued $80 million of 8.125% Series A
Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an
institutional investor in a private placement. The issuance involved the
sale of 1.6 million Series A Preferred Units for $50.00 per unit. The
Series A Preferred Units, which may be called by the Partnership at par
on or after June 25, 2003, have no stated maturity or mandatory
redemption, and pay a cumulative, quarterly dividend at an annualized
rate of 8.125%. At any time after June 25, 2008, the Series A Preferred
Units may be exchanged for shares of 8.125% Series A Cumulative
Redeemable Preferred Stock of Regency at an exchange rate of one share of
Series A Preferred Stock for one Series A Preferred Unit. The Series A
Preferred Units and Series A Preferred Stock are not convertible into
common stock of Regency. The net proceeds of the offering were used to
reduce the Partnership's bank line of credit.
On July 17, 1998 the Partnership completed a $100 million private
offering of term notes at an effective interest rate of 7.17%. The
Notes were priced at 162.5 basis points over the current yield for seven
year US Treasury Bonds. The net proceeds of the offering will be used to
repay borrowings under the line of credit.
Mortgage loans are secured by certain real estate properties, but
generally may be prepaid subject to a prepayment of a yield-maintenance
premium. Mortgage loans are generally due in monthly installments of
interest and principal and mature over various terms through 2018.
Variable interest rates on mortgage loans are currently based on LIBOR
plus a spread in a range of 125 basis points to 150 basis points.
Fixed interest rates on mortgage loans range from 7.04% to 9.8%.
During the first nine months of 1998, the Partnership assumed mortgage
loans with a face value of $112,124,875 related to the acquisition of
shopping centers. The Partnership has recorded the loans at fair value
which created debt premiums of $9,041,677 related to assumed debt based
upon the above market interest rates of the debt instruments. Debt
premiums are being amortized over the terms of the related debt
instruments.
Unconsolidated partnerships and joint ventures had mortgage loans payable
of $74,905,055 at September 30, 1998, and the Partnership's share of
these loans was $31,250,636.
<PAGE>
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
September 30, 1998
3. Notes Payable and Unsecured Line of Credit (continued)
As of September 30, 1998, scheduled principal repayments on notes payable
and the unsecured line of credit were as follows:
1998 $ 8,359,366
1999 15,058,956
2000 55,880,179
2001 19,026,352
2002 38,742,477
Thereafter 238,970,935
-----------
Subtotal 376,038,265
Net unamortized debt premiums 8,171,816
-----------
Total $ 384,210,081
===========
4. Earnings Per Unit
The following summarizes the calculation of basic and diluted earnings
per unit for the three months ended, September 30, 1998 and 1997 (in
thousands except per unit data):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Basic Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding 24,404 18,148
Net income for unitholders $ 8,738 7,620
Less: dividends paid on Class B common stock 1,344 1,285
----- -----
Net income for Basic Earnings per Unit $ 7,394 6,335
===== =====
Basic Earnings per Unit $ .30 .35
=== ===
Diluted Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding for Basic EPU 24,404 18,148
Incremental units to be issued under common
stock options using the Treasury method - 83
Contingent units for the acquisition
of real estate 492 1,151
------ ------
Total diluted units 24,896 19,382
====== ======
Diluted Earnings per Unit $ .30 .33
=== ===
</TABLE>
The Class B common stock dividends are deducted from income in computing
earnings per unit since the proceeds of this offerings was transferred to
and reinvested by the Partnership. Accordingly, payment of such dividends
is dependent upon the operations of the Partnership.
<PAGE>
REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
September 30, 1998
4. Earnings Per Unit (continued)
The following summarizes the calculation of basic and diluted earnings
per unit for the nine months ended, September 30, 1998 and 1997 (in
thousands except per unit data):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Basic Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding 23,872 16,516
Net income for unitholders $ 35,918 14,990
Less: dividends paid on Class B common stock 4,033 3,855
----- -----
Net income for Basic Earnings per Unit $ 31,885 11,135
====== ======
Basic Earnings per Unit $ 1.34 .67
==== ===
Diluted Earnings Per Unit (EPU) Calculation:
Weighted average units outstanding for Basic EPU 23,872 16,516
Incremental units to be issued under common
stock options using the Treasury method - 87
Contingent units for the acquisition
of real estate 418 1,151
------ ------
Total diluted units 24,290 17,754
====== ======
Diluted Earnings per Unit $ 1.31 .63
==== ===
</TABLE>
The Class B common stock dividends are deducted from income in
computing earnings per unit since the proceeds of this offerings was
transferred to and reinvested by the Partnership. Accordingly, payment of
such dividends is dependent upon the operations of the Partnership.
