<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________.
Commission file number 1-12844
--------------
JDN REALTY CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Maryland 58-1468053
- --------------------------- -------------------
(State of Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3340 Peachtree Road, NE, Suite 1530, Atlanta, GA 30326
-------------------------------------------------------
(Address of principal executive offices - zip code)
(404) 262-3252
------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------
(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
--------- -------
As of October 20, 1997, 15,493,501 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Income - Three Months Ended September 30,
1997 and 1996 3
Condensed Consolidated Statements of Income - Nine Months Ended September 30, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30,
1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
</TABLE>
1
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- ---------------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Shopping center properties, at cost:
Land $ 66,908 $ 50,455
Buildings and improvements 347,605 262,568
Property under development 65,501 19,646
-------------- --------------
480,014 332,669
Less: accumulated depreciation and amortization (35,358) (27,973)
-------------- --------------
Shopping center properties, net 444,656 304,696
Cash and cash equivalents 2,207 2,709
Restricted cash - escrow 186 3,659
Rents receivable 1,940 2,208
Investments in and advances to unconsolidated entities 69,376 41,253
Deferred costs, net of amortization 4,362 6,181
Other assets 11,470 11,280
-------------- --------------
$ 534,197 $ 371,986
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unsecured notes payable $ 159,495 $ -
Unsecured line of credit 71,715 -
Mortgage notes payable 13,657 141,882
Accounts payable and accrued expenses 3,986 1,999
Other liabilities 1,799 1,566
-------------- --------------
Total Liabilities 250,652 145,447
Shareholders' Equity
Preferred stock, par value $.01 per share-
authorized 20,000,000 shares, none outstanding - -
Common stock, par value $.01 per share-
authorized 150,000,000 shares, issued and
outstanding 15,493,501 and 13,056,054 shares
in 1997 and 1996, respectively 155 131
Paid-in capital 290,479 233,497
Accumulated deficit (7,089) (7,089)
-------------- --------------
Total Shareholders' Equity 283,545 226,539
-------------- --------------
$ 534,197 $ 371,986
============= ==============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30,
1997 1996
------- -------
(In thousands)
Revenues:
Minimum and percentage rents $11,070 $ 8,288
Recoveries from tenants 1,238 826
Other revenue 30 45
------- -------
Total revenues 12,338 9,159
Operating expenses:
Operating and maintenance 851 665
Real estate taxes 701 401
General and administrative 976 837
Depreciation and amortization 2,573 1,955
------- -------
Total operating expenses 5,101 3,858
------- -------
Income from operations 7,237 5,301
Other income (expense):
Interest expense, net (1,450) (1,403)
Other income, net 331 -
Equity in net income of unconsolidated entities 1,312 413
------- -------
Income before net loss on real estate sales and
extraordinary items 7,430 4,311
Net loss on real estate sales (352) -
------- -------
Income before extraordinary items 7,078 4,311
Extraordinary items (5,539) -
------- -------
Net income $ 1,539 $ 4,311
======= =======
Income per share
Income before extraordinary items $ 0.46 $ 0.39
Extraordinary items (0.36) -
------- -------
Net income $ 0.10 $ 0.39
======= =======
Weighted average shares outstanding 15,467 11,012
======= =======
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30,
1997 1996
-------------- --------------
(In thousands)
Revenues:
Minimum and percentage rents $30,303 $24,054
Recoveries from tenants 3,111 2,536
Other revenue 118 167
-------------- --------------
Total revenues 33,532 26,757
Operating expenses:
Operating and maintenance 2,263 1,872
Real estate taxes 1,675 1,366
General and administrative 2,943 2,435
Depreciation and amortization 7,125 5,705
-------------- --------------
Total operating expenses 14,006 11,378
-------------- --------------
Income from operations 19,526 15,379
Other income (expense):
Interest expense, net (3,588) (4,309)
Other income, net 887 43
Equity in net income of
unconsolidated entities 2,834 971
-------------- --------------
Income before net loss on
real estate sales and
extraordinary items 19,659 12,084
Net loss on real estate sales (352) -
-------------- --------------
Income before extraordinary items 19,307 12,084
Extraordinary items (5,940) -
-------------- --------------
Net income $13,367 $12,084
============== ==============
Income per share
Income before extraordinary items $ 1.30 $ 1.12
Extraordinary items (0.40) -
-------------- --------------
Net income $ 0.90 $ 1.12
============== ==============
Weighted average shares outstanding 14,854 10,804
============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------------------- -----------------
<S> <C> <C>
(In thousands)
Net cash provided by operating activities $ 27,513 $ 20,762
Cash flows from investing activities:
Development of shopping center properties (81,126) (23,400)
