<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 June 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 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 Identification No.)
incorporation or organization)
359 East Paces Ferry Road, NE, Suite 400, Atlanta, GA 30305
------------------------------------------------------------
(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 July 27, 1998, 30,980,571 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 June 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Income - Three Months Ended June 30,
1998 and 1997 3
Condensed Consolidated Statements of Income Six Months Ended June 30,
1998 and 1997 4
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 5
1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
</TABLE>
1
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JDN REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31
1998 1997
------------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Shopping center properties, at cost:
Land $ 111,153 $ 85,837
Buildings and improvements 523,830 397,110
Property under development 74,937 52,356
------------- ------------
709,920 535,303
Less: accumulated depreciation and amortization (45,675) (38,306)
------------- ------------
Shopping center properties, net 664,245 496,997
Cash and cash equivalents 1,652 11,439
Rents receivable 5,408 2,745
Investments in and advances to unconsolidated entities 123,531 71,221
Deferred costs, net of amortization 4,588 4,189
Other assets 11,866 13,162
------------- ------------
$ 811,290 $ 599,753
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unsecured notes payable $ 234,542 $ 159,511
Unsecured line of credit 99,000 43,500
Mortgage notes payable 18,749 13,591
Accounts payable and accrued expenses 9,235 6,719
Other liabilities 9,354 4,844
------------- ------------
Total Liabilities 370,880 228,165
Third party investors' interest 3,000 -
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 30,980,571 and 27,745,798 shares
in 1998 and 1997, respectively 310 277
Paid-in capital 444,189 378,400
Accumulated deficit (7,089) (7,089)
------------- ------------
Total Shareholders' Equity 437,410 371,588
------------- ------------
$ 811,290 $ 599,753
============= ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
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JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
1998 1997
--------- ----------
(In thousands)
Revenues:
Minimum and percentage rents $ 16,979 $ 9,882
Recoveries from tenants 2,211 978
Other revenue 19 56
--------- ----------
Total revenues 19,209 10,916
Operating expenses:
Operating and maintenance 1,573 734
Real estate taxes 1,075 489
General and administrative 1,917 1,015
Depreciation and amortization 4,089 2,332
--------- ----------
Total operating expenses 8,654 4,570
--------- ----------
Income from operations 10,555 6,346
Other income (expense):
Interest expense, net (2,014) (620)
Other income, net 260 272
Equity in net income of unconsolidated
entities 1,234 728
--------- ----------
Income before minority interest in net income
of consolidated subsidiary, net gain on
real estate sales and extraordinary items 10,035 6,726
Minority interest in net income of consolidated
subsidiary (67) -
--------- ----------
Income before net gain on real estate sales and
extraordinary items 9,968 6,726
Net gain on real estate sales 85 -
--------- ----------
Income before extraordinary items 10,053 6,726
Extraordinary items - (401)
--------- ----------
Net income $ 10,053 $ 6,325
========= ==========
Net Income per share:
Basic $ 0.33 $ 0.27
========= ==========
Diluted $ 0.32 $ 0.27
========= ==========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------- -------------
(In thousands)
<S> <C> <C>
Revenues:
Minimum and percentage rents $ 32,296 $ 19,234
Recoveries from tenants 3,879 1,873
Other revenue 80 87
------------- -------------
Total revenues 36,255 21,194
Operation expenses:
Operating and Maintenance 2,734 1,412
Real estate taxes 1,999 974
General and administrative 3,443 1,967
Depreciation and amortization 7,588 4,552
------------- -------------
Total operating expenses 15,764 8,905
------------- -------------
Income from operations 20,491 12,289
Other income (expense):
Interest expense, net (3,826) (2,012)
Other income, net 421 556
Equity in net income of unconsolidated entities 2,090 1,396
------------- -------------
Income before minority interest in net income
of consolidated subsidiary, net gain on real estate
sales and extraordinary items 19,176 12,229
Minority interest in net income of consolidated subsidiary (96) -
------------- -------------
Income before net gain on real estate sales and
extraordinary items 19,080 12,229
Net gain on real estate sales 85 -
------------- -------------
Income before extraordinary items 19,165 12,229
Extraordinary items - (401)
------------- -------------
Net income $ 19,165 $ 11,828
============= =============
Net Income per share:
Basic $ 0.64 $ 0.54
============= =============
Diluted $ 0.63 $ 0.53
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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JDN REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