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollar amounts in thousands).
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto of Regency Centers, L.P.
("RCLP" or the "Partnership") appearing elsewhere in this Form 10-Q, and with
the Partnership's Form 10 filed August 7, 1998. Certain statements made in the
following discussion may constitute forward-looking statements which involve
unknown risks and uncertainties of business and economic conditions pertaining
to the operation, acquisition, or development of shopping centers including the
retail business sector, and may cause actual results of the Partnership in the
future to significantly differ from any future results that may be implied by
such forward-looking statements. These forward-looking statements
are based on current expectations, estimates and projections about the industry
and markets in which the Company operates, management's beliefs and assumptions
made by management.
Organization
RCLP is the primary entity through which Regency Realty Corporation ("Regency"),
a self-administered and self-managed real estate investment trust ("REIT")
conducts substantially all of its business and owns substantially all of its
assets. In 1993, Regency was formed for the purpose of managing, leasing,
brokering, acquiring, and developing shopping centers. The Partnership also
provides management, leasing, brokerage and development services for real estate
not owned by Regency (i.e., owned by third parties).
Of the 125 properties included in Regency's portfolio at September 30, 1998, 104
properties were owned either fee simple or through partnership interests by the
Partnership. At September 30, 1998, Regency had an investment in real estate, at
cost, of approximately $1.2 billion of which $967 million or 82% was owned by
the Partnership.
Shopping Center Business
The Partnership's principal business is owning, operating and developing grocery
anchored neighborhood infill shopping centers. Infill refers to shopping centers
within a targeted investment market offering sustainable competitive advantages
such as barriers to entry resulting from zoning restrictions, growth management
laws, or limited new competition from development or expansions. The
Partnership's properties summarized by state including their gross leasable
areas (GLA) follows:
<TABLE>
<CAPTION>
Location September 30, 1998 December 31, 1997
-------- ------------------ -----------------
# Properties GLA % Leased # Properties GLA % Leased
------------ ------------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Florida 36 4,580,112 92.5% 35 4,168,458 93.5%
Georgia 25 2,537,552 90.7% 23 2,368,890 92.4%
North Carolina 12 1,241,784 97.7% 6 554,332 99.0%
Ohio 10 1,045,630 96.7% - - -
Texas 5 451,227 89.4% - - -
Colorado 5 447,663 84.3% - - -
Tennessee 4 295,257 98.7% 3 208,386 98.5%
Kentucky 1 205,060 95.6% - - -
South Carolina 1 79,723 100.0% 1 79,743 84.3%
Virginia 2 197,324 99.5% - - -
Michigan 1 85,478 99.0% - - -
Delaware 1 232,752 95.5% - - -
Missouri 1 82,498 99.8% - - -
------------ ------------- --------- ------------ --------- --------
Total 104 11,482,060 93.1% 68 7,379,778 93.6%
============ ============= ========= ============ ========= ========
</TABLE>
<PAGE>
The Partnership is focused on building a platform of grocery anchored
neighborhood shopping centers because grocery stores provide convenience
shopping of daily necessities, foot traffic for adjacent local tenants, and
should withstand adverse economic conditions. The Partnership's current
investment markets have continued to offer strong stable economies, and
accordingly, the Partnership expects to realize growth in net income as a result
of increasing occupancy in the portfolio, increasing rental rates, development
and acquisition of shopping centers in targeted markets, and redevelopment of
existing shopping centers. The following table summarizes the four largest
tenants occupying the Partnership's shopping centers:
Average
Grocery Anchor Number of % of % of Annual Remaining Lease
Stores Total GLA Base Rent Term
Kroger * 35 18.2% 18.0% 20 yrs
Publix 26 10.7% 8.4% 13 yrs
Winn Dixie 11 4.8% 3.5% 13 yrs
Blockbuster 29 1.6% 2.5% 4 yrs
*includes properties under development scheduled for opening in 1998
and 1999. Excluding development properties, Kroger would represent
15.4% of GLA and 14.9% of annual base rent.