Improvements to shopping center properties (504) (550)
Purchase of shopping center properties (34,029) -
Investments in and advances to unconsolidated entities (30,269) (24,694)
Other (1,996) (5,700)
-------------------- -----------------
Net cash used in investing activities (147,924) (54,344)
Cash flows from financing activities:
Proceeds from mortgages and notes payable 265,428 54,056
Proceeds from issuance of senior unsecured notes 159,486 -
Principal payments on mortgages and notes payable (346,960) (22,609)
Proceeds from issuance of common shares, net of
underwriting commissions and offering expenses 66,424 21,662
Dividends paid (22,786) (14,797)
Other (1,683) 319
-------------------- -----------------
Net cash provided by financing activities 119,909 38,631
-------------------- -----------------
Increase (decrease) in cash and cash equivalents (502) 5,049
Cash and cash equivalents, beginning of period 2,709 3,109
-------------------- -----------------
Cash and cash equivalents, end of period $ 2,207 $ 8,158
=================== ================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
JDN REALTY CORPORATION
Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
SEPTEMBER 30, 1997
1. THE COMPANY
JDN Realty Corporation (the "Company") is a real estate company which
specializes in the development and asset management of retail shopping centers
which are located primarily in the Southeast and are anchored by value-oriented
retailers. As of September 30, 1997, the Company owned and operated, either
directly or through affiliated entities or a joint venture, a total of 61
shopping center properties and had 21 projects under construction. The Company
is operating as a real estate investment trust ("REIT") for federal income tax
purposes.
The Company owns an interest in JDN Development Company, Inc. ("Development
Company"), which is structured such that the Company owns 99% of the economic
interest while J. Donald Nichols, the Company's Chairman and Chief Executive
Officer, owns the remaining 1% and controls Development Company's operations and
activities through his voting common stock ownership. Current tax laws restrict
the ability of REITs to engage in certain activities, such as the sale of
certain properties and third party fee development; because it is not a REIT,
Development Company may engage in real estate development activities such as the
sale of all or a portion of a development project. As of September 30, 1997,
the Company had invested $7.8 million in Development Company in the form of
equity capital, $45.0 million in the form of secured notes receivable and $16.6
million in the form of unsecured advances.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated balance sheet at December 31, 1996 has been
derived from the audited consolidated financial statements at that date.
Operating results for the three and nine month periods ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997 or any other interim period. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes. The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986 (the "Code"). As a result, the Company will not
be subject to federal income taxes to the extent that it distributes annually at
least 95% of its taxable income to its shareholders and satisfies certain other
requirements defined in the Code. Accordingly, no provision has been made for
federal income taxes in the accompanying condensed consolidated financial
statements for the periods presented.
6
<PAGE>
Earnings Per Share. Earnings per share for the three and nine months ended
September 30, 1997 and 1996 are based on the weighted average number of common
shares outstanding during the respective periods.
New Accounting Standards. In April 1997, the Financial Accounting
Standards Board ("FASB") issued Statement No. 128, Earnings Per Share (the "EPS
Standard"). The EPS Standard replaces APB Opinion No. 15, Earnings Per Share,
and among other things eliminates "primary" earnings per share and requires the
presentation of "basic" earnings per share, which excludes from consideration
common stock equivalents. The Company will adopt the EPS Standard in the first
quarter of 1998, and based on current circumstances, does not believe the effect
of adoption will be material.
Reclassifications. Certain amounts as previously reported have been
reclassified to conform to the current period's presentation.
4. DISTRIBUTION
On August 26, 1997, the Company's Board of Directors declared a cash
distribution of $0.50 to shareholders of record on September 19, 1997. This
distribution was paid on September 30, 1997.
5. BOND OFFERING
On August 4, 1997, the Company issued $75.0 million of 6.80% seven-year
senior unsecured notes maturing on August 1, 2004 and $85.0 million of 6.95%
ten-year senior unsecured notes maturing on August 1, 2007 in a public offering
(the "Bond Offering"). The seven-year notes were sold at 99.670% of par to
yield 6.860% . The ten-year notes were sold at 99.686% of par to yield 6.994%.
The Company used the proceeds from this offering to prepay a mortgage loan with
an outstanding principal balance of $71.2 million (the "Term Debt") and to
reduce amounts outstanding under its unsecured line of credit.