--------------- ----------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 27,451 $ 17,473
Cash flows from investing activities:
Development of shopping center properties (62,375) (47,528)
Improvements to shopping center properties (901) (667)
Purchase of shopping center properties (92,772) (6,496)
Investments in and advances to unconsolidated entities (50,367) (15,137)
Other (7,614) (3,589)
--------------- ----------------
Net cash used in investing activities (214,029) (73,417)
Cash flows from financing activities:
Proceeds from unsecured line of credit 181,500 -
Proceeds from mortgages and notes payable - 140,424
Proceeds from issuance of notes payable 76,548 -
Principal payments on unsecured line of credit (126,000) -
Principal payments on mortgage notes payable (212) (122,296)
Proceeds from issuance of common shares, net of
underwriting commissions and offering expenses 66,603 65,731
Dividends paid (21,256) (15,040)
Other (392) 350
--------------- ----------------
Net cash provided by financing activities 176,791 69,169
--------------- ----------------
Decrease in cash and cash equivalents (9,787) 13,225
Cash and cash equivalents, beginning of period 11,439 2,709
--------------- ----------------
Cash and cash equivalents, end of period $ 1,652 $ 15,934
=============== ================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
JDN REALTY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
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
anchored by value-oriented retailers. As of June 30, 1998, the Company owned
and operated, either directly or through affiliated entities or a joint venture,
a total of 81 shopping center properties and had 41 projects under construction.
The Company has elected to be treated 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. As of June 30, 1998, the
Company had invested $9.2 million in Development Company in the form of equity
capital, $83.2 million in the form of secured notes receivable and $31.1 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, 1997 has been
derived from the audited consolidated financial statements at that date.
Operating results for the three and six month periods ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998 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, 1997.
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, as amended (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.
Earnings Per Share. In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share ("Statement 128"). Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. Earnings
6
<PAGE>
per share amounts have been presented and, where appropriate, restated to
conform to the Statement 128 requirements.
Reclassifications. Certain amounts as previously reported have been
reclassified to conform to the current period's presentation.
4. STOCK SPLIT
On May 14, 1998, the Company's Board of Directors approved a 3-for-2 stock
split of its common stock in the form of a stock dividend (the "Stock Split").
The additional shares and payment in cash for fractional shares were distributed
on June 30, 1998 to shareholders of record on June 19, 1998. All share and per
share information have been restated to reflect the Stock Split.
5. DISTRIBUTION
On May 14, 1998, the Company's Board of Directors declared a cash
distribution of $0.36 per share to shareholders of record on June 19, 1998.
This distribution was paid on June 30, 1998.
6. ACQUISITIONS
During the quarter ended June 30, 1998, the Company acquired two shopping
center properties from third-party sellers. Information on these acquisitions
is as follows:
Gross
Acquisition Leasable Area Purchase
Location Date (Square Feet) Price
-------- ---- ------------- -----------
Chamblee, GA 05/29/98 161,969 $11,320,000
Lynchburg, VA 06/22/98 270,765 18,300,000
----------- -----------
432,734 $29,620,000
=========== ===========
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands except per share data):
7
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 10,053 $ 6,325 $ 19,165 $ 11,827
========= ========= ========= =========
Denominator:
Weighted-average shares outstanding 30,978 23,189 29,939 21,815
Unvested restricted stock outstanding (111) - (63) -
--------- --------- --------- ---------
Denominator for basic earnings per share 30,867 23,189 29,876 21,815
Dilutive effect of stock options and unvested restricted stock 563 343 555 325
--------- --------- --------- ---------
Denominator for diluted earnings per share 31,430 23,532 30,431 22,140
========= ========= ========= =========
Net income per share:
Basic $ 0.33 $ 0.27 $ 0.64 $ 0.54
========= ========= ========= =========
Diluted $ 0.32 $ 0.27 $ 0.63 $ 0.53
========= ========= ========= =========
</TABLE>
The Company is the general partner in a limited partnership that issued
limited partnership units valued at $3.0 million in a limited partnership formed
to own and operate a shopping center in Milwaukee, Wisconsin. Subject to certain
conditions, the limited partnership units are exchangeable for cash or 139,535
shares of the Company's common stock beginning in February 1999. Using the "if-
converted" method, the effect of these units is antidilutive; therefore, they
have been excluded from the computation of earnings per share.