Acquisition and Development of Shopping Centers
During the first nine months of 1998, the Partnership acquired 26 shopping
centers for approximately $303.2 million (the "1998 Acquisitions"). In January,
1998, the Partnership entered into an agreement to acquire 32 shopping centers
from various entities comprising the Midland Group ("Midland"). Of the 32
centers to be acquired or developed, 31 are anchored by Kroger, or its
affiliate. The Partnership currently owns 20 of the shopping centers fee simple
and 12 through joint ventures. All of the shopping centers included in the
development pipeline are owned through various joint ventures in which the
Partnership owns less than a 50% interest (the "JV Properties"). The
Partnership's investment in the properties acquired from Midland is $220.4
million at September 30, 1998. The expects to acquire the un-owned interests in
two of the JV Properties for approximately $20.7 million prior to year-end.
During 1998, 1999 and 2000, including all payments made to date, the Partnership
will pay approximately $241 million for the properties, including the assumption
of debt, and in addition may pay contingent consideration of up to an estimated
$23 million, through the issuance of Partnership units and the payment of cash.
Whether contingent consideration will be issued, and if issued, the amount of
such consideration, will depend on the satisfaction during 1998, 1999, and 2000
of performance criteria relating to the assets acquired from Midland. For
example, if a property acquired as part of Midland's development pipeline
satisfies specified performance criteria at closing and when development is
completed, the transferors of the property may be entitled to additional
Partnership units based on the development cost of the properties and their net
operating income. Transferors who received cash at the initial Midland closing
will receive contingent future consideration in cash rather than units.
The Partnership acquired 36 shopping centers during 1997 (the "1997
Acquisitions") for approximately $346.1 million. The 1997 Acquisitions include
the acquisition of 26 shopping centers from Branch Properties ("Branch") for
$232.4 million in March, 1997. The real estate acquired from Branch included
100% fee simple interests in 20 shopping centers, and also partnership interests
(ranging from 50% to 93%) in four partnerships with outside investors that owned
six shopping centers. The Partnership was also assigned the third party property
management contracts of Branch on approximately 3 million SF of shopping center
GLA that generate management fees and leasing commission revenues. Additional
Units and shares of common stock may be issued after the first, second and third
anniversaries of the closing with Branch (each an "Earn-Out Closing"), based on
the performance of the properties acquired. The formula for the earn-out
provides for calculating any increases in value on a property-by-property basis,
based on any increases in net income for the properties acquired, as of February
15 of the year of calculation. The earn-out is limited to 721,997 Units at the
first Earn-Out Closing and 1,020,061 Units for all Earn-Out Closings (including
the first Earn-Out Closing). During March, 1998, the Partnership issued 721,997
Units and shares valued at $18.2 million to the partners of Branch.
<PAGE>
Liquidity and Capital Resources
Management anticipates that cash generated from operating activities will
provide the necessary funds on a short-term basis for its operating expenses,
interest expense and scheduled principal payments on outstanding indebtedness,
recurring capital expenditures necessary to properly maintain the shopping
centers, and distributions to unit holders. Net cash provided by operating
activities was $40.8 million and $28.2 million for the nine months ended
September 30, 1998 and 1997, respectively. The Partnership paid distributions of
$40.5 million and $24.7 million, during 1998 and 1997, respectively. In 1998,
the Partnership increased its quarterly distribution to $.44 per unit
vs. $.42 per unit in 1997, had more outstanding units in 1998 vs. 1997; and
accordingly, expects distributions paid during 1998 to increase substantially
over 1997.