In conjunction with the Bond Offering on July 7, 1997, the Company executed
two Treasury Locks in the notional amounts of $50.0 million and $75.0 million,
respectively, which terminated August 4, 1997. The Company entered into these
transactions in an effort to lock interest rates on a portion of the Bond
Offering. The $50.0 million transaction effectively locked the underlying
Treasury bond rate for that portion of the seven-year bonds at 6.275%. The
$75.0 million transaction effectively locked the underlying Treasury bond rate
for that portion of the ten-year bonds at 6.295%. The Company is amortizing the
payments made on these transactions over the lives of the related bonds as
adjustments to interest expense.
6. ACQUISITIONS
During the quarter ended September 30, 1997, the Company acquired four
shopping center properties from four third party sellers whose purchase prices
aggregated $23.2 million. Information on
7
<PAGE>
these acquisitions is as follows:
<TABLE>
<CAPTION>
Leasable
Acquisition Square Purchase
Location Date Feet Price
- -------- ----------- -------- ----------
<S> <C> <C> <C>
Murfreesboro, TN 7/21/97 71,028 $3,488,000
Midlothian, VA 9/09/97 79,407 5,485,000
Ocala, FL 9/11/97 151,338 5,590,000
Chester, VA 9/16/97 116,310 8,683,000
</TABLE>
7. EXTRAORDINARY ITEMS
As a result of the prepayment of the Term Debt with proceeds from the Bond
Offering, the Company charged $5,539,000 in unamortized deferred loan costs and
prepayment penalties to earnings as extraordinary items in the quarter ended
September 30, 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE COMPANY
JDN Realty Corporation (the "Company") is a real estate development company
which specializes in the development and asset management of retail shopping
centers which are located primarily in the Southeast and are anchored by value-
oriented retailers. As of September 30, 1997, the Company owned and operated,
either directly or through affiliated entities or a joint venture, a total of 61
shopping center properties and had 21 projects under construction. The Company
is operating as a real estate investment trust ("REIT") for federal income tax
purposes.
The Company owns an interest in JDN Development Company, Inc. ("Development
Company"), which is structured such that the Company owns 99% of the economic
interest while J. Donald Nichols, the Company's Chairman and Chief Executive
Officer, owns the remaining 1% and controls Development Company's operations and
activities through his voting common stock ownership. Current tax laws restrict
the ability of REITs to engage in certain activities, such as the sale of
certain properties and third party fee development; because it is not a REIT,
Development Company may engage in real estate development activities such as the
sale of all or a portion of a development project. As of September 30, 1997,
the Company had invested $7.8 million in Development Company in the form of
equity capital, $45.0 million in the form of secured notes receivable and $16.6
million in the form of unsecured advances.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 1997 to the Three Months
Ended September 30, 1996
Minimum and percentage rents increased $2.8 million or 33.6% to $11.1
million for the three months ended September 30, 1997 from $8.3 million for the
same period in 1996. During 1996 and 1997, the Company began operations of 1.1
million square feet from 11 properties which it developed (the "Development
Properties"). Minimum and percentage rents increased $1.4 million for the three
months ended September 30, 1997 over the same period in 1996 due to Development
Properties. During 1996 and 1997, the Company acquired seven shopping center
properties from unrelated third parties totaling 1.0 million square feet of
gross leasable area. In addition, during 1997, the Company acquired
unaffiliated joint venture partners interests in the limited liability companies
which owned the Asheville, North Carolina and Loganville, Georgia properties and
changed its accounting for these two properties from the equity method to the
consolidated method. Minimum and percentage rents increased $1.3 million for
the three months ended September 30, 1997 over the same period in 1996 due to
the operations of the nine properties noted above (collectively, the
"Acquisition Properties"). The remaining increase relates to higher rental
revenues at existing properties.
Recoveries from tenants increased $412,000 or 49.9% to $1.2 million for the
three months ended September 30, 1997 from $826,000 for the same period in 1996.
Of this increase, $120,000 relates to the Development Properties and $243,000
relates to the Acquisition Properties. The remaining increase relates to an
increase in recoverable expenses at existing properties.
9
<PAGE>
Other revenue decreased $15,000 or 33.3% to $30,000 for the three months
ended September 30, 1997 from $45,000 for the same period in 1996. This
decrease is the result of a reduction in revenues associated with managing and
leasing fewer properties for third-party owners.
Operating and maintenance expenses increased $186,000 or 28.0% to $851,000
for the three months ended September 30, 1997 from $665,000 for the same period
in 1996. Of this increase, $49,000 relates to the Development Properties and
$108,000 relates to the Acquisition Properties. The remaining increase relates
to increased expenses at the existing properties.