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 company, which
specializes in the development and asset management of retail shopping centers
anchored by value-oriented retailers. As of June 30, 1998, the Company owned
and operated, either directly or through affiliated entities or a joint venture,
a total of 81 shopping center properties and had 41 projects under construction.
The Company has elected to be treated 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 or the purchase, redevelopment
and sale of an existing real estate property. As of June 30, 1998, the Company
had invested $9.2 million in Development Company in the form of equity capital,
$83.2 million in the form of secured notes receivable and $31.1 million in the
form of unsecured advances.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1998 to the Three Months Ended
June 30, 1997
Minimum and percentage rents increased $7.1 million or 71.8% to $17.0
million for the three months ended June 30, 1998 from $9.9 million for the same
period in 1997. During 1998 and 1997, the Company began operations of 2.0
million square feet from 21 properties which it developed (the "Development
Properties"). Minimum and percentage rents increased $3.4 million for the three
months ended June 30, 1998 over the same period in 1997 due to Development
Properties. During 1998 and 1997, the Company acquired 20 shopping center
properties from third parties totaling 2.9 million square feet of gross leasable
area (the "Acquisition Properties"). Minimum and percentage rents increased
$3.7 million for the three months ended June 30, 1998 over the same period in
1997 due to the operations of the Acquisition Properties.
Recoveries from tenants increased $1.2 million to $2.2 million for the
three months ended June 30, 1998 from $978,000 for the same period in 1997. Of
this increase, $165,000 relates to the Development Properties and $947,000
relates to the Acquisition Properties. The remaining increase relates to an
increase in recoverable expenses at existing properties.
Other revenue decreased $37,000 or 66.1% to $19,000 for the three months
ended June 30, 1998 from $56,000 for the same period in 1997. 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 $839,000 to $1.6 million for
the three months ended June 30, 1998 from $734,000 for the same period in 1997.
Of this increase, $82,000 relates to the Development Properties and $661,000
relates to the Acquisition Properties. The remaining increase relates to
increased expenses at the existing properties.
Real estate taxes increased $586,000 to $1.1 million for the three months
ended June 30, 1998 from $489,000 for the same period in 1997. Of this
increase, $94,000 relates to the Development Properties and $417,000 relates to
the Acquisition Properties. The remaining increase relates to increased taxes
at the existing properties.
9
<PAGE>
General and administrative expenses increased $902,000 or 88.9% to $1.9
million for the three months ended June 30, 1998 from $1.0 million for the same
period in 1997. General and administrative expenses as a percent of total
revenues increased to 10.0% for the three months ended June 30, 1998 from 9.3%
for the same period in 1997. The increase primarily reflects the cost of
additional employees and other expenses associated with the increased number of
properties owned and operated by the Company and increased costs of the Annual
Report and Annual Meeting of Shareholders.
Depreciation and amortization expense increased $1.8 million or 75.3% to
$4.1 million for the three months ended June 30, 1998 from $2.3 million for the
same period in 1997. Of this increase, $726,000 relates to the Development
Properties and $957,000 relates to the Acquisition Properties. The remaining
increase relates primarily to the amortization of tenant improvements, tenant
allowances and leasing commissions for new tenants at the existing properties
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 $1.4 million to
$2.0 million for the three months ended June 30, 1998 from $620,000 for the same
period in 1997. This increase is due primarily to an increase in average debt
balances between 1998 and 1997.