Management expects to meet long-term liquidity requirements for debt maturities,
and acquisition, renovation and development of shopping centers from: (i) excess
cash generated from operating activities, (ii) working capital reserves, (iii)
additional debt borrowings, and (iv) additional equity raised in the public
markets. Net cash used in investing activities was $171.8 million and $140.9
million, during 1998 and 1997, respectively, as discussed above in Acquisitions
and Development of Shopping Centers. Net cash provided by financing activities
was $129.4 million and $117 million during 1998 and 1997, respectively. At
September 30, 1998, the Partnership had 14 shopping centers under construction
or undergoing major renovations. Total committed costs necessary to complete the
properties under development is estimated to be $35.1 million and will be
expended through August 1999.
The Partnership's outstanding debt at September 30, 1998 and December 31, 1997
consists of the following:
1998 1997
---- ----
Notes Payable:
Fixed rate mortgage loans $ 204,218 114,615
Variable rate mortgage loans 12,621 30,841
Fixed rate unsecured loans 121,440 -
Unsecured line of credit 45,931 48,131
---------- --------
Total $ 384,210 193,587
========== ========
The weighted average interest rate on total debt at September 30, 1998 and 1997
was 7.5% and 7.4% respectively. The Partnership's debt is typically
cross-defaulted, but not cross-collateralized, and includes usual and customary
affirmative and negative covenants.
The Partnership is a party to a credit agreement dated as of March 27, 1998,
providing for an unsecured line of credit (the "Line") from a group of lenders
currently consisting of Wells Fargo Bank, National Association, First Union
National Bank, Wachovia Bank, N.A., NationsBank, N.A., AmSouth Bank, Commerzbank
AG, Atlanta Branch, PNC Bank, National Association, and Star Bank, N.A. This
credit agreement modified the terms of the Partnership's prior line of credit by
increasing the commitment to $300 million, reducing the interest rate, and
incorporating a competitive bid facility of up to $150 million of the commitment
amount. Maximum availability under the Line is based on the discounted value of
a pool of eligible unencumbered assets (determined on the basis of capitalized
net operating income) less the amount of the Partnership's outstanding unsecured
liabilities. The Line matures in May 2000, but may be extended annually for one
year periods. Borrowings under the Line bear interest at a variable rate based
on LIBOR plus a specified spread, (.875% currently), which is dependent on the
Partnership's investment grade rating. The Partnership's ratings are currently
Baa2 from Moody's Investor Service, BBB from Duff and Phelps, and BBB- from
Standard and Poors. The Partnership is required to comply with certain financial
and other covenants customary with this type of unsecured financing. These
financial covenants include (i) maintenance of minimum net worth, (ii) ratio of
total liabilities to gross asset value, (iii) ratio of secured indebtedness to
gross asset value, (iv) ratio of EBITDA to interest expense, (v) ratio of EBITDA
to debt service and reserve for replacements, and (vi) ratio of unencumbered net
operating income to interest expense on unsecured indebtedness. The Line is used
primarily to finance the acquisition and development of real estate, but is
available for general working capital purposes.
<PAGE>
On June 29, 1998, the Partnership issued $80 million of 8.125% Series A
Cumulative Redeemable Preferred Units ("Series A Preferred Units") to an
institutional investor in a private placement. The issuance involved the sale of
1.6 million Series A Preferred Units for $50.00 per unit. The Series A Preferred
Units, which may be called by the Partnership at par on or after June 25, 2003,
have no stated maturity or mandatory redemption, and pay a cumulative, quarterly
dividend at an annualized rate of 8.125%. At any time after June 25, 2008, the
Series A Preferred Units may be exchanged for shares of 8.125% Series A
Cumulative Redeemable Preferred Stock of Regency at an exchange rate of one
share of Series A Preferred Stock for one Series A Preferred Unit. The Series A
Preferred Units and Series A Preferred Stock are not convertible into common
stock of Regency. The net proceeds of the offering were used to reduce the
Partnership's bank line of credit.
On July 17, 1998 the Partnership completed a $100 million private offering of
term notes at an effective interest rate of 7.17%. The Notes were priced at
162.5 basis points over the current yield for seven year US Treasury Bonds. The
net proceeds of the offering will be used to repay borrowings under the line of
credit.