Real estate taxes increased $300,000 or 74.8% to $701,000 for the three
months ended September 30, 1997 from $401,000 for the same period in 1996. Of
this increase, $84,000 relates to the Development Properties and $166,000
relates to the Acquisition Properties. The remaining increase relates to
increased taxes at the existing properties.
General and administrative expenses increased $139,000 or 16.6% to $976,000
for the three months ended September 30, 1997 from $837,000 for the same period
in 1996. This increase primarily reflects the cost of additional employees and
other expenses associated with the increased number of properties owned and
operated by the Company.
Depreciation and amortization expense increased $618,000 or 31.6% to $2.6
million for the three months ended September 30, 1997 from $2.0 million for the
same period in 1996. Of this increase, $244,000 relates to the Development
Properties and $295,000 relates to the Acquisition Properties. The remaining
increase relates primarily to the amortization of tenant improvements, tenant
allowances and leasing commissions for new tenants and to the amortization of
leasehold improvements and depreciation of furniture and fixtures at the
Company's corporate offices.
Interest expense, net of capitalized amounts, increased $47,000 or 3.3% to
$1.5 million for the three months ended September 30, 1997 from $1.4 million for
the same period in 1996. This increase is due primarily to an increase in
average debt balances between 1997 and 1996.
Other income for the three months ended September 30, 1997 of $331,000
primarily represents interest income earned on cash equivalent balances and on a
$10.5 million mortgage note receivable purchased in December 1996. There were
no significant items of other income or other expense for the three months ended
September 30, 1996.
Equity in net income of unconsolidated entities increased $899,000 to $1.3
million for the three months ended September 30, 1997 from $413,000 for the same
period in 1996. This increase is due primarily to the operations of the
recently developed properties operated by Development Company and an affiliated
entity in Canton, Georgia; Conyers, Georgia; Warner Robins, Georgia; and
Steubenville, Ohio. In addition, Development Company recorded gains due to
increased land sales activity and the sale of two recently development shopping
centers in Steubenville, Ohio and Winston-Salem, North Carolina.
Net loss on real estate sales was $352,000 for the three months ended
September 30, 1997. The loss is associated with the sale of two parcels of land
in Wilmington, North Carolina. There were no real estate sales for the three
months ended September 30, 1996.
Extraordinary items of $5.5 million for the three months ended September
30, 1997 represent charges to earnings of unamortized deferred loan costs and
prepayment penalties associated with the
10
<PAGE>
prepayment of a mortgage loan with an outstanding principal balance of $71.2
million (the "Term Debt"). There were no extraordinary items for the three
months ended September 30, 1996.
Comparison of the Nine Months Ended September 30, 1997 to the Nine Months Ended
September 30, 1996
Minimum and percentage rents increased $6.2 million or 26.0% to $30.3
million for the nine months ended September 30, 1997 from $24.1 million for the
same period in 1996. Of this increase, $3.5 million relates to the Development
Properties and $2.4 million relates to the Acquisition Properties. The
remaining increase is the result of increased rentals and increased occupancy at
the existing properties.
Recoveries from tenants increased $575,000 or 22.7% to $3.1 million for the
nine months ended September 30, 1997 from $2.5 million for the same period in
1996. Of this increase, $231,000 relates to the Development Properties and
$381,000 relates to the Acquisition Properties. These increases are offset by a
$37,000 reduction due to a decrease in recoverable expenses at the existing
properties.
Other revenue decreased $49,000 or 29.3% to $118,000 for the nine months
ended September 30, 1997 from $167,000 for the same period in 1996. This
decrease is the result of a reduction in revenues associated with managing and
leasing fewer properties for third-party owners.
Operating and maintenance expenses increased $391,000 or 20.9% to $2.3
million for the nine months ended September 30, 1997 from $1.9 million for the
same period in 1996. Of this increase, $149,000 relates to the operations of
the Development Properties and $204,000 relates to the Acquisition Properties.
The remaining increase relates to increased expenses at the existing properties.
Real estate taxes increased $309,000 or 22.6% to $1.7 million for the nine
months ended September 30, 1997 from $1.4 million for the same period in 1996.
Of this increase, $118,000 relates to the Development Properties and $232,000
relates to the Acquisition Properties. These increases are offset by a decrease
in property taxes at the existing properties due primarily to the separate tax
platting of an anchor tenant tract.
General and administrative expenses increased $508,000 or 20.9% to $2.9
million for the nine months ended September 30, 1997 from $2.4 million for the
same period in 1996. This increase primarily reflects the cost of additional
employees and other expenses associated with the increase in the number of
properties owned and operated by the Company.