Other income, net decreased $12,000 or 4.4% to $260,000 for the three
months ended June 30, 1998 from $272,000 for the same period in 1997. The
decrease is primarily attributable to the decreased interest income associated
with the cancellation of a $10.5 million mortgage note receivable in February
1998 offset by an increase due to interest income earned on an $8.0 million
mortgage note receivable issued in April 1998.
Equity in net income of unconsolidated entities increased $506,000 or 69.5%
to $1.2 million for the three months ended June 30, 1998 from $728,000 for the
same period in 1997. This increase is due primarily to the operations of
recently developed properties operated by Development Company and an affiliated
entity, third party development fees earned by Development Company and land
sales by Development Company.
Minority interest in net income of consolidated subsidiary for the three
months ended June 30, 1998 of $67,000 represents the third party investors'
share of the net income of a limited partnership which owns and operates a
shopping center located in Milwaukee, Wisconsin. There was no such minority
interest in 1997.
Net gain on real estate sales for the three months ended June 30, 1998 of
$85,000 represents a gain on the sale of an outparcel located in Hickory, North
Carolina. There were no real estate sales during the three months ended June
30, 1997.
Extraordinary items for the three months ended June 30, 1997 represent
charges to earnings of unamortized deferred financing costs of $401,000
associated with the termination of the $40.0 million secured line of credit (the
"Bank Credit Facility") which was replaced with a larger unsecured line of
credit (the "Unsecured Line of Credit"). There were no extraordinary items for
the three months ended June 30, 1998.
Comparison of the Six Months Ended June 30, 1998 to the six Months Ended June
30, 1997.
Minimum and percentage rents increased $13.1 million or 67.9% to $32.3
million for the six months ended June 30, 1998 from $19.2 million for the same
period in 1997. Of this increase, $6.2 million relates to the Development
Properties and $6.6 million relates to the Acquisition Properties. The
remaining increase relates to higher rental revenues at existing properties.
Recoveries from tenants increased $2.0 million to $3.9 million for the six
months ended June 30, 1998 from $1.9 million for the same period in 1997. Of
this increase, $286,000 relates to the Development Properties and $1.6 million
relates to the Acquisition Properties. The remaining increase relates to an
increase in recoverable expenses at existing properties.
10
<PAGE>
Other revenue decreased $7,000 or 8.0% to $80,000 for the six months ended
June 30, 1998 from $87,000 for the same period in 1997. 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 $1.3 million or 93.6% to $2.7
million for the six months ended June 30, 1998 from $1.4 million for the same
period in 1997. Of this increase, $113,000 relates to the Development
Properties and $1.1 million relates to the Acquisition Properties. The
remaining increase relates to increased expenses at the existing properties.
Real estate taxes increased $1.0 million to $2.0 million for the six months
ended June 30, 1998 from $1.0 million for the same period in 1997. Of this
increase, $187,000 relates to the Development Properties and $707,000 relates to
the Acquisition Properties. The remaining increase relates to increased taxes
at the existing properties.
General and administrative expenses increased $1.5 million or 75.0% to $3.4
million for the six months ended June 30, 1998 from $2.0 million for the same
period in 1997. General and administrative expenses as a percent of total
revenues increased to 9.5% for the six months ended June 30, 1998 from 9.3% for
the same period in 1997. The increase primarily reflects the cost of additional
employees and other expenses associated with the increased number of properties
owned and operated by the Company and increased costs of the Annual Report and
Annual Meeting of Shareholders.