Mortgage loans are secured by certain real estate properties, but generally may
be prepaid subject to a prepayment of a yield-maintenance premium. Mortgage
loans are generally due in monthly installments of interest and principal and
mature over various terms through 2018. Variable interest rates on mortgage
loans are currently based on LIBOR plus a spread in a range of 125 basis points
to 150 basis points. Fixed interest rates on mortgage loans range from 7.04% to
9.8%.
During the first nine months of 1998, the Partnership assumed mortgage loans
with a face value of $112.1 million related to the acquisition of shopping
centers. The Partnership has recorded the loans at fair value which created debt
premiums of $9 million related to assumed debt based upon the above market
interest rates of the debt instruments. Debt premiums are being amortized over
the terms of the related debt instruments.
Unconsolidated partnerships and joint ventures had mortgage loans payable of
$74.9 million at September 30, 1998, and the Partnership's share of these loans
was $31.2 million.
As of September 30, 1998, scheduled principal repayments on notes
payable and the unsecured line of credit were as follows:
1998 $ 8,359
1999 15,059
2000 55,880
2001 19,026
2002 38,742
Thereafter 238,972
-------
Subtotal 376,038
Net unamortized debt premiums 8,172
-------
Total $ 384,210
=======
Regency qualifies and intends to continue to qualify as a REIT under the
Internal Revenue Code. As a REIT, Regency is allowed to reduce taxable income by
all or a portion of its distributions to stockholders. Since Regency's
distributions have exceeded it's taxable income, Regency has made no provision
for federal income taxes. While the Partnership intends to continue to pay
distributions such that Regency can continue to pay dividends to its
stockholders, the Partnership will reserve such amounts of cash flow as it
considers necessary for the proper maintenance and improvement of its real
estate, while still allowing Regency to maintain its qualification as a REIT.
<PAGE>
Results from Operations
Comparison of the Nine Months Ended September 30, 1998 to 1997
Revenues increased $28.7 million or 54% to $82.2 million in 1998. The increase
was due primarily to the 1998 and 1997 Acquisitions. At September 30, 1998, the
real estate portfolio contained approximately 11.5 million SF, was 93.1% leased
and had average rents of $9.35 per SF. Minimum rent increased $21.5 million or
57%, and recoveries from tenants increased $5.0 million or 59%. Revenues from
property management, leasing, brokerage, and development services provided on
properties not owned by the Partnership were $8.0 million in 1998 compared to
$6.3 million in 1997, the increase due primarily to fees earned from third party
property management and leasing contracts acquired as part of the acquisition of
Branch. During 1998, the Partnership sold four office buildings and a parcel of
land for $30.7 million, and recognized a gain on the sale of $10.7 million. As a
result of these transactions the Partnership's real estate portfolio is
comprised entirely of neighborhood shopping centers. The proceeds from the sale
were applied toward the purchase of the 1998 acquisitions.
Operating expenses increased $13.5 million or 48% to $41.7 million in 1998.
Combined operating and maintenance, and real estate taxes increased $5.0 million
or 42% during 1998 to $17.0 million. The increases are due to the 1998 and 1997
Acquisitions. General and administrative expenses increased 37% during 1998 to
$10.6 million due to the hiring of new employees and related office expenses
necessary to manage the shopping centers acquired during 1998 and 1997, as well
as, the shopping centers that the Partnership began managing for third parties
during 1998 and 1997. Depreciation and amortization increased $5.7 million
during 1998 or 67% primarily due to the 1998 and 1997 Acquisitions.
Interest expense increased to $14.5 million in 1998 from $10.4 million in 1997
or 40% due to increased average outstanding loan balances related to the
financing of the 1998 and 1997 Acquisitions on the Line and the assumption of
debt.
Net income for unitholders was $35.9 million in 1998 vs. $15.0 million in 1997,
a $20.9 million or 140% increase for the reasons previously described. Diluted
earnings per unit in 1998 was $1.31 vs. $0.63 in 1997 due to the increase in net
income combined with the dilutive impact from the increase in weighted average
common units and equivalents of 6.5 million primarily due to the acquisition of
Branch and Midland, the issuance of units to SC-USREALTY during 1997, and the
public offering completed in July, 1997.