Depreciation and amortization expense increased $1.4 million or 24.9% to
$7.1 million for the nine months ended September 30, 1997 from $5.7 million for
the same period in 1996. Of this increase, $735,000 relates to the Development
Properties and $516,000 relates to the Acquisition Properties. The remaining
increase relates primarily to amortization of tenant improvements, tenant
allowances and leasing commissions for new tenants and to amortization of
leasehold improvements and depreciation of furniture and fixtures at the
Company's corporate offices.
Interest expense, net of capitalized amounts, decreased $721,000 or 16.7%
to $3.6 million for the nine months ended September 30, 1997 from $4.3 million
for the same period in 1996. This decrease is primarily attributable to the
repayment of debt with the proceeds from equity offerings in 1996 and 1997.
11
<PAGE>
Other income increased $844,000 to $887,000 for the nine months ended
September 30, 1997 from $43,000 for the same period in 1996. This increase is
due primarily to interest income earned on a $10.5 million mortgage note
receivable purchased in December 1996.
Equity in net income of unconsolidated entities increased $1.9 million to
$2.8 million for the nine months ended September 30, 1997 from $971,000 for the
same period in 1996. This increase is due primarily to the operations of
recently developed properties owned by limited liability companies in which the
Company held 50% interests in Asheville, North Carolina and Loganville, Georgia,
and to the operations of the recently developed properties operated by
Development Company in Canton, Georgia; Conyers, Georgia; Warner Robins,
Georgia; and Steubenville, Ohio. In addition, Development Company recorded
gains due to increased land sales activity by Development Company and the sale
of two recently developed shopping centers in Steubenville, Ohio and Winston-
Salem, North Carolina.
Net loss on real estate sales was $352,000 for the nine months ended
September 30, 1997. The loss is associated with the sale of two parcels of land
in Wilmington, North Carolina. There were no real estate sales for the nine
months ended September 30, 1996.
Extraordinary items of $5.9 million for the nine months ended September 30,
1997 represent charges to earnings of unamortized deferred financing costs and
prepayment penalties associated with the prepayment of the Term Debt and the
termination of a secured line of credit in May 1997. There were no
extraordinary items for the nine months ended September 30, 1996.
Funds From Operations
Funds from operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts, Inc. to mean net income, computed in accordance
with generally accepted accounting principles, excluding gains or losses from
debt restructuring and sales of property, plus depreciation and amortization of
real estate assets, and after adjustments for unconsolidated partnerships and
joint ventures. The Company's method of calculating FFO may be different from
methods used by other REITs and, accordingly, may not be comparable to such
other REITs. FFO does not represent cash provided by operating activities as
defined by generally accepted accounting principles ("GAAP"), should not be
considered an alternative to net income (determined in accordance with GAAP) as
an indication of operating performance and is not indicative of cash available
to fund all cash flow needs, including the Company's ability to make cash
distributions. The Company has presented below the calculation of FFO for the
periods indicated:
12
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended September 30,
1997 1996
------------ ------------
<S> <C> <C>
Net income $ 1,539 $ 4,311
Depreciation of real estate assets 2,404 1,832
Amortization of tenant allowances and tenant improvements 38 22
Amortization of deferred leasing commissions 81 67
Net loss on real estate sales 352 -
Extraordinary items 5,539 -
Adjustments related to activities in unconsolidated entities (396) 23
------------ ------------
FFO $ 9,557 $ 6,255
============ ============
Nine Months Ended September 30,
1997 1996
------------ ------------
Net income $ 13,367 $ 12,084
Depreciation of real estate assets 6,661 5,353
Amortization of tenant allowances and tenant improvements 106 81
Amortization of deferred leasing commissions 217 187
Net loss on real estate sales 352 15
Extraordinary items 5,940 -
Adjustments related to activities in unconsolidated entities 30 55
------------ ------------
FFO $ 26,673 $ 17,775
=========== ============
</TABLE>
Leasing and Property Information
As of September 30, 1997, Wal-Mart, Lowe's, and Kroger represented 20.4%,
10.7%, and 6.5%, respectively, of the combined annualized base rent of the
Company, Development Company and an affiliated entity. In addition, at that
date, anchor tenants represented 67.7% of combined annualized base rent and
national and regional tenants represented 85.1% of combined annualized base
rent. As of September 30, 1997, properties owned and operated by the Company,
Development Company, and an affiliated entity were 98.3% leased.