Depreciation and amortization expense increased $3.0 million or 66.7% to
$7.6 million for the six months ended June 30, 1998 from $4.6 million for the
same period in 1997. Of this increase, $1.3 million relates to the Development
Properties and $1.6 million relates to the Acquisition Properties. The
remaining increase relates primarily to the amortization of tenant improvements,
tenant allowances and leasing commissions for new tenants at the existing
properties 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 $1.8 million or
90.1% to $3.8 million for the six months ended June 30, 1998 from $2.0 million
for the same period in 1997. This increase is due primarily to an increase in
average debt balances between 1998 and 1997.
Other income decreased $135,000 or 24.3% to $421,000 for the six months
ended June 30, 1998 from $556,000 for the same period in 1997. The decrease is
primarily attributable to the decreased interest income associated with the
cancellation of a $10.5 million mortgage note receivable in February 1998 offset
by an increase due to interest income earned on an $8.0 million mortgage note
receivable issued in April 1998.
Equity in net income of unconsolidated entities increased $694,000 or 49.7%
to $2.1 million for the six months ended June 30, 1998 from $1.4 million for the
same period in 1997. This increase is due primarily to the operations of
recently developed properties operated by Development Company and an affiliated
entity, third party development fees earned by Development Company and land
sales by Development Company.
Minority interest in net income of consolidated subsidiary for the six
months ended June 30, 1998 of $96,000 represents a third party investors' share
of the net income of a limited partnership which owns and operates a shopping
center located in Milwaukee, Wisconsin. There was no such minority interest in
1997.
Net gain on real estate sales for the six months ended June 30, 1998 of
$85,000 represents a gain on the sale of an outparcel located in Hickory, North
Carolina. There were no real estate sales during the six months ended June 30,
1997.
Extraordinary items for the six months ended June 30, 1997 represent
charges to earnings of unamortized deferred financing costs of $401,000
associated with the termination of the Bank Credit Facility which was replaced
with the Unsecured Line of Credit. There were no extraordinary items for the
six months ended June 30, 1998.
11
<PAGE>
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 principles ("GAAP"), 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 believes that FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with cash provided by operating
activities, investing activities and financing activities, it provides investors
with an indication of the ability of the Company to make capital expenditures
and to fund other cash needs. 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 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:
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended June 30,
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 10,053 $ 6,325
Depreciation of real estate assets 3,857 2,175
Amortization of tenant allowances and tenant improvements 44 36
Amortization of deferred leasing commissions 55 72
Net gain on real estate sales (85) -
Extraordinary items - 401
Adjustments related to activities in unconsolidated entities 169 232
----------- -----------
FFO $ 14,093 $ 9,241
=========== ===========
<CAPTION>
Six Months Ended June 30,
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 19,165 $ 11,828
Depreciation of real assets 7,177 4,257
Amortization of tenant allowances and tenant improvements 84 68
Amortization of deferred leasing commissions 109 136
Net gain on real estate sales (85) -
Extraordinary items - 401
Adjustments related to activities in unconsolidated entities 334 426
----------- -----------
FFO $ 26,784 $ 17,116
=========== ===========
</TABLE>
Leasing and Property Information
As of June 30, 1998, Wal-Mart, Lowe's and Kroger represented 16.4%, 12.5%
and 4.8%, respectively, of the combined annualized base rent of the Company,
Development Company and an affiliated entity (collectively, "Combined Annualized
Base Rent"). In addition, at that date, anchor tenants represented 68.8% of
Combined Annualized Base Rent and national and regional tenants represented
85.2% of Combined Annualized Base Rent. As of June 30, 1998, properties owned
and operated by the Company, Development Company, and an affiliated entity were
97.2% leased.
12
<PAGE>
On a same property basis, net operating income increased 0.8% between the
six months ended June 30, 1998 and 1997. Net operating income represents
property revenues less property expenses excluding interest expense,
depreciation and amortization.