Comparison of the Three Months Ended September 30, 1998 to 1997
Revenues increased $9.5 million or 45% to $30.5 million in 1998. The increase
was due primarily to the 1998 and 1997 Acquisitions. Minimum rent increased $7.4
million or 50%, and recoveries from tenants increased $1.7 million or 52%.
Revenues from property management, leasing, brokerage, and development services
provided on properties not owned by the Partnership were $2.6 million in 1998
and 1997.
Operating expenses increased $4.3 million or 40% to $15.0 million in 1998.
Combined operating and maintenance, and real estate taxes increased $1.4 million
or 29% during 1998 to $6.3 million. The increases are due to the 1998 and 1997
Acquisitions. General and administrative expenses increased 33% during 1998 to
$3.4 million due to the hiring of new employees and related office expenses
necessary to manage the shopping centers acquired during 1998 and 1997, as well
as, the shopping centers that the Partnership began managing for third parties
during 1997. Depreciation and amortization increased $2.1 million during 1998 or
64% primarily due to the 1998 and 1997 Acquisitions.
Interest expense increased to $5.3 million in 1998 from $2.8 million in 1997 or
90% due to increased average outstanding loan balances related to the financing
of the 1998 and 1997 Acquisitions on the Line and the assumption of debt.
New Accounting Standards and Accounting Changes
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"),
which is effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting total comprehensive income in financial
statements, and requires that Companies explain the differences between total
comprehensive income and net income. Management has adopted this statement in
1998. No differences between total comprehensive income and net income existed
in the interim financial statements reported at June 30, 1998 and 1997.
<PAGE>
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which is effective for fiscal years beginning after December 15, 1997.
FAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Management does not believe that FAS 131
will effect its current disclosures.
Effective March 19, 1998, the Emerging Issues Task Force (EITF) ruled in Issue
97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions", that only internal costs of identifying and acquiring
non-operating properties that are directly identifiable with the acquired
properties should be capitalized, and that all internal costs associated with
identifying and acquiring operating properties should be expensed as incurred.
The Partnership had previously capitalized direct costs associated with the
acquisition of operating properties as a cost of the real estate. The
Partnership has adopted EITF 97-11 effective March 19, 1998. During 1997, the
Partnership capitalized approximately $1.5 million of internal costs related to
acquiring operating properties. Through the effective date of EITF 97-11, the
Partnership has capitalized $474,000 of internal acquisition costs. For the
remainder of 1998, the Partnership expects to incur $1.1 million internal costs
related to acquiring operating properties which will be expensed.
On May 22, 1998, the EITF reached a consensus on Issue 98-9 "Accounting for
Contingent Rent in Interim Financial Periods". The EITF has stated that lessors
should defer recognition of contingent rental income that is based on meeting
specified targets until those specified targets are met and not ratably
throughout the year. The Partnership has previously recognized contingent rental
income (i.e. percentage rent) ratably over the year based on the historical
trends of its tenants. The Partnership has adopted Issue 98-9 prospectively and
has ceased the recognition of contingent rents until such time as their tenants
have achieved its specified target. The Partnership believes this will effect
the interim period in which percentage rent is recognized, however it will not
have a material impact on the annual recognition of percentage rent.
Environmental Matters
The Partnership like others in the commercial real estate industry, is subject
to numerous environmental laws and regulations and the operation of dry cleaning
plants at the Partnership's shopping centers is the principal environmental
concern. The Partnership believes that the dry cleaners are operating in
accordance with current laws and regulations and has established procedures to
monitor their operations. Based on information presently available, no
additional environmental accruals were made and management believes that the
ultimate disposition of currently known matters will not have a material effect
on the financial position, liquidity, or operations of the Partnership.
Inflation
Inflation has remained relatively low during 1998 and 1997 and has had a minimal
impact on the operating performance of the shopping centers, however,
substantially all of the Partnership's long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such provisions include
clauses enabling the Partnership to receive percentage rentals based on tenants'
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. Such
escalation clauses are often related to increases in the consumer price index or
similar inflation indices. In addition, many of the Partnership's leases are for
terms of less than ten years, which permits the Partnership to seek increased
rents upon re-rental at market rates. Most of the Partnership's leases require
the tenants to pay their share of operating expenses, including common area
maintenance, real estate taxes, insurance and utilities, thereby reducing the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation.