On a same property basis, net operating income increased 2.2% between the
three months ended September 30, 1997 and 1996 and 1.7% between the nine months
ended September 30, 1997 and 1996. Net operating income represents property
revenues less property expenses excluding interest expense, depreciation and
amortization.
As of September 30, 1997, the Company, Development Company and an
affiliated entity operated in 11 states, and 45.7%, 16.1%, and 11.2% of
annualized base rent was represented by shopping centers located in Georgia,
North Carolina and Tennessee, respectively.
FORWARD-LOOKING STATEMENTS
Management has included herein certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. When used,
statements which are not historical in nature including the words "anticipate,"
"estimate," "should," "expect," "believe," "intend" and similar expressions are
intended to
13
<PAGE>
identify forward-looking statements. Such statements are, by their nature,
subject to certain risks and uncertainties. Among the factors that could cause
actual results to differ materially from those projected are the following:
business conditions and the general economy, especially as they affect interest
rates; business conditions, especially as they affect value-oriented retailers;
the federal, state and local regulatory environment; availability of debt and
equity capital with favorable terms and conditions; availability of new
development and acquisition opportunities; changes in the financial condition or
corporate strategy of the Company's primary retail tenants and in particular
Wal-Mart and Lowe's; ability to complete and lease existing development and
redevelopment projects on schedule and within budget; and inability of the
Company to maintain its qualification as a REIT. Other risks, uncertainties and
factors that could cause actual results to differ materially than those
projected are detailed from time to time in reports filed by the Company with
the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash generated from operating
activities and proceeds from lines of credit, debt offerings and equity
offerings. The Company's primary uses of funds are development, redevelopment
and acquisition of shopping center properties, distributions to shareholders,
and capital improvements to its existing shopping center properties. The
Company generally uses cash provided by operations to fund its distributions to
shareholders and capital improvements to existing properties. The Company uses
proceeds from its lines of credit to finance its development, redevelopment and
acquisition activities. The Company uses proceeds from debt and equity
offerings to repay outstanding indebtedness and to fund its ongoing development,
redevelopment and acquisition activities.
During 1997, the Company has restructured its balance sheet by issuing
common stock and changing the character of its debt instruments with the
overriding goal of reducing its cost of capital. In March 1997, the Company
completed a pubic offering of 2,400,000 shares of common stock which netted
proceeds of approximately $65.7 million to the Company. The Company used the
proceeds from this offering to repay construction loans and amounts outstanding
under its line of credit. This offering reduced the Company's debt to total
market capitalization ratio from 28.2% as of December 31, 1996 to 19.5% as of
March 31, 1997. In May 1997, the Company terminated its $40.0 million secured
line of credit and replaced it with a $150.0 million unsecured line of credit
(the "Unsecured Credit Facility"). This replacement of the secured line of
credit with the Unsecured Credit Facility unencumbered 17 of the Company's
shopping center properties and initially reduced the rate on the line from the
30-day Eurodollar plus 1.50% to LIBOR plus 1.40%. In July, the interest rate
decreased to LIBOR plus 1.25%. In August 1997, the Company issued $75.0 million
of 6.80% seven-year senior unsecured notes (the "Seven Year Notes") and $85.0
million of 6.95% ten-year senior unsecured notes (the "Ten Year Notes") in a
public offering. The Seven Year Notes were sold at 99.670% of par to yield
6.860%. The Ten Year Notes were sold at 99.686% of par to yield 6.994%. The
Company used the proceeds of this offering to prepay a mortgage loan with an
outstanding principal balance of $71.2 million and reduce amounts outstanding
under the Unsecured Credit Facility. This offering had the effect of
unencumbering 20 of the Company's shopping center properties, reducing the
effective rate on $71.2 million of outstanding debt from 8.64% to an average
effective rate of 7.16%, and extending the average maturity date on the
Company's debt. As a result of these transactions, the weighted average cost of
the Company's debt decreased from 8.42% as of December 31, 1996 to 7.45% as of
September 30, 1997. As of September 30, 1997, the Company's debt to total market
capitalization ratio was 32.1%.