As of June 30, 1998, the Company, Development Company and an affiliated
entity operated in 13 states, and 41.6%, 17.4%, and 8.9% of Combined Annualized
Base Rent was represented by shopping center properties 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 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 and 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
Historically, the Company's primary sources of funds are cash provided by
operating activities and proceeds from lines of credit, debt offerings and
equity offerings. The Company's primary uses of funds have been development,
redevelopment and acquisition of shopping center properties, distributions to
shareholders, scheduled debt amortization and capital improvements to its
existing shopping center properties. The Company generally has used cash
provided by operating activities to fund its distributions to shareholders,
capital improvements to existing properties and scheduled debt amortization.
The Company has used proceeds from its lines of credit to finance its
development, redevelopment and acquisition activities. The Company has used
proceeds from debt and equity offerings to repay outstanding indebtedness and to
fund its ongoing development, redevelopment and acquisition activities.
In the first six months of 1998, the Company acquired ten shopping center
properties from five third-party sellers the purchase prices of which aggregated
$108.9 million. The Company funded these acquisitions with advances on its
$150.0 million unsecured line of credit with a bank (the "Unsecured Line of
Credit") in the amount of approximately $90.0 million, assumption of
indebtedness of $5.4 million, issuance of limited partnership units valued at
$3.0 million in a limited partnership formed to own and operate one of the
shopping center properties and cancellation of a $10.5 million mortgage loan
receivable from the seller of one of the shopping center properties.
As a result of the acquisition activity and continued development activity
in the first six months of 1998, the Company closed four public capital markets
transactions. In February and March 1998, the Company issued an aggregate of
2,076,754 shares of its common stock in three public offerings, which netted
proceeds to the Company of approximately $66.5 million. The net proceeds from
these offerings were used to reduce amounts outstanding on the Unsecured Line of
Credit. On March 31, 1998, the
13
<PAGE>
Company issued $75.0 million of 6.918% MandatOry Par Put Remarketed Securities
(SM) (the "MOPPRS"). The net proceeds from the MOPPRS were used to reduce
amounts outstanding under the Unsecured Line of Credit. In connection with this
issuance, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
purchased an option to remarket the MOPPRS on March 31, 2003. The Company's
effective borrowing rate on the MOPPRS is 6.58%.
In addition, in February 1998, the Company entered into a Distribution
Agreement with a group of agents led by Merrill Lynch relating to the proposed
issue and sale from time to time of up to $505.5 million of the Company's
Medium-Term Notes Due Nine Months or More From the Date of Issue (the "Medium-
Term Notes Program"). The aggregate offering under the Medium-Term Notes
Program is subject to reduction as a result of the sale by the Company of other
securities described in its Prospectus dated October 30, 1997. The Medium-Term
Notes Program provides an additional facility for funding the Company's
acquisition and development activities. The MOPPRS were issued under the Medium
Term Notes Program. As of June 30, 1998, the Company had $362.4 million
registered and available for issue under the Medium Term Notes Program.
The Company's total indebtedness as of June 30, 1998, consisted of the
following:
<TABLE>
<CAPTION>
Effective Percent
Principal Interest Maturity of Total
Balance Rate Date Indebtedness
------------ ------------ ---------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Fixed Rate
- ----------
Seven Year Notes $ 74,785 7.09% (1) 01-Aug-04 21.2%
Ten Year Notes 84,757 7.22% (1) 01-Aug-07 24.1%
MandatOry Par Put Remarketed Securities (2) 75,000 6.58% (1) 31-Mar-03 21.3%
Mortgage note payable - Richmond, Kentucky 6,361 7.00% (3) 01-Dec-03 1.8%
Mortgage note payable - Jackson, Mississippi 7,093 9.25% 01-Mar-17 2.0%
Mortgage note payable - Milwaukee, Wisconsin 5,295 7.75% 01-Aug-09 1.5%
----------- ------------ --------------
253,291 7.05% 71.9%
Floating Rate
- -------------
Unsecured Line of Credit 99,000 7.16% (4) 22-May-00 28.1%
----------- ------------ --------------
99,000 7.16% 28.1%
----------- ------------ --------------
$ 352,291 7.08% 100.0%
=========== ============ ==============
</TABLE>
(1) Represents stated rate plus amortization of deferred loan costs.