<PAGE>
Year 2000 System Compliance
Management recognizes the potential effect Year 2000 may have on the
Partnership's operations and, as a result, has implemented a Year 2000
Compliance Project. The term "Year 2000 compliant" means that the software,
hardware, equipment, goods or systems utilized by, or material to the physical
operations, business operations, or financial reporting of an entity will
properly perform date sensitive functions before, during and after the year
2000.
The Partnership's Year 2000 Compliance Project includes an awareness phase, an
assessment phase, a renovation phase, and a testing phase of our data processing
network, accounting and property management systems, computer and operating
systems, software packages, and building management systems. The project also
includes surveying our major tenants and financial institutions.
The Partnership's computer hardware, operating systems, general accounting and
property management systems and principal desktop software applications are Year
2000 compliant as certified by the various vendors. We are currently testing
these systems, and expect to complete the testing phase by December 31, 1998.
Based on initial testing, Management does not anticipate any Year 2000 issues
that will materially impact operations or operating results. Total costs
incurred to date associated with the Partnership's Year 2000 compliance project
have been reflected in the Partnership's income statement throughout 1997 and
1998, and were approximately $250,000.
An assessment of the Partnership's building management systems has been
completed. This assessment has resulted in the identification of certain
lighting, telephone, and voice mail systems that may not be Year 2000 compliant.
While we have not yet begun renovations, Management believes that the cost of
upgrading these systems will not exceed $500,000. It is anticipated that the
renovation and testing phases will be complete by June 30, 1999.
The Partnership has surveyed its major tenants and financial institutions to
determine the extent to which the Partnership is vulnerable to third parties'
failure to resolve their Year 2000 issues. The Partnership will be able to more
adequately assess its third party risk when responses are received from the
majority of the entities contacted.
Management believes its planning efforts are adequate to address the Year 2000
Issue and that its risk factors are primarily those that it cannot directly
control, including the readiness of its major tenants and financial
institutions. Failure on the part of these entities to become Year 2000
compliant could result in disruption in the Partnership's cash receipt and
disbursement functions. There can be no guarantee, however, that the systems of
unrelated entities upon which the Partnership's operations rely will be
corrected on a timely basis and will not have a material adverse effect on the
Partnership.
The Partnership does not have a formal contingency plan or a timetable for
implementing one. Contingency plans will be established, if they are deemed
necessary, after the Partnership has adequately assessed the impact on
operations should third parties fail to properly respond to their Year 2000
issues.
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Item 10. Material contracts
Reports on Form 8-K:
A report on Form 8-K was filed on October 7, 1998 reporting
under Item 5. Acquisition of Pike Creek Shopping Center to
include audited Statement of Revenues and Certain Expenses as
of December 31, 1997, as well as, pro forma condensed
consolidated financial statements of operations for the six
months ended June 30, 1998 and the year ended December 31,
1997.
27. Financial Data Schedule
September 30, 1998
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 16, 1998 REGENCY CENTERS, L.P.
By: /s/ J. Christian Leavitt
Vice President, Treasurer
and Secretary
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM REGENCY
CENTER'S, LP QUARTERLY REPORT FOR THE PERIOD ENDED 9/30/98
</LEGEND>
<CIK> 0001066247
<NAME> REGENCY CENTERS, LP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,069,033
<SECURITIES> 0
<RECEIVABLES> 15,425,161
<ALLOWANCES> 2,093,924
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 966,658,241
<DEPRECIATION> 30,092,439
<TOTAL-ASSETS> 972,235,042
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 554,409,575
<TOTAL-LIABILITY-AND-EQUITY> 972,235,042
<SALES> 0
<TOTAL-REVENUES> 82,229,584
<CGS> 0
<TOTAL-COSTS> 17,035,859
<OTHER-EXPENSES> 14,068,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,522,548
<INCOME-PRETAX> 35,918,008
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,918,008
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<EXTRAORDINARY> 0
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<NET-INCOME> 35,918,008
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.31
</TABLE>