14
<PAGE>
The Company's total indebtedness as of September 30, 1997, consisted of the
following:
<TABLE>
<CAPTION>
OUTSTANDING DEBT:
Percent
Principal Interest Maturity of Total
Balance Rate Date Indebtedness
-------------- ----------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Fixed Rate
2004 Bonds Payable $ 74,758 7.09%(1) 04-Aug-04 30.6%
2007 Bonds Payable 84,737 7.22%(1) 04-Aug-07 34.6%
Mortgage note payable - Richmond, Kentucky 6,461 7.38% 01-Dec-03 2.6%
Mortgage note payable - Jackson, Mississippi 7,196 9.25% 01-Mar-17 2.9%
----------- ---------- ----------
173,152 7.25% 70.7%
Floating Rate
Unsecured Credit Facility 71,715 7.24%(2) 22-May-00 29.3%
----------- ---------- ----------
71,715 7.24% 29.3%
----------- ---------- ----------
$ 244,867 7.25% 100.0%
========== ========== ==========
WEIGHTED AVERAGE INTEREST RATES:
Weighted Weighted
Principal Average Average
Balance Interest Rate (3) Interest Rate (4)
-------------- ----------------- --------------------
Fixed Rate Debt $ 173,152 7.25% 7.00%
Hedged Floating Rate Debt 50,000 8.22% 7.88%
Floating Rate Debt 21,715 7.24% 6.91%
------------ ---------- ----------
Total Debt $ 244,867 7.45% 7.17%
=========== ========== ==========
(1) Represents stated rate plus amortization of deferred loan costs.
(2) Stated rate of LIBOR plus 1.25% plus amortization of deferred loan costs.
(3) Interest when the amortization of deferred loan costs is included.
(4) Interest when the amortization of deferred loan costs is not included.
</TABLE>
As of September 30, 1997, the Company had $78.3 million available under the
Unsecured Credit Facility.
During 1996, the Company and Morgan Guaranty Trust Company of New York
("Morgan") entered into a swap transaction as a hedge against increasing rates
on its floating rate debt. Under the initial terms of the agreement, the
Company paid a fixed rate of 6.44% and received a variable rate equal to the
rate for the one-month LIBOR rate based on the notional amount in the contract.
As of December 31, 1996, the notional amount was $70.0 million; on January 1,
1997, the notional amount increased to $80.0 million. On February 12, 1997, the
Company amended the terms of the swap transaction by reducing the notional
amount to $50.0 million, increasing the fixed rate the Company pays to 6.48% and
extending the maturity date to January 1, 2001.
As of September 30, 1997, the Company, Development Company and affiliated
entities had 21 projects under construction which are expected to add
approximately 2.7 million square feet of gross leasable area which the Company
expects to own. The Company expects to place approximately 900,000 square feet
into operations in the fourth quarter of 1997 and 1.8 million square feet into
operations in 1998. Of these projects under construction, ten are located in
Georgia, four are located in North Carolina, and two are located in Florida. Of
the total square feet under construction, 86.8% is either leased by tenants or
committed to be leased by tenants. For the space committed, the tenant has not
yet delivered a signed lease and there can be no assurance that a lease
agreement will be executed. Additional funding to complete the construction of
these projects is estimated to be $113.5 million.
15
<PAGE>
Management expects to fund the remaining costs of these projects and the
cost of any future projects undertaken by the Company or Development Company, or
any affiliated joint ventures, with additional advances on the Unsecured Credit
Facility and with proceeds from public or private placements of debt or equity.
However, there can be no assurance that these sources will be available and the
inability to obtain this capital could have an adverse effect on the Company's
ability to fund its development, redevelopment, and acquisition activities.
In order for the Company to continue to qualify as a REIT, it must annually
distribute to shareholders at least 95% of its taxable income. Management
believes that the Company will meet this requirement in 1997 with cash generated
by operating activities. In addition, management believes that cash generated
by operating activities will be adequate to fund improvements to the Company's
shopping center properties, leasing costs and scheduled debt amortization in
1997.
In order to meet the Company's long term liquidity requirements, management
anticipates that the Company's cash from operating activities will continue to
increase as a result of new developments, redevelopments, acquisitions and
improved operations at existing centers. These activities should enable the
Company to make its distribution payments to shareholders, maintain and improve
its properties, make scheduled debt payments, and obtain debt or equity
financing for its development, redevelopment and acquisition projects. All but
$7.2 million of the Company's debt requires balloon payments in the future. The
Unsecured Credit Facility matures in 2000; a note payable of $6.5 million
matures in 2003; the Seven Year Notes mature in 2004; and the Ten Year Notes
mature in 2007. Management intends to refinance or repay these maturing debt
instruments with proceeds from other sources of capital at or prior to their
respective maturities. Management will evaluate various alternatives and select
the best options based on market conditions at the time. Management expects to
seek additional equity financing when market conditions are favorable in order
to maintain its debt-to-total-market-capitalization ratio within acceptable
limits. There can be no assurance that debt or equity markets will be favorable
in the future, and unfavorable markets could limit the Company's ability to grow
its business or repay or refinance maturing debt.