(2) Represents notes payable with a stated rate of 6.918% and a stated
maturity date of March 31, 2013. These notes are subject to mandatory
tender on March 31, 2003.
(3) The interest rate on this note is adjusted on December 1 of each year.
(4) Stated rate of LIBOR plus 1.25% plus amortization of deferred loan
costs.
As of June 30, 1998, the Company had $51.0 million available under the
Unsecured Line of Credit.
The Company is negotiating a new unsecured line of credit which, if
approved, will replace the Unsecured Line of Credit. Management believes that
the new unsecured line of credit will be approved and executed by August 31,
1998. As a result of these negotiations, management anticipates that the
following changes will be made to the Unsecured Line of Credit: (1) extend the
maturity date for one year; (2) increase maximum borrowings allowed; and (3)
reduce the borrowing rate. These changes are subject to further negotiation and
approval, and there can be no assurance that any or all of the changes noted
above will be made to the Unsecured Line of Credit. In addition, in June 1998,
the Division of Banking Supervision and Regulation of the Board of Governors of
the Federal Reserve System issued a supervisory letter (the "Supervisory
Letter") which addressed the subject of lending standards for business loans.
The Supervisory Letter noted, among other things, a significant increase in bank
lending to REITs and concluded that bank examiners should increase their
understanding of REITs and related lending and credit risks associated with
lending to REITs. Management is uncertain of the future effects
14
<PAGE>
of the Supervisor Letter on the Company. However, any changes in bank lending
practices as a result of the Supervisory Letter may affect the Company's ability
to successfully negotiate a new unsecured line of credit.
As of June 30, 1998, the Company, Development Company and affiliated
entities had 41 projects under construction which are expected to add
approximately 4.1 million square feet of gross leasable area which the Company
expects to own. The Company expects to place approximately 1.3 million square
feet into operations during the remainder of 1998. Of these projects under
construction, 15 are located in Georgia, seven in North Carolina, four in
Tennessee, three in Florida, and two each in Kentucky, Mississippi, Pennsylvania
and Texas. Of the total square feet under construction, 74.4% is either leased
or committed by retailers. Additional funding to complete the construction of
these projects is estimated to be $192.6 million.
Management expects to fund the remaining costs of these projects and the
cost of any future projects undertaken by the Company, Development Company or
any affiliated joint ventures (including acquisitions) with additional advances
under the Unsecured Line of Credit and with proceeds from issuances under the
Medium-Term Notes Program, proceeds from public preferred or common stock
offerings, proceeds from issuances of additional debt securities, issuances of
limited partnership units in DownREIT structures or proceeds from the sale of
one or more of its existing shopping center properties. 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 1998 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
1998.
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 pay its distributions to shareholders, maintain and improve its
properties, make scheduled debt payments and obtain debt or equity financing for
its development, redevelopment and acquisition projects. With the exception of
a $7.1 million amortizing mortgage loan, all of the Company's debt requires
balloon payments in the future. The Unsecured Line of Credit matures in 2000;
the MOPPRS are subject to mandatory tender in 2003; a note payable of $6.4
million matures in 2003; the Seven Year Notes mature in 2004; the Ten Year Notes
mature in 2007; and a note payable of $5.3 million matures in 2009. 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
15
<PAGE>
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 AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1998, the Company held its Annual Meeting of Shareholders.
The following were the results of the meeting:
(1) The shareholders elected William B. Greene, Robert P. Corker, Jr.
and William G. Byrnes as Class I directors until the annual
meeting of shareholders in 2001 or until their successors are
elected and shall have qualified.
The votes were as follows:
William B. Robert P. William G.
Greene Corker, Jr. Byrnes
Votes Cast for 15,088,587 15,901,516 16,056,961
Votes Cast Against -0- -0- -0-
Votes Withheld/Broker
Non-Votes 1,003,627 190,698 35,253
(2) The shareholders adopted the JDN Realty Corporation Amended and
Restated 1993 Incentive Stock Plan.
Votes Cast for 8,710,210
Votes Cast Against 1,588,834
Votes Withheld/Broker
Non-Votes 163,941
(3) The shareholders ratified the appointment of Ernst & Young LLP as
independent auditors of the Company for the year ending December
31, 1998.
Votes Cast for 16,020,082
Votes Cast Against 20,259
Votes Withheld/Broker
Non-Votes 51,874
17
<PAGE>
ITEM 5. OTHER INFORMATION
The deadline for shareholder proposals, other than proposals to be
included in the proxy statement, for the 1999 Annual Meeting of
Shareholders will be February 17, 1999, pursuant to Rule 14a-4.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Statement re: Computation of Ratio of Earnings to Fixed
Changes
27 Financial Data Schedule
(b) Reports on Form 8-K
During the three months ended June 30, 1998, the Company filed
the following reports on Form 8-K:
(i) Form 8-K dated April 1, 1998 containing a Terms Agreement with
Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Alex.
Brown Incorporated, Morgan Stanley & Company Incorporated and
Salomon Brothers Inc. (collectively the "Agents") relating to the
issuance and sale by the Company to the Agents of $75,000,000 of
6.918% Mandatory Par Put Remarketed Securities(SM) (the
"MOPPRS").
(ii) Form 8-K dated June 17, 1998 containing the press release
announcing a 3-for-2 stock split and an increase in the Company's
quarterly dividend.
18
<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.
July 31, 1998 /s/ J. Donald Nichols
- ---------------------- -------------------------------
(Date) J. Donald Nichols
Chief Executive Officer
July 31, 1998 /s/ William J. Kerley
- ----------------------------- -------------------------------
(Date) William J. Kerley
Chief Financial Officer
19
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number EXHIBIT
- ------ -------
12 Statement re: Computation of Ratio of Earnings to Fixed Changes
27 Financial Data Schedule
20
<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.
July 31 , 1998
- ----------------------- ____________________________
(Date) J. Donald Nichols
Chief Executive Officer
July 31 , 1998
- ----------------------- ____________________________
(Date) William J. Kerley
Chief Financial Officer
21
<PAGE>
JDN REALTY CORPORATION
Computation of Ratio of Earnings to Fixed Charges
EXHIBIT 12
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES:
Interest Expense (including
amortization of deferred debt cost) $ 4,198 $ 1,596 $ 7,553 $ 3,809
Interest Capitalized 1,417 1,251 2,721 1,909
---------- --------- -------- --------
Total Fixed Charges $ 5,615 $ 2,847 $ 10,274 $ 5,718
========== ========= ======== ========
EARNINGS:
Net income before net gain on real
estate sales and extraordinary items $ 9,968 $ 6,726 $ 19,080 $ 12,229
Fixed Charges 5,615 2,847 10,274 5,718
Capitalized Interest (1,417) (1,251) (2,721) (1,909)
---------- --------- -------- --------
Total Earnings $ 14,166 $ 8,322 $ 26,633 $ 16,038
========== ========= ======== ========
Ratio of Earnings to Fixed Charges 2.52 2.92 2.59 2.80
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 1,652 15,934
<SECURITIES> 0 0
<RECEIVABLES> 5,408 1,272
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 709,920 420,697
<DEPRECIATION> 45,675 32,835
<TOTAL-ASSETS> 811,290 477,744
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 310 232
<OTHER-SE> 437,100 288,980
<TOTAL-LIABILITY-AND-EQUITY> 811,290 477,744
<SALES> 0 0
<TOTAL-REVENUES> 36,255 21,194
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 15,764 8,905
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,826 2,012
<INCOME-PRETAX> 19,165 12,229
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 19,165 12,229
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,165 11,828
<EPS-PRIMARY> 0.64 0.54
<EPS-DILUTED> 0.63 0.53
</TABLE>