INFLATION
The Company's leases generally contain provisions designed to mitigate the
adverse impact of inflation on net income. These provisions include clauses
enabling the Company to pass through to tenants certain operating costs,
including real estate taxes, common area maintenance, utilities and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. Certain of the Company's leases contain
clauses enabling the Company to receive percentage rents based on tenants' gross
sales, which generally increase as prices rise, and, in certain cases,
escalation clauses, which generally increase rental rates during the terms of
the leases. In addition, many of the Company's non-anchor leases are for terms
of less than ten years, which permits the Company to seek increased rents upon
re-leasing at higher market rates.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
During the three months ended September 30, 1997, the Company
filed the following reports on Form 8-K:
(i) Form 8-K dated August 1, 1997, related to the Company's execution
of an Underwriting Agreement dated July 30, 1997 with Merrill
Lynch, Pierce, Fenner and Smith Incorporated, and a Terms
Agreement, dated July 30, 1997 with Merrill Lynch, BT Securities
Corporation and Smith Barney, Inc. (the "Underwriters") in
connection with the sale by the Company to the Underwriters of
the Company's 6.80% Notes due August 1, 2004 and 6.95% Notes due
August 1, 2007.
(ii) Form 8-K dated September 26, 1997 relating to the acquisition of
four shopping center properties in 1997 (the "Acquired
Properties"). This Form 8-K included audited statements of
revenue and certain expenses of each of the Acquired Properties
and unaudited statements of revenue and certain expenses for the
period from January 1, 1997 to the dates of acquisition or June
30, 1997, whichever was earlier. This Form 8-K also included an
unaudited pro forma consolidated balance sheet of the Company as
of June 30, 1997, and unaudited consolidated statements of income
of the Company for the year ended December 31, 1996 and the six
months ended June 30, 1997.
17
<PAGE>
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.
October 22, 1997 /s/ J. Donald Nichols
- -------------------------------- ---------------------------------
(Date) J. Donald Nichols
Chief Executive Officer
October 22, 1997 /s/ William J. Kerley
- -------------------------------- ----------------------------------
(Date) William J. Kerley
Chief Financial Officer
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number EXHIBIT
- ------ -------
12 Statement re: Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
JDN REALTY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30, Year Ended December 31,
----------------- ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense (including $ 6,338 $ 6,873 $ 9,414 $ 8,747 $ 7,276 $ 6,444 $ 7,898
amortization of deferred
debt cost)
Interest capitalized 2,918 1,455 1,993 1,538 343 - 102
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges $ 9,256 $ 8,328 $11,407 $10,285 $ 7,619 $ 6,444 $ 8,000
======= ======= ======= ======= ======= ======= =======
Earnings:
Income (loss) before income
tax benefit, net gain (loss)
on real estate sales
extraordinary items and
cumulative effect of change
in accounting principle $19,659 $12,084 $16,682 $10,782 $ 5,227 $(1,196) $(1,650)
Plus: Fixed charges 9,256 8,328 11,407 10,285 7,619 6,444 8,000
Less: Capitalized interest 2,918 1,455 1,993 1,538 343 - 102
------- ------- ------- ------- ------- ------- -------
Total earnings $25,997 $18,957 $26,096 $19,529 $12,503 $ 5,248 $ 6,248
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 2.81 2.28 2.29 1.90 1.64 * *
</TABLE>
* The Company's earnings were inadequate to cover fixed charges for the years
ended December 31, 1993 and 1992 by $1.2 million and $1.8 million,
respectively.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 2,207 8,158
<SECURITIES> 0 0
<RECEIVABLES> 1,940 2,087
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 480,014 300,769
<DEPRECIATION> 35,358 25,933
<TOTAL-ASSETS> 534,197 347,577
<CURRENT-LIABILITIES> 0 0
<BONDS> 159,495 0
0 0
0 0
<COMMON> 155 110
<OTHER-SE> 283,390 178,151
<TOTAL-LIABILITY-AND-EQUITY> 534,197 347,577
<SALES> 0 0
<TOTAL-REVENUES> 33,532 26,757
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 14,006 11,378
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,588 4,309
<INCOME-PRETAX> 19,659 12,084
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 19,659 12,084
<DISCONTINUED> 0 0
<EXTRAORDINARY> 5,940 0
<CHANGES> 0 0
<NET-INCOME> 14,854 12,084
<EPS-PRIMARY> 0.90 1.12
<EPS-DILUTED> 0 0
</TABLE>
